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Fair Value of Assets and Liabilities (Tables)

9 Months Ended

Sep. 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 September 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 September 30, 2019
Assets
Fixed income securities:
U.S. government and agencies	$	302		$	293		$	—					$	595
Municipal	—			1,871			42						1,913
Corporate - public	—			12,954			54						13,008
Corporate - privately placed	—			5,695			96						5,791
Foreign government	—			163			—						163
ABS - CDO	—			19			7						26
ABS - consumer and other	—			278			13						291
RMBS	—			172			—						172
CMBS	—			25			2						27
Redeemable preferred stock	—			14			—						14
Total fixed income securities	302			21,484			214						22,000
Equity securities	1,081			12			124						1,217
Short-term investments	802			673			—						1,475
Other investments: Free-standing derivatives	—			112			—			$	(16	)	96
Separate account assets	2,912			—			—						2,912
Total recurring basis assets	5,097			22,281			338			(16		)	27,700
Total assets at fair value	$	5,097		$	22,281		$	338		$	(16	)	$	27,700
% of total assets at fair value	18.4		%	80.5		%	1.2		%	(0.1		)%	100.0		%

Investments reported at NAV													762
Total													$	28,462

Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	—		$	—		$	(424	)				$	(424	)
Other liabilities: Free-standing derivatives	—			(36		)	—			$	2		(34		)
Total recurring basis liabilities at fair value	$	—		$	(36	)	$	(424	)	$	2		$	(458	)
% of total liabilities at fair value	—		%	7.9		%	92.6		%	(0.5		)%	100.0		%

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
September 30, 2019
Derivatives embedded in life and annuity contracts – Equity-indexed and forward starting options	$	(387	)	Stochastic cash flow model	Projected option cost	1.0 - 4.2%	2.55	%
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 September 30, 2019.



($ in millions)				Total gains (losses) included in:
	Balance as of June 30, 2019			Net income			OCI			Transfers into Level 3			Transfers out of Level 3
Assets
Fixed income securities:
Municipal	$	40		$	—		$	2		$	—		$	—
Corporate - public	32			—			—			—			(7		)
Corporate - privately placed	96			—			—			—			—
ABS - CDO	6			1			(1		)	—			—
ABS - consumer and other	28			—			—			—			(15		)
CMBS	2			—			—			—			—
Total fixed income securities	204			1			1			—			(22		)
Equity securities	119			3			—			—			—
Free-standing derivatives, net	—			—			—			—			—
Total recurring Level 3 assets	$	323		$	4		$	1		$	—		$	(22	)

Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	(411	)	$	(12	)	$	—		$	—		$	—
Total recurring Level 3 liabilities	$	(411	)	$	(12	)	$	—		$	—		$	—

	Purchases			Sales			Issues			Settlements			Balance as of September 30, 2019
Assets
Fixed income securities:
Municipal	$	—		$	—		$	—		$	—		$	42
Corporate - public	29			—			—			—			54
Corporate - privately placed	1			—			—			(1		)	96
ABS - CDO	1			—			—			—			7
ABS - consumer and other	1			—			—			(1		)	13
CMBS	—			—			—			—			2
Total fixed income securities	32			—			—			(2		)	214
Equity securities	2			—			—			—			124
Free-standing derivatives, net	—			—			—			—			—
Total recurring Level 3 assets	$	34		$	—		$	—		$	(2	)	$	338

Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	—		$	—		$	(6	)	$	5		$	(424	)
Total recurring Level 3 liabilities	$	—		$	—		$	(6	)	$	5		$	(424	)



Total Level 3 gains (losses) included in net income for the three months ended September 30, 2019
	Net investment income		Realized capital gains and losses		Contract benefits			Interest credited to contractholder funds			Total
Components of net income	$	1	$	3	$	(1	)	$	(11	)	$	(8	)

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, 2019.



($ in millions)				Total gains (losses) included in:
	Balance as of December 31, 2018			Net income			OCI			Transfers into Level 3			Transfers out of Level 3
Assets
Fixed income securities:
Municipal	$	39		$	—		$	4		$	—		$	—
Corporate - public	33			—			—			—			(9		)
Corporate - privately placed	97			(2		)	2			15			(1		)
ABS - CDO	6			1			(1		)	—			—
ABS - consumer and other	16			—			—			—			(27		)
CMBS	—			—			—			2			—
Total fixed income securities	191			(1		)	5			17			(37		)
Equity securities	129			23			—			—			—
Free-standing derivatives, net	1			(1		)	—			—			—
Total recurring Level 3 assets	$	321		$	21		$	5		$	17		$	(37	)

Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	(223	)	$	(48	)	$	—		$	(154	)	$	—
Total recurring Level 3 liabilities	$	(223	)	$	(48	)	$	—		$	(154	)	$	—

	Purchases			Sales			Issues			Settlements			Balance as of September 30, 2019
Assets
Fixed income securities:
Municipal	$	—		$	(1	)	$	—		$	—		$	42
Corporate - public	32			(1		)	—			(1		)	54
Corporate - privately placed	2			(13		)	—			(4		)	96
ABS - CDO	1			—			—			—			7
ABS - consumer and other	35			(6		)	—			(5		)	13
CMBS	—			—			—			—			2
Total fixed income securities	70			(21		)	—			(10		)	214
Equity securities	10			(38		)	—			—			124
Free-standing derivatives, net	—			—			—			—			—
Total recurring Level 3 assets	$	80		$	(59	)	$	—		$	(10	)	$	338

Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	—		$	—		$	(6	)	$	7		$	(424	)
Total recurring Level 3 liabilities	$	—		$	—		$	(6	)	$	7		$	(424	)



Total Level 3 gains (losses) included in net income for the nine months ended September 30, 2019
	Net investment income		Realized capital gains and losses		Contract benefits		Interest credited to contractholder funds			Total
Components of net income	$	3	$	18	$	2	$	(50	)	$	(27	)

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, 2018.



($ in millions)				Total gains (losses) included in:
	Balance as of June 30, 2018			Net income⁽¹⁾			OCI			Transfers into Level 3			Transfers out of Level 3
Assets
Fixed income securities:
Municipal	$	58		$	—		$	(1	)	$	—		$	(1	)
Corporate - public	47			—			(1		)	—			(3		)
Corporate - privately placed	187			—			(1		)	—			(9		)
ABS - CDO	9			—			—			—			—
ABS - consumer and other	47			—			—			6			(13		)
Total fixed income securities	348			—			(3		)	6			(26		)
Equity securities	113			3			—			—			—
Free-standing derivatives, net	1			—			—			—			—
Total recurring Level 3 assets	$	462		$	3		$	(3	)	$	6		$	(26	)

Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	(257	)	$	(6	)	$	—		$	—		$	—
Total recurring Level 3 liabilities	$	(257	)	$	(6	)	$	—		$	—		$	—

	Purchases			Sales			Issues			Settlements			Balance as of September 30, 2018
Assets
Fixed income securities:
Municipal	$	—		$	—		$	—		$	—		$	56
Corporate - public	—			(1		)	—			—			42
Corporate - privately placed	—			—			—			(11		)	166
ABS - CDO	—			—			—			(1		)	8
ABS - consumer and other	7			(6		)	—			(16		)	25
Total fixed income securities	7			(7		)	—			(28		)	297
Equity securities	5			—			—			—			121
Free-standing derivatives, net	—			—			—			—			1			⁽¹⁾
Total recurring Level 3 assets	$	12		$	(7	)	$	—		$	(28	)	$	419

Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	—		$	—		$	—		$	1		$	(262	)
Total recurring Level 3 liabilities	$	—		$	—		$	—		$	1		$	(262	)

__________


⁽¹⁾	Comprises $1 million of assets.



Total Level 3 gains (losses) included in net income for the three months ended September 30, 2018
	Net investment income		Realized capital gains and losses		Contract benefits		Interest credited to contractholder funds			Total
Components of net income	$	—	$	3	$	2	$	(8	)	$	(3	)

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, 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		$	—		$	(2	)	$	—		$	(1	)
Corporate - public	49			—			(2		)	3			(3		)
Corporate - privately placed	220			(2		)	(2		)	10			(32		)
ABS - CDO	10			—			—			—			—
ABS - consumer and other	40			—			—			12			(15		)
Total fixed income securities	376			(2		)	(6		)	25			(51		)
Equity securities	90			10			—			—			—
Free-standing derivatives, net	1			—			—			—			—
Total recurring Level 3 assets	$	467		$	8		$	(6	)	$	25		$	(51	)

Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	(284	)	$	19		$	—		$	—		$	—
Total recurring Level 3 liabilities	$	(284	)	$	19		$	—		$	—		$	—

	Purchases			Sales			Issues			Settlements			Balance as of September 30, 2018
Assets
Fixed income securities:
Municipal	$	2		$	—		$	—		$	—		$	56
Corporate - public	—			(2		)	—			(3		)	42
Corporate - privately placed	11			—			—			(39		)	166
ABS - CDO	—			—			—			(2		)	8
ABS - consumer and other	20			(14		)	—			(18		)	25
Total fixed income securities	33			(16		)	—			(62		)	297
Equity securities	28			(7		)	—			—			121
Free-standing derivatives, net	—			—			—			—			1			⁽¹⁾
Total recurring Level 3 assets	$	61		$	(23	)	$	—		$	(62	)	$	419

Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	—		$	—		$	(1	)	$	4		$	(262	)
Total recurring Level 3 liabilities	$	—		$	—		$	(1	)	$	4		$	(262	)

__________


⁽¹⁾	Comprises $1 million of assets.



Total Level 3 gains (losses) included in net income for the nine months ended September 30, 2018
	Net investment income		Realized capital gains and losses		Contract benefits		Interest credited to contractholder funds		Total
Components of net income	$	—	$	8	$	7	$	12	$	27

Schedule of 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 September 30.



($ in millions)	Three months ended September 30,						Nine months ended September 30,
	2019			2018			2019			2018
Assets
Equity securities	$	3		$	3		$	10		$	10
Free-standing derivatives, net	—			—			(1		)	—
Total recurring Level 3 assets	$	3		$	3		$	9		$	10

Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	(12	)	$	(6	)	$	(48	)	$	19
Total recurring Level 3 liabilities	(12		)	(6		)	(48		)	19
Total included in net income	$	(9	)	$	(3	)	$	(39	)	$	29

Components of net income
Net investment income	$	1		$	—		$	3		$	—
Realized capital gains and losses	2			3			6			10
Contract benefits	(1		)	2			2			7
Interest credited to contractholder funds	(11		)	(8		)	(50		)	12
Total included in net income	$	(9	)	$	(3	)	$	(39	)	$	29

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

Financial assets



($ in millions)		September 30, 2019				December 31, 2018
	Fair value level	Carrying value		Fair value		Carrying value		Fair value
Mortgage loans	Level 3	$	4,012	$	4,176	$	3,995	$	4,028
Bank loans	Level 3	363		356		422		408
Agent loans	Level 3	663		666		620		617

Financial liabilities



($ in millions)		September 30, 2019				December 31, 2018
	Fair value level	Carrying value		Fair value		Carrying value		Fair value
Contractholder funds on investment contracts	Level 3	$	8,584	$	9,400	$	9,213	$	9,629
Liability for collateral	Level 2	691		691		525		525
Notes due to related parties	Level 3	140		144		140		138

- 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