Fair Value of Assets and Liabilities (Tables)

6 Months Ended

Jun. 30, 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 June 30, 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 June 30, 2018
Assets
Fixed income securities:
U.S. government and agencies	$	126		$	277		$	—					$	403
Municipal	—			2,192			58						2,250
Corporate - public	—			12,381			47						12,428
Corporate - privately placed	—			5,337			187						5,524
Foreign government	—			283			—						283
ABS - CDO	—			29			9						38
ABS - consumer and other	—			297			47						344
RMBS	—			225			—						225
CMBS	—			57			—						57
Redeemable preferred stock	—			15			—						15
Total fixed income securities	126			21,093			348						21,567
Equity securities	1,577			15			113						1,705
Short-term investments	395			671			—						1,066
Other investments: Free-standing derivatives	—			88			1			$	(3	)	86
Separate account assets	3,247			—			—						3,247
Total recurring assets at fair value	$	5,345		$	21,867		$	462		$	(3	)	$	27,671
% of total assets at fair value	19.3		%	79.0		%	1.7		%	—		%	100		%

Investments reported at NAV													740
Total													$	28,411

Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	—		$	—		$	(257	)				$	(257	)
Other liabilities: Free-standing derivatives	—			(30		)	—			$	(3	)	(33		)
Total liabilities at fair value	$	—		$	(30	)	$	(257	)	$	(3	)	$	(290	)
% of total liabilities at fair value	—		%	10.4		%	88.6		%	1.0		%	100		%

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		%

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, 2018
Derivatives embedded in life and annuity contracts – Equity-indexed and forward starting options	$	(228	)	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 June 30, 2018.



($ in millions)				Total gains (losses) included in:
	Balance as of March 31, 2018			Net income⁽¹⁾			OCI		Transfers into Level 3			Transfers out of Level 3
Assets
Fixed income securities:
Municipal	$	56		$	—		$	—	$	—		$	—
Corporate - public	47			—			—		—			—
Corporate - privately placed	215			(2		)	1		10			(10		)
ABS - CDO	10			—			—		—			—
ABS - consumer and other	41			—			—		3			(2		)
Total fixed income securities	369			(2		)	1		13			(12		)
Equity securities	99			6			—		—			—
Free-standing derivatives, net	1			—			—		—			—
Total recurring Level 3 assets	$	469		$	4		$	1	$	13		$	(12	)

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

	Purchases			Sales			Issues		Settlements			Balance as of June 30, 2018
Assets
Fixed income securities:
Municipal	$	2		$	—		$	—	$	—		$	58
Corporate - public	—			—			—		—			47
Corporate - privately placed	—			—			—		(27		)	187
ABS - CDO	—			—			—		(1		)	9
ABS - consumer and other	10			(4		)	—		(1		)	47
Total fixed income securities	12			(4		)	—		(29		)	348
Equity securities	15			(7		)	—		—			113
Free-standing derivatives, net	—			—			—		—			1			⁽²⁾
Total recurring Level 3 assets	$	27		$	(11	)	$	—	$	(29	)	$	462

Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	—		$	—		$	—	$	1		$	(257	)
Total recurring Level 3 liabilities	$	—		$	—		$	—	$	1		$	(257	)

____________


⁽¹⁾	The effect to net income totals $6 million and is reported in the Condensed Consolidated Statements of Operations and Comprehensive Income as follows: $4 million in realized capital gains and losses, $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, 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		)	(1		)	10			(23		)
ABS - CDO	10			—			—			—			—
ABS - consumer and other	40			—			—			6			(2		)
Total fixed income securities	376			(2		)	(3		)	19			(25		)
Equity securities	90			7			—			—			—
Free-standing derivatives, net	1			—			—			—			—
Total recurring Level 3 assets	$	467		$	5		$	(3	)	$	19		$	(25	)

Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	(284	)	$	25		$	—		$	—		$	—
Total recurring Level 3 liabilities	$	(284	)	$	25		$	—		$	—		$	—

	Purchases			Sales			Issues			Settlements			Balance as of June 30, 2018
Assets
Fixed income securities:
Municipal	$	2		$	—		$	—		$	—		$	58
Corporate - public	—			(1		)	—			(3		)	47
Corporate - privately placed	11			—			—			(28		)	187
ABS - CDO	—			—			—			(1		)	9
ABS - consumer and other	13			(8		)	—			(2		)	47
Total fixed income securities	26			(9		)	—			(34		)	348
Equity securities	23			(7		)	—			—			113
Free-standing derivatives, net	—			—			—			—			1			⁽²⁾
Total recurring Level 3 assets	$	49		$	(16	)	$	—		$	(34	)	$	462

Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	—		$	—		$	(1	)	$	3		$	(257	)
Total recurring Level 3 liabilities	$	—		$	—		$	(1	)	$	3		$	(257	)

____________


⁽¹⁾	The effect to net income totals $30 million and is reported in the Condensed Consolidated Statements of Operations as follows: $5 million in realized capital gains and losses, $20 million in interest credited to contractholder funds and $5 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, 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.

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 June 30.



($ in millions)	Three months ended June 30,				Six months ended June 30,
	2018		2017		2018		2017
Assets
Equity securities	$	6	$	2	$	7	$	7
Free-standing derivatives, net	—		2		—		3
Other assets	—		—		—		(1		)
Total recurring Level 3 assets	$	6	$	4	$	7	$	9

Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	2	$	—	$	25	$	3
Total recurring Level 3 liabilities	$	2	$	—	$	25	$	3

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

Financial liabilities



($ in millions)	June 30, 2018				December 31, 2017
	Carrying value		Fair value		Carrying value		Fair value
Contractholder funds on investment contracts	$	9,771	$	10,203	$	10,331	$	11,036
Liability for collateral	511		511		542		542
Notes due to related parties	140		138		140		141

Financial assets



($ in millions)	June 30, 2018				December 31, 2017
	Carrying value		Fair value		Carrying value		Fair value
Mortgage loans	$	3,839	$	3,879	$	3,876	$	4,052
Agent loans	570		562		538		536
Bank loans	447		449		437		437

- 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