Fair Value of Assets and Liabilities (Tables)

6 Months Ended

Jun. 30, 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 June 30, 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 June 30, 2017
Assets
Fixed income securities:
U.S. government and agencies	$	286		$	367		$	—					$	653
Municipal	—			2,210			60						2,270
Corporate - public	—			13,439			36						13,475
Corporate - privately placed	—			5,849			250						6,099
Foreign government	—			312			—						312
ABS - CDO	—			39			24						63
ABS - consumer and other	—			277			63						340
RMBS	—			285			—						285
CMBS	—			139			—						139
Redeemable preferred stock	—			15			—						15
Total fixed income securities	286			22,932			433						23,651
Equity securities	1,538			4			75						1,617
Short-term investments	92			413			—						505
Other investments: Free-standing derivatives	—			105			1			$	(6	)	100
Separate account assets	3,396			—			—						3,396
Total recurring basis assets	5,312			23,454			509			(6		)	29,269
Non-recurring basis ⁽¹⁾	—			—			8						8
Total assets at fair value	$	5,312		$	23,454		$	517		$	(6	)	$	29,277
% of total assets at fair value	18.1		%	80.1		%	1.8		%	—		%	100		%

Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	—		$	—		$	(284	)				$	(284	)
Other liabilities: Free-standing derivatives	—			(46		)	—			$	2		(44		)
Total liabilities at fair value	$	—		$	(46	)	$	(284	)	$	2		$	(328	)
% of total liabilities at fair value	—		%	14.0		%	86.6		%	(0.6		)%	100		%

____________


⁽¹⁾	Includes $8 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, 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
June 30, 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 June 30, 2017.



($ in millions)				Total gains (losses) included in:
	Balance as of March 31, 2017			Net income⁽¹⁾			OCI			Transfers into Level 3			Transfers out of Level 3
Assets
Fixed income securities:
Municipal	$	60		$	—		$	—		$	—		$	—
Corporate - public	36			—			—			—			—
Corporate - privately placed	268			5			(7		)	11			—
ABS - CDO	32			1			—			1			(9		)
ABS - consumer and other	47			—			—			—			(3		)
Total fixed income securities	443			6			(7		)	12			(12		)
Equity securities	80			1			2			—			—
Free-standing derivatives, net	(1		)	2			—			—			—
Total recurring Level 3 assets	$	522		$	9		$	(5	)	$	12		$	(12	)

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

	Purchases			Sales			Issues			Settlements			Balance as of June 30, 2017
Assets
Fixed income securities:
Municipal	$	—		$	—		$	—		$	—		$	60
Corporate - public	—			—			—			—			36
Corporate - privately placed	3			(29		)	—			(1		)	250
ABS - CDO	—			—			—			(1		)	24
ABS - consumer and other	21			—			—			(2		)	63
Total fixed income securities	24			(29		)	—			(4		)	433
Equity securities	—			(8		)	—			—			75
Free-standing derivatives, net	—			—			—			—			1			⁽²⁾
Total recurring Level 3 assets	$	24		$	(37	)	$	—		$	(4	)	$	509

Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	—		$	—		$	—		$	1		$	(284	)
Total recurring Level 3 liabilities	$	—		$	—		$	—		$	1		$	(284	)

____________


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


⁽²⁾	Comprises $1 million of assets.

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, 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			(2		)	11			—
ABS - CDO	27			—			2			4			(9		)
ABS - consumer and other	42			—			—			—			(5		)
Total fixed income securities	439			6			1			15			(24		)
Equity securities	76			6			2			—			—
Free-standing derivatives, net	(2		)	3			—			—			—
Other assets	1			(1		)	—			—			—
Total recurring Level 3 assets	$	514		$	14		$	3		$	15		$	(24	)

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 June 30, 2017
Assets
Fixed income securities:
Municipal	$	—		$	—		$	—		$	—		$	60
Corporate - public	—			—			—			(2		)	36
Corporate - privately placed	3			(29		)	—			(2		)	250
ABS - CDO	5			—			—			(5		)	24
ABS - consumer and other	29			—			—			(3		)	63
Total fixed income securities	37			(29		)	—			(12		)	433
Equity securities	—			(9		)	—			—			75
Free-standing derivatives, net	—			—			—			—			1			⁽²⁾
Other assets	—			—			—			—			—
Total recurring Level 3 assets	$	37		$	(38	)	$	—		$	(12	)	$	509

Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	—		$	—		$	(1	)	$	3		$	(284	)
Total recurring Level 3 liabilities	$	—		$	—		$	(1	)	$	3		$	(284	)

____________


⁽¹⁾	The effect to net income totals $17 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 $8 million in contract benefits.


⁽²⁾	Comprises $1 million of assets.

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.

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,
	2017		2016			2017			2016
Assets
Fixed income securities:
Corporate	$	—	$	3		$	—		$	1
Equity securities	2		(4		)	7			(16		)
Free-standing derivatives, net	2		1			3			—
Other assets	—		—			(1		)	—
Total recurring Level 3 assets	$	4	$	—		$	9		$	(15	)

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

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

Financial assets



($ in millions)	June 30, 2017				December 31, 2016
	Carrying value		Fair value		Carrying value		Fair value
Mortgage loans	$	3,793	$	3,920	$	3,938	$	3,963
Cost method limited partnerships	583		683		591		681
Bank loans	478		479		467		467
Agent loans	499		495		467		467
Notes due from related party	—		—		325		325

Financial liabilities



($ in millions)	June 30, 2017				December 31, 2016
	Carrying value		Fair value		Carrying value		Fair value
Contractholder funds on investment contracts	$	10,810	$	11,405	$	11,276	$	11,972
Liability for collateral	529		529		550		550
Notes due to related parties	140		143		465		465

- 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