Fair Value of Assets and Liabilities (Tables)

3 Months Ended

Mar. 31, 2015

Summary of assets and liabilities measured at fair value on a recurring and non-recurring basis

The following table summarizes the Company’s assets and liabilities measured at fair value on a recurring and non-recurring basis as of December 31, 2014.



($ in millions)	Quoted prices in active markets for identical assets (Level 1)			Significant other observable inputs (Level 2)			Significant unobservable inputs (Level 3)			Counterparty and cash collateral netting			Balance as of December 31, 2014
Assets
Fixed income securities:
U.S. government and agencies	$	147		$	623		$	—					$	770
Municipal	—			3,556			106						3,662
Corporate	—			20,193			792						20,985
Foreign government	—			735			—						735
ABS	—			636			129						765
RMBS	—			605			—						605
CMBS	—			578			1						579
Redeemable preferred stock	—			16			—						16
Total fixed income securities	147			26,942			1,028						28,117
Equity securities	927			6			37						970
Short-term investments	90			767			—						857
Other investments: Free-standing derivatives	—			90			2			$	(2	)	90
Separate account assets	4,396			—			—						4,396
Other assets	1			—			1						2
Total recurring basis assets	5,561			27,805			1,068			(2		)	34,432
Non-recurring basis ⁽¹⁾	—			—			9						9
Total assets at fair value	$	5,561		$	27,805		$	1,077		$	(2	)	$	34,441
% of total assets at fair value	16.2		%	80.7		%	3.1		%	—		%	100.0		%

Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	—		$	—		$	(323	)				$	(323	)
Other liabilities: Free-standing derivatives	—			(24		)	(9		)	$	2		(31		)
Total liabilities at fair value	$	—		$	(24	)	$	(332	)	$	2		$	(354	)
% of total liabilities at fair value	—		%	6.8		%	93.8		%	(0.6		)%	100.0		%

____________


⁽¹⁾	Includes $6 million of mortgage loans and $3 million of limited partnership interests written-down to fair value in connection with recognizing other-than-temporary impairments.

The following table summarizes the Company’s assets and liabilities measured at fair value on a recurring and non-recurring basis as of March 31, 2015.



($ in millions)	Quoted prices in active markets for identical assets (Level 1)			Significant other observable inputs (Level 2)			Significant unobservable inputs (Level 3)			Counterparty and cash collateral netting			Balance as of March 31, 2015
Assets
Fixed income securities:
U.S. government and agencies	$	137		$	502		$	—					$	639
Municipal	—			3,556			106						3,662
Corporate	—			20,010			739						20,749
Foreign government	—			562			—						562
ABS	—			932			111						1,043
RMBS	—			573			—						573
CMBS	—			558			—						558
Redeemable preferred stock	—			16			—						16
Total fixed income securities	137			26,709			956						27,802
Equity securities	986			7			39						1,032
Short-term investments	63			757			—						820
Other investments: Free-standing derivatives	—			81			2			$	(6	)	77
Separate account assets	4,303			—			—						4,303
Other assets	1			—			1						2
Total recurring basis assets	5,490			27,554			998			(6		)	34,036
Non-recurring basis ⁽¹⁾	—			—			5						5
Total assets at fair value	$	5,490		$	27,554		$	1,003		$	(6	)	$	34,041
% of total assets at fair value	16.1		%	80.9		%	3.0		%	—		%	100		%

Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	—		$	—		$	(326	)				$	(326	)
Other liabilities: Free-standing derivatives	—			(12		)	(9		)	$	2		(19		)
Total liabilities at fair value	$	—		$	(12	)	$	(335	)	$	2		$	(345	)
% of total liabilities at fair value	—		%	3.5		%	97.1		%	(0.6		)%	100		%

____________


⁽¹⁾	Includes $5 million of limited partnership interests written-down to fair value in connection with recognizing other-than-temporary impairments.

Summary of quantitative information about the significant unobservable inputs used in Level 3 fair value measurements

The following table summarizes quantitative information about the significant unobservable inputs used in Level 3 fair value measurements.



($ in millions)	Fair value			Valuation technique	Unobservable input	Range	Weighted average
March 31, 2015
Derivatives embedded in life and annuity contracts – Equity-indexed and forward starting options	$	(281	)	Stochastic cash flow model	Projected option cost	1.0 - 2.2%	1.76	%
December 31, 2014
Derivatives embedded in life and annuity contracts – Equity-indexed and forward starting options	$	(278	)	Stochastic cash flow model	Projected option cost	1.0 - 2.0%	1.76	%

Schedule of rollforward of Level 3 assets and liabilities held at fair value on a recurring basis

The following table presents the rollforward of Level 3 assets and liabilities held at fair value on a recurring basis during the three months ended March 31, 2015.



($ in millions)				Total gains (losses) included in:
	Balance as of December 31, 2014			Net income⁽¹⁾			OCI			Transfers into Level 3			Transfers out of Level 3
Assets
Fixed income securities:
Municipal	$	106		$	—		$	1		$	—		$	—
Corporate	792			(2		)	(9		)	2			—
ABS	129			—			—			6			(21		)
CMBS	1			—			(1		)	—			—
Total fixed income securities	1,028			(2		)	(9		)	8			(21		)
Equity securities	37			—			—			—			—
Free-standing derivatives, net	(7		)	—			—			—			—
Other assets	1			—			—			—			—
Total recurring Level 3 assets	$	1,059		$	(2	)	$	(9	)	$	8		$	(21	)

Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	(323	)	$	(4	)	$	—		$	—		$	—
Total recurring Level 3 liabilities	$	(323	)	$	(4	)	$	—		$	—		$	—

	Purchases			Sales			Issues			Settlements			Balance as of March 31, 2015
Assets
Fixed income securities:
Municipal	$	—		$	(1	)	$	—		$	—		$	106
Corporate	19			(47		)	—			(16		)	739
ABS	—			—			—			(3		)	111
CMBS	—			—			—			—			—
Total fixed income securities	19			(48		)	—			(19		)	956
Equity securities	2			—			—			—			39
Free-standing derivatives, net	—			—			—			—			(7		)	⁽²⁾
Other assets	—			—			—			—			1
Total recurring Level 3 assets	$	21		$	(48	)	$	—		$	(19	)	$	989

Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	—		$	—		$	(1	)	$	2		$	(326	)
Total recurring Level 3 liabilities	$	—		$	—		$	(1	)	$	2		$	(326	)

____________


⁽¹⁾	The effect to net income totals $(6) million and is reported in the Condensed Consolidated Statements of Operations and Comprehensive Income as follows: $(5) million in realized capital gains and losses, $3 million in net investment income and $(4) million in interest credited to contractholder funds.


⁽²⁾	Comprises $2 million of assets and $9 million of liabilities.

The following table presents the rollforward of Level 3 assets and liabilities held at fair value on a recurring basis during the three months ended March 31, 2014.



($ in millions)				Total gains (losses) included in:
	Balance as of December 31, 2013			Net income⁽¹⁾			OCI			Transfers into Level 3			Transfers out of Level 3
Assets
Fixed income securities:
Municipal	$	119		$	(1	)	$	2		$	—		$	—
Corporate	1,008			5			—			—			(25		)
ABS	112			—			—			—			—
CMBS	1			—			—			—			—
Redeemable preferred stock	1			—			—			—			—
Total fixed income securities	1,241			4			2			—			(25		)
Equity securities	6			—			—			—			—
Free-standing derivatives, net	(5		)	(2		)	—			—			—
Assets held for sale	362			(1		)	2			4			(2		)
Total recurring Level 3 assets	$	1,604		$	1		$	4		$	4		$	(27	)

Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	(307	)	$	(2	)	$	—		$	—		$	—
Liabilities held for sale	(246		)	17			—			—			—
Total recurring Level 3 liabilities	$	(553	)	$	15		$	—		$	—		$	—

	Transfer from held for sale			Purchases/Issues⁽²⁾			Sales			Settlements			Balance as of March 31, 2014
Assets
Fixed income securities:
Municipal	$	—		$	—		$	(1	)	$	—		$	119
Corporate	—			2			(86		)	(13		)	891
ABS	—			11			—			(1		)	122
CMBS	4			—			—			—			5
Redeemable preferred stock	—			—			(1		)	—			—
Total fixed income securities	4			13			(88		)	(14		)	1,137
Equity securities	—			—			—			—			6
Free-standing derivatives, net	—			2			—			(2		)	(7		)	⁽³⁾
Assets held for sale	(4		)	—			(8		)	(6		)	347
Total recurring Level 3 assets	$	—		$	15		$	(96	)	$	(22	)	$	1,483

Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	—		$	(11	)	$	—		$	1		$	(319	)
Liabilities held for sale	—			(4		)	—			3			(230		)
Total recurring Level 3 liabilities	$	—		$	(15	)	$	—		$	4		$	(549	)

__________


⁽¹⁾	The effect to net income totals $16 million and is reported in the Condensed Consolidated Statements of Operations and Comprehensive Income as follows: $3 million in realized capital gains and losses, $2 million in net investment income, $10 million in interest credited to contractholder funds, $5 million in contract benefits and $(4) million in loss on disposition of operations.


⁽²⁾	Represents purchases for assets and issues for liabilities.


⁽³⁾	Comprises $5 million of assets and $12 million of liabilities.

Schedule of change in unrealized gains and losses included in net income for Level 3 assets and liabilities held

The following table provides the change in unrealized gains and losses included in net income for Level 3 assets and liabilities held as of March 31.



($ in millions)	Three months ended March 31,
	2015			2014
Assets
Fixed income securities:
Municipal	$	—		$	(1	)
Corporate	2			4
Total fixed income securities	2			3
Assets held for sale	—			(1		)
Total recurring Level 3 assets	$	2		$	2

Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	(4	)	$	(2	)
Liabilities held for sale	—			17
Total recurring Level 3 liabilities	$	(4	)	$	15

Schedule of carrying values and fair value estimates of financial instruments not carried at fair value

Financial liabilities



($ in millions)	March 31, 2015				December 31, 2014
	Carrying value		Fair value		Carrying value		Fair value
Contractholder funds on investment contracts	$	13,408	$	14,097	$	13,708	$	14,364
Notes due to related parties	275		275		275		275
Liability for collateral	492		492		510		510

Financial assets



($ in millions)	March 31, 2015				December 31, 2014
	Carrying value		Fair value		Carrying value		Fair value
Mortgage loans	$	3,795	$	4,043	$	3,686	$	3,922
Cost method limited partnerships	515		686		508		686
Bank loans	462		462		431		427
Agent loans	386		379		368		361
Notes due from related party	275		275		275		275

- Definition

Tabular disclosure of financial instruments measured at fair value, including those classified in shareholders' equity measured on a recurring or nonrecurring basis. Disclosures include, but are not limited to, fair value measurements recorded and the reasons for the measurements, level within the fair value hierarchy in which the fair value measurements are categorized and transfers between levels 1 and 2. Nonrecurring fair value measurements are those that are required or permitted in the statement of financial position in particular circumstances.

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- Definition

Tabular disclosure of the fair value of financial instruments, including financial assets and financial liabilities, and the measurements of those instruments, assets, and liabilities.

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