Fair Value of Assets and Liabilities (Tables)

3 Months Ended

Mar. 31, 2018

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 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
Total recurring 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 as of March 31, 2018.



($ 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, 2018
Assets
Fixed income securities:
U.S. government and agencies	$	258		$	310		$	—					$	568
Municipal	—			2,207			56						2,263
Corporate - public	—			12,766			47						12,813
Corporate - privately placed	—			5,535			215						5,750
Foreign government	—			286			—						286
ABS - CDO	—			36			10						46
ABS - consumer and other	—			313			41						354
RMBS	—			239			—						239
CMBS	—			67			—						67
Redeemable preferred stock	—			15			—						15
Total fixed income securities	258			21,774			369						22,401
Equity securities	1,389			15			99						1,503
Short-term investments	69			527			—						596
Other investments: Free-standing derivatives	—			87			1			$	(4	)	84
Separate account assets	3,292			—			—						3,292
Total recurring assets at fair value	$	5,008		$	22,403		$	469		$	(4	)	$	27,876
% of total assets at fair value	18.0		%	80.3		%	1.7		%	—		%	100		%

Investments reported at NAV													751
Total													$	28,627

Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	—		$	—		$	(260	)				$	(260	)
Other liabilities: Free-standing derivatives	—			(43		)	—			$	5		(38		)
Total liabilities at fair value	$	—		$	(43	)	$	(260	)	$	5		$	(298	)
% of total liabilities at fair value	—		%	14.4		%	87.3		%	(1.7		)%	100		%

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, 2018
Derivatives embedded in life and annuity contracts – Equity-indexed and forward starting options	$	(230	)	Stochastic cash flow model	Projected option cost	1.0 - 2.2%	1.74	%
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	%

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, 2018.



($ in millions)				Total gains (losses) included in:
	Balance as of December 31, 2017			Net income⁽¹⁾			OCI			Transfers into Level 3			Transfers out of Level 3
Assets
Fixed income securities:
Municipal	$	57		$	—		$	(1	)	$	—		$	—
Corporate - public	49			—			(1		)	3			—
Corporate - privately placed	220			—			(2		)	—			(13		)
ABS - CDO	10			—			—			—			—
ABS - consumer and other	40			—			—			3			—
Total fixed income securities	376			—			(4		)	6			(13		)
Equity securities	90			1			—			—			—
Free-standing derivatives, net	1			—			—			—			—
Total recurring Level 3 assets	$	467		$	1		$	(4	)	$	6		$	(13	)

Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	(284	)	$	23		$	—		$	—		$	—
Total recurring Level 3 liabilities	$	(284	)	$	23		$	—		$	—		$	—

	Purchases			Sales			Issues			Settlements			Balance as of March 31, 2018
Assets
Fixed income securities:
Municipal	$	—		$	—		$	—		$	—		$	56
Corporate - public	—			(1		)	—			(3		)	47
Corporate - privately placed	11			—			—			(1		)	215
ABS - CDO	—			—			—			—			10
ABS - consumer and other	3			(4		)	—			(1		)	41
Total fixed income securities	14			(5		)	—			(5		)	369
Equity securities	8			—			—			—			99
Free-standing derivatives, net	—			—			—			—			1			⁽²⁾
Total recurring Level 3 assets	$	22		$	(5	)	$	—		$	(5	)	$	469

Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	—		$	—		$	(1	)	$	2		$	(260	)
Total recurring Level 3 liabilities	$	—		$	—		$	(1	)	$	2		$	(260	)

____________


⁽¹⁾	The effect to net income totals $24 million and is reported in the Condensed Consolidated Statements of Operations and Comprehensive Income as follows: $1 million in realized capital gains and losses, $19 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 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.

Schedule of change in unrealized gains and losses included in net income for Level 3 assets and liabilities held

The following table provides valuation changes included in net income for Level 3 assets and liabilities held as of March 31.



($ in millions)	Three months ended March 31,
	2018		2017
Assets
Equity securities	$	1	$	5
Free-standing derivatives, net	—		1
Other assets	—		(1		)
Total recurring Level 3 assets	$	1	$	5

Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	23	$	3
Total recurring Level 3 liabilities	$	23	$	3

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

Financial liabilities



($ in millions)	March 31, 2018				December 31, 2017
	Carrying value		Fair value		Carrying value		Fair value
Contractholder funds on investment contracts	$	10,053	$	10,562	$	10,331	$	11,036
Liability for collateral	461		461		542		542
Notes due to related parties	140		139		140		141

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

Financial assets



($ in millions)	March 31, 2018				December 31, 2017
	Carrying value		Fair value		Carrying value		Fair value
Mortgage loans	$	3,988	$	4,081	$	3,876	$	4,052
Bank loans	450		451		437		437
Agent loans	562		553		538		536

- 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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