Derivatives

12 Months Ended

Dec. 31, 2019

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivatives

9. Derivatives

Accounting for Derivatives

See Note 1 for a description of the Company’s accounting policies for derivatives and Note 10 for information about the fair value hierarchy for derivatives.

Derivative Strategies

The Company is exposed to various risks relating to its ongoing business operations, including interest rate, foreign currency exchange rate, credit and equity market. The Company uses a variety of strategies to manage these risks, including the use of derivatives.

Derivatives are financial instruments with values derived from interest rates, foreign currency exchange rates, credit spreads and/or other financial indices. Derivatives may be exchange-traded or contracted in the over-the-counter (“OTC”) market. Certain of the Company’s OTC derivatives are cleared and settled through central clearing counterparties (“OTC-cleared”), while others are bilateral contracts between two counterparties (“OTC-bilateral”). The types of derivatives the Company uses include swaps, forwards, futures and option contracts. To a lesser extent, the Company uses credit default swaps and structured interest rate swaps to synthetically replicate investment risks and returns which are not readily available in the cash markets.

Interest Rate Derivatives

The Company uses a variety of interest rate derivatives to reduce its exposure to changes in interest rates, including interest rate swaps, interest rate total return swaps, caps, floors, swaptions, futures and forwards.

Interest rate swaps are used by the Company primarily to reduce market risks from changes in interest rates and to alter interest rate exposure arising from mismatches between assets and liabilities (duration mismatches). In an interest rate swap, the Company agrees with another party to exchange, at specified intervals, the difference between fixed rate and floating rate interest amounts as calculated by reference to an agreed notional amount. The Company utilizes interest rate swaps in fair value, cash flow and nonqualifying hedging relationships.

The Company uses structured interest rate swaps to synthetically create investments that are either more expensive to acquire or otherwise unavailable in the cash markets. These transactions are a combination of a derivative and a cash instrument such as a U.S. government and agency, or other fixed maturity securities AFS. Structured interest rate swaps are included in interest rate swaps and are not designated as hedging instruments.

Interest rate total return swaps are swaps whereby the Company agrees with another party to exchange, at specified intervals, the difference between the economic risk and reward of an asset or a market index and a benchmark interest rate, calculated by reference to an agreed notional amount. No cash is exchanged at the outset of the contract. Cash is paid and received over the life of the contract based on the terms of the swap. These transactions are entered into pursuant to master agreements that provide for a single net payment to be made by the counterparty at each due date. Interest rate total return swaps are used by the Company to reduce market risks from changes in interest rates and to alter interest rate exposure arising from mismatches between assets and liabilities (duration mismatches). The Company utilizes interest rate total return swaps in nonqualifying hedging relationships.

The Company purchases interest rate caps primarily to protect its floating rate liabilities against rises in interest rates above a specified level, and against interest rate exposure arising from mismatches between assets and liabilities, and interest rate floors primarily to protect its minimum rate guarantee liabilities against declines in interest rates below a specified level. In certain instances, the Company locks in the economic impact of existing purchased caps and floors by entering into offsetting written caps and floors. The Company utilizes interest rate caps and floors in nonqualifying hedging relationships.

In exchange-traded interest rate (Treasury and swap) futures transactions, the Company agrees to purchase or sell a specified number of contracts, the value of which is determined by the different classes of interest rate securities, to post variation margin on a daily basis in an amount equal to the difference in the daily market values of those contracts and to pledge initial margin based on futures exchange requirements. The Company enters into exchange-traded futures with regulated futures commission merchants that are members of the exchange. Exchange-traded interest rate (Treasury and swap) futures are used primarily to hedge mismatches between the duration of assets in a portfolio and the duration of liabilities supported by those assets, to hedge against changes in value of securities the Company owns or anticipates acquiring, to hedge against changes in interest rates on anticipated liability issuances by replicating Treasury or swap curve performance, and to hedge minimum guarantees embedded in certain variable annuity products issued by the Company. The Company utilizes exchange-traded interest rate futures in nonqualifying hedging relationships.

Swaptions are used by the Company to hedge interest rate risk associated with the Company’s long-term liabilities and invested assets. A swaption is an option to enter into a swap with a forward starting effective date. In certain instances, the Company locks in the economic impact of existing purchased swaptions by entering into offsetting written swaptions. The Company pays a premium for purchased swaptions and receives a premium for written swaptions. The Company utilizes swaptions in nonqualifying hedging relationships. Swaptions are included in interest rate options.

The Company enters into interest rate forwards to buy and sell securities. The price is agreed upon at the time of the contract and payment for such a contract is made at a specified future date. The Company utilizes interest rate forwards in cash flow and nonqualifying hedging relationships.

A synthetic GIC is a contract that simulates the performance of a traditional GIC through the use of financial instruments. The policyholder owns the underlying assets, and the Company provides a guarantee (or “wrap”) on the participant funds for an annual risk charge. The Company’s maximum exposure to loss on synthetic GICs is the notional amount, in the event the values of all of the underlying assets were reduced to zero. The Company’s risk is substantially lower due to contractual provisions that limit the portfolio to high quality assets, which are pre-approved and monitored for compliance, as well as the collection of risk charges. In addition, the crediting rates reset periodically to amortize market value gains and losses over a period equal to the duration of the wrapped portfolio, subject to a 0% floor. While plan participants may transact at book value, contract holder withdrawals may only occur immediately at market value, or at book value paid over a period of time per contract provisions. Synthetic GICs are not designated as hedging instruments.

Foreign Currency Exchange Rate Derivatives

The Company uses foreign currency exchange rate derivatives, including foreign currency swaps, foreign currency forwards, currency options and exchange-traded currency futures, to reduce the risk from fluctuations in foreign currency exchange rates associated with its assets and liabilities denominated in foreign currencies. The Company also uses foreign currency derivatives to hedge the foreign currency exchange rate risk associated with certain of its net investments in foreign operations.

In a foreign currency swap transaction, the Company agrees with another party to exchange, at specified intervals, the difference between one currency and another at a fixed exchange rate, generally set at inception, calculated by reference to an agreed upon notional amount. The notional amount of each currency is exchanged at the inception and termination of the currency swap by each party. The Company utilizes foreign currency swaps in fair value, cash flow and nonqualifying hedging relationships.

In a foreign currency forward transaction, the Company agrees with another party to deliver a specified amount of an identified currency at a specified future date. The price is agreed upon at the time of the contract and payment for such a contract is made at the specified future date. The Company utilizes foreign currency forwards in fair value, NIFO hedges and nonqualifying hedging relationships.

The Company enters into currency options that give it the right, but not the obligation, to sell the foreign currency amount in exchange for a functional currency amount within a limited time at a contracted price. The contracts may also be net settled in cash, based on differentials in the foreign currency exchange rate and the strike price. The Company uses currency options to hedge against the foreign currency exposure inherent in certain of its variable annuity products. The Company also uses currency options as an economic hedge of foreign currency exposure related to the Company’s non-U.S. subsidiaries. The Company utilizes currency options in NIFO hedges and nonqualifying hedging relationships.

To a lesser extent, the Company uses exchange-traded currency futures to hedge currency mismatches between assets and liabilities, and to hedge minimum guarantees embedded in certain variable annuity products issued by the Company. The Company utilizes exchange-traded currency futures in nonqualifying hedging relationships.

Credit Derivatives

The Company enters into purchased credit default swaps to hedge against credit-related changes in the value of its investments. In a credit default swap transaction, the Company agrees with another party to pay, at specified intervals, a premium to hedge credit risk. If a credit event occurs, as defined by the contract, the contract may be cash settled or it may be settled gross by the delivery of par quantities of the referenced investment equal to the specified swap notional amount in exchange for the payment of cash amounts by the counterparty equal to the par value of the investment surrendered. Credit events vary by type of issuer but typically include bankruptcy, failure to pay debt obligations and involuntary restructuring for corporate obligors, as well as repudiation, moratorium or governmental intervention for sovereign obligors. In each case, payout on a credit default swap is triggered only after the Credit Derivatives Determinations Committee of the International Swaps and Derivatives Association, Inc. (“ISDA”) deems that a credit event has occurred. The Company utilizes credit default swaps in nonqualifying hedging relationships.

The Company enters into written credit default swaps to synthetically create credit investments that are either more expensive to acquire or otherwise unavailable in the cash markets. These transactions are a combination of a derivative and one or more cash instruments, such as U.S. government and agency, or other fixed maturity securities AFS. These credit default swaps are not designated as hedging instruments.

The Company enters into forwards to lock in the price to be paid for forward purchases of certain securities. The price is agreed upon at the time of the contract and payment for the contract is made at a specified future date. When the primary purpose of entering into these transactions is to hedge against the risk of changes in purchase price due to changes in credit spreads, the Company designates these transactions as credit forwards. The Company utilizes credit forwards in cash flow hedging relationships.

Equity Derivatives

The Company uses a variety of equity derivatives to reduce its exposure to equity market risk, including equity index options, equity variance swaps, exchange-traded equity futures and equity total return swaps.

Equity index options are used by the Company primarily to hedge minimum guarantees embedded in certain variable annuity products issued by the Company. To hedge against adverse changes in equity indices, the Company enters into contracts to sell the underlying equity index within a limited time at a contracted price. The contracts will be net settled in cash based on differentials in the indices at the time of exercise and the strike price. Certain of these contracts may also contain settlement provisions linked to interest rates. In certain instances, the Company may enter into a combination of transactions to hedge adverse changes in equity indices within a pre-determined range through the purchase and sale of options. The Company utilizes equity index options in nonqualifying hedging relationships.

Equity variance swaps are used by the Company primarily to hedge minimum guarantees embedded in certain variable annuity products issued by the Company. In an equity variance swap, the Company agrees with another party to exchange amounts in the future, based on changes in equity volatility over a defined period. The Company utilizes equity variance swaps in nonqualifying hedging relationships.

In exchange-traded equity futures transactions, the Company agrees to purchase or sell a specified number of contracts, the value of which is determined by the different classes of equity securities, to post variation margin on a daily basis in an amount equal to the difference in the daily market values of those contracts and to pledge initial margin based on futures exchange requirements. The Company enters into exchange-traded futures with regulated futures commission merchants that are members of the exchange. Exchange-traded equity futures are used primarily to hedge minimum guarantees embedded in certain variable annuity products issued by the Company. The Company utilizes exchange-traded equity futures in nonqualifying hedging relationships.

In an equity total return swap, the Company agrees with another party to exchange, at specified intervals, the difference between the economic risk and reward of an asset or a market index and a benchmark interest rate, calculated by reference to an agreed notional amount. No cash is exchanged at the outset of the contract. Cash is paid and received over the life of the contract based on the terms of the swap. The Company uses equity total return swaps to hedge its equity market guarantees in certain of its insurance products. Equity total return swaps can be used as hedges or to synthetically create investments. The Company utilizes equity total return swaps in nonqualifying hedging relationships.

Primary Risks Managed by Derivatives

The following table presents the primary underlying risk exposure, gross notional amount, and estimated fair value of the Company’s derivatives, excluding embedded derivatives, held at:

	Primary Underlying Risk Exposure	December 31,
		2019						2018
				Estimated Fair Value						Estimated Fair Value
		Gross Notional Amount		Assets		Liabilities		Gross Notional Amount		Assets		Liabilities
		(In millions)
Derivatives Designated as Hedging Instruments:
Fair value hedges:
Interest rate swaps	Interest rate	$	2,369	$	2,667	$	2	$	2,446	$	2,197	$	2
Foreign currency swaps	Foreign currency exchange rate	1,304		16		17		1,233		54		—
Foreign currency forwards	Foreign currency exchange rate	2,336		1		40		2,140		28		18
Subtotal		6,009		2,684		59		5,819		2,279		20
Cash flow hedges:
Interest rate swaps	Interest rate	3,675		145		27		3,515		143		1
Interest rate forwards	Interest rate	7,364		83		144		3,022		—		216
Foreign currency swaps	Foreign currency exchange rate	36,983		1,627		1,430		35,931		1,796		1,831
Subtotal		48,022		1,855		1,601		42,468		1,939		2,048
NIFO hedges:
Foreign currency forwards	Foreign currency exchange rate	1,059		—		10		960		4		27
Currency options	Foreign currency exchange rate	4,200		33		91		5,137		3		202
Subtotal		5,259		33		101		6,097		7		229
Total qualifying hedges		59,290		4,572		1,761		54,384		4,225		2,297
Derivatives Not Designated or Not Qualifying as Hedging Instruments:
Interest rate swaps	Interest rate	58,083		2,867		185		54,891		1,796		175
Interest rate floors	Interest rate	12,701		155		—		12,701		102		—
Interest rate caps	Interest rate	42,622		18		5		54,575		154		1
Interest rate futures	Interest rate	2,423		2		3		2,353		1		3
Interest rate options	Interest rate	27,344		764		1		26,690		416		—
Interest rate forwards	Interest rate	129		1		2		234		1		15
Interest rate total return swaps	Interest rate	1,048		5		49		1,048		33		2
Synthetic GICs	Interest rate	30,341		—		—		25,700		—		—
Foreign currency swaps	Foreign currency exchange rate	13,699		644		461		11,388		884		458
Foreign currency forwards	Foreign currency exchange rate	13,507		50		393		13,417		198		213
Currency futures	Foreign currency exchange rate	880		7		—		847		4		—
Currency options	Foreign currency exchange rate	1,801		—		—		2,040		7		—
Credit default swaps — purchased	Credit	2,944		4		102		1,903		25		39
Credit default swaps — written	Credit	11,520		272		1		11,391		95		13
Equity futures	Equity market	4,540		6		8		2,992		13		77
Equity index options	Equity market	27,105		694		677		27,707		884		550
Equity variance swaps	Equity market	1,115		23		19		2,269		40		87
Equity total return swaps	Equity market	761		—		70		929		91		—
Total non-designated or nonqualifying derivatives		252,563		5,512		1,976		253,075		4,744		1,633
Total		$	311,853	$	10,084	$	3,737	$	307,459	$	8,969	$	3,930

Based on gross notional amounts, a substantial portion of the Company’s derivatives was not designated or did not qualify as part of a hedging relationship at both December 31, 2019 and 2018. The Company’s use of derivatives includes (i) derivatives that serve as macro hedges of the Company’s exposure to various risks and that generally do not qualify for hedge accounting due to the criteria required under the portfolio hedging rules; (ii) derivatives that economically hedge insurance liabilities that contain mortality or morbidity risk and that generally do not qualify for hedge accounting because the lack of these risks in the derivatives cannot support an expectation of a highly effective hedging relationship; (iii) derivatives that economically hedge embedded derivatives that do not qualify for hedge accounting because the changes in estimated fair value of the embedded derivatives are already recorded in net income; and (iv) written credit default swaps and interest rate swaps that are used to synthetically create investments and that do not qualify for hedge accounting because they do not involve a hedging relationship. For these nonqualified derivatives, changes in market factors can lead to the recognition of fair value changes on the statement of operations without an offsetting gain or loss recognized in earnings for the item being hedged.

The Effects of Derivatives on the Consolidated Statements of Operations and Comprehensive Income (Loss)

The following table presents the consolidated financial statement location and amount of gain (loss) recognized on fair value, cash flow, NIFO, nonqualifying hedging relationships and embedded derivatives:

	Year Ended December 31, 2019
	Net Investment Income			Net Investment Gains (Losses)			Net Derivative Gains (Losses)			Policyholder Benefits and Claims			Interest Credited to Policyholder Account Balances			Other Expenses		OCI
	(In millions)
Gain (Loss) on Fair Value Hedges:
Interest rate derivatives:
Derivatives designated as hedging instruments (1)	$	(3	)	$	—		$	—		$	339		$	1		$	—	N/A
Hedged items	4			—			—			(369		)	—			—		N/A
Foreign currency exchange rate derivatives:
Derivatives designated as hedging instruments (1)	(55		)	24			—			—			—			—		N/A
Hedged items	56			(23		)	—			—			—			—		N/A
Amount excluded from the assessment of hedge effectiveness	—			(72		)	—			—			—			—		N/A
Subtotal	2			(71		)	—			(30		)	1			—		N/A
Gain (Loss) on Cash Flow Hedges:
Interest rate derivatives: (1)
Amount of gains (losses) deferred in AOCI	N/A			N/A			N/A			N/A			N/A			N/A		$	622
Amount of gains (losses) reclassified from AOCI into income	23			4			—			—			—			2		(29		)
Foreign currency exchange rate derivatives: (1)
Amount of gains (losses) deferred in AOCI	N/A			N/A			N/A			N/A			N/A			N/A		(278		)
Amount of gains (losses) reclassified from AOCI into income	(4		)	240			—			—			—			2		(238		)
Foreign currency transaction gains (losses) on hedged items	—			(236		)	—			—			—			—		—
Credit derivatives: (1)
Amount of gains (losses) deferred in AOCI	N/A			N/A			N/A			N/A			N/A			N/A		6
Amount of gains (losses) reclassified from AOCI into income	1			—			—			—			—			—		(1		)
Subtotal	20			8			—			—			—			4		82
Gain (Loss) on NIFO Hedges:
Foreign currency exchange rate derivatives (1)	N/A			N/A			N/A			N/A			N/A			N/A		(32		)
Non-derivative hedging instruments	N/A			N/A			N/A			N/A			N/A			N/A		(4		)
Subtotal	N/A			N/A			N/A			N/A			N/A			N/A		(36		)
Gain (Loss) on Derivatives Not Designated or Not Qualifying as Hedging Instruments:
Interest rate derivatives (1)	(3		)	—			1,263			39			—			—		N/A
Foreign currency exchange rate derivatives (1)	—			—			(346		)	2			—			—		N/A
Credit derivatives — purchased (1)	—			—			(38		)	—			—			—		N/A
Credit derivatives — written (1)	—			—			248			—			—			—		N/A
Equity derivatives (1)	—			—			(1,339		)	(205		)	—			—		N/A
Foreign currency transaction gains (losses) on hedged items	—			—			55			—			—			—		N/A
Subtotal	(3		)	—			(157		)	(164		)	—			—		N/A
Earned income on derivatives	237			—			513			138			(147		)	—		—
Embedded derivatives (2)	N/A			N/A			272			—			N/A			N/A		N/A
Total	$	256		$	(63	)	$	628		$	(56	)	$	(146	)	$	4	$	46

	Year Ended December 31, 2018
	Net Investment Income			Net Investment Gains (Losses)		Net Derivative Gains (Losses)			Policyholder Benefits and Claims			Interest Credited to Policyholder Account Balances			Other Expenses			OCI
	(In millions)
Gain (Loss) on Fair Value Hedges:
Interest rate derivatives:
Derivatives designated as hedging instruments (1)	$	—		$	—	$	(220	)	$	—		$	—		$	—		N/A
Hedged items	—			—		226			—			—			—			N/A
Foreign currency exchange rate derivatives:
Derivatives designated as hedging instruments (1)	—			—		156			—			—			—			N/A
Hedged items	—			—		(150		)	—			—			—			N/A
Amount excluded from the assessment of hedge effectiveness	—			—		(58		)	—			—			—			N/A
Subtotal	—			—		(46		)	—			—			—			N/A
Gain (Loss) on Cash Flow Hedges:
Interest rate derivatives: (1)
Amount of gains (losses) deferred in AOCI	N/A			N/A		N/A			N/A			N/A			N/A			$	(257	)
Amount of gains (losses) reclassified from AOCI into income	20			—		21			—			—			1			(42		)
Foreign currency exchange rate derivatives: (1)
Amount of gains (losses) deferred in AOCI	N/A			N/A		N/A			N/A			N/A			N/A			414
Amount of gains (losses) reclassified from AOCI into income	(5		)	—		(558		)	—			—			2			561
Foreign currency transaction gains (losses) on hedged items	—			—		569			—			—			—			—
Credit derivatives: (1)
Amount of gains (losses) deferred in AOCI	N/A			N/A		N/A			N/A			N/A			N/A			—
Amount of gains (losses) reclassified from AOCI into income	1			—		1			—			—			—			(2		)
Subtotal	16			—		33			—			—			3			674
Gain (Loss) on NIFO Hedges:
Foreign currency exchange rate derivatives (1)	N/A			N/A		N/A			N/A			N/A			N/A			(125		)
Non-derivative hedging instruments	N/A			N/A		N/A			N/A			N/A			N/A			—
Subtotal	N/A			N/A		N/A			N/A			N/A			N/A			(125		)
Gain (Loss) on Derivatives Not Designated or Not Qualifying as Hedging Instruments:
Interest rate derivatives (1)	4			—		(158		)	(6		)	—			—			N/A
Foreign currency exchange rate derivatives (1)	—			—		518			(6		)	—			—			N/A
Credit derivatives — purchased (1)	—			—		6			—			—			—			N/A
Credit derivatives — written (1)	—			—		(132		)	—			—			—			N/A
Equity derivatives (1)	1			—		360			60			—			—			N/A
Foreign currency transaction gains (losses) on hedged items	—			—		(127		)	—			—			—			N/A
Subtotal	5			—		467			48			—			—			N/A
Earned income on derivatives	360			—		547			11			(113		)	(11		)	—
Embedded derivatives (2)	N/A			N/A		(150		)	—			N/A			N/A			N/A
Total	$	381		$	—	$	851		$	59		$	(113	)	$	(8	)	$	549

	Year Ended December 31, 2017
	Net Investment Income			Net Investment Gains (Losses)		Net Derivative Gains (Losses)			Policyholder Benefits and Claims			Interest Credited to Policyholder Account Balances			Other Expenses			OCI
	(In millions)
Gain (Loss) on Fair Value Hedges:
Interest rate derivatives:
Derivatives designated as hedging instruments (1)	$	—		$	—	$	(65	)	$	—		$	—		$	—		N/A
Hedged items	—			—		130			—			—			—			N/A
Foreign currency exchange rate derivatives:
Derivatives designated as hedging instruments (1)	—			—		51			—			—			—			N/A
Hedged items	—			—		(26		)	—			—			—			N/A
Amount excluded from the assessment of hedge effectiveness	—			—		(40		)	—			—			—			N/A
Subtotal	—			—		50			—			—			—			N/A
Gain (Loss) on Cash Flow Hedges:
Interest rate derivatives: (1)
Amount of gains (losses) deferred in AOCI	N/A			N/A		N/A			N/A			N/A			N/A			$	288
Amount of gains (losses) reclassified from AOCI into income	18			—		13			—			—			1			(32		)
Foreign currency exchange rate derivatives: (1)
Amount of gains (losses) deferred in AOCI	N/A			N/A		N/A			N/A			N/A			N/A			(335		)
Amount of gains (losses) reclassified from AOCI into income	—			—		974			—			—			2			(976		)
Foreign currency transaction gains (losses) on hedged items	—			—		(960		)	—			—			—			—
Credit derivatives: (1)
Amount of gains (losses) deferred in AOCI	N/A			N/A		N/A			N/A			N/A			N/A			—
Amount of gains (losses) reclassified from AOCI into income	—			—		1			—			—			—			(1		)
Subtotal	18			—		28			—			—			3			(1,056		)
Gain (Loss) on NIFO Hedges:
Foreign currency exchange rate derivatives (1)	N/A			N/A		N/A			N/A			N/A			N/A			(445		)
Non-derivative hedging instruments	N/A			N/A		N/A			N/A			N/A			N/A			—
Subtotal	N/A			N/A		N/A			N/A			N/A			N/A			(445		)
Gain (Loss) on Derivatives Not Designated or Not Qualifying as Hedging Instruments:
Interest rate derivatives (1)	1			—		(549		)	(1		)	—			—			N/A
Foreign currency exchange rate derivatives (1)	—			—		(742		)	5			—			—			N/A
Credit derivatives — purchased (1)	—			—		(24		)	—			—			—			N/A
Credit derivatives — written (1)	—			—		145			—			—			—			N/A
Equity derivatives (1)	(9		)	—		(1,046		)	(252		)	—			—			N/A
Foreign currency transaction gains (losses) on hedged items	—			—		198			—			—			—			N/A
Subtotal	(8		)	—		(2,018		)	(248		)	—			—			N/A
Earned income on derivatives	299			—		551			9			(64		)	(10		)	—
Embedded derivatives (2)	N/A			N/A		799			—			N/A			N/A			N/A
Total	$	309		$	—	$	(590	)	$	(239	)	$	(64	)	$	(7	)	$	(1,501	)

__________________

(1) Excludes earned income on derivatives.

(2)

The valuation of guaranteed minimum benefits includes a nonperformance risk adjustment. The amounts included in net derivative gains (losses) in connection with this adjustment were ($116) million, $133 million and ($190) million for the years ended December 31, 2019, 2018 and 2017, respectively.

Fair Value Hedges

The Company designates and accounts for the following as fair value hedges when they have met the requirements of fair value hedging: (i) interest rate swaps to convert fixed rate assets and liabilities to floating rate assets and liabilities; (ii) foreign currency swaps to hedge the foreign currency fair value exposure of foreign currency denominated assets and liabilities; and (iii) foreign currency forwards to hedge the foreign currency fair value exposure of foreign currency denominated investments.

The following table presents the balance sheet classification, carrying amount and cumulative fair value hedging adjustments for items designated and qualifying as hedged items in fair value hedges:

	December 31, 2019
Balance Sheet Line Item	Carrying Amount  of the Hedged Assets (Liabilities)			Cumulative Amount of Fair Value Hedging Adjustments Included in the Carrying Amount of Hedged Assets (Liabilities) (1)
	(In millions)
Fixed maturity securities AFS	$	2,736		$	(1	)
Mortgage loans	$	1,159		$	2
Future policy benefits	$	(4,475	)	$	(908	)

__________________

(1) Includes ($1) million of hedging adjustments on discontinued hedging relationships.

For the Company’s foreign currency forwards, the change in the estimated fair value of the derivative related to the changes in the difference between the spot price and the forward price is excluded from the assessment of hedge effectiveness. The Company has elected to record changes in estimated fair value of excluded components in earnings. For all other derivatives, all components of each derivative’s gain or loss were included in the assessment of hedge effectiveness.

Cash Flow Hedges

The Company designates and accounts for the following as cash flow hedges when they have met the requirements of cash flow hedging: (i) interest rate swaps to convert floating rate assets and liabilities to fixed rate assets and liabilities; (ii) foreign currency swaps to hedge the foreign currency cash flow exposure of foreign currency denominated assets and liabilities; (iii) interest rate forwards and credit forwards to lock in the price to be paid for forward purchases of investments; (iv) interest rate swaps and interest rate forwards to hedge the forecasted purchases of fixed rate investments; and (v) interest rate swaps and interest rate forwards to hedge forecasted fixed rate borrowings.

In certain instances, the Company discontinued cash flow hedge accounting because the forecasted transactions were no longer probable of occurring. Because certain of the forecasted transactions also were not probable of occurring within two months of the anticipated date, the Company reclassified amounts from AOCI into income. These amounts were $58 million, $5 million and $13 million for the years ended December 31, 2019, 2018 and 2017, respectively.

At December 31, 2019 and 2018, the maximum length of time over which the Company was hedging its exposure to variability in future cash flows for forecasted transactions did not exceed eight years and four years, respectively.

At December 31, 2019 and 2018, the balance in AOCI associated with cash flow hedges was $2.2 billion and $2.1 billion, respectively.

All components of each derivative’s gain or loss were included in the assessment of hedge effectiveness.

At December 31, 2019, the Company expected to reclassify $37 million of deferred net gains (losses) on derivatives in AOCI to earnings within the next 12 months.

NIFO Hedges

The Company uses foreign currency exchange rate derivatives, which may include foreign currency forwards and currency options, to hedge portions of its net investments in foreign operations against adverse movements in exchange rates. The Company also designates a portion of its foreign-denominated debt as a non-derivative hedging instrument of its net investments in foreign operations. The Company assesses hedge effectiveness of its derivatives based upon the change in forward rates and assesses its non-derivative hedging instruments based upon the change in spot rates. All components of each derivative’s gain or loss were included in the assessment of hedge effectiveness.

When net investments in foreign operations are sold or substantially liquidated, the amounts in AOCI are reclassified to the statement of operations.

At December 31, 2019 and 2018, the cumulative foreign currency translation gain (loss) recorded in AOCI related to NIFO hedges was $148 million and $184 million, respectively. At December 31, 2019 and 2018, the carrying amount of debt designated as a non-derivative hedging instrument was $387 million and $0, respectively. See Note 13 for additional information on foreign-denominated debt.

Credit Derivatives

In connection with synthetically created credit investment transactions, the Company writes credit default swaps for which it receives a premium to insure credit risk. Such credit derivatives are included within the nonqualifying derivatives and derivatives for purposes other than hedging table. If a credit event occurs, as defined by the contract, the contract may be cash settled or it may be settled gross by the Company paying the counterparty the specified swap notional amount in exchange for the delivery of par quantities of the referenced credit obligation. The Company’s maximum amount at risk, assuming the value of all referenced credit obligations is zero, was $11.5 billion and $11.4 billion at December 31, 2019 and 2018, respectively. The Company can terminate these contracts at any time through cash settlement with the counterparty at an amount equal to the then current estimated fair value of the credit default swaps. At December 31, 2019 and 2018, the Company would have received $271 million and $82 million, respectively, to terminate all of these contracts.

The following table presents the estimated fair value, maximum amount of future payments and weighted average years to maturity of written credit default swaps at:

	December 31,
	2019					2018
Rating Agency Designation of Referenced Credit Obligations (1)	Estimated Fair Value of Credit Default Swaps		Maximum Amount of Future Payments under Credit Default Swaps		Weighted Average Years to Maturity (2)	Estimated Fair Value of Credit Default Swaps		Maximum Amount of Future Payments under Credit Default Swaps		Weighted Average Years to Maturity (2)
	(Dollars in millions)
Aaa/Aa/A
Single name credit default swaps (3)	$	4	$	298	1.7	$	4	$	354	1.7
Credit default swaps referencing indices	35		2,175		2.2	28		2,154		2.5
Subtotal	39		2,473		2.2	32		2,508		2.4
Baa
Single name credit default swaps (3)	3		216		1.5	3		482		1.5
Credit default swaps referencing indices	203		8,539		5.0	40		8,056		5.0
Subtotal	206		8,755		4.9	43		8,538		4.8
Ba
Single name credit default swaps (3)	—		9		5.0	—		15		2.0
Credit default swaps referencing indices	—		—		—	—		—		—
Subtotal	—		9		5.0	—		15		2.0
B
Single name credit default swaps (3)	—		10		0.5	—		—		—
Credit default swaps referencing indices	26		273		5.0	7		330		5.0
Subtotal	26		283		4.8	7		330		5.0
Total	$	271	$	11,520	4.3	$	82	$	11,391	4.3

__________________

(1) The rating agency designations are based on availability and the midpoint of the applicable ratings among Moody’s Investors Service (“Moody’s”), S&P and Fitch Ratings. If no rating is available from a rating agency, then an internally developed rating is used.

(2) The weighted average years to maturity of the credit default swaps is calculated based on weighted average gross notional amounts.

(3)

Single name credit default swaps may be referenced to the credit of corporations, foreign governments, or municipals.

Credit Risk on Freestanding Derivatives

The Company may be exposed to credit-related losses in the event of nonperformance by its counterparties to derivatives. Generally, the current credit exposure of the Company’s derivatives is limited to the net positive estimated fair value of derivatives at the reporting date after taking into consideration the existence of master netting or similar agreements and any collateral received pursuant to such agreements.

The Company manages its credit risk related to derivatives by entering into transactions with creditworthy counterparties and establishing and monitoring exposure limits. The Company’s OTC-bilateral derivative transactions are governed by ISDA Master Agreements which provide for legally enforceable set-off and close-out netting of exposures to specific counterparties in the event of early termination of a transaction, which includes, but is not limited to, events of default and bankruptcy. In the event of an early termination, the Company is permitted to set off receivables from the counterparty against payables to the same counterparty arising out of all included transactions. All of the Company’s ISDA Master Agreements also include Credit Support Annex provisions which require both the pledging and accepting of collateral in connection with its OTC-bilateral derivatives.

The Company’s OTC-cleared derivatives are effected through central clearing counterparties and its exchange-traded derivatives are effected through regulated exchanges. Such positions are marked to market and margined on a daily basis (both initial margin and variation margin), and the Company has minimal exposure to credit-related losses in the event of nonperformance by counterparties to such derivatives.

See Note 10 for a description of the impact of credit risk on the valuation of derivatives.

The estimated fair values of the Company’s net derivative assets and net derivative liabilities after the application of master netting agreements and collateral were as follows at:

	December 31,
	2019						2018
Derivatives Subject to a Master Netting Arrangement or a Similar Arrangement	Assets			Liabilities			Assets			Liabilities
	(In millions)
Gross estimated fair value of derivatives:
OTC-bilateral (1)	$	9,574		$	3,624		$	8,805		$	3,758
OTC-cleared (1)	606			81			245			33
Exchange-traded	15			11			18			80
Total gross estimated fair value of derivatives presented on the consolidated balance sheets (1)	10,195			3,716			9,068			3,871
Gross amounts not offset on the consolidated balance sheets:
Gross estimated fair value of derivatives: (2)
OTC-bilateral	(2,664		)	(2,664		)	(2,570		)	(2,570		)
OTC-cleared	(38		)	(38		)	(25		)	(25		)
Exchange-traded	(2		)	(2		)	(1		)	(1		)
Cash collateral: (3), (4)
OTC-bilateral	(5,317		)	—			(4,709		)	—
OTC-cleared	(560		)	(4		)	(145		)	—
Exchange-traded	—			(5		)	—			(57		)
Securities collateral: (5)
OTC-bilateral	(1,521		)	(935		)	(1,266		)	(1,134		)
OTC-cleared	—			(39		)	—			(8		)
Exchange-traded	—			(4		)	—			(7		)
Net amount after application of master netting agreements and collateral	$	93		$	25		$	352		$	69

__________________

(1) At December 31, 2019 and 2018, derivative assets included income or (expense) accruals reported in accrued investment income or in other liabilities of $111 million and $99 million, respectively, and derivative liabilities included (income) or expense accruals reported in accrued investment income or in other liabilities of ($21) million and ($59) million, respectively.

(2) Estimated fair value of derivatives is limited to the amount that is subject to set-off and includes income or expense accruals.

(3) Cash collateral received by the Company for OTC-bilateral and OTC-cleared derivatives is included in cash and cash equivalents, short-term investments or in fixed maturity securities AFS, and the obligation to return it is included in payables for collateral under securities loaned and other transactions on the balance sheet.

(4) The receivable for the return of cash collateral provided by the Company is inclusive of initial margin on exchange-traded and OTC-cleared derivatives and is included in premiums, reinsurance and other receivables on the balance sheet. The amount of cash collateral offset in the table above is limited to the net estimated fair value of derivatives after application of netting agreements. At December 31, 2019 and 2018, the Company received excess cash collateral of $389 million and $135 million, respectively, and provided excess cash collateral of $266 million and $226 million, respectively, which is not included in the table above due to the foregoing limitation.

(5) Securities collateral received by the Company is held in separate custodial accounts and is not recorded on the balance sheet. Subject to certain constraints, the Company is permitted by contract to sell or re-pledge this collateral, but at December 31, 2019, none of the collateral had been sold or re-pledged. Securities collateral pledged by the Company is reported in fixed maturity securities AFS on the balance sheet. Subject to certain constraints, the counterparties are permitted by contract to sell or re-pledge this collateral. The amount of securities collateral offset in the table above is limited to the net estimated fair value of derivatives after application of netting agreements and cash collateral. At December 31, 2019 and 2018, the Company received excess securities collateral with an estimated fair value of $156 million and $70 million, respectively, for its OTC-bilateral derivatives, which are not included in the table above due to the foregoing limitation. At December 31, 2019 and 2018, the Company provided excess securities collateral with an estimated fair value of $189 million and $212 million, respectively, for its OTC-bilateral derivatives, $1.0 billion and $601 million, respectively, for its OTC-cleared derivatives, and $143 million and $90 million, respectively, for its exchange-traded derivatives, which are not included in the table above due to the foregoing limitation.

The Company’s collateral arrangements for its OTC-bilateral derivatives generally require the counterparty in a net liability position, after considering the effect of netting agreements, to pledge collateral when the collateral amount owed by that counterparty reaches a minimum transfer amount. All of the Company’s netting agreements for derivatives contain provisions that require both the Company and the counterparty to maintain a specific investment grade credit rating from each of Moody’s and S&P. If a party’s credit or financial strength rating, as applicable, were to fall below that specific investment grade credit rating, that party would be in violation of these provisions, and the other party to the derivatives could terminate the transactions and demand immediate settlement and payment based on such party’s reasonable valuation of the derivatives. A small number of these arrangements also include credit-contingent provisions that include a threshold above which collateral must be posted. Such agreements provide for a reduction of these thresholds (on a sliding scale that converges toward zero) in the event of downgrades in the credit ratings of MetLife, Inc. and/or the counterparty. At December 31, 2019, the amount of collateral not provided by the Company due to the existence of these thresholds was $15 million.

The following table presents the estimated fair value of the Company’s OTC-bilateral derivatives that were in a net liability position after considering the effect of netting agreements, together with the estimated fair value and balance sheet location of the collateral pledged.

	December 31,
	2019						2018
	Derivatives Subject to Credit-Contingent Provisions		Derivatives Not Subject to Credit-Contingent Provisions		Total		Derivatives Subject to Credit-Contingent Provisions		Derivatives Not Subject to Credit-Contingent Provisions		Total
	(In millions)
Estimated Fair Value of Derivatives in a Net Liability Position (1)	$	874	$	85	$	959	$	1,148	$	40	$	1,188
Estimated Fair Value of Collateral Provided:
Fixed maturity securities AFS	$	983	$	80	$	1,063	$	1,218	$	9	$	1,227
Cash	$	—	$	—	$	—	$	6	$	—	$	6

__________________

(1)

After taking into consideration the existence of netting agreements.

Embedded Derivatives

The Company issues certain products or purchases certain investments that contain embedded derivatives that are required to be separated from their host contracts and accounted for as freestanding derivatives.

The following table presents the estimated fair value and balance sheet location of the Company’s embedded derivatives that have been separated from their host contracts at:

		December 31,
	Balance Sheet Location	2019		2018
		(In millions)
Embedded derivatives within asset host contracts:
Ceded guaranteed minimum benefits	Premiums, reinsurance and other receivables	$	60	$	71
Embedded derivatives within liability host contracts:
Direct guaranteed minimum benefits	Policyholder account balances	$	312	$	298
Assumed guaranteed minimum benefits	Policyholder account balances	312		495
Funds withheld on ceded reinsurance	Other liabilities	36		(41		)
Fixed annuities with equity indexed returns	Policyholder account balances	130		58
Other guarantees	Policyholder account balances	12		—
Embedded derivatives within liability host contracts		$	802	$	810