THG 2018 Annual Report

collateral performance including delinquency, default and casualty trends; economic conditions influencing use rates and resale values; and contract structural support features. Generally, all prices provided by the pricing service, except actively traded securities with quoted market prices, are reported as Level 2. The Company holds privately placed fixed maturity securities and certain other fixed maturity securities that do not have an active market and for which the pricing service cannot provide fair values. The Company determines fair values for these securities using either matrix pricing utilizing the market approach or broker quotes. The Company will use observable market data as inputs into the fair value techniques, as discussed in the determination of Level 2 fair values, to the extent it is available, but is also required to use a certain amount of unobservable judgment due to the illiquid nature of the securities involved. Unobservable judgment reflected in the &RPSDQ\¶V PDWUL[ PRGHO DFFRXQWV IRU HVWLPDWHV RI DGGLWLRQDO VSUHDG UHTXLUHG E\ PDUNHW SDUWLFLSDQ ts for factors such as issue size, structural complexity, high bond coupon or other unique features. These matrix-priced securities are reported as Level 2 or Level 3, GHSHQGLQJ RQ WKH VLJQLILFDQFH RI WKH LPSDFW RI XQREVHUYDEOH MXGJPHQW RQ WKH VHFXULW\¶V Y alue. Additionally, the Company may obtain non-binding broker quotes which are reported as Level 3. EQUITY SECURITIES Level 1 consists of publicly traded securities, including exchange traded funds, valued at quoted market prices. Level 2 includes securities that are valued using pricing for similar securities and pricing models that incorporate observable inputs. Level 3 consists of common or preferred stock of private companies for which observable inputs are not available. The Company utilizes a third-party pricing service for the valuation of the majority of its equity securities and receives one quote for each equity security. When quoted market prices in an active market are available, they are provided by the pricing service as the fair value and such values are classified as Level 1. The Company holds certain equity securities that have been issued by privately held entities that do not have an active market and for which the pricing service cannot provide fair values. Generally, the Company estimates IDLU YDOXH IRU WKHVH VHFXULWLHV EDVHG RQ WKH LVVXHU¶V ERRN YDOXH DQG PDUNHW PXOWLSOHV DQG UHSRUWV WKHP DV /HYHO $GGLWLRQDO ly, the Company may obtain non-binding broker quotes which are reported as Level 3. OTHER INVESTMENTS Other investments primarily include mortgage participations and limited partnerships not subject to the equity method of accounting. The fair values of limited partnerships not subject to the equity method of accounting are based on the net asset value provided by the general partner adjusted for recent financial information and are excluded from the fair value hierarchy. The estimated fair value of the financial instruments were as follows: December 31, 2018 December 31, 2017 Carrying Fair Carrying Fair (in millions) Value Value Value Value Financial Assets carried at (1) : Fair Value through AOCI: Fixed maturities $ 6,161.5 $ 6,161.5 $ 5,749.3 $ 5,749.3 Equity securities ² ² 576.2 576.2 Other investments ² ² 3.6 3.6 Fair Value through Net Income: Equity securities 464.4 464.4 ² ² Other investments 175.0 175.0 ² ² Amortized Cost/Cost: Other investments 414.4 418.9 512.8 518.3 Cash and cash equivalents 1,020.7 1,020.7 297.9 297.9 Total financial instruments, excluding held-for-sale 8,236.0 8,240.5 7,139.8 7,145.3 Financial instruments, held-for-sale (Chaucer) 27.8 27.8 2,232.0 2,232.0 Total financial instruments $ 8,263.8 $ 8,268.3 $ 9,371.8 $ 9,377.3 Financial Liabilities carried at: Amortized Cost: Debt $ 777.9 $ 825.0 $ 786.9 $ 865.7 (1) Due to the adoption of ASU No. 2016-01, certain classifications are not comparable to the prior year. See Note 1 ± ³1HZ $FFRXQWLQJ 3URQRXQFHPHQWV´ 98 THE HANOVER INSURANCE GROUP | 2018 ANNUAL REPORT