THG 2018 Annual Report

At December 31, 2018 and 2017, the portion of the discontinued accident and health business that was directly assumed had assets of $81.6 million and $76.9 million, respectively, consisting primarily of invested assets, and liabilities of $81.4 million and $83.1 million, respectively, consisting primarily of policy liabilities. At December 31, 2018 and 2017, the assets and liabilities of this business, as well as those of the reinsured portion of the accident and health business are classified as assets and liabilities of discontinued operations in the Consolidated Balance Sheets. The &RPSDQ\¶V IRUPHU OLIH LQVXUDQFH EXVLQHVVHV LQFOXGH LQGHPQLW\ REOLJDWLRQV DQG RWKHU DFWLYLWLHV Discontinued operations for the years ended December 31, 2018, 2017 and 2016 resulted in gains of $0.1 million, losses of $16.8 million and losses of $1.0 million, respectively, net of income tax benefits of $9.3 million and $2.8 million in 2017 and 2016, respectively. The LQFUHDVHG ORVVHV LQ SULPDULO\ UHODWH WR DGGLWLRQDO ORVVHV LQ WKH &RPSDQ\¶V ORQJ -term care pool, which is included in the portion of the discontinued accident and health business that was directly assumed. 3. INVESTMENTS A. FIXED MATURITIES The amortized cost and fair value of available-for-sale fixed maturities were as follows: DECEMBER 31, 2018 (in millions) Gross Gross OTTI Amortized Unrealized Unrealized Unrealized Cost Gains Losses Fair Value Losses Fixed maturities: U.S. Treasury and government agencies $ 414.7 $ 2.4 $ 7.2 $ 409.9 $ ² Foreign government 7.3 0.1 ² 7.4 ² Municipal 879.0 16.6 9.8 885.8 ² Corporate 3,476.6 26.1 92.0 3,410.7 6.6 Residential mortgage-backed 728.4 2.7 14.7 716.4 ² Commercial mortgage-backed 648.4 1.7 9.8 640.3 ² Asset-backed 91.5 0.2 0.7 91.0 ² Fixed maturities, excluding held-for-sale (Chaucer) 6,245.9 49.8 134.2 6,161.5 6.6 Fixed maturities, held-for-sale 24.9 ² 0.4 24.5 ² Total fixed maturities $ 6,270.8 $ 49.8 $ 134.6 $ 6,186.0 $ 6.6 DECEMBER 31, 2017 (in millions) Gross Gross OTTI Amortized Unrealized Unrealized Unrealized Cost Gains Losses Fair Value Losses Fixed maturities: U.S. Treasury and government agencies $ 322.1 $ 3.4 $ 3.2 $ 322.3 $ ² Foreign government 8.2 0.3 ² 8.5 ² Municipal 910.1 29.7 5.8 934.0 ² Corporate 3,134.2 84.1 21.7 3,196.6 6.5 Residential mortgage-backed 632.3 5.8 4.9 633.2 ² Commercial mortgage-backed 590.3 7.2 2.5 595.0 ² Asset-backed 59.9 0.1 0.3 59.7 ² Fixed maturities, excluding held-for-sale (Chaucer) 5,657.1 130.6 38.4 5,749.3 6.5 Fixed maturities, held-for-sale 2,031.7 14.6 15.9 2,030.4 0.4 Total fixed maturities $ 7,688.8 $ 145.2 $ 54.3 $ 7,779.7 $ 6.9 OTTI unrealized losses in the tables above represent OTTI recognized in accumulated other comprehensive income. This amount excludes net unrealized gains on impaired securities relating to changes in the value of such securities subsequent to the impairment measurement date of $7.4 million and $11.0 million as of December 31, 2018 and 2017, respectively. The Company participates in a security lending program for the purpose of enhancing income. Securities on loan to various counterparties had a fair value of $4.8 million and $23.4 million at December 31, 2018 and 2017, respectively, and were fully collateralized by cash. The fair value of the loaned securities is monitored on a daily basis, and the collateral is maintained at a level of at least 102% of the fair value of the loaned securities. Securities lending collateral is recorded by the Company in cash and cash equivalents, with an offsetting liability included in expenses and taxes payable. 91 2018 ANNUAL REPORT | THE HANOVER INSURANCE GROUP