Our investments include assets backing reserves as part of a coinsurance with funds withheld agreement. The funds withheld invested assets are reported within their respective line items, primarily consisting of fixed maturities available-for-sale, mortgage loans and other investments. See Note 10, Reinsurance, for more information on the funds withheld invested assets.

Fixed maturities include bonds, ABS, redeemable preferred stock and certain non-redeemable preferred securities. Equity securities include mutual funds, common stock, non-redeemable preferred stock and required regulatory investments. We classify fixed maturities as either available-for-sale or trading at the time of the purchase and, accordingly, carry them at fair value. Equity securities are also carried at fair value. See Note 16, Fair Value Measurements, for methodologies related to the determination of fair value. Unrealized gains and losses related to fixed maturities, available-for-sale, excluding those in fair value hedging relationships, are reflected in stockholders’ equity, net of adjustments associated with related actuarial balances, derivatives in cash flow hedge relationships and applicable income taxes. Mark-to-market adjustments on certain equity securities and mark-to-market adjustments on certain fixed maturities, trading are reflected in net realized capital gains (losses). Mark-to-market adjustments on certain fixed maturities, trading are reflected in market risk benefit remeasurement (gain) loss. Unrealized gains and losses related to hedged portions of fixed maturities, available-for-sale in fair value hedging relationships are reflected in net investment income. Mark-to-market adjustments related to certain securities carried at fair value with an investment objective to realize economic value through mark-to-market changes are reflected in net investment income.

The amortized cost of fixed maturities includes cost adjusted for amortization of premiums and discounts, computed using the interest method. The amortized cost of fixed maturities, available-for-sale is adjusted for changes in fair value of the hedged portions of securities in fair value hedging relationships and excludes accrued interest receivable. Accrued interest receivable is reported in accrued investment income on the consolidated statements of financial position. Fixed maturities, available-for-sale are subject to an allowance for credit loss and changes in the allowance are reported in net income as a component of net realized capital gains (losses). Interest income, as well as prepayment fees and the amortization of the related premium or discount, is reported in net investment income. For loan-backed and structured securities, we recognize income using a constant effective yield based on currently anticipated cash flows.

The amortized cost, gross unrealized gains and losses, allowance for credit loss and fair value of fixed maturities, available-for-sale were as follows:

(1)	Amortized cost excludes accrued interest receivable of $632.6 million and $578.0 million as of March 31, 2023 and December 31, 2022, respectively.

(2)	Primarily consists of collateralized loan obligations backed by secured corporate loans.

The amortized cost and fair value of fixed maturities, available-for-sale as of March 31, 2023, by expected maturity, were as follows:


	Amortized cost		Fair value

	(in millions)
Due in one year or less	$	1,603.7	$	1,593.3
Due after one year through five years		9,104.5		8,819.0
Due after five years through ten years		11,055.5		10,268.5
Due after ten years		28,554.2		25,168.3
Subtotal		50,317.9		45,849.1
Mortgage-backed and other asset-backed securities		21,095.9		19,547.8
Total	$	71,413.8	$	65,396.9

Actual maturities may differ because borrowers may have the right to call or prepay obligations. Our portfolio is diversified by industry, issuer and asset class. Credit concentrations are managed to established limits.

Net Realized Capital Gains and Losses

Net realized capital gains and losses on sales of investments are determined on the basis of specific identification. In general, in addition to realized capital gains and losses on investment sales and periodic settlements on derivatives not designated as hedges, we report gains and losses related to the following in net realized capital gains (losses) on the consolidated statements of operations: mark-to-market adjustments on certain equity securities, mark-to-market adjustments on certain fixed maturities, trading, mark-to-market adjustments on sponsored investment funds, mark-to-market adjustments on derivatives not designated as hedges, cash flow hedge gains (losses) when the hedged item impacts realized capital gains (losses), changes in the valuation allowance for fixed maturities available-for-sale and certain financing receivables, impairments of real estate held for investment and impairments on equity method investments. Investment gains and losses on sales of certain real estate held for sale due to investment strategy and mark-to-market adjustments on certain securities carried at fair value with an investment objective to realize economic value through mark-to-market changes are reported as net investment income and are excluded from net realized capital gains (losses).

The major components of net realized capital gains (losses) on investments are shown below and are net of amounts on funds withheld invested assets that are passed directly to the reinsurer. See Note 10, Reinsurance, for further details. The amounts below do not include net realized capital gains (losses) on funds withheld assets that are not passed to the reinsurer, which are separately reported on the consolidated statements of operations


	For the three months ended
	March 31,
	2023		2022

	(in millions)
Fixed maturities, available-for-sale:
Gross gains	$	17.8	$	165.8
Gross losses		(28.0)		(120.7)
Net credit losses		(7.7)		(6.1)
Hedging, net (1)		(1.2)		(0.7)
Fixed maturities, trading (2)		(0.5)		(6.3)
Equity securities (3)		(15.6)		(105.2)
Mortgage loans		(2.7)		(19.6)
Derivatives (1)		(42.9)		8.4
Other		14.8		(52.2)
Net realized capital losses	$	(66.0)	$	(136.6)

(1)

The change in fair value of fixed maturities, available-for-sale and the change in fair value of derivative hedging instruments in fair value hedging relationships are reported in net investment income with the earnings effect of fixed maturities, available-for-sale. Gains (losses) for fixed maturities, available-for-sale related to terminated cash flow hedges continue to be reflected in net realized capital gains (losses).

(2)

Unrealized gains (losses) on fixed maturities, trading still held at the reporting date were $(1.8) million and $(5.2) million for the three months ended March 31, 2023 and 2022, respectively. This excludes $1.8 million and $(7.9) million in unrealized gains (losses) for the three months ended March 31, 2023 and 2022, respectively, that were reported in market risk benefit remeasurement (gain) loss and $(2.8) million and $0.0 million of unrealized gains (losses) for the three months ended March 31, 2023 and 2022, respectively, that were reported in net realized capital gains (losses) on funds withheld assets.

(3)

Unrealized gains (losses) on equity securities still held at the reporting date were $(13.7) million and $(105.5) million for the three months ended March 31, 2023 and 2022, respectively. This excludes $(0.6) million and $(19.3) million of unrealized gains (losses) for the three months ended March 31, 2023 and 2022, respectively, that were reported in net investment income and $1.7 million and $0.0 million of unrealized gains (losses) for the three months ended March 31, 2023 and 2022, respectively, that were reported in net realized capital gains (losses) on funds withheld assets.

Proceeds from sales of investments (excluding call and maturity proceeds) in fixed maturities, available-for-sale were $1,639.0 million and $4,859.7 million for the three months ended March 31, 2023 and 2022, respectively.

Allowance for Credit Loss

We have a process in place to identify fixed maturity securities that could potentially require an allowance for credit loss. This process involves monitoring market events that could impact issuers’ credit ratings, business climate, management changes, litigation and government actions and other similar factors. This process also involves monitoring late payments, pricing levels, downgrades by rating agencies, key financial ratios, financial statements, revenue forecasts and cash flow projections as indicators of credit issues.

Each reporting period, all securities in an unrealized loss position are reviewed to determine whether a decline in value is due to credit. Relevant facts and circumstances considered include: (1) the extent the fair value is below cost; (2) the reasons for the decline in value; (3) the financial position and access to capital of the issuer, including the current and future impact of any specific events and (4) for structured securities, the adequacy of the expected cash flows. To the extent we determine an unrealized loss is due to credit, an allowance for credit loss is recognized through a reduction to net income.

We estimate the amount of the allowance for credit loss as the difference between amortized cost and the present value of the expected cash flows of the security. The present value is determined using the best estimate cash flows discounted at the effective interest rate implicit to the security at the date of purchase or the current yield to accrete an asset-backed or floating rate security. The methodology and assumptions for establishing the best estimate cash flows vary depending on the type of security. The ABS cash flow estimates are based on security specific facts and circumstances that may include collateral characteristics, expectations of delinquency and default rates, loss severity and prepayment speeds and structural support, including subordination and guarantees. The corporate security cash flow estimates are derived from scenario-based outcomes of expected corporate restructurings or liquidations using bond specific facts and circumstances including timing, security interests and loss severity. We do not measure a credit loss allowance on accrued interest receivable because we write off the accrued interest receivable balance to net investment income in a timely manner when we have concern regarding collectability.

Amounts on fixed maturities, available-for-sale deemed to be uncollectible are written off and removed from the allowance for credit loss. A write-off may also occur if we intend to sell a security or whether it is more likely than not we will be required to sell the security before the recovery of its amortized cost which, in some cases, may extend to maturity.

A rollforward of the allowance for credit loss by major security type was as follows.

For the three months ended March 31, 2023

Residential

mortgage-

backed

Commercial

Collateralized

U.S.

States and

pass-

mortgage-

debt

Other

government

Non-U.S.

political

through

backed

obligations

debt

and agencies

governments

subdivisions

Corporate

securities

(1)

obligations

Total

(in millions)

Beginning balance

—

7.7

—

0.1

7.8

Additional increases (decreases) for credit losses on securities with an allowance recorded in the previous period

—

(4.2)

—

(4.2)

Foreign currency translation adjustment

—

0.5

—

0.5

Ending balance

—

4.0

—

0.1

4.1


	For the three months ended March 31, 2022
									Residential
									mortgage-
									backed		Commercial		Collateralized
	U.S.				States and				pass-		mortgage-		debt		Other
	government		Non-U.S.		political				through		backed		obligations		debt
	and agencies		governments		subdivisions		Corporate		securities		securities		(1)		obligations		Total

	(in millions)
Beginning balance	$	—	$	—	$	—	$	15.1	$	—	$	0.3	$	—	$	0.1	$	15.5
Additions for credit losses not previously recorded		—		—		—		1.0		—		—		—		—		1.0
Additional increases (decreases) for credit losses on securities with an allowance recorded in the previous period		—		—		—		3.0		—		—		—		—		3.0
Foreign currency translation adjustment		—		—		—		0.9		—		—		—		—		0.9
Ending balance	$	—	$	—	$	—	$	20.0	$	—	$	0.3	$	—	$	0.1	$	20.4

(1)	Primarily consists of collateralized loan obligations backed by secured corporate loans.

During 2023 and 2022, we did not write off any accrued interest to net investment income.

Available-for-Sale Securities in Unrealized Loss Positions Without an Allowance for Credit Loss

For available-for-sale securities with unrealized losses for which an allowance for credit loss has not been recorded, the gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position were as follows:

March 31, 2023

Less than

Greater than or

twelve months

equal to twelve months

Total

Gross

Fair

unrealized

Fair

unrealized

Fair

unrealized

value

losses

value

losses

value

losses

(in millions)

Fixed maturities, available-for-sale (1):

U.S. government and agencies

879.6

86.0

605.2

127.3

1,484.8

213.3

Non-U.S. governments

257.4

21.4

131.5

34.5

388.9

55.9

States and political subdivisions

3,191.6

372.3

2,251.2

537.3

5,442.8

909.6

Corporate

17,165.8

1,571.1

12,333.1

2,303.7

29,498.9

3,874.8

Residential mortgage-backed pass-through securities

616.0

16.4

1,159.9

156.5

1,775.9

172.9

Commercial mortgage-backed securities

996.4

78.4

3,749.0

548.6

4,745.4

627.0

Collateralized debt obligations (2)

1,738.4

33.5

2,484.8

97.5

4,223.2

131.0

Other debt obligations

2,413.2

116.9

3,382.9

538.5

5,796.1

655.4

Total fixed maturities, available-for-sale

27,258.4

2,296.0

26,097.6

4,343.9

53,356.0

6,639.9

(1)	Fair value and gross unrealized losses are excluded for available-for-sale securities for which an allowance for credit loss has been recorded.

(2)	Primarily consists of collateralized loan obligations backed by secured corporate loans.

Of the total amounts, Principal Life Insurance Company’s (“Principal Life”) consolidated portfolio represented $51,982.6 million in available-for-sale fixed maturities with gross unrealized losses of $6,493.8 million. Of the available-for-sale fixed maturities within Principal Life’s consolidated portfolio in a gross unrealized loss position, 94% were investment grade (rated AAA through BBB-) with an average price of 89 (carrying value/amortized cost) as of March 31, 2023. Gross unrealized losses in our fixed maturities portfolio decreased during the three months ended March 31, 2023, primarily due to a decrease in interest rates.

For those securities that had been in a continuous unrealized loss position for less than twelve months, Principal Life’s consolidated portfolio held 4,895 securities with a carrying value of $26,573.1 million and unrealized losses of $2,243.3 million reflecting an average price of 92 as of March 31, 2023. Of this portfolio, 94% was investment grade (rated AAA through BBB-) as of March 31, 2023, with associated unrealized losses of $2,170.6 million. The unrealized losses on these securities can primarily be attributed to changes in market interest rates and changes in credit spreads since the securities were acquired.

For those securities that had been in a continuous unrealized loss position greater than or equal to twelve months, Principal Life’s consolidated portfolio held 5,130 securities with a carrying value of $25,409.5 million and unrealized losses of $4,250.5 million as of March 31, 2023. The average credit rating of this portfolio was A+ with an average price of 86 as of March 31, 2023. Of the $4,250.5 million in unrealized losses, the corporate sector accounts for $2,228.7 million in unrealized losses with an average price of 84 and an average credit rating of BBB+. Furthermore, unrealized losses include $544.5 million within the CMBS sector with an average price of 87 and an average credit rating of AA; $530.8 million within the states and political subdivision sector with an average price of 81 and an average credit rating of AA-; and $415.0 million within the collateralized mortgage obligation security sector with an average price of 84 and an average credit rating of AAA. The unrealized losses on these securities can primarily be attributed to changes in market interest rates and changes in credit spreads since the securities were acquired.

Because we expected to recover our amortized cost, we did not record an allowance for credit loss on these securities as of March 31, 2023. Because it was not our intent to sell the fixed maturity available-for-sale securities with unrealized losses and it was not more likely than not that we would be required to sell these securities before recovery of the amortized cost, which may be at maturity, we did not write down these investments to fair value.


	December 31, 2022
	Less than				Greater than or
	twelve months				equal to twelve months				Total
			Gross				Gross				Gross
	Fair		unrealized		Fair		unrealized		Fair		unrealized
	value		losses		value		losses		value		losses

	(in millions)
Fixed maturities, available-for-sale (1):
U.S. government and agencies	$	1,528.3	$	209.4	$	181.5	$	41.8	$	1,709.8	$	251.2
Non-U.S. governments		407.5		57.7		19.9		7.1		427.4		64.8
States and political subdivisions		5,303.5		1,008.9		391.9		127.8		5,695.4		1,136.7
Corporate		27,309.5		3,944.6		2,944.1		698.0		30,253.6		4,642.6
Residential mortgage-backed pass-through securities		1,201.7		97.5		574.8		105.7		1,776.5		203.2
Commercial mortgage-backed securities		3,648.5		484.0		1,124.8		222.5		4,773.3		706.5
Collateralized debt obligations (2)		2,832.2		89.0		1,330.1		54.7		4,162.3		143.7
Other debt obligations		3,419.8		292.0		2,283.8		437.6		5,703.6		729.6
Total fixed maturities, available-for-sale	$	45,651.0	$	6,183.1	$	8,850.9	$	1,695.2	$	54,501.9	$	7,878.3

(1)	Fair value and gross unrealized losses are excluded for available-for-sale securities for which an allowance for credit loss has been recorded.

(2)	Primarily consists of collateralized loan obligations backed by secured corporate loans.

Of the total amounts, Principal Life’s consolidated portfolio represented $53,353.1 million in available-for-sale fixed maturities with gross unrealized losses of $7,741.4 million. Of the available-for-sale fixed maturities within Principal Life’s consolidated portfolio in a gross unrealized loss position, 94% were investment grade (rated AAA through BBB-) with an average price of 87 (carrying value/amortized cost) as of December 31, 2022. Gross unrealized losses in our fixed maturities portfolio increased during the year ended December 31, 2022, primarily due to an increase in interest rates and a widening of credit spreads.

For those securities that had been in a continuous unrealized loss position for less than twelve months, Principal Life’s consolidated portfolio held 7,589 securities with a carrying value of $44,857.0 million and unrealized losses of $6,096.3 million reflecting an average price of 88 as of December 31, 2022. Of this portfolio, 95% was investment grade (rated AAA through BBB-) as of December 31, 2022, with associated unrealized losses of $5,920.4 million. The unrealized losses on these securities can primarily be attributed to changes in market interest rates and changes in credit spreads since the securities were acquired.

For those securities that had been in a continuous unrealized loss position greater than or equal to twelve months, Principal Life’s consolidated portfolio held 1,654 securities with a carrying value of $8,496.1 million and unrealized losses of $1,645.1 million as of December 31, 2022. The average credit rating of this portfolio was AA- with an average price of 84 as of December 31, 2022. Of the $1,645.1 million in unrealized losses, the corporate sector accounts for $654.9 million in unrealized losses with an average price of 80 and an average credit rating of BBB+. Furthermore, unrealized losses include $320.2 million within the collateralized mortgage obligation security sector with an average price of 81 and an average credit rating of AAA; $220.9 million within the CMBS sector with an average price of 83 and an average credit rating of AA+; and $126.8 million within the states and political subdivision sector with an average price of 75 and an average credit rating of AA-. The unrealized losses on these securities can primarily be attributed to changes in market interest rates and changes in credit spreads since the securities were acquired.

Because we expected to recover our amortized cost, we did not record an allowance for credit loss on these securities as of December 31, 2022. Because it was not our intent to sell the fixed maturity available-for-sale securities with unrealized losses and it was not more likely than not that we would be required to sell these securities before recovery of the amortized cost, which may be at maturity, we did not write down these investments to fair value.

Net Unrealized Gains and Losses on Available-for-Sale Securities and Derivative Instruments

The net unrealized gains and losses on investments in available-for-sale securities and the net unrealized gains and losses on derivative instruments in cash flow hedge relationships are reported as separate components of stockholders’ equity. The cumulative amount of net unrealized gains and losses on available-for-sale securities and derivative instruments in cash flow hedge relationships net of adjustments related to actuarial balances, policyholder liabilities, noncontrolling interest and applicable income taxes was as follows:


	March 31, 2023		December 31, 2022

	(in millions)
Net unrealized losses on fixed maturities, available-for-sale (1)	$	(6,072.3)	$	(7,445.7)
Net unrealized gains on derivative instruments		50.7		50.7
Adjustments for assumed changes in amortization patterns		(1.5)		(1.7)
Adjustments for assumed changes in policyholder liabilities		0.4		0.5
Net unrealized gains (losses) other investments and noncontrolling interest adjustments		(6.2)		7.9
Provision for deferred income tax benefits		1,288.8		1,570.1
Net unrealized losses on available-for-sale securities and derivative instruments	$	(4,740.1)	$	(5,818.2)

(1)	Excludes net unrealized gains (losses) on fixed maturities, available-for-sale included in fair value hedging relationships.

Financing Receivables

Mortgage Loans

Mortgage loans consist of commercial and residential mortgage loans. Our commercial mortgage loan portfolio consists primarily of non-recourse, fixed rate mortgages on stabilized properties. Our residential mortgage loan portfolio is composed of first lien and home equity mortgages concentrated in Chile and the United States.

Commercial and residential mortgage loans are generally reported at cost adjusted for amortization of premiums and accrual of discounts, computed using the interest method and net of valuation allowances. Amortized cost excludes accrued interest receivable. Interest income is accrued on the principal amount of the loan based on the loan’s contractual interest rate. Interest income, as well as prepayment of fees and the amortization of the related premium or discount, is reported in net investment income on the consolidated statements of operations. Accrued interest receivable is reported in accrued investment income on the consolidated statements of financial position. Any changes in the loan valuation allowances are reported in net realized capital gains (losses) on the consolidated statements of operations. Further details relating to our valuation allowance are included under the caption “Financing Receivables Valuation Allowance.”

Direct Financing Leases

Our direct financing leases are concentrated in Chile. Our Chilean operations enter into private placement contracts for commercial, industrial and office space properties whereby our Chilean operations purchase the real estate and/or building from the seller-lessee but then lease the property back to the seller-lessee. Ownership of the property is transferred to the lessee by the end of the lease term. Direct financing leases are reported as a component of other investments in the consolidated statements of financial position.

Reinsurance Recoverable and Deposit Receivable

Our reinsurance recoverables include amounts due from reinsurers for paid or unpaid claims, claims incurred but not reported or policy benefits. We cede life, disability, medical and long-term care insurance as well as fixed annuity contracts with significant life insurance risk to other insurance companies through reinsurance. Deposit receivables include amounts due from the reinsurer for fixed annuity contracts without significant life insurance risk recorded using the deposit method of accounting.

Credit Quality Information for Financing Receivables

The amortized cost of our financing receivables by credit risk and vintage was as follows:

March 31, 2023

2023

2022

2021

2020

2019

Prior

Total

(in millions)

Commercial mortgage loans:

A- and above

71.0

1,039.4

2,302.1

1,779.6

2,206.7

6,595.5

13,994.3

BBB+ thru BBB-

14.9

454.2

444.2

185.4

390.9

827.2

2,316.8

BB+ thru BB-

31.8

116.4

18.2

3.2

—

136.9

306.5

B+ and below

—

49.5

Total

117.7

1,610.0

2,764.5

1,968.2

2,597.6

7,609.1

16,667.1

Direct financing leases:

A- and above

—

129.8

14.7

62.7

1.5

235.8

444.5

BBB+ thru BBB-

—

25.5

23.2

52.2

12.8

84.1

197.8

BB+ thru BB-

2.2

—

62.0

8.7

—

1.9

74.8

Total

2.2

155.3

99.9

123.6

14.3

321.8

717.1

Residential mortgage loans:

Performing

81.6

1,114.0

1,730.4

448.6

132.9

493.8

4,001.3

Non-performing

—

5.3

4.7

3.8

1.4

7.7

22.9

Total

81.6

1,119.3

1,735.1

452.4

134.3

501.5

4,024.2

Reinsurance recoverable and deposit receivable

20,884.0


	December 31, 2022
	2022		2021		2020		2019		2018		Prior		Total

	(in millions)
Commercial mortgage loans:
A- and above	$	1,036.4	$	2,277.9	$	1,807.3	$	2,210.2	$	2,187.9	$	4,624.9	$	14,144.6
BBB+ thru BBB-		385.6		439.6		156.8		418.7		238.9		691.7		2,331.3
BB+ thru BB-		104.0		16.8		3.0		—		8.9		71.7		204.4
B+ and below		—		—		—		—		8.3		41.7		50.0
Total	$	1,526.0	$	2,734.3	$	1,967.1	$	2,628.9	$	2,444.0	$	5,430.0	$	16,730.3

Direct financing leases:
A- and above	$	110.5	$	13.0	$	39.9	$	1.4	$	42.9	$	167.3	$	375.0
BBB+ thru BBB-		33.9		21.9		62.4		11.9		11.7		70.4		212.2
BB+ thru BB-		2.7		57.3		12.1		2.0		—		2.1		76.2
B+ and below		—		1.6		—		—		—		—		1.6
Total	$	147.1	$	93.8	$	114.4	$	15.3	$	54.6	$	239.8	$	665.0

Residential mortgage loans:
Performing	$	1,144.8	$	1,740.7	$	447.1	$	133.0	$	75.4	$	417.8	$	3,958.8
Non-performing		8.0		4.7		2.2		1.7		0.6		7.0		24.2
Total	$	1,152.8	$	1,745.4	$	449.3	$	134.7	$	76.0	$	424.8	$	3,983.0

Reinsurance recoverable and deposit receivable													$	21,156.7

The amortized cost of commercial mortgage loans, direct financing leases and residential mortgage loans excluded accrued interest receivable of $54.3 million, $1.7 million and $10.9 million, respectively, as of March 31, 2023, and $57.7 million, $0.0 million and $19.6 million, respectively, as of December 31, 2022.

Financing Receivables Credit Monitoring

Commercial Mortgage Loan Credit Risk Profile Based on Internal Rating

We actively monitor and manage our commercial mortgage loan and direct financing lease portfolios. All commercial mortgage loans and direct financing leases are analyzed regularly and substantially all are internally rated, based on a proprietary risk rating cash flow model, in order to monitor the financial quality of these assets. The models stress expected cash flows at various levels and at different points in time depending on the durability of the income stream, which includes our assessment of factors such as location (macro and micro markets), tenant quality and lease expirations. Our internal rating analysis presents expected losses in terms of an S&P Global (“S&P”) bond equivalent rating for domestic commercial mortgage loans and Feller rate equivalent for Chilean commercial mortgage loans and direct financing leases. As the credit risk for commercial mortgage loans and direct financing leases increases, we adjust our internal ratings downward with loans in the category “B+ and below” having the highest risk for credit loss. Internal ratings on commercial mortgage loans and direct financing leases are updated at least annually and potentially more often for certain investments with material changes in collateral value or occupancy and for investments on an internal “watch list”.

Commercial mortgage loans and direct financing leases that require more frequent and detailed attention are identified and placed on an internal “watch list”. Among the criteria that may indicate a potential problem are significant negative changes in ratios of loan to value or contract rents to debt service, major tenant vacancies or bankruptcies, borrower sponsorship problems, late payments, delinquent taxes and loan relief/restructuring requests.

Residential Mortgage Loan Credit Risk Profile Based on Performance Status

Our residential mortgage loan portfolio is monitored based on performance of the loans. Monitoring on a residential mortgage loan increases when the loan is delinquent or earlier if there is an indication of potential impairment. We define non-performing domestic residential mortgage loans as loans 90 days or greater delinquent or on non-accrual status. We define non-performing residential first lien mortgages in the Chilean market as loans that have missed a specified number of coupon payments based on the nature of the loans and collection practices in that market.

Non-Accrual Financing Receivables

Financing receivables are placed on non-accrual status if we have concern regarding the collectability of future payments or if a financing receivable has matured without being paid off or extended. Factors considered may include conversations with the borrower, loss of major tenant, bankruptcy of borrower or major tenant, decreased property cash flow for commercial mortgage loans and direct financing leases or number of days past due and other circumstances for residential mortgage loans. Based on an assessment as to the collectability of the principal, a determination is made to apply any payments received either against the principal, against the valuation allowance or according to the contractual terms. When a financing receivable is placed on non-accrual status, the accrued unpaid interest receivable is reversed against interest income. Accrual of interest resumes after factors resulting in doubts about collectability have improved. Financing receivables in the Chilean market are carried on accrual for a longer period of delinquency than domestic financing receivables, as assessment of collectability is based on the nature of the financing receivables and collection practices in that market.

The amortized cost of financing receivables on non-accrual status was as follows:


		March 31, 2023
					Amortized cost
	Beginning		Ending		of nonaccrual
	amortized cost		amortized cost		assets without
	on nonaccrual		on nonaccrual		a valuation
	status		status		allowance

		(in millions)
Commercial mortgage loans	$	50.0	$	49.4	$	—
Residential mortgage loans		17.8		15.3		0.6
Total	$	67.8	$	64.7	$	0.6


	December 31, 2022
					Amortized cost
	Beginning		Ending		of nonaccrual
	amortized cost		amortized cost		assets without
	on nonaccrual		on nonaccrual		a valuation
	status		status		allowance

		(in millions)
Commercial mortgage loans	$	13.2	$	50.0	$	—
Residential mortgage loans		4.0		17.8		0.6
Total	$	17.2	$	67.8	$	0.6

Interest income recognized on non-accrual financing receivables was as follows:


	For the three months ended
	March 31,
	2023		2022

	(in millions)
Commercial mortgage loans	$	—	$	0.3
Total	$	—	$	0.3

The aging of our financing receivables, based on amortized cost, was as follows:

March 31, 2023

Amortized

cost

90 days or

30-59 days

60-89 days

more past

Total past

more and

past due

due

Current

Total (1)

accruing

(in millions)

Commercial mortgage loans

24.4

—

14.5

38.9

16,628.2

16,667.1

1.1

Direct financing leases

6.3

44.9

4.4

55.6

661.5

717.1

4.4

Residential mortgage loans

69.8

16.7

15.6

102.1

3,922.1

4,024.2

7.6

Total

100.5

61.6

34.5

196.6

21,211.8

21,408.4

13.1


	December 31, 2022
													Amortized
													cost
					90 days or								90 days or
	30-59 days		60-89 days		more past		Total past						more and
	past due		past due		due		due		Current		Total (1)		accruing

	(in millions)
Commercial mortgage loans	$	45.9	$	7.5	$	14.4	$	67.8	$	16,662.5	$	16,730.3	$	—
Direct financing leases		6.6		6.2		1.6		14.4		650.6		665.0		1.6
Residential mortgage loans		73.1		15.4		16.2		104.7		3,878.3		3,983.0		6.4
Total	$	125.6	$	29.1	$	32.2	$	186.9	$	21,191.4	$	21,378.3	$	8.0

(1)	As of both March 31, 2023 and December 31, 2022, no reinsurance recoverables or deposit receivables were considered past due.

Financing Receivables Valuation Allowance

We establish a valuation allowance to provide for the risk of credit losses inherent in our financing receivables. The valuation allowance is maintained at a level believed adequate by management to absorb estimated expected credit losses. The valuation allowance is based on amortized cost excluding accrued interest receivable and includes reserves for pools of financing receivables with similar risk characteristics. We do not measure a credit loss allowance on accrued interest receivable because we write off the uncollectible accrued interest receivable balance to net investment income in a timely manner, generally within 90 days domestically or, in the Chilean market, based on the nature of the loans and collection practices in that market. During 2023 and 2022, we did not write off any commercial mortgage loan accrued interest or residential mortgage loan accrued interest.

For commercial and residential mortgage loans and direct financing leases, management’s periodic evaluation and assessment of the valuation allowance adequacy is based on known and inherent risks in the portfolio, adverse situations that may affect a borrower’s ability to repay, the estimated value of the underlying collateral, composition of the portfolio, portfolio delinquency information, underwriting standards, peer group information, current and forecasted economic conditions, loss experience and other relevant factors. For reinsurance recoverables and deposit receivables, management’s periodic evaluation and assessment of the valuation allowance adequacy is based on known and inherent risks, adverse situations that may affect a reinsurer’s ability to repay, current and forecasted economic conditions, industry loss experience and other relevant factors.

Our commercial mortgage loans and direct financing leases are pooled by risk rating level with an estimated loss ratio applied against each risk rating level. The loss ratio is generally based upon historical loss experience for each risk rating level as adjusted for certain current and forecasted environmental factors management believes to be relevant. Environmental factors are forecasted for two years or less with immediate reversion to historical experience. The allowance for direct financing leases is also adjusted for the residual value of the leased assets. A commercial mortgage loan or direct financing lease is evaluated individually if it does not continue to share similar risk characteristics of a pool. We analyze the need for an individual evaluation for any domestic commercial mortgage loan that is delinquent for 60 days or more, in process of foreclosure, restructured, on the internal “watch list” or that currently is evaluated individually. We analyze the need for an individual evaluation for any Chilean commercial mortgage loan or direct financing lease that is considered past due based on collection practices in the Chilean market and the nature of the loan or lease.

We estimate expected credit losses for certain commercial mortgage loan or direct financing lease commitments where we have a contractual obligation to extend credit. The expected credit losses are estimated based on the commercial mortgage loan or direct financing lease valuation allowance process described previously, adjusted for probability of funding. The estimated expected credit losses for commercial mortgage loan and direct financing lease commitments are reported in other liabilities on the consolidated statements of financial position. The change in the credit loss liability for commitments is included in net realized capital gains (losses) on the consolidated statements of operations. Once funded, expected credit losses for commercial mortgage loans or direct financing leases are included within the commercial mortgage loan or direct financing lease valuation allowance described previously.

We evaluate residential mortgage loans based on aggregated risk factors and historical loss experience by pool type. We adjust these quantitative factors for qualitative factors of present and forecasted conditions. Qualitative factors include items such as economic and business conditions, changes in the portfolio, value of underlying collateral and concentrations. A residential mortgage loan is evaluated individually if it does not continue to share similar risk characteristics of a pool. We analyze the need for an individual evaluation for any domestic residential mortgage loan that is delinquent for 60 days or more, in process of foreclosure, restructured, on the internal “watch list” or that currently is evaluated individually. We analyze the need for an individual evaluation for any Chilean residential mortgage loan that is considered past due based on collection practices in the Chilean market and the nature of the loan.

As discussed previously, commercial and residential mortgage loans and direct financing leases are evaluated individually if the asset does not continue to share similar risk characteristics of a pool. When we determine a commercial or residential mortgage loan is probable of foreclosure, a valuation allowance is established equal to the difference between the carrying amount of the mortgage loan and the estimated value of the collateral reduced by the cost to sell. For certain commercial mortgage loans where repayment is expected to be provided substantially through the operation or sale of the collateral and the borrower is experiencing financial difficulty, we elect to establish a valuation allowance equal to the difference between the carrying amount of the mortgage loan and the estimated value of the real estate collateral, which may be reduced by the cost to sell. Estimated value may also be based on either the present value of the expected future cash flows discounted at the asset’s effective interest rate or the asset’s observable market price. Subsequent changes in the estimated value are reflected in the valuation allowance. Amounts on financing receivables deemed to be uncollectible are charged off and removed from the valuation allowance. The change in the valuation allowance for loans and direct financing leases is included in net realized capital gains (losses) on the consolidated statements of operations.

Our reinsurance recoverables and deposit receivable are pooled by reinsurer risk rating with an estimated loss ratio applied against each risk rating level. The loss ratio is generally based upon industry historical loss experience and expected recovery timing as adjusted for certain current and forecasted environmental factors management believes to be relevant. Environmental factors are forecasted for five years or less with immediate reversion to industry historical experience. A reinsurance recoverable or deposit receivable is evaluated individually if it does not continue to share similar risk characteristics of a pool. We analyze the need for an individual evaluation for any reinsurance recoverable or deposit receivable based on past due payments and changes in reinsurer risk ratings. The change in the valuation allowance for reinsurance recoverables and deposit receivable is included in benefits, claims and settlement expenses on the consolidated statements of operations.

A rollforward of our valuation allowance was as follows:

For the three months ended March 31, 2023

Direct

Commercial

financing

Residential

Reinsurance

mortgage loans

leases

mortgage loans

recoverables

Total

(in millions)

Beginning balance

77.9

0.6

5.6

2.7

86.8

Provision

3.8

(0.1)

0.1

(0.2)

3.6

Charge-offs

—

(0.1)

—

(0.1)

Recoveries

—

0.2

—

0.2

Foreign currency translation adjustment

0.2

0.1

—

0.4

Ending balance

81.9

0.6

5.9

2.5

90.9


	For the three months ended March 31, 2022
			Direct
	Commercial		financing		Residential		Reinsurance
	mortgage loans		leases		mortgage loans		recoverables		Total

		(in millions)
Beginning balance	$	43.9	$	0.4	$	2.0	$	2.7	$	49.0
Provision		22.1		—		(0.5)		—		21.6
Charge-offs		—		—		(0.1)		—		(0.1)
Recoveries		—		—		0.4		—		0.4
Foreign currency translation adjustment		0.1		—		—		—		0.1
Ending balance	$	66.1	$	0.4	$	1.8	$	2.7	$	71.0

Mortgage Loans

We periodically purchase mortgage loans as well as sell mortgage loans we have originated. Mortgage loans purchased and sold were as follows:


	For the three months ended
	March 31,
	2023		2022

	(in millions)
Commercial mortgage loans:
Purchased	$	33.0	$	32.7
Residential mortgage loans:
Purchased (1)		69.1		534.3
Sold		4.2		7.1

(1)	Includes mortgage loans purchased by residential mortgage loan VIEs in 2022.

Our commercial mortgage loan portfolio is diversified by geographic region and specific collateral property type as follows:


	March 31, 2023				December 31, 2022
	Amortized		Percent		Amortized		Percent
	cost		of total		cost		of total

	($ in millions)
Geographic distribution
New England	$	508.0	3.0	%	$	512.1	3.1	%
Middle Atlantic		4,510.8	27.1			4,505.6	26.9
East North Central		666.9	4.0			652.5	3.9
West North Central		369.4	2.2			370.9	2.2
South Atlantic		2,578.0	15.5			2,558.3	15.3
East South Central		349.0	2.1			339.8	2.0
West South Central		1,187.5	7.1			1,204.9	7.2
Mountain		954.9	5.7			938.7	5.6
Pacific		4,962.8	29.8			5,115.3	30.6
International		579.8	3.5			532.2	3.2
Total	$	16,667.1	100.0	%	$	16,730.3	100.0	%

Property type distribution
Office	$	4,103.0	24.6	%	$	4,322.0	25.9	%
Retail		1,513.8	9.1			1,499.4	9.0
Industrial		3,227.9	19.4			3,235.9	19.3
Apartments		6,931.2	41.6			6,827.1	40.8
Hotel		71.4	0.4			72.5	0.4
Mixed use/other		819.8	4.9			773.4	4.6
Total	$	16,667.1	100.0	%	$	16,730.3	100.0	%

Mortgage Loan Modifications

Our commercial and residential mortgage loan portfolios include loans that have been modified. We assess loan modifications that are related to our borrowers experiencing financial difficulty in the form of principal forgiveness, an interest rate reduction, an other-than-insignificant payment delay or a term extension (or a combination thereof). Generally, an assessment of whether a borrower is experiencing financial difficulty is made on the date of the modification.

The financing receivables valuation allowance utilizes an estimate of lifetime expected credit losses and it is recorded on each loan upon origination or acquisition. The starting point for the estimate of the valuation allowance is historical loss information, which includes losses from modification of receivables to borrowers experiencing financial difficulty. Because the effect of most modifications made to borrowers experiencing financial difficulty is already included in the valuation allowance because of the measurement methodologies used to estimate the allowance, a change to the valuation allowance is generally not recorded upon modification.

Occasionally, a modification of a loan from a borrower experiencing financial difficulty is in the form of principal forgiveness. When principal forgiveness is provided as a modification, the amount of the principal forgiven is deemed uncollectible. Therefore, that portion of the loan is written off, which results in a reduction of the amortized cost and a corresponding adjustment to the valuation allowance.

In some cases, we modify a loan by providing multiple types of concessions. Typically, one type of concession, such as a term extension, is granted initially. If the borrower continues to experience financial difficulty, another concession such as principal forgiveness may be granted.

We did not have any significant mortgage loans that were modified for the three months ended March 31, 2023.

Troubled Debt Restructuring

Prior to the implementation of authoritative guidance in 2023, we assessed loan modifications on a case-by-case basis to evaluate whether a TDR has occurred. When we had commercial mortgage loan TDRs, they were modified to delay or reduce principal payments and to reduce or delay interest payments. The commercial mortgage loan modifications result in delayed cash receipts, a decrease in interest income and loan rates that were considered below market. When we had residential mortgage loan TDRs, they included modifications of interest-only payment periods, delays in principal balloon payments and interest rate reductions. Residential mortgage loan modifications resulted in delayed or decreased cash receipts and a decrease in interest income.

When we had commercial mortgage loan TDRs, they were reserved for in the mortgage loan valuation allowance at the estimated fair value of the underlying collateral reduced by the cost to sell.

When we had residential mortgage loan TDRs, they were specifically reserved for in the mortgage loan valuation allowance if losses resulted from the modification. Residential mortgage loans that had defaulted or had been discharged through bankruptcy were reduced to the expected collectible amount.

We did not have any significant loans that were modified and met the criteria of a TDR for the three months ended March 31, 2022.

Securities Posted as Collateral

As of March 31, 2023 and December 31, 2022, we posted $6,707.2 million and $6,411.0 million, respectively, in commercial mortgage loans and residential first lien mortgages to satisfy collateral requirements associated with our obligation under funding agreements with Federal Home Loan Bank of Des Moines (“FHLB Des Moines”). In addition, as of March 31, 2023 and December 31, 2022, we posted $4,536.7 million and $3,569.7 million, respectively, in fixed maturities, available-for-sale and trading securities to satisfy collateral requirements primarily associated with a reinsurance arrangement, our derivative credit support annex (collateral) agreements, Futures Commission Merchant (“FCM”) agreements, a lending arrangement and our obligation under funding agreements with FHLB Des Moines. Since we did not relinquish ownership rights on these instruments, they are reported as mortgage loans, fixed maturities, available-for-sale and fixed maturities, trading, respectively, on our consolidated statements of financial position. Of the securities posted as collateral, as of March 31, 2023 and December 31, 2022, $681.8 million and $503.8 million, respectively, could be sold or repledged by the secured party.

Balance Sheet Offsetting

Financial assets subject to master netting agreements or similar agreements were as follows:


			Gross amounts not offset in the
			consolidated statements
			of financial position
	Gross amount
	of recognized		Financial		Collateral
	assets (1)		instruments (2)		received		Net amount

	(in millions)
March 31, 2023
Derivative assets	$	386.7	$	(149.1)	$	(195.6)	$	42.0
Reverse repurchase agreements		140.0		—		(140.3)		(0.3)
Total	$	526.7	$	(149.1)	$	(335.9)	$	41.7
December 31, 2022
Derivative assets	$	321.0	$	(135.7)	$	(151.9)	$	33.4
Reverse repurchase agreements		124.4		—		(124.4)		—
Total	$	445.4	$	(135.7)	$	(276.3)	$	33.4

(1)

The gross amount of recognized derivative and reverse repurchase agreement assets are reported with other investments and cash and cash equivalents, respectively, on the consolidated statements of financial position. The gross amounts of derivative and reverse repurchase agreement assets are not netted against offsetting liabilities for presentation on the consolidated statements of financial position.

(2)	Represents amount of offsetting derivative liabilities that are subject to an enforceable master netting agreement or similar agreement that are not netted against the gross derivative assets for presentation on the consolidated statements of financial position.

Financial liabilities subject to master netting agreements or similar agreements were as follows:

Gross amounts not offset in the

consolidated statements

of financial position

Gross amount

of recognized

Financial

Collateral

liabilities (1)

instruments (2)

pledged

Net amount

(in millions)

March 31, 2023

Derivative liabilities

507.3

(149.1)

(355.3)

2.9

December 31, 2022

Derivative liabilities

634.2

(135.7)

(485.1)

13.4

(1)

The gross amount of recognized derivative liabilities is reported with other liabilities on the consolidated statements of financial position. The above excludes derivative liabilities, which are primarily embedded derivatives that are not subject to master netting agreements or similar agreements. The gross amounts of derivative liabilities are not netted against offsetting assets for presentation on the consolidated statements of financial position.

(2)	Represents amount of offsetting derivative assets that are subject to an enforceable master netting agreement or similar agreement that are not netted against the gross derivative liabilities for presentation on the consolidated statements of financial position.

The financial instruments that are subject to master netting agreements or similar agreements include right of setoff provisions. Derivative instruments include provisions to setoff positions covered under the agreements with the same counterparties and provisions to setoff positions outside of the agreements with the same counterparties in the event of default by one of the parties. Derivative instruments also include collateral or variation margin provisions, which are generally settled daily with each counterparty. See Note 4, Derivative Financial Instruments, for further details.

Repurchase and reverse repurchase agreements include provisions to setoff other repurchase and reverse repurchase balances with the same counterparty. Repurchase and reverse repurchase agreements also include collateral provisions with the counterparties. For reverse repurchase agreements we require the counterparties to pledge collateral with a value greater than the amount of cash transferred. We have the right but do not sell or repledge collateral received in reverse repurchase agreements. Repurchase agreements are structured as secured borrowings for all counterparties. We pledge fixed maturities available-for-sale, which the counterparties have the right to sell or repledge. Interest incurred on repurchase agreements is reported as part of operating expenses on the consolidated statements of operations. Net proceeds related to repurchase agreements are reported as a component of financing activities on the consolidated statements of cash flows. We did not have any outstanding repurchase agreements as of March 31, 2023 and December 31, 2022.