Investments

12 Months Ended

Dec. 31, 2022

Investments, Debt and Equity Securities [Abstract]

The components of net investment income for the following periods were as follows:


($ in millions)	Year Ended December 31,
	2022		2021		2020
Fixed maturity securities	$	247.2	$	235.6	$	232.9
Equity securities	9.0		5.3		4.7
Limited partnership interests	40.5		79.0		20.9
Short-term and other investments	11.2		11.6		11.4
Investment expenses	(10.5)		(10.1)		(9.6)
Net investment income - investment portfolio	297.4		321.4		260.3
Investment income - deposit asset on reinsurance	103.5		101.1		97.3
Total net investment income	$	400.9	$	422.5	$	357.6

Net Investment Losses

Net investment losses for the following periods were as follows:


($ in millions)	Year Ended December 31,
	2022		2021		2020
Fixed maturity securities	$	(29.1)	$	(7.7)	$	9.4
Equity securities	(32.6)		(0.8)		1.8
Short-term investments and other	5.2		(2.5)		(13.5)
Net investment losses	$	(56.5)	$	(11.0)	$	(2.3)

From time to time, the Company sells fixed maturity securities subsequent to the reporting date that were considered temporarily impaired at such reporting date. Generally, 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 a fixed maturity security. The types of events that may result in a sale include significant changes in economic facts and circumstances related to the fixed maturity security, significant unforeseen changes in liquidity needs, or changes in the Company's investment strategy.

Net Investment Losses by Transaction Type

The following table reconciles net investment gains (losses) by transaction type:


($ in millions)	Year Ended December 31,
	2022		2021		2020
Credit loss impairments	$	(3.1)	$	(8.1)	$	—
Intent-to-sell impairments	(7.6)		(2.3)		(5.3)
Total impairments	(10.7)		(10.4)		(5.3)
Sales and other, net	(17.8)		4.3		15.0
Change in fair value - equity securities	(33.2)		(2.3)		(0.2)
Change in fair value and losses realized on settlements - derivatives	5.2		(2.6)		(11.8)
Net investment losses	$	(56.5)	$	(11.0)	$	(2.3)

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)	Year Ended December 31,
	2022		2021		2020
Beginning balance	$	7.7	$	—	$	—
Credit losses on fixed maturity securities for which credit losses were not previously reported	—		8.1		—
Net increases (decreases) related to credit losses previously reported	3.1		—		—
Reduction of credit allowances related to sales	(9.2)		—		—
Write-offs	(0.4)		(0.4)		—
Ending balance	$	1.2	$	7.7	$	—

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
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

December 31, 2021
Fixed maturity securities
U.S. Government and federally sponsored agency obligations:(1)
Mortgage-backed securities	$	612.1	$	51.9	$	1.5	$	662.5
Other, including U.S. Treasury securities	342.5		27.7		4.3		365.9
Municipal bonds	1,519.7		184.4		0.7		1,703.4
Foreign government bonds	40.2		3.4		—		43.6
Corporate bonds	2,217.7		176.2		5.2		2,388.7
Other asset-backed securities	1,065.5		16.6		6.9		1,075.2
Totals	$	5,797.7	$	460.2	$	18.6	$	6,239.3

(1) Fair value includes securities issued by Federal National Mortgage Association (FNMA) of $330.8 million and $376.7 million; Federal Home Loan Mortgage Corporation (FHLMC) of $273.3 million and $326.5 million; and Government National Mortgage Association (GNMA) of $86.2 million and $112.1 million as of December 31, 2022 and 2021, respectively.

The following table presents the fair value and gross unrealized losses for fixed maturity securities in an unrealized loss position as of December 31, 2022 and 2021. The Company views the decrease in fair value of all fixed maturity securities with unrealized losses as of December 31, 2022 — 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 December 31, 2022, 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 anticipated recovery in value. There has been a significant increase in interest rates since December 31, 2021, driven mostly by increases in U.S. Treasury rates, though credit spreads also widened. The 10-year U.S. Treasury yield increased 236 basis points for the year ended December 31, 2022, rising from 1.51% as of December 31, 2021 to 3.87% as of December 31, 2022. Additionally, credit spreads widened during the same time period, with investment grade and high yield wider by 40 and 171 basis points, respectively. These upward movements in rates caused market yields in the Company's portfolios to rise sharply, with downward pressure on prices. Investment grade and high yield total returns for the year ended December 31, 2022 were down 15.4% and 11.2%, respectively. The Bloomberg Barclays Index Yield-to-Worst for Investment Grade rose 3.1% for the year ended December 31, 2022, ending at 5.4%, while the High Yield Index rose 4.8% to 9.0%. The Company's 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 December 31, 2022.


($ 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
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 maturities securities fair value	68.2		%			14.2		%			82.4		%

December 31, 2021
Fixed maturity securities
U.S. Government and federally sponsored agency obligations:
Mortgage-backed securities	$	67.4		$	1.3	$	3.9		$	0.2	$	71.3		$	1.5
Other	59.5			1.7		35.1			2.6		94.6			4.3
Municipal bonds	56.8			0.7		0.6			—		57.4			0.7
Foreign government bonds	—			—		—			—		—			—
Corporate bonds	220.7			3.8		44.1			1.4		264.8			5.2
Other asset-backed securities	379.0			3.8		128.2			3.1		507.2			6.9
Total	$	783.4		$	11.3	$	211.9		$	7.3	$	995.3		$	18.6

Number of positions with a gross unrealized loss	516					122					638
Fair value as a percentage of total fixed maturities securities fair value	12.6		%			3.4		%			16.0		%

With regards to fixed maturity securities that had gross unrealized losses more than 12 months, the number of positions by their respective credit ratings was as follows:


	Number of Positions
	December 31,
	2022	2021
Credit Rating
AAA	67	24
AA	217	38
A	94	3
BBB	93	14
BB	68	13
B	31	8
CCC or lower	2	—
Not rated	15	22
Totals:	587	122

Fixed maturity securities with an investment grade rating represented 95.2% of the gross unrealized losses as of December 31, 2022. 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)	December 31, 2022
	Amortized Cost, net		Fair Value		Percent of Total Fair Value
Estimated expected maturity:
Due in 1 year or less	$	235.4	$	226.7	4.4	%
Due after 1 year through 5 years	1,423.3		1,362.4		26.3	%
Due after 5 years through 10 years	1,558.5		1,448.0		27.9	%
Due after 10 years through 20 years	1,477.9		1,296.2		25.0	%
Due after 20 years	1,061.8		851.7		16.4	%
Total	$	5,756.9	$	5,185.0	100.0	%

Average option-adjusted duration, in years	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 year were as follows:


($ in millions)	Year Ended December 31,
	2022		2021		2020
Fixed maturity securities
Proceeds received	$	752.0	$	578.2	$	472.9
Gross gains realized	5.5		10.5		20.5
Gross losses realized	(23.7)		(7.7)		(6.1)

Equity securities
Proceeds received	$	10.8	$	4.7	$	12.7
Gross gains realized	1.7		1.5		2.2
Gross losses realized	(1.0)		(0.1)		(1.9)

Net Unrealized Investment Gains (Losses) on Fixed Maturity Securities

The following table reconciles the net unrealized investment gains (losses) on fixed maturity securities, net of tax, included in AOCI, before the impact on DAC:


($ in millions)	Year Ended December 31,
	2022		2021		2020
Net unrealized investment gains (losses) on fixed maturity securities, net of tax
Beginning of period	$	348.9	$	439.8	$	264.4
Change in net unrealized investment gains (losses) on fixed maturity securities	(849.4)		(97.6)		184.2
Reclassification of net investment (gains) losses on fixed maturity securities to net income	48.7		6.7		(8.8)
End of period	$	(451.8)	$	348.9	$	439.8

Limited Partnership Interests

All investments in limited partnership interests are accounted for using 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 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)	December 31,
	2022		2021
Commercial mortgage loan funds	$	593.6	$	346.8
Private equity funds	76.3		74.0
Infrastructure equity funds	72.0		58.3
Real estate equity funds	71.3		46.3
Infrastructure debt funds	60.0		62.4
Other funds(1)	110.5		125.0
Total	$	983.7	$	712.8

(1) Other funds consist primarily of limited partnership interests in corporate mezzanine, venture capital, and private credit funds.

Investment in Entities Exceeding 10% of Shareholders' Equity

As of December 31, 2022 and 2021, there were no investments which exceeded 10% of total shareholders' equity in entities other than obligations of the U.S. Government and federally sponsored government agencies and authorities.

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 the 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
December 31, 2022
Asset derivatives
Free-standing derivatives	$	6.8	$	—	$	6.8	$	—	$	5.9	$	0.9

December 31, 2021
Asset derivatives
Free-standing derivatives	$	10.7	$	—	$	10.7	$	4.5	$	6.4	$	(0.2)

Deposits

At December 31, 2022 and 2021, fixed maturity securities with a fair value of $28.6 million and $26.2 million, respectively, were on deposit with governmental agencies as required by law in various states for which the insurance subsidiaries of the Company conduct business. In addition, as of December 31, 2022 and 2021, fixed maturity securities with a fair value of $860.4 million and $870.1 million, respectively, were on deposit with FHLB as collateral for amounts subject to funding agreements, advances and borrowings which were equal to $792.5 million and $787.5 million at the respective dates. The deposited securities are reported as Fixed maturity securities in the Company's Consolidated Balance Sheets.