Holding Period Gains and Losses
The following table provides the balance and activity for both the gross and net holding period gains (losses) for the three months ended March 31, 2023:
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(millions) | Gross Holding Period Gains | Gross Holding Period Losses | Net Holding Period Gains (Losses) |
Balance at December 31, 2022 | | | |
Hybrid fixed-maturity securities | $ | 1.3 | | $ | (75.8) | | $ | (74.5) | |
Equity securities1 | 2,026.6 | | (182.2) | | 1,844.4 | |
Total holding period securities | 2,027.9 | | (258.0) | | 1,769.9 | |
Current year change in holding period securities | | | |
Hybrid fixed-maturity securities | 0.6 | | 13.3 | | 13.9 | |
Equity securities1 | 45.2 | | 45.3 | | 90.5 | |
Total changes in holding period securities | 45.8 | | 58.6 | | 104.4 | |
Balance at March 31, 2023 | | | |
Hybrid fixed-maturity securities | 1.9 | | (62.5) | | (60.6) | |
Equity securities1 | 2,071.8 | | (136.9) | | 1,934.9 | |
Total holding period securities | $ | 2,073.7 | | $ | (199.4) | | $ | 1,874.3 | |
1Equity securities include common equities and nonredeemable preferred stocks. Changes in holding period gains (losses), similar to unrealized gains (losses) in our fixed-maturity portfolio, are the result of changes in market performance as well as sales of securities based on various portfolio management decisions.
Fixed-Income Securities
The fixed-income portfolio is managed internally and includes fixed-maturity securities, short-term investments, and nonredeemable preferred stocks. Following are the primary exposures for our fixed-income portfolio.
Interest Rate Risk Our duration of 3.0 years at March 31, 2023, 3.1 years at March 31, 2022, and 2.9 years at December 31, 2022 fell within our acceptable range of 1.5 to 5 years. The duration distribution of our fixed-income portfolio, excluding short-term investments, represented by the interest rate sensitivity of the comparable benchmark U.S. Treasury Notes, was:
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Duration Distribution (excluding short-term securities) | March 31, 2023 | | March 31, 2022 | | December 31, 2022 |
1 year | 19.2 | % | | 16.2 | % | | 17.5 | % |
2 years | 14.0 | | | 18.5 | | | 16.9 | |
3 years | 22.5 | | | 24.9 | | | 21.3 | |
5 years | 26.9 | | | 20.0 | | | 25.1 | |
7 years | 12.8 | | | 14.8 | | | 14.0 | |
10 years | 4.6 | | | 5.6 | | | 5.2 | |
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Total fixed-income portfolio | 100.0 | % | | 100.0 | % | | 100.0 | % |
Credit Risk This exposure is managed by maintaining an A+ minimum average portfolio credit quality rating, as defined by NRSROs. At both March 31, 2023 and December 31, 2022, our credit quality rating was AA and at March 31, 2022 it was AA-. The credit quality distribution of the fixed-income portfolio was:
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Average Rating1 | March 31, 2023 | | March 31, 2022 | | December 31, 2022 |
AAA | 65.2 | % | | 54.2 | % | | 65.5 | % |
AA | 6.1 | | | 8.8 | | | 6.4 | |
A | 7.5 | | | 8.8 | | | 7.6 | |
BBB | 18.7 | | | 22.2 | | | 17.2 | |
Non-investment grade/non-rated | | | | | |
BB | 2.0 | | | 4.7 | | | 2.5 | |
B | 0.3 | | | 1.0 | | | 0.5 | |
CCC and lower | 0.1 | | | 0.1 | | | 0.1 | |
Non-rated | 0.1 | | | 0.2 | | | 0.2 | |
Total fixed-income portfolio | 100.0 | % | | 100.0 | % | | 100.0 | % |
1 The ratings in the table above are assigned by NRSROs.
Concentration Risk We did not have any investments in a single issuer, either overall or in the context of individual asset classes and sectors, that exceeded our thresholds during the first quarter 2023.
Prepayment and Extension Risk We did not experience significant adverse prepayment or extension of principal relative to our cash flow expectations in the portfolio during the first quarter 2023.
Liquidity Risk Our overall portfolio remains very liquid and we believe that it is sufficient to meet expected near-term liquidity requirements. The short-to-intermediate duration of our portfolio provides a source of liquidity, as we expect approximately $4.3 billion, or 19%, of principal repayment from our fixed-income portfolio, excluding U.S. Treasury Notes and short-term investments, during the remainder of 2023. Cash from interest and dividend payments and our short-term portfolio provide additional sources of recurring liquidity.
The duration of our U.S. government obligations, which are included in the fixed-income portfolio, was comprised of the following at March 31, 2023:
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($ in millions) | Fair Value | | Duration (years) |
U.S. Treasury Notes | | | |
Less than one year | $ | 1,961.0 | | | 0.7 | |
One to two years | 4,469.4 | | | 1.5 | |
Two to three years | 4,065.4 | | | 2.5 | |
Three to five years | 10,295.7 | | | 4.1 | |
Five to seven years | 4,495.2 | | | 5.6 | |
Seven to ten years | 2,063.4 | | | 7.8 | |
Total U.S. Treasury Notes | $ | 27,350.1 | | | 3.7 | |
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ASSET-BACKED SECURITIES
Included in the fixed-income portfolio are asset-backed securities, which were comprised of the following at the balance sheet dates listed:
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($ in millions) | Fair Value | | Net Unrealized Gains (Losses) | | % of Asset- Backed Securities | | Duration (years) | | Average Rating (at period end)1 |
March 31, 2023 | | | | | | | | | |
Residential mortgage-backed securities | $ | 630.0 | | | $ | (16.1) | | | 6.3 | % | | 0.4 | | | A |
Commercial mortgage-backed securities | 4,503.0 | | | (749.6) | | | 45.0 | | | 2.5 | | | A |
Other asset-backed securities | 4,865.8 | | | (220.7) | | | 48.7 | | | 1.1 | | | AA |
Total asset-backed securities | $ | 9,998.8 | | | $ | (986.4) | | | 100.0 | % | | 1.7 | | | AA- |
March 31, 2022 | | | | | | | | | |
Residential mortgage-backed securities | $ | 951.1 | | | $ | (4.0) | | | 7.3 | % | | 0.3 | | | A- |
Commercial mortgage-backed securities | 6,918.5 | | | (377.9) | | | 52.7 | | | 2.7 | | | A+ |
Other asset-backed securities | 5,255.9 | | | (102.5) | | | 40.0 | | | 1.2 | | | AA |
Total asset-backed securities | $ | 13,125.5 | | | $ | (484.4) | | | 100.0 | % | | 1.9 | | | AA- |
December 31, 2022 | | | | | | | | | |
Residential mortgage-backed securities | $ | 666.8 | | | $ | (17.2) | | | 6.7 | % | | 0.4 | | | A |
Commercial mortgage-backed securities | 4,663.5 | | | (782.5) | | | 47.1 | | | 2.7 | | | A+ |
Other asset-backed securities | 4,564.6 | | | (259.6) | | | 46.2 | | | 1.1 | | | AA+ |
Total asset-backed securities | $ | 9,894.9 | | | $ | (1,059.3) | | | 100.0 | % | | 1.8 | | | AA- |
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1 The credit quality ratings in the table above are assigned by NRSROs.
Residential Mortgage-Backed Securities (RMBS) The following table details the credit quality rating and fair value of our RMBS, along with the loan classification and a comparison of the fair value at March 31, 2023, to our original investment value (adjusted for returns of principal, amortization, and write-downs):
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Residential Mortgage-Backed Securities (at March 31, 2023) |
($ in millions) Average Rating1 | Non-Agency | | | | Government/GSE2 | | Total | | % of Total |
AAA | $ | 115.8 | | | | | $ | 1.1 | | | $ | 116.9 | | | 18.5 | % |
AA | 25.2 | | | | | 0.4 | | | 25.6 | | | 4.0 | |
A | 370.9 | | | | | 0 | | | 370.9 | | | 58.9 | |
BBB | 108.9 | | | | | 0 | | | 108.9 | | | 17.3 | |
Non-investment grade/non-rated: | | | | | | | | | |
BB | 0.3 | | | | | 0 | | | 0.3 | | | 0.1 | |
B | 0.1 | | | | | 0 | | | 0.1 | | | 0.1 | |
CCC and lower | 1.8 | | | | | 0 | | | 1.8 | | | 0.2 | |
Non-rated | 5.5 | | | | | 0 | | | 5.5 | | | 0.9 | |
Total fair value | $ | 628.5 | | | | | $ | 1.5 | | | $ | 630.0 | | | 100.0 | % |
Increase (decrease) in value | (3.8) | % | | | | (3.6) | % | | (3.8) | % | | |
1 The credit quality ratings are assigned by NRSROs; when we assigned the NAIC ratings for our RMBS, 100% of our non-investment-grade securities were rated investment grade and reported as Group II securities.
2 The securities in this category are insured by a Government Sponsored Entity (GSE) and/or collateralized by mortgage loans insured by the Federal Housing Administration (FHA) or the U.S.Department of Veteran Affairs (VA). .
In the residential mortgage-backed sector, our portfolio consists of deals that are backed by high-credit quality borrowers or have strong structural protections through underlying loan collateralization. During the first quarter 2023, the portfolio decreased as a result of maturities on securities and we did not have any purchase or sales activity.
Commercial Mortgage-Backed Securities (CMBS) The following table details the credit quality rating and fair value of our CMBS, along with a comparison of the fair value at March 31, 2023, to our original investment value (adjusted for returns of principal, amortization, and write-downs):
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Commercial Mortgage-Backed Securities (at March 31, 2023) |
($ in millions) Average Rating1 | Multi-Borrower | | Single-Borrower | | Total | | % of Total |
AAA | $ | 209.9 | | | $ | 1,126.3 | | | $ | 1,336.2 | | | 29.7 | % |
AA | 0 | | | 986.9 | | | 986.9 | | | 21.9 | |
A | 0 | | | 920.5 | | | 920.5 | | | 20.4 | |
BBB | 0 | | | 882.9 | | | 882.9 | | | 19.6 | |
Non-investment grade/non-rated: | | | | | | | |
BB | 0 | | | 376.4 | | | 376.4 | | | 8.3 | |
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CCC and lower | 0.1 | | | 0 | | | 0.1 | | | 0.1 | |
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Total fair value | $ | 210.0 | | | $ | 4,293.0 | | | $ | 4,503.0 | | | 100.0 | % |
Increase (decrease) in value | (5.2) | % | | (14.7) | % | | (14.3) | % | | |
1 The credit quality ratings are assigned by NRSROs; when we assigned the NAIC ratings for our CMBS, 30% of our non-investment-grade securities were rated investment grade and reported as Group II securities, with the remainder classified as Group I.
The CMBS portfolio experienced heightened volatility in the first quarter 2023, as commercial real estate has been a focal point of investor concern. In addition to concerns around employees returning to the office, stress in the regional banking sector could translate into less availability of financing for this asset class. New issuance has remained slow in the single-asset single-borrower (SASB) market and liquidity has continued to be challenged. Given continued uncertainty about the future trajectory of the economy and its impact on real estate, we reduced certain positions, during the quarter, that we believed would be sensitive to potential future economic weakness. As of the end of the first quarter 2023, we had no delinquencies in our CMBS portfolio.
With renewed focus on the commercial real estate sector, the following table shows the composition of our CMBS portfolio by maturity year and sector:
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Commercial Mortgage-Backed Securities Sector Details (at March 31, 2023) | |
($ in millions) Maturity1 | Office | Lab Office | Multi-family | Multi-family IO | Retail | Industrial | Self- Storage | Casino | Defeased | Total | Average Original LTV | Average Current DSCR |
2023 | $ | 103.4 | | $ | 0 | | $ | 0 | | $ | 33.5 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 22.8 | | $ | 159.7 | | 53.7 | % | 3.7 |
2024 | 169.4 | | 24.1 | | 21.7 | | 40.4 | | 36.7 | | 176.0 | | 155.8 | | 0 | | 0 | | 624.1 | | 57.3 | | 2.2 |
2025 | 7.7 | | 41.3 | | 0 | | 36.8 | | 63.2 | | 42.6 | | 0 | | 0 | | 0 | | 191.6 | | 67.0 | | 1.8 |
2026 | 556.4 | | 79.8 | | 328.4 | | 32.8 | | 0 | | 116.2 | | 76.1 | | 106.4 | | 0 | | 1,296.1 | | 62.0 | | 1.8 |
2027 | 432.3 | | 0 | | 51.8 | | 29.6 | | 0 | | 115.4 | | 256.4 | | 0 | | 0 | | 885.5 | | 59.3 | | 1.8 |
2028 | 256.6 | | 0 | | 0 | | 22.5 | | 0 | | 0 | | 0 | | 0 | | 0 | | 279.1 | | 51.9 | | 3.2 |
2029 | 482.6 | | 0 | | 0 | | 10.7 | | 0 | | 0 | | 0 | | 62.3 | | 0 | | 555.6 | | 57.6 | | 3.0 |
2030 | 72.5 | | 54.6 | | 0 | | 3.7 | | 0 | | 0 | | 0 | | 83.3 | | 0 | | 214.1 | | 55.5 | | 3.1 |
2031 | 213.1 | | 84.1 | | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | | 0 | | 297.2 | | 66.5 | | 1.9 |
Total fair value | $ | 2,294.0 | | $ | 283.9 | | $ | 401.9 | | $ | 210.0 | | $ | 99.9 | | $ | 450.2 | | $ | 488.3 | | $ | 252.0 | | $ | 22.8 | | $ | 4,503.0 | | | |
LTV= loan to value | | | | | | | | | |
DSCR= debt service coverage ratio | | | | | | | | | |
1The floating-rate securities were extended to their full maturity and fixed-rate securities are shown to their anticipated repayment date (if applicable) or otherwise, their maturity date.
We show the average loan to value (LTV) of each maturity year when the loans were originated. The LTV ratio that management uses, which is commonly expressed as a percentage, compares the size of the entire mortgage loan to the appraised value of the underlying property collateralizing the loan at issuance. A LTV ratio less than 100% indicates excess collateral value over the loan amount. LTV ratios greater than 100% indicate that the loan amount exceeds the collateral value. We believe this ratio provides a conservative view of our actual risk of loss, as this number displays the entire mortgage LTV, while our ownership is only a portion of the structure of the mortgage loan-backed security. For many of the mortgage loans in our portfolio, our exposure is in a more senior part of the structure, which means that the LTV on our actual exposure is even lower than the ratios presented.
In addition to the LTV ratio, we also examine the credit of our CMBS portfolio by reviewing the debt service coverage ratio (DSCR) of the securities. The DSCR ratio compares the underlying property's annual net operating income to its annual debt service payments. DSCR ratios less than 1.0 times indicate that property operations do not generate enough income over the debt service payments, while a DSCR ratio greater than 1.0 times indicates that there is an excess of operating income over the debt service payments. A number above 1.0 generally indicates that there would not be an incentive for the borrower to default in light of the borrower's excess income. The DSCR calculation reported in the table is calculated based on the most currently available net operating income and mortgage payments for the borrower, which, for most securities, is full year 2022 data.
Other Asset-Backed Securities (OABS) The following table details the credit quality rating and fair value of our OABS, along with a comparison of the fair value at March 31, 2023, to our original investment value (adjusted for returns of principal, amortization, and write-downs):
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Other Asset-Backed Securities (at March 31, 2023) |
($ in millions) Average Rating | Automobile | Collateralized Loan Obligations | Student Loan | Whole Business Securitizations | Equipment | Other | Total | % of Total |
AAA | $ | 1,154.0 | | $ | 1,072.8 | | $ | 39.1 | | $ | 0 | | $ | 533.7 | | $ | 228.9 | | $ | 3,028.5 | | 62.3 | % |
AA | 86.7 | | 576.6 | | 5.1 | | 0 | | 98.2 | | 12.8 | | 779.4 | | 16.0 | |
A | 12.0 | | 0 | | 6.6 | | 0 | | 131.6 | | 138.7 | | 288.9 | | 5.9 | |
BBB | 6.7 | | 0 | | 0 | | 696.6 | | 0 | | 35.2 | | 738.5 | | 15.2 | |
Non-investment grade/non-rated: | | | | | | | | |
BB | 0 | | 0 | | 0 | | 0 | | 0 | | 30.5 | | 30.5 | | 0.6 | |
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Total fair value | $ | 1,259.4 | | $ | 1,649.4 | | $ | 50.8 | | $ | 696.6 | | $ | 763.5 | | $ | 446.1 | | $ | 4,865.8 | | 100.0 | % |
Increase (decrease) in value | (0.9) | % | (4.8) | % | (10.3) | % | (9.6) | % | (1.3) | % | (7.7) | % | (4.4) | % | |
During the first quarter 2023, we selectively added to our automobile, equipment, and whole business securitization as we viewed spreads, and potential returns, across this sector to be attractive. Our automobile and equipment additions were mainly through new issue purchases, primarily focusing on higher credit tranche securities in the capital structure.
MUNICIPAL SECURITIES
The following table details the credit quality rating of our municipal securities at March 31, 2023, without the benefit of credit or bond insurance:
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Municipal Securities (at March 31, 2023) |
(millions) Average Rating | General Obligations | Revenue Bonds | Total |
AAA | $ | 567.7 | | $ | 308.1 | | $ | 875.8 | |
AA | 441.3 | | 705.3 | | 1,146.6 | |
A | 0 | | 37.2 | | 37.2 | |
BBB | 0 | | 1.8 | | 1.8 | |
Non-rated | 0 | | 0.2 | | 0.2 | |
Total | $ | 1,009.0 | | $ | 1,052.6 | | $ | 2,061.6 | |
Included in revenue bonds were $502.3 million of single-family housing revenue bonds issued by state housing finance agencies, of which $311.0 million were supported by individual mortgages held by the state housing finance agencies and $191.3 million were supported by mortgage-backed securities.
Of the programs supported by mortgage-backed securities, 84% were collateralized by Ginnie Mae mortgages, which are fully guaranteed by the U.S. government; the remaining 16% were collateralized by Fannie Mae and Freddie Mac mortgages. 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 the Federal Housing Administration, the U.S. Department of Veterans Affairs, or private mortgage insurance providers.
Credit spreads of both tax-exempt and taxable municipal bonds tightened during the first quarter 2023. Our allocation to this sector declined modestly during the quarter.
CORPORATE DEBT SECURITIES
The following table details the credit quality rating of our corporate debt securities at March 31, 2023:
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Corporate Securities (at March 31, 2023) |
(millions) Average Rating | Consumer | Industrial | Communication | Financial Services | | Technology | Basic Materials | Energy | Total |
AAA | $ | 0 | | $ | 0 | | $ | 0 | | $ | 50.8 | | | $ | 0 | | $ | 0 | | $ | 0 | | $ | 50.8 | |
AA | 64.1 | | 0 | | 0 | | 443.0 | | | 0 | | 0 | | 62.0 | | 569.1 | |
A | 392.5 | | 232.4 | | 121.3 | | 1,114.3 | | | 68.5 | | 115.1 | | 348.7 | | 2,392.8 | |
BBB | 2,615.0 | | 1,337.1 | | 310.8 | | 1,027.9 | | | 559.7 | | 12.7 | | 1,079.4 | | 6,942.6 | |
Non-investment grade/non-rated: | | | | | | | | | |
BB | 175.0 | | 124.1 | | 105.7 | | 82.2 | | | 24.1 | | 0 | | 37.4 | | 548.5 | |
B | 147.5 | | 0 | | 0 | | 0 | | | 0 | | 25.1 | | 0 | | 172.6 | |
CCC and lower | 4.9 | | 0 | | 0 | | 0 | | | 0 | | 0 | | 0 | | 4.9 | |
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Total fair value | $ | 3,399.0 | | $ | 1,693.6 | | $ | 537.8 | | $ | 2,718.2 | | | $ | 652.3 | | $ | 152.9 | | $ | 1,527.5 | | $ | 10,681.3 | |
The size of our corporate debt portfolio increased to $10.7 billion at March 31, 2023 from $9.4 billion at December 31, 2022 as we increased our allocation to the investment-grade corporate sector. At the same time, we continued to reduce our exposure to high-yield securities given a less certain macro environment and less attractive risk/reward profile of these securities. At March 31, 2023, our corporate debt securities made up approximately 20% of the fixed-income portfolio, compared to approximately 19% at December 31, 2022.
We slightly lengthened the maturity profile of the corporate debt portfolio during the first quarter 2023. The duration of the corporate portfolio was 3.0 years at March 31, 2023, compared to 2.8 years at December 31, 2022, as our purchases focused on securities with somewhat longer maturities which provided attractive risk reward profiles.
PREFERRED STOCKS – REDEEMABLE AND NONREDEEMABLE
The table below shows the exposure break-down by sector and rating at March 31, 2023:
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Preferred Stocks (at March 31, 2023) |
| Financial Services | | | |
(millions) Average Rating | U.S. Banks | Foreign Banks | Insurance | Other Financial | Industrials | Utilities | Total |
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BBB | $ | 734.1 | | $ | 30.4 | | $ | 87.5 | | $ | 27.6 | | $ | 132.8 | | $ | 41.9 | | $ | 1,054.3 | |
Non-investment grade/non-rated: | | | | | | | |
BB | 64.9 | | 20.0 | | 0 | | 0 | | 0 | | 37.4 | | 122.3 | |
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Non-rated | 0 | | 0 | | 43.8 | | 23.6 | | 16.4 | | 0 | | 83.8 | |
Total fair value | $ | 799.0 | | $ | 50.4 | | $ | 131.3 | | $ | 51.2 | | $ | 149.2 | | $ | 79.3 | | $ | 1,260.4 | |
The majority of our preferred securities have fixed-rate dividends until a call date and then, if not called, generally convert to floating-rate dividends. The interest rate duration of our preferred securities is calculated to reflect the call, floor, and floating-rate features. Although a preferred security will remain outstanding if not called, its interest rate duration will reflect the variable nature of the dividend. Our non-investment-grade preferred stocks were all with issuers that maintain investment-grade senior debt ratings.
We also face the risk that dividend payments on our preferred stock holdings could be deferred for one or more periods or skipped entirely. During the quarter, we had exposure to one institution that was put into receivership by the Federal Deposit Insurance Corporation in March 2023. The effect of this action, along with broader weakness in securities issued by financial institutions, drove the majority of the decline in the portfolio’s value from $1.4 billion at December 31, 2022 to $1.3 billion at March 31, 2023. Additionally, we had an industrial position that was called during the quarter. Approximately 82% of our preferred stock securities pay dividends that have tax preferential characteristics, while the balance pay dividends that are fully taxable.
Common Equities
Common equities, as reported on the balance sheets, were comprised of the following:
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($ in millions) | March 31, 2023 | | March 31, 2022 | | December 31, 2022 |
Common stocks | $ | 2,774.0 | | | 99.3 | % | | $ | 4,792.5 | | | 99.6 | % | | $ | 2,801.7 | | | 99.3 | % |
Other risk investments1 | 20.3 | | | 0.7 | | | 20.1 | | | 0.4 | | | 19.8 | | | 0.7 | |
Total common equities | $ | 2,794.3 | | | 100.0 | % | | $ | 4,812.6 | | | 100.0 | % | | $ | 2,821.5 | | | 100.0 | % |
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1The other risk investments consist of limited partnership interests.
The majority of our common stock portfolio consists of individual holdings selected based on their contribution to the correlation with the Russell 1000 Index. We held 787 out of 1,007, or 78%, of the common stocks comprising the index at March 31, 2023, which made up 95% of the total market capitalization of the index. At March 31, 2023 and 2022, and December 31, 2022, the year-to-date total return, based on GAAP income, was within our targeted tracking error, which is +/- 50 basis points.
During 2022, we sold common equity securities, which were in a realized gain position, as part of our plan to incrementally reduce risk in the portfolio in response to the potential of a more difficult economic environment over the near term.
Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995: Investors are cautioned that certain statements in this report not based upon historical fact are forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These statements often use words such as “estimate,” “expect,” “intend,” “plan,” “believe,” “goal,” “target,” “anticipate,” “will,” “could,” “likely,” “may,” “should,” and other words and terms of similar meaning, or are tied to future periods, in connection with a discussion of future operating or financial performance. Forward-looking statements are not guarantees of future performance, are based on current expectations and projections about future events, and are subject to certain risks, assumptions and uncertainties that could cause actual events and results to differ materially from those discussed herein. These risks and uncertainties include, without limitation, uncertainties related to:
•our ability to underwrite and price risks accurately and to charge adequate rates to policyholders;
•our ability to establish accurate loss reserves;
•the impact of severe weather, other catastrophe events and climate change;
•the effectiveness of our reinsurance programs and the continued availability of reinsurance and performance by reinsurers;
•the secure and uninterrupted operation of the systems, facilities and business functions and the operation of various third-party systems that are critical to our business;
•the impacts of a security breach or other attack involving our technology systems or the systems of one or more of our vendors;
•our ability to maintain a recognized and trusted brand and reputation;
•whether we innovate effectively and respond to our competitors’ initiatives;
•whether we effectively manage complexity as we develop and deliver products and customer experiences;
•our ability to attract, develop and retain talent and maintain appropriate staffing levels;
•the impact of misconduct or fraudulent acts by employees, agents, and third parties to our business and/or exposure to regulatory assessments;
•the highly competitive nature of property-casualty insurance markets;
•whether we adjust claims accurately;
•compliance with complex and changing laws and regulations;
•litigation challenging our business practices, and those of our competitors and other companies;
•the success of our business strategy and efforts to acquire or develop new products or enter into new areas of business and navigate related risks;
•how intellectual property rights affect our competitiveness and our business operations;
•the performance of our fixed-income and equity investment portfolios;
•the impact on our investment returns and strategies from regulations and societal pressures relating to environmental, social, governance and other public policy matters;
•the elimination of the London Interbank Offered Rate;
•our continued ability to access our cash accounts and/or convert investments into cash on favorable terms;
•the impact if one or more parties with which we enter into significant contracts or transact business fail to perform;
•legal restrictions on our insurance subsidiaries’ ability to pay dividends to The Progressive Corporation;
•limitations on our ability to pay dividends on our common shares under the terms of our outstanding preferred shares;
•our ability to obtain capital when necessary to support our business and potential growth;
•evaluations by credit rating and other rating agencies;
•the variable nature of our common share dividend policy;
•whether our investments in certain tax-advantaged projects generate the anticipated returns;
•the impact from not managing to short-term earnings expectations in light of our goal to maximize the long-term value of the enterprise;
•the impacts of epidemics, pandemics or other widespread health risks; and
•other matters described from time to time in our releases and publications, and in our periodic reports and other documents filed with the United States Securities and Exchange Commission, including, without limitation, the Risk Factors section of our Annual Report on Form 10-K for the year ending December 31, 2022.
Any forward-looking statements are made only as of the date presented. Except as required by applicable law, we undertake no obligation to update any forward-looking statements, whether as a result of new information, future events or developments or otherwise.
In addition, investors should be aware that accounting principles generally accepted in the United States prescribe when a company may reserve for particular risks, including litigation exposures. Accordingly, results for a given reporting period could be significantly affected if and when we establish reserves for one or more contingencies. Also, our regular reserve reviews may result in adjustments of varying magnitude as additional information regarding claims activity becomes known. Reported results, therefore, may be volatile in certain accounting periods.