Fair Value

12 Months Ended

Dec. 31, 2019

Fair Value Disclosures [Abstract]

Fair Value

Note 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, the Company seeks to price securities 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 the Company believes market participants would use to value the assets. Prices obtained from third-party pricing services or brokers are not adjusted by the Company.

The Company performs control procedures 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 the Company performs an independent analysis of the inputs and assumptions used to price individual securities.

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.

December 31, 2019	Level 1			Level 2			Level 3		Total
(In millions)
Fixed maturity securities:
Corporate bonds and other	$	175		$	22,065		$	468	$	22,708
States, municipalities and political subdivisions					10,652					10,652
Asset-backed					8,662			165		8,827
Fixed maturities available-for-sale		175			41,379			633		42,187
Fixed maturities trading					49			4		53
Total fixed maturities	$	175		$	41,428		$	637	$	42,240
Equity securities	$	629		$	658		$	19	$	1,306
Short term and other		3,138			1,383					4,521
Receivables					2					2
Payable to brokers		(18	)		(10	)				(28	)
December 31, 2018
Fixed maturity securities:
Corporate bonds and other	$	196		$	19,392		$	222	$	19,810
States, municipalities and political subdivisions					10,748					10,748
Asset-backed					8,787			197		8,984
Fixed maturities available-for-sale		196			38,927			419		39,542
Fixed maturities trading					151			6		157
Total fixed maturities	$	196		$	39,078		$	425	$	39,699
Equity securities	$	704		$	570		$	19	$	1,293
Short term and other		2,647			1,111					3,758
Receivables					11					11
Payable to brokers		(23	)							(23)

The tables below present reconciliations for all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the years ended December 31, 2019 and 2018:

																					Unrealized
																					Gains
																			Unrealized		(Losses)
																			Gains		Recognized in
																			(Losses)		Other
																			Recognized in		Comprehensive
			Net Realized Investment																Net Income		Income (Loss)
			Gains (Losses) and Net																(Loss) on Level		on Level 3
			Change in Unrealized																3 Assets and		Assets and
			Investment Gains (Losses)										Transfers		Transfers				Liabilities		Liabilities
	Balance,		Included in		Included in								into		out of		Balance,		Held at		Held at
2019	January 1		Net Income		OCI		Purchases		Sales		Settlements		Level 3		Level 3		December 31		December 31		December 31
(In millions)
Fixed maturity securities:
Corporate bonds and other	$	222			$	33	$	256			$	(11)			$	(32)	$	468			$	28
Asset-backed		197				8		48				(16)	$	45		(117)		165				7
Fixed maturities available-for-sale		419	$	-		41		304	$	-		(27)		45		(149)		633	$	-		35
Fixed maturities trading		6		(2)														4		(2)
Total fixed maturities	$	425	$	(2)	$	41	$	304	$	-	$	(27)	$	45	$	(149)	$	637	$	(2)	$	35
Equity securities	$	19	$	(2)			$	2									$	19	$	(2)

																					Unrealized
																					Gains
																			Unrealized		(Losses)
																			Gains		Recognized in
																			(Losses)		Other
																			Recognized in		Comprehensive
			Net Realized Investment																Net Income		Income (Loss)
			Gains (Losses) and Net																(Loss) on Level		on Level 3
			Change in Unrealized																3 Assets and		Assets and
			Investment Gains (Losses)										Transfers		Transfers				Liabilities		Liabilities
	Balance,		Included in		Included in								into		out of		Balance,		Held at		Held at
2018	January 1		Net Income		OCI		Purchases		Sales		Settlements		Level 3		Level 3		December 31		December 31		December 31
(In millions)
Fixed maturity securities:
Corporate bonds and other	$	98	$	(1)	$	(4)	$	117	$	(5)	$	(9)	$	35	$	(9)	$	222			$	(5	)
States, municipalities and political subdivisions		1										(1)						-
Asset-backed		335		5		(8)		162		(72)		(64)		42		(203)		197	$	(2)		(4	)
Fixed maturities available-for-sale		434		4		(12)		279		(77)		(74)		77		(212)		419		(2)		(9	)
Fixed maturities trading		4		3						(1)								6		2
Total fixed maturities	$	438	$	7	$	(12)	$	279	$	(78)	$	(74)	$	77	$	(212)	$	425	$	-	$	(9	)
Equity securities	$	22	$	(2)					$	(1)							$	19	$	(2)

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

Major Category of Assets and Liabilities	Consolidated Statements of Income 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 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 by the Company 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 to the Company. The weighted average rate is calculated based on fair value.

							Range
	Estimated		Valuation		Unobservable		(Weighted
December 31, 2019	Fair Value		Techniques		Inputs		Average)
	(In millions)
Fixed maturity securities		$       525		Discounted cash flow		Credit spread		1% – 6% (2%)
December 31, 2018
Fixed maturity securities		$       228		Discounted cash flow		Credit spread		1% – 12% (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 Company’s financial assets and liabilities which are not measured at fair value on the Consolidated 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 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
December 31, 2019	Amount		Level 1	Level 2		Level 3		Total
(In millions)
Assets:
Other invested assets, primarily mortgage loans	$	994				$	1,025	$	1,025
Liabilities:
Short term debt		75		$	9		66		75
Long term debt		11,443			10,884		626		11,510
December 31, 2018
Assets:
Other invested assets, primarily mortgage loans	$	839				$	827	$	827
Liabilities:
Short term debt		15		$	14				14
Long term debt		11,345			10,111		653		10,764

The fair values of mortgage loans, included in Other invested assets, were based on the present value of the expected future cash flows discounted at the current interest rate for similar financial instruments, adjusted for specific loan risk.

The fair values of debt were based on observable market prices when available. When observable market prices were not available, the fair values of debt were based on observable market prices of comparable instruments adjusted for differences between the observed instruments and the instruments being valued or is estimated using discounted cash flow analyses, based on current incremental borrowing rates for similar types of borrowing arrangements.