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Fair Value of Assets and Liabilities (Tables)

6 Months Ended

Jun. 30, 2019

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, 2019.



($ 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, 2019
Assets
Fixed income securities:
U.S. government and agencies	$	307		$	290		$	—					$	597
Municipal	—			1,989			40						2,029
Corporate - public	—			12,603			32						12,635
Corporate - privately placed	—			5,744			96						5,840
Foreign government	—			164			—						164
ABS - CDO	—			21			6						27
ABS - consumer and other	—			296			28						324
RMBS	—			180			—						180
CMBS	—			31			2						33
Redeemable preferred stock	—			14			—						14
Total fixed income securities	307			21,332			204						21,843
Equity securities	1,261			13			119						1,393
Short-term investments	758			459			—						1,217
Other investments: Free-standing derivatives	—			94			—			$	(9	)	85
Separate account assets	3,029			—			—						3,029
Total recurring basis assets	5,355			21,898			323			(9		)	27,567
Non-recurring basis ⁽¹⁾	—			—			5						5
Total assets at fair value	$	5,355		$	21,898		$	328		$	(9	)	$	27,572
% of total assets at fair value	19.4		%	79.4		%	1.2		%	—		%	100.0		%

Investments reported at NAV													773
Total													$	28,345

Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	—		$	—		$	(411	)				$	(411	)
Other liabilities: Free-standing derivatives	—			(30		)	—			$	1		(29		)
Total recurring basis liabilities at fair value	$	—		$	(30	)	$	(411	)	$	1		$	(440	)
% of total liabilities at fair value	—		%	6.8		%	93.4		%	(0.2		)%	100.0		%

__________


⁽¹⁾	Includes $5 million of bank loans written-down to fair value in connection with recognizing OTTI impairments.

The following table summarizes the Company’s assets and liabilities measured at fair value as of December 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 December 31, 2018
Assets
Fixed income securities:
U.S. government and agencies	$	493		$	280		$	—					$	773
Municipal	—			2,156			39						2,195
Corporate - public	—			11,891			33						11,924
Corporate - privately placed	—			5,552			97						5,649
Foreign government	—			179			—						179
ABS - CDO	—			26			6						32
ABS - consumer and other	—			381			16						397
RMBS	—			197			—						197
CMBS	—			40			—						40
Redeemable preferred stock	—			14			—						14
Total fixed income securities	493			20,716			191						21,400
Equity securities	1,182			14			129						1,325
Short-term investments	443			367			—						810
Other investments: Free-standing derivatives	—			30			1			$	(8	)	23
Separate account assets	2,783			—			—						2,783
Total recurring basis assets at fair value	$	4,901		$	21,127		$	321		$	(8	)	$	26,341
% of total assets at fair value	18.6		%	80.2		%	1.2		%	—		%	100.0		%

Investments reported at NAV													787
Total													$	27,128

Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	—		$	—		$	(223	)				$	(223	)
Other liabilities: Free-standing derivatives	—			(7		)	—			$	2		(5		)
Total recurring basis liabilities at fair value	$	—		$	(7	)	$	(223	)	$	2		$	(228	)
% of total liabilities at fair value	—		%	3.1		%	97.8		%	(0.9		)%	100.0		%

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, 2019
Derivatives embedded in life and annuity contracts – Equity-indexed and forward starting options	$	(375	)	Stochastic cash flow model	Projected option cost	1.0 - 4.2%	2.53	%
December 31, 2018
Derivatives embedded in life and annuity contracts – Equity-indexed and forward starting options	$	(184	)	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, 2019.



($ in millions)				Total gains (losses) included in:
	Balance as of March 31, 2019			Net income⁽¹⁾			OCI		Transfers into Level 3			Transfers out of Level 3
Assets
Fixed income securities:
Municipal	$	40		$	—		$	1	$	—		$	—
Corporate - public	35			—			—		—			(2		)
Corporate - privately placed	97			—			—		—			(1		)
ABS - CDO	6			—			—		—			—
ABS - consumer and other	25			—			—		—			(12		)
CMBS	2			—			—		—			—
Total fixed income securities	205			—			1		—			(15		)
Equity securities	106			5			—		—			—
Free-standing derivatives, net	1			(1		)	—		—			—
Total recurring Level 3 assets	$	312		$	4		$	1	$	—		$	(15	)

Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	(247	)	$	(11	)	$	—	$	(154	)	$	—
Total recurring Level 3 liabilities	$	(247	)	$	(11	)	$	—	$	(154	)	$	—

	Purchases			Sales			Issues		Settlements			Balance as of June 30, 2019
Assets
Fixed income securities:
Municipal	$	—		$	(1	)	$	—	$	—		$	40
Corporate - public	—			(1		)	—		—			32
Corporate - privately placed	1			—			—		(1		)	96
ABS - CDO	—			—			—		—			6
ABS - consumer and other	22			(6		)	—		(1		)	28
CMBS	—			—			—		—			2
Total fixed income securities	23			(8		)	—		(2		)	204
Equity securities	8			—			—		—			119
Free-standing derivatives, net	—			—			—		—			—
Total recurring Level 3 assets	$	31		$	(8	)	$	—	$	(2	)	$	323

Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	—		$	—		$	—	$	1		$	(411	)
Total recurring Level 3 liabilities	$	—		$	—		$	—	$	1		$	(411	)

____________


⁽¹⁾	The effect to net income totals $(7) million and is reported in the Condensed Consolidated Statements of Operations and Comprehensive Income as follows: $2 million in realized capital gains and losses, $2 million in net investment income, $(6) million in interest credited to contractholder funds and $(5) million in contract benefits.

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, 2019.



($ in millions)				Total gains (losses) included in:
	Balance as of December 31, 2018			Net income⁽¹⁾			OCI		Transfers into Level 3			Transfers out of Level 3
Assets
Fixed income securities:
Municipal	$	39		$	—		$	2	$	—		$	—
Corporate - public	33			—			—		—			(2		)
Corporate - privately placed	97			(2		)	2		15			(1		)
ABS - CDO	6			—			—		—			—
ABS - consumer and other	16			—			—		—			(12		)
CMBS	—			—			—		2			—
Total fixed income securities	191			(2		)	4		17			(15		)
Equity securities	129			20			—		—			—
Free-standing derivatives, net	1			(1		)	—		—			—
Total recurring Level 3 assets	$	321		$	17		$	4	$	17		$	(15	)

Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	(223	)	$	(36	)	$	—	$	(154	)	$	—
Total recurring Level 3 liabilities	$	(223	)	$	(36	)	$	—	$	(154	)	$	—

	Purchases			Sales			Issues		Settlements			Balance as of June 30, 2019
Assets
Fixed income securities:
Municipal	$	—		$	(1	)	$	—	$	—		$	40
Corporate - public	3			(1		)	—		(1		)	32
Corporate - privately placed	1			(13		)	—		(3		)	96
ABS - CDO	—			—			—		—			6
ABS - consumer and other	34			(6		)	—		(4		)	28
CMBS	—			—			—		—			2
Total fixed income securities	38			(21		)	—		(8		)	204
Equity securities	8			(38		)	—		—			119
Free-standing derivatives, net	—			—			—		—			—
Total recurring Level 3 assets	$	46		$	(59	)	$	—	$	(8	)	$	323

Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	—		$	—		$	—	$	2		$	(411	)
Total recurring Level 3 liabilities	$	—		$	—		$	—	$	2		$	(411	)

____________


⁽¹⁾	The effect to net income totals $(19) million and is reported in the Condensed Consolidated Statements of Operations and Comprehensive Income as follows: $15 million in realized capital gains and losses, $2 million in net investment income, $(39) million in interest credited to contractholder funds and $3 million in contract benefits.

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 and Comprehensive Income 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.

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,
	2019			2018		2019			2018
Assets
Equity securities	$	5		$	6	$	7		$	7
Free-standing derivatives, net	(1		)	—		(1		)	—
Total recurring Level 3 assets	$	4		$	6	$	6		$	7

Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	(11	)	$	2	$	(36	)	$	25
Total recurring Level 3 liabilities	$	(11	)	$	2	$	(36	)	$	25

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

Financial liabilities



($ in millions)		June 30, 2019				December 31, 2018
	Fair value level	Carrying value		Fair value		Carrying value		Fair value
Contractholder funds on investment contracts	Level 3	$	8,784	$	9,530	$	9,213	$	9,629
Liability for collateral	Level 2	638		638		525		525
Notes due to related parties	Level 3	140		143		140		138

Financial assets



($ in millions)		June 30, 2019				December 31, 2018
	Fair value level	Carrying value		Fair value		Carrying value		Fair value
Mortgage loans	Level 3	$	4,043	$	4,175	$	3,995	$	4,028
Bank loans	Level 3	371		365		422		408
Agent loans	Level 3	654		656		620		617

- 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