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Investments | 9 Months Ended
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Sep. 30, 2022
Investments, Debt and Equity Securities [Abstract] |
Investments | Net Investment Income The components of net investment income for the following periods were as follows:
($ in millions) |  | Three Months Ended September 30, |  | Nine Months Ended September 30,
|  | 2022 |  | 2021 |  | 2022 |  | 2021
Fixed maturity securities |  | $ | 63.9 |  |  | $ | 59.8 |  |  | $ | 184.5 |  |  | $ | 177.2 |
Equity securities |  | 1.8 |  |  | 1.4 |  |  | 7.1 |  |  | 3.8 |
Limited partnership interests |  | 5.1 |  |  | 16.8 |  |  | 31.3 |  |  | 51.1 |
Short-term and other investments |  | 2.8 |  |  | 2.8 |  |  | 8.2 |  |  | 8.5 |
Investment expenses |  | (2.7) |  |  | (2.7) |  |  | (7.8) |  |  | (7.3) |
Net investment income - investment portfolio |  | 70.9 |  |  | 78.1 |  |  | 223.3 |  |  | 233.3 |
Investment income - deposit asset on reinsurance |  | 26.7 |  |  | 25.6 |  |  | 77.4 |  |  | 75.1 |
Total net investment income |  | $ | 97.6 |  |  | $ | 103.7 |  |  | $ | 300.7 |  |  | $ | 308.4 |
Net Investment Losses Net investment losses for the following periods were as follows:
($ in millions) |  | Three Months Ended September 30, |  | Nine Months Ended September 30,
|  | 2022 |  | 2021 |  | 2022 |  | 2021
Fixed maturity securities |  | $ | (10.7) |  |  | $ | (4.0) |  |  | $ | (15.9) |  |  | $ | (7.9) |
Equity securities |  | (4.4) |  |  | (1.0) |  |  | (32.5) |  |  | 0.7 |
Short-term investments and other |  | 2.3 |  |  | (1.5) |  |  | 4.6 |  |  | (3.4) |
Net investment losses |  | $ | (12.8) |  |  | $ | (6.5) |  |  | $ | (43.8) |  |  | $ | (10.6) |
The Company, from time to time, sells fixed maturity securities subsequent to the reporting date that were considered temporarily impaired at such reporting date. Such sales are due to issuer-specific events occurring subsequent to the reporting date that result in a change in the Company's intent to sell a fixed maturity security. The types of events that may result in a sale include significant changes in the economic facts and circumstances related to the invested asset, significant unforeseen changes in liquidity needs, or changes in the Company's investment strategy. Net Investment Losses by Transaction Type The following table reconciles net investment losses by transaction type:
($ in millions) |  | Three Months Ended September 30, |  | Nine Months Ended September 30,
|  | 2022 |  | 2021 |  | 2022 |  | 2021
Credit loss impairments |  | $ | (0.6) |  |  | $ | (6.6) |  |  | $ | (2.8) |  |  | $ | (7.7) |
Intent-to-sell impairments |  | (6.2) |  |  | — |  |  | (7.6) |  |  | (2.1) |
Total impairments |  | (6.8) |  |  | (6.6) |  |  | (10.4) |  |  | (9.8) |
Sales and other, net |  | (3.9) |  |  | 2.7 |  |  | (3.9) |  |  | 2.2 |
Change in fair value - equity securities |  | (4.4) |  |  | (1.1) |  |  | (34.1) |  |  | 0.4 |
Change in fair value and gains (losses) realized on settlements - derivatives |  | 2.3 |  |  | (1.5) |  |  | 4.6 |  |  | (3.4) |
Net investment losses |  | $ | (12.8) |  |  | $ | (6.5) |  |  | $ | (43.8) |  |  | $ | (10.6) |
Allowance for Credit Loss Impairments on Fixed Maturity Securities The following table presents changes in the allowance for credit loss impairments on fixed maturity securities classified as available for sale for the category of other asset-backed securities (no other categories of fixed maturity securities have an allowance for credit loss impairments):
($ in millions) |  | Three Months Ended September 30, |  | Nine Months Ended September 30,
|  | 2022 |  | 2021 |  | 2022 |  | 2021
Beginning balance |  | $ | 9.5 |  |  | $ | 1.1 |  |  | $ | 7.7 |  |  | $ | — |
Credit losses on fixed maturity securities for which credit losses were not previously reported |  | — |  |  | 6.6 |  |  | — |  |  | 7.7 |
Net increase related to credit losses previously reported |  | 0.6 |  |  | — |  |  | 2.8 |  |  | — |
Reduction of credit allowances related to sales |  | — |  |  | — |  |  | — |  |  | — |
Write-offs |  | — |  |  | — |  |  | (0.4) |  |  | — |
Ending balance |  | $ | 10.1 |  |  | $ | 7.7 |  |  | $ | 10.1 |  |  | $ | 7.7 |
Fixed Maturity Securities The Company's investment portfolio is comprised primarily of fixed maturity securities. Amortized cost, net, gross unrealized investment gains (losses) and fair values of all fixed maturity securities in the portfolio were as follows:
($ in millions) |  | Amortized Cost, net |  | Gross Unrealized Gains |  | Gross Unrealized Losses |  | Fair Value
September 30, 2022 |  |  |  |  |  |  |  |
Fixed maturity securities |  |  |  |  |  |  |  |
U.S. Government and federally sponsored agency obligations:(1) |  |  |  |  |  |  |  |
Mortgage-backed securities |  | $ | 643.7 |  |  | $ | 1.5 |  |  | $ | 66.1 |  |  | $ | 579.1 |
Other, including U.S. Treasury securities |  | 408.3 |  |  | 0.4 |  |  | 66.0 |  |  | 342.7 |
Municipal bonds |  | 1,440.9 |  |  | 14.5 |  |  | 147.5 |  |  | 1,307.9 |
Foreign government bonds |  | 37.2 |  |  | — |  |  | 1.7 |  |  | 35.5 |
Corporate bonds |  | 2,228.8 |  |  | 10.0 |  |  | 311.0 |  |  | 1,927.8 |
Other asset-backed securities |  | 1,145.2 |  |  | 2.9 |  |  | 69.0 |  |  | 1,079.1 |
Totals |  | $ | 5,904.1 |  |  | $ | 29.3 |  |  | $ | 661.3 |  |  | $ | 5,272.1 |
December 31, 2021 |  |  |  |  |  |  |  |
Fixed maturity securities |  |  |  |  |  |  |  |
U.S. Government and federally sponsored agency obligations:(1) |  |  |  |  |  |  |  |
Mortgage-backed securities |  | $ | 612.1 |  |  | $ | 51.9 |  |  | $ | 1.5 |  |  | $ | 662.5 |
Other, including U.S. Treasury securities |  | 342.5 |  |  | 27.7 |  |  | 4.3 |  |  | 365.9 |
Municipal bonds |  | 1,519.7 |  |  | 184.4 |  |  | 0.7 |  |  | 1,703.4 |
Foreign government bonds |  | 40.2 |  |  | 3.4 |  |  | — |  |  | 43.6 |
Corporate bonds |  | 2,217.7 |  |  | 176.2 |  |  | 5.2 |  |  | 2,388.7 |
Other asset-backed securities |  | 1,065.5 |  |  | 16.6 |  |  | 6.9 |  |  | 1,075.2 |
Totals |  | $ | 5,797.7 |  |  | $ | 460.2 |  |  | $ | 18.6 |  |  | $ | 6,239.3 |
(1) Fair value includes securities issued by Federal National Mortgage Association (FNMA) of $337.5 million and $376.7 million; Federal Home Loan Mortgage Corporation (FHLMC) of $271.1 million and $326.5 million; and Government National Mortgage Association (GNMA) of $90.2 million and $112.1 million as of September 30, 2022 and December 31, 2021, respectively. The following table presents the fair value and gross unrealized losses for fixed maturity securities in an unrealized loss position at September 30, 2022 and December 31, 2021, respectively. The Company views the decrease in fair value of all of the fixed maturity securities with unrealized losses at September 30, 2022 — which was driven largely by increasing interest rates, spread widening, financial market illiquidity and/or market volatility from the date of acquisition — as temporary. As of September 30, 2022, the Company has not made the decision to sell and it is not more likely than not the Company will be required to sell the fixed maturity securities with unrealized losses before an anticipated recovery in value. There has been a significant increase in interest rates since December 31, 2021, driven mostly by increases in U.S. Treasury rates, though credit spreads also widened. The 10-year U.S. Treasury yield increased 232 basis points for the nine months ended September 30, 2022, rising from 1.51% at December 31, 2021 to 3.83% at September 30, 2022. Additionally, credit spreads widened during the same time period, with investment grade and high yield wider by 69 and 233 basis points, respectively. These upward movements in rates caused market yields in the Company's portfolios to rise sharply, with downward pressure on prices. Investment grade and high yield total returns for the nine months ended September 30, 2022 were down 18.3% and 14.6%, respectively. The Bloomberg Barclays Index Yield-to-Worst for Investment Grade rose 3.4% for the nine months ended September 30, 2022, ending at 5.7%, while the High Yield Index increased by 5.5% to 9.7%. The Company's portfolios generated sizable unrealized losses as a result of sharp increases in interest rates. Therefore, it was determined that the unrealized losses on the fixed maturity securities presented in the table below were not indicative of any impairments as of September 30, 2022.
($ in millions) |  | 12 Months or Less |  | More than 12 Months |  | Total
|  | Fair Value |  | Gross Unrealized Losses |  | Fair Value |  | Gross Unrealized Losses |  | Fair Value |  | Gross Unrealized Losses
September 30, 2022 |  |  |  |  |  |  |  |  |  |  |  |
Fixed maturity securities |  |  |  |  |  |  |  |  |  |  |  |
U.S. Government and federally sponsored agency obligations: |  |  |  |  |  |  |  |  |  |  |  |
Mortgage-backed securities |  | $ | 472.2 |  |  | $ | 51.5 |  |  | $ | 51.3 |  |  | $ | 14.6 |  |  | $ | 523.5 |  |  | $ | 66.1 |
Other |  | 266.6 |  |  | 36.6 |  |  | 58.0 |  |  | 29.4 |  |  | 324.6 |  |  | 66.0 |
Municipal bonds |  | 1,035.5 |  |  | 143.5 |  |  | 9.7 |  |  | 4.0 |  |  | 1,045.2 |  |  | 147.5 |
Foreign government bonds |  | 35.4 |  |  | 1.7 |  |  | — |  |  | — |  |  | 35.4 |  |  | 1.7 |
Corporate bonds |  | 1,496.6 |  |  | 280.0 |  |  | 80.3 |  |  | 31.0 |  |  | 1,576.9 |  |  | 311.0 |
Other asset-backed securities |  | 776.2 |  |  | 52.4 |  |  | 213.9 |  |  | 16.6 |  |  | 990.1 |  |  | 69.0 |
Total |  | $ | 4,082.5 |  |  | $ | 565.7 |  |  | $ | 413.2 |  |  | $ | 95.6 |  |  | $ | 4,495.7 |  |  | $ | 661.3 |
Number of positions with a gross unrealized loss |  | 3,002 |  |  |  |  | 303 |  |  |  |  | 3,305 |  |  |
Fair value as a percentage of total fixed maturity securities at fair value |  | 77.4 | % |  |  |  | 7.8 | % |  |  |  | 85.2 | % |  |
December 31, 2021 |  |  |  |  |  |  |  |  |  |  |  |
Fixed maturity securities |  |  |  |  |  |  |  |  |  |  |  |
U.S. Government and federally sponsored agency obligations: |  |  |  |  |  |  |  |  |  |  |  |
Mortgage-backed securities |  | $ | 67.4 |  |  | $ | 1.3 |  |  | $ | 3.9 |  |  | $ | 0.2 |  |  | $ | 71.3 |  |  | $ | 1.5 |
Other |  | 59.5 |  |  | 1.7 |  |  | 35.1 |  |  | 2.6 |  |  | 94.6 |  |  | 4.3 |
Municipal bonds |  | 56.8 |  |  | 0.7 |  |  | 0.6 |  |  | — |  |  | 57.4 |  |  | 0.7 |
Foreign government bonds |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Corporate bonds |  | 220.7 |  |  | 3.8 |  |  | 44.1 |  |  | 1.4 |  |  | 264.8 |  |  | 5.2 |
Other asset-backed securities |  | 379.0 |  |  | 3.8 |  |  | 128.2 |  |  | 3.1 |  |  | 507.2 |  |  | 6.9 |
Total |  | $ | 783.4 |  |  | $ | 11.3 |  |  | $ | 211.9 |  |  | $ | 7.3 |  |  | $ | 995.3 |  |  | $ | 18.6 |
Number of positions with a gross unrealized loss |  | 516 |  |  |  |  | 122 |  |  |  |  | 638 |  |  |
Fair value as a percentage of total fixed maturity securities at fair value |  | 12.6 | % |  |  |  | 3.4 | % |  |  |  | 16.0 | % |  |
Fixed maturity securities with an investment grade rating represented 94.9% of the gross unrealized losses as of September 30, 2022. With respect to fixed maturity securities involving securitized financial assets, the underlying collateral cash flows were stress tested to determine there was no adverse change in the present value of cash flows below the amortized cost basis. Maturities of Fixed Maturity Securities The following table presents the distribution of the Company’s fixed maturity securities portfolio by estimated expected maturity. Estimated expected maturities differ from contractual maturities, reflecting assumptions regarding borrowers' utilization of the right to call or prepay obligations with or without call or prepayment penalties. For structured securities, estimated expected maturities consider broker-dealer survey prepayment assumptions and are verified for consistency with the interest rate and economic environments.
($ in millions) |  | Percent of Total Fair Value |  | September 30, 2022
|  | September 30, 2022 |  | December 31, 2021 |  | Fair Value |  | Amortized Cost, net
Estimated expected maturity: |  |  |  |  |  |  |  |
Due in 1 year or less |  | 3.9 | % |  | 4.0 | % |  | $ | 204.0 |  |  | $ | 204.6 |
Due after 1 year through 5 years |  | 26.0 |  |  | 27.0 |  |  | 1,369.3 |  |  | 1,439.0 |
Due after 5 years through 10 years |  | 28.3 |  |  | 27.7 |  |  | 1,492.6 |  |  | 1,621.7 |
Due after 10 years through 20 years |  | 25.5 |  |  | 23.9 |  |  | 1,348.3 |  |  | 1,551.8 |
Due after 20 years |  | 16.3 |  |  | 17.4 |  |  | 857.9 |  |  | 1,087.0 |
Total |  | 100.0 | % |  | 100.0 | % |  | $ | 5,272.1 |  |  | $ | 5,904.1 |
Average option-adjusted duration, in years |  | 6.5 |  | 6.7 |  |  |  |
Sales of Fixed Maturity and Equity Securities Proceeds received from sales of fixed maturity and equity securities, each determined using the specific identification method, and gross gains and gross losses realized as a result of those sales for each period were as follows:
($ in millions) |  | Three Months Ended September 30, |  | Nine Months Ended September 30,
|  | 2022 |  | 2021 |  | 2022 |  | 2021
Fixed maturity securities |  |  |  |  |  |  |  |
Proceeds received |  | $ | 164.6 |  |  | $ | 155.4 |  |  | $ | 529.9 |  |  | $ | 319.2 |
Gross gains realized |  | 1.1 |  |  | 3.2 |  |  | 4.7 |  |  | 6.2 |
Gross losses realized |  | (5.0) |  |  | (0.7) |  |  | (10.2) |  |  | (4.3) |
Equity securities |  |  |  |  |  |  |  |
Proceeds received |  | $ | 0.2 |  |  | $ | 0.3 |  |  | $ | 6.0 |  |  | $ | 1.0 |
Gross gains realized |  | — |  |  | 0.1 |  |  | 1.7 |  |  | 0.3 |
Gross losses realized |  | — |  |  | — |  |  | (0.1) |  |  | — |
Net Unrealized Investment Gains (Losses) on Fixed Maturity Securities The following table reconciles net unrealized investment gains (losses) on fixed maturity securities, net of tax, included in accumulated other comprehensive income (AOCI), before the impact of DAC:
($ in millions) |  | Three Months Ended September 30, |  | Nine Months Ended September 30,
|  | 2022 |  | 2021 |  | 2022 |  | 2021
Net unrealized investment gains (losses) on fixed maturity securities, net of tax |  |  |  |  |  |  |  |
Beginning of period |  | $ | (283.2) |  |  | $ | 399.4 |  |  | $ | 348.9 |  |  | $ | 439.8 |
Change in net unrealized investment gains (losses) on fixed maturity securities |  | (228.0) |  |  | (34.9) |  |  | (886.5) |  |  | (77.0) |
Reclassification of net investment losses on fixed maturity securities to net income |  | 11.9 |  |  | 3.9 |  |  | 38.3 |  |  | 5.6 |
End of period |  | $ | (499.3) |  |  | $ | 368.4 |  |  | $ | (499.3) |  |  | $ | 368.4 |
Limited Partnership Interests Investments in limited partnership interests are accounted for using the equity method of accounting (EMA) and include interests in commercial mortgage loan funds, private equity funds, infrastructure debt funds, infrastructure equity funds and other funds. Principal factors influencing carrying amount appreciation or decline include operating performance, comparable public company earnings multiples, capitalization rates and the economic environment. The Company recognizes an impairment loss for EMA limited partnership interests when evidence demonstrates that the loss is other than temporary. Evidence of a loss in value that is other than temporary may include the absence of an ability to recover the carrying amount of the investment or the inability of the investee to sustain a level of earnings that would justify the carrying amount of the investment. The carrying amounts of EMA limited partnership interests were as follows:
($ in millions) |  |  |  |
|  | September 30, 2022 |  | December 31, 2021
Commercial mortgage loan funds |  | $ | 601.5 |  |  | $ | 346.8 |
Private equity funds |  | 73.4 |  |  | 74.0 |
Infrastructure equity funds |  | 70.2 |  |  | 58.3 |
Infrastructure debt funds |  | 67.4 |  |  | 62.4 |
Other funds(1) |  | 185.0 |  |  | 171.3 |
Total |  | $ | 997.5 |  |  | $ | 712.8 |
(1)Other funds consist primarily of limited partnership interests in corporate mezzanine, venture capital and other fund strategies. Offsetting of Assets and Liabilities The Company's derivatives are subject to enforceable master netting arrangements. Collateral support agreements associated with each master netting arrangement provide that the Company will receive or pledge financial collateral in the event minimum thresholds have been reached. The Company’s reverse repurchase agreements are also subject to enforceable master netting arrangements but there was no offsetting in their presentation in the Company’s Consolidated Balance Sheets. Information regarding the Company's derivatives is contained in Part II - Item 8, Note 5 in the Company's Annual Report on Form 10-K for the year ended December 31, 2021. The following table presents instruments that were subject to a master netting arrangement for the Company.
($ in millions) |  |  |  | Gross Amounts Offset in the Consolidated Balance Sheets |  | Net Amounts of Assets/ Liabilities Presented in the Consolidated Balance Sheets |  | Gross Amounts Not Offset in the Consolidated Balance Sheets |  |
|  | Gross Amounts |  |  |  | Financial Instruments |  | Cash Collateral Received |  | Net Amount
September 30, 2022 |  |  |  |  |  |  |  |  |  |  |  |
Asset derivatives: |  |  |  |  |  |  |  |  |  |  |  |
Free-standing derivatives |  | $ | 2.0 |  |  | $ | — |  |  | $ | 2.0 |  |  | $ | — |  |  | $ | 1.8 |  |  | $ | 0.2 |
December 31, 2021 |  |  |  |  |  |  |  |  |  |  |  |
Asset derivatives: |  |  |  |  |  |  |  |  |  |  |  |
Free-standing derivatives |  | $ | 10.7 |  |  | $ | — |  |  | $ | 10.7 |  |  | $ | 4.5 |  |  | $ | 6.4 |  |  | $ | (0.2) |
Deposits At September 30, 2022 and December 31, 2021, fixed maturity securities with a fair value of $30.0 million and $26.2 million, respectively, were on deposit with governmental agencies as required by law in various states for which the insurance subsidiaries of HMEC conduct business. In addition, at September 30, 2022 and December 31, 2021, fixed maturity securities with a fair value of $920.7 million and $870.1 million, respectively, were on deposit with the Federal Home Loan Bank of Chicago (FHLB) as collateral for amounts subject to funding agreements, advances and borrowings which were equal to $842.5 million at September 30, 2022 and $787.5 million at December 31, 2021. The deposited securities are reported as Fixed maturity securities on the Company’s Consolidated Balance Sheets.

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- Definition The entire disclosure for investments in certain debt and equity securities. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 942 -SubTopic 320 -URI https://asc.fasb.org/subtopic&trid=2209399 Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 946 -SubTopic 320 -URI https://asc.fasb.org/subtopic&trid=2324412 Reference 3: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 320 -URI https://asc.fasb.org/topic&trid=2196928 Reference 4: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 940 -SubTopic 320 -URI https://asc.fasb.org/subtopic&trid=2176304 Reference 5: http://www.xbrl.org/2003/role/disclosureRef -Publisher SEC -Name Regulation S-K (SK) -Number 229 -Section 1403 -Paragraph (b) + Details
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