Fair Value of Assets and Liabilities (Tables)

9 Months Ended

Sep. 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 September 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 September 30, 2017
Assets
Fixed income securities:
U.S. government and agencies	$	243		$	368		$	—					$	611
Municipal	—			2,192			60						2,252
Corporate - public	—			13,406			47						13,453
Corporate - privately placed	—			5,780			241						6,021
Foreign government	—			310			—						310
ABS - CDO	—			39			19						58
ABS - consumer and other	—			268			46						314
RMBS	—			269			—						269
CMBS	—			122			—						122
Redeemable preferred stock	—			15			—						15
Total fixed income securities	243			22,769			413						23,425
Equity securities	1,581			4			77						1,662
Short-term investments	138			574			—						712
Other investments: Free-standing derivatives	—			96			1			$	(3	)	94
Separate account assets	3,401			—			—						3,401
Total recurring basis assets	5,363			23,443			491			(3		)	29,294
Non-recurring basis ⁽¹⁾	—			—			15						15
Total assets at fair value	$	5,363		$	23,443		$	506		$	(3	)	$	29,309
% of total assets at fair value	18.3		%	80.0		%	1.7		%	—		%	100		%

Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	—		$	—		$	(290	)				$	(290	)
Other liabilities: Free-standing derivatives	—			(42		)	—			$	2		(40		)
Total liabilities at fair value	$	—		$	(42	)	$	(290	)	$	2		$	(330	)
% of total liabilities at fair value	—		%	12.7		%	87.9		%	(0.6		)%	100		%

____________


⁽¹⁾	Includes $5 million of limited partnership interests and $10 million of mortgage loans 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
September 30, 2017
Derivatives embedded in life and annuity contracts – Equity-indexed and forward starting options	$	(251	)	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 September 30, 2017.



($ in millions)				Total gains (losses) included in:
	Balance as of June 30, 2017			Net income⁽¹⁾			OCI		Transfers into Level 3			Transfers out of Level 3
Assets
Fixed income securities:
Municipal	$	60		$	—		$	—	$	—		$	—
Corporate - public	36			—			—		—			(3		)
Corporate - privately placed	250			1			2		—			(14		)
ABS - CDO	24			—			1		—			(1		)
ABS - consumer and other	63			—			—		—			(16		)
Total fixed income securities	433			1			3		—			(34		)
Equity securities	75			1			1		—			—
Free-standing derivatives, net	1			—			—		—			—
Total recurring Level 3 assets	$	509		$	2		$	4	$	—		$	(34	)

Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	(284	)	$	(8	)	$	—	$	—		$	—
Total recurring Level 3 liabilities	$	(284	)	$	(8	)	$	—	$	—		$	—

	Purchases			Sales			Issues		Settlements			Balance as of September 30, 2017
Assets
Fixed income securities:
Municipal	$	—		$	—		$	—	$	—		$	60
Corporate - public	16			—			—		(2		)	47
Corporate - privately placed	4			(1		)	—		(1		)	241
ABS - CDO	—			—			—		(5		)	19
ABS - consumer and other	—			—			—		(1		)	46
Total fixed income securities	20			(1		)	—		(9		)	413
Equity securities	—			—			—		—			77
Free-standing derivatives, net	—			—			—		—			1			⁽²⁾
Total recurring Level 3 assets	$	20		$	(1	)	$	—	$	(9	)	$	491

Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	—		$	—		$	—	$	2		$	(290	)
Total recurring Level 3 liabilities	$	—		$	—		$	—	$	2		$	(290	)

____________


⁽¹⁾	The effect to net income totals $(6) million and is reported in the Condensed Consolidated Statements of Operations and Comprehensive Income as follows: $2 million in net investment income, $(4) million in interest credited to contractholder funds and $(4) 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 nine months ended September 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			—			—			(13		)
Corporate - privately placed	264			6			—			11			(14		)
ABS - CDO	27			—			3			4			(10		)
ABS - consumer and other	42			—			—			—			(21		)
Total fixed income securities	439			7			4			15			(58		)
Equity securities	76			7			3			—			—
Free-standing derivatives, net	(2		)	3			—			—			—
Other assets	1			(1		)	—			—			—
Total recurring Level 3 assets	$	514		$	16		$	7		$	15		$	(58	)

Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	(289	)	$	(5	)	$	—		$	—		$	—
Total recurring Level 3 liabilities	$	(289	)	$	(5	)	$	—		$	—		$	—

	Purchases			Sales			Issues			Settlements			Balance as of September 30, 2017
Assets
Fixed income securities:
Municipal	$	—		$	—		$	—		$	—		$	60
Corporate - public	16			—			—			(4		)	47
Corporate - privately placed	7			(30		)	—			(3		)	241
ABS - CDO	5			—			—			(10		)	19
ABS - consumer and other	29			—			—			(4		)	46
Total fixed income securities	57			(30		)	—			(21		)	413
Equity securities	—			(9		)	—			—			77
Free-standing derivatives, net	—			—			—			—			1			⁽²⁾
Other assets	—			—			—			—			—
Total recurring Level 3 assets	$	57		$	(39	)	$	—		$	(21	)	$	491

Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	—		$	—		$	(1	)	$	5		$	(290	)
Total recurring Level 3 liabilities	$	—		$	—		$	(1	)	$	5		$	(290	)

____________


⁽¹⁾	The effect to net income totals $11 million and is reported in the Condensed Consolidated Statements of Operations and Comprehensive Income as follows: $8 million in realized capital gains and losses, $9 million in net investment income, $(10) million in interest credited to contractholder funds and $4 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 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.

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,
	2017			2016			2017			2016
Assets
Fixed income securities:
Municipal	$	—		$	1		$	—		$	1
Corporate	1			—			1			1
Total fixed income securities	1			1			1			2
Equity securities	1			—			8			(16		)
Free-standing derivatives, net	(3		)	4			—			4
Other assets	—			—			(1		)	—
Total recurring Level 3 assets	$	(1	)	$	5		$	8		$	(10	)

Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	(8	)	$	(2	)	$	(5	)	$	(10	)
Total recurring Level 3 liabilities	$	(8	)	$	(2	)	$	(5	)	$	(10	)

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

Financial liabilities



($ in millions)	September 30, 2017				December 31, 2016
	Carrying value		Fair value		Carrying value		Fair value
Contractholder funds on investment contracts	$	10,582	$	11,167	$	11,276	$	11,972
Liability for collateral	575		575		550		550
Notes due to related parties	140		142		465		465

Presented below are the carrying values and fair value estimates of financial instruments not carried at fair value.

Financial assets



($ in millions)	September 30, 2017				December 31, 2016
	Carrying value		Fair value		Carrying value		Fair value
Mortgage loans	$	3,735	$	3,922	$	3,938	$	3,963
Cost method limited partnerships	617		717		591		681
Bank loans	460		460		467		467
Agent loans	523		520		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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