XML 23 R12.htm IDEA: XBRL DOCUMENT v3.21.2
Fair Value
 9 Months Ended
Sep. 30, 2021
Fair Value [Abstract]  
Fair Value
4. Fair Value


Fair value is the price that would be received upon sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The following fair value hierarchy is used in selecting inputs, with the highest priority given to Level 1, as these are the most transparent or reliable:

●
Level 1 – Quoted prices for identical instruments in active markets.

●
Level 2 – Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs are observable in active markets.

●
Level 3 – Valuations derived from valuation techniques in which one or more significant inputs are not observable.


Prices may fall within Level 1, 2 or 3 depending upon the methodology and inputs used to estimate fair value for each specific security. In general, securities are priced using third party pricing services. Securities not priced by pricing services are submitted to independent brokers for valuation and, if those are not available, internally developed pricing models are used to value assets using a methodology and inputs that market participants presumably would use to value the assets. Prices obtained from third-party pricing services or brokers are not adjusted.


Control procedures are performed over information obtained from pricing services and brokers to ensure prices received represent a reasonable estimate of fair value and to confirm representations regarding whether inputs are observable or unobservable. Procedures may include:  (i) the review of pricing service methodologies or broker pricing qualifications, (ii) back-testing, where past fair value estimates are compared to actual transactions executed in the market on similar dates, (iii) exception reporting, where period-over-period changes in price are reviewed and challenged with the pricing service or broker based on exception criteria and (iv) detailed analysis, where an independent analysis of the inputs and assumptions used to price individual securities is performed.


Assets and liabilities measured at fair value on a recurring basis are summarized in the following tables. Corporate bonds and other includes obligations of the U.S. Treasury, government-sponsored enterprises, foreign governments and redeemable preferred stock.

September 30, 2021
  
Level 1
    
Level 2
    
Level 3
    
Total
  
(In millions)
                        
                         
Fixed maturity securities:
                        
Corporate bonds and other
  
$
146
    
$
24,186
    
$
877
    
$
25,209
  
States, municipalities and political subdivisions
            
11,922
      
57
      
11,979
  
Asset-backed
            
7,394
      
478
      
7,872
  
Fixed maturities available-for-sale
    
146
      
43,502
      
1,412
      
45,060
  
Fixed maturities trading
            
9
              
9
  
Total fixed maturities
  
$
146
    
$
43,511
    
$
1,412
    
$
45,069
  
                                 
Equity securities
  
$
890
    
$
745
    
$
25
    
$
1,660
  
Short term and other
    
4,063
                      
4,063
  
Payable to brokers
    
(118
)
    
(1
)
            
(119
)

December 31, 2020
                        
                         
Fixed maturity securities:
                        
Corporate bonds and other
  
$
355
    
$
24,082
    
$
770
    
$
25,207
  
States, municipalities and political subdivisions
            
11,546
      
46
      
11,592
  
Asset-backed
            
7,497
      
308
      
7,805
  
Fixed maturities available-for-sale
    
355
      
43,125
      
1,124
      
44,604
  
Fixed maturities trading
            
34
      
8
      
42
  
Total fixed maturities
  
$
355
    
$
43,159
    
$
1,132
    
$
44,646
  
                                 
Equity securities
  
$
796
    
$
722
    
$
43
    
$
1,561
  
Short term and other
    
4,538
      
39
              
4,577
  
Payable to brokers
    
(14
)
    
(29
)
            
(43
)


The following tables present reconciliations for all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three and nine months ended September 30, 2021 and 2020:

                                                          Unrealized  
                                                          Gains  
                                                    Unrealized     (Losses)  
                                                    Gains     Recognized in  
          Net Realized                                         (Losses)     Other  
          Investment Gains                                         Recognized in     Comprehensive  
          (Losses) and Net Change                                         Net Income     Income (Loss)  
          in Unrealized Investment                                         (Loss) on Level     on Level 3  
          Gains (Losses)                                         3 Assets and     Assets and  
         
Included in
                            
Transfers
    
Transfers
          
Liabilities
    
Liabilities
  
   
Balance,
    
Net Income
    
Included in
                      
into
    
out of
    
Balance,
    
Held at
    
Held at
  
2021
  
July 1
    
(Loss)
    
OCI
    
Purchases
    
Sales
    
Settlements
    
Level 3
    
Level 3
    
September 30
    
September 30
    
September 30
  
(In millions)
                                                                  
                                                                   
Fixed maturity securities:
                                                                  
Corporate bonds and other
  
$
883
     $ 1    
$
1
     $ 55    
     
$
(11
)
         $
(52 )  
$
877
           $ 2  
States, municipalities and political subdivisions
    
57
                                                             57                
Asset-backed
    
410
       1       1       83     $
(9 )     (11 )   $ 41    
(38 )     478                
Fixed maturities available-for-sale
    
1,350
       2       2       138       (9 )     (22 )     41       (90 )     1,412     $ -       2  
Fixed maturities trading
    
-
                                                               -                  
Total fixed maturities
  
$
1,350
     $ 2     $ 2     $ 138     $ (9 )  
$
(22
)
   $ 41     $ (90 )  
$
1,412
     $ -     $ 2  
                                                                                         
Equity securities
  
$
36
     $ (2 )           $ 1     $ (11 )           $
11     $
(10 )  
$
25
     $
(3 )        


       
























Unrealized  
       
























Gains  
       





















Unrealized

(Losses)  
       





















Gains

Recognized in  
       
Net Realized



















(Losses)

Other  
       
Investment Gains



















Recognized in

Comprehensive  
       
(Losses) and Net Change



















Net Income

Income (Loss)  
       
in Unrealized Investment



















(Loss) on Level

on Level 3  
       
Gains (Losses)



















3 Assets and

Assets and  
         
Included in
                            
Transfers
    
Transfers
          
Liabilities
    
Liabilities
  
   
Balance,
    
Net Income
    
Included in
                      
into
    
out of
    
Balance,
    
Held at
    
Held at
  
2020
  
July 1
    
(Loss)
    
OCI
    
Purchases
    
Sales
    
Settlements
    
Level 3
    
Level 3
    
September 30
    
September 30
    
September 30
  
(In millions)
                                                                  
                                                                   
Fixed maturity securities:
                                                                  
Corporate bonds and other
  
$
555
            
$
5
    
$
129
          
$
(3
)
$
 8
            
$
694
            
$
5
  
States, municipalities and political subdivisions
     -                       45                                     45                  
Asset-backed
    
222
              
9
      
20
    


   
(14
)
          
$
(2
)
    
235
              
8
  
Fixed maturities available-for-sale
    
777
    
$
-
      
14
      
194
     $
-
   
(17
)
  
8
      
(2
)
    
974
    
$
-
      
13
  
Fixed maturities  trading
    
4
      
4
                                                      
8
      
4
          
Total fixed maturities
  
$
781
    
$
4
    
$
14
    
$
194
    
$
-
 
$
(17
)
  
$
8
    
$
(2
)
  
$
982
    
$
4
    
$
13
  
                                                                                         
Equity securities
  
$
27
    


   
     $ 12                    


           
$
39
    


       

                                                          Unrealized  
                                                          Gains  
                                                    Unrealized     (Losses)  
                                                    Gains     Recognized in  
          Net Realized    
                           
    (Losses)     Other  
          Investment Gains    
                           
    Recognized in     Comprehensive  
          (Losses) and Net Change    
                           
    Net Income     Income (Loss)  
          in Unrealized Investment    
                           
    (Loss) on Level     on Level 3  
          Gains (Losses)    
                           
    3 Assets and    
Assets and
  
         
Included in
                            
Transfers
    
Transfers
          
Liabilities
    
Liabilities
  
   
Balance,
    
Net Income
    
Included in
                      
into
    
out of
    
Balance,
    
Held at
    
Held at
  
2021
  
January 1
    
(Loss)
    
OCI
    
Purchases
    
Sales
    
Settlements
    
Level 3
    
Level 3
    
September 30
    
September 30
    
September 30
  
(In millions)
                                                                  
                                                                   
Fixed maturity securities:
                                                                  
Corporate bonds and other
  
$
770
     $ (9 )  
$
(23
)
  
$
219
    
$
(3
)
  
$
(35
)
  
$
10
     $ (52 )  
$
877
          
$
(22
)
States, municipalities and political subdivisions
    
46
                      
12
              
(1
)
                    
57
                
Asset-backed
    
308
      
4
      
(4
)
    
197
       (9 )    
(38
)
    
71
      
(51
)
    
478
            
(5
)
Fixed maturities available-for-sale
    
1,124
      
(5
)
    
(27
)
    
428
      
(12
)
    
(74
)
    
81
      
(103
)
    
1,412
    
$
-
      
(27
)
Fixed maturities trading
    
8
      
(6
)
                            
(2
)
                     -                  
Total fixed maturities
  
$
1,132
    
$
(11
)
  
$
(27
)
  
$
428
    
$
(12
)
  
$
(76
)
  
$
81
     $
(103
)
  
$
1,412
    
$
-
    
$
(27
)
                                                                                         
Equity securities
  
$
43
    
$
(15
)
          
$
11
    
$
(15
)
           $ 11     $ (10 )  
$
25
    
$
(1
)
        


                                                           Unrealized  
                                                           Gains  
                                                     Unrealized      (Losses)  
                                                     Gains     Recognized in
 
           Net Realized                                          (Losses)      Other  
           Investment Gains                                         Recognized in
    Comprehensive
 
           (Losses) and Net Change                                          Net Income     Income (Loss)
 
           in Unrealized Investment                                          (Loss) on Level      on Level 3  
           Gains (Losses)                                          3 Assets and     Assets and
 
         
Included in
                            
Transfers
    
Transfers
          
Liabilities
    
Liabilities
  
   
Balance,
    
Net Income
    
Included in
                      
into
    
out of
    
Balance,
    
Held at
    
Held at
  
2020
  
January 1
    
(Loss)
    
OCI
    
Purchases
    
Sales
    
Settlements
    
Level 3
    
Level 3
    
September 30
    
September 30
    
September 30
  
(In millions)
                                                                  
                                                                   
Fixed maturity securities:
                                                                  
Corporate bonds and other
  
$
468
            
$
27
    
$
200
          
$
(9
)
   $
 8
            
$
694
            
$
29
  
States, municipalities and political subdivisions
    
-
                       45                                     45                  
Asset-backed
    
165
              
18
      
100
    
$
(9
)
    
(22
)
          
$
(17
)
    
235
              
19
  
Fixed maturities available-for-sale
    
633
    
$
-
      
45
      
345
      
(9
)
    
(31
)
  

8
      
(17
)
    
974
    
$
-
      
48
  
Fixed maturities  trading
    
4
       4                                                      
8
       4          
Total fixed maturities
  
$
637
    
$
4
    
$
45
    
$
345
    
$
(9
)
  
$
(31
)
  
$
8
    
$
(17
)
  
$
982
    
$
4
    
$
48
  
                                                                                         
Equity securities
  
$
19
    
$
(7
)
            $ 12                    
$
15
            
$
39
    
$
(7
)
        


Net investment gains and losses are reported in Net income (loss) as follows:

Major Category of Assets and Liabilities
Consolidated Condensed Statements of Operations Line Items
   
Fixed maturity securities available-for-sale
Investment gains (losses)
Fixed maturity securities trading
Net investment income
Equity securities
Investment gains (losses) and Net investment income
Other invested assets
Investment gains (losses) and Net investment income
Derivative financial instruments held in a trading portfolio
Net investment income
Derivative financial instruments, other
Investment gains (losses) and Operating revenues and other


Securities may be transferred in or out of levels within the fair value hierarchy based on the availability of observable market information and quoted prices used to determine the fair value of the security. The availability of observable market information and quoted prices varies based on market conditions and trading volume.

Valuation Methodologies and Inputs


The following section describes the valuation methodologies and relevant inputs used to measure different financial instruments at fair value, including an indication of the level in the fair value hierarchy in which the instruments are generally classified.

Fixed Maturity Securities


Level 1 securities include highly liquid government securities and exchange traded bonds valued using quoted market prices. Level 2 securities include most other fixed maturity securities as the significant inputs are observable in the marketplace. All classes of Level 2 fixed maturity securities are valued using a methodology based on information generated by market transactions involving identical or comparable assets, a discounted cash flow methodology or a combination of both when necessary. Common inputs for all classes of fixed maturity securities include prices from recently executed transactions of similar securities, marketplace quotes, benchmark yields, spreads off benchmark yields, interest rates and U.S. Treasury or swap curves. Specifically for asset-backed securities, key inputs include prepayment and default projections based on past performance of the underlying collateral and current market data. Fixed maturity securities are primarily assigned to Level 3 in cases where broker/dealer quotes are significant inputs to the valuation, and there is a lack of transparency as to whether these quotes are based on information that is observable in the marketplace. Level 3 securities also include private placement debt securities whose fair value is determined using internal models with some inputs that are not market observable.

Equity Securities


Level 1 securities include publicly traded securities valued using quoted market prices. Level 2 securities are primarily valued using pricing for similar securities, recently executed transactions and other pricing models utilizing market observable inputs. Level 3 securities are primarily priced using broker/dealer quotes and internal models with some inputs that are not market observable.

Derivative Financial Instruments


Equity options are valued using quoted market prices and are classified within Level 1 of the fair value hierarchy. Over-the-counter derivatives, principally interest rate swaps, currency forwards, total return swaps, commodity swaps, equity warrants and options, are valued using inputs including broker/dealer quotes and are classified within Level 2 or Level 3 of the valuation hierarchy, depending on the amount of transparency as to whether these quotes are based on information that is observable in the marketplace.

Short Term and Other Invested Assets


Securities that are actively traded or have quoted prices are classified as Level 1. These securities include money market funds, treasury bills and exchange traded open-end funds valued using quoted market prices. Level 2 primarily includes commercial paper, for which all inputs are market observable. Fixed maturity securities purchased within one year of maturity are classified consistent with fixed maturity securities discussed above. Short term investments as presented in the tables above differ from the amounts presented in the Consolidated Condensed Balance Sheets because certain short term investments, such as time deposits, are not measured at fair value.

Significant Unobservable Inputs


The following tables present quantitative information about the significant unobservable inputs utilized in the fair value measurement of Level 3 assets. Valuations for assets and liabilities not presented in the tables below are primarily based on broker/dealer quotes for which there is a lack of transparency as to inputs used to develop the valuations. The quantitative detail of unobservable inputs from these broker quotes is neither provided nor reasonably available. The weighted average rate is calculated based on fair value.

 





Range
  Estimated
Valuation
Unobservable
(Weighted
September 30, 2021
Fair Value
  
Techniques
  
Inputs
  
Average)
 
(In millions)
            
                 
Fixed maturity securities
$
1,154
  
Discounted cash flow
  
Credit spread
  
1% – 7% (2%)
                 
December 31, 2020
                
                 
Fixed maturity securities
$
966
  
Discounted cash flow
  
Credit spread
  
1% – 8% (3%)


For fixed maturity securities, an increase to the credit spread assumptions would result in a lower fair value measurement.

Financial Assets and Liabilities Not Measured at Fair Value


The carrying amount, estimated fair value and the level of the fair value hierarchy of the financial assets and liabilities which are not measured at fair value on the Consolidated Condensed Balance Sheets are presented in the following tables. The carrying amounts and estimated fair values of short term debt and long term debt exclude finance lease obligations. The carrying amounts reported on the Consolidated Condensed Balance Sheets for cash and short term investments not carried at fair value and certain other assets and liabilities approximate fair value due to the short term nature of these items.

  
Carrying
    
Estimated Fair Value
  
September 30, 2021
  
Amount
    
Level 1
    
Level 2
    
Level 3
    
Total
  
(In millions)
                              
                               
Assets:
                              
Other invested assets, primarily mortgage loans
  
$
1,031
    
     
     
$
1,106
    
$
1,106
  
                                         
Liabilities:
                                        
Short term debt
    
186
                      
190
      
190
  
Long term debt
    
8,919
            
$
9,319
      
554
      
9,873
  
                                         
December 31, 2020
                                        
                                         
Assets:
                                        
Other invested assets, primarily mortgage loans
  
$
1,068
                    
$
1,151
    
$
1,151
  
                                         
Liabilities:
                                        
Short term debt
    
35
            
$
19
      
17
      
36
  
Long term debt
    
10,042
              
10,482
      
765
      
11,247