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Investments
 9 Months Ended
Sep. 30, 2019
Investments, Debt and Equity Securities [Abstract]  
Investments 6. Investments
Fixed Maturity Securities Available-for-Sale
Fixed Maturity Securities Available-for-Sale by Sector
The following table presents the fixed maturity securities AFS by sector. U.S. corporate and foreign corporate sectors include redeemable preferred stock. Residential mortgage-backed securities (“RMBS”) includes Agency, prime, alternative and sub-prime mortgage-backed securities. Asset-backed securities (“ABS”) includes securities collateralized by corporate loans and consumer loans. Municipals includes taxable and tax-exempt revenue bonds and, to a much lesser extent, general obligations of states, municipalities and political subdivisions. Commercial mortgage-backed securities (“CMBS”) primarily includes securities collateralized by multiple properties. RMBS, ABS and CMBS are collectively, “Structured Securities.”
 
September 30, 2019
 
December 31, 2018
 
Amortized
Cost
 
Gross Unrealized
 
Estimated
Fair
Value
 
Amortized
Cost
 
Gross Unrealized
 
Estimated
Fair
Value
 

Gains
 
Temporary
Losses
 
OTTI
Losses (1)
 

Gains
 
Temporary
Losses
 
OTTI
Losses (1)
 
 
(In millions)
U.S. corporate
$
78,243

 
$
9,194

 
$
323

 
$
—

 
$
87,114

 
$
77,761

 
$
3,467

 
$
2,280

 
$
—

 
$
78,948

Foreign government
58,318

 
9,663

 
434

 
—

 
67,547

 
56,353

 
6,406

 
471

 
—

 
62,288

Foreign corporate
58,699

 
5,523

 
1,122

 
—

 
63,100

 
56,290

 
2,438

 
2,025

 
—

 
56,703

U.S. government and agency
34,963

 
5,853

 
14

 
—

 
40,802

 
37,030

 
2,756

 
464

 
—

 
39,322

RMBS
27,889

 
1,728

 
63

 
(37
)
 
29,591

 
27,409

 
920

 
394

 
(26
)
 
27,961

ABS
14,319

 
111

 
85

 
—

 
14,345

 
12,552

 
74

 
153

 
1

 
12,472

Municipals
10,600

 
2,348

 
6

 
—

 
12,942

 
10,376

 
1,228

 
71

 
—

 
11,533

CMBS
10,099

 
544

 
35

 
—

 
10,608

 
9,045

 
115

 
122

 
—

 
9,038

Total fixed maturity securities AFS
$
293,130


$
34,964


$
2,082


$
(37
)

$
326,049


$
286,816


$
17,404


$
5,980


$
(25
)

$
298,265


__________________
(1)
Noncredit OTTI losses included in AOCI in an unrealized gain position are due to increases in estimated fair value subsequent to initial recognition of noncredit losses on such securities. See also “— Net Unrealized Investment Gains (Losses).”
The Company held non-income producing fixed maturity securities AFS with an estimated fair value of $35 million and $15 million, and unrealized gains (losses) of $1 million and ($1) million at September 30, 2019 and December 31, 2018, respectively.
Maturities of Fixed Maturity Securities AFS
The amortized cost and estimated fair value of fixed maturity securities AFS, by contractual maturity date, were as follows at September 30, 2019:
 
 
Due in One
Year or Less
 
Due After
One Year
Through
Five Years
 
Due After
Five Years
Through Ten
Years
 
Due After
Ten Years
 
Structured
Securities
 
Total Fixed
Maturity
Securities AFS
 
 
(In millions)
Amortized cost
 
$
17,217

 
$
48,060

 
$
58,619

 
$
116,927

 
$
52,307

 
$
293,130

Estimated fair value
 
$
17,280

 
$
50,027

 
$
63,869

 
$
140,329

 
$
54,544

 
$
326,049


Actual maturities may differ from contractual maturities due to the exercise of call or prepayment options. Fixed maturity securities AFS not due at a single maturity date have been presented in the year of final contractual maturity. Structured Securities are shown separately, as they are not due at a single maturity.
Continuous Gross Unrealized Losses for Fixed Maturity Securities AFS by Sector
The following table presents the estimated fair value and gross unrealized losses of fixed maturity securities AFS in an unrealized loss position by sector and aggregated by length of time that the securities have been in a continuous unrealized loss position at:
 
 
September 30, 2019
 
December 31, 2018
 
 
Less than 12 Months
 
Equal to or Greater
than 12 Months
 
Less than 12 Months
 
Equal to or Greater
than 12 Months
 
 
Estimated
Fair
Value
 
Gross
Unrealized
Losses
 
Estimated
Fair
Value
 
Gross
Unrealized
Losses
 
Estimated
Fair
Value
 
Gross
Unrealized
Losses
 
Estimated
Fair
Value
 
Gross
Unrealized
Losses
 
 
(Dollars in millions)
U.S. corporate
 
$
3,320

 
$
110

 
$
2,361

 
$
213

 
$
32,430

 
$
1,663

 
$
5,826

 
$
617

Foreign government
 
2,504

 
314

 
1,312

 
120

 
4,392

 
243

 
2,902

 
228

Foreign corporate
 
4,079

 
199

 
7,398

 
923

 
19,564

 
1,230

 
5,765

 
795

U.S. government and agency
 
1,860

 
11

 
149

 
3

 
6,813

 
58

 
8,937

 
406

RMBS
 
1,912

 
11

 
813

 
15

 
6,506

 
120

 
6,423

 
248

ABS
 
4,949

 
39

 
3,083

 
46

 
8,230

 
138

 
392

 
16

Municipals
 
205

 
3

 
31

 
3

 
1,380

 
46

 
349

 
25

CMBS
 
1,138

 
5

 
438

 
30

 
3,893

 
67

 
707

 
55

Total fixed maturity securities AFS
 
$
19,967

 
$
692

 
$
15,585

 
$
1,353

 
$
83,208

 
$
3,565

 
$
31,301

 
$
2,390

Total number of securities in an unrealized loss position
 
1,869

 

 
1,414

 

 
6,913

 

 
2,335

 


Evaluation of Fixed Maturity Securities AFS for OTTI and Evaluating Temporarily Impaired Fixed Maturity Securities AFS
As described more fully in Notes 1 and 8 of the Notes to the Consolidated Financial Statements included in the 2018 Annual Report, the Company performs a regular evaluation of all investment classes for impairment, including fixed maturity securities AFS and perpetual hybrid securities, in accordance with its impairment policy, in order to evaluate whether such investments are other-than-temporarily impaired.
Current Period Evaluation
Based on the Company’s current evaluation of its securities in an unrealized loss position in accordance with its impairment policy, and the Company’s current intentions and assessments (as applicable to the type of security) about holding, selling and any requirements to sell these securities, the Company concluded that these securities were not other-than-temporarily impaired at September 30, 2019. Future OTTI will depend primarily on economic fundamentals, issuer performance (including changes in the present value of future cash flows expected to be collected), and changes in credit ratings, collateral valuation and foreign currency exchange rates. If economic fundamentals deteriorate or if there are adverse changes in the above factors, OTTI may be incurred in upcoming periods.
Gross unrealized losses on fixed maturity securities AFS decreased $3.9 billion for the nine months ended September 30, 2019 to $2.0 billion. The decrease in gross unrealized losses for the nine months ended September 30, 2019 was primarily attributable to decreases in interest rates, narrowing credit spreads and to a lesser extent, the impact of weakening foreign currencies on certain foreign currency denominated fixed maturity securities AFS.
At September 30, 2019, $176 million of the total $2.0 billion of gross unrealized losses were from 51 fixed maturity securities AFS with an unrealized loss position of 20% or more of amortized cost for six months or greater.
Investment Grade Fixed Maturity Securities AFS
Of the $176 million of gross unrealized losses on fixed maturity securities AFS with an unrealized loss of 20% or more of amortized cost for six months or greater, $101 million, or 57%, were related to gross unrealized losses on 17 investment grade fixed maturity securities AFS. Unrealized losses on investment grade fixed maturity securities AFS are principally related to widening credit spreads since purchase and, with respect to fixed-rate fixed maturity securities AFS, rising interest rates since purchase.
Below Investment Grade Fixed Maturity Securities AFS
Of the $176 million of gross unrealized losses on fixed maturity securities AFS with an unrealized loss of 20% or more of amortized cost for six months or greater, $75 million, or 43%, were related to gross unrealized losses on 34 below investment grade fixed maturity securities AFS. Unrealized losses on below investment grade fixed maturity securities AFS are principally related to U.S. and foreign corporate securities (primarily industrial and financial institutions) and foreign government securities and are the result of significantly wider credit spreads resulting from higher risk premiums since purchase, largely due to economic and market uncertainty. Management evaluates U.S. corporate and foreign corporate securities based on factors such as expected cash flows, financial condition and near-term and long-term prospects of the issuers. Management evaluates foreign government securities based on factors impacting the issuers such as expected cash flows and financial condition of the issuers and any country-specific economic conditions or public sector programs.
Equity Securities
Equity securities are summarized as follows at:
 
September 30, 2019
 
December 31, 2018
 
Estimated
Fair
Value
 
% of
Total
 
Estimated
Fair
Value
 
% of
Total
 
 
(Dollars in millions)
Common stock
$
938

 
69.9
%
 
$
1,037

 
72.0
%
Non-redeemable preferred stock
403

 
30.1

 
403

 
28.0

Total equity securities
$
1,341

 
100.0
%
 
$
1,440

 
100.0
%

Contractholder-Directed Equity Securities and Fair Value Option Securities
As described more fully in Note 1 of the Notes to the Consolidated Financial Statements included in the 2018 Annual Report, contractholder-directed equity securities and fair value option (“FVO”) securities (“FVO Securities”) (collectively, “Unit-linked and FVO Securities”) include three categories of investments for which the FVO has been elected, or are otherwise required to be carried at estimated fair value.
Mortgage Loans
Mortgage Loans by Portfolio Segment
Mortgage loans are summarized as follows at:
 
September 30, 2019
 
December 31, 2018
 
Carrying
Value
 
% of
Total
 
Carrying
Value
 
% of
Total
 
(Dollars in millions)
Mortgage loans:
 
 
 
 
 
 
 
Commercial
$
49,898

 
63.2
 %
 
$
48,463

 
64.0
 %
Agricultural
15,752

 
19.9

 
14,905

 
19.7

Residential
13,441

 
17.0

 
12,427

 
16.4

Total recorded investment
79,091

 
100.1

 
75,795

 
100.1

Valuation allowances
(350
)
 
(0.4
)
 
(342
)
 
(0.5
)
Subtotal mortgage loans, net
78,741

 
99.7

 
75,453

 
99.6

Residential — FVO (1)
218

 
0.3

 
299

 
0.4

Total mortgage loans, net
$
78,959

 
100.0
 %
 
$
75,752

 
100.0
 %

__________________
(1)
Information on residential mortgage loans — FVO is presented in Note 8. The Company elects the FVO for certain residential mortgage loans that are managed on a total return basis.
The amount of net discounts, included within total recorded investment, primarily residential, was $887 million and $944 million at September 30, 2019 and December 31, 2018, respectively.
Purchases of mortgage loans, primarily residential, were $1.1 billion and $3.0 billion for the three months and nine months ended September 30, 2019, respectively, and $724 million and $1.7 billion for the three months and nine months ended September 30, 2018, respectively.
Mortgage Loans, Valuation Allowance and Impaired Loans by Portfolio Segment
Mortgage loans by portfolio segment, by method of evaluation of credit loss, impaired mortgage loans including those modified in a troubled debt restructuring, and the related valuation allowances, were as follows at:
 
 
Evaluated Individually for Credit Losses
 
Evaluated Collectively for
Credit Losses
 
Impaired
Loans
 
 
Impaired Loans with a
Valuation Allowance
 
Impaired Loans without a
Valuation Allowance
 
 
 
 
 
 
 
 
Unpaid
Principal
Balance
 
Recorded
Investment
 
Valuation
Allowances
 
Unpaid
Principal
Balance
 
Recorded
Investment
 
Recorded
Investment
 
Valuation
Allowances
 
Carrying
Value
 
 
(In millions)
September 30, 2019
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial
 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
49,898

 
$
245

 
$
—

Agricultural
 
13

 
13

 
1

 
195

 
194

 
15,545

 
47

 
206

Residential
 
—

 
—

 
—

 
517

 
414

 
13,027

 
57

 
414

Total
 
$
13


$
13


$
1


$
712


$
608


$
78,470


$
349


$
620

December 31, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Commercial
 
$
—

 
$
—

 
$
—

 
$
—

 
$
—

 
$
48,463

 
$
238

 
$
—

Agricultural
 
31

 
31

 
3

 
169

 
169

 
14,705

 
43

 
197

Residential
 
—

 
—

 
—

 
431

 
386

 
12,041

 
58

 
386

Total
 
$
31


$
31


$
3


$
600


$
555


$
75,209


$
339


$
583


The average recorded investment for impaired commercial, agricultural and residential mortgage loans was $0, $214 million and $409 million, respectively, for the three months ended September 30, 2019, and $0, $188 million and $401 million, respectively, for the nine months ended September 30, 2019.
The average recorded investment for impaired commercial, agricultural and residential mortgage loans was $0, $124 million and $370 million, respectively, for the three months ended September 30, 2018, and $0, $104 million and $350 million, respectively, for the nine months ended September 30, 2018.
Valuation Allowance Rollforward by Portfolio Segment
The changes in the valuation allowance, by portfolio segment, were as follows:
 
Nine Months
Ended
September 30,
 
2019
 
2018
 
Commercial
 
Agricultural
 
Residential
 
Total
 
Commercial
 
Agricultural
 
Residential
 
Total
 
(In millions)
Balance, beginning of period
$
238

 
$
46

 
$
58

 
$
342

 
$
214

 
$
41

 
$
59

 
$
314

Provision (release)
7

 
7

 
6

 
20

 
18

 
1

 
9

 
28

Charge-offs, net of recoveries
—

 
(5
)
 
(7
)
 
(12
)
 
—

 
—

 
(6
)
 
(6
)
Balance, end of period
$
245


$
48


$
57


$
350


$
232


$
42


$
62


$
336



Credit Quality of Commercial Mortgage Loans
The credit quality of commercial mortgage loans was as follows at:
 
 
Recorded Investment
 
Estimated
Fair
Value
 
% of
Total
 
 
Debt Service Coverage Ratios
 
 
 
% of
Total
 
 
 
> 1.20x
 
1.00x - 1.20x
 
< 1.00x
 
Total
 
 
 
(Dollars in millions)
September 30, 2019
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loan-to-value ratios:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Less than 65%
 
$
41,317

 
$
754

 
$
512

 
$
42,583

 
85.3
%
 
$
44,529

 
85.7
%
65% to 75%
 
5,708

 
54

 
208

 
5,970

 
12.0

 
6,150

 
11.8

76% to 80%
 
368

 
17

 
265

 
650

 
1.3

 
634

 
1.2

Greater than 80%
 
461

 
234

 
—

 
695

 
1.4

 
671

 
1.3

Total
 
$
47,854


$
1,059


$
985


$
49,898


100.0
%

$
51,984


100.0
%
December 31, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loan-to-value ratios:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Less than 65%
 
$
40,360

 
$
827

 
$
101

 
$
41,288

 
85.2
%
 
$
41,599

 
85.3
%
65% to 75%
 
5,790

 
—

 
25

 
5,815

 
12.0

 
5,849

 
12.0

76% to 80%
 
423

 
209

 
56

 
688

 
1.4

 
664

 
1.4

Greater than 80%
 
496

 
176

 
—

 
672

 
1.4

 
635

 
1.3

Total
 
$
47,069


$
1,212


$
182


$
48,463

 
100.0
%
 
$
48,747

 
100.0
%

Credit Quality of Agricultural Mortgage Loans
The credit quality of agricultural mortgage loans was as follows at:
 
 
September 30, 2019
 
December 31, 2018
 
 
Recorded
Investment
 
% of
Total
 
Recorded
Investment
 
% of
Total
 
 
(Dollars in millions)
Loan-to-value ratios:
 
 
 
 
 
 
 
 
Less than 65%
 
$
14,711

 
93.4
%
 
$
13,704

 
92.0
%
65% to 75%
 
952

 
6.0

 
1,145

 
7.7

76% to 80%
 
78

 
0.5

 
33

 
0.2

Greater than 80%
 
11

 
0.1

 
23

 
0.1

Total
 
$
15,752

 
100.0
%
 
$
14,905

 
100.0
%

Credit Quality of Residential Mortgage Loans
The credit quality of residential mortgage loans was as follows at:
 
 
September 30, 2019
 
December 31, 2018
 
 
Recorded
Investment
 
% of
Total
 
Recorded
Investment
 
% of
Total
 
 
(Dollars in millions)
Performance indicators:
 
 
 
 
 
 
 
 
Performing
 
$
13,007

 
96.8
%
 
$
11,956

 
96.2
%
Nonperforming (1)
 
434

 
3.2

 
471

 
3.8

Total
 
$
13,441

 
100.0
%
 
$
12,427

 
100.0
%

__________________
(1)
Includes residential mortgage loans in process of foreclosure of $118 million and $140 million at September 30, 2019 and December 31, 2018, respectively.
Past Due and Nonaccrual Mortgage Loans
The Company has a high quality, well performing mortgage loan portfolio, with 99% of all mortgage loans classified as performing at both September 30, 2019 and December 31, 2018. The Company defines delinquency consistent with industry practice, when mortgage loans are past due as follows: commercial and residential mortgage loans — 60 days and agricultural mortgage loans — 90 days. The past due and nonaccrual mortgage loans at recorded investment, prior to valuation allowances, by portfolio segment, were as follows at:
 
 
Past Due
 
Greater than 90 Days Past Due
 and Still Accruing Interest
 
Nonaccrual
 
 
September 30, 2019
 
December 31, 2018
 
September 30, 2019
 
December 31, 2018
 
September 30, 2019
 
December 31, 2018
 
 
(In millions)
Commercial
 
$
—

 
$
9

 
$
—

 
$
9

 
$
176

 
$
176

Agricultural
 
202

 
204

 
129

 
109

 
88

 
105

Residential
 
434

 
471

 
37

 
35

 
397

 
436

Total
 
$
636

 
$
684

 
$
166

 
$
153

 
$
661

 
$
717


Real Estate and Real Estate Joint Ventures
The Company’s real estate investment portfolio is diversified by property type, geography and income stream, including income from operating leases, operating income and equity method income from real estate joint ventures. Real estate investments, by income type, as well as income earned, are as follows at and for the periods indicated:
 
September 30, 2019
 
December 31, 2018
 
Three Months
Ended
September 30,
 
Nine Months
Ended
September 30,
 
 
 
2019
 
2018
 
2019
 
2018
 
Carrying Value
 
Income
 
(In millions)
Leased real estate investments
$
4,516

 
$
4,132

 
$
103

 
$
103

 
$
285

 
$
311

Other real estate investments
488

 
461

 
45

 
45

 
135

 
135

Real estate joint ventures
5,242

 
5,105

 
33

 
27

 
70

 
92

Total real estate and real estate joint ventures
$
10,246

 
$
9,698

 
$
181

 
$
175

 
$
490

 
$
538


The carrying value of real estate investments acquired through foreclosure was $43 million and $45 million at September 30, 2019 and December 31, 2018, respectively. Depreciation expense on real estate investments was $28 million and $76 million for the three months and nine months ended September 30, 2019, respectively, and $22 million and $69 million for the three months and nine months ended September 30, 2018, respectively. Real estate investments were net of accumulated depreciation of $1.0 billion and $931 million at September 30, 2019 and December 31, 2018, respectively.
Leases
Leased Real Estate Investments - Operating Leases
The Company, as lessor, leases investment real estate, principally commercial real estate for office and retail use, through a variety of operating lease arrangements, which typically include tenant reimbursement for property operating costs and options to renew or extend the lease. In some circumstances, leases may include an option for the lessee to purchase the property. In addition, certain leases of retail space may stipulate that a portion of the income earned is contingent upon the level of the tenants’ revenues. The Company has elected a practical expedient of not separating non-lease components related to reimbursement of property operating costs from associated lease components. These property operating costs have the same timing and pattern of transfer as the related lease component, because they are incurred over the same period of time as the operating lease. Therefore, the combined component is accounted for as an operating lease. Risk is managed through lessee credit analysis, property type diversification, and geographic diversification, primarily across the United States. Leased real estate investments and income earned, by property type, are as follows at and for the periods indicated:
 
September 30, 2019
 
December 31, 2018
 
Three Months
Ended
September 30,
 
Nine Months
Ended
September 30,
 
 
 
2019
 
2018
 
2019
 
2018
 
Carrying Value
 
Income
 
(In millions)
Leased real estate investments:
 
 
 
 
 
 
 
 
 
 
 
Office
$
2,098

 
$
1,999

 
$
45

 
$
42

 
$
131

 
$
131

Retail
1,151

 
1,006

 
32

 
21

 
81

 
72

Apartment
255

 
253

 
6

 
23

 
16

 
60

Industrial
304

 
223

 
11

 
10

 
33

 
29

Land
533

 
489

 
5

 
5

 
15

 
14

Hotel
94

 
94

 
2

 
1

 
5

 
1

Other
81

 
68

 
2

 
1

 
4

 
4

Total leased real estate investments
$
4,516

 
$
4,132

 
$
103

 
$
103

 
$
285

 
$
311


Future contractual receipts under operating leases at September 30, 2019 are $77 million for the remainder of 2019, $246 million in 2020, $193 million in 2021, $163 million in 2022, $142 million in 2023, $992 million thereafter, and in total are $1.8 billion.
Leveraged and Direct Financing Leases
The Company has diversified leveraged lease and direct financing lease portfolios. Its leveraged leases principally include renewable energy generation facilities, rail cars, commercial real estate and commercial aircraft, and its direct financing leases principally include commercial real estate. These assets are leased through a variety of lease arrangements, which may include options to renew or extend the lease and options for the lessee to purchase the property. Residual values are estimated using available third-party data at inception of the lease. Risk is managed through lessee credit analysis, asset allocation, geographic diversification, and ongoing reviews of estimated residual values, using available third-party data and, in certain leases, linking the amount of future rental receipts to changes in inflation rates. Generally, estimated residual values are not guaranteed by the lessee or a third party.
Investment in leveraged and direct financing leases consisted of the following at:
 
September 30, 2019
 
December 31, 2018
 
Leveraged
Leases
 
Direct
Financing
Leases
 
Leveraged
Leases
 
Direct
Financing
Leases
 
(In millions)
Lease receivables, net (1)
$
700

 
$
1,891

 
$
715

 
$
1,855

Estimated residual values
786

 
42

 
807

 
42

Subtotal
1,486

 
1,933

 
1,522

 
1,897

Unearned income
(378
)
 
(689
)
 
(414
)
 
(705
)
Investment in leases
$
1,108

 
$
1,244

 
$
1,108

 
$
1,192

__________________
(1)
Future contractual receipts under direct financing leases at September 30, 2019 are $30 million for the remainder of 2019, $104 million in 2020, $102 million in 2021, $124 million in 2022, $109 million in 2023, $1.4 billion thereafter, and in total $1.9 billion.
Lease receivables are generally due in periodic installments. The payment periods for leveraged leases generally range from one to 15 years but in certain circumstances can be over 25 years, while the payment periods for direct financing leases generally range from one to 25 years but in certain circumstances can be over 25 years. For lease receivables, the primary credit quality indicator is whether the lease receivable is performing or nonperforming, which is assessed monthly. The Company generally defines nonperforming lease receivables as those that are 90 days or more past due. At both September 30, 2019 and December 31, 2018, all leveraged lease receivables were performing and over 99% of direct financing lease receivables were performing.
The Company’s deferred income tax liability related to leveraged leases was $500 million and $519 million at September 30, 2019 and December 31, 2018, respectively.
The components of income from investment in leveraged and direct financing leases, excluding net investment gains (losses), were as follows:
 
Three Months
Ended
September 30,
 
Nine Months
Ended
September 30,
 
2019
 
2018
 
2019
 
2018
 
Leveraged
Leases
 
Direct
Financing
Leases
 
Leveraged
Leases
 
Direct
Financing
Leases
 
Leveraged
Leases
 
Direct
Financing
Leases
 
Leveraged
Leases
 
Direct
Financing
Leases
 
(In millions)
Lease investment income
$
12

 
$
28

 
$
12

 
$
27

 
$
36

 
$
75

 
$
35

 
$
74

Less: Income tax expense
3

 
6

 
2

 
6

 
8

 
16

 
7

 
16

Lease investment income, net of income tax
$
9

 
$
22

 
$
10

 
$
21

 
$
28

 
$
59

 
$
28

 
$
58


Cash Equivalents
The carrying value of cash equivalents, which includes securities and other investments with an original or remaining maturity of three months or less at the time of purchase, was $11.6 billion and $9.0 billion at September 30, 2019 and December 31, 2018, respectively.
Net Unrealized Investment Gains (Losses)
Unrealized investment gains (losses) on fixed maturity securities AFS and derivatives and the effect on DAC, VOBA, deferred sales inducements (“DSI”), future policy benefits and the policyholder dividend obligation, that would result from the realization of the unrealized gains (losses), are included in net unrealized investment gains (losses) in AOCI.
The components of net unrealized investment gains (losses), included in AOCI, were as follows:
 
 
September 30, 2019
 
December 31, 2018
 
 
(In millions)
Fixed maturity securities AFS
 
$
32,849

 
$
11,356

Fixed maturity securities AFS with noncredit OTTI losses included in AOCI
 
37

 
25

Total fixed maturity securities AFS
 
32,886

 
11,381

Derivatives
 
3,675

 
2,127

Other
 
312

 
290

Subtotal
 
36,873

 
13,798

Amounts allocated from:
 
 
 
 
Future policy benefits
 
(1,713
)
 
31

DAC, VOBA and DSI
 
(3,012
)
 
(1,231
)
Policyholder dividend obligation
 
(2,370
)
 
(428
)
Subtotal
 
(7,095
)
 
(1,628
)
Deferred income tax benefit (expense) related to noncredit OTTI losses recognized in AOCI
 
(5
)
 
(3
)
Deferred income tax benefit (expense)
 
(7,427
)
 
(3,502
)
Net unrealized investment gains (losses)
 
22,346

 
8,665

Net unrealized investment gains (losses) attributable to noncontrolling interests
 
(16
)
 
(10
)
Net unrealized investment gains (losses) attributable to MetLife, Inc.
 
$
22,330

 
$
8,655


The changes in net unrealized investment gains (losses) were as follows:
 
Nine Months
Ended
September 30, 2019
 
(In millions)
Balance, beginning of period
$
8,655

Cumulative effects of changes in accounting principles, net of income tax (Note 1)
21

Fixed maturity securities AFS on which noncredit OTTI losses have been recognized
12

Unrealized investment gains (losses) during the period
23,037

Unrealized investment gains (losses) relating to:
 
Future policy benefits
(1,744
)
DAC, VOBA and DSI
(1,781
)
Policyholder dividend obligation
(1,942
)
Deferred income tax benefit (expense) related to noncredit OTTI losses recognized in AOCI
(2
)
Deferred income tax benefit (expense)
(3,920
)
Net unrealized investment gains (losses)
22,336

Net unrealized investment gains (losses) attributable to noncontrolling interests
(6
)
Balance, end of period
$
22,330

Change in net unrealized investment gains (losses)
$
13,681

Change in net unrealized investment gains (losses) attributable to noncontrolling interests
(6
)
Change in net unrealized investment gains (losses) attributable to MetLife, Inc.
$
13,675


Concentrations of Credit Risk
Investments in any counterparty that were greater than 10% of the Company’s equity, other than the U.S. government and its agencies, at estimated fair value at September 30, 2019 and December 31, 2018, were in fixed income securities of the Japanese government and its agencies of $33.6 billion and $30.2 billion, respectively, and in fixed income securities of the South Korean government and its agencies of $7.4 billion and $7.1 billion, respectively.
Securities Lending and Repurchase Agreements
Securities, Collateral and Reinvestment Portfolio
A summary of the securities lending and repurchase agreements transactions is as follows:
 
September 30, 2019
 
December 31, 2018
 
Securities on Loan (1)
 
 
 
 
 
Securities on Loan (1)
 
 
 
Amortized
Cost
 
Estimated
Fair Value
 
Cash Collateral
Received from
Counterparties
(2), (3)
 
Reinvestment
Portfolio at
Estimated Fair
Value
 
Amortized
Cost
 
Estimated
Fair Value
 
Cash Collateral
Received from
Counterparties
(2), (3)
 
Reinvestment
Portfolio at
Estimated Fair
Value
 
(In millions)
Securities lending
$
15,994

 
$
18,688

 
$
19,001

 
$
19,415

 
$
16,969

 
$
17,724

 
$
18,005

 
$
18,074

Repurchase agreements
$
1,609

 
$
1,881

 
$
1,833

 
$
1,868

 
$
1,033

 
$
1,093

 
$
1,067

 
$
1,069

__________________
(1)
Securities on loan in connection with securities lending are included within fixed maturities securities AFS, short-term investments and cash equivalents and securities on loan in connection with repurchase agreements are included within fixed maturities securities AFS, short-term investments and cash equivalents.
(2)
In connection with securities lending, in addition to cash collateral received, the Company received from counterparties security collateral of $105 million and $78 million at September 30, 2019 and December 31, 2018, respectively, which may not be sold or re-pledged, unless the counterparty is in default, and is not reflected on the consolidated financial statements.
(3)
The securities lending liability for cash collateral is included within payables for collateral under securities loaned and other transactions, and the repurchase agreements liability for cash collateral is included within payables for collateral under securities loaned and other transactions and other liabilities.
Contractual Maturities
A summary of the remaining contractual maturities of securities lending agreements and repurchase agreements is as follows:
 
September 30, 2019
 
December 31, 2018
 
Remaining Maturities
 
 
 
Remaining Maturities
 
 
 
Open (1)
 
1 Month
or Less
 
Over
 1 to 6
Months
 
Total
 
Open (1)
 
1 Month
or Less
 
Over
1 to 6
Months
 
Total
 
(In millions)
Cash collateral liability by loaned security type:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Securities lending:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. government and agency
$
3,968

 
$
7,903

 
$
6,046

 
$
17,917

 
$
2,736

 
$
8,995

 
$
5,220

 
$
16,951

Foreign government
—

 
287

 
730

 
1,017

 
—

 
214

 
761

 
975

Agency RMBS
—

 
67

 
—

 
67

 
—

 
79

 
—

 
79

Total
$
3,968

 
$
8,257

 
$
6,776

 
$
19,001

 
$
2,736

 
$
9,288

 
$
5,981

 
$
18,005

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Repurchase agreements:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. government and agency
$
—

 
$
1,760

 
$
—

 
$
1,760

 
$
—

 
$
1,000

 
$
—

 
$
1,000

All other corporate and government
—

 
34

 
39

 
73

 
—

 
—

 
67

 
67

Total
$
—

 
$
1,794

 
$
39

 
$
1,833

 
$
—

 
$
1,000

 
$
67

 
$
1,067

__________________
(1)
The related loaned security could be returned to the Company on the next business day, which would require the Company to immediately return the cash collateral. The estimated fair value of the securities on loan related to this cash collateral at September 30, 2019 was $3.9 billion, all of which were U.S. government and agency securities which, if put back to the Company, could be immediately sold to satisfy the cash requirement.
If the Company is required to return significant amounts of cash collateral on short notice and is forced to sell securities to meet the return obligation, it may have difficulty selling such collateral that is invested in securities in a timely manner, be forced to sell securities in a volatile or illiquid market for less than what otherwise would have been realized under normal market conditions, or both.
The securities lending and repurchase agreements reinvestment portfolios acquired with the cash collateral consist principally of high quality, liquid, publicly-traded fixed maturity securities AFS, short-term investments, cash equivalents or held in cash. If the securities on loan or the reinvestment portfolio become less liquid, the Company has the liquidity resources of most of its general account available to meet any potential cash demands when securities on loan are put back to the Company.
Federal Home Loan Bank of Boston Advance Agreements
At September 30, 2019, a subsidiary of the Company had pledged municipals and CMBS with an estimated fair value of $1.2 billion and $11 million, respectively, as collateral and received $800 million in cash advances under short-term advance agreements with the Federal Home Loan Bank (“FHLB”) of Boston. At December 31, 2018, a subsidiary of the Company had pledged municipals with an estimated fair value of $1.2 billion and received $800 million in cash advances. The liability to return the cash advances is included within payables for collateral under securities loaned and other transactions. The estimated fair value of the reinvestment portfolio acquired with the cash advances was $840 million and $799 million at September 30, 2019 and December 31, 2018, respectively, and consisted primarily of Structured Securities, U.S. and foreign corporate securities and U.S. government and agency securities. At both September 30, 2019 and December 31, 2018, the reinvestment portfolio also included a $33 million, at redemption value, required investment in FHLB of Boston common stock. The subsidiary is permitted to withdraw any portion of the pledged collateral over the minimum collateral requirement at any time, other than in the event of a default by the subsidiary.
The cash advance liability by loaned security type and remaining contractual maturities of the agreements was as follows at:
 
 
September 30, 2019
 
December 31, 2018
 
 
Remaining Maturities
 
 
 
Remaining Maturities
 
 
 
 
1 Month
or Less
 
Over
1 to 6
Months
 
6 Months
to 1 Year
 
Total
 
1 Month
or Less
 
Over
1 to 6
Months
 
6 Months
to 1 Year
 
Total
 
 
(In millions)
Cash advance liability by loaned security type:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Municipals
 
$
250

 
$
475

 
$
75

 
$
800

 
$
150

 
$
650

 
$
—

 
$
800


Invested Assets on Deposit, Held in Trust and Pledged as Collateral
Invested assets on deposit, held in trust and pledged as collateral are presented below at estimated fair value for all asset classes, except mortgage loans, which are presented at carrying value, at:
 
 
September 30, 2019
 
December 31, 2018
 
 
(In millions)
Invested assets on deposit (regulatory deposits)
 
$
1,976

 
$
1,788

Invested assets held in trust (collateral financing arrangement and reinsurance agreements)
 
3,017

 
2,971

Invested assets pledged as collateral (1)
 
24,442

 
24,168

Total invested assets on deposit, held in trust and pledged as collateral
 
$
29,435


$
28,927

__________________
(1)
The Company has pledged invested assets in connection with various agreements and transactions, including funding agreements, secured debt, a collateral financing arrangement (see Notes 4, 12 and 13 of the Notes to the Consolidated Financial Statements included in the 2018 Annual Report) and derivative transactions (see Note 7).
See “— Securities Lending and Repurchase Agreements” for information regarding securities supporting securities lending and repurchase agreement transactions and Note 5 for information regarding investments designated to the closed block. In addition, the restricted investment in FHLB common stock was $800 million and $793 million, at redemption value, at September 30, 2019 and December 31, 2018, respectively.
Variable Interest Entities
The Company has invested in legal entities that are VIEs. In certain instances, the Company holds both the power to direct the most significant activities of the entity, as well as an economic interest in the entity and, as such, is deemed to be the primary beneficiary or consolidator of the entity. The determination of the VIE’s primary beneficiary requires an evaluation of the contractual and implied rights and obligations associated with each party’s relationship with or involvement in the entity, an estimate of the entity’s expected losses and expected residual returns and the allocation of such estimates to each party involved in the entity.
Consolidated VIEs
Creditors or beneficial interest holders of VIEs where the Company is the primary beneficiary have no recourse to the general credit of the Company, as the Company’s obligation to the VIEs is limited to the amount of its committed investment.
The following table presents the total assets and total liabilities relating to investment-related VIEs for which the Company has concluded that it is the primary beneficiary and which are consolidated at:
 
 
September 30, 2019
 
December 31, 2018
 
 
Total
Assets
 
Total
Liabilities
 
Total
Assets
 
Total
Liabilities
 
 
(In millions)
Renewable energy partnership (1)
 
$
101

 
$
—

 
$
102

 
$
—

Investment funds (2)
 
162

 
1

 
79

 
1

Other investments (1)
 
20

 
5

 
21

 
5

Total
 
$
283


$
6


$
202


$
6

__________________
(1)
Assets of the renewable energy partnership and other investments primarily consisted of other invested assets.
(2)
Assets of the investment funds primarily consisted of other invested assets at September 30, 2019 and cash and cash equivalents at December 31, 2018.
Unconsolidated VIEs
The carrying amount and maximum exposure to loss relating to VIEs in which the Company holds a significant variable interest but is not the primary beneficiary and which have not been consolidated were as follows at:
 
 
September 30, 2019
 
December 31, 2018
 
 
Carrying
Amount
 
Maximum
Exposure
to Loss (1)
 
Carrying
Amount
 
Maximum
Exposure
to Loss (1)
 
 
(In millions)
Fixed maturity securities AFS:
 
 
 
 
 
 
 
 
Structured Securities (2)
 
$
52,710

 
$
52,710

 
$
47,874

 
$
47,874

U.S. and foreign corporate
 
1,568

 
1,568

 
932

 
932

Foreign government
 
136

 
136

 
—

 
—

Other limited partnership interests
 
6,357

 
11,498

 
5,641

 
9,888

Other invested assets
 
1,528

 
1,662

 
1,906

 
2,063

Other investments
 
428

 
430

 
296

 
300

Total
 
$
62,727


$
68,004


$
56,649


$
61,057

__________________
(1)
The maximum exposure to loss relating to fixed maturity securities AFS is equal to their carrying amounts or the carrying amounts of retained interests. The maximum exposure to loss relating to other limited partnership interests is equal to the carrying amounts plus any unfunded commitments. For certain of its investments in other invested assets, the Company’s return is in the form of income tax credits which are guaranteed by creditworthy third parties. For such investments, the maximum exposure to loss is equal to the carrying amounts plus any unfunded commitments, reduced by income tax credits guaranteed by third parties of $12 million and $94 million at September 30, 2019 and December 31, 2018, respectively. Such a maximum loss would be expected to occur only upon bankruptcy of the issuer or investee.
(2)
For these variable interests, the Company’s involvement is limited to that of a passive investor in mortgage-backed or asset-backed securities issued by trusts that do not have substantial equity.
As described in Note 16, the Company makes commitments to fund partnership investments in the normal course of business. Excluding these commitments, the Company did not provide financial or other support to investees designated as VIEs for both the nine months ended September 30, 2019 and 2018.
The Company securitizes certain residential mortgage loans and acquires an interest in the related RMBS issued. While the Company has a variable interest in the issuer of the securities, it is not the primary beneficiary of the issuer of the securities since it does not have any rights to remove the servicer or veto rights over the servicer’s actions. The resulting gain (loss) from the securitization is included within net investment gains (losses). The estimated fair value of the related RMBS acquired in connection with the securitizations is included in the carrying amount and maximum exposure to loss for Structured Securities presented in the table above.
For the nine months ended September 30, 2019, the carrying value and the estimated fair value of mortgage loans securitized were $443 million and $467 million, respectively, resulting in a gain of $24 million. The estimated fair value of the RMBS acquired in connection with the securitizations was $136 million at September 30, 2019.
For both the three months and nine months ended September 30, 2018, the carrying value and the estimated fair value of mortgage loans securitized were $451 million and $478 million, respectively, resulting in a gain of $27 million. The estimated fair value of the RMBS acquired in connection with the securitizations was $102 million at September 30, 2018.
See Note 8 for information on how the estimated fair value of mortgage loans and RMBS is determined, the valuation approaches and key inputs, their placement in the fair value hierarchy, and for certain RMBS, quantitative information about the significant unobservable inputs and the sensitivity of their estimated fair value to changes in those inputs.
Net Investment Income
The components of net investment income were as follows:
 
Three Months
Ended
September 30,
 
Nine Months
Ended
September 30,
 
2019
 
2018
 
2019
 
2018
 
(In millions)
Investment income:
 
 
 
 
 
 
 
Fixed maturity securities AFS
$
2,924

 
$
3,056

 
$
8,887

 
$
8,966

Equity securities
13

 
15

 
45

 
46

FVO Securities (1)
59

 
11

 
152

 
25

Mortgage loans
930

 
859

 
2,785

 
2,466

Policy loans
129

 
130

 
386

 
381

Real estate and real estate joint ventures
181

 
175

 
490

 
538

Other limited partnership interests
277

 
227

 
643

 
554

Cash, cash equivalents and short-term investments
117

 
112

 
358

 
279

Operating joint ventures
10

 
2

 
66

 
34

Other
95

 
83

 
244

 
283

Subtotal
4,735

 
4,670

 
14,056

 
13,572

Less: Investment expenses
362

 
333

 
1,079

 
950

Subtotal, net
4,373

 
4,337

 
12,977

 
12,622

Unit-linked investments (1)
250

 
149

 
1,247

 
82

Net investment income
$
4,623

 
$
4,486

 
$
14,224

 
$
12,704

__________________
(1)
Changes in estimated fair value subsequent to purchase for investments still held as of the end of the respective periods included in net investment income were principally from contractholder-directed equity securities supporting unit-linked variable annuity type liabilities (“Unit-linked investments”), and were $185 million and $850 million for the three months and nine months ended September 30, 2019, respectively, and $109 million and ($59) million for the three months and nine months ended September 30, 2018, respectively.
The Company invests in real estate joint ventures, other limited partnership interests and tax credit and renewable energy partnerships, and also does business through certain operating joint ventures, the majority of which are accounted for under the equity method. Net investment income from other limited partnership interests and operating joint ventures, accounted for under the equity method, and real estate joint ventures and tax credit and renewable energy partnerships, primarily accounted for under the equity method, totaled $266 million and $596 million for the three months and nine months ended September 30, 2019, respectively, and $180 million and $482 million for the three months and nine months ended September 30, 2018, respectively.
Net Investment Gains (Losses)
Components of Net Investment Gains (Losses)
The components of net investment gains (losses) were as follows:
 
Three Months
Ended
September 30,
 
Nine Months
Ended
September 30,
 
2019
 
2018
 
2019
 
2018
 
(In millions)
Total gains (losses) on fixed maturity securities AFS:
 
 
 
 
 
 
 
Total OTTI losses recognized — by sector and industry:
 
 
 
 
 
 
 
U.S. and foreign corporate securities — by industry:
 
 
 
 
 
 
 
Consumer
$
—

 
$
(1
)
 
$
—

 
$
(1
)
Finance
(1
)
 
(7
)
 
(1
)
 
(7
)
Industrial
(8
)
 
—

 
(16
)
 
—

Total U.S. and foreign corporate securities
(9
)

(8
)
 
(17
)
 
(8
)
Foreign government
(11
)
 
(9
)
 
(11
)
 
(9
)
RMBS
—

 
—

 
(2
)
 
—

OTTI losses on fixed maturity securities AFS recognized in earnings
(20
)

(17
)
 
(30
)
 
(17
)
Fixed maturity securities AFS — net gains (losses) on sales and disposals
102

 
123

 
226

 
(18
)
Total gains (losses) on fixed maturity securities AFS
82


106

 
196

 
(35
)
Total gains (losses) on equity securities:
 
 
 
 
 
 
 
Equity securities — net gains (losses) on sales and disposals
4

 
(58
)
 
51

 
58

Change in estimated fair value of equity securities (1)
13

 
76

 
71

 
(37
)
Total gains (losses) on equity securities
17

 
18

 
122

 
21

Mortgage loans
(16
)
 
4

 
(17
)
 
(32
)
Real estate and real estate joint ventures
96

 
40

 
102

 
154

Other limited partnership interests
3

 
1

 
3

 
9

Other (2), (3)
(31
)
 
12

 
(141
)
 
(176
)
Subtotal
151


181

 
265

 
(59
)
Change in estimated fair value of other limited partnership interests and real estate joint ventures
(1
)
 
12

 
(13
)
 
6

Non-investment portfolio gains (losses) (4)
11

 
(76
)
 
(15
)
 
(390
)
Subtotal
10

 
(64
)
 
(28
)
 
(384
)
Total net investment gains (losses)
$
161


$
117

 
$
237

 
$
(443
)

__________________
(1)
Changes in estimated fair value subsequent to purchase for equity securities still held as of the end of the period included in net investment gains (losses) were $27 million and $111 million for the three months and nine months ended September 30, 2019, respectively, and $15 million and $12 million for the three months and nine months ended September 30, 2018, respectively.
(2)
Other gains (losses) included tax credit partnership impairment losses of $92 million and a renewable energy partnership disposal gain of $46 million for the nine months ended September 30, 2019.
(3)
Other gains (losses) included renewable energy partnership disposal losses of $83 million and leveraged lease impairment losses of $105 million for the nine months ended September 30, 2018.
(4)
Non-investment portfolio gains (losses) for the nine months ended September 30, 2018, included a loss of $327 million, which represents both the change in estimated fair value of Brighthouse Financial, Inc. common stock (“FVO Brighthouse Common Stock”) held by the Company through date of disposal and the loss on disposal in June 2018.
Gains (losses) from foreign currency transactions included within net investment gains (losses) were ($30) million and $9 million for the three months and nine months ended September 30, 2019, respectively, and ($100) million and ($82) million for the three months and nine months ended September 30, 2018, respectively.
Sales or Disposals and Impairments of Fixed Maturity Securities AFS
Sales of securities are determined on a specific identification basis. Proceeds from sales or disposals and the components of net investment gains (losses) were as shown in the table below:
 
Three Months
Ended
September 30,
 
Nine Months
Ended
September 30,
 
2019
 
2018
 
2019
 
2018
 
(In millions)
Proceeds
$
9,510

 
$
19,003

 
$
39,230

 
$
58,256

Gross investment gains
$
165

 
$
234

 
$
632

 
$
489

Gross investment losses
(63
)
 
(111
)
 
(406
)
 
(507
)
OTTI losses
(20
)
 
(17
)
 
(30
)
 
(17
)
Net investment gains (losses)
$
82

 
$
106

 
$
196

 
$
(35
)

Credit Loss Rollforward of Fixed Maturity Securities AFS
The table below presents a rollforward of the cumulative credit loss component of OTTI loss recognized in earnings on fixed maturity securities AFS still held for which a portion of the OTTI loss was recognized in OCI:
 
Three Months
Ended
September 30,
 
Nine Months
Ended
September 30,
 
2019
 
2018
 
2019
 
2018
 
(In millions)
Balance, beginning of period
$
77

 
$
111

 
$
89

 
$
138

Sales (maturities, pay downs or prepayments) of securities previously impaired as credit loss OTTI
(3
)
 
(4
)
 
(14
)
 
(30
)
Increase in cash flows — accretion of previous credit loss OTTI
—

 
—

 
(1
)
 
(1
)
Balance, end of period
$
74

 
$
107

 
$
74


$
107