The Company uses unadjusted quoted market prices to measure fair value for those instruments that are actively traded in financial markets. In cases where quoted market prices are not available, fair values are measured using present value or other valuation techniques. The fair value determinations are made at a specific point in time, based on available market information and judgments about the financial instrument, including estimates of the timing and amount of expected future cash flows and the credit standing of counterparties. Such adjustments do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument, nor do they consider the tax impact of the realization of unrealized gains or losses. In many cases, the fair value cannot be substantiated by direct comparison to independent markets, nor can the disclosed value be realized in immediate settlement of the instrument.

Management is responsible for the determination of the value of investments carried at fair value and the supporting methodologies and assumptions. Under the terms of various service agreements, the Company often utilizes independent valuation service providers to gather, analyze, and interpret market information and derive fair values based upon relevant methodologies and assumptions for individual securities. These independent valuation service providers typically obtain data about market transactions and other key valuation model inputs from multiple sources and, through the use of widely accepted valuation models, provide a single fair value measurement for individual securities for which a fair value has been requested. As further described below with respect to specific asset classes, these inputs include, but are not limited to, market prices for recent trades and transactions in comparable securities, benchmark yields, interest rate yield curves, credit spreads, quoted prices for similar securities, and other market-observable information, as applicable. Specific attributes of the security being valued also are considered, including its term, interest rate, credit rating, industry sector, and when applicable, collateral quality and other security- or issuer-

specific information. When insufficient market observable information is available upon which to measure fair value, the Company either will request brokers knowledgeable about these securities to provide a non-binding quote or will employ internal valuation models. Fair values received from independent valuation service providers and brokers and those internally modeled or otherwise estimated are assessed for reasonableness.

Assets and liabilities measured at fair value on a recurring basis are summarized below. At September 30, 2020 and December 31, 2019, no assets were required to be measured at fair value on a non-recurring basis. Fair value measurements are required on a non-recurring basis for certain assets, including goodwill and mortgage loans on real estate, only when an impairment or other event occurs. When such fair value measurements are recorded, they must be classified and disclosed within the fair value hierarchy.


	Level 1		Level 2		Level 3		Total
	(in millions)
Assets
Investments
Fixed maturities, AFS:
Corporate (1)	$	—	$	54,318	$	1,494	$	55,812
U.S. Treasury, government and agency	—		17,468		—		17,468
States and political subdivisions	—		839		39		878
Foreign governments	—		905		—		905
Residential mortgage-backed (2)	—		160		—		160
Asset-backed (3)	—		2,583		13		2,596
Commercial mortgage-backed	—		1,117		—		1,117
Redeemable preferred stock	369		74		—		443
Total fixed maturities, AFS	369		77,464		1,546		79,379
Other equity investments	20		—		73		93
Trading securities	414		5,778		52		6,244
Other invested assets:
Short-term investments	—		126		—		126
Assets of consolidated VIEs/VOEs	19		213		13		245
Swaps	—		1,368		—		1,368
Credit default swaps	—		6		—		6
Futures	—		—		—		—
Options	—		2,757		—		2,757
Swaptions	—		—		—		—
Total other invested assets	19		4,470		13		4,502
Cash equivalents	6,331		1,041		—		7,372
Segregated securities	—		1,869		—		1,869
GMIB reinsurance contracts asset	—		—		2,818		2,818
Separate Accounts assets (4)	120,418		2,438		—		122,856
Total Assets	$	127,571	$	93,060	$	4,502	$	225,133

Liabilities
GMxB derivative features’ liability	$	—	$	—	$	12,204	$	12,204
SCS, SIO, MSO and IUL indexed features’ liability	—		2,606		—		2,606
Liabilities of consolidated VIEs and VOEs	—		5		—		5
Contingent payment arrangements	—		—		30		30
Total Liabilities	$	—	$	2,611	$	12,234	$	14,845

(4)Separate Accounts assets included in the fair value hierarchy exclude investments in entities that calculate NAV per share (or its equivalent) as a practical expedient. Such investments excluded from the fair value hierarchy include investments in real estate and commercial mortgages. At September 30, 2020, the fair value of such investments was $356 million.


	Level 1		Level 2		Level 3		Total
	(in millions)
Assets
Investments
Fixed maturities, AFS:
Corporate (2)	$	—	$	46,942	$	1,257	$	48,199
U.S. Treasury, government and agency	—		15,394		—		15,394
States and political subdivisions	—		666		39		705
Foreign governments	—		492		—		492
Residential mortgage-backed (3)	—		191		—		191
Asset-backed (4)	—		749		100		849

Redeemable preferred stock	239		274		—		513
Total fixed maturities, AFS	239		64,708		1,396		66,343
Other equity investments	13		—		97		110
Trading securities	500		6,495		36		7,031
Other invested assets:
Short-term investments	—		490		—		490
Assets of consolidated VIEs/VOEs	132		457		17		606
Swaps	—		(327)		—		(327)
Credit default swaps	—		15		—		15
Options	—		3,346		—		3,346
Swaptions	—		16		—		16
Total other invested assets	132		3,997		17		4,146
Cash equivalents	3,497		—		—		3,497
Segregated securities	—		1,095		—		1,095
GMIB reinsurance contracts asset	—		—		2,139		2,139
Separate Accounts assets (5)	123,432		2,892		—		126,324
Total Assets	$	127,813	$	79,187	$	3,685	$	210,685

Liabilities
GMxB derivative features’ liability	$	—	$	—	$	8,502	$	8,502
SCS, SIO, MSO and IUL indexed features’ liability	—		3,268		—		3,268
Liabilities of consolidated VIEs and VOEs	1		9		—		10
Contingent payment arrangements	—		—		23		23
Total Liabilities	$	1	$	3,277	$	8,525	$	11,803

(5)Separate Accounts assets included in the fair value hierarchy exclude investments in entities that calculate NAV per share (or its equivalent) as a practical expedient. Such investments excluded from the fair value hierarchy include investments in real estate and commercial mortgages. At December 31, 2019, the fair value of such investments was $356 million.

The fair values of the Company’s public fixed maturities are generally based on prices obtained from independent valuation service providers and for which the Company maintains a vendor hierarchy by asset type based on historical pricing experience and vendor expertise. Although each security generally is priced by multiple independent valuation service providers, the Company ultimately uses the price received from the independent valuation service provider highest in the vendor hierarchy based on the respective asset type, with limited exception. To validate reasonableness, prices also are internally reviewed by those with relevant expertise through comparison with directly observed recent market trades. Consistent with the fair value hierarchy, public fixed maturities validated in this manner generally are reflected within Level 2, as they are primarily based on observable pricing for similar assets and/or other market observable inputs.

The fair values of the Company’s private fixed maturities are determined from prices obtained from independent valuation service providers. Prices not obtained from an independent valuation service provider are determined by using a discounted cash flow model or a market comparable company valuation technique. In certain cases, these models use observable inputs with a discount rate based upon the average of spread surveys collected from private market intermediaries who are active in both primary and secondary transactions, taking into account, among other factors, the credit quality and industry sector of the issuer and the reduced liquidity associated with private placements. Generally, these securities have been reflected within Level 2. For certain private fixed maturities, the discounted cash flow model or a market comparable company valuation technique may also incorporate unobservable inputs, which reflect the Company’s own assumptions about the inputs market participants would use in pricing the asset. To the extent management determines that such unobservable inputs are significant to the fair value measurement of a security, a Level 3 classification generally is made.

The net fair value of the Company’s freestanding derivative positions as disclosed in Note 4 are generally based on prices obtained either from independent valuation service providers or derived by applying market inputs from recognized vendors into industry standard pricing models. The majority of these derivative contracts are traded in the OTC derivative market and are classified in Level 2. The fair values of derivative assets and liabilities traded in the OTC market are determined using quantitative models that require use of the contractual terms of the derivative instruments and multiple market inputs, including interest rates, prices, and indices to generate continuous yield or pricing curves, including overnight index swap (“OIS”) curves, and volatility factors, which then are applied to value the positions. The predominance of market inputs is actively quoted and can be validated through external sources or reliably interpolated if less observable.

Investments classified as Level 1 primarily include redeemable preferred stock, trading securities, cash equivalents and Separate Accounts assets. Fair value measurements classified as Level 1 include exchange-traded prices of fixed maturities, equity securities and derivative contracts, and net asset values for transacting subscriptions and redemptions of mutual fund shares held by Separate Accounts. Cash equivalents classified as Level 1 include money market accounts, overnight commercial paper and highly liquid debt instruments purchased with an original maturity of three months or less and are carried at cost as a proxy for fair value measurement due to their short-term nature.

Investments classified as Level 2 are measured at fair value on a recurring basis and primarily include U.S. government and agency securities and certain corporate debt securities, such as public and private fixed maturities. As market quotes generally are not readily available or accessible for these securities, their fair value measures are determined utilizing relevant information generated by market transactions involving comparable securities and often are based on model pricing techniques that effectively discount prospective cash flows to present value using appropriate sector-adjusted credit spreads commensurate with the security’s duration, also taking into consideration issuer-specific credit quality and liquidity. Segregated securities classified as Level 2 are U.S. Treasury bills segregated by AB in a special reserve bank custody account for the exclusive benefit of brokerage customers, as required by Rule 15c3-3 of the Exchange Act and for which fair values are based on quoted yields in secondary markets.

Observable inputs generally used to measure the fair value of securities classified as Level 2 include benchmark yields, reported secondary trades, issuer spreads, benchmark securities and other reference data. Additional observable inputs are used when available, and as may be appropriate, for certain security types, such as prepayment, default, and collateral information for the purpose of measuring the fair value of mortgage- and asset-backed securities. The Company’s AAA-rated mortgage- and asset-backed securities are classified as Level 2 for which the observability of market inputs to their pricing models is supported by sufficient, albeit more recently contracted, market activity in these sectors.

Certain Company products, such as the SCS and EQUI-VEST variable annuity products, IUL and the MSO fund available in some life contracts, offer investment options which permit the contract owner to participate in the performance of an index, ETF or commodity price. These investment options, which depending on the product and on the index selected, can currently have one, three, five or six year terms, provide for participation in the performance of specified indices, ETF or commodity price movement up to a segment-specific declared maximum rate. Under certain conditions that vary by product, e.g., holding these segments for the full term, these segments also shield policyholders from some or all negative investment performance associated with these indices, ETF or commodity prices. These investment options have defined formulaic liability amounts, and the current values of the option component of these segment reserves are accounted for as Level 2 embedded derivatives. The fair values of these embedded derivatives are based on data obtained from independent valuation service providers.

The Company’s investments classified as Level 3 primarily include corporate debt securities, such as private fixed maturities and asset-backed securities. Determinations to classify fair value measures within Level 3 of the valuation hierarchy generally are based upon the significance of the unobservable factors to the overall fair value measurement. Included in the Level 3 classification are fixed maturities with indicative pricing obtained from brokers that otherwise could not be corroborated to market observable data.

The Company also issues certain benefits on its variable annuity products that are accounted for as derivatives and are also considered Level 3. The GMIBNLG feature allows the policyholder to receive guaranteed minimum lifetime annuity payments based on predetermined annuity purchase rates applied to the contract’s benefit base if and when the contract account value is depleted and the NLG feature is activated. The GMWB feature allows the policyholder to withdraw at minimum, over the life of the contract, an amount based on the contract’s benefit base. The GWBL feature allows the policyholder to withdraw, each year for the life of the contract, a specified annual percentage of an amount based on the contract’s benefit base. The GMAB feature increases the contract account value at the end of a specified period to a GMAB base. The GIB feature provides a lifetime annuity based on predetermined annuity purchase rates if and when the contract account value is depleted. This lifetime annuity is based on predetermined annuity purchase rates applied to a GIB base.

Level 3 also includes the GMIB reinsurance contract assets, which are accounted for as derivative contracts. The GMIB reinsurance contract asset and liabilities’ fair value reflects the present value of reinsurance premiums and recoveries and risk margins over a range of market consistent economic scenarios while GMxB derivative features liability reflects the present value of expected future payments (benefits) less fees, adjusted for risk margins and nonperformance risk, attributable to GMxB derivative features’ liability over a range of market-consistent economic scenarios.

The valuations of the GMIB reinsurance contract asset and GMxB derivative features liability incorporate significant non-observable assumptions related to policyholder behavior, risk margins and projections of equity Separate Accounts funds. The credit risks of the counterparty and of the Company are considered in determining the fair values of its GMIB reinsurance contract asset and GMxB derivative features liability positions, respectively, after taking into account the effects of collateral arrangements. Incremental adjustment to the swap curve for non-performance risk is made to the fair values of the GMIB reinsurance contract asset and liabilities and GMIBNLG feature to reflect the claims-paying ratings of counterparties and the Company. Equity and fixed income volatilities were modeled to reflect current market volatilities. Due to the unique, long duration of the GMIBNLG feature, adjustments were made to the equity volatilities to remove the illiquidity bias associated with the longer tenors and risk margins were applied to the non-capital markets inputs to the GMIBNLG valuations.

After giving consideration to collateral arrangements, the Company reduced the fair value of its GMIB reinsurance contract asset by $161 million and $110 million at September 30, 2020 and December 31, 2019, respectively, to recognize incremental counterparty non-performance risk and reduced the fair value of its GMIB reinsurance contract liabilities by $29 million and $25 million at September 30, 2020 and December 31, 2019, respectively, to recognize its own incremental non-performance risk.

Lapse rates are adjusted at the contract level based on a comparison of the actuarial calculated guaranteed values and the current policyholder account value, which include other factors such as considering surrender charges. Generally, lapse rates are assumed to be lower in periods when a surrender charge applies. A dynamic lapse function reduces the base lapse rate when the guaranteed amount is greater than the account value as in-the-money contracts are less likely to lapse. For valuing the embedded derivative, lapse rates vary throughout the period over which cash flows are projected.

The Company’s Level 3 liabilities include contingent payment arrangements associated with acquisitions in 2016 and 2019 by AB. At each reporting date, AB estimates the fair values of the contingent consideration expected to be paid based upon revenue and discount rate projections, using unobservable market data inputs, which are included in Level 3 of the valuation hierarchy. The Company’s consolidated VIEs/VOEs hold investments that are classified as Level 3, primarily corporate bonds that are vendor priced with no ratings available, bank loans, non-agency collateralized mortgage obligations and asset-backed securities.

During the nine months ended September 30, 2020, AFS fixed maturities with fair values of $103 million were transferred out of Level 3 and into Level 2 principally due to the availability of trading activity and/or market observable inputs to measure and validate their fair values. In addition, AFS fixed maturities with fair value of $195 million were transferred from Level 2 into the Level 3 classification. These transfers in the aggregate represent approximately 1.6% of total equity at September 30, 2020.

During the nine months ended September 30, 2019, AFS fixed maturities with fair values of $104 million were transferred out of Level 3 and into Level 2 principally due to the availability of trading activity and/or market observable inputs to measure and validate their fair values. In addition, AFS fixed maturities with fair value of $14 million were transferred from Level 2 into the Level 3 classification. These transfers in the aggregate represent approximately 0.7% of total equity at September 30, 2019.


	Corporate		State and Political Subdivisions		Asset- backed
	(in millions)
Balance, July 1, 2020	$	1,685	$	40	$	—
Total gains and (losses), realized and unrealized, included in:
Net income (loss) as:
Net investment income (loss)	—		—		—
Investment gains (losses), net	(1)		—		—
Subtotal	(1)		—		—
Other comprehensive income (loss)	18		(1)		—
Purchases	(155)		—		13
Sales	(24)		—		—
Transfers into Level 3 (1)	(29)		—		—
Transfers out of Level 3 (1)	—		—		—
Balance, September 30, 2020	$	1,494	$	39	$	13


	Corporate		State and Political Subdivisions		Asset- backed
	(in millions)
Balance, July 1, 2019	$	1,302	$	40	$	534
Total gains and (losses), realized and unrealized, included in:
Net income (loss) as:
Net investment income (loss)	—		—		—
Investment gains (losses), net	—		1		—
Subtotal	—		1		—
Other comprehensive income (loss)	(6)		—		—
Purchases	(3)		—		71
Sales	(42)		(2)		(73)
Transfers into Level 3 (1)	—		—		—
Transfers out of Level 3 (1)	(31)		—		—
Balance, September 30, 2019	$	1,220	$	39	$	532


	Corporate		State and Political Subdivisions		Asset-backed
	(in millions)
Balance, January 1, 2020	$	1,257	$	39	$	100
Total gains and (losses), realized and unrealized, included in:
Net income (loss) as:
Net investment income (loss)	2		—		—
Investment gains (losses), net	(14)		—		—
Subtotal	(12)		—		—
Other comprehensive income (loss)	(36)		1		—
Purchases	207		—		13
Sales	(114)		(1)		—
Transfers into Level 3 (1)	195		—		—
Transfers out of Level 3 (1)	(3)		—		(100)
Balance, September 30, 2020	$	1,494	$	39	$	13

Balance, January 1, 2019	$	1,186	$	39	$	519
Total gains and (losses), realized and unrealized, included in:
Net income (loss) as:
Net investment income (loss)	3		—		—
Investment gains (losses), net	—		1		—
Subtotal	3		1		—
Other comprehensive income (loss)	4		2		5
Purchases	219		—		81
Sales	(102)		(3)		(73)
Transfers into Level 3 (1)	14		—		—
Transfers out of Level 3 (1)	(104)		—		—
Balance, September 30, 2019	$	1,220	$	39	$	532


	Other Equity Investments		GMIB Reinsurance Contract Asset		Separate Accounts Assets		GMxB Derivative Features Liability		Contingent Payment Arrangement
	(in millions)
Balance, July 1, 2020	$	132	$	2,931	$	—	$	(12,689)	$	(28)
Realized and unrealized gains (losses), included in Net income (loss) as:
Investment gains (losses), net	7		—		—		—		—
Net derivative gains (losses) (1)	—		(103)		—		579		—
Total realized and unrealized gains (losses)	7		(103)		—		579		—
Other comprehensive income (loss)	(4)		—		—		—		—
Purchases (2)	21		11		—		(115)		—
Sales (3)	(14)		(21)		—		21		—
Settlements (4)	—		—		—		—		—
Activity related to consolidated VIEs/VOEs	(3)		—		—		—		(1)
Transfers into Level 3 (5)	—		—		—		—		—
Transfers out of Level 3 (5)	—		—		—		—		—
Balance, September 30, 2020	$	139	$	2,818	$	—	$	(12,204)	$	(29)

Balance, July 1, 2019	$	134	$	1,898	$	25	$	(7,004)	$	(25)
Realized and unrealized gains (losses), included in Net income (loss) as:
Investment gains (losses), net	—		—		—		—		—
Net derivative gains (losses)	—		563		—		(2,548)		—
Total realized and unrealized gains (losses)	—		563		—		(2,548)		—
Other comprehensive income (loss)	—		—		—		—		—
Purchases (2)	2		11		(5)		(102)		—
Sales (3)	(4)		(20)		(1)		13		—
Settlements (4)	—		—		(1)		—		—
Activity related to consolidated VIEs/VOEs	—		—		—		—		(1)
Transfers into Level 3 (5)	—		—		—		—		—
Transfers out of Level 3 (5)	(4)		—		(11)		—		—
Balance, September 30, 2019	$	128	$	2,452	$	7	$	(9,641)	$	(26)


	Other Equity Investments		GMIB Reinsurance Contract Asset		Separate Accounts Assets		GMxB Derivative Features Liability		Contingent Payment Arrangement
	(in millions)
Balance, January 1, 2020	$	150	$	2,139	$	—	$	(8,502)	$	(23)
Realized and unrealized gains (losses), included in Net income (loss) as:
Investment gains (losses), net	14		—		—		—		—
Net derivative gains (losses) (1)	—		736		—		(3,421)		—
Total realized and unrealized gains (losses)	14		736		—		(3,421)		—
Other comprehensive income (loss)	(21)		—		—		—		—
Purchases (2)	25		33		—		(335)		(4)
Sales (3)	(26)		(58)		—		54		—
Settlements (4)	—		—		—		—		—
Change in estimate (5)	—		(32)		—		—		—
Activity related to consolidated VIEs/VOEs	(4)		—		—		—		(2)
Transfers into Level 3 (6)	1		—		—		—		—
Transfers out of Level 3 (6)	—		—		—		—		—
Balance, September 30, 2020	$	139	$	2,818	$	—	$	(12,204)	$	(29)

Balance, January 1, 2019	$	165	$	1,734	$	21	$	(5,674)	$	(7)
Realized and unrealized gains (losses), included in Net income (loss) as:
Investment gains (losses), net	—		—		—		—		—
Net derivative gains (losses)	—		740		—		(3,677)		—
Total realized and unrealized gains (losses)	—		740		—		(3,677)		—
Other comprehensive income (loss)	—		—		—		—		—
Purchases (2)	10		33		3		(317)		(17)
Sales (3)	(11)		(55)		(1)		27		—
Settlements (4)	—		—		(4)		—		—
Change in estimate	—		—		—		—		—
Activity related to consolidated VIEs/VOEs	(3)		—		—		—		(2)
Transfers into Level 3 (6)	—		—		—		—		—
Transfers out of Level 3 (6)	(33)		—		(12)		—		—
Balance, September 30, 2019	$	128	$	2,452	$	7	$	(9,641)	$	(26)


	Net Income (Loss)
	Investment Gains (Losses), Net		Net Derivative Gains (Losses)		OCI
	(in millions)
Held at September 30, 2020:
Change in unrealized gains (losses):
Fixed maturities, AFS
Corporate	$	—	$	—	$	(37)
State and political subdivisions	—		—		2
Asset-backed	—		—		—
Total fixed maturities, AFS	—		—		(35)
GMIB reinsurance contracts	—		2,818		—
Separate Account assets	—
GMxB derivative features liability	—		(12,204)		—
Total	$	—	$	(9,386)	$	(35)

Held at September 30, 2019:
Change in unrealized gains (losses):
Fixed maturities, AFS
Corporate	$	—	$	—	$	3
State and political subdivisions	—		—		3

Asset-backed	—		—		4
Total fixed maturities, AFS	—		—		10
GMIB reinsurance contracts	—		740		—
Separate Account assets	(1)		—		—
GMxB derivative features liability	—		(3,677)		—
Total	$	(1)	$	(2,937)	$	10

Fair

Value

Valuation

Technique

Significant

Unobservable Input

Range

Weighted Average (2)

(in millions)

Assets:

Investments:

Fixed maturities, AFS:

Corporate

Matrix pricing model

Spread over Benchmark

220 - 610 bps

278 bps

1,105

Market comparable
companies

EBITDA multiples
Discount rate
Cash flow multiples

3.5x-31.8x
5.1% - 25.4%
0.9x -25.0x

14.4x
10.0%
10.7x

Other equity investments

Market comparable companies

Revenue multiple

3.5x - 27.9x

9.5x

Discounted Cash Flow

Earnings multiple
Discount factor
Discount years

8.0x
10.0%
11

Fair

Value

Valuation

Technique

Significant

Unobservable Input

Range

Weighted Average (2)

GMIB reinsurance contract asset

2,818

Discounted cash flow

Non-performance risk
Lapse rates
Withdrawal rates
Utilization rates
Volatility rates - Equity
Mortality rates (1):
Ages 0 - 40
Ages 41 - 60
Ages 61 - 115

60 - 125 bps
0.6%-16%
0%-2%
0%-61%
16%-34%

0.01%-0.18%
0.07%-0.54%
0.42%-42.20%

72 bps
1.56%
0.96%
6.37%
25%

2.72%
(same for all ages)
(same for all ages)

Liabilities:

GMIBNLG

11,682

Discounted cash flow

Non-performance risk
Lapse rates
Withdrawal rates
Annuitization rates
Mortality rates (1):
Ages 0 - 40
Ages 41 - 60
Ages 61 - 115

141.0 bps
1.1%-25.7%
0.4%-2%
0%-100%

0.01%-0.19%
0.06%-0.53%
0.41%-41.39%

3.06%
0.96%
5.92%

1.48%
(same for all ages)
(same for all ages)

Assumed GMIB Reinsurance Contracts

219

Discounted cash flow

Non-performance risk
Lapse rates
Withdrawal rates (Age 0-85)
Withdrawal rates (Age 86+)
Utilization rates
Volatility rates - Equity

92 - 195 bps
1.1% - 11.1%
0.6% - 22.2%
1.1% - 100%
0% - 30%
16%-34%

147 bps
1.56%
0.96%
(same for all ages)
6.37%
25%

GWBL/GMWB

220

Discounted cash flow

Non-performance risk
Lapse rates
Withdrawal rates
Utilization rates

Volatility rates - Equity

141.0 bps
0.8%-16%
0%-8%
100% once starting
16%-34%

1.56%
0.96%

24.57%

GIB

Discounted cash flow

Non-performance risk
Lapse rates
Withdrawal rates
Utilization rates
Volatility rates - Equity

141.0 bps
0.8%-15.6%
0%-2%
0%-100%
16%-34%

1.56%
0.96%
6.37%
25%

GMAB

Discounted cash flow

Non-performance risk
Lapse rates
Volatility rates - Equity

141.0 bps
0.8%-16%
16%-34%

1.56%
25%

(1)Mortality rates vary by age and demographic characteristic such as gender. Mortality rate assumptions are based on a combination of company and industry experience. A mortality improvement assumption is also applied. For any given contract, mortality rates vary throughout the period over which cash flows are projected for purposes of valuating the embedded derivatives.

Fair
Value

Valuation
Technique

Significant
Unobservable Input

Range

Weighted Average

(in millions)

Assets:

Investments:

Fixed maturities, AFS:

Corporate

Matrix pricing model

Spread over benchmark

65 - 580 bps

184 bps

1,025

Market comparable companies

EBITDA multiples
Discount rate
Cash flow multiples

3.3x - 56.7x
3.9% - 16.5%
0.8x - 48.1x

14.3x
10.0%
10.7x

Other equity investments

Discounted cash flow

Earnings multiple
Discounts factor
Discount years

8.0x
10.0%
11

Fair
Value

Valuation
Technique

Significant
Unobservable Input

Range

Weighted Average

GMIB reinsurance contract asset

2,139

Discounted cash flow

Non-performance risk
Lapse rates
Withdrawal rates
Utilization rates
Volatility rates - Equity
Mortality rates (1):
Ages 0 - 40
Ages 41 - 60
Ages 60 - 115

55 - 109 bps
0.8% - 10%
0.0% - 8.0%
0.0% - 49.0%
9.0% - 30.0%

0.01% - 0.18%
0.07% - 0.54%
0.42% - 42.20%

Liabilities:

GMIBNLG

8,135

Discounted cash flow

Non-performance risk
Lapse rates
Withdrawal rates
Annuitization rates
Mortality rates (1):
Ages 0 - 40
Ages 41 - 60
Ages 60 - 115

124 bps
0.8% - 19.9%
0.3% - 11.0%
0.0% - 100.0%

0.01% - 0.19%
0.06% - 0.53%
0.41% - 41.39%

Assumed GMIB Reinsurance Contracts

186

Discounted cash flow

Non-performance risk
Lapse rates
Withdrawal rates (Age 0 - 85)
Withdrawal rates (Age 86+)
Utilization rates
Volatility rates - Equity

61 - 141 bps
1.1% - 11.1%
0.6% - 22.2%
1.1% - 100.0%
0.0% - 30.0%
9.0% - 30.0%

GWBL/GMWB

172

Discounted cash flow

Non-performance risk
Lapse rates
Withdrawal rates
Utilization rates

Volatility rates - Equity

124 bps
0.8% - 10.0%
0.0% - 7.0%
100% after starting
9.0% - 30.0%

GIB

Discounted cash flow

Non-performance risk
Lapse rates
Withdrawal rates
Utilization rates
Volatility rates - Equity

124 bps
1.2% - 19.9%
0.0% - 8.0%
0.0% - 100.0%
9.0% - 30.0%

GMAB

Discounted cash flow

Lapse rates
Volatility rates - Equity

1.0% - 10.0%
9.0% - 30.0%

Excluded from the tables above at September 30, 2020 and December 31, 2019, respectively, are approximately $507 million and $428 million of Level 3 fair value measurements of investments for which the underlying quantitative inputs are not developed by the Company and are not readily available. These investments primarily consist of certain privately placed debt securities with limited trading activity, including residential mortgage- and asset-backed instruments, and their fair values generally reflect unadjusted prices obtained from independent valuation service providers and indicative, non-binding quotes obtained from third-party broker-dealers recognized as market participants. Significant increases or decreases in the fair value amounts received from these pricing sources may result in the Company’s reporting significantly higher or lower fair value measurements for these Level 3 investments.

•The fair value of private placement securities is determined by application of a matrix pricing model or a market comparable company value technique. The significant unobservable input to the matrix pricing model valuation technique is the spread over the industry-specific benchmark yield curve. Generally, an increase or decrease in spreads would lead to directionally inverse movement in the fair value measurements of these securities. The significant unobservable input to the market comparable company valuation technique is the discount rate. Generally, a significant increase (decrease) in the discount rate would result in significantly lower (higher) fair value measurements of these securities.

Level 3 securities that were determined by application of a matrix pricing model and for which the spread over the U.S. Treasury curve is the most significant unobservable input to the pricing result. Generally, a change in spreads would lead to directionally inverse movement in the fair value measurements of these securities.

•Asset-backed securities classified as Level 3 primarily consist of non-agency mortgage loan trust certificates, including subprime and Alt-A paper, credit tenant loans, and equipment financings. Included in the tables above at September 30, 2020 and December 31, 2019, there were no securities that were determined by the application of matrix-pricing for which the spread over the U.S. Treasury curve is the most significant unobservable input to the pricing result. Significant increases (decreases) in spreads would have resulted in significantly lower (higher) fair value measurements.

Included in other equity investments classified as Level 3 are venture capital securities in the Technology, Media and Telecommunications industries. The fair value measurements of these securities include significant unobservable inputs including an enterprise value to revenue multiples and a discount rate to account for liquidity and various risk factors. Significant increases (decreases) in the enterprise value to revenue multiple inputs in isolation would have resulted in a significantly higher (lower) fair value measurement. Significant increases (decreases) in the discount rate would have resulted in a significantly lower (higher) fair value measurement.

The significant unobservable inputs used in the fair value measurement of the Company’s GMIB reinsurance contract asset are lapse rates, withdrawal rates, and GMIB utilization rates. Significant increases in GMIB utilization rates or decreases in lapse or withdrawal rates in isolation would tend to increase the GMIB reinsurance contract asset.

Fair value measurement of the GMIB reinsurance contract asset and liabilities includes dynamic lapse and GMIB utilization assumptions whereby projected contractual lapses and GMIB utilization reflect the projected net amount of risks of the contract. As the net amount of risk of a contract increases, the assumed lapse rate decreases and the GMIB utilization increases. Increases in volatility would increase the asset and liabilities.

The significant unobservable inputs used in the fair value measurement of the Company’s GMIBNLG liability are lapse rates, withdrawal rates, GMIB utilization rates, adjustment for Non-performance risk and NLG forfeiture rates. NLG forfeiture rates are caused by excess withdrawals above the annual GMIB accrual rate that cause the NLG to expire. Significant decreases in lapse rates, NLG forfeiture rates, adjustment for non-performance risk and GMIB utilization rates would tend to increase the GMIBNLG liability, while decreases in withdrawal rates and volatility rates would tend to decrease the GMIBNLG liability.

The significant unobservable inputs used in the fair value measurement of the Company’s GMWB and GWBL liability are lapse rates and withdrawal rates. Significant increases in withdrawal rates or decreases in lapse rates in isolation would tend to increase these liabilities. Increases in volatility would increase these liabilities.

The liabilities were valued using expected revenue growth rates and discount rates. The expected revenue growth rates range from 0.7% to 50.0%, with a weighted average of 4.9%, calculated using cumulative revenues and range of revenue growth rates (excluding revenue growth from additional AUM contributed from existing clients). The discount rates ranged from 1.9% to 10.4% with a weighted average of 8.0%, calculated using total contingent liabilities and range of discount rates.


	Carrying Value		Fair Value
			Level 1		Level 2		Level 3		Total
	(in millions)
September 30, 2020:
Mortgage loans on real estate	$	12,802	$	—	$	—	$	13,049	$	13,049
Policy loans	$	4,123	$	—	$	—	$	5,232	$	5,232
Policyholders’ liabilities: Investment contracts	$	2,195	$	—	$	—	$	2,425	$	2,425
FHLB funding agreements (1)	$	6,848	$	—	$	6,940	$	—	$	6,940
FABN funding agreements (2)	$	1,143	$	—	$	1,168	$	—	$	1,168
Short-term and long-term debt	$	4,114	$	—	$	4,750	$	—	$	4,750
Separate Accounts liabilities	$	9,000	$	—	$	—	$	9,000	$	9,000

December 31, 2019:
Mortgage loans on real estate	$	12,107	$	—	$	—	$	12,334	$	12,334
Policy loans (3)	$	3,735	$	—	$	—	$	4,707	$	4,707
Policyholders’ liabilities: Investment contracts (3)	$	2,056	$	—	$	—	$	2,167	$	2,167
FHLB funding agreements (1)	$	6,909	$	—	$	6,957	$	—	$	6,957
Short-term and long-term debt	$	4,111	$	—	$	4,476	$	—	$	4,476
Separate Accounts liabilities	$	9,041	$	—	$	—	$	9,041	$	9,041

Fair values for commercial and agricultural mortgage loans on real estate are measured by discounting future contractual cash flows to be received on the mortgage loan using interest rates at which loans with similar characteristics and credit quality would be made. The discount rate is derived based on the appropriate U.S. Treasury rate with a like term to the remaining term of the loan to which a spread reflective of the risk premium associated with the specific loan is added. Fair values for mortgage loans anticipated to be foreclosed and problem mortgage loans are limited to the fair value of the underlying collateral, if lower.

The fair values for deferred annuities and certain other annuities, which are included in Policyholders’ account balances, and liabilities for investment contracts with fund investments in Separate Accounts, are estimated using projected cash flows discounted at rates reflecting current market rates. Significant unobservable inputs reflected in the cash flows include lapse rates and withdrawal rates. Incremental adjustments may be made to the fair value to reflect non-performance risk. Certain other products such as the Company’s association plans contracts, supplementary contracts not involving life contingencies (“SCNILC”), Access Accounts and Escrow Shield Plus product reserves are held at book value.

The Company’s investment in COLI policies are recorded at their cash surrender value and are therefore not required to be included in the table above. See Note 2 to the Company’s consolidated financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2019 for further description of the Company’s accounting policy related to its investment in COLI policies.