Fair Value of Assets and Liabilities (Tables)

9 Months Ended

Sep. 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 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.

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, 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 September 30, 2016
Assets
Fixed income securities:
U.S. government and agencies	$	376		$	440		$	—					$	816
Municipal	—			2,351			66						2,417
Corporate - public	—			13,607			36						13,643
Corporate - privately placed	—			6,179			242						6,421
Foreign government	—			341			—						341
ABS - CDO	—			118			33						151
ABS - consumer and other	—			297			51						348
RMBS	—			361			—						361
CMBS	—			282			—						282
Redeemable preferred stock	—			16			—						16
Total fixed income securities	376			23,992			428						24,796
Equity securities	1,497			2			74						1,573
Short-term investments	134			566			—						700
Other investments: Free-standing derivatives	—			88			1			$	(5	)	84
Separate account assets	3,450			—			—						3,450
Other assets	—			—			1						1
Total recurring basis assets	5,457			24,648			504			(5		)	30,604
Non-recurring basis ⁽¹⁾	—			—			14						14
Total assets at fair value	$	5,457		$	24,648		$	518		$	(5	)	$	30,618
% of total assets at fair value	17.8		%	80.5		%	1.7		%	—		%	100		%

Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	—		$	—		$	(306	)				$	(306	)
Other liabilities: Free-standing derivatives	—			(32		)	(4		)	$	—		(36		)
Total liabilities at fair value	$	—		$	(32	)	$	(310	)	$	—		$	(342	)
% of total liabilities at fair value	—		%	9.4		%	90.6		%	—		%	100		%

____________


⁽¹⁾	Includes $10 million of limited partnership interests and $4 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, 2016
Derivatives embedded in life and annuity contracts – Equity-indexed and forward starting options	$	(255	)	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 September 30, 2016.



($ in millions)				Total gains (losses) included in:
	Balance as of June 30, 2016			Net income⁽¹⁾			OCI			Transfers into Level 3			Transfers out of Level 3
Assets
Fixed income securities:
Municipal	$	70		$	1		$	(1	)	$	—		$	—
Corporate - public	41			—			—			—			(6		)
Corporate - privately placed	474			—			2			—			(211		)
ABS - CDO	33			—			2			—			—
ABS - consumer and other	44			—			—			—			—
Total fixed income securities	662			1			3			—			(217		)
Equity securities	52			—			—			—			—
Free-standing derivatives, net	(7		)	4			—			—			—
Other assets	1			—			—			—			—
Total recurring Level 3 assets	$	708		$	5		$	3		$	—		$	(217	)

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

	Purchases			Sales			Issues			Settlements			Balance as of September 30, 2016
Assets
Fixed income securities:
Municipal	$	—		$	(4	)	$	—		$	—		$	66
Corporate - public	3			(2		)	—			—			36
Corporate - privately placed	1			—			—			(24		)	242
ABS - CDO	—			—			—			(2		)	33
ABS - consumer and other	7			—			—			—			51
Total fixed income securities	11			(6		)	—			(26		)	428
Equity securities	22			—			—			—			74
Free-standing derivatives, net	—			—			—			—			(3		)	⁽²⁾
Other assets	—			—			—			—			1
Total recurring Level 3 assets	$	33		$	(6	)	$	—		$	(26	)	$	500

Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	—		$	—		$	(1	)	$	1		$	(306	)
Total recurring Level 3 liabilities	$	—		$	—		$	(1	)	$	1		$	(306	)

____________


⁽¹⁾	The effect to net income totals $3 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, $(5) million in interest credited to contractholder funds and $3 million in contract benefits.


⁽²⁾	Comprises $1 million of assets and $4 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, 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		$	12		$	(6	)	$	6		$	—
Corporate - public	44			—			1			1			(13		)
Corporate - privately placed	447			4			14			16			(276		)
ABS - CDO	53			—			4			8			(1		)
ABS - consumer and other	44			—			(2		)	3			—
Total fixed income securities	666			16			11			34			(290		)
Equity securities	60			(16		)	3			—			—
Free-standing derivatives, net	(7		)	4			—			—			—
Other assets	1			—			—			—			—
Total recurring Level 3 assets	$	720		$	4		$	14		$	34		$	(290	)

Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	(299	)	$	(10	)	$	—		$	—		$	—
Total recurring Level 3 liabilities	$	(299	)	$	(10	)	$	—		$	—		$	—

	Purchases			Sales			Issues			Settlements			Balance as of September 30, 2016
Assets
Fixed income securities:
Municipal	$	—		$	(24	)	$	—		$	—		$	66
Corporate - public	6			(2		)	—			(1		)	36
Corporate - privately placed	68			—			—			(31		)	242
ABS - CDO	—			(1		)	—			(30		)	33
ABS - consumer and other	7			—			—			(1		)	51
Total fixed income securities	81			(27		)	—			(63		)	428
Equity securities	27			—			—			—			74
Free-standing derivatives, net	—			—			—			—			(3		)	⁽²⁾
Other assets	—			—			—			—			1
Total recurring Level 3 assets	$	108		$	(27	)	$	—		$	(63	)	$	500

Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	—		$	—		$	(2	)	$	5		$	(306	)
Total recurring Level 3 liabilities	$	—		$	—		$	(2	)	$	5		$	(306	)

____________


⁽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, $9 million in net investment income, $(11) million in interest credited to contractholder funds and $1 million in contract benefits.


⁽²⁾	Comprises $1 million of assets and $4 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, 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 nine months ended September 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		$	3		$	(2	)	$	—		$	—
Corporate	792			11			(15		)	2			(150		)
ABS	129			(1		)	1			21			(27		)
CMBS	1			—			(1		)	—			—
Total fixed income securities	1,028			13			(17		)	23			(177		)
Equity securities	37			—			—			—			—
Free-standing derivatives, net	(7		)	—			—			—			—
Other assets	1			—			—			—			—
Total recurring Level 3 assets	$	1,059		$	13		$	(17	)	$	23		$	(177	)

Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	(323	)	$	24		$	—		$	—		$	—
Total recurring Level 3 liabilities	$	(323	)	$	24		$	—		$	—		$	—

	Purchases			Sales			Issues			Settlements			Balance as of September 30, 2015
Assets
Fixed income securities:
Municipal	$	—		$	(17	)	$	—		$	(1	)	$	89
Corporate	20			(58		)	—			(67		)	535
ABS	27			—			—			(19		)	131
CMBS	—			—			—			—			—
Total fixed income securities	47			(75		)	—			(87		)	755
Equity securities	27			—			—			—			64
Free-standing derivatives, net	—			—			—			(1		)	(8		)	⁽²⁾
Other assets	—			—			—			—			1
Total recurring Level 3 assets	$	74		$	(75	)	$	—		$	(88	)	$	812

Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	—		$	—		$	(1	)	$	5		$	(295	)
Total recurring Level 3 liabilities	$	—		$	—		$	(1	)	$	5		$	(295	)

__________


⁽¹⁾	The effect to net income totals $37 million and is reported in the Condensed Consolidated Statements of Operations and Comprehensive Income as follows: $4 million in realized capital gains and losses, $9 million in net investment income, $32 million in interest credited to contractholder funds and $(8) million in contract benefits.


⁽²⁾	Comprises $1 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 September 30.



($ in millions)	Three months ended September 30,						Nine months ended September 30,
	2016			2015			2016			2015
Assets
Fixed income securities:
Municipal	$	1		$	—		$	1		$	—
Corporate	—			3			1			8
ABS	—			—			—			1
Total fixed income securities	1			3			2			9
Equity securities	—			(1		)	(16		)	—
Free-standing derivatives, net	4			(1		)	4			—
Total recurring Level 3 assets	$	5		$	1		$	(10	)	$	9

Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	(2	)	$	19		$	(10	)	$	24
Total recurring Level 3 liabilities	$	(2	)	$	19		$	(10	)	$	24

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

Financial liabilities



($ in millions)	September 30, 2016				December 31, 2015
	Carrying value		Fair value		Carrying value		Fair value
Contractholder funds on investment contracts	$	11,607	$	12,308	$	12,387	$	12,836
Notes due to related parties	325		325		275		275
Liability for collateral	501		501		550		550

Financial assets



($ in millions)	September 30, 2016				December 31, 2015
	Carrying value		Fair value		Carrying value		Fair value
Mortgage loans	$	3,855	$	4,017	$	3,781	$	3,920
Cost method limited partnerships	632		724		530		661
Bank loans	477		478		502		493
Agent loans	463		452		422		408
Notes due from related party	325		325		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.

+ References + Details