We are exposed to certain risks relating to our ongoing business operations. The primary risks managed by using derivative instruments are interest rate risk, risk related to matching duration for our assets and liabilities, foreign currency risk, credit risk, and equity risk. Historically, we have utilized current and forward interest rate swaps, current and forward currency swaps, forward benchmark interest rate locks, currency forward contracts, forward contracts on specific fixed income securities, credit default swaps, and total return swaps. Transactions hedging interest rate risk are primarily associated with our individual and group long-term care and individual and group disability products. All other product portfolios are periodically reviewed to determine if hedging strategies would be appropriate for risk management purposes. We do not use derivative financial instruments for speculative purposes.

•Interest rate swaps were used to hedge interest rate risks and to improve the matching of assets and liabilities. An interest rate swap is an agreement in which we agree with other parties to exchange, at specified intervals, the difference between fixed rate and variable rate interest amounts. We used interest rate swaps to hedge the anticipated purchase of fixed maturity securities thereby protecting us from the potential adverse impact of declining interest rates on the associated policy reserves. We also used interest rate swaps to hedge the potential adverse impact of rising interest rates in anticipation of issuing fixed rate long-term debt.

•Forward benchmark interest rate locks are used to minimize interest rate risk associated with the anticipated purchase or disposal of fixed maturity securities or the anticipated issuance of fixed rate long-term debt. A forward benchmark interest rate lock is a derivative contract without an initial investment where we and the counterparty agree to purchase or sell a specific benchmark interest rate fixed maturity bond at a future date at a predetermined price or yield.

•Foreign currency interest rate swaps are used to hedge the currency risk of certain foreign currency-denominated fixed maturity securities owned for portfolio diversification. Under these swap agreements, we agree to pay, at specified intervals, fixed rate foreign currency-denominated principal and interest payments in exchange for fixed rate payments in the functional currency of the operating segment.

•Foreign currency interest rate swaps previously designated as hedges were used to hedge the currency risk of certain foreign currency-denominated fixed maturity securities owned for portfolio diversification. These derivatives were effective hedges prior to novation to a new counterparty. In conjunction with the novation, these derivatives were de-designated as hedges. We agree to pay, at specified intervals, fixed rate foreign currency-denominated principal and interest payments in exchange for fixed rate payments in the functional currency of the operating segment. We hold offsetting swaps wherein we agree to pay fixed rate principal and interest payments in the functional currency of the operating segment in exchange for fixed rate foreign currency-denominated payments.

•Credit default swaps were used as economic hedges against credit risk but do not qualify for hedge accounting. A credit default swap is an agreement in which we agree with another party to pay, at specified intervals, a fixed-rate fee in exchange for insurance against a credit event on a specific investment. If a defined credit event occurred, our counterparty could have either paid us a net cash settlement, or we could have surrendered the specific investment to them in exchange for cash equal to the full notional amount of the swap. Credit events typically include events such as bankruptcy, failure to pay, or certain types of debt restructuring.

•Foreign currency forward contracts are used to minimize foreign currency risk. A foreign currency forward is a derivative without an initial investment where we and the counterparty agree to exchange a specific amount of currencies, at a specific exchange rate, on a specific date. We use these forward contracts to hedge the currency risk arising from foreign-currency denominated investments.

•Total Return Swaps are used to economically hedge a portion of the liability related to our non-qualified defined contribution plan. A total return swap is an agreement in which we pay a floating rate of interest to the counterparty and receive the total return on a portfolio of mutual funds and exchange traded funds. These swaps are cash settled on the last day of every month and the notional is re-established each month based on plan participant actions.

The basic types of risks associated with derivatives are market risk (that the value of the derivative will be adversely impacted by changes in the market, primarily changes in interest rates, exchange rates, and equity prices) and credit risk (that the counterparty will not perform according to the terms of the contract). The market risk of the derivatives should generally offset the market risk associated with the hedged financial instrument or liability. To help limit the credit exposure of the derivatives, we enter into master netting agreements with our counterparties whereby contracts in a gain position can be offset against contracts in a loss position. We also typically enter into bilateral, cross-collateralization agreements with our counterparties to help limit the credit exposure of the derivatives. These agreements require the counterparty in a loss position to submit acceptable collateral with the other counterparty in the event the net loss position meets or exceeds an agreed upon amount. Credit exposure on derivatives is limited to the value of those contracts in a net gain position, including accrued interest receivable less collateral held. At December 31, 2023 and 2022, we had $1.6 million and $1.7 million credit exposure on derivatives, respectively. The table below summarizes the nature and amount of collateral received from and posted to our derivative counterparties.


	December 31
	2023		2022
	(in millions of dollars)
Carrying Value of Collateral Received from Counterparties
Cash	$	11.1	$	49.4
Fixed Maturity Securities	26.3		—
	$	37.4	$	49.4
Carrying Value of Collateral Posted to Counterparties
Cash	$	—	$	5.1
Fixed Maturity Securities	39.8		39.6
	$	39.8	$	44.7

All of our derivative instruments contain provisions that require us to maintain specified issuer credit ratings and financial strength ratings. Should our ratings fall below these specified levels, we would be in violation of the provisions, and our derivatives counterparties could terminate our contracts and request immediate payment. The aggregate fair value of all derivative instruments with credit risk-related contingent features that were in a liability position was $116.2 million and $74.0 million at December 31, 2023 and 2022, respectively.

During 2021, we entered into a $250.0 million notional forward benchmark interest rate lock in order to hedge the interest rate risk associated with the cash flows related to the early redemption of certain of our debt securities. We terminated the interest rate lock in 2021 and recognized a loss of $1.2 million that was reported as a cost related to the early retirement of debt in our income statement.

During the first quarter of 2021, in connection with the Closed Block individual disability reinsurance transaction, we reclassified $0.6 million of deferred gains from accumulated other comprehensive income (AOCI) into earnings included in the net investment gain (loss) line item on our income statement. The deferred gains were related to previously terminated interest rate swaps designated as hedging instruments of fixed maturity securities in the Closed Block individual disability product line. See Note 14 for further discussion.

As of December 31, 2023, we expect to amortize approximately $16.7 million of net deferred gains on derivative instruments during the next twelve months. This amount will be reclassified from AOCI into earnings and reported on the same income statement line item as the hedged item. The income statement line items that will be affected by this amortization are net investment income and interest and debt expense. Additional amounts that may be reclassified from AOCI into earnings to offset the earnings impact of foreign currency translation of hedged items are not estimable.


	Carrying Amount of Hedged Assets				Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Assets
	December 31, 2023		December 31, 2022		December 31, 2023		December 31, 2022
	(in millions of dollars)
Fixed maturity securities:

Receive fixed functional currency interest, pay fixed foreign currency interest	$	529.2	$	394.4	$	(6.1)	$	(24.8)

For the years ended December 31, 2023, 2022, and 2021, $(21.1) million, $17.6 million, and $16.6 million, respectively, of the derivative instruments' gain (loss) related to cross-currency basis spread and forward points was excluded from the assessment of hedge effectiveness. There were no instances wherein we discontinued fair value hedge accounting due to a hedged firm commitment no longer qualifying as a fair value hedge.

As of December 31, 2023 and 2022, we held $132.0 million notional amount of receive fixed, pay fixed, foreign currency interest rate swaps. These derivatives are not designated as hedges, and as such, changes in fair value related to these derivatives are reported in earnings as a component of net investment gain or loss.

As of December 31, 2023 and 2022, we held no single name credit default swaps. As of December 31, 2021, we held $11.6 million notional amount of single name credit default swaps. We entered into these swaps in order to mitigate the credit risk associated with specific securities owned. These derivatives were not designated as hedges, and as such, changes in fair value related to these derivatives were reported in earnings as a component of net investment gain or loss.

As of December 31, 2023 and 2022, we held $52.5 million and $54.3 million, respectively, notional amount of foreign currency forwards to mitigate the foreign currency risk associated with specific securities owned. These derivatives are not designated as hedges, and as such, changes in fair value related to these derivatives are reported in earnings as a component of net investment gain or loss.

As of December 31, 2023 and 2022, we held $102.2 million and $76.9 million, respectively, notional amount of total return swaps to mitigate the volatility associated with changes in the fair value of the underlying notional assets in our non-qualified defined contribution plan. This derivative is an economic hedge not designated as a hedging instrument, and changes in fair value are reported as a component of other expenses in our income statement.

We have an embedded derivative in a modified coinsurance arrangement for which we include in our net investment gains and losses a calculation intended to estimate the value of the option of our reinsurance counterparty to cancel the reinsurance contract with us. However, neither party can unilaterally terminate the reinsurance agreement except in extreme circumstances resulting from regulatory supervision, delinquency proceedings, or other direct regulatory action. Cash settlements or collateral related to this embedded derivative are not required at any time during the reinsurance contract or at termination of the reinsurance contract. There are no credit-related counterparty triggers, and any accumulated embedded derivative gain or loss reduces to zero over time as the reinsured business winds down.

The following tables summarize the notional amounts and fair values of derivative financial instruments, as reported in our consolidated balance sheets. Derivative assets are included in other long-term investments, while derivative liabilities are included in other liabilities within our consolidated balance sheets. The notional amounts represent the basis upon which our counterparty pay and receive amounts are calculated.


	December 31, 2023
			Derivative Assets		Derivative Liabilities
	Notional Amount		Fair Value		Fair Value
	(in millions of dollars)
Designated as Hedging Instruments
Cash Flow Hedges
Forward Benchmark Interest Rate Locks	$	1,905.0	$	44.5	$	77.8
Foreign Currency Interest Rate Swaps	149.5		14.2		4.5
Total Cash Flow Hedges	2,054.5		58.7		82.3

Fair Value Hedges

Foreign Currency Interest Rate Swaps	642.5		38.2		16.7


Total Designated as Hedging Instruments	$	2,697.0	$	96.9	$	99.0

Not Designated as Hedging Instruments


Foreign Currency Forwards	$	52.5	$	3.0	$	0.2
Foreign Currency Interest Rate Swaps	132.0		—		17.0
Total Return Swaps	102.2		—		—
Embedded Derivative in Modified Coinsurance Arrangement	—		—		1.5
Total Not Designated as Hedging Instruments	$	286.7	$	3.0	$	18.7

Total Derivatives	$	2,983.7	$	99.9	$	117.7


	December 31, 2022
			Derivative Assets		Derivative Liabilities
	Notional Amount		Fair Value		Fair Value
	(in millions of dollars)
Designated as Hedging Instruments
Cash Flow Hedges
Forward Benchmark Interest Rate Locks	$	764.0	$	1.6	$	48.4
Foreign Currency Interest Rate Swaps	168.9		17.5		3.1
Total Cash Flow Hedges	932.9		19.1		51.5

Fair Value Hedges

Foreign Currency Interest Rate Swaps	557.8		66.0		5.4


Total Designated as Hedging Instruments	$	1,490.7	$	85.1	$	56.9

Not Designated as Hedging Instruments


Foreign Currency Forwards	$	54.3	$	4.0	$	0.1
Foreign Currency Interest Rate Swaps	132.0		—		17.0
Total Return Swaps	76.9		—		—
Embedded Derivative in Modified Coinsurance Arrangement	—		—		13.9
Total Not Designated as Hedging Instruments	$	263.2	$	4.0	$	31.0

Total Derivatives	$	1,753.9	$	89.1	$	87.9


	Year Ended December 31, 2023
	Net Investment Income		Net Investment Gain (Loss)		Interest and Debt Expense
	(in millions of dollars)
Total Income and Expense Presented in the Consolidated Statements of Income of Which Hedged Items are Recorded	$	2,096.7	$	(36.0)	$	194.8

Gain (Loss) on Cash Flow Hedging Relationships
Interest Rate Swaps:
Hedged items	198.6		0.8		2.9
Derivatives Designated as Hedging Instruments	35.2		—		—
Foreign Exchange Contracts:
Hedged items	9.6		0.4		—
Derivatives Designated as Hedging Instruments	—		(0.4)		—
Forward Benchmark Interest Rate Locks:
Hedged items	18.5		—		—
Derivatives Designated as Hedging Instruments	(0.5)		—		—

Gain (Loss) on Fair Value Hedging Relationships



Foreign Exchange Contracts:
Hedged items	14.5		18.7		—
Derivatives Designated as Hedging Instruments	11.1		(18.7)		—


	Year Ended December 31, 2022
	Net Investment Income		Net Investment Gain (Loss)		Interest and Debt Expense
	(in millions of dollars)
Total Income and Expense Presented in the Consolidated Statements of Income of Which Hedged Items are Recorded	$	2,122.2	$	(15.7)	$	188.5

Gain (Loss) on Cash Flow Hedging Relationships
Interest Rate Swaps:
Hedged items	200.0		—		2.9
Derivatives Designated as Hedging Instruments	51.0		—		—
Foreign Exchange Contracts:
Hedged items	12.3		(2.3)		—
Derivatives Designated as Hedging Instruments	(0.8)		1.8		—
Forward Benchmark Interest Rate Locks:
Hedged items	0.5		—		—
Derivatives Designated as Hedging Instruments	—		—		—

Gain (Loss) on Fair Value Hedging Relationships



Foreign Exchange Contracts:
Hedged items	11.6		(26.8)		—
Derivatives Designated as Hedging Instruments	7.3		26.8		—


	Year Ended December 31, 2021
	Net Investment Income		Net Investment Gain (Loss)		Interest and Debt Expense
	(in millions of dollars)
Total Income and Expense Presented in the Consolidated Statements of Income of Which Hedged Items are Recorded	$	2,213.2	$	76.7	$	185.0

Gain (Loss) on Cash Flow Hedging Relationships
Interest Rate Swaps:
Hedged items	220.4		2.7		29.2
Derivatives Designated as Hedging Instruments	64.6		2.0		5.0
Foreign Exchange Contracts:
Hedged items	13.0		(0.1)		—
Derivatives Designated as Hedging Instruments	1.8		(0.1)		—

Gain (Loss) on Fair Value Hedging Relationships



Foreign Exchange Contracts:
Hedged items	9.8		(22.3)		—
Derivatives Designated as Hedging Instruments	4.6		22.3		—


		Year Ended December 31
		2023		2022		2021
		(in millions of dollars)
Net Investment Gain (Loss)
	Credit Default Swaps	$	—	$	—	$	(0.3)

	Foreign Exchange Contracts	(0.6)		2.7		3.4
	Embedded Derivative in Modified Coinsurance Arrangement	12.4		16.2		9.7
	Total	$	11.8	$	18.9	$	12.8

Other Expenses
	(Gain) Loss on Total Return Swaps	$	(13.6)	$	18.9	$	(8.5)