INSURANCE LIABILITIES

6 Months Ended

Jun. 30, 2020

Variable Annuity Contracts – GMDB, GMIB, GIB and GWBL and Other Features

The Company has certain variable annuity contracts with GMDB, GMIB, GIB and GWBL and other features in-force that guarantee one of the following:

•Return of Premium: the benefit is the greater of current account value or premiums paid (adjusted for withdrawals);

•Ratchet: the benefit is the greatest of current account value, premiums paid (adjusted for withdrawals), or the highest account value on any anniversary up to contractually specified ages (adjusted for withdrawals);

•Roll-Up: the benefit is the greater of current account value or premiums paid (adjusted for withdrawals) accumulated at contractually specified interest rates up to specified ages;

•Combo: the benefit is the greater of the ratchet benefit or the roll-up benefit, which may include either a five year or an annual reset; or

•Withdrawal: the withdrawal is guaranteed up to a maximum amount per year for life.

Liabilities for Variable Annuity Contracts with GMDB and GMIB Features without No-Lapse Guarantee Rider (“NLG”) Feature

The change in the liabilities for variable annuity contracts with GMDB and GMIB features and without a NLG feature are summarized in the tables below. The amounts for the direct contracts (before reinsurance ceded) and assumed contracts are reflected in the consolidated balance sheets in Future policy benefits and other policyholders’ liabilities. The amounts for the ceded contracts are reflected in the consolidated balance sheets in Amounts due from reinsurers.

Change in Liability for Variable Annuity Contracts with GMDB and GMIB Features and No NLG Feature

For the Three and Six Months Ended June 30, 2020 and 2019


	GMDB										GMIB
	Direct		Assumed		Ceded		Direct		Assumed		Ceded
	(in millions)
Balance at April 1, 2020	$	5,052	$	72	$	(111)	$	6,299	$	219	$	(2,823)
Paid guarantee benefits	(140)		(4)		4		(103)		49		17
Other changes in reserve	103		2		2		(43)		(36)		(125)
Balance at June 30, 2020	$	5,015	$	70	$	(105)	$	6,153	$	232	$	(2,931)

Balance at April 1, 2019	$	4,670	$	77	$	(109)	$	3,742	$	182	$	(1,740)
Paid guarantee benefits	(108)		(5)		4		(56)		11		14
Other changes in reserve	152		4		(1)		75		(1)		(170)
Balance at June 30, 2019	$	4,714	$	76	$	(106)	$	3,761	$	192	$	(1,896)


	GMDB										GMIB
	Direct		Assumed		Ceded		Direct		Assumed		Ceded
	(in millions)
Balance at January 1, 2020	$	4,784	$	76	$	(105)	$	4,691	$	187	$	(2,139)
Paid guarantee benefits	(251)		(10)		9		(177)		48		37
Other changes in reserve	482		4		(9)		1,639		(3)		(829)
Balance at June 30, 2020	$	5,015	$	70	$	(105)	$	6,153	$	232	$	(2,931)

Balance at January 1, 2019	$	4,659	$	82	$	(113)	$	3,743	$	184	$	(1,732)
Paid guarantee benefits	(226)		(11)		8		(112)		10		35
Other changes in reserve	281		5		(1)		130		(2)		(199)
Balance at June 30, 2019	$	4,714	$	76	$	(106)	$	3,761	$	192	$	(1,896)

Liabilities for Embedded and Freestanding Insurance Related Derivatives

The liability for the GMxB derivative features, the liability for SCS, SIO, MSO and IUL indexed features and the asset and liability for the GMIB reinsurance contracts are considered embedded or freestanding insurance derivatives and are reported at fair value. For the fair value of the assets and liabilities associated with these embedded or freestanding insurance derivatives, see Note 8.

Account Values and Net Amount at Risk

Account Values and Net Amount at Risk (“NAR”) for direct and assumed variable annuity contracts in force with GMDB and GMIB features as of June 30, 2020 are presented in the following tables by guarantee type. For contracts with the GMDB feature, the NAR in the event of death is the amount by which the GMDB feature exceeds the related Account Values. For contracts with the GMIB feature, the NAR in the event of annuitization is the amount by which the present value of the GMIB benefits exceed the related Account Values, taking into account the relationship between current annuity purchase rates and the GMIB guaranteed annuity purchase rates. Since variable annuity contracts with GMDB features may also offer GMIB guarantees in the same contract, the GMDB and GMIB amounts listed are not mutually exclusive.

Direct Variable Annuity Contracts with GMDB and GMIB Features

at June 30, 2020


	Guarantee Type
	Return of Premium			Ratchet			Roll-Up			Combo			Total
	(in millions, except age and interest rate)
Variable annuity contracts with GMDB features
Account Values invested in:
General Account	$	14,904		$	90		$	57		$	174		$	15,225
Separate Accounts	46,313			8,576			2,914			30,252			88,055
Total Account Values	$	61,217		$	8,666		$	2,971		$	30,426		$	103,280

Net Amount at Risk, gross	$	167		$	207		$	1,990		$	20,398		$	22,762
Net Amount at Risk, net of amounts reinsured	$	167		$	201		$	1,414		$	20,398		$	22,180

Average attained age of policyholders (in years)	51.2			68.0			74.6			69.8			55.1
Percentage of policyholders over age 70	10.9		%	47.1		%	69.3		%	52.4		%	19.8		%
Range of contractually specified interest rates	N/A			N/A			3% - 6%			3% - 6.5%			3% - 6.5%

Variable annuity contracts with GMIB features
Account Values invested in:
General Account	$	—		$	—		$	18		$	223		$	241
Separate Accounts	—			—			22,463			32,329			54,792
Total Account Values	$	—		$	—		$	22,481		$	32,552		$	55,033

Net Amount at Risk, gross	$	—		$	—		$	1,189		$	15,384		$	16,573
Net Amount at Risk, net of amounts reinsured	$	—		$	—		$	376		$	13,872		$	14,248

Average attained age of policyholders (in years)	N/A			N/A			63.8			69.8			67.6
Weighted average years remaining until annuitization	N/A			N/A			5.9			0.7			2.6
Range of contractually specified interest rates	N/A			N/A			3% - 6%			3% - 6.5%			3% - 6.5%

Assumed Variable Annuity Contracts with GMDB and GMIB Features

at June 30, 2020


	Guarantee Type
	Return of Premium			Ratchet			Roll-Up			Combo			Total
	(in millions, except age and interest rates)
Variable annuity contracts with GMDB features
Reinsured Account Values	$	856		$	4,761		$	244		$	1,041		$	6,902
Net Amount at Risk assumed	$	6		$	281		$	16		$	169		$	472

Average attained age of policyholders (in years)	68			73			78			76			73
Percentage of policyholders over age 70	46.0		%	65.0		%	80.0		%	76.0		%	65.0		%
Range of contractually specified interest rates (1)	N/A			N/A			3%-10%			5%-10%			3%-10%


	Guarantee Type
	Return of Premium			Ratchet			Roll-Up			Combo			Total
	(in millions, except age and interest rates)

Variable annuity contracts with GMIB features
Reinsured Account Values	$	830		$	40		$	211		$	1,054		$	2,135
Net Amount at Risk assumed	$	1		$	—		$	32		$	336		$	369

Average attained age of policyholders (in years)	72			74			72			70			71
Percentage of policyholders over age 70	65.0		%	62.0		%	63.0		%	54.0		%	59.0		%
Range of contractually specified interest rates	N/A			N/A			3.3%-6.5%			6%-6%			3.3%-6.5%

______________

(1)In general, for policies with the highest contractual interest rate shown (10%), the rate applied only for the first 10 years after issue, which has now elapsed.

For more information about the reinsurance programs of the Company’s GMDB and GMIB exposure, see “Reinsurance” in Note 11 to the Company’s consolidated financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2019.

Separate Accounts Investments by Investment Category Underlying Variable Annuity Contracts with GMDB and GMIB Features

The total Account Values of variable annuity contracts with GMDB and GMIB features include amounts allocated to the guaranteed interest option, which is part of the General Account and variable investment options that invest through Separate Accounts in variable insurance trusts. The following table presents the aggregate fair value of assets, by major investment category, held by Separate Accounts that support variable annuity contracts with GMDB and GMIB features. The investment performance of the assets impacts the related Account Values and, consequently, the NAR associated with the GMDB and GMIB benefits and guarantees. Because the Company’s variable annuity contracts offer both GMDB and GMIB features, GMDB and GMIB amounts are not mutually exclusive.

Investment in Variable Insurance Trust Mutual Funds


	June 30, 2020						December 31, 2019
Mutual Fund Type	GMDB		GMIB		GMDB		GMIB
	(in millions)
Equity	$	39,126	$	16,011	$	42,489	$	17,941
Fixed income	5,297		2,682		5,263		2,699
Balanced	42,696		35,835		45,871		38,445
Other	936		264		865		263
Total	$	88,055	$	54,792	$	94,488	$	59,348

Hedging Programs for GMDB, GMIB, GIB and Other Features

The Company has a program intended to hedge certain risks associated first with the GMDB feature and with the GMIB feature of the Accumulator series of variable annuity products. The program has also been extended to cover other guaranteed benefits as they have been made available. This program utilizes derivative contracts, such as exchange-traded equity, currency and interest rate futures contracts, total return and/or equity swaps, interest rate swap and floor contracts, swaptions, variance swaps as well as equity options, that collectively are managed in an effort to reduce the economic impact of unfavorable changes in guaranteed benefits’ exposures attributable to movements in the capital markets. At the present time, this program hedges certain economic risks on products sold from 2001 forward, to the extent such risks are not externally reinsured.

These programs do not qualify for hedge accounting treatment. Therefore, gains (losses) on the derivatives contracts used in these programs, including current period changes in fair value, are recognized in Net derivative gains (losses) in the period in which they occur, and may contribute to income (loss) volatility.

Variable and Interest-Sensitive Life Insurance Policies – NLG

The NLG feature contained in variable and interest-sensitive life insurance policies keeps them in force in situations where the policy value is not sufficient to cover monthly charges then due. The NLG remains in effect so long as the policy meets a contractually specified premium funding test and certain other requirements.

The change in the NLG liabilities, reflected in Future policy benefits and other policyholders’ liabilities in the consolidated balance sheets, is summarized in the table below.


	Direct Liability (1)
	Three Months Ended June 30,						Six Months Ended June 30,
	2020		2019		2020		2019
	(in millions)
Beginning balance (2)	$	925	$	825	$	897	$	812
Paid guarantee benefits	(13)		(3)		(26)		(10)
Other changes in reserves	35		21		76		41
Ending balance	$	947	$	843	$	947	$	843

______________

(1)There were no amounts of reinsurance ceded in any period presented.

(2)The beginning balance for six months ended June 30, 2020 was reduced by $22 million to reflect the balance transferred to Assets held-for-sale at December 31, 2019.