DERIVATIVES

6 Months Ended

Jun. 30, 2025

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Our freestanding and embedded derivatives, which are not designated as hedging instruments, are held at fair value and are summarized as follows (dollars in millions):


	June 30, 2025		December 31, 2024
Assets:
Other invested assets:
Fixed indexed call options	$	210.4	$	279.0

Reinsurance receivables	(15.8)		(17.1)
Total assets	$	194.6	$	261.9
Liabilities:
Embedded derivatives related to fixed indexed annuities at fair value:
Policyholder account balances	$	1,502.4	$	1,471.6

Our fixed indexed annuity products provide a guaranteed minimum rate of return and a higher potential return that is based on a percentage (the "participation rate") of the amount of increase in the value of a particular index, such as the Standard & Poor's 500 Index, over a specified period. We are generally able to change the participation rate at the beginning of each index period (typically on each policy anniversary date), subject to contractual minimums. The Company accounts for the options attributed to the policyholder for the estimated life of the contract as embedded derivatives. We are required to record the embedded derivatives related to our fixed indexed annuity products at estimated fair value. These accounting requirements often create volatility in the earnings from these products. We typically buy call options (including call spreads) referenced to the applicable indices in an effort to offset or hedge potential increases to policyholder benefits resulting from increases in the particular index to which the policy's return is linked. The notional amount of these options was $4.3 billion and $4.2 billion at June 30, 2025 and December 31, 2024, respectively.

We are required to establish an embedded derivative related to a modified coinsurance agreement pursuant to which we assume the risks of a block of health insurance business. The embedded derivative represents the mark-to-market adjustment for $73.8 million in underlying investments held by the ceding reinsurer at June 30, 2025.

We purchase certain fixed maturity securities that contain embedded derivatives that are required to be held at fair value on the consolidated balance sheet. In these instances, we generally elect the fair value option to carry these securities at fair value with changes in fair value recognized in net income.

The following table provides the pre-tax impact recognized in net income for derivative instruments, which are not designated as hedges for the periods indicated (dollars in millions):


	Three months ended				Six months ended
	June 30,				June 30,
	2025		2024		2025		2024
Net investment income (loss) from policyholder and other special-purpose portfolios:
Fixed indexed call options	$	81.0	$	38.9	$	10.4	$	179.1
Total investment gains (losses):
Embedded derivative related to modified coinsurance agreement	0.1		(0.1)		1.3		0.2
Total revenues from derivative instruments, not designated as hedges	81.1		38.8		11.7		179.3
Insurance policy benefits:
Embedded derivatives related to fixed indexed annuities	59.7		10.3		46.8		78.2
Net pre-tax impact	$	21.4	$	28.5	$	(35.1)	$	101.1

Derivative Counterparty Risk

If the counterparties to the call options fail to meet their obligations, we may recognize a loss. We limit our exposure to such a loss by diversifying among several counterparties believed to be strong and creditworthy. At June 30, 2025, all of our counterparties were rated "A" or higher by S&P Global Ratings ("S&P").

The Company and its subsidiaries are parties to master netting arrangements with its counterparties related to entering into various derivative contracts.

The following table summarizes information related to derivatives with master netting arrangements or collateral as of June 30, 2025 and December 31, 2024 (dollars in millions):


								Gross amounts not offset in the balance sheet
		Gross amounts recognized		Gross amounts offset in the balance sheet		Net amounts of assets presented in the balance sheet		Non-cash collateral		Cash collateral received		Net amount
June 30, 2025:
	Fixed indexed call options	$	210.4	$	—	$	210.4	$	36.1	$	—	$	174.3
December 31, 2024:
	Fixed indexed call options	279.0		—		279.0		78.0		—		201.0