Fair Value Measurements (Tables)

6 Months Ended

Jun. 30, 2020

Assets and liabilities measured at fair value

Assets and liabilities measured and carried at fair value in the financial statements are summarized below (in millions):


	Level 1		Level 2		Level 3		Total
June 30, 2020
Assets:
Available for sale (“AFS”) fixed maturities:
U.S. Government and government agencies	$	167	$	28	$	15	$	210
States, municipalities and political subdivisions	—		6,844		107		6,951
Foreign government	—		184		—		184
Residential MBS	—		3,066		156		3,222
Commercial MBS	—		856		33		889
Collateralized loan obligations	—		4,300		207		4,507
Other asset-backed securities	—		5,987		1,328		7,315
Corporate and other	28		23,215		1,525		24,768
Total AFS fixed maturities	195		44,480		3,371		48,046
Trading fixed maturities	1		96		—		97
Equity securities	1,075		75		452		1,602
Equity index call options	—		605		—		605
Assets of managed investment entities (“MIE”)	151		4,225		17		4,393
Variable annuity assets (separate accounts) (*)	—		577		—		577
Other assets — derivatives	—		124		—		124
Total assets accounted for at fair value	$	1,422	$	50,182	$	3,840	$	55,444
Liabilities:
Liabilities of managed investment entities	$	145	$	4,074	$	17	$	4,236
Derivatives in annuity benefits accumulated	—		—		3,675		3,675
Other liabilities — derivatives	—		10		—		10
Total liabilities accounted for at fair value	$	145	$	4,084	$	3,692	$	7,921

December 31, 2019
Assets:
Available for sale fixed maturities:
U.S. Government and government agencies	$	151	$	43	$	15	$	209
States, municipalities and political subdivisions	—		6,858		105		6,963
Foreign government	—		172		—		172
Residential MBS	—		2,987		173		3,160
Commercial MBS	—		892		35		927
Collateralized loan obligations	—		4,265		15		4,280
Other asset-backed securities	—		5,842		1,286		7,128
Corporate and other	29		21,879		1,758		23,666
Total AFS fixed maturities	180		42,938		3,387		46,505
Trading fixed maturities	2		111		—		113
Equity securities	1,433		67		437		1,937
Equity index call options	—		924		—		924
Assets of managed investment entities	213		4,506		17		4,736
Variable annuity assets (separate accounts) (*)	—		628		—		628
Other assets — derivatives	—		50		—		50
Total assets accounted for at fair value	$	1,828	$	49,224	$	3,841	$	54,893
Liabilities:
Liabilities of managed investment entities	$	206	$	4,349	$	16	$	4,571
Derivatives in annuity benefits accumulated	—		—		3,730		3,730
Other liabilities — derivatives	—		10		—		10
Total liabilities accounted for at fair value	$	206	$	4,359	$	3,746	$	8,311

(*)Variable annuity liabilities equal the fair value of variable annuity assets.

Unobservable inputs used by management in determining fair value of embedded derivatives

The following table presents information about the unobservable inputs used by management in determining fair value of these Level 3 liabilities. See Note F — “Derivatives.”

Unobservable Input

Range

Adjustment for insurance subsidiary’s credit risk

0.2% – 3.5% over the risk-free rate

Risk margin for uncertainty in cash flows

0.80% reduction in the discount rate

Surrenders

4% – 21% of indexed account value

Partial surrenders

2% – 9% of indexed account value

Annuitizations

0.1% – 1% of indexed account value

Deaths

1.9% – 10.7% of indexed account value

Budgeted option costs

2.5% – 3.3% of indexed account value

Changes in balances of Level 3 financial assets

Changes in balances of Level 3 financial assets and liabilities carried at fair value during the second quarter and first six months of 2020 and 2019 are presented below (in millions). The transfers into and out of Level 3 were due to changes in the availability of market observable inputs. All transfers are reflected in the table at fair value as of the end of the reporting period.


				Total realized/unrealized gains (losses) included in
			Balance at March 31, 2020			Net earnings (loss)			Other comprehensive income (loss)			Purchases and issuances			Sales and settlements			Transfer into Level 3			Transfer out of Level 3			Balance at June 30, 2020
AFS fixed maturities:
U.S. government agency	$	15		$	1		$	(1)		$	—		$	—		$	—		$	—		$	15
State and municipal	105			—			5			—			(1)			—			(2)			107
Residential MBS	163			—			4			—			(4)			—			(7)			156
Commercial MBS	32			1			—			—			—			—			—			33
Collateralized loan obligations	168			(3)			13			—			—			29			—			207
Other asset-backed securities	1,030			—			4			198			(25)			121			—			1,328
Corporate and other	1,548			1			47			48			(20)			4			(103)			1,525
Total AFS fixed maturities	3,061			—			72			246			(50)			154			(112)			3,371
Equity securities	436			(1)			—			17			—			—			—			452
Assets of MIE	16			(1)			—			—			—			2			—			17
Total Level 3 assets	$	3,513		$	(2)		$	72		$	263		$	(50)		$	156		$	(112)		$	3,840

Embedded derivatives	$	(3,099)		$	(601)		$	—		$	(46)		$	71		$	—		$	—		$	(3,675)
Total Level 3 liabilities (*)	$	(3,099)		$	(601)		$	—		$	(46)		$	71		$	—		$	—		$	(3,675)


				Total realized/unrealized gains (losses) included in
			Balance at March 31, 2019			Net earnings (loss)			Other comprehensive income (loss)			Purchases and issuances			Sales and settlements			Transfer into Level 3			Transfer out of Level 3			Balance at June 30, 2019
AFS fixed maturities:
U.S. government agency	$	8		$	—		$	—		$	—		$	—		$	—		$	—		$	8
State and municipal	63			—			2			—			(1)			18			—			82
Residential MBS	169			4			—			—			(4)			2			(32)			139
Commercial MBS	55			2			—			—			(2)			—			(5)			50
Collateralized loan obligations	37			—			—			—			—			13			—			50
Other asset-backed securities	633			—			3			17			(18)			—			(268)			367
Corporate and other	2,346			—			20			229			(161)			2			(422)			2,014
Total AFS fixed maturities	3,311			6			25			246			(186)			35			(727)			2,710
Equity securities	354			(1)			—			19			(1)			6			—			377
Assets of MIE	20			(1)			—			—			—			—			—			19
Total Level 3 assets	$	3,685		$	4		$	25		$	265		$	(187)		$	41		$	(727)		$	3,106

Embedded derivatives	$	(3,247)		$	(251)		$	—		$	(101)		$	58		$	—		$	—		$	(3,541)
Total Level 3 liabilities (*)	$	(3,247)		$	(251)		$	—		$	(101)		$	58		$	—		$	—		$	(3,541)

(*)As previously discussed, these tables exclude the portion of MIE liabilities allocated to Level 3, which are derived from the fair value of MIE assets.


				Total realized/unrealized gains (losses) included in
			Balance at December 31, 2019			Net earnings (loss)			Other comprehensive income (loss)			Purchases and issuances			Sales and settlements			Transfer into Level 3			Transfer out of Level 3			Balance at June 30, 2020
AFS fixed maturities:
U.S. government agency	$	15		$	2		$	(2)		$	—		$	—		$	—		$	—		$	15
State and municipal	105			—			6			—			(2)			—			(2)			107
Residential MBS	173			5			(8)			—			(9)			2			(7)			156
Commercial MBS	35			1			—			—			(3)			—			—			33
Collateralized loan obligations	15			(10)			15			—			—			187			—			207
Other asset-backed securities	1,286			(14)			(7)			275			(203)			134			(143)			1,328
Corporate and other	1,758			(2)			20			167			(56)			9			(371)			1,525
Total AFS fixed maturities	3,387			(18)			24			442			(273)			332			(523)			3,371
Equity securities	437			(25)			—			23			—			17			—			452
Assets of MIE	17			(2)			—			—			—			2			—			17
Total Level 3 assets	$	3,841		$	(45)		$	24		$	465		$	(273)		$	351		$	(523)		$	3,840

Embedded derivatives	$	(3,730)		$	46		$	—		$	(124)		$	133		$	—		$	—		$	(3,675)
Total Level 3 liabilities (*)	$	(3,730)		$	46		$	—		$	(124)		$	133		$	—		$	—		$	(3,675)


				Total realized/unrealized gains (losses) included in
			Balance at December 31, 2018			Net earnings (loss)			Other comprehensive income (loss)			Purchases and issuances			Sales and settlements			Transfer into Level 3			Transfer out of Level 3			Balance at June 30, 2019
AFS fixed maturities:
U.S. government agency	$	9		$	—		$	—		$	—		$	(1)		$	—		$	—		$	8
State and municipal	59			—			7			—			(2)			18			—			82
Residential MBS	197			9			(5)			—			(10)			2			(54)			139
Commercial MBS	56			2			—			—			(3)			—			(5)			50
Collateralized loan obligations	116			(3)			6			—			—			13			(82)			50
Other asset-backed securities	731			—			5			92			(132)			—			(329)			367
Corporate and other	1,996			2			51			661			(249)			2			(449)			2,014
Total AFS fixed maturities	3,164			10			64			753			(397)			35			(919)			2,710
Equity securities	336			—			—			20			(1)			22			—			377
Assets of MIE	21			(2)			—			—			—			—			—			19
Total Level 3 assets	$	3,521		$	8		$	64		$	773		$	(398)		$	57		$	(919)		$	3,106

Embedded derivatives	$	(2,720)		$	(713)		$	—		$	(213)		$	105		$	—		$	—		$	(3,541)
Total Level 3 liabilities (*)	$	(2,720)		$	(713)		$	—		$	(213)		$	105		$	—		$	—		$	(3,541)

(*)As previously discussed, these tables exclude the portion of MIE liabilities allocated to Level 3, which are derived from the fair value of the MIE assets.

Changes in balances of Level 3 financial liabilities


				Total realized/unrealized gains (losses) included in
			Balance at March 31, 2020			Net earnings (loss)			Other comprehensive income (loss)			Purchases and issuances			Sales and settlements			Transfer into Level 3			Transfer out of Level 3			Balance at June 30, 2020
AFS fixed maturities:
U.S. government agency	$	15		$	1		$	(1)		$	—		$	—		$	—		$	—		$	15
State and municipal	105			—			5			—			(1)			—			(2)			107
Residential MBS	163			—			4			—			(4)			—			(7)			156
Commercial MBS	32			1			—			—			—			—			—			33
Collateralized loan obligations	168			(3)			13			—			—			29			—			207
Other asset-backed securities	1,030			—			4			198			(25)			121			—			1,328
Corporate and other	1,548			1			47			48			(20)			4			(103)			1,525
Total AFS fixed maturities	3,061			—			72			246			(50)			154			(112)			3,371
Equity securities	436			(1)			—			17			—			—			—			452
Assets of MIE	16			(1)			—			—			—			2			—			17
Total Level 3 assets	$	3,513		$	(2)		$	72		$	263		$	(50)		$	156		$	(112)		$	3,840

Embedded derivatives	$	(3,099)		$	(601)		$	—		$	(46)		$	71		$	—		$	—		$	(3,675)
Total Level 3 liabilities (*)	$	(3,099)		$	(601)		$	—		$	(46)		$	71		$	—		$	—		$	(3,675)


				Total realized/unrealized gains (losses) included in
			Balance at March 31, 2019			Net earnings (loss)			Other comprehensive income (loss)			Purchases and issuances			Sales and settlements			Transfer into Level 3			Transfer out of Level 3			Balance at June 30, 2019
AFS fixed maturities:
U.S. government agency	$	8		$	—		$	—		$	—		$	—		$	—		$	—		$	8
State and municipal	63			—			2			—			(1)			18			—			82
Residential MBS	169			4			—			—			(4)			2			(32)			139
Commercial MBS	55			2			—			—			(2)			—			(5)			50
Collateralized loan obligations	37			—			—			—			—			13			—			50
Other asset-backed securities	633			—			3			17			(18)			—			(268)			367
Corporate and other	2,346			—			20			229			(161)			2			(422)			2,014
Total AFS fixed maturities	3,311			6			25			246			(186)			35			(727)			2,710
Equity securities	354			(1)			—			19			(1)			6			—			377
Assets of MIE	20			(1)			—			—			—			—			—			19
Total Level 3 assets	$	3,685		$	4		$	25		$	265		$	(187)		$	41		$	(727)		$	3,106

Embedded derivatives	$	(3,247)		$	(251)		$	—		$	(101)		$	58		$	—		$	—		$	(3,541)
Total Level 3 liabilities (*)	$	(3,247)		$	(251)		$	—		$	(101)		$	58		$	—		$	—		$	(3,541)

(*)As previously discussed, these tables exclude the portion of MIE liabilities allocated to Level 3, which are derived from the fair value of MIE assets.


				Total realized/unrealized gains (losses) included in
			Balance at December 31, 2019			Net earnings (loss)			Other comprehensive income (loss)			Purchases and issuances			Sales and settlements			Transfer into Level 3			Transfer out of Level 3			Balance at June 30, 2020
AFS fixed maturities:
U.S. government agency	$	15		$	2		$	(2)		$	—		$	—		$	—		$	—		$	15
State and municipal	105			—			6			—			(2)			—			(2)			107
Residential MBS	173			5			(8)			—			(9)			2			(7)			156
Commercial MBS	35			1			—			—			(3)			—			—			33
Collateralized loan obligations	15			(10)			15			—			—			187			—			207
Other asset-backed securities	1,286			(14)			(7)			275			(203)			134			(143)			1,328
Corporate and other	1,758			(2)			20			167			(56)			9			(371)			1,525
Total AFS fixed maturities	3,387			(18)			24			442			(273)			332			(523)			3,371
Equity securities	437			(25)			—			23			—			17			—			452
Assets of MIE	17			(2)			—			—			—			2			—			17
Total Level 3 assets	$	3,841		$	(45)		$	24		$	465		$	(273)		$	351		$	(523)		$	3,840

Embedded derivatives	$	(3,730)		$	46		$	—		$	(124)		$	133		$	—		$	—		$	(3,675)
Total Level 3 liabilities (*)	$	(3,730)		$	46		$	—		$	(124)		$	133		$	—		$	—		$	(3,675)


				Total realized/unrealized gains (losses) included in
			Balance at December 31, 2018			Net earnings (loss)			Other comprehensive income (loss)			Purchases and issuances			Sales and settlements			Transfer into Level 3			Transfer out of Level 3			Balance at June 30, 2019
AFS fixed maturities:
U.S. government agency	$	9		$	—		$	—		$	—		$	(1)		$	—		$	—		$	8
State and municipal	59			—			7			—			(2)			18			—			82
Residential MBS	197			9			(5)			—			(10)			2			(54)			139
Commercial MBS	56			2			—			—			(3)			—			(5)			50
Collateralized loan obligations	116			(3)			6			—			—			13			(82)			50
Other asset-backed securities	731			—			5			92			(132)			—			(329)			367
Corporate and other	1,996			2			51			661			(249)			2			(449)			2,014
Total AFS fixed maturities	3,164			10			64			753			(397)			35			(919)			2,710
Equity securities	336			—			—			20			(1)			22			—			377
Assets of MIE	21			(2)			—			—			—			—			—			19
Total Level 3 assets	$	3,521		$	8		$	64		$	773		$	(398)		$	57		$	(919)		$	3,106

Embedded derivatives	$	(2,720)		$	(713)		$	—		$	(213)		$	105		$	—		$	—		$	(3,541)
Total Level 3 liabilities (*)	$	(2,720)		$	(713)		$	—		$	(213)		$	105		$	—		$	—		$	(3,541)

(*)As previously discussed, these tables exclude the portion of MIE liabilities allocated to Level 3, which are derived from the fair value of the MIE assets.

Fair value of financial instruments

The carrying value and fair value of financial instruments that are not carried at fair value in the financial statements are summarized below (in millions):


	Carrying		Fair Value
	Value		Total		Level 1		Level 2		Level 3
June 30, 2020
Financial assets:
Cash and cash equivalents	$	2,698	$	2,698	$	2,698	$	—	$	—
Mortgage loans	1,475		1,492		—		—		1,492
Policy loans	158		158		—		—		158
Total financial assets not accounted for at fair value	$	4,331	$	4,348	$	2,698	$	—	$	1,650
Financial liabilities:
Annuity benefits accumulated (*)	$	41,137	$	42,462	$	—	$	—	$	42,462
Long-term debt	1,912		2,060		—		2,057		3
Total financial liabilities not accounted for at fair value	$	43,049	$	44,522	$	—	$	2,057	$	42,465

December 31, 2019
Financial assets:
Cash and cash equivalents	$	2,314	$	2,314	$	2,314	$	—	$	—
Mortgage loans	1,329		1,346		—		—		1,346
Policy loans	164		164		—		—		164
Total financial assets not accounted for at fair value	$	3,807	$	3,824	$	2,314	$	—	$	1,510
Financial liabilities:
Annuity benefits accumulated (*)	$	40,159	$	40,182	$	—	$	—	$	40,182
Long-term debt	1,473		1,622		—		1,619		3
Total financial liabilities not accounted for at fair value	$	41,632	$	41,804	$	—	$	1,619	$	40,185

(*)Excludes $255 million and $247 million of life contingent annuities in the payout phase at June 30, 2020 and December 31, 2019, respectively.