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Investments | 3 Months Ended
--- | ---
Mar. 31, 2024
Investments, Debt and Equity Securities [Abstract] |
Investments | Investments Net Investment Income The components of net investment income for the following periods were as follows:
($ in millions) |  |  |  | Three Months Ended March 31,
|  |  |  |  |  | 2024 |  | 2023
Fixed maturity securities |  |  |  |  |  | $ | 70.4 |  |  | $ | 67.7 |
Equity securities |  |  |  |  |  | 1.2 |  |  | 2.7 |
Limited partnership interests |  |  |  |  |  | 6.2 |  |  | 4.4 |
Short-term and other investments |  |  |  |  |  | 4.7 |  |  | 3.5 |
Investment expenses |  |  |  |  |  | (2.6) |  |  | (3.6) |
Net investment income - investment portfolio |  |  |  |  |  | 79.9 |  |  | 74.7 |
Investment income - deposit asset on reinsurance |  |  |  |  |  | 25.5 |  |  | 25.7 |
Total net investment income |  |  |  |  |  | $ | 105.4 |  |  | $ | 100.4 |
Net Investment Gains (Losses) Net investment gains (losses) for the following periods were as follows:
($ in millions) |  |  |  | Three Months Ended March 31,
|  |  |  |  |  | 2024 |  | 2023
Fixed maturity securities |  |  |  |  |  | $ | (1.0) |  |  | $ | (2.4) |
Equity securities |  |  |  |  |  | 2.6 |  |  | (1.0) |
Short-term investments and other |  |  |  |  |  | 0.6 |  |  | (0.5) |
Net investment gains (losses) |  |  |  |  |  | $ | 2.2 |  |  | $ | (3.9) |
The Company, from time to time, sells fixed maturity securities subsequent to the reporting date but prior to the issuance of the financial statements that were in an unrealized loss position but no credit loss was recognized and there was no intent to sell the securities at the 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 Gains (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,
|  |  |  |  |  | 2024 |  | 2023
Credit loss impairments |  |  |  |  |  | $ | (0.9) |  |  | $ | — |
Intent-to-sell impairments |  |  |  |  |  | — |  |  | — |
Total impairments |  |  |  |  |  | (0.9) |  |  | — |
Sales and other, net |  |  |  |  |  | (0.1) |  |  | (2.4) |
Change in fair value - equity securities |  |  |  |  |  | 2.6 |  |  | (1.0) |
Change in fair value and gains (losses) realized on settlements - derivatives |  |  |  |  |  | 0.6 |  |  | (0.5) |
Net investment gains (losses) |  |  |  |  |  | $ | 2.2 |  |  | $ | (3.9) |
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,
|  |  |  |  |  | 2024 |  | 2023
Beginning balance |  |  |  |  |  | $ | 1.2 |  |  | $ | 1.2 |
Credit losses on fixed maturity securities for which credit losses were not previously reported |  |  |  |  |  | 0.9 |  |  | — |
Net increase related to credit losses previously reported |  |  |  |  |  | — |  |  | — |
Reduction of credit allowances related to sales |  |  |  |  |  | — |  |  | — |
Write-offs |  |  |  |  |  | — |  |  | — |
Ending balance |  |  |  |  |  | $ | 2.1 |  |  | $ | 1.2 |
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, 2024 |  |  |  |  |  |  |  |
Fixed maturity securities |  |  |  |  |  |  |  |
U.S. Government and federally sponsored agency obligations: |  |  |  |  |  |  |  |
Mortgage-backed securities |  | $ | 746.5 |  |  | $ | 2.9 |  |  | $ | 71.7 |  |  | $ | 677.7 |
Other, including U.S. Treasury securities |  | 457.6 |  |  | 0.4 |  |  | 66.8 |  |  | 391.2 |
Municipal bonds |  | 1,282.2 |  |  | 22.6 |  |  | 97.3 |  |  | 1,207.5 |
Foreign government bonds |  | 23.1 |  |  | — |  |  | 1.2 |  |  | 21.9 |
Corporate bonds |  | 2,041.1 |  |  | 18.5 |  |  | 229.7 |  |  | 1,829.9 |
Other asset-backed securities |  | 1,234.9 |  |  | 12.3 |  |  | 32.7 |  |  | 1,214.5 |
Totals |  | $ | 5,785.4 |  |  | $ | 56.7 |  |  | $ | 499.4 |  |  | $ | 5,342.7 |
December 31, 2023 |  |  |  |  |  |  |  |
Fixed maturity securities |  |  |  |  |  |  |  |
U.S. Government and federally sponsored agency obligations: |  |  |  |  |  |  |  |
Mortgage-backed securities |  | $ | 713.4 |  |  | $ | 4.4 |  |  | $ | 64.6 |  |  | $ | 653.2 |
Other, including U.S. Treasury securities |  | 450.8 |  |  | 0.8 |  |  | 62.8 |  |  | 388.8 |
Municipal bonds |  | 1,333.4 |  |  | 28.6 |  |  | 91.9 |  |  | 1,270.1 |
Foreign government bonds |  | 23.1 |  |  | — |  |  | 1.0 |  |  | 22.1 |
Corporate bonds |  | 1,969.9 |  |  | 23.1 |  |  | 220.3 |  |  | 1,772.7 |
Other asset-backed securities |  | 1,162.3 |  |  | 6.0 |  |  | 39.9 |  |  | 1,128.4 |
Totals |  | $ | 5,652.9 |  |  | $ | 62.9 |  |  | $ | 480.5 |  |  | $ | 5,235.3 |
The following table presents the fair value and gross unrealized losses for fixed maturity securities in an unrealized loss position as of March 31, 2024 and December 31, 2023, respectively. The Company views the decrease in fair value of all of the fixed maturity securities with unrealized losses as of March 31, 2024 as due to factors other than a credit loss. As of March 31, 2024, 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 a recovery of the amortized cost basis. In reaching our conclusion that an allowance for credit is unnecessary, we considered the factors described in the evaluation of credit loss impairments for fixed maturity securities critical accounting estimate in our Annual Report on Form 10-K. In the current three months ended March 31, 2024, the performance of fixed maturity securities has been impacted by the change in interest rates, specifically interest rates being at relatively high levels compared to interest rates at the time of acquisition of the securities. In consideration of the factors, we expect to receive cash flows sufficient to recover the entire amortized cost basis of the securities in the following table.
($ 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, 2024 |  |  |  |  |  |  |  |  |  |  |  |
Fixed maturity securities |  |  |  |  |  |  |  |  |  |  |  |
U.S. Government and federally sponsored agency obligations: |  |  |  |  |  |  |  |  |  |  |  |
Mortgage-backed securities |  | $ | 63.1 |  |  | $ | 1.0 |  |  | $ | 470.4 |  |  | $ | 70.7 |  |  | $ | 533.5 |  |  | $ | 71.7 |
Other |  | 100.8 |  |  | 1.6 |  |  | 276.6 |  |  | 65.2 |  |  | 377.4 |  |  | 66.8 |
Municipal bonds |  | 111.7 |  |  | 1.6 |  |  | 704.9 |  |  | 95.7 |  |  | 816.6 |  |  | 97.3 |
Foreign government bonds |  | 1.4 |  |  | 0.1 |  |  | 20.5 |  |  | 1.1 |  |  | 21.9 |  |  | 1.2 |
Corporate bonds |  | 252.8 |  |  | 23.5 |  |  | 1,147.4 |  |  | 206.2 |  |  | 1,400.2 |  |  | 229.7 |
Other asset-backed securities |  | 52.0 |  |  | 0.6 |  |  | 535.4 |  |  | 32.1 |  |  | 587.4 |  |  | 32.7 |
Total |  | $ | 581.8 |  |  | $ | 28.4 |  |  | $ | 3,155.2 |  |  | $ | 471.0 |  |  | $ | 3,737.0 |  |  | $ | 499.4 |
Number of positions with a gross unrealized loss |  | 298 |  |  |  |  | 2,213 |  |  |  |  | 2,511 |  |  |
Fair value as a percentage of total fixed maturity securities at fair value |  | 10.9 | % |  |  |  | 59.1 | % |  |  |  | 70.0 | % |  |
December 31, 2023 |  |  |  |  |  |  |  |  |  |  |  |
Fixed maturity securities |  |  |  |  |  |  |  |  |  |  |  |
U.S. Government and federally sponsored agency obligations: |  |  |  |  |  |  |  |  |  |  |  |
Mortgage-backed securities |  | $ | 45.3 |  |  | $ | 0.8 |  |  | $ | 458.5 |  |  | $ | 63.8 |  |  | $ | 503.8 |  |  | $ | 64.6 |
Other |  | 39.5 |  |  | 0.4 |  |  | 288.0 |  |  | 62.4 |  |  | 327.5 |  |  | 62.8 |
Municipal bonds |  | 64.5 |  |  | 0.9 |  |  | 724.6 |  |  | 91.0 |  |  | 789.1 |  |  | 91.9 |
Foreign government bonds |  | 1.5 |  |  | — |  |  | 20.6 |  |  | 1.0 |  |  | 22.1 |  |  | 1.0 |
Corporate bonds |  | 195.0 |  |  | 25.4 |  |  | 1,171.3 |  |  | 194.9 |  |  | 1,366.3 |  |  | 220.3 |
Other asset-backed securities |  | 133.4 |  |  | 0.8 |  |  | 752.5 |  |  | 39.1 |  |  | 885.9 |  |  | 39.9 |
Total |  | $ | 479.2 |  |  | $ | 28.3 |  |  | $ | 3,415.5 |  |  | $ | 452.2 |  |  | $ | 3,894.7 |  |  | $ | 480.5 |
Number of positions with a gross unrealized loss |  | 195 |  |  |  |  | 2,305 |  |  |  |  | 2,500 |  |  |
Fair value as a percentage of total fixed maturity securities at fair value |  | 9.2 | % |  |  |  | 65.2 | % |  |  |  | 74.4 | % |  |
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, 2024 |  | December 31, 2023
Credit Rating |  |  |  |
AAA |  | 191 |  |  | 226 |
AA |  | 984 |  |  | 1,006 |
A |  | 415 |  |  | 423 |
BBB |  | 437 |  |  | 448 |
Total investment grade |  | 2,027 |  |  | 2,103 |
BB |  | 82 |  |  | 93 |
B |  | 34 |  |  | 39 |
CCC or lower |  | 8 |  |  | 7 |
Total below investment grade |  | 124 |  |  | 139 |
Not rated |  | 62 |  |  | 63 |
Totals: |  | 2,213 |  |  | 2,305 |
Fixed maturity securities with an investment grade rating represented 95.9% of the gross unrealized losses as of March 31, 2024. For the same reasons discussed above, we expect to receive cash flow sufficient to recover the entire amortized cost basis of the securities in the previous table. 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) |  | March 31, 2024
|  | Amortized Cost, net |  | Fair Value |  | Percent of Total Fair Value
Estimated expected maturity: |  |  |  |  |  |
Due in 1 year or less |  | $ | 287.5 |  |  | $ | 283.8 |  |  | 5.3 | %
Due after 1 year through 5 years |  | 1,480.5 |  |  | 1,438.2 |  |  | 26.9 | %
Due after 5 years through 10 years |  | 1,496.8 |  |  | 1,425.0 |  |  | 26.7 | %
Due after 10 years through 20 years |  | 1,475.8 |  |  | 1,321.7 |  |  | 24.7 | %
Due after 20 years |  | 1,044.8 |  |  | 874.0 |  |  | 16.4 | %
Total |  | $ | 5,785.4 |  |  | $ | 5,342.7 |  |  | 100.0 | %
Average option-adjusted duration, in years |  | 5.9 |  |  |  |
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,
|  |  |  |  |  | 2024 |  | 2023
Fixed maturity securities |  |  |  |  |  |  |  |
Proceeds received |  |  |  |  |  | $ | 88.0 |  |  | $ | 62.7 |
Gross gains realized |  |  |  |  |  | 1.3 |  |  | 0.3 |
Gross losses realized |  |  |  |  |  | (1.4) |  |  | (2.7) |
Equity securities |  |  |  |  |  |  |  |
Proceeds received |  |  |  |  |  | $ | — |  |  | $ | — |
Gross gains realized |  |  |  |  |  | — |  |  | — |
Gross losses realized |  |  |  |  |  | — |  |  | — |
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,
|  |  |  |  |  | 2024 |  | 2023
Net unrealized investment gains (losses) on fixed maturity securities, net of tax |  |  |  |  |  |  |  |
Beginning of period |  |  |  |  |  | $ | (328.3) |  |  | $ | (449.6) |
Change in net unrealized investment gains (losses) on fixed maturity securities |  |  |  |  |  | (20.5) |  |  | 91.3 |
Reclassification of net investment losses on fixed maturity securities to net income |  |  |  |  |  | 0.8 |  |  | 1.9 |
End of period |  |  |  |  |  | $ | (348.0) |  |  | $ | (356.4) |
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, real estate equity funds, private equity funds, infrastructure 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 carrying amounts of EMA limited partnership interests were as follows:
($ in millions) |  |  |  |
|  | March 31, 2024 |  | December 31, 2023
Commercial mortgage loan funds |  | $ | 646.2 |  |  | $ | 660.8 |
Real estate equity funds |  | 103.3 |  |  | 109.2 |
Private equity funds |  | 95.5 |  |  | 92.7 |
Infrastructure equity funds |  | 78.0 |  |  | 77.2 |
Infrastructure debt funds |  | 62.4 |  |  | 59.1 |
Other funds(1) |  | 133.9 |  |  | 139.8 |
Total |  | $ | 1,119.3 |  |  | $ | 1,138.8 |
(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 4 in the Company's Annual Report on Form 10-K for the year ended December 31, 2023. 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, 2024 |  |  |  |  |  |  |  |  |  |  |  |
Asset derivatives: |  |  |  |  |  |  |  |  |  |  |  |
Free-standing derivatives |  | $ | 23.1 |  |  | $ | — |  |  | $ | 23.1 |  |  | $ | — |  |  | $ | 23.6 |  |  | $ | (0.5) |
December 31, 2023 |  |  |  |  |  |  |  |  |  |  |  |
Asset derivatives: |  |  |  |  |  |  |  |  |  |  |  |
Free-standing derivatives |  | $ | 19.0 |  |  | $ | — |  |  | $ | 19.0 |  |  | $ | — |  |  | $ | 18.5 |  |  | $ | 0.5 |
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 was $51.8 million as of March 31, 2024 and $0.0 million as of December 31, 2023. The obligation for securities sold under reverse repurchase agreements was a net amount of $50.0 million as of March 31, 2024 and $0.0 million December 31, 2023. Deposits As of March 31, 2024 and December 31, 2023, fixed maturity securities with a fair value of $27.0 million and $29.2 million 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, 2024 and December 31, 2023, fixed maturity securities with a fair value of $1,014.4 million and $987.2 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 $929.5 million as of March 31, 2024 and $904.5 million as of December 31, 2023. The deposited securities are reported as Fixed maturity securities on the Company’s Consolidated Balance Sheets.

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