Derivative Instruments

6 Months Ended

Jun. 30, 2022

Derivative Instruments

(5) Derivative Instruments

Our business activities routinely deal with fluctuations in interest rates, equity prices, currency exchange rates and other asset and liability prices. We use derivative instruments to mitigate or reduce some of these risks. We have established policies for managing each of these risks, including prohibitions on derivatives market-making and other speculative derivatives activities. These policies require the use of derivative instruments in concert with other techniques to reduce or mitigate these risks. While we use derivatives to mitigate or reduce risks, certain derivatives do not meet the accounting requirements to be designated as hedging instruments and are denoted as “derivatives not designated as hedges” in the following disclosures. For derivatives that meet the accounting requirements to be designated as hedges, the following disclosures for these derivatives are denoted as “derivatives designated as hedges,” which include cash flow hedges.

The following table sets forth our positions in derivative instruments as of the dates indicated:

	Derivative assets					Derivative liabilities
		Fair value					Fair value
(Amounts in millions)	Balance sheet classification	June 30, 2022		December 31, 2021		Balance sheet classification	June 30, 2022		December 31, 2021
Derivatives designated as hedges
Cash flow hedges:
Interest rate swaps	Other invested assets	$	30	$	364	Other liabilities	$	342	$	26
Foreign currency swaps	Other invested assets		17		6	Other liabilities		—		—
Total cash flow hedges			47		370			342		26
Total derivatives designated as hedges			47		370			342		26
Derivatives not designated as hedges
Equity index options	Other invested assets		30		42	Other liabilities		—		—
Financial futures	Other invested assets		—		—	Other liabilities		—		—
Other foreign currency contracts	Other invested assets		—		2	Other liabilities		—		—
GMWB embedded derivatives	Reinsurance recoverable (1)		19		19	Policyholder account balances (2)		277		271
Fixed index annuity embedded derivatives	Other assets		—		—	Policyholder account balances (3)		233		294
Indexed universal life embedded derivatives	Reinsurance recoverable		—		—	Policyholder account balances (4)		16		25
Total derivatives not designated as hedges			49		63			526		590
Total derivatives		$	96	$	433		$	868	$	616

(1) Represents embedded derivatives associated with the reinsured portion of our guaranteed minimum withdrawal benefits (“GMWB”) liabilities.

(2) Represents the embedded derivatives associated with our GMWB liabilities, excluding the impact of reinsurance.

(3) Represents the embedded derivatives associated with our fixed index annuity liabilities.

(4) Represents the embedded derivatives associated with our indexed universal life liabilities.

The fair value of derivative positions presented above was not offset by the respective collateral amounts received or provided under these agreements.

The activity associated with derivative instruments can generally be measured by the change in notional value over the periods presented. However, for GMWB embedded derivatives, fixed index annuity embedded derivatives and indexed universal life embedded derivatives, the change between periods is best illustrated by the number of policies. The following tables represent activity associated with derivative instruments as of the dates indicated:

(Notional in millions)	Measurement		December 31, 2021		Additions		Maturities/ terminations			June 30, 2022
Derivatives designated as hedges
Cash flow hedges:
Interest rate swaps		Notional	$	7,653	$	262	$	(102	)	$	7,813
Foreign currency swaps		Notional		127		—		—			127
Total cash flow hedges				7,780		262		(102	)		7,940
Total derivatives designated as hedges				7,780		262		(102	)		7,940
Derivatives not designated as hedges
Equity index options		Notional		1,446		495		(628	)		1,313
Financial futures		Notional		946		1,973		(1,969	)		950
Other foreign currency contracts		Notional		83		—		(83	)		—
Total derivatives not designated as hedges				2,475		2,468		(2,680	)		2,263
Total derivatives			$	10,255	$	2,730	$	(2,782	)	$	10,203

(Number of policies)	Measurement		December 31, 2021		Additions		Maturities/ terminations			June 30, 2022
Derivatives not designated as hedges
GMWB embedded derivatives		Policies		21,804		—		(906	)		20,898
Fixed index annuity embedded derivatives		Policies		9,344		—		(1,055	)		8,289
Indexed universal life embedded derivatives		Policies		806		—		(20	)		786

Cash Flow Hedges

Certain derivative instruments are designated as cash flow hedges. The changes in fair value of these instruments are recorded as a component of other comprehensive income (loss) (“OCI”). We designate and account for the following as cash flow hedges when they have met the effectiveness requirements: (i) various types of interest rate swaps to convert floating rate investments to fixed rate investments; (ii) various types of interest rate swaps to convert floating rate liabilities into fixed rate liabilities; (iii) receive U.S. dollar fixed on foreign currency swaps to hedge the foreign currency cash flow exposure of foreign currency denominated investments; (iv) forward starting interest rate swaps to hedge against changes in interest rates associated with future fixed rate bond purchases and/or interest income; and (v) other instruments to hedge the cash flows of various forecasted transactions.

The following table provides information about the pre-tax income effects of cash flow hedges for the three months ended June 30, 2022:

(Amounts in millions)	Gain (loss) recognized in OCI			Gain (loss) reclassified into net income from OCI			Classification of gain (loss) reclassified into net income	Gain (loss) recognized in net income		Classification of gain (loss) recognized in net income
Interest rate swaps hedging assets	$	(405	)	$	57		Net investment income	$	—	Net investment gains (losses)
Interest rate swaps hedging liabilities		—			(1	)	Interest expense		—	Net investment gains (losses)
Foreign currency swaps		14			—		Net investment income		—	Net investment gains (losses)
Total	$	(391	)	$	56			$	—

The following table provides information about the pre-tax income effects of cash flow hedges for the three months ended June 30, 2021:

(Amounts in millions)	Gain (loss) recognized in OCI			Gain (loss) reclassified into net income from OCI		Classification of gain (loss) reclassified into net income	Gain (loss) recognized in net income		Classification of gain (loss) recognized in net income
Interest rate swaps hedging assets	$	314		$	52	Net investment income	$	—	Net investment gains (losses)
Interest rate swaps hedging liabilities		(8	)		—	Interest expense		—	Net investment gains (losses)
Foreign currency swaps		3			—	Net investment income		—	Net investment gains (losses)
Total	$	309		$	52		$	—

The following table provides information about the pre-tax income effects of cash flow hedges for the six months ended June 30, 2022:

(Amounts in millions)	Gain (loss) recognized in OCI			Gain (loss) reclassified into net income from OCI			Classification of gain (loss) reclassified into net income	Gain (loss) recognized in net income		Classification of gain (loss) recognized in net income
Interest rate swaps hedging assets	$	(655	)	$	112		Net investment income	$	—	Net investment gains (losses)
Interest rate swaps hedging assets		—			2		Net investment gains (losses)		—	Net investment gains (losses)
Interest rate swaps hedging liabilities		—			(2	)	Interest expense		—	Net investment gains (losses)
Foreign currency swaps		12			1		Net investment income		—	Net investment gains (losses)
Total	$	(643	)	$	113			$	—

The following table provides information about the pre-tax income effects of cash flow hedges for the six months ended June 30, 2021:

(Amounts in millions)	Gain (loss) recognized in OCI			Gain (loss) reclassified into net income from OCI		Classification of gain (loss) reclassified into net income	Gain (loss) recognized in net income		Classification of gain (loss) recognized in net income
Interest rate swaps hedging assets	$	(215	)	$	104	Net investment income	$	—	Net investment gains (losses)
Interest rate swaps hedging liabilities		36			—	Interest expense		—	Net investment gains (losses)
Foreign currency swaps		1			—	Net investment income		—	Net investment gains (losses)
Total	$	(178	)	$	104		$	—

The following tables provide a reconciliation of current period changes, net of applicable income taxes, for these designated derivatives presented in the separate component of stockholders’ equity labeled “derivatives qualifying as hedges,” for the periods indicated:

 

	Three months ended June 30,
(Amounts in millions)	2022			2021
Derivatives qualifying as effective accounting hedges as of April 1	$	1,789		$	1,792
Current period increases (decreases) in fair value, net of deferred taxes of $84 and $(64)		(307	)		245
Reclassification to net (income), net of deferred taxes of $19 and $18		(37	)		(34	)
Derivatives qualifying as effective accounting hedges as of June 30	$	1,445		$	2,003

 

	Six months ended June 30,
(Amounts in millions)	2022			2021
Derivatives qualifying as effective accounting hedges as of January 1	$	2,025		$	2,211
Current period increases (decreases) in fair value, net of deferred taxes of $137 and $38		(506	)		(140	)
Reclassification to net (income), net of deferred taxes of $39 and $36		(74	)		(68	)
Derivatives qualifying as effective accounting hedges as of June 30	$	1,445		$	2,003

The total of derivatives designated as cash flow hedges of $1,445 million, net of taxes, recorded in stockholders’ equity as of June 30, 2022 is expected to be reclassified to net income in the future, concurrently with and primarily offsetting changes in interest expense and interest income on floating rate instruments and interest income on future fixed rate bond purchases. Of this amount, $144 million, net of taxes, is expected to be reclassified to net income (loss) in the next 12 months. Actual amounts may vary from this amount as a result of market conditions. All forecasted transactions associated with qualifying cash flow hedges are expected to occur by 2057. During the six months ended June 30, 2022 and 2021, we reclassified $5 million and $4 million, respectively, to net income in connection with forecasted transactions that were no longer considered probable of occurring.

Derivatives Not Designated As Hedges

We also enter into certain non-qualifying derivative instruments such as: (i) interest rate swaps and financial futures to mitigate interest rate risk as part of managing regulatory capital positions; (ii) equity index options, interest rate swaps and financial futures to mitigate the risks associated with liabilities that have guaranteed minimum benefits, fixed index annuities and indexed universal life; and (iii) foreign currency options and forward contracts to mitigate currency risk associated with dividends, cash payments to AXA S.A. (“AXA”) reported as discontinued operations and/or other cash flows from certain foreign subsidiaries to our holding company. Additionally, we provide GMWBs on certain variable annuities that are required to be bifurcated as embedded derivatives. We also offer fixed index annuity and indexed universal life insurance products and have reinsurance agreements with certain features that are required to be bifurcated as embedded derivatives.

The following tables provide the pre-tax gain (loss) recognized in net income for the effects of derivatives not designated as hedges for the periods indicated:

	Three months ended June 30,						Classification of gain (loss) recognized in net income
(Amounts in millions)	2022			2021
Interest rate swaps	$	—		$	(1	)		Net investment gains (losses)
Equity index options		(1	)		6			Net investment gains (losses)
Financial futures		17			8			Net investment gains (losses)
GMWB embedded derivatives		(26	)		2			Net investment gains (losses)
Fixed index annuity embedded derivatives		11			(14	)		Net investment gains (losses)
Indexed universal life embedded derivatives		8			3			Net investment gains (losses)
Total derivatives not designated as hedges	$	9		$	4

	Six months ended June 30,						Classification of gain (loss) recognized in net income
(Amounts in millions)	2022			2021
Interest rate swaps	$	—		$	3			Net investment gains (losses)
Equity index options		(7	)		9			Net investment gains (losses)
Financial futures		(30	)		(102	)		Net investment gains (losses)
GMWB embedded derivatives		6			107			Net investment gains (losses)
Fixed index annuity embedded derivatives		23			(18	)		Net investment gains (losses)
Indexed universal life embedded derivatives		19			13			Net investment gains (losses)
Total derivatives not designated as hedges	$	11		$	12

Derivative Counterparty Credit Risk

Most of our derivative arrangements with counterparties require the posting of collateral upon meeting certain net exposure thresholds. The following table presents additional information about derivative assets and liabilities subject to an enforceable master netting arrangement as of the dates indicated:​​​​​​​

	June 30, 2022									December 31, 2021
(Amounts in millions)	Derivative assets (1)			Derivative liabilities (1)			Net derivatives			Derivative assets (1)			Derivative liabilities (1)			Net derivatives
Amounts presented in the balance sheet:
Gross amounts recognized	$	77		$	342		$	(265	)	$	414		$	26		$	388
Gross amounts offset in the balance sheet		—			—			—			—			—			—
Net amounts presented in the balance sheet		77			342			(265	)		414			26			388
Gross amounts not offset in the balance sheet:
Financial instruments (2)		(24	)		(24	)		—			(20	)		(20	)		—
Collateral received		(41	)		—			(41	)		(308	)		—			(308	)
Collateral pledged		—			(825	)		825			—			(536	)		536
Over collateralization		—			507			(507	)		2			530			(528	)
Net amount	$	12		$	—		$	12		$	88		$	—		$	88

(1) Does not include amounts related to embedded derivatives as of June 30, 2022 and December 31, 2021.

(2) Amounts represent derivative assets and/or liabilities that are presented gross within the balance sheet but are held with the same counterparty where we have a master netting arrangement. This adjustment results in presenting the net asset and net liability position for each counterparty.