Fair Value of Assets and Liabilities (Tables)

9 Months Ended

Sep. 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 September 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 September 30, 2015
Assets
Fixed income securities:
U.S. government and agencies	$	136		$	440		$	—					$	576
Municipal	—			2,437			89						2,526
Corporate	—			18,368			535						18,903
Foreign government	—			430			—						430
ABS	—			1,590			131						1,721
RMBS	—			489			—						489
CMBS	—			512			—						512
Redeemable preferred stock	—			16			—						16
Total fixed income securities	136			24,282			755						25,173
Equity securities	1,300			6			64						1,370
Short-term investments	51			886			—						937
Other investments: Free-standing derivatives	—			35			1			$	(11	)	25
Separate account assets	3,677			—			—						3,677
Other assets	—			—			1						1
Total recurring basis assets	5,164			25,209			821			(11		)	31,183
Non-recurring basis ⁽¹⁾	—			—			7			—			7
Total assets at fair value	$	5,164		$	25,209		$	828		$	(11	)	$	31,190
% of total assets at fair value	16.5		%	80.8		%	2.7		%	—		%	100		%

Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	—		$	—		$	(295	)				$	(295	)
Other liabilities: Free-standing derivatives	(2		)	(1		)	(9		)	$	(1	)	(13		)
Total liabilities at fair value	$	(2	)	$	(1	)	$	(304	)	$	(1	)	$	(308	)
% of total liabilities at fair value	0.7		%	0.3		%	98.7		%	0.3		%	100		%

____________


⁽¹⁾	Includes $7 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
September 30, 2015
Derivatives embedded in life and annuity contracts – Equity-indexed and forward starting options	$	(242	)	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 September 30, 2015.



($ in millions)				Total gains (losses) included in:
	Balance as of June 30, 2015			Net income⁽¹⁾			OCI			Transfers into Level 3			Transfers out of Level 3
Assets
Fixed income securities:
Municipal	$	101		$	2		$	—		$	—		$	—
Corporate	569			10			(9		)	—			(23		)
ABS	105			—			(1		)	15			—
Total fixed income securities	775			12			(10		)	15			(23		)
Equity securities	46			—			(1		)	—			—
Free-standing derivatives, net	(7		)	(1		)	—			—			—
Other assets	1			—			—			—			—
Total recurring Level 3 assets	$	815		$	11		$	(11	)	$	15		$	(23	)

Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	(315	)	$	19		$	—		$	—		$	—
Total recurring Level 3 liabilities	$	(315	)	$	19		$	—		$	—		$	—

	Purchases			Sales			Issues			Settlements			Balance as of September 30, 2015
Assets
Fixed income securities:
Municipal	$	—		$	(14	)	$	—		$	—		$	89
Corporate	1			(11		)	—			(2		)	535
ABS	27			—			—			(15		)	131
Total fixed income securities	28			(25		)	—			(17		)	755
Equity securities	19			—			—			—			64
Free-standing derivatives, net	—			—			—			—			(8		)	⁽²⁾
Other assets	—			—			—			—			1
Total recurring Level 3 assets	$	47		$	(25	)	$	—		$	(17	)	$	812

Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	—		$	—		$	—		$	1		$	(295	)
Total recurring Level 3 liabilities	$	—		$	—		$	—		$	1		$	(295	)

____________


⁽¹⁾	The effect to net income totals $30 million and is reported in the Condensed Consolidated Statements of Operations and Comprehensive Income as follows: $8 million in realized capital gains and losses, $3 million in net investment income, $27 million in interest credited to contractholder funds and $(8) million in contract benefits.


⁽²⁾	Comprises $1 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 September 30, 2014.



($ in millions)				Total gains (losses) included in:
	Balance as of June 30, 2014			Net income⁽¹⁾			OCI			Transfers into Level 3			Transfers out of Level 3
Assets
Fixed income securities:
Municipal	$	102		$	—		$	—		$	—		$	—
Corporate	883			3			(13		)	18			—
ABS	105			—			1			—			—
CMBS	5			—			—			—			—
Total fixed income securities	1,095			3			(12		)	18			—
Equity securities	7			—			—			—			—
Free-standing derivatives, net	(5		)	—			—			—			—
Other assets	1			—			—			—			—
Total recurring Level 3 assets	$	1,098		$	3		$	(12	)	$	18		$	—

Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	(331	)	$	9		$	—		$	—		$	—
Total recurring Level 3 liabilities	$	(331	)	$	9		$	—		$	—		$	—

	Purchases			Sales			Issues			Settlements			Balance as of September 30, 2014
Assets
Fixed income securities:
Municipal	$	—		$	(1	)	$	—		$	—		$	101
Corporate	4			(3		)	—			(53		)	839
ABS	10			—			—			(2		)	114
CMBS	—			—			—			—			5
Total fixed income securities	14			(4		)	—			(55		)	1,059
Equity securities	30			—			—			—			37
Free-standing derivatives, net	—			—			—			(1		)	(6		)	⁽²⁾
Other assets	—			—			—			—			1
Total recurring Level 3 assets	$	44		$	(4	)	$	—		$	(56	)	$	1,091

Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	—		$	—		$	—		$	1		$	(321	)
Total recurring Level 3 liabilities	$	—		$	—		$	—		$	1		$	(321	)

__________


⁽¹⁾	The effect to net income totals $12 million and is reported in the Condensed Consolidated Statements of Operations and Comprehensive Income as follows: $3 million in net investment income, $5 million in interest credited to contractholder funds and $4 million in contract benefits.


⁽²⁾	Comprises $3 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 nine months ended September 30, 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	)	$	3		$	—		$	(17	)
Corporate	1,008			14			(4		)	18			(26		)
ABS	112			—			2			—			(12		)
CMBS	1			—			—			—			—
Redeemable preferred stock	1			—			—			—			—
Total fixed income securities	1,241			13			1			18			(55		)
Equity securities	6			—			—			—			—
Free-standing derivatives, net	(5		)	1			—			—			—
Other assets	—			1			—			—			—
Assets held for sale	362			(1		)	2			4			(2		)
Total recurring Level 3 assets	$	1,604		$	14		$	3		$	22		$	(57	)

Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	(307	)	$	(5	)	$	—		$	—		$	—
Liabilities held for sale	(246		)	17			—			—			—
Total recurring Level 3 liabilities	$	(553	)	$	12		$	—		$	—		$	—

	Sold in LBL disposition ⁽³⁾			Purchases/Issues⁽⁴⁾			Sales			Settlements			Balance as of September 30, 2014
Assets
Fixed income securities:
Municipal	$	—		$	—		$	(3	)	$	—		$	101
Corporate	—			16			(92		)	(95		)	839
ABS	—			21			—			(9		)	114
CMBS	4			—			—			—			5
Redeemable preferred stock	—			—			(1		)	—			—
Total fixed income securities	4			37			(96		)	(104		)	1,059
Equity securities	—			31			—			—			37
Free-standing derivatives, net	—			2			—			(4		)	(6		)	⁽²⁾
Other assets	—			—			—			—			1
Assets held for sale	(351		)	—			(8		)	(6		)	—
Total recurring Level 3 assets	$	(347	)	$	70		$	(104	)	$	(114	)	$	1,091

Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	—		$	(13	)	$	—		$	4		$	(321	)
Liabilities held for sale	230			(4		)	—			3			—
Total recurring Level 3 liabilities	$	230		$	(17	)	$	—		$	7		$	(321	)

__________


⁽¹⁾	The effect to net income totals $26 million and is reported in the Condensed Consolidated Statements of Operations and Comprehensive Income as follows: $8 million in realized capital gains and losses, $9 million in net investment income, $5 million in interest credited to contractholder funds, $8 million in contract benefits and $(4) million in loss on disposition of operations.


⁽²⁾	Comprises $3 million of assets and $9 million of liabilities.


⁽³⁾	Includes transfers from held for sale that took place in first quarter 2014 of $4 million for CMBS and $(4) million for Assets held for sale.


⁽⁴⁾	Represents purchases for assets and issues for 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 September 30.



($ in millions)	Three months ended September 30,					Nine months ended September 30,
	2015			2014		2015		2014
Assets
Fixed income securities:
Municipal	$	—		$	—	$	—	$	(1	)
Corporate	3			3		8		8
ABS	—			—		1		—
CMBS	—			—		—		(1		)
Total fixed income securities	3			3		9		6
Equity securities	(1		)	—		—		—
Free-standing derivatives, net	(1		)	—		—		6
Other assets	—			—		—		1
Assets held for sale	—			—		—		(1		)
Total recurring Level 3 assets	$	1		$	3	$	9	$	12

Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	19		$	9	$	24	$	(5	)
Liabilities held for sale	—			—		—		17
Total recurring Level 3 liabilities	$	19		$	9	$	24	$	12

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

Financial assets



($ in millions)	September 30, 2015				December 31, 2014
	Carrying value		Fair value		Carrying value		Fair value
Mortgage loans	$	3,827	$	4,020	$	3,686	$	3,922
Cost method limited partnerships	526		692		508		686
Bank loans	510		507		431		427
Agent loans	416		406		368		361
Notes due from related party	275		275		275		275

Financial liabilities



($ in millions)	September 30, 2015				December 31, 2014
	Carrying value		Fair value		Carrying value		Fair value
Contractholder funds on investment contracts	$	12,682	$	13,189	$	13,708	$	14,364
Notes due to related parties	275		275		275		275
Liability for collateral	503		503		510		510