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Fair Value Measurements Level 1 (Notes)

12 Months Ended

Dec. 31, 2020

The Company carries certain financial assets and liabilities at estimated fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market in an orderly transaction between market participants. Our fair value framework includes a hierarchy that gives the highest priority to the use of quoted prices in active markets, followed by the use of market observable inputs, followed by the use of unobservable inputs. The fair value hierarchy levels are as follows:

Level 1 Fair values based primarily on unadjusted quoted prices for identical assets, or liabilities, in active markets that the Company has the ability to access at the measurement date.

Level 2 Fair values primarily based on observable inputs, other than quoted prices included in Level 1, or based on prices for similar assets and liabilities.

Level 3 Fair values derived when one or more of the significant inputs are unobservable (including assumptions about risk). With little or no observable market, the determination of fair values uses considerable judgment and represents the Company’s best estimate of an amount that could be realized in a market exchange for the asset or liability. Also included are securities that are traded within illiquid markets and/or priced by independent brokers.

The Company will classify the financial asset or liability by level based upon the lowest level input that is significant to the determination of the fair value. In most cases, both observable inputs (e.g., changes in interest rates) and unobservable inputs (e.g., changes in risk assumptions) are used to determine fair values that the Company has classified within Level 3.


Successor Company
Assets and (Liabilities) Carried at Fair Value by Hierarchy Level as of December 31, 2020
	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")	$	444	$	—	$	444	$	—
Collateralized loan obligations ("CLOs")	1,428		—		1,169		259
Commercial mortgage-backed securities ("CMBS")	1,215		—		1,161		54
Corporate	8,552		—		8,224		328
Foreign government/government agencies	266		—		266		—
Municipal	875		—		875		—
Residential mortgage-backed securities ("RMBS")	769		—		615		154
U.S. Treasuries	1,326		117		1,209		—
Total fixed maturities	14,875		117		13,963		795

Equity securities, at fair value	65		11		22		32
Derivative assets


Foreign exchange derivatives	(1)		—		(1)		—
Interest rate derivatives	6		—		4		2

Macro hedge program	7		—		7		—
Total derivative assets [1]	12		—		10		2
Short-term investments	802		586		194		22
Reinsurance recoverable for GMWB	7		—		—		7

Separate account assets [2]	108,748		67,679		40,609		20
Total assets accounted for at fair value on a recurring basis	$	124,509	$	68,393	$	54,798	$	878
Liabilities accounted for at fair value on a recurring basis
Other policyholder funds and benefits payable
GMWB embedded derivative	$	21	$	—	$	—	$	21

Total other policyholder funds and benefits payable	21		—		—		21
Derivative liabilities


Foreign exchange derivatives	(1)		—		(1)		—
Interest rate derivatives	(19)		—		(19)		—

Macro hedge program	(460)		—		(19)		(441)
Total derivative liabilities [3]	(480)		—		(39)		(441)

Modified coinsurance reinsurance contracts	(93)		—		(93)		—
Total liabilities accounted for at fair value on a recurring basis	$	(552)	$	—	$	(132)	$	(420)


Successor Company
Assets and (Liabilities) Carried at Fair Value by Hierarchy Level as of December 31, 2019
	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	$	295	$	—	$	282	$	13
CLOs	1,150		—		1,092		58
CMBS	1,391		—		1,354		37
Corporate	8,121		—		7,734		387
Foreign government/government agencies	409		—		409		—
Municipal	761		—		761		—
RMBS	868		—		621		247
U.S. Treasuries	993		—		993		—
Total fixed maturities	13,988		—		13,246		742

Equity securities, at fair value	45		11		1		33
Derivative assets




GMWB hedging instruments	23		—		—		23
Macro hedge program	49		—		—		49
Total derivative assets [1]	72		—		—		72
Other investments	6		—		6		—
Short-term investments	550		330		214		6
Reinsurance recoverable for GMWB	17		—		—		17

Separate account assets [2]	101,698		63,850		37,825		23
Total assets accounted for at fair value on a recurring basis	$	116,376	$	64,191	$	51,292	$	893

Liabilities Accounted for at Fair Value on a Recurring Basis
Other policyholder funds and benefits payable
GMWB embedded derivative	$	5	$	—	$	—	$	5

Total other policyholder funds and benefits payable	5		—		—		5
Derivative liabilities
Credit derivatives	(1)		—		(1)		—

Foreign exchange derivatives	(7)		—		(7)		—
Interest rate derivatives	(39)		—		(37)		(2)
GMWB hedging instruments	50		—		35		15
Macro hedge program	(163)		—		(1)		(162)
Total derivative liabilities [3]	(160)		—		(11)		(149)
Modified coinsurance reinsurance contracts	(43)		—		(43)		—
Total liabilities accounted for at fair value on a recurring basis	$	(198)	$	—	$	(54)	$	(144)

[1]Includes 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 and applicable law. See footnote 3 to this table for derivative liabilities.

[2]Approximately $877 and $2.4 billion of investment sales receivables, as of December 31, 2020 and 2019 (Successor Company), 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. Included in the total fair value amount are $441 and $461 of investments, as of December 31, 2020 and 2019 (Successor Company), respectively, for which the fair value is estimated using the net asset value per unit as a practical expedient which are excluded from the disclosure requirement to classify amounts in the fair value hierarchy.

[3]Includes derivative instruments in a net negative fair value position (derivative liability) after consideration of the accrued interest and impact of collateral posting requirements which may be imposed by agreements and applicable law.

Separate Account Assets

Separate account assets are primarily invested in mutual funds. Other separate account assets include fixed maturities, limited partnerships, equity securities, short-term investments and derivatives that are valued in the same manner, and using the same pricing sources and inputs, as those investments held by the Company. For limited partnerships in which fair value represents the separate account’s share of the NAV, 43% and 49% were subject to significant liquidation restrictions as of December 31, 2020 and 2019 (Successor Company), respectively. Total limited partnerships that do not allow any form of redemption were 0% as of December 31, 2020 and 2019 (Successor Company), respectively. Separate account assets classified as Level 3 primarily include long-dated bank loans, subprime RMBS and commercial mortgage loans.

Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis Using Significant Unobservable Inputs

The Company uses derivative instruments to manage the risk associated with certain assets and liabilities. However, the derivative instrument may not be classified with the same fair value hierarchy level as the associated asset or liability. Therefore, the realized and unrealized gains and losses on derivatives reported in the Level 3 roll-forward may be offset by realized and unrealized gains and losses of the associated assets and liabilities in other line items of the financial statements.

The following table presents a reconciliation of the beginning and ending balances for fair value measurements for the year ended December 31, 2020 (Successor Company), for which the Company had used significant unobservable inputs (Level 3):


Fair Value Roll-forwards for Financial Instruments Classified as Level 3
				Total Realized/Unrealized Gains (Losses)
		Fair Value as of January 1, 2020		Included in Net Income [1] [2] [6]		Included in OCI [3]		Purchases		Settlements		Sales		Transfers into Level 3 [4]		Transfers out of Level 3 [4]		Fair Value as of December 31, 2020
Assets
Fixed maturities, AFS
	ABS	$	13	$	—	$	(1)	$	40	$	—	$	—	$	—	$	(52)	$	—
	CLOs	58		—		2		237		(28)		—		—		(10)		259
	CMBS	37		—		(3)		18		—		—		2		—		54
	Corporate	387		2		12		51		(40)		(24)		357		(417)		328


	RMBS	247		—		—		57		(64)		(28)		—		(58)		154
Total fixed maturities, AFS		742		2		10		403		(132)		(52)		359		(537)		795

Equity securities, at fair value		33		—		—		1		—		(2)		—		—		32
Freestanding derivatives



	Interest rate	(2)		4		—		—		—		—		—		—		2
	GMWB hedging instruments	38		(38)		—		—		—		—		—		—		—

Total freestanding derivatives [5]		36		(34)		—		—		—		—		—		—		2

Reinsurance recoverable for GMWB		17		(21)		—		—		11		—		—		—		7
Separate accounts		23		—		—		12		—		(7)		—		(8)		20
Short-term investments		6		—		—		22		(6)		—		—		—		22
Total assets		$	857	$	(53)	$	10	$	438	$	(127)	$	(61)	$	359	$	(545)	$	878
(Liabilities)
Freestanding derivatives

	Macro hedge program	(113)		(456)		—		339		(211)		—		—		—		(441)
Total freestanding derivatives [5]		(113)		(456)		—		339		(211)		—		—		—		(441)
Other policyholder funds and benefits payable
	Guaranteed withdrawal benefits	5		67		—		—		(51)		—		—		—		21
Total other policyholder funds and benefits payable		5		67		—		—		(51)		—		—		—		21
Total liabilities		$	(108)	$	(389)	$	—	$	339	$	(262)	$	—	$	—	$	—	$	(420)

The following table presents a reconciliation of the beginning and ending balances for fair value measurements for the year ended December 31, 2019 (Successor Company), for which the Company had used significant unobservable inputs (Level 3):


Fair Value Roll-forwards for Financial Instruments Classified as Level 3
				Total Realized/Unrealized Gains (Losses)
		Fair Value as of January 1, 2019		Included in Net Income [1] [2] [6]		Included in OCI [3]		Purchases		Settlements		Sales		Transfers into Level 3 [4]		Transfers out of Level 3 [4]		Fair Value as of December 31, 2019
Assets
Fixed maturities, AFS
	ABS	$	2	$	—	$	—	$	13	$	—	$	—	$	—	$	(2)	$	13
	CLOs	77		—		—		155		(91)		(5)		—		(78)		58
	CMBS	41		—		2		53		(1)		—		—		(58)		37
	Corporate	327		(3)		16		41		(15)		(106)		138		(11)		387
	RMBS	443		—		1		—		(75)		(105)		—		(17)		247
Total fixed maturities, AFS		890		(3)		19		262		(182)		(216)		138		(166)		742

Equity securities, at fair value		46		(4)		—		2		(1)		(10)		—		—		33
Freestanding derivatives


	Equity	—		(1)		—		1		—		—		—		—		—

	GMWB hedging instruments	45		(35)		—		—		28		—		—		—		38


Total freestanding derivatives [5]		45		(36)		—		1		28		—		—		—		38
Reinsurance recoverable for GMWB		40		(34)		—		—		11		—		—		—		17
Separate accounts		40		—		—		82		—		(14)		12		(97)		23
Short-term investments		—		—		—		6		—		—		—		—		6
Total assets		$	1,061	$	(77)	$	19	$	353	$	(144)	$	(240)	$	150	$	(263)	$	859
(Liabilities)
Freestanding derivatives
	Interest rate	$	(27)	$	(6)	$	—	$	—	$	31	$	—	$	—	$	—	$	(2)
	Macro hedge program	247		(359)		—		(1)		—		—		—		—		(113)
Total freestanding derivatives [5]		220		(365)		—		(1)		31		—		—		—		(115)
Other policyholder funds and benefits payable
	Guaranteed withdrawal benefits	(80)		134		—		—		(49)		—		—		—		5
Total other policyholder funds and benefits payable		(80)		134		—		—		(49)		—		—		—		5
Total liabilities		$	140	$	(231)	$	—	$	(1)	$	(18)	$	—	$	—	$	—	$	(110)

[1]The Company classifies realized and unrealized gains (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]Amounts in these columns are generally 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.

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

[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. Transfers into and out of Level 3 for the year ended December 31, 2020, were primarily related to private securities that were priced using internal matrix pricing in the prior period, but changed to broker pricing in the current period and inversely, private securities that were priced using broker pricing in the prior period, but changed to internal matrix pricing in the current period.

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

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


Changes in Unrealized Gains (Losses) included in Net Income for Financial Instruments Classified as Level 3 Still Held at End of Period [1] [2]
	Successor Company
	For the Years Ended December 31,
	2020		2019
Assets
Fixed maturities, AFS



Corporate	$	—	$	(4)



Total fixed maturities, AFS	—		(4)
Equity securities, at fair value	—		(2)
Freestanding derivatives


Equity	—		(1)
Interest rate	6		(6)
GMWB hedging instruments [3]	(16)		(35)

Total freestanding derivatives	(10)		(42)
Reinsurance recoverable for GMWB	(21)		(34)

Total assets	$	(31)	$	(82)
(Liabilities)
Freestanding derivatives
Macro hedge program [3]	$	(212)	$	(359)
Total freestanding derivatives	(212)		(359)
Other policyholder funds and benefits payable
Guaranteed withdrawal benefits	67		134

Total other policyholder funds and benefits payable	67		134
Total liabilities	$	(145)	$	(225)

[1]All amounts presented 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.

[2]Amounts presented are for Level 3 only and therefore may not agree to other disclosures included herein.

[3]The dynamic hedge program, which included GMWB hedging instruments, was closed in the first half of 2020. Any risks previously covered by the dynamic hedging program are now covered by the macro hedge program.


Changes in Unrealized Gains (Losses) included in OCI for Financial Instruments Classified as Level 3 Still Held at End of Period [1]
	Successor Company
	For the Years Ended December 31,
	2020		2019
Assets
Fixed maturities, AFS

CLOs	$	1	$	—
CMBS	(3)		1
Corporate	7		17


RMBS	(1)		1
Total fixed maturities, AFS	4		19











Total assets	$	4	$	19

[1] Changes in unrealized gains (losses) on fixed maturities, AFS are reported in changes in net unrealized gain on securities on the Consolidated Statements of Comprehensive Income (Loss).


Financial Assets and Liabilities Not Carried at Fair Value (Successor Company)
	Fair Value Hierarchy Level	Carrying Amount [1]		Fair Value		Carrying Amount		Fair Value
		December 31, 2020				December 31, 2019
Assets
Policy loans	Level 3	$	1,452	$	1,452	$	1,467	$	1,467
Mortgage loans	Level 3	$	2,092	$	2,248	$	2,241	$	2,331
Liabilities
Other policyholder funds and benefits payable [2]	Level 3	$	5,282	$	5,261	$	6,049	$	5,912
Assumed investment contracts [3]	Level 3	$	—	$	—	$	1	$	1

[1] As of December 31, 2020, carrying amount of mortgage loans is net of ACL of $17.

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

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

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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