Fair Value of Assets and Liabilities (Tables)

6 Months Ended

Jun. 30, 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 June 30, 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 June 30, 2015
Assets
Fixed income securities:
U.S. government and agencies	$	321		$	434		$	—					$	755
Municipal	—			3,388			101						3,489
Corporate	—			19,001			569						19,570
Foreign government	—			516			—						516
ABS	—			866			105						971
RMBS	—			531			—						531
CMBS	—			536			—						536
Redeemable preferred stock	—			16			—						16
Total fixed income securities	321			25,288			775						26,384
Equity securities	870			7			46						923
Short-term investments	67			868			—						935
Other investments: Free-standing derivatives	—			66			2			$	(9	)	59
Separate account assets	4,120			—			—			—			4,120
Other assets	—			—			1			—			1
Total recurring basis assets	5,378			26,229			824			(9		)	32,422
Non-recurring basis ⁽¹⁾	—			—			3			—			3
Total assets at fair value	$	5,378		$	26,229		$	827		$	(9	)	$	32,425
% of total assets at fair value	16.6		%	80.9		%	2.5		%	—		%	100		%

Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	—		$	—		$	(315	)				$	(315	)
Other liabilities: Free-standing derivatives	—			(6		)	(9		)	$	1		(14		)
Total liabilities at fair value	$	—		$	(6	)	$	(324	)	$	1		$	(329	)
% of total liabilities at fair value	—		%	1.8		%	98.5		%	(0.3		)%	100		%

____________


⁽¹⁾	Includes $3 million of other investments 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
June 30, 2015
Derivatives embedded in life and annuity contracts – Equity-indexed and forward starting options	$	(270	)	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 June 30, 2015.



($ in millions)				Total gains (losses) included in:
	Balance as of March 31, 2015			Net income⁽¹⁾			OCI			Transfers into Level 3			Transfers out of Level 3
Assets
Fixed income securities:
Municipal	$	106		$	1		$	(3	)	$	—		$	—
Corporate	739			3			3			—			(127		)
ABS	111			(1		)	2			—			(6		)
Total fixed income securities	956			3			2			—			(133		)
Equity securities	39			—			1			—			—
Free-standing derivatives, net	(7		)	1			—			—			—
Other assets	1			—			—			—			—
Total recurring Level 3 assets	$	989		$	4		$	3		$	—		$	(133	)

Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	(326	)	$	9		$	—		$	—		$	—
Total recurring Level 3 liabilities	$	(326	)	$	9		$	—		$	—		$	—

	Purchases			Sales			Issues			Settlements			Balance as of June 30, 2015
Assets
Fixed income securities:
Municipal	$	—		$	(2	)	$	—		$	(1	)	$	101
Corporate	—			—			—			(49		)	569
ABS	—			—			—			(1		)	105
Total fixed income securities	—			(2		)	—			(51		)	775
Equity securities	6			—			—			—			46
Free-standing derivatives, net	—			—			—			(1		)	(7		)	⁽²⁾
Other assets	—			—			—			—			1
Total recurring Level 3 assets	$	6		$	(2	)	$	—		$	(52	)	$	815

Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	—		$	—		$	—		$	2		$	(315	)
Total recurring Level 3 liabilities	$	—		$	—		$	—		$	2		$	(315	)

____________


⁽¹⁾	The effect to net income totals $13 million and is reported in the Condensed Consolidated Statements of Operations and Comprehensive Income as follows: $1 million in realized capital gains and losses, $3 million in net investment income and $9 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 June 30, 2014.



($ in millions)				Total gains (losses) included in:
	Balance as of March 31, 2014			Net income⁽¹⁾			OCI			Transfers into Level 3			Transfers out of Level 3
Assets
Fixed income securities:
Municipal	$	119		$	—		$	1		$	—		$	(17	)
Corporate	891			6			9			—			(1		)
ABS	122			—			1			—			(12		)
CMBS	5			—			—			—			—
Total fixed income securities	1,137			6			11			—			(30		)
Equity securities	6			—			—			—			—
Free-standing derivatives, net	(7		)	3			—			—			—
Other assets	—			1			—			—			—
Assets held for sale	347			—			—			—			—
Total recurring Level 3 assets	$	1,483		$	10		$	11		$	—		$	(30	)

Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	(319	)	$	(12	)	$	—		$	—		$	—
Liabilities held for sale	(230		)	—			—			—			—
Total recurring Level 3 liabilities	$	(549	)	$	(12	)	$	—		$	—		$	—

	Sold in LBL disposition			Purchases/Issues⁽²⁾			Sales			Settlements			Balance as of June 30, 2014
Assets
Fixed income securities:
Municipal	$	—		$	—		$	(1	)	$	—		$	102
Corporate	—			10			(3		)	(29		)	883
ABS	—			—			—			(6		)	105
CMBS	—			—			—			—			5
Total fixed income securities	—			10			(4		)	(35		)	1,095
Equity securities	—			1			—			—			7
Free-standing derivatives, net	—			—			—			(1		)	(5		)	⁽³⁾
Other assets	—			—			—			—			1
Assets held for sale	(347		)	—			—			—			—
Total recurring Level 3 assets	$	(347	)	$	11		$	(4	)	$	(36	)	$	1,098

Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	—		$	(2	)	$	—		$	2		$	(331	)
Liabilities held for sale	230			—			—			—			—
Total recurring Level 3 liabilities	$	230		$	(2	)	$	—		$	2		$	(331	)

__________


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


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


⁽³⁾	Comprises $3 million of assets and $8 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 June 30.



($ in millions)	Three months ended June 30,						Six months ended June 30,
	2015			2014			2015			2014
Assets
Fixed income securities:
Municipal	$	—		$	—		$	—		$	(1	)
Corporate	3			4			5			7
ABS	—			—			—			—
CMBS	(1		)	—			(1		)	—
Total fixed income securities	2			4			4			6
Free-standing derivatives, net	1			6			1			6
Other assets	—			1			—			1
Assets held for sale	—			—			—			(1		)
Total recurring Level 3 assets	$	3		$	11		$	5		$	12

Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	9		$	(12	)	5			$	(14	)
Liabilities held for sale	—			—			—			17
Total recurring Level 3 liabilities	$	9		$	(12	)	$	5		$	3

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

Financial liabilities



($ in millions)	June 30, 2015				December 31, 2014
	Carrying value		Fair value		Carrying value		Fair value
Contractholder funds on investment contracts	$	13,082	$	13,644	$	13,708	$	14,364
Notes due to related parties	275		275		275		275
Liability for collateral	465		465		510		510

Financial assets



($ in millions)	June 30, 2015				December 31, 2014
	Carrying value		Fair value		Carrying value		Fair value
Mortgage loans	$	3,770	$	4,023	$	3,686	$	3,922
Cost method limited partnerships	510		675		508		686
Bank loans	478		476		431		427
Agent loans	404		393		368		361
Notes due from related party	275		275		275		275