Progressive 2015 Annual Report Download - page 78

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Commercial Mortgage-Backed Securities (CMBS) The following table details the credit quality rating and fair value of our
CMBS bond and interest only (IO) portfolios:
Commercial Mortgage-Backed Securities (at December 31, 2015)1
($ in millions)
Category AAA AA A BBB
Non-Investment
Grade Total
%of
Total
Multi-borrower $ 372.5 $ 24.0 $ 21.8 $ 10.9 $ 9.9 $ 439.1 16.5%
Single-borrower 567.9 420.4 404.2 627.1 18.0 2,037.6 76.8
Total CMBS bonds 940.4 444.4 426.0 638.0 27.9 2,476.7 93.3
IO 174.0 0 0 0 2.5 176.5 6.7
Total fair value $1,114.4 $444.4 $426.0 $638.0 $30.4 $2,653.2 100.0%
% of Total fair value 42.0% 16.8% 16.1% 24.0% 1.1% 100.0%
1The credit quality ratings in the table above are assigned by NRSROs; when we assign the NAIC ratings, all of our CMBS bonds are rated
investment grade and classified as Group II.
We continue to focus on single-borrower CMBS because we believe these transactions provide an opportunity to select
investments based on real estate and underwriting criteria that fit our preferred credit risk and duration profile. Our multi-
borrower, fixed-rate CMBS portfolio is concentrated in vintages with conservative underwriting. During the year, we added
$381.5 million to the CMBS bond portfolio through the addition of the ARX investments and security purchases. The
purchases during the year increased our allocation of single borrower CMBS from 67.5% to 76.8%, while reducing our
allocation to multi-borrower CMBS from 24.9% to 16.5%. Duration increased from 3.2 to 3.4 years during the year. The
average credit quality was A+ at December 31, 2015, compared to AA- at December 31, 2014, reflecting security purchases
made in the AA to BBB- range and an overall reduction of AAA securities.
With the exception of $170.4 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, 2015 and 2014, were $2,721.4 million and $2,139.2 million,
respectively, of state and local government obligations. These securities had a duration of 3.2 years and an overall credit
quality rating of AA (excluding the benefit of credit support from bond insurance) at December 31, 2015, compared to 3.0
years and AA at December 31, 2014. These securities had net unrealized gains of $43.8 million and $43.5 million at
December 31, 2015 and 2014, respectively.
The following table details the credit quality rating of our municipal securities at December 31, 2015, without the benefit of
credit or bond insurance:
Municipal Securities (at December 31, 2015)
(millions)
Rating
General
Obligations
Revenue
Bonds Total
AAA $347.9 $ 500.2 $ 848.1
AA 427.2 903.4 1,330.6
A 3.4 514.2 517.6
BBB 5.8 19.3 25.1
Non-investment grade/non-rated 000
Total $784.3 $1,937.1 $2,721.4
Included in revenue bonds were $776.2 million of single family housing revenue bonds issued by state housing finance
agencies, of which $507.8 million were supported by individual mortgages held by the state housing finance agencies and
$268.4 million were supported by mortgage-backed securities. Of the programs supported by mortgage-backed securities,
approximately 25% were collateralized by Fannie Mae and Freddie Mac mortgages; the remaining 75% were collateralized
by Ginnie Mae loans, which are fully guaranteed by the U.S. government. Of the programs supported by individual
mortgages held by the state housing finance agencies, the overall credit quality rating was AA+. Most of these mortgages
were supported by FHA, VA, or private mortgage insurance providers.
App.-A-77