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Statutory Information and Restrictions
 12 Months Ended
Dec. 31, 2019
Insurance [Abstract]  
Statutory Information and Restrictions
The insurance departments of various states in which the insurance subsidiaries of HMEC are domiciled recognize as net income and surplus those amounts determined in conformity with statutory accounting principles prescribed or permitted by the insurance departments, which differ in certain respects from GAAP.
Reconciliations of statutory capital and surplus and net income, as determined using statutory accounting principles, to the amounts included in the accompanying consolidated financial statements are as follows:
($ in thousands)
 
December 31,
 
 
2019
 
2018
Statutory capital and surplus of insurance subsidiaries
 
$
868,839

 
$
903,564

Increase (decrease) due to:
 
 
 
 
Deferred policy acquisition costs
 
276,668

 
298,742

Deposit asset on reinsurance
 
2,346,166

 
—

Annuity reserves ceded
 
(2,239,717
)
 
—

Difference in policyholder reserves
 
209,127

 
142,601

Goodwill
 
49,079

 
47,396

Intangible assets, net
 
177,217

 
—

Investment fair value adjustments on fixed maturity securities
 
397,762

 
142,512

Difference in investment reserves
 
102,380

 
105,430

Federal income tax liability
 
(178,026
)
 
(115,667
)
Net funded status of benefit plans
 
(13,690
)
 
(15,495
)
Non-admitted assets and other, net
 
(53,801
)
 
20,412

Shareholders' equity of parent company and
non-insurance subsidiaries
 
8,306

 
8,795

Parent company short-term and long-term debt
 
(383,025
)
 
(247,740
)
Shareholders' equity as reported herein
 
$
1,567,285

 
$
1,290,550


($ in thousands)
 
Years Ended December 31,
 
 
2019
 
2018
 
2017
Statutory net income of insurance subsidiaries
 
$
62,316

 
$
45,977

 
$
82,587

Net loss of non-insurance companies
 
(9,537
)
 
(9,755
)
 
(4,496
)
Interest expense
 
(14,272
)
 
(11,892
)
 
(11,836
)
Tax benefit of interest expense and other
parent company current tax adjustments
 
8,993

 
121

 
5,654

Combined net income
 
47,500

 
24,451

 
71,909

Increase (decrease) due to:
 
 
 
 
 
 
Deferred policy acquisition costs
 
2,101

 
1,015

 
9,385

Intangible asset amortization expense
 
(8,790
)
 
—

 
—

Policyholder benefits
 
117,369

 
26,318

 
30,609

Federal income tax (expense) benefit
 
(23,492
)
 
3,020

 
84,198

Investment reserves
 
88,627

 
(31,529
)
 
(20,966
)
Other adjustments, net
 
(38,872
)
 
(4,932
)
 
(5,676
)
Net income as reported herein
 
$
184,443

 
$
18,343

 
$
169,459



The Company has principal insurance subsidiaries domiciled in Illinois, New York and Texas. The statutory financial statements of these subsidiaries are prepared in accordance with accounting principles prescribed or permitted by the Illinois Department of Insurance, the New York Department of Insurance and the Texas Department of Insurance, as applicable. Prescribed statutory accounting principles include a variety of publications of the National Association of Insurance Commissioners (NAIC), as well as state laws, regulations and general administrative rules.
The NAIC has risk-based capital guidelines to evaluate the adequacy of statutory capital and surplus in relation to risks assumed in investments, reserving policies, and volume and types of insurance business written. At December 31, 2019 and 2018, the minimum statutory-basis capital and surplus required to be maintained by HMEC's insurance subsidiaries was $108.1 million and $108.5 million, respectively. At December 31, 2019 and 2018, statutory capital and surplus of each of the Company's insurance subsidiaries was above required levels. The restricted net assets of HMEC's insurance subsidiaries were $26.0 million and $17.7 million as of December 31, 2019 and 2018, respectively. The minimum statutory basis capital and surplus amount at each date is the total estimated authorized control level risk-based capital for all of HMEC's insurance subsidiaries combined. Authorized control level risk-based capital represents the minimum level of statutory basis capital and surplus necessary before the insurance commissioner in the respective state of domicile is authorized to take whatever regulatory actions considered necessary to protect the best interests of the policyholders and creditors of the insurer. The amount of restricted net assets represents the combined fair value of securities on deposit with governmental agencies for the insurance subsidiaries as required by law in various states in which the insurance subsidiaries of HMEC conduct business.
HMEC relies largely on dividends from its insurance subsidiaries to meet its obligations for payment of principal and interest on debt, dividends to shareholders and parent company operating expenses, including tax payments pursuant to tax sharing agreements. Payments for share repurchase programs also have this dependency. HMEC's insurance subsidiaries are subject to various regulatory restrictions which limit the amount of annual dividends or other distributions, including loans or cash advances, available to HMEC without prior approval of the insurance regulatory authorities. As a result, HMEC may not be able to receive dividends from such subsidiaries at times and in amounts necessary to pay desired dividends to shareholders. The maximum amount of dividends that may be paid in 2020 from all of HMEC's insurance subsidiaries without prior regulatory approval is $105.3 million, excluding the impact and timing of prior year dividends.
As disclosed in the reconciliation of the statutory capital and surplus of insurance subsidiaries to the consolidated GAAP shareholders' equity, the insurance subsidiaries have statutory capital and surplus of $868.8 million as of December 31, 2019, which is subject to regulatory restrictions.