Fair Value of Assets and Liabilities (Tables)

12 Months Ended

Dec. 31, 2017

Summary of quantitative information about the significant unobservable inputs used in Level 3 fair value measurements

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, 2017. There were no assets or liabilities measured at fair value on a non-recurring basis as of December 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 December 31, 2017
Assets
Fixed income securities:
U.S. government and agencies	$	488		$	316		$	—					$	804
Municipal	—			2,216			57						2,273
Corporate - public	—			13,168			49						13,217
Corporate - privately placed	—			5,699			220						5,919
Foreign government	—			299			—						299
ABS - CDO	—			38			10						48
ABS - consumer and other	—			297			40						337
RMBS	—			253			—						253
CMBS	—			97			—						97
Redeemable preferred stock	—			14			—						14
Total fixed income securities	488			22,397			376						23,261
Equity securities	1,508			16			90						1,614
Short-term investments	110			615			—						725
Other investments: Free-standing derivatives	—			117			1			$	(3	)	115
Separate account assets	3,422			—			—						3,422
Other assets	—			—			—						—
Total assets at fair value	$	5,528		$	23,145		$	467		$	(3	)	$	29,137
% of total assets at fair value	19.0		%	79.4		%	1.6		%	—		%	100		%

Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	—		$	—		$	(284	)				$	(284	)
Other liabilities: Free-standing derivatives	—			(62		)	—			$	1		(61		)
Total liabilities at fair value	$	—		$	(62	)	$	(284	)	$	1		$	(345	)
% of total liabilities at fair value	—		%	18.0		%	82.3		%	(0.3		)%	100		%

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 investments written-down to fair value in connection with recognizing other-than-temporary impairments.

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
December 31, 2017
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%	1.74	%
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 year ended December 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		$	—		$	2		$	—		$	—
Corporate - public	47			1			—			3			(15		)
Corporate - privately placed	264			7			(2		)	11			(16		)
ABS - CDO	27			—			6			4			(10		)
ABS - consumer and other	42			—			—			—			(26		)
Total fixed income securities	439			8			6			18			(67		)
Equity securities	76			8			3			—			—
Free-standing derivatives, net	(2		)	3			—			—			—
Other assets	1			(1		)	—			—			—
Total recurring Level 3 assets	$	514		$	18		$	9		$	18		$	(67	)
Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	(289	)	$	1		$	—		$	—		$	—
Total recurring Level 3 liabilities	$	(289	)	$	1		$	—		$	—		$	—

	Purchases			Sales			Issues			Settlements			Balance as of December 31, 2017
Assets
Fixed income securities:
Municipal	$	—		$	(2	)	$	—		$	(2	)	$	57
Corporate - public	17			—			—			(4		)	49
Corporate - privately placed	20			(30		)	—			(34		)	220
ABS - CDO	5			—			—			(22		)	10
ABS - consumer and other	29			—			—			(5		)	40
Total fixed income securities	71			(32		)	—			(67		)	376
Equity securities	13			(10		)	—			—			90
Free-standing derivatives, net	—			—			—			—			1			⁽²⁾
Other assets	—			—			—			—			—
Total recurring Level 3 assets	$	84		$	(42	)	$	—		$	(67	)	$	467
Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	—		$	—		$	(2	)	$	6		$	(284	)
Total recurring Level 3 liabilities	$	—		$	—		$	(2	)	$	6		$	(284	)

_____________________


⁽¹⁾	The effect to net income totals $19 million and is reported in the Consolidated Statements of Operations and Comprehensive Income as follows: $9 million in realized capital gains and losses, $10 million in net investment income, $(9) million in interest credited to contractholder funds and $9 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 year ended December 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		$	12		$	(8	)	$	6		$	—
Corporate - public	44			—			—			16			(15		)
Corporate - privately placed	447			15			18			16			(277		)
ABS - CDO	53			1			5			8			(1		)
ABS - consumer and other	44			—			(3		)	3			(7		)
Total fixed income securities	666			28			12			49			(300		)
Equity securities	60			(15		)	5			—			(4		)
Free-standing derivatives, net	(7		)	6			—			—			—
Other assets	1			—			—			—			—
Total recurring Level 3 assets	$	720		$	19		$	17		$	49		$	(304	)
Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	(299	)	$	6		$	—		$	—		$	—
Total recurring Level 3 liabilities	$	(299	)	$	6		$	—		$	—		$	—

	Purchases			Sales			Issues			Settlements			Balance as of December 31, 2016
Assets
Fixed income securities:
Municipal	$	—		$	(27	)	$	—		$	(2	)	$	59
Corporate - public	6			(3		)	—			(1		)	47
Corporate - privately placed	108			(15		)	—			(48		)	264
ABS - CDO	—			(2		)	—			(37		)	27
ABS - consumer and other	7			—			—			(2		)	42
Total fixed income securities	121			(47		)	—			(90		)	439
Equity securities	32			(2		)	—			—			76
Free-standing derivatives, net	—			—			—			(1		)	(2		)	⁽²⁾
Other assets	—			—			—			—			1
Total recurring Level 3 assets	$	153		$	(49	)	$	—		$	(91	)	$	514
Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	—		$	—		$	(3	)	$	7		$	(289	)
Total recurring Level 3 liabilities	$	—		$	—		$	(3	)	$	7		$	(289	)

____________________


⁽¹⁾	The effect to net income totals $25 million and is reported in the Consolidated Statements of Operations and Comprehensive Income as follows: $8 million in realized capital gains and losses, $11 million in net investment income, $(3) million in interest credited to contractholder funds and $9 million in contract benefits.


⁽²⁾	Comprises $1 million of assets and $3 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 year ended December 31, 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		$	5		$	(5	)	$	—		$	—
Corporate - public	160			—			(2		)	—			(111		)
Corporate - privately placed	632			14			(17		)	10			(79		)
ABS - CDO	67			—			2			21			(17		)
ABS - consumer and other	62			(1		)	—			—			(41		)
CMBS	1			—			(1		)	—			—
Total fixed income securities	1,028			18			(23		)	31			(248		)
Equity securities	37			(1		)	(3		)	—			—
Free-standing derivatives, net	(7		)	1			—			—			—
Other assets	1			—			—			—			—
Total recurring Level 3 assets	$	1,059		$	18		$	(26	)	$	31		$	(248	)
Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	(323	)	$	19		$	—		$	—		$	—
Total recurring Level 3 liabilities	$	(323	)	$	19		$	—		$	—		$	—

	Purchases			Sales			Issues			Settlements			Balance as of December 31, 2015
Assets
Fixed income securities:
Municipal	$	—		$	(23	)	$	—		$	(5	)	$	78
Corporate - public	1			—			—			(4		)	44
Corporate - privately placed	29			(67		)	—			(75		)	447
ABS - CDO	—			(1		)	—			(19		)	53
ABS - consumer and other	27			—			—			(3		)	44
CMBS	—			—			—			—			—
Total fixed income securities	57			(91		)	—			(106		)	666
Equity securities	32			(5		)	—			—			60
Free-standing derivatives, net	—			—			—			(1		)	(7		)	⁽²⁾
Other assets	—			—			—			—			1
Total recurring Level 3 assets	$	89		$	(96	)	$	—		$	(107	)	$	720
Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	—		$	—		$	(2	)	$	7		$	(299	)
Total recurring Level 3 liabilities	$	—		$	—		$	(2	)	$	7		$	(299	)

_________________________


⁽¹⁾	The effect to net income totals $37 million and is reported in the Consolidated Statements of Operations and Comprehensive Income as follows: $6 million in realized capital gains and losses, $12 million in net investment income, $26 million in interest credited to contractholder funds, and $(7) 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 December 31.



($ in millions)	2017			2016			2015
Assets
Fixed income securities:
Municipal	$	—		$	2		$	—
Corporate	1			1			11
ABS	—			—			1
Total fixed income securities	1			3			12
Equity securities	9			(15		)	(1		)
Free-standing derivatives, net	—			5			1
Other assets	(1		)	—			—
Total recurring Level 3 assets	$	9		$	(7	)	$	12

Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	1		$	6		$	19
Total recurring Level 3 liabilities	$	1		$	6		$	19

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

Financial assets



($ in millions)	December 31, 2017				December 31, 2016
	Carrying value		Fair value		Carrying value		Fair value
Mortgage loans	$	3,876	$	4,052	$	3,938	$	3,963
Cost method limited partnerships ⁽¹⁾	611		713		591		681
Bank loans	437		437		467		467
Agent loans	538		536		467		467
Notes due from related party	—		—		325		325

____________________

⁽¹⁾

Beginning January 1, 2018, due to the adoption of the new accounting standard for the recognition and measurement of financial assets and liabilities, cost method limited partnerships (excluding limited partnership interests accounted for on a cost recovery basis) will be measured at fair value with changes in fair value recognized in net income. The existing carrying value of these investments will increase to fair value with the offsetting adjustment recognized in retained income through a cumulative effect adjustment. See Note 2 for additional details on the new accounting standard.

Financial liabilities



($ in millions)	December 31, 2017				December 31, 2016
	Carrying value		Fair value		Carrying value		Fair value
Contractholder funds on investment contracts	$	10,331	$	11,036	$	11,276	$	11,972
Liability for collateral	542		542		550		550
Notes due to related parties	140		141		465		465