Derivative Financial Instruments

9 Months Ended

Sep. 30, 2021

Derivative Instruments and Hedging Activities Disclosure [Abstract]

The Company and its Affiliates may use derivative financial instruments to offset exposure to changes in interest rates, foreign currency exchange rates, and markets.

In the first quarter of 2020, the Company terminated its pound sterling-denominated forward foreign currency contracts and its corresponding collar contracts, which were designated as net investment hedges, and upon settlement, the Company received net proceeds of $24.9 million. The net proceeds from the termination of the contracts are presented within sale of investment securities in the Consolidated Statements of Cash Flows.

The Company has an interest rate swap contract (the “interest rate swap”) with a large financial institution (the “swap counterparty”), which will expire in March 2023. The interest rate swap, which is designated as a cash flow hedge, is used to exchange a portion of the Company’s LIBOR-based interest payments for fixed-rate interest payments. Under the contract, the Company receives payments based on one month LIBOR and makes payments based on an annual fixed-rate of 0.5135% on a notional amount of $250.0 million. The terms of the contract also require the Company and the swap counterparty to post cash collateral in certain circumstances throughout the duration of the contract. As of September 30, 2021, the Company held no cash collateral from the swap counterparty, and the swap counterparty held $1.1 million of cash collateral from the Company.

Certain of the Company’s Affiliates use forward foreign currency contracts to hedge the risk of foreign exchange rate movements, which are designated as cash flow hedges.

The Company assesses hedge effectiveness on a quarterly basis. For derivative financial instruments designated as cash flow hedges, the Company uses a qualitative method of assessing hedge effectiveness by comparing the notional amounts, timing of payments, currencies (for the forward foreign currency contracts), and interest rates (for the interest rate swap). Upon termination of these instruments or the repayment of the Company’s outstanding LIBOR-based borrowings, any gain or loss recorded in Accumulated other comprehensive loss in the Consolidated Balance Sheets will be reclassified into earnings. Changes in the fair values of cash flow hedges are reported in Change in net realized and unrealized gain (loss) on derivative financial instruments in the Consolidated Statements of Comprehensive Income. Changes in the fair values of the effective net investment hedges are reported in Foreign currency translation gain (loss) in the Consolidated Statements of Comprehensive Income. Upon the sale or liquidation of the underlying investment, any gain or loss remaining in Accumulated other comprehensive loss will be reclassified to earnings.

The following table summarizes the Company’s and its Affiliates’ derivative financial instruments measured at fair value on a recurring basis:


	December 31, 2020				September 30, 2021
	Assets		Liabilities		Assets		Liabilities
Forward foreign currency contracts	$	3.5	$	(2.3)	$	1.0	$	(1.4)


Interest rate swap	—		(1.9)		—			(1.1)
Total	$	3.5	$	(4.2)	$	1.0	$	(2.5)

The Company and certain of its consolidated Affiliates have entered into contracts that do not include set-off rights and are therefore presented on a gross basis in Other assets and Other liabilities; they were $3.5 million and $4.2 million, respectively, as of December 31, 2020, and $1.0 million and $2.5 million, respectively, as of September 30, 2021.

The following table summarizes the effects of derivative financial instruments on the Consolidated Statements of Comprehensive Income and the Consolidated Statements of Income:


	For the Three Months Ended September 30,
	2020						2021
	Gain (Loss) Recognized in Other Comprehensive Income		Gain Reclassified from Accumulated Other Comprehensive Loss into Earnings		Gain (Loss) Recognized in Earnings from Excluded Components(1)		Gain (Loss) Recognized in Other Comprehensive Income		Gain Reclassified from Accumulated Other Comprehensive Loss into Earnings		Gain (Loss) Recognized in Earnings from Excluded Components(1)
Forward foreign currency contracts	$	0.4	$	0.1	$	—	$	(2.0)	$	0.4	$	—


Interest rate swap	(0.1)			—	—		0.1			—	—
Total	$	0.3	$	0.1	$	—	$	(1.9)	$	0.4	$	—


	For the Nine Months Ended September 30,
	2020						2021
	Gain (Loss) Recognized in Other Comprehensive Loss		Gain Reclassified from Accumulated Other Comprehensive Loss into Earnings		Gain Recognized in Earnings from Excluded Components(1)		Gain (Loss) Recognized in Other Comprehensive Income		Gain Reclassified from Accumulated Other Comprehensive Loss into Earnings		Gain (Loss) Recognized in Earnings from Excluded Components(1)
Forward foreign currency contracts	$	64.9	$	0.4	$	2.8	$	(1.6)	$	1.4	$	—
Put options	(47.7)		—		—		—			—	—
Call options	(1.3)		—		—		—			—	—
Interest rate swap	(2.1)		—		—		0.7			—	—
Total	$	13.8	$	0.4	$	2.8	$	(0.9)	$	1.4	$	—

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(1)The excluded components of the forward foreign currency contracts were recognized in earnings on a straight-line basis over the respective period of the contracts as a reduction to Interest expense.