Fair Value of Assets and Liabilities (Tables)

6 Months Ended

Jun. 30, 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 June 30, 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 June 30, 2016
Assets
Fixed income securities:
U.S. government and agencies	$	229		$	442		$	—					$	671
Municipal	—			2,438			70						2,508
Corporate - public	—			13,213			41						13,254
Corporate - privately placed	—			5,821			474						6,295
Foreign government	—			381			—						381
ABS - CDO	—			154			33						187
ABS - consumer and other	—			601			44						645
RMBS	—			383			—						383
CMBS	—			339			—						339
Redeemable preferred stock	—			15			—						15
Total fixed income securities	229			23,787			662						24,678
Equity securities	1,501			2			52						1,555
Short-term investments	219			957			—						1,176
Other investments: Free-standing derivatives	—			74			1			$	(7	)	68
Separate account assets	3,419			—			—						3,419
Other assets	—			—			1						1
Total recurring basis assets	5,368			24,820			716			(7		)	30,897
Non-recurring basis ⁽¹⁾	—			—			6						6
Total assets at fair value	$	5,368		$	24,820		$	722		$	(7	)	$	30,903
% of total assets at fair value	17.4		%	80.3		%	2.3		%	—		%	100		%

Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	—		$	—		$	(304	)				$	(304	)
Other liabilities: Free-standing derivatives	(1		)	(21		)	(8		)	$	1		(29		)
Total liabilities at fair value	$	(1	)	$	(21	)	$	(312	)	$	1		$	(333	)
% of total liabilities at fair value	0.3		%	6.3		%	93.7		%	(0.3		)%	100		%

____________


⁽¹⁾	Includes $6 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 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
June 30, 2016
Derivatives embedded in life and annuity contracts – Equity-indexed and forward starting options	$	(250	)	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 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, 2016.



($ in millions)				Total gains (losses) included in:
	Balance as of March 31, 2016			Net income⁽¹⁾			OCI			Transfers into Level 3			Transfers out of Level 3
Assets
Fixed income securities:
Municipal	$	66		$	—		$	3		$	6		$	—
Corporate - public	38			—			—			—			—
Corporate - privately placed	497			3			8			16			(60		)
ABS - CDO	50			—			3			6			(1		)
ABS - consumer and other	43			—			(1		)	3			—
Total fixed income securities	694			3			13			31			(61		)
Equity securities	56			(4		)	—			—			—
Free-standing derivatives, net	(8		)	1			—			—			—
Other assets	1			—			—			—			—
Total recurring Level 3 assets	$	743		$	—		$	13		$	31		$	(61	)

Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	(313	)	$	7		$	—		$	—		$	—
Total recurring Level 3 liabilities	$	(313	)	$	7		$	—		$	—		$	—

	Purchases			Sales			Issues			Settlements			Balance as of June 30, 2016
Assets
Fixed income securities:
Municipal	$	—		$	(5	)	$	—		$	—		$	70
Corporate - public	3			—			—			—			41
Corporate - privately placed	12			—			—			(2		)	474
ABS - CDO	—			—			—			(25		)	33
ABS - consumer and other	—			—			—			(1		)	44
Total fixed income securities	15			(5		)	—			(28		)	662
Equity securities	—			—			—			—			52
Free-standing derivatives, net	—			—			—			—			(7		)	⁽²⁾
Other assets	—			—			—			—			1
Total recurring Level 3 assets	$	15		$	(5	)	$	—		$	(28	)	$	708

Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	—		$	—		$	—		$	2		$	(304	)
Total recurring Level 3 liabilities	$	—		$	—		$	—		$	2		$	(304	)

____________


⁽¹⁾	The effect to net income totals $7 million and is reported in the Condensed Consolidated Statements of Operations and Comprehensive Income as follows: $(4) million in realized capital gains and losses, $4 million in net investment income, $(7) million in interest credited to contractholder funds and $14 million in contract benefits.


⁽²⁾	Comprises $1 million of assets and $8 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 six months ended June 30, 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		$	(5	)	$	6		$	—
Corporate - public	44			—			1			1			(7		)
Corporate - privately placed	447			4			12			16			(65		)
ABS - CDO	53			—			2			8			(1		)
ABS - consumer and other	44			—			(2		)	3			—
Total fixed income securities	666			15			8			34			(73		)
Equity securities	60			(16		)	3			—			—
Free-standing derivatives, net	(7		)	—			—			—			—
Other assets	1			—			—			—			—
Total recurring Level 3 assets	$	720		$	(1	)	$	11		$	34		$	(73	)

Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	(299	)	$	(8	)	$	—		$	—		$	—
Total recurring Level 3 liabilities	$	(299	)	$	(8	)	$	—		$	—		$	—

	Purchases			Sales			Issues			Settlements			Balance as of June 30, 2016
Assets
Fixed income securities:
Municipal	$	—		$	(20	)	$	—		$	—		$	70
Corporate - public	3			—			—			(1		)	41
Corporate - privately placed	67			—			—			(7		)	474
ABS - CDO	—			(1		)	—			(28		)	33
ABS - consumer and other	—			—			—			(1		)	44
Total fixed income securities	70			(21		)	—			(37		)	662
Equity securities	5			—			—			—			52
Free-standing derivatives, net	—			—			—			—			(7		)	⁽²⁾
Other assets	—			—			—			—			1
Total recurring Level 3 assets	$	75		$	(21	)	$	—		$	(37	)	$	708

Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	—		$	—		$	(1	)	$	4		$	(304	)
Total recurring Level 3 liabilities	$	—		$	—		$	(1	)	$	4		$	(304	)

____________


⁽¹⁾	The effect to net income totals $(9) million and is reported in the Condensed Consolidated Statements of Operations and Comprehensive Income as follows: $(8) million in realized capital gains and losses, $7 million in net investment income, $(6) million in interest credited to contractholder funds and $(2) million in contract benefits.


⁽²⁾	Comprises $1 million of assets and $8 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, 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 six months ended June 30, 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		$	(2	)	$	—		$	—
Corporate	792			1			(6		)	2			(127		)
ABS	129			(1		)	2			6			(27		)
CMBS	1			—			(1		)	—			—
Total fixed income securities	1,028			1			(7		)	8			(154		)
Equity securities	37			—			1			—			—
Free-standing derivatives, net	(7		)	1			—			—			—
Other assets	1			—			—			—			—
Total recurring Level 3 assets	$	1,059		$	2		$	(6	)	$	8		$	(154	)

Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	(323	)	$	5		$	—		$	—		$	—
Total recurring Level 3 liabilities	$	(323	)	$	5		$	—		$	—		$	—

	Purchases			Sales			Issues			Settlements			Balance as of June 30, 2015
Assets
Fixed income securities:
Municipal	$	—		$	(3	)	$	—		$	(1	)	$	101
Corporate	19			(47		)	—			(65		)	569
ABS	—			—			—			(4		)	105
CMBS	—			—			—			—			—
Total fixed income securities	19			(50		)	—			(70		)	775
Equity securities	8			—			—			—			46
Free-standing derivatives, net	—			—			—			(1		)	(7		)	⁽²⁾
Other assets	—			—			—			—			1
Total recurring Level 3 assets	$	27		$	(50	)	$	—		$	(71	)	$	815

Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	—		$	—		$	(1	)	$	4		$	(315	)
Total recurring Level 3 liabilities	$	—		$	—		$	(1	)	$	4		$	(315	)

__________


⁽¹⁾	The effect to net income totals $7 million and is reported in the Condensed Consolidated Statements of Operations and Comprehensive Income as follows: $(4) million in realized capital gains and losses, $6 million in net investment income, $5 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 June 30.



($ in millions)	Three months ended June 30,						Six months ended June 30,
	2016			2015			2016			2015
Assets
Fixed income securities:
Corporate	$	3		$	3		$	1		$	5
CMBS	—			(1		)	—			(1		)
Total fixed income securities	3			2			1			4
Equity securities	(4		)	—			(16		)	—
Free-standing derivatives, net	1			1			—			1
Total recurring Level 3 assets	$	—		$	3		$	(15	)	$	5

Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	7		$	9		$	(8	)	$	5
Total recurring Level 3 liabilities	$	7		$	9		$	(8	)	$	5

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

Financial assets



($ in millions)	June 30, 2016				December 31, 2015
	Carrying value		Fair value		Carrying value		Fair value
Mortgage loans	$	3,873	$	4,067	$	3,781	$	3,920
Cost method limited partnerships	586		678		530		661
Bank loans	494		487		502		493
Agent loans	452		444		422		408
Notes due from related party	325		325		275		275

Financial liabilities



($ in millions)	June 30, 2016				December 31, 2015
	Carrying value		Fair value		Carrying value		Fair value
Contractholder funds on investment contracts	$	11,882	$	12,383	$	12,387	$	12,836
Notes due to related parties	325		325		275		275
Liability for collateral	595		595		550		550

- 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.

+ References + Details