Fair Value Measurements Level 3 (Tables)

12 Months Ended

Dec. 31, 2015

Assets and (liabilities) carried at fair value by hierarchy level

The following tables present assets and (liabilities) carried at fair value by hierarchy level.



	December 31, 2015
	Total			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
Assets accounted for at fair value on a recurring basis
Fixed maturities, AFS
Asset backed securities ("ABS")	$	846		$	—	$	841		$	5
Collateralized debt obligations ("CDOs")	1,408			—		1,078			330
Commercial mortgage-backed securities ("CMBS")	1,964			—		1,902			62
Corporate	15,175			—		14,641			534
Foreign government/government agencies	331			—		314			17
States, municipalities and political subdivisions (“Municipal”)	1,132			—		1,083			49
Residential mortgage-backed securities ("RMBS")	1,503			—		875			628
U.S. Treasuries	2,298			123		2,175			—
Total fixed maturities	24,657			123		22,909			1,625
Fixed maturities, FVO	165			1		162			2
Equity securities, trading [1]	11			11		—			—
Equity securities, AFS	459			396		25			38
Derivative assets
Credit derivatives	7			—		7			—
Foreign exchange derivatives	4			—		4			—
Interest rate derivatives	54			—		54			—
GMWB hedging instruments	111			—		27			84
Macro hedge program	74			—		—			74
Total derivative assets [2]	250			—		92			158
Short-term investments	572			131		441			—
Reinsurance recoverable for GMWB	83			—		—			83
Modified coinsurance reinsurance contracts	79			—		79			—
Separate account assets [3]	118,163			78,099		39,559			505
Total assets accounted for at fair value on a recurring basis	$	144,439		$	78,761	$	63,267		$	2,411
Liabilities accounted for at fair value on a recurring basis
Other policyholder funds and benefits payable
GMWB	$	(262	)	$	—	$	—		$	(262	)
Equity linked notes	(26		)	—		—			(26		)
Total other policyholder funds and benefits payable	(288		)	—		—			(288		)
Derivative liabilities
Credit derivatives	(7		)	—		(7		)	—
Equity derivatives	41			—		41			—
Foreign exchange derivatives	(376		)	—		(376		)	—
Interest rate derivatives	(431		)	—		(402		)	(29		)
GMWB hedging instruments	47			—		(4		)	51
Macro hedge program	73			—		—			73
Total derivative liabilities [4]	(653		)	—		(748		)	95
Total liabilities accounted for at fair value on a recurring basis	$	(941	)	$	—	$	(748	)	$	(193	)



	December 31, 2014
	Total			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
Assets accounted for at fair value on a recurring basis
Fixed maturities, AFS
ABS	$	1,171		$	—	$	1,089		$	82
CDOs	1,148			—		788			360
CMBS	1,887			—		1,768			119
Corporate	15,742			—		15,096			646
Foreign government/government agencies	602			—		572			30
Municipal	1,052			—		998			54
RMBS	1,857			—		1,123			734
U.S. Treasuries	1,977			72		1,905			—
Total fixed maturities	25,436			72		23,339			2,025
Fixed maturities, FVO	280			—		196			84
Equity securities, trading [1]	11			11		—			—
Equity securities, AFS	514			411		55			48
Derivative assets
Credit derivatives	3			—		5			(2		)
Equity derivatives	2			—		—			2
Foreign exchange derivatives	(1		)	—		(1		)	—
Interest rate derivatives	123			—		123			—
GMWB hedging instruments	119			—		5			114
Macro hedge program	93			—		—			93
Total derivative assets [2]	339			—		132			207
Short-term investments	2,162			199		1,963			—
Reinsurance recoverable for GMWB	56			—		—			56
Modified coinsurance reinsurance contracts	34			—		34			—
Separate account assets [3]	132,198			91,524		40,096			578
Total assets accounted for at fair value on a recurring basis	$	161,030		$	92,217	$	65,815		$	2,998
Liabilities accounted for at fair value on a recurring basis
Other policyholder funds and benefits payable
GMWB	$	(139	)	$	—	$	—		$	(139	)
Equity linked notes	(26		)	—		—			(26		)
Total other policyholder funds and benefits payable	(165		)	—		—			(165		)
Derivative liabilities
Credit derivatives	—			—		1			(1		)
Equity derivatives	28			—		25			3
Foreign exchange derivatives	(444		)	—		(444		)	—
Interest rate derivatives	(409		)	—		(382		)	(27		)
GMWB hedging instruments	55			—		(1		)	56
Macro hedge program	48			—		—			48
Total derivative liabilities [4]	(722		)	—		(801		)	79
Consumer notes [5]	(3		)	—		—			(3		)
Total liabilities accounted for at fair value on a recurring basis	$	(890	)	$	—	$	(801	)	$	(89	)


[1]	Included in other investments on the Consolidated Balance Sheets.

[2]

Includes OTC and OTC-cleared derivative instruments in a net positive fair value position after consideration of the accrued interest and impact of collateral posting requirements which may be imposed by agreements, clearing house rules, and applicable law. As of December 31, 2015 and December 31, 2014, $271 and $399, respectively, of cash collateral liability was netted against the derivative asset value in the Consolidated Balance Sheets and is excluded from the preceding table. See footnote 4 for derivative liabilities.


[3]	Approximately $1.8 billion and $2.5 billion of investment sales receivable, as of December 31, 2015 and 2014, respectively, are excluded from this disclosure requirement because they are trade receivables in the ordinary course of business where the carrying amount approximates fair value.

[4]

Includes OTC and OTC-cleared derivative instruments in a net negative fair market value position (derivative liability) after consideration of the accrued interest and impact of collateral posting requirements which may be imposed by agreements, clearing house rules and applicable law. In the following Level 3 roll forward table in this Note 2, the derivative assets and liabilities are referred to as “freestanding derivatives” and are presented on a net basis.


[5]	Represents embedded derivatives associated with non-funding agreement-backed consumer equity-linked notes.

Information about significant unobservable inputs used in Level 3 assets measured at fair value



	As of December 31, 2015
Freestanding Derivatives					Unobservable Inputs
	Fair Value		Predominant Valuation Technique	Significant Unobservable Input	Minimum	Maximum	Impact of Increase in Input on Fair Value [1]
Interest rate derivatives
Interest rate swaps	(30	)	Discounted cash flows	Swap curve beyond 30 years	3%	3%	Decrease
GMWB hedging instruments
Equity variance swaps	(31	)	Option model	Equity volatility	19%	21%	Increase
Equity options	35		Option model	Equity volatility	27%	29%	Increase
Customized swaps	131		Discounted cash flows	Equity volatility	10%	40%	Increase
Macro hedge program
Equity options [2]	179		Option model	Equity volatility	14%	28%	Increase



	As of December 31, 2014
Interest rate derivatives
Interest rate swaps	(29	)	Discounted cash flows	Swap curve beyond 30 years	3%	3%	Decrease
Interest rate swaptions	2		Option Model	Interest rate volatility	1%	1%	Increase
GMWB hedging instruments
Equity options	46		Option model	Equity volatility	22%	34%	Increase
Customized swaps	124		Discounted cash flows	Equity volatility	10%	40%	Increase
Macro hedge program
Equity options	141		Option model	Equity volatility	27%	28%	Increase


[1]	Conversely, the impact of a decrease in input would have the opposite impact to the fair value as that presented in the table. Changes are based on long positions, unless otherwise noted. Changes in fair value will be inversely impacted for short positions.

The following tables present information about significant unobservable inputs used in Level 3 assets measured at fair value. The tables exclude ABS, CRE CDOs, index options and certain corporate securities for which fair values are predominately based on broker quotations.

As of December 31, 2015

Securities

Unobservable Inputs

Assets accounted for at fair value on a recurring basis

Fair Value

Predominant

Valuation

Technique

Significant Unobservable Input

Minimum

Maximum

Weighted Average [1]

Impact of Increase in Input on Fair Value [2]

CMBS [3]

Discounted cash flows

Spread (encompasses
prepayment, default risk and loss severity)

31bps

1,505bps

230bps

Decrease

Corporate [3]

213

Discounted cash flows

Spread

63bps

800bps

290bps

Decrease

Municipal [3]

Discounted cash flows

Spread

193bps

Decrease

RMBS

628

Discounted cash flows

Spread

30bps

1,696bps

172bps

Decrease

Constant prepayment rate

—

Decrease [4]

Constant default rate

Decrease

Loss severity

—

100

Decrease

As of December 31, 2014

CMBS

119

Discounted cash flows

Spread (encompasses
prepayment, default risk and loss severity)

46bps

2,475bps

284bps

Decrease

Corporate [3]

324

Discounted cash flows

Spread

123bps

765bps

267bps

Decrease

Municipal [3]

Discounted cash flows

Spread

212bps

Decrease

RMBS

734

Discounted cash flows

Spread

23bps

1,904bps

141bps

Decrease

Constant prepayment rate

—

Decrease [4]

Constant default rate

Decrease

Loss severity

—

100

Decrease


[1]	The weighted average is determined based on the fair value of the securities.


[2]	Conversely, the impact of a decrease in input would have the opposite impact to the fair value as that presented in the preceding table.


[3]	Level 3 CMBS, corporate and municipal securities excludes those for which the Company bases fair value on broker quotations as noted in the following discussion.


[4]	Decrease for above market rate coupons and increase for below market rate coupons.



	Unobservable Inputs
Significant Unobservable Input	Minimum	Maximum	Impact of Increase in Input on Fair Value Measurement [1]
Withdrawal Utilization [2]	20%	100%	Increase
Withdrawal Rates [3]	—%	8%	Increase
Lapse Rates [4]	—%	75%	Decrease
Reset Elections [5]	20%	75%	Increase
Equity Volatility [6]	10%	40%	Increase


[1]	Conversely, the impact of a decrease in input would have the opposite impact to the fair value as that presented in the table.


[2]	Range represents assumed cumulative percentages of policyholders taking withdrawals.


[3]	Range represents assumed cumulative annual amount withdrawn by policyholders.


[4]	Range represents assumed annual percentages of full surrender of the underlying variable annuity contracts across all policy durations for in force business.


[5]	Range represents assumed cumulative percentages of policyholders that would elect to reset their guaranteed benefit base.


[6]	Range represents implied market volatilities for equity indices based on multiple pricing sources.

Roll-forward of Financial Instruments Measured at Fair Value on a Recurring Basis Using Significant Unobservable Inputs (Level 3)



	Fixed Maturities, AFS																								Fixed Maturities, FVO
Assets	ABS			CDOs			CMBS			Corporate			Foreign govt./govt. agencies			Municipal			RMBS			Total Fixed Maturities, AFS
Fair value as of January 1, 2015	$	82		$	360		$	119		$	646		$	30		$	54		$	734		$	2,025		$	84
Total realized/unrealized gains (losses)
Included in net income [1] [2]	—			(1		)	—			(18		)	—			—			(2		)	(21		)	(5		)
Included in OCI [3]	(2		)	3			(5		)	(38		)	(3		)	(5		)	(2		)	(52		)	1
Purchases	22			—			18			45			5			—			154			244			6
Settlements	—			(26		)	(36		)	(21		)	(3		)	—			(126		)	(212		)	(23		)
Sales	(6		)	—			(3		)	(43		)	(15		)	—			(127		)	(194		)	(50		)
Transfers into Level 3 [4]	1			—			4			99			3			—			16			123			—
Transfers out of Level 3 [4]	(92		)	(6		)	(35		)	(136		)	—			—			(19		)	(288		)	(11		)
Fair value as of December 31, 2015	$	5		$	330		$	62		$	534		$	17		$	49		$	628		$	1,625		$	2
Changes in unrealized gains (losses) included in net income related to financial instruments still held at December 31, 2015 [2] [6]	$	—		$	(1	)	$	(1	)	$	(17	)	$	—		$	—		$	(3	)	$	(22	)	$	(3	)



				Freestanding Derivatives [5]
Assets (Liabilities)	Equity Securities AFS			Credit			Commodity			Equity			Interest Rate			GMWB Hedging			Macro Hedge Program			Total Free- Standing Derivatives [5]
Fair value as of January 1, 2015	$	48		$	(3	)	$	—		$	5		$	(27	)	$	170		$	141		$	286
Total realized/unrealized gains (losses)
Included in net income [1] [2]	(5		)	1			(3		)	5			(1		)	(16		)	(41		)	(55		)
Included in OCI [3]	1			—						—			—			—			—			—
Purchases	11			(8		)				—			—			—			47			39
Settlements	(1		)	—			(3		)	(10		)	(1		)	(19		)	—			(33		)
Sales	(13		)	—						—			—			—			—			—
Transfers into Level 3 [4]	—			—			6			—			—			—			—			6
Transfers out of Level 3 [4]	(3		)	10						—			—			—			—			10
Fair value as of December 31, 2015	$	38		$	—		$	—		$	—		$	(29	)	$	135		$	147		$	253
Changes in unrealized gains (losses) included in net income related to financial instruments still held at December 31, 2015 [2] [6]	$	(5	)	$	—		$	—		$	—		$	—		$	(5	)	$	(34	)	$	(39	)



Assets	Reinsurance Recoverable for GMWB		Separate Accounts
Fair value as of January 1, 2015	$	56	$	578
Total realized/unrealized gains (losses)
Included in net income [1] [2]	9		12
Included in OCI [3]	—		(5		)
Purchases	—		394
Settlements	18		(19		)
Sales	—		(265		)
Transfers into Level 3 [4]	—		12
Transfers out of Level 3 [4]	—		(202		)
Fair value as of December 31, 2015	$	83	$	505
Changes in unrealized gains (losses) included in net income related to financial instruments still held at December 31, 2015 [2] [6]	$	9	$	11



	Other Policyholder Funds and Benefits Payable
Liabilities	Guaranteed Withdrawal Benefits [7]			Equity Linked Notes			Consumer Notes
Fair value as of January 1, 2015	$	(139	)	$	(26	)	$	(3	)
Total realized/unrealized gains (losses)
Included in net income [1] [2]	(59		)	—			3
Settlements	(64		)	—			—
Fair value as of December 31, 2015	$	(262	)	$	(26	)	$	—
Changes in unrealized gains (losses) included in net income related to financial instruments still held at December 31, 2015 [2] [6]	$	(59	)	$	—		$	3

The tables below provide a fair value roll forward for the year ended December 31, 2014, for the Level 3 financial instruments.



	Fixed Maturities, AFS
Assets	ABS			CDOs			CMBS			Corporate			Foreign govt./govt. agencies			Municipal			RMBS			Total Fixed Maturities, AFS			Fixed Maturities, FVO
Fair value as of January 1, 2014	$	108		$	428		$	360		$	790		$	38		$	49		$	798		$	2,571		$	178
Total realized/unrealized gains (losses)
Included in net income [1] [2]	—			11			6			(10		)	(1		)	—			11			17			17
Included in OCI [3]	2			(7		)	(6		)	16			5			6			4			20			—
Purchases	32			6			26			62			6			—			230			362			14
Settlements	(1		)	(44		)	(175		)	(36		)	(4		)	—			(127		)	(387		)	(121		)
Sales	(11		)	(21		)	(34		)	(96		)	(14		)	(1		)	(150		)	(327		)	(4		)
Transfers into Level 3 [4]	71			48			7			146			—			—			—			272			—
Transfers out of Level 3 [4]	(119		)	(61		)	(65		)	(226		)	—			—			(32		)	(503		)	—
Fair value as of December 31, 2014	$	82		$	360		$	119		$	646		$	30		$	54		$	734		$	2,025		$	84
Changes in unrealized gains (losses) included in net income related to financial instruments still held at December 31, 2014 [2] [6]	$	—		$	—		$	(2	)	$	(4	)	$	(2	)	$	—		$	(1	)	$	(9	)	$	14



				Freestanding Derivatives [5]
Assets (Liabilities)	Equity Securities, AFS			Credit			Foreign Exchange Contracts			Equity		Interest Rate			GMWB Hedging		Macro Hedge Program			Intl. Program Hedging			Total Free-Standing Derivatives [5]
Fair value as of January 1, 2014	$	51		$	2		$	—		$	2	$	(24	)	$	146	$	139		$	(61	)	$	204
Total realized/unrealized gains (losses)
Included in net income [1] [2]	4			(2		)	2			3		(5		)	13		(12		)	24			23
Included in OCI [3]	1			—			—			—		—			—		—			—			—
Purchases	6			(2		)	—			—		4			4		14			9			29
Settlements	—			—			—			—		—			7		—			(5		)	2
Sales	(14		)	—			—			—		—			—		—			—			—
Transfers into Level 3 [4]	—			—			(2		)	—		—			—		—			—			(2		)
Transfers out of Level 3 [4]	—			(1		)	—			—		(2		)	—		—			33			30
Fair value as of December 31, 2014	$	48		$	(3	)	$	—		$	5	$	(27	)	$	170	$	141		$	—		$	286
Changes in unrealized gains (losses) included in net income related to financial instruments still held at December 31, 2014 [2] [6]	$	(1	)	$	(3	)	$	—		$	—	$	(5	)	$	1	$	(11	)	$	17		$	(1	)



Assets	Reinsurance Recoverable for GMWB			Separate Accounts
Fair value as of January 1, 2014	$	(465	)	$	737
Total realized/unrealized gains (losses)
Included in net income [1] [2]	441			13
Purchases	—			339
Settlements	80			(3		)
Sales	—			(201		)
Transfers into Level 3 [4]	—			37
Transfers out of Level 3 [4]	—			(344		)
Fair value as of December 31, 2014	$	56		$	578
Changes in unrealized gains (losses) included in net income related to financial instruments still held at December 31, 2014 [2] [6]	$	441		$	8



	Other Policyholder Funds and Benefits Payable [1]
Liabilities	Guaranteed Living Benefits [6]			Equity Linked Notes			Total Other Policyholder Funds and Benefits Payable			Consumer Notes
Fair value as of January 1, 2014	$	(576	)	$	(18	)	$	(594	)	$	(2	)
Total realized/unrealized gains (losses)
Included in net income [1] [2]	577			(8		)	569			(1		)
Settlements	(140		)	—			(140		)	—
Fair value as of December 31, 2014	$	(139	)	$	(26	)	$	(165	)	$	(3	)
Changes in unrealized gains (losses) included in net income related to financial instruments still held at December 31, 2014 [2] [6]	$	167		$	(8	)	$	159		$	(1	)


[1]	The Company classifies gains and losses on GMWB reinsurance derivatives and GMWB embedded derivatives as unrealized gains (losses) for purposes of disclosure in this table because it is impracticable to track on a contract-by-contract basis the realized gains (losses) for these derivatives and embedded derivatives.


[2]	All amounts in these rows are reported in net realized capital gains (losses). The realized/unrealized gains (losses) included in net income for separate account assets are offset by an equal amount for separate account liabilities, which results in a net zero impact on net income for the Company. All amounts are before income taxes and amortization of DAC.


[3]	All amounts are before income taxes and amortization of DAC.


[4]	Transfers in and/or (out) of Level 3 are primarily attributable to the availability of market observable information and the re-evaluation of the observability of pricing inputs.


[5]	Derivative instruments are reported in this table on a net basis for asset (liability) positions and reported in the Consolidated Balance Sheet in other investments and other liabilities.


[6]	Includes both market and non-market impacts in deriving realized and unrealized gains (losses).


[7]	Settlements of other liabilities reflect the removal of liabilities carried at fair value upon the deconsolidation of a variable interest entity. See Note 3 - Investments and Derivative Instruments of Notes to Consolidated Financial Statements for additional information.

Fair value of assets and liabilities accounted for using the fair value option

The following table presents the changes in fair value of those assets and liabilities accounted for using the fair value option reported in net realized capital gains and losses in the Company's Consolidated Statements of Operations.



	Year Ended December 31,
	2015			2014
Assets
Fixed maturities, FVO
CDOs	$	1		$	21
Corporate	(3		)	(3		)
Foreign government	2			16
Total fixed maturities, FVO	$	—		$	34
Equity, FVO	(12		)	(2		)
Total realized capital gains (losses)	$	(12	)	$	32

Fair value of assets and liabilities accounted for using the fair value option

The following table presents the fair value of assets and liabilities accounted for using the fair value option included in the Company's Consolidated Balance Sheets.



	Year Ended December 31,
	2015		2014
Assets
Fixed maturities, FVO
ABS	$	4	$	13
CDOs	1		67
CMBS	6		15
Corporate	31		96
Foreign government	1		3
Municipals	—		2
RMBS	119		82
U.S. Government	3		2
Total fixed maturities, FVO	$	165	$	280
Equity, FVO [1]	$	281	$	248


[1]	Included in equity securities, AFS on the Consolidated Balance Sheets.

Financial Instruments Not Carried at Fair Value

e following table presents carrying amounts and fair values of the Company's financial instruments not carried at fair value.



		December 31, 2015				December 31, 2014
	Fair Value Hierarchy Level	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Assets
Policy loans	Level 3	$	1,446	$	1,446	$	1,430	$	1,430
Mortgage loans	Level 3	2,918		2,995		3,109		3,280
Liabilities
Other policyholder funds and benefits payable [1]	Level 3	6,611		6,802		7,134		7,353
Consumer notes [2] [3]	Level 3	38		38		68		68
Assumed investment contracts [3]	Level 3	619		682		763		851


[1]	Excludes group accident and health and universal life insurance contracts, including corporate owned life insurance.


[2]	Excludes amounts carried at fair value and included in disclosures above.


[3]	Included in other liabilities in the Consolidated Balance Sheets.

- Definition

Tabular disclosure of the application of the fair value option for measurement and reporting of eligible financial assets and liabilities (as defined), as well as certain other eligible items (as defined) included in the statement of financial position, whether such option is elected for a single eligible item or a group of similar eligible items and is in addition to other disclosures concerning fair value which the company may be required to provide. Such disclosure might be expected to include: (1) for items included in the statement of financial position: (a) for each line item in the statement of financial position that includes an item or items for which the fair value option has been elected, provide the aggregate carrying amount of ineligible items included in each line item in the balance sheet, if any; (b) the difference between the aggregate fair value and the aggregate unpaid principal balance (assuming contractual principal amounts and fair value option elected) of: (i) loans and long-term receivables (other than securities otherwise reported at fair value) and (ii) long-term debt instruments; (c) for loans held as assets for which the fair value option has been elected: (i) the aggregate fair value of loans that are 90 days or more past due, (ii) if the policy is to recognize interest income separately from other changes in fair value, the aggregate fair value of loans in nonaccrual status, and (iii) the difference between the aggregate fair value and the aggregate unpaid principal balance for loans that are 90 days or more past due, in nonaccrual status, or both; (2) for items included in the income statement: (a) the amounts of gains and losses from fair value changes included in earnings and in which line in the income statement those gains and losses are reported whether or not combined with gains and losses from items required to be accounted for at fair value; (b) for loans and other receivables held as assets, the estimated amount of gains or losses included in earnings attributable to changes in instrument-specific credit risk; (c) for liabilities with fair values that have been significantly affected during the reporting period by changes in the instrument-specific credit risk, the estimated amount of gains and losses from fair value changes included in earnings that are attributable to changes in the instrument-specific credit risk; and (3) certain other disclosures as required or determined to be provided.

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