Progressive 2014 Annual Report Download - page 75

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CORPORATE CREDIT DEFAULT SWAPS
We invest in corporate credit default swaps primarily to manage the fixed-income portfolio credit risk. The following table
summarizes our corporate credit default swap activity:
(millions) Date Bought
or Sold
Protection
Notional Value
Net Realized Gains
(Losses)
Years ended
December 31,
Term Effective Maturity 2014 2013 2012 2014 2013 2012
Closed:
5-year NA NA Bought $0 $0 $25 $0 $0 $(1.0)
Total corporate swaps $0 $0 $(1.0)
NA = Not Applicable
B. Investment Results
We report total return to reflect more accurately our management philosophy governing the portfolio and our evaluation of
investment results. The fully taxable equivalent (FTE) total return includes recurring investment income, adjusted to a fully
taxable amount, based on certain securities that receive tax preferential treatment (e.g., municipal securities), net realized
gains (losses) on securities, and changes in unrealized gains (losses) on investments.
Investment income (interest and dividends, before investment and interest expenses) decreased 3% for 2014, compared to
a decrease of 5% for 2013, and a decrease of 8% for 2012. The reductions in all three periods were primarily the result of
decreases in investment yields; partially offset by increases in average assets.
The following summarizes investment results for the years ended December 31:
2014 2013 2012
Pretax recurring investment book yield 2.4% 2.6% 2.9%
Weighted average FTE book yield 2.7% 2.9% 3.2%
FTE total return:
Fixed-income securities 3.2% 1.7% 5.5%
Common stocks 12.6% 32.8% 16.7%
Total portfolio 4.5% 5.4% 6.8%
A further break-down of our FTE total returns for our portfolio, including the net gains (losses) on our derivative positions, for
the years ended December 31, follows:
2014 2013 2012
Fixed-income securities:
U.S. Treasury Notes (0.3)% 1.6% (0.2)%
Municipal bonds 6.0% 2.3% 4.6%
Corporate bonds 3.8% 1.8% 7.3%
Commercial mortgage-backed securities 5.1% 0.1% 7.0%
Collateralized mortgage obligations 2.6% 3.6% 10.8%
Asset-backed securities 2.8% 2.2% 4.9%
Preferred stocks 11.3% 3.7% 23.3%
Common stocks:
Indexed 14.3% 33.8% 17.0%
Actively managed 2.9% 27.1% 13.7%
The decline in FTE total return during 2014 reflects lower equity market returns in 2014, compared to 2013.
App.-A-74