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Investments
 6 Months Ended
Jun. 30, 2020
Investments [Abstract]  
Investments
3. Investments


Net investment income is as follows:

   
Three Months Ended
June 30,
    
Six Months Ended
June 30
  
 
2020
    
2019
    
2020
    
2019
  
(In millions)
                        
                         
Fixed maturity securities
  
$
430
    
$
455
    
$
868
    
$
910
  
Limited partnership investments
    
57
      
43
      
(45
)
    
124
  
Short term investments
    
2
      
14
      
9
      
29
  
Equity securities
    
50
      
16
      
6
      
46
  
Income (loss) from trading portfolio (a)
    
107
      
29
      
(22
)
    
110
  
Other
    
16
      
12
      
30
      
26
  
Total investment income
    
662
      
569
      
846
      
1,245
  
Investment expenses
    
(18
)
    
(18
)
    
(39
)
    
(37
)
Net investment income
  
$
644
    
$
551
    
$
807
    
$
1,208
  

(a)
Net unrealized gains (losses) related to changes in fair value on securities still held were $80 and $8 for the three months ended June 30, 2020 and 2019 and $7 and $48 for the six months ended June 30, 2020 and 2019.


Investment gains (losses) are as follows:

   
Three Months Ended
June 30,
    
Six Months Ended
June 30
  
 
2020
    
2019
    
2020
    
2019
  
(In millions)
                        
                         
Fixed maturity securities
  
$
17
    
$
(3
)
  
$
(58
)
  
$
(9
)
Equity securities
    
63
      
11
      
(70
)
    
53
  
Derivative instruments
    
(10
)
    
(6
)
    
(5
)
    
(11
)
Short term investments and other
    
(1
)
            
(14
)
        
Deconsolidation of Diamond Offshore (see Note 2)
    
(1,211
)
            
(1,211
)
        
Investment gains (losses) (a)
  
$
(1,142
)
  
$
2
    
$
(1,358
)
  
$
33
  

(a)
Gross investment gains on available-for-sale securities were $102 and $28 for the three months ended June 30, 2020 and 2019 and $131 and $64 for the six months ended June 30, 2020 and 2019. Gross investment losses on available-for-sale securities were $85 and $31 for the three months ended June 30, 2020 and 2019 and $189 and $73 for the six months ended June 30, 2020 and 2019. During the three and six months ended June 30, 2020, $63 of investment gains and $70 of investment losses were recognized due to the change in fair value of non-redeemable preferred stock still held as of June 30, 2020. During the three and six months ended June 30, 2019, $11 and $53 of investment gains were recognized due to the change in fair value of non-redeemable preferred stock still held as of June 30, 2019.



The allowance for credit loss related to available-for-sale fixed maturity securities is the difference between the present value of cash flows expected to be collected and the amortized cost basis. All available evidence is considered when determining whether an investment requires a credit loss write-down or allowance to be recorded. Examples of such evidence may include the financial condition and near term prospects of the issuer, whether the issuer is current with interest and principal payments, credit ratings on the security or changes in ratings over time, general market conditions and industry, sector or other specific factors and whether it is likely that the amortized cost will be recovered through the collection of cash flows. Changes in the allowance are presented as a component of Investment gains (losses) on the Consolidated Condensed Statements of Operations.


The following table presents the activity related to the allowance on available-for-sale securities with credit impairments and PCD assets. Accrued interest receivables on available-for-sale fixed maturity securities totaled $373 million and is excluded from the estimate of expected credit losses and the amortized cost basis in the tables within this Note.

Three months ended June 30, 2020
  
Corporate and
Other Bonds
    
Asset-
backed
    
Total
  
(In millions)
                  
                   
Allowance for credit losses:
                  
Balance as of April 1, 2020
  
$
49
    
$
-
    
$
49
  
Additions to the allowance for credit losses:
                        
For securities for which credit losses were not previously recorded
    
10
      
12
      
22
  
For available-for-sale securities accounted for as PCD assets
    
1
              
1
  
                         
Reductions to the allowance for credit losses:
                        
Securities sold during the period (realized)
    
1
              
1
  
                         
Additional increases or (decreases) to the allowance for credit losses on securities that had an allowance recorded in a previous period
    
(20
)
            
(20
)
Total allowance for credit losses
  
$
39
    
$
12
    
$
51
  

Six months ended June 30, 2020
                  
                   
Allowance for credit losses:
                  
Balance as of December 31, 2019
  
$
-
    
$
-
    
$
-
  
Additions to the allowance for credit losses:
                        
Impact of adopting ASC 326
    
6
              
6
  
For securities for which credit losses were not previously recorded
    
58
      
12
      
70
  
For available-for-sale securities accounted for as PCD assets
    
2
              
2
  
                         
Reductions to the allowance for credit losses:
                        
Securities sold during the period (realized)
    
6
              
6
  
Intent to sell or more likely than not will be required to sell the security before recovery of its amortized cost basis
    
1
              
1
  
                         
Additional increases or (decrease) to the allowance for credit losses on securities that had an allowance recorded in a previous period
    
(20
)
            
(20
)
Total allowance for credit losses
  
$
39
    
$
12
    
$
51
  


The components of available-for-sale impairment losses recognized in earnings by asset type are presented in the following table. The table includes losses on securities with an intention to sell and changes in the allowance for credit losses on securities since acquisition date:

  
Three Months Ended
June 30,
    
Six Months Ended
June 30,
  
   
2020
    
2019
    
2020
    
2019
  
(In millions)
                        
                         
Fixed maturity securities available-for-sale:
                        
Corporate and other bonds
  
$
(1
)
  
$
6
    
$
90
    
$
12
  
Asset-backed
    
12
              
13
      
8
  
Impairment losses recognized in earnings
  
$
11
    
$
6
    
$
103
    
$
20
  


The amortized cost and fair values of fixed maturity securities are as follows:

June 30, 2020
  
Cost or
Amortized
Cost
    
Gross
Unrealized
Gains
    
Gross
Unrealized
Losses
    
Allowance
for Credit
Losses (a)
    
Estimated
Fair Value
  
(In millions)
                              
                               
Fixed maturity securities:
                              
Corporate and other bonds
  
$
20,305
    
$
2,680
    
$
143
    
$
39
    
$
22,803
  
States, municipalities and political subdivisions
    
9,426
      
1,702
      
1
              
11,127
  
Asset-backed:
                                        
Residential mortgage-backed
    
3,617
      
169
      
2
              
3,784
  
Commercial mortgage-backed
    
2,151
      
70
      
93
      
12
      
2,116
  
Other asset-backed
    
1,940
      
52
      
33
              
1,959
  
Total asset-backed
    
7,708
      
291
      
128
      
12
      
7,859
  
U.S. Treasury and obligations of government-sponsored enterprises
    
491
      
7
                      
498
  
Foreign government
    
457
      
26
                      
483
  
Fixed maturities available-for-sale
    
38,387
      
4,706
      
272
      
51
      
42,770
  
Fixed maturities trading
    
27
      
2
                      
29
  
Total fixed maturity securities
  
$
38,414
    
$
4,708
    
$
272
    
$
51
    
$
42,799
  

December 31, 2019
  
Cost or
Amortized
Cost
    
Gross
Unrealized
Gains
    
Gross
Unrealized
Losses
    
Estimated
Fair Value
    
Unrealized
OTTI Losses
(Gains) (a)
  
                               
Fixed maturity securities:
                              
Corporate and other bonds
  
$
19,789
    
$
2,292
    
$
32
    
$
22,049
        
States, municipalities and political subdivisions
    
9,093
      
1,559
              
10,652
        
Asset-backed:
                                      
Residential mortgage-backed
    
4,387
      
133
      
1
      
4,519
    
$
(17
)
Commercial mortgage-backed
    
2,265
      
86
      
5
      
2,346
      
1
  
Other asset-backed
    
1,925
      
41
      
4
      
1,962
      
(3
)
Total asset-backed
    
8,577
      
260
      
10
      
8,827
      
(19
)
U.S. Treasury and obligations of government-sponsored enterprises
    
146
      
1
      
2
      
145
          
Foreign government
    
491
      
14
      
1
      
504
          
Redeemable preferred stock
    
10
                      
10
          
Fixed maturities available-for-sale
    
38,106
      
4,126
      
45
      
42,187
      
(19
)
Fixed maturities trading
    
51
      
2
              
53
          
Total fixed maturities
  
$
38,157
    
$
4,128
    
$
45
    
$
42,240
    
$
(19
)

(a)
On January 1, 2020, the Company adopted ASU 2016-13; see Note 1. The Unrealized OTTI Losses (Gains) column that tracked subsequent valuation changes on securities for which a credit loss had previously been recorded has been replaced with the Allowance for Credit Losses column. Prior period amounts were not adjusted for the adoption of this standard.


The net unrealized gains on available-for-sale investments included in the tables above are recorded as a component of Accumulated other comprehensive income (loss) (“AOCI”). When presented in AOCI, these amounts are net of tax and noncontrolling interests and any required Shadow Adjustments. To the extent that unrealized gains on fixed income securities supporting long term care products and structured settlements not funded by annuities would result in a premium deficiency if those gains were realized, a related increase in Insurance reserves is recorded, net of tax and noncontrolling interests, as a reduction of net unrealized gains through Other comprehensive income (loss) (“Shadow Adjustments”). As of June 30, 2020 and December 31, 2019, the net unrealized gains on investments included in AOCI were correspondingly reduced by Shadow Adjustments of $2.1 billion and $2.0 billion (after tax and noncontrolling interests).


The available-for-sale securities in a gross unrealized loss position for which an allowance for credit losses has not been recorded are as follows:

  
Less than
12 Months
    
12 Months
or Longer
    
Total
  
June 30, 2020
  
Estimated
Fair Value
    
Gross
Unrealized
Losses
    
Estimated
Fair Value
    
Gross
Unrealized
Losses
    
Estimated
Fair Value
    
Gross
Unrealized
Losses
  
(In millions)
                                    
                                     
Fixed maturity securities:
                                    
Corporate and other bonds
  
$
2,095
    
$
137
    
$
56
    
$
6
    
$
2,151
    
$
143
  
States, municipalities and political subdivisions
    
94
      
1
                      
94
      
1
  
Asset-backed:
                                                
Residential mortgage-backed
    
53
      
1
      
21
      
1
      
74
      
2
  
Commercial mortgage-backed
    
971
      
92
      
14
      
1
      
985
      
93
  
Other asset-backed
    
746
      
32
      
14
      
1
      
760
      
33
  
Total asset-backed
    
1,770
      
125
      
49
      
3
      
1,819
      
128
  
U.S. Treasury and obligations of government-sponsored enterprises
    
4
                              
4
          
Foreign government
    
4
                              
4
          
Total fixed maturity securities
  
$
3,967
    
$
263
    
$
105
    
$
9
    
$
4,072
    
$
272
  
                                                 
December 31, 2019
                                                
                                                 
Fixed maturity securities:
                                                
Corporate and other bonds
  
$
914
    
$
21
    
$
186
    
$
11
    
$
1,100
    
$
32
  
States, municipalities and political subdivisions
    
34
                              
34
          
Asset-backed:
                                                
Residential mortgage-backed
    
249
      
1
      
30
              
279
      
1
  
Commercial mortgage-backed
    
381
      
3
      
20
      
2
      
401
      
5
  
Other asset-backed
    
449
      
3
      
33
      
1
      
482
      
4
  
Total asset-backed
    
1,079
      
7
      
83
      
3
      
1,162
      
10
  
U.S. Treasury and obligations of government-sponsored enterprises
    
62
      
2
      
2
              
64
      
2
  
Foreign government
    
59
      
1
      
1
              
60
      
1
  
Total fixed maturity securities
  
$
2,148
    
$
31
    
$
272
    
$
14
    
$
2,420
    
$
45
  


Based on current facts and circumstances, the Company believes the unrealized losses presented in the June 30, 2020 securities in a gross unrealized loss position table above are not indicative of the ultimate collectability of the current amortized cost of the securities, but rather are attributable to changes in interest rates, credit spreads and other factors. The Company has no current intent to sell securities with unrealized losses, nor is it more likely than not that it will be required to sell prior to recovery of amortized cost; accordingly, the Company has determined that there are no additional impairment losses to be recorded as of June 30, 2020.

Contractual Maturity


The following table presents available-for-sale fixed maturity securities by contractual maturity.

  
June 30, 2020
    
December 31, 2019
  
   
Cost or
Amortized
Cost
    
Estimated
Fair
Value
    
Cost or
Amortized
Cost
    
Estimated
Fair
Value
  
(In millions)
                        
                         
Due in one year or less
  
$
1,472
    
$
1,469
    
$
1,334
    
$
1,356
  
Due after one year through five years
    
11,040
      
11,622
      
9,746
      
10,186
  
Due after five years through ten years
    
13,335
      
14,414
      
14,892
      
15,931
  
Due after ten years
    
12,540
      
15,265
      
12,134
      
14,714
  
Total
  
$
38,387
    
$
42,770
    
$
38,106
    
$
42,187
  


Actual maturities may differ from contractual maturities because certain securities may be called or prepaid. Securities not due at a single date are allocated based on weighted average life.

Mortgage Loans


The allowance for expected credit losses on mortgage loans is developed by assessing the credit quality of pools of mortgage loans in good standing using debt service coverage ratios (“DSCR”) and loan-to-value (“LTV”) ratios. The DSCR compares a property’s net operating income to its debt service payments, including principal and interest. The LTV ratio compares the current unpaid principal balance of the loan to the estimated fair value of the underlying property collateralizing the loan. The pools developed to measure the credit loss allowance use increments of DSCR and LTV to draw distinctions between risk levels. Changes in the allowance for mortgage loans are presented as a component of Investment gains (losses) on the Consolidated Condensed Statements of Operations. Mortgage loans are included in Other invested assets on the Consolidated Condensed Balance Sheets.


The following table presents the amortized cost basis of mortgage loans for each credit quality indicator by year of origination:

  
Mortgage Loans Amortized Cost Basis by Origination Year (a)
  
As of June 30, 2020
  
2020
    
2019
    
2018
    
2017
    
2016
    
Prior
    
Total
  
(In millions)
                                          
                                           
DSCR ≥1.6x
                                          
LTV less than 55%
  
$
60
    
$
33
    
$
19
    
$
100
    
$
41
    
$
129
    
$
382
  
LTV 55% to 65%
            
32
      
29
      
41
      
4
              
106
  
LTV greater than 65%
            
5
                                      
5
  
DSCR 1.2x - 1.6x
                                                        
LTV less than 55%
            
32
      
10
      
13
      
16
      
125
      
196
  
LTV 55% to 65%
            
83
      
32
      
32
                      
147
  
LTV greater than 65%
    
19
      
74
                                      
93
  
DSCR ≤1.2x
                                                        
LTV less than 55%
            
2
      
11
                      
9
      
22
  
LTV 55% to 65%
            
14
      
14
                              
28
  
LTV greater than 65%
            
22
              
37
      
24
              
83
  
Total
  
$
79
    
$
297
    
$
115
    
$
223
    
$
85
    
$
263
    
$
1,062
  

(a)
The values in the table above reflect DSCR on a standardized amortization period and LTV based on the most recent appraised values trended forward using changes in a commercial real estate price index.



There were loans with an amortized cost of $22 million that were less than 90 days past due as of June 30, 2020, none of which were placed on nonaccrual status. No interest income was written off for the six months ended June 30, 2020.

Derivative Financial Instruments


A summary of the aggregate contractual or notional amounts and gross estimated fair values related to derivative financial instruments follows. The contractual or notional amounts for derivatives are used to calculate the exchange of contractual payments under related agreements and may not be representative of the potential for gain or loss on these instruments. Gross estimated fair values of derivative positions are currently presented in Equity securities, Receivables and Payable to brokers on the Consolidated Condensed Balance Sheets.

  
June 30, 2020
    
December 31, 2019
  
   
Contractual/
Notional
  
Estimated Fair Value
    
Contractual/
Notional
    
Estimated Fair Value
  
   
Amount
  
Asset
  
(Liability)
    
Amount
    
Asset
    
(Liability)
  
(In millions)
                                
                                 
With hedge designation:
                                
                                 
Interest rate swaps
  
$
675
      
$
(29
)
  
$
715
          
$
(8
)
                                         
Without hedge designation:
                                        
                                         
Equity Options – purchased
                      
57
    
$
1
          
         – written
                      
100
              
(1
)
Interest rate swaps
    
80
        
(4
)
                        
Embedded derivative on funds withheld liability
    
197
        
(12
)
    
182
              
(7
)

Investment Commitments


As part of the overall investment strategy, investments are made in various assets which require future purchase, sale or funding commitments. These investments are recorded once funded, and the related commitments may include future capital calls from various third-party limited partnerships, signed and accepted mortgage loan applications and obligations related to privately placed debt securities. As of June 30, 2020, commitments to purchase or fund were approximately $1.2 billion and to sell were approximately $50 million under the terms of these investments.