Fair Value of Assets and Liabilities (Tables)

3 Months Ended

Mar. 31, 2016

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 March 31, 2016.



($ 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, 2016
Assets
Fixed income securities:
U.S. government and agencies	$	484		$	440		$	—					$	924
Municipal	—			2,405			66						2,471
Corporate - public	—			12,447			38						12,485
Corporate - privately placed	—			5,429			497						5,926
Foreign government	—			379			—						379
ABS - CDO	—			157			50						207
ABS - consumer and other	—			1,161			43						1,204
RMBS	—			415			—						415
CMBS	—			417			—						417
Redeemable preferred stock	—			15			—						15
Total fixed income securities	484			23,265			694						24,443
Equity securities	1,285			3			56						1,344
Short-term investments	175			1,370			—						1,545
Other investments: Free-standing derivatives	—			60			1			$	(9	)	52
Separate account assets	3,488			—			—						3,488
Other assets	—			—			1						1
Total recurring basis assets	5,432			24,698			752			(9		)	30,873
Non-recurring basis ⁽¹⁾	—			—			24						24
Total assets at fair value	$	5,432		$	24,698		$	776		$	(9	)	$	30,897
% of total assets at fair value	17.6		%	79.9		%	2.5		%	—		%	100		%

Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	—		$	—		$	(313	)				$	(313	)
Other liabilities: Free-standing derivatives	—			(16		)	(9		)	$	1		(24		)
Total liabilities at fair value	$	—		$	(16	)	$	(322	)	$	1		$	(337	)
% of total liabilities at fair value	—		%	4.8		%	95.5		%	(0.3		)%	100		%

____________


⁽¹⁾	Includes $20 million of limited partnership interests and $4 million of other investments 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 December 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 December 31, 2015
Assets
Fixed income securities:
U.S. government and agencies	$	546		$	431		$	—					$	977
Municipal	—			2,364			78						2,442
Corporate - public	—			12,490			44						12,534
Corporate - privately placed	—			5,523			447						5,970
Foreign government	—			384			—						384
ABS - CDO	—			178			53						231
ABS - consumer and other	—			1,145			44						1,189
RMBS	—			451			—						451
CMBS	—			436			—						436
Redeemable preferred stock	—			15			—						15
Total fixed income securities	546			23,417			666						24,629
Equity securities	1,479			3			60						1,542
Short-term investments	193			623			—						816
Other investments: Free-standing derivatives	—			59			1			$	(11	)	49
Separate account assets	3,639			—			—						3,639
Other assets	1			—			1						2
Total recurring basis assets	5,858			24,102			728			(11		)	30,677
Non-recurring basis ⁽¹⁾	—			—			8						8
Total assets at fair value	$	5,858		$	24,102		$	736		$	(11	)	$	30,685
% of total assets at fair value	19.1		%	78.5		%	2.4		%	—		%	100.0		%

Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	—		$	—		$	(299	)				$	(299	)
Other liabilities: Free-standing derivatives	—			(7		)	(8		)	$	1		(14		)
Total liabilities at fair value	$	—		$	(7	)	$	(307	)	$	1		$	(313	)
% of total liabilities at fair value	—		%	2.2		%	98.1		%	(0.3		)%	100.0		%

____________


⁽¹⁾	Includes $3 million of limited partnership interests and $5 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
March 31, 2016
Derivatives embedded in life and annuity contracts – Equity-indexed and forward starting options	$	(245	)	Stochastic cash flow model	Projected option cost	1.0 - 2.2%	1.75	%
December 31, 2015
Derivatives embedded in life and annuity contracts – Equity-indexed and forward starting options	$	(247	)	Stochastic cash flow model	Projected option cost	1.0 - 2.2%	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, 2016.



($ in millions)				Total gains (losses) included in:
	Balance as of December 31, 2015			Net income⁽¹⁾			OCI			Transfers into Level 3			Transfers out of Level 3
Assets
Fixed income securities:
Municipal	$	78		$	11		$	(8	)	$	—		$	—
Corporate - public	44			—			1			1			(7		)
Corporate - privately placed	447			1			4			—			(5		)
ABS - CDO	53			—			(1		)	2			—
ABS - consumer and other	44			—			(1		)	—			—
Total fixed income securities	666			12			(5		)	3			(12		)
Equity securities	60			(12		)	3			—			—
Free-standing derivatives, net	(7		)	(1		)	—			—			—
Other assets	1			—			—			—			—
Total recurring Level 3 assets	$	720		$	(1	)	$	(2	)	$	3		$	(12	)

Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	(299	)	$	(15	)	$	—		$	—		$	—
Total recurring Level 3 liabilities	$	(299	)	$	(15	)	$	—		$	—		$	—

	Purchases			Sales			Issues			Settlements			Balance as of March 31, 2016
Assets
Fixed income securities:
Municipal	$	—		$	(15	)	$	—		$	—		$	66
Corporate - public	—			—			—			(1		)	38
Corporate - privately placed	55			—			—			(5		)	497
ABS - CDO	—			(1		)	—			(3		)	50
ABS - consumer and other	—			—			—			—			43
Total fixed income securities	55			(16		)	—			(9		)	694
Equity securities	5			—			—			—			56
Free-standing derivatives, net	—			—			—			—			(8		)	⁽²⁾
Other assets	—			—			—			—			1
Total recurring Level 3 assets	$	60		$	(16	)	$	—		$	(9	)	$	743

Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	—		$	—		$	(1	)	$	2		$	(313	)
Total recurring Level 3 liabilities	$	—		$	—		$	(1	)	$	2		$	(313	)

____________


⁽¹⁾	The effect to net income totals $(16) million and is reported in the Condensed Consolidated Statements of Operations and Comprehensive Income as follows: $(4) million in realized capital gains and losses, $3 million in net investment income, $1 million in interest credited to contractholder funds and $(16) million in life an annuity 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 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 loses, $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.

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,
	2016			2015
Assets
Fixed income securities:
Corporate	$	(2	)	$	2
Equity securities	(12		)	—
Free-standing derivatives, net	(1		)	—
Total recurring Level 3 assets	$	(15	)	$	2

Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	(15	)	$	(4	)
Total recurring Level 3 liabilities	$	(15	)	$	(4	)

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

Financial liabilities



($ in millions)	March 31, 2016				December 31, 2015
	Carrying value		Fair value		Carrying value		Fair value
Contractholder funds on investment contracts	$	12,152	$	12,584	$	12,387	$	12,836
Notes due to related parties	275		275		275		275
Liability for collateral	579		579		550		550

Financial assets



($ in millions)	March 31, 2016				December 31, 2015
	Carrying value		Fair value		Carrying value		Fair value
Mortgage loans	$	3,749	$	3,935	$	3,781	$	3,920
Cost method limited partnerships	549		664		530		661
Bank loans	496		485		502		493
Agent loans	437		427		422		408
Notes due from related party	275		275		275		275