Investments

3 Months Ended

Mar. 31, 2021

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 March 31,
	2021		2020
Fixed maturity securities	$	58.0	$	59.4
Equity securities	1.1		1.2
Limited partnership interests	11.3		(2.7)
Short-term and other investments	2.8		2.9
Investment expenses	(2.1)		(2.2)
Net investment income - investment portfolio	71.1		58.6
Investment income - deposit asset on reinsurance	24.4		23.7
Total net investment income	$	95.5	$	82.3

Net Investment Gains (Losses)

Net investment gains (losses) for the following periods were as follows:

($ in millions)	Three Months Ended March 31,
	2021		2020
Fixed maturity securities	$	(5.4)	$	1.1
Equity securities	(2.7)		(14.7)
Short-term investments and other	(0.9)		(4.9)
Net investment losses	$	(9.0)	$	(18.5)

The Company, from time to time, sells invested assets 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 or ability to hold an invested asset. 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 following table reconciles net investment gains (losses) by transaction type:

($ in millions)	Three Months Ended March 31,
	2021		2020
Credit loss impairments(1)	$	(1.1)	$	—
Intent-to-sell impairments	(2.1)		(3.7)
Total impairments on investments recognized in net income	(3.2)		(3.7)
Sales and other, net	(2.1)		4.5
Change in fair value - equity securities	(2.8)		(14.5)
Change in fair value and gains (losses) realized on settlements - derivatives	(0.9)		(4.8)
Net investment losses	$	(9.0)	$	(18.5)

(1)    For the three months ended March 31, 2021, the Company recognized a valuation allowance of $1.1 million for credit loss impairments with respect to fixed maturity securities available for sale.

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, 2021
Fixed maturity securities
U.S. Government and federally sponsored agency obligations:(1)
Mortgage-backed securities	$	627.1	$	52.9	$	1.7	$	678.3
Other, including U.S. Treasury securities	444.2		25.4		11.3		458.3
Municipal bonds	1,609.9		161.7		3.5		1,768.1
Foreign government bonds	40.1		4.4		—		44.5
Corporate bonds	2,063.6		148.6		18.0		2,194.2
Other asset-backed securities	1,207.8		19.2		14.1		1,212.9
Totals	$	5,992.7	$	412.2	$	48.6	$	6,356.3
December 31, 2020
Fixed maturity securities
U.S. Government and federally sponsored agency obligations:(1)
Mortgage-backed securities	$	605.5	$	79.6	$	0.3	$	684.8
Other, including U.S. Treasury securities	395.0		39.2		1.0		433.2
Municipal bonds	1,612.3		215.7		0.5		1,827.5
Foreign government bonds	40.2		4.9		—		45.1
Corporate bonds	1,905.2		221.6		3.9		2,122.9
Other asset-backed securities	1,230.4		24.1		22.7		1,231.8
Totals	$	5,788.6	$	585.1	$	28.4	$	6,345.3

(1)    Fair value includes securities issued by Federal National Mortgage Association (FNMA) of $373.3 million and $387.1 million; Federal Home Loan Mortgage Corporation (FHLMC) of $333.6 million and $344.3 million; and Government National Mortgage Association (GNMA) of $125.7 million and $132.3 million as of March 31, 2021 and December 31, 2020, respectively.

The following table presents the fair value and gross unrealized losses for fixed maturity securities in an unrealized loss position at March 31, 2021 and December 31, 2020, respectively. The Company views the decrease in fair value of all of the fixed maturity securities with unrealized losses at March 31, 2021 — 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, 2021, 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. 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 March 31, 2021.

($ 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, 2021
Fixed maturity securities
U.S. Government and federally sponsored agency obligations:
Mortgage-backed securities	$	24.0		$	1.5	$	3.1		$	0.2	$	27.1		$	1.7
Other	172.4			11.3		—			—		172.4			11.3
Municipal bonds	126.5			3.4		5.4			0.1		131.9			3.5
Foreign government bonds	0.5			—		—			—		0.5			—
Corporate bonds	382.1			16.4		47.1			1.6		429.2			18.0
Other asset-backed securities	137.1			1.3		359.4			12.8		496.5			14.1
Total	$	842.6		$	33.9	$	415.0		$	14.7	$	1,257.6		$	48.6
Number of positions with a    gross unrealized loss	548					200					748
Fair value as a percentage of total fixed    maturity securities at fair value	13.3		%			6.5		%			19.8		%
December 31, 2020
Fixed maturity securities
U.S. Government and federally sponsored agency obligations:
Mortgage-backed securities	$	4.9		$	0.1	$	2.6		$	0.2	$	7.5		$	0.3
Other	95.9			1.0		—			—		95.9			1.0
Municipal bonds	18.1			0.5		—			—		18.1			0.5
Foreign government bonds	—			—		—			—		—			—
Corporate bonds	126.6			3.7		10.9			0.2		137.5			3.9
Other asset-backed securities	316.9			17.2		409.3			5.5		726.2			22.7
Total	$	562.4		$	22.5	$	422.8		$	5.9	$	985.2		$	28.4
Number of positions with a    gross unrealized loss	308					123					431
Fair value as a percentage of total fixed    maturity securities at fair value	8.9		%			6.7		%			15.6		%

Fixed maturity securities with an investment grade rating represented 91.8% of the gross unrealized losses as of March 31, 2021. 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				March 31, 2021
	March 31, 2021		December 31, 2020		Fair Value		Amortized Cost, net
Estimated expected maturity:
Due in 1 year or less	4.1	%	4.0	%	$	261.3	$	255.5
Due after 1 year through 5 years	28.2	%	28.3	%	1,789.8		1,713.5
Due after 5 years through 10 years	28.3	%	28.0	%	1,799.7		1,669.5
Due after 10 years through 20 years	24.0	%	24.6	%	1,523.5		1,412.2
Due after 20 years	15.4	%	15.1	%	982.0		942.0
Total	100.0	%	100.0	%	$	6,356.3	$	5,992.7
Average option-adjusted duration, in years	6.6		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,
	2021		2020
Fixed maturity securities
Proceeds received	$	95.5	$	98.2
Gross gains realized	1.2		4.8
Gross losses realized	(3.4)		(0.3)
Equity securities
Proceeds received	$	0.4	$	1.5
Gross gains realized	0.1		0.3
Gross losses realized	—		(0.6)

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 March 31,
	2021		2020
Net unrealized investment gains (losses)    on fixed maturity securities, net of tax
Beginning of period	$	439.8	$	264.4
Change in net unrealized investment gains    (losses) on fixed maturity securities	(159.0)		(103.8)
Reclassification of net investment (gains) losses    on securities to net income	6.4		(10.7)
End of period	$	287.2	$	149.9

Limited Partnership Interests

Investments in limited partnership interests are accounted for using the equity method of accounting and include interests in senior commercial mortgage loan funds, hedge 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 equity method 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 equity method limited partnership interests were as follows:

($ in millions)	March 31,		December 31,
	2021		2020
Senior commercial mortgage loan funds	$	197.3	$	149.6
Hedge funds	62.6		63.2
Infrastructure debt funds	58.4		58.3
Infrastructure equity funds	56.2		52.1
Other(1)	130.7		125.8
Total	$	505.2	$	449.0

(1)Other consists primarily of limited partnership interests in real estate equity funds, private equity funds and corporate mezzanine 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 provide that the Company will receive or pledge financial collateral in the event minimum thresholds have been reached. 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, 2021
Asset derivatives:
Free-standing derivatives	$	17.5	$	—	$	17.5	$	14.2	$	3.3	$	—
December 31, 2020
Asset derivatives:
Free-standing derivatives	$	16.8	$	—	$	16.8	$	13.7	$	2.6	$	0.5

Deposits

At March 31, 2021 and December 31, 2020, fixed maturity securities with a fair value of $26.6 million and $26.9 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 March 31, 2021 and December 31, 2020, fixed maturity securities with a fair value of $844.1 million and $707.3 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 $774.5 million at March 31, 2021 and $644.5 million at December 31, 2020. The deposited securities are reported as Fixed maturity securities on the Company’s Consolidated Balance Sheets.