Fair Value of Assets and Liabilities (Tables)

3 Months Ended

Mar. 31, 2017

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, 2017.



($ 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, 2017
Assets
Fixed income securities:
U.S. government and agencies	$	259		$	375		$	—					$	634
Municipal	—			2,206			60						2,266
Corporate - public	—			13,457			36						13,493
Corporate - privately placed	—			5,811			268						6,079
Foreign government	—			327			—						327
ABS - CDO	—			77			32						109
ABS - consumer and other	—			246			47						293
RMBS	—			301			—						301
CMBS	—			179			—						179
Redeemable preferred stock	—			15			—						15
Total fixed income securities	259			22,994			443						23,696
Equity securities	1,505			4			80						1,589
Short-term investments	162			598			—						760
Other investments: Free-standing derivatives	—			108			1			$	(7	)	102
Separate account assets	3,417			—			—						3,417
Total recurring basis assets	5,343			23,704			524			(7		)	29,564
Non-recurring basis ⁽¹⁾	—			—			8						8
Total assets at fair value	$	5,343		$	23,704		$	532		$	(7	)	$	29,572
% of total assets at fair value	18.1		%	80.1		%	1.8		%	—		%	100		%

Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	—		$	—		$	(285	)				$	(285	)
Other liabilities: Free-standing derivatives	—			(46		)	(2		)	$	3		(45		)
Total liabilities at fair value	$	—		$	(46	)	$	(287	)	$	3		$	(330	)
% of total liabilities at fair value	—		%	13.9		%	87.0		%	(0.9		)%	100		%

____________


⁽¹⁾	Includes $7 million of limited partnership interests and $1 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, 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 December 31, 2016
Assets
Fixed income securities:
U.S. government and agencies	$	619		$	395		$	—					$	1,014
Municipal	—			2,215			59						2,274
Corporate - public	—			13,475			47						13,522
Corporate - privately placed	—			5,895			264						6,159
Foreign government	—			332			—						332
ABS - CDO	—			102			27						129
ABS - consumer and other	—			160			42						202
RMBS	—			333			—						333
CMBS	—			241			—						241
Redeemable preferred stock	—			16			—						16
Total fixed income securities	619			23,164			439						24,222
Equity securities	1,432			3			76						1,511
Short-term investments	166			400			—						566
Other investments: Free-standing derivatives	—			101			1			$	(6	)	96
Separate account assets	3,373			—			—						3,373
Other assets	—			—			1						1
Total recurring basis assets	5,590			23,668			517			(6		)	29,769
Non-recurring basis ⁽¹⁾	—			—			9						9
Total assets at fair value	$	5,590		$	23,668		$	526		$	(6	)	$	29,778
% of total assets at fair value	18.7		%	79.5		%	1.8		%	—		%	100		%

Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	—		$	—		$	(289	)				$	(289	)
Other liabilities: Free-standing derivatives	—			(39		)	(3		)	$	2		(40		)
Total liabilities at fair value	$	—		$	(39	)	$	(292	)	$	2		$	(329	)
% of total liabilities at fair value	—		%	11.9		%	88.7		%	(0.6		)%	100		%

____________


⁽¹⁾	Includes $9 million of limited partnership interests 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, 2017
Derivatives embedded in life and annuity contracts – Equity-indexed and forward starting options	$	(249	)	Stochastic cash flow model	Projected option cost	1.0 - 2.2%	1.74	%
December 31, 2016
Derivatives embedded in life and annuity contracts – Equity-indexed and forward starting options	$	(246	)	Stochastic cash flow model	Projected option cost	1.0 - 2.2%	1.75	%

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, 2017.



($ in millions)				Total gains (losses) included in:
	Balance as of December 31, 2016			Net income⁽¹⁾			OCI			Transfers into Level 3			Transfers out of Level 3
Assets
Fixed income securities:
Municipal	$	59		$	—		$	1		$	—		$	—
Corporate - public	47			1			—			—			(10		)
Corporate - privately placed	264			—			5			—			—
ABS - CDO	27			(1		)	2			3			—
ABS - consumer and other	42			—			—			—			(2		)
Total fixed income securities	439			—			8			3			(12		)
Equity securities	76			5			—			—			—
Free-standing derivatives, net	(2		)	1			—			—			—
Other assets	1			(1		)	—			—			—
Total recurring Level 3 assets	$	514		$	5		$	8		$	3		$	(12	)

Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	(289	)	$	3		$	—		$	—		$	—
Total recurring Level 3 liabilities	$	(289	)	$	3		$	—		$	—		$	—

	Purchases			Sales			Issues			Settlements			Balance as of March 31, 2017
Assets
Fixed income securities:
Municipal	$	—		$	—		$	—		$	—		$	60
Corporate - public	—			—			—			(2		)	36
Corporate - privately placed	—			—			—			(1		)	268
ABS - CDO	5			—			—			(4		)	32
ABS - consumer and other	8			—			—			(1		)	47
Total fixed income securities	13			—			—			(8		)	443
Equity securities	—			(1		)	—			—			80
Free-standing derivatives, net	—			—			—			—			(1		)	⁽²⁾
Other assets	—			—			—			—			—
Total recurring Level 3 assets	$	13		$	(1	)	$	—		$	(8	)	$	522

Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	—		$	—		$	(1	)	$	2		$	(285	)
Total recurring Level 3 liabilities	$	—		$	—		$	(1	)	$	2		$	(285	)

____________


⁽¹⁾	The effect to net income totals $8 million and is reported in the Condensed Consolidated Statements of Operations and Comprehensive Income as follows: $1 million in realized capital gains and losses, $5 million in net investment income, $(5) million in interest credited to contractholder funds and $7 million in contract benefits.


⁽²⁾	Comprises $1 million of assets and $2 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, 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 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 March 31.



($ in millions)	Three months ended March 31,
	2017			2016
Assets
Fixed income securities:
Corporate	$	—		$	(2	)
Equity securities	5			(12		)
Free-standing derivatives, net	1			(1		)
Other assets	(1		)	—
Total recurring Level 3 assets	$	5		$	(15	)

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

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

Financial liabilities



($ in millions)	March 31, 2017				December 31, 2016
	Carrying value		Fair value		Carrying value		Fair value
Contractholder funds on investment contracts	$	11,045	$	11,598	$	11,276	$	11,972
Liability for collateral	575		575		550		550
Notes due to related parties	140		143		465		465

Financial assets



($ in millions)	March 31, 2017				December 31, 2016
	Carrying value		Fair value		Carrying value		Fair value
Mortgage loans	$	3,822	$	3,905	$	3,938	$	3,963
Cost method limited partnerships	595		692		591		681
Bank loans	472		472		467		467
Agent loans	489		488		467		467
Notes due from related party	—		—		325		325

- 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.

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