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Investments | 3 Months Ended
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Mar. 31, 2023
Investments, Debt and Equity Securities [Abstract] |
Investments | NOTE 2 - Investments Net Investment Income The components of net investment income for the following periods were as follows:
($ in millions) |  |  |  | Three Months Ended March 31,
|  |  |  |  |  | 2023 |  | 2022
Fixed maturity securities |  |  |  |  |  | $ | 67.7 |  |  | $ | 58.6 |
Equity securities |  |  |  |  |  | 2.7 |  |  | 1.3 |
Limited partnership interests |  |  |  |  |  | 4.4 |  |  | 13.0 |
Short-term and other investments |  |  |  |  |  | 3.5 |  |  | 2.7 |
Investment expenses |  |  |  |  |  | (3.6) |  |  | (2.6) |
Net investment income - investment portfolio |  |  |  |  |  | 74.7 |  |  | 73.0 |
Investment income - deposit asset on reinsurance |  |  |  |  |  | 25.7 |  |  | 24.9 |
Total net investment income |  |  |  |  |  | $ | 100.4 |  |  | $ | 97.9 |
Net Investment Losses Net investment gains (losses) for the following periods were as follows:
($ in millions) |  |  |  | Three Months Ended March 31,
|  |  |  |  |  | 2023 |  | 2022
Fixed maturity securities |  |  |  |  |  | $ | (2.4) |  |  | $ | (2.3) |
Equity securities |  |  |  |  |  | (1.0) |  |  | (15.5) |
Short-term investments and other |  |  |  |  |  | (0.5) |  |  | 2.3 |
Net investment losses |  |  |  |  |  | $ | (3.9) |  |  | $ | (15.5) |
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 breakdown of net investment gains (losses) by transaction type for the following periods were as follows:
($ in millions) |  |  |  | Three Months Ended March 31,
|  |  |  |  |  | 2023 |  | 2022
Credit loss impairments |  |  |  |  |  | $ | — |  |  | $ | (0.9) |
Intent-to-sell impairments |  |  |  |  |  | — |  |  | (0.9) |
Total impairments |  |  |  |  |  | — |  |  | (1.8) |
Sales and other, net |  |  |  |  |  | (2.4) |  |  | 1.1 |
Change in fair value - equity securities |  |  |  |  |  | (1.0) |  |  | (17.1) |
Change in fair value and gains (losses) realized on settlements - derivatives |  |  |  |  |  | (0.5) |  |  | 2.3 |
Net investment losses |  |  |  |  |  | $ | (3.9) |  |  | $ | (15.5) |
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 March 31,
|  |  |  |  |  | 2023 |  | 2022
Beginning balance |  |  |  |  |  | $ | 1.2 |  |  | $ | 7.7 |
Credit losses on fixed maturity securities for which credit losses were not previously reported |  |  |  |  |  | — |  |  | — |
Net increase related to credit losses previously reported |  |  |  |  |  | — |  |  | 0.9 |
Reduction of credit allowances related to sales |  |  |  |  |  | — |  |  | — |
Write-offs |  |  |  |  |  | — |  |  | (0.3) |
Ending balance |  |  |  |  |  | $ | 1.2 |  |  | $ | 8.3 |
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
March 31, 2023 |  |  |  |  |  |  |  |
Fixed maturity securities |  |  |  |  |  |  |  |
U.S. Government and federally sponsored agency obligations:(1) |  |  |  |  |  |  |  |
Mortgage-backed securities |  | $ | 637.6 |  |  | $ | 2.0 |  |  | $ | 55.6 |  |  | $ | 584.0 |
Other, including U.S. Treasury securities |  | 424.4 |  |  | 1.2 |  |  | 60.6 |  |  | 365.0 |
Municipal bonds |  | 1,363.0 |  |  | 26.3 |  |  | 98.5 |  |  | 1,290.8 |
Foreign government bonds |  | 34.1 |  |  | — |  |  | 1.5 |  |  | 32.6 |
Corporate bonds |  | 2,155.4 |  |  | 17.2 |  |  | 229.1 |  |  | 1,943.5 |
Other asset-backed securities |  | 1,188.8 |  |  | 2.9 |  |  | 57.6 |  |  | 1,134.1 |
Totals |  | $ | 5,803.3 |  |  | $ | 49.6 |  |  | $ | 502.9 |  |  | $ | 5,350.0 |
December 31, 2022 |  |  |  |  |  |  |  |
Fixed maturity securities |  |  |  |  |  |  |  |
U.S. Government and federally sponsored agency obligations:(1) |  |  |  |  |  |  |  |
Mortgage-backed securities |  | $ | 638.2 |  |  | $ | 1.3 |  |  | $ | 69.1 |  |  | $ | 570.4 |
Other, including U.S. Treasury securities |  | 410.0 |  |  | 0.5 |  |  | 67.8 |  |  | 342.7 |
Municipal bonds |  | 1,380.9 |  |  | 16.9 |  |  | 128.1 |  |  | 1,269.7 |
Foreign government bonds |  | 35.1 |  |  | — |  |  | 1.6 |  |  | 33.5 |
Corporate bonds |  | 2,161.2 |  |  | 12.7 |  |  | 272.2 |  |  | 1,901.7 |
Other asset-backed securities |  | 1,131.5 |  |  | 3.6 |  |  | 68.1 |  |  | 1,067.0 |
Totals |  | $ | 5,756.9 |  |  | $ | 35.0 |  |  | $ | 606.9 |  |  | $ | 5,185.0 |
(1) Fair value includes securities issued by Federal National Mortgage Association (FNMA) of $341.3 million and $330.8 million; Federal Home Loan Mortgage Corporation (FHLMC) of $279.3 million and $273.3 million; and Government National Mortgage Association (GNMA) of $86.8 million and $86.2 million as of March 31, 2023 and December 31, 2022, respectively. The following table presents the fair value and gross unrealized losses for fixed maturity securities in an unrealized loss position as of March 31, 2023 and December 31, 2022, respectively. The Company views the decrease in fair value of all of the fixed maturity securities with unrealized losses as of March 31, 2023 — 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 March 31, 2023, 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 January 1, 2022 driven mostly by increases in U.S. Treasury rates, though credit spreads also widened. As of March 31, 2023, the 10-year U.S. Treasury yield increased 196 basis points since January 2022, rising from 1.51% as of January 1, 2022 to 3.47% as of March 31, 2023. Additionally, credit spreads widened during the same time period, with investment grade and high yield wider by 46 and 172 basis points, respectively. These upward movements in rates caused market yields in the Company's investment portfolios to rise sharply, with downward pressure on prices. As of March 31, 2023, investment grade and high yield total returns were down 12.8% and 8.0%, respectively, since January 1, 2022. As of March 31, 2023, the Bloomberg Barclays Index Yield-to-Worst for Investment Grade rose 2.84% since January 1, 2022, ending at 5.2%, while the High Yield Index rose 4.31% to 8.5% since January 1, 2022. The Company's investment 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 credit loss impairments as of March 31, 2023.
($ 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
March 31, 2023 |  |  |  |  |  |  |  |  |  |  |  |
Fixed maturity securities |  |  |  |  |  |  |  |  |  |  |  |
U.S. Government and federally sponsored agency obligations: |  |  |  |  |  |  |  |  |  |  |  |
Mortgage-backed securities |  | $ | 305.4 |  |  | $ | 22.1 |  |  | $ | 202.0 |  |  | $ | 33.5 |  |  | $ | 507.4 |  |  | $ | 55.6 |
Other |  | 167.9 |  |  | 12.2 |  |  | 137.3 |  |  | 48.4 |  |  | 305.2 |  |  | 60.6 |
Municipal bonds |  | 509.6 |  |  | 28.9 |  |  | 363.3 |  |  | 69.6 |  |  | 872.9 |  |  | 98.5 |
Foreign government bonds |  | 31.2 |  |  | 1.4 |  |  | 0.4 |  |  | 0.1 |  |  | 31.6 |  |  | 1.5 |
Corporate bonds |  | 684.9 |  |  | 51.4 |  |  | 781.6 |  |  | 177.7 |  |  | 1,466.5 |  |  | 229.1 |
Other asset-backed securities |  | 339.3 |  |  | 14.1 |  |  | 663.0 |  |  | 43.5 |  |  | 1,002.3 |  |  | 57.6 |
Total |  | $ | 2,038.3 |  |  | $ | 130.1 |  |  | $ | 2,147.6 |  |  | $ | 372.8 |  |  | $ | 4,185.9 |  |  | $ | 502.9 |
Number of positions with a gross unrealized loss |  | 1,295 |  |  |  |  | 1,626 |  |  |  |  | 2,921 |  |  |
Fair value as a percentage of total fixed maturity securities at fair value |  | 38.1 | % |  |  |  | 40.1 | % |  |  |  | 78.2 | % |  |
December 31, 2022 |  |  |  |  |  |  |  |  |  |  |  |
Fixed maturity securities |  |  |  |  |  |  |  |  |  |  |  |
U.S. Government and federally sponsored agency obligations: |  |  |  |  |  |  |  |  |  |  |  |
Mortgage-backed securities |  | $ | 458.3 |  |  | $ | 54.4 |  |  | $ | 52.6 |  |  | $ | 14.7 |  |  | $ | 510.9 |  |  | $ | 69.1 |
Other |  | 242.7 |  |  | 34.1 |  |  | 65.8 |  |  | 33.7 |  |  | 308.5 |  |  | 67.8 |
Municipal bonds |  | 911.6 |  |  | 113.7 |  |  | 42.2 |  |  | 14.4 |  |  | 953.8 |  |  | 128.1 |
Foreign government bonds |  | 32.7 |  |  | 1.4 |  |  | 0.4 |  |  | 0.2 |  |  | 33.1 |  |  | 1.6 |
Corporate bonds |  | 1,345.0 |  |  | 221.1 |  |  | 148.9 |  |  | 51.1 |  |  | 1,493.9 |  |  | 272.2 |
Other asset-backed securities |  | 543.4 |  |  | 37.1 |  |  | 424.3 |  |  | 31.0 |  |  | 967.7 |  |  | 68.1 |
Total |  | $ | 3,533.7 |  |  | $ | 461.8 |  |  | $ | 734.2 |  |  | $ | 145.1 |  |  | $ | 4,267.9 |  |  | $ | 606.9 |
Number of positions with a gross unrealized loss |  | 2,515 |  |  |  |  | 587 |  |  |  |  | 3,102 |  |  |
Fair value as a percentage of total fixed maturity securities at fair value |  | 68.2 | % |  |  |  | 14.2 | % |  |  |  | 82.4 | % |  |
With regards to fixed maturity securities that had gross unrealized losses more than 12 months, the number of positions by their respective credit ratings were as follows:
|  | Number of Positions
|  | March 31, 2023 |  | December 31, 2022
Credit Rating |  |  |  |
AAA |  | 173 |  |  | 67 |
AA |  | 591 |  |  | 217 |
A |  | 283 |  |  | 94 |
BBB |  | 327 |  |  | 93 |
BB |  | 145 |  |  | 68 |
B |  | 62 |  |  | 31 |
CCC or lower |  | 4 |  |  | 2 |
Not rated |  | 41 |  |  | 15 |
Totals: |  | 1,626 |  |  | 587 |
Fixed maturity securities with an investment grade rating represented 96.3% of the gross unrealized losses as of March 31, 2023. 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 net 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 |  | March 31, 2023
|  | March 31, 2023 |  | December 31, 2022 |  | Fair Value |  | Amortized Cost, net
Estimated expected maturity: |  |  |  |  |  |  |  |
Due in 1 year or less |  | 4.7 | % |  | 4.4 | % |  | $ | 249.5 |  |  | $ | 256.3 |
Due after 1 year through 5 years |  | 26.0 |  |  | 26.3 |  |  | 1,392.5 |  |  | 1,441.9 |
Due after 5 years through 10 years |  | 28.1 |  |  | 27.9 |  |  | 1,501.0 |  |  | 1,581.4 |
Due after 10 years through 20 years |  | 25.0 |  |  | 25.0 |  |  | 1,342.2 |  |  | 1,482.3 |
Due after 20 years |  | 16.2 |  |  | 16.4 |  |  | 864.8 |  |  | 1,041.4 |
Total |  | 100.0 | % |  | 100.0 | % |  | $ | 5,350.0 |  |  | $ | 5,803.3 |
Average option-adjusted duration, in years |  | 6.3 |  | 6.4 |  |  |  |
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 March 31,
|  |  |  |  |  | 2023 |  | 2022
Fixed maturity securities |  |  |  |  |  |  |  |
Proceeds received |  |  |  |  |  | $ | 62.7 |  |  | $ | 168.3 |
Gross gains realized |  |  |  |  |  | 0.3 |  |  | 2.4 |
Gross losses realized |  |  |  |  |  | (2.7) |  |  | (2.9) |
Equity securities |  |  |  |  |  |  |  |
Proceeds received |  |  |  |  |  | $ | — |  |  | $ | 5.8 |
Gross gains realized |  |  |  |  |  | — |  |  | 1.7 |
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 AOCI:
($ in millions) |  |  |  | Three Months Ended March 31,
|  |  |  |  |  | 2023 |  | 2022
Net unrealized investment gains (losses) on fixed maturity securities, net of tax |  |  |  |  |  |  |  |
Beginning of period |  |  |  |  |  | $ | (449.6) |  |  | $ | 347.1 |
Change in net unrealized investment gains (losses) on fixed maturity securities |  |  |  |  |  | 91.3 |  |  | (335.9) |
Reclassification of net investment losses on fixed maturity securities to net income |  |  |  |  |  | 1.9 |  |  | 1.8 |
End of period |  |  |  |  |  | $ | (356.4) |  |  | $ | 13.0 |
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 equity funds, real estate equity funds, infrastructure debt funds and other funds. Principal factors influencing carrying amount appreciation or depreciation 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) |  |  |  |
|  | March 31, 2023 |  | December 31, 2022
Commercial mortgage loan funds |  | $ | 623.7 |  |  | $ | 593.6 |
Private equity funds |  | 77.7 |  |  | 76.3 |
Infrastructure equity funds |  | 73.2 |  |  | 72.0 |
Real estate equity funds |  | 87.7 |  |  | 71.3 |
Infrastructure debt funds |  | 62.6 |  |  | 60.0 |
Other funds(1) |  | 120.5 |  |  | 110.5 |
Total |  | $ | 1,045.4 |  |  | $ | 983.7 |
(1)Other funds consist primarily of limited partnership interests in corporate mezzanine, venture capital and private credit funds. 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 provides 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, 2022. 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
March 31, 2023 |  |  |  |  |  |  |  |  |  |  |  |
Asset derivatives: |  |  |  |  |  |  |  |  |  |  |  |
Free-standing derivatives |  | $ | 9.2 |  |  | $ | — |  |  | $ | 9.2 |  |  | $ | — |  |  | $ | 8.3 |  |  | $ | 0.9 |
December 31, 2022 |  |  |  |  |  |  |  |  |  |  |  |
Asset derivatives: |  |  |  |  |  |  |  |  |  |  |  |
Free-standing derivatives |  | $ | 6.8 |  |  | $ | — |  |  | $ | 6.8 |  |  | $ | — |  |  | $ | 5.9 |  |  | $ | 0.9 |
Reverse Repurchase Agreements In connection with reverse repurchase agreements, the Company transfers primarily U.S. government, government agency and corporate securities and receives cash. For reverse repurchase agreements, the Company receives cash in an amount equal to at least 95% of the fair value of the securities transferred, and the agreements with third parties contain contractual provisions to allow for additional collateral to be obtained when necessary. The Company accounts for reverse repurchase agreements as secured borrowings. The securities transferred under reverse repurchase agreements are included in Fixed maturity securities with the obligation to repurchase those securities reported in Other liabilities on the Company's Consolidated Balance Sheets. The fair value of the securities transferred wa s $74.7 million as of March 31, 2023 and $73.3 million as of December 31, 2022. The obligation for securities sold under reverse repurchase agreements was a net amount of $70.2 million as of March 31, 2023 and December 31, 2022. Deposits As of March 31, 2023 and December 31, 2022, fixed maturity securities with a fair value of $29.0 million and $28.6 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, as of March 31, 2023 and December 31, 2022, fixed maturity securities with a fair value of $948.1 million and $860.4 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 $869.5 million as of March 31, 2023 and $792.5 million as of December 31, 2022. The deposited securities are reported as Fixed maturity securities on the Company’s Consolidated Balance Sheets.

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