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FAIR VALUE DISCLOSURES

6 Months Ended

Jun. 30, 2020

U.S. GAAP establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value, and identifies three levels of inputs that may be used to measure fair value:

Level 1 Unadjusted quoted prices for identical instruments in active markets. Level 1 fair values generally are supported by market transactions that occur with sufficient frequency and volume to provide pricing information on an ongoing basis.

Level 2 Observable inputs other than Level 1 prices, such as quoted prices for similar instruments, quoted prices in markets that are not active, and inputs to model-derived valuations that are directly observable or can be corroborated by observable market data.

Level 3 Unobservable inputs supported by little or no market activity and often requiring significant management judgment or estimation, such as an entity’s own assumptions about the cash flows or other significant components of value that market participants would use in pricing the asset or liability.

The Company uses unadjusted quoted market prices to measure fair value for those instruments that are actively traded in financial markets. In cases where quoted market prices are not available, fair values are measured using present value or other valuation techniques. The fair value determinations are made at a specific point in time, based on available market information and judgments about the financial instrument, including estimates of the timing and amount of expected future cash flows and the credit standing of counterparties. Such adjustments do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument, nor do they consider the tax impact of the realization of unrealized gains or losses. In many cases, the fair value cannot be substantiated by direct comparison to independent markets, nor can the disclosed value be realized in immediate settlement of the instrument.

Management is responsible for the determination of the value of investments carried at fair value and the supporting methodologies and assumptions. Under the terms of various service agreements, the Company often utilizes independent valuation service providers to gather, analyze, and interpret market information and derive fair values based upon relevant methodologies and assumptions for individual securities. These independent valuation service providers typically obtain data about market transactions and other key valuation model inputs from multiple sources and, through the use of widely accepted valuation models, provide a single fair value measurement for individual securities for which a fair value has been requested. As further described below with respect to specific asset classes, these inputs include, but are not limited to, market prices for recent trades and transactions in comparable securities, benchmark yields, interest rate yield curves, credit spreads, quoted prices for similar securities, and other market-observable information, as applicable. Specific attributes of the security being valued also are considered, including its term, interest rate, credit rating, industry sector, and when applicable, collateral quality and other security- or issuer-specific information. When insufficient market observable information is available upon which to measure fair value, the Company either will request brokers knowledgeable about these securities to provide a non-binding quote or will employ internal valuation models. Fair values received from independent valuation service providers and brokers and those internally modeled or otherwise estimated are assessed for reasonableness.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

Assets and liabilities measured at fair value on a recurring basis are summarized below. At June 30, 2020 and December 31, 2019, no assets were required to be measured at fair value on a non-recurring basis. Fair value measurements are required on a non-recurring basis for certain assets, including goodwill and mortgage loans on real estate, only when an impairment or other event occurs. When such fair value measurements are recorded, they must be classified and disclosed within the fair value hierarchy.

Fair Value Measurements at June 30, 2020


	Level 1		Level 2		Level 3		Total
	(in millions)
Assets:
Investments:
Fixed maturities, AFS:
Corporate (1)	$	—	$	47,978	$	1,652	$	49,630
U.S. Treasury, government and agency	—		17,193		—		17,193
States and political subdivisions	—		672		40		712
Foreign governments	—		833		—		833
Residential mortgage-backed (2)	—		158		—		158
Asset-backed (3)	—		2,039		—		2,039
Commercial mortgage-backed	—		879		—		879
Redeemable preferred stock	315		63		—		378
Total fixed maturities, AFS	315		69,815		1,692		71,822
Other equity investments	12		—		1		13
Trading securities	282		5,859		—		6,141
Other invested assets:
Short-term investments	—		227		—		227
Assets of consolidated VIEs/VOEs	—		—		15		15
Swaps	—		1,655		—		1,655
Credit default swaps	—		6		—		6
Options	—		1,891		—		1,891
Total other invested assets	—		3,779		15		3,794
Cash equivalents	3,784		—		—		3,784
GMIB reinsurance contracts asset	—		—		3,433		3,433
Separate Accounts assets (4)	113,420		2,792		—		116,212
Total Assets	$	117,813	$	82,245	$	5,141	$	205,199

Liabilities:
GMxB derivative features’ liability	$	—	$	—	$	12,382	$	12,382
SCS, SIO, MSO and IUL indexed features’ liability	—		1,690		—		1,690
Total Liabilities	$	—	$	1,690	$	12,382	$	14,072

______________

(1)Corporate fixed maturities includes both public and private issues.

(2)Includes publicly traded agency pass-through securities and collateralized obligations.

(3)Includes credit-tranched securities collateralized by sub-prime mortgages and other asset types and credit tenant loans.

(4)Separate Accounts assets included in the fair value hierarchy exclude investments in entities that calculate NAV per share (or its equivalent) as a practical expedient. Such investments excluded from the fair value hierarchy include investments in real estate and commercial mortgages. At June 30, 2020 the fair value of such investments was $363 million.

Fair Value Measurements at December 31, 2019


	Level 1		Level 2		Level 3		Total
	(in millions)
Assets:
Investments:
Fixed maturities, AFS:
Corporate (1)	$	—	$	43,218	$	1,246	$	44,464
U.S. Treasury, government and agency	—		15,231		—		15,231
States and political subdivisions	—		610		39		649
Foreign governments	—		490		—		490
Residential mortgage-backed (2)	—		173		—		173
Asset-backed (3)	—		744		100		844
Redeemable preferred stock	237		274		—		511
Total fixed maturities, AFS	237		60,740		1,385		62,362
Other equity investments	13		—		—		13
Trading securities	321		6,277		—		6,598
Other invested assets:
Short-term investments	—		468		—		468
Assets of consolidated VIEs/VOEs	—		—		16		16
Swaps	—		(326)		—		(326)
Credit default swaps	—		18		—		18
Options	—		3,331		—		3,331
Total other invested assets	—		3,491		16		3,507
Cash equivalents	1,155		—		—		1,155
GMIB reinsurance contracts asset	—		—		2,466		2,466
Separate Accounts assets (4)	121,184		2,878		—		124,062
Total Assets	$	122,910	$	73,386	$	3,867	$	200,163

Liabilities:
GMxB derivative features’ liability	$	—	$	—	$	8,246	$	8,246
SCS, SIO, MSO and IUL indexed features’ liability	—		3,150		—		3,150
Total Liabilities	$	—	$	3,150	$	8,246	$	11,396

______________

(1)Corporate fixed maturities includes both public and private issues.

(2)Includes publicly traded agency pass-through securities and collateralized obligations.

(3)Includes credit-tranched securities collateralized by sub-prime mortgages and other asset types and credit tenant loans.

(4)Separate Accounts assets included in the fair value hierarchy exclude investments in entities that calculate NAV per share (or its equivalent) as a practical expedient. Such investments excluded from the fair value hierarchy include investments in real estate and commercial mortgages. At December 31, 2019 the fair value of such investments was $356 million.

Public Fixed Maturities

The fair values of the Company’s public fixed maturities are generally based on prices obtained from independent valuation service providers and for which the Company maintains a vendor hierarchy by asset type based on historical pricing experience and vendor expertise. Although each security generally is priced by multiple independent valuation service providers, the Company ultimately uses the price received from the independent valuation service provider highest in the vendor hierarchy based on the respective asset type, with limited exception. To validate reasonableness, prices also are internally reviewed by those with relevant expertise through comparison with directly observed recent market trades. Consistent with the fair value hierarchy, public fixed maturities validated in this manner generally are reflected within Level 2, as they are primarily based on observable pricing for similar assets and/or other market observable inputs.

Private Fixed Maturities

The fair values of the Company’s private fixed maturities are determined from prices obtained from independent valuation service providers. Prices not obtained from an independent valuation service provider are determined by using a discounted cash flow model or a market comparable company valuation technique. In certain cases, these models use observable inputs with a discount rate based upon the average of spread surveys collected from private market intermediaries who are active in both primary and secondary transactions, taking into account, among other factors, the credit quality and industry sector of the issuer and the reduced liquidity associated with private placements. Generally, these securities have been reflected within Level 2. For certain private fixed maturities, the discounted cash flow model or a market comparable company valuation technique may also incorporate unobservable inputs, which reflect the Company’s own assumptions about the inputs market participants would use in pricing the asset. To the extent management determines that such unobservable inputs are significant to the fair value measurement of a security, a Level 3 classification generally is made.

Freestanding Derivative Positions

The net fair value of the Company’s freestanding derivative positions as disclosed in Note 4 are generally based on prices obtained either from independent valuation service providers or derived by applying market inputs from recognized vendors into industry standard pricing models. The majority of these derivative contracts are traded in the OTC derivative market and are classified in Level 2. The fair values of derivative assets and liabilities traded in the OTC market are determined using quantitative models that require use of the contractual terms of the derivative instruments and multiple market inputs, including interest rates, prices, and indices to generate continuous yield or pricing curves, including overnight index swap (“OIS”) curves, and volatility factors, which then are applied to value the positions. The predominance of market inputs is actively quoted and can be validated through external sources or reliably interpolated if less observable.

Level Classifications of the Company’s Financial Instruments

Financial Instruments Classified as Level 1

Investments classified as Level 1 primarily include redeemable preferred stock, trading securities, cash equivalents and Separate Accounts assets. Fair value measurements classified as Level 1 include exchange-traded prices of fixed maturities, equity securities and derivative contracts, and net asset values for transacting subscriptions and redemptions of mutual fund shares held by Separate Accounts. Cash equivalents classified as Level 1 include money market accounts, overnight commercial paper and highly liquid debt instruments purchased with an original maturity of three months or less and are carried at cost as a proxy for fair value measurement due to their short-term nature.

Financial Instruments Classified as Level 2

Investments classified as Level 2 are measured at fair value on a recurring basis and primarily include U.S. government and agency securities and certain corporate debt securities, such as public and private fixed maturities. As market quotes generally are not readily available or accessible for these securities, their fair value measures are determined utilizing relevant information generated by market transactions involving comparable securities and often are based on model pricing techniques that effectively discount prospective cash flows to present value using appropriate sector-adjusted credit spreads commensurate with the security’s duration, also taking into consideration issuer-specific credit quality and liquidity.

Observable inputs generally used to measure the fair value of securities classified as Level 2 include benchmark yields, reported secondary trades, issuer spreads, benchmark securities and other reference data. Additional observable inputs are used when available, and as may be appropriate, for certain security types, such as prepayment, default, and collateral information for the purpose of measuring the fair value of mortgage- and asset-backed securities. The Company’s AAA-rated mortgage- and asset-backed securities are classified as Level 2 for which the observability of market inputs to their pricing models is supported by sufficient, albeit more recently contracted, market activity in these sectors.

Certain Company products, such as the SCS and EQUI-VEST variable annuity products, IUL and the MSO fund available in some life contracts offer investment options which permit the contract owner to participate in the performance of an index, ETF or commodity price. These investment options, which depending on the product and on the index selected can currently have one, three, five or six year terms, provide for participation in the performance of specified indices, ETF or commodity price movement up to a segment-specific declared maximum rate. Under certain conditions that vary by product, e.g., holding these segments for the full term, these segments also shield policyholders

from some or all negative investment performance associated with these indices, ETF or commodity prices. These investment options have defined formulaic liability amounts, and the current values of the option component of these segment reserves are accounted for as Level 2 embedded derivatives. The fair values of these embedded derivatives are based on data obtained from independent valuation service providers.

Financial Instruments Classified as Level 3

The Company’s investments classified as Level 3 primarily include corporate debt securities, such as private fixed maturities and asset-backed securities. Determinations to classify fair value measures within Level 3 of the valuation hierarchy generally are based upon the significance of the unobservable factors to the overall fair value measurement. Included in the Level 3 classification are fixed maturities with indicative pricing obtained from brokers that otherwise could not be corroborated to market observable data.

The Company also issues certain benefits on its variable annuity products that are accounted for as derivatives and are also considered Level 3. The GMIBNLG feature allows the policyholder to receive guaranteed minimum lifetime annuity payments based on predetermined annuity purchase rates applied to the contract’s benefit base if and when the contract account value is depleted and the NLG feature is activated. The GMWB feature allows the policyholder to withdraw at minimum, over the life of the contract, an amount based on the contract’s benefit base. The GWBL feature allows the policyholder to withdraw, each year for the life of the contract, a specified annual percentage of an amount based on the contract’s benefit base. The GMAB feature increases the contract account value at the end of a specified period to a GMAB base. The GIB feature provides a lifetime annuity based on predetermined annuity purchase rates if and when the contract account value is depleted. This lifetime annuity is based on predetermined annuity purchase rates applied to a GIB base.

Level 3 also includes the GMIB reinsurance contract assets which are accounted for as derivative contracts. The GMIB reinsurance contract asset and liabilities’ fair value reflects the present value of reinsurance premiums and recoveries and risk margins over a range of market consistent economic scenarios while GMxB derivative features liability reflects the present value of expected future payments (benefits) less fees, adjusted for risk margins and nonperformance risk, attributable to GMxB derivative features’ liability over a range of market-consistent economic scenarios.

The valuations of the GMIB reinsurance contract asset and GMxB derivative features liability incorporate significant non-observable assumptions related to policyholder behavior, risk margins and projections of equity Separate Accounts funds. The credit risks of the counterparty and of the Company are considered in determining the fair values of its GMIB reinsurance contract asset and GMxB derivative features liability positions, respectively, after taking into account the effects of collateral arrangements. Incremental adjustment to the swap curve for non-performance risk is made to the fair values of the GMIB reinsurance contract asset and liabilities and GMIBNLG feature to reflect the claims-paying ratings of counterparties and the Company. Equity and fixed income volatilities were modeled to reflect current market volatilities. Due to the unique, long duration of the GMIBNLG feature, adjustments were made to the equity volatilities to remove the illiquidity bias associated with the longer tenors and risk margins were applied to the non-capital markets inputs to the GMIBNLG valuations.

After giving consideration to collateral arrangements, the Company reduced the fair value of its GMIB reinsurance contract asset by $302 million and $175 million at June 30, 2020 and December 31, 2019, respectively, to recognize incremental counterparty non-performance risk.

Lapse rates are adjusted at the contract level based on a comparison of the actuarial calculated guaranteed values and the current policyholder account value, which include other factors such as considering surrender charges. Generally, lapse rates are assumed to be lower in periods when a surrender charge applies. A dynamic lapse function reduces the base lapse rate when the guaranteed amount is greater than the account value as in the money contracts are less likely to lapse. For valuing the embedded derivative, lapse rates vary throughout the period over which cash flows are projected.

The Company’s consolidated VIEs/VOEs hold investments that are classified as Level 3, primarily corporate bonds that are vendor priced with no ratings available, bank loans, non-agency collateralized mortgage obligations and asset-backed securities.

Transfers of Financial Instruments Between Levels 2 and 3

During the six months ended June 30, 2020, AFS fixed maturities with fair values of $103 million were transferred out of Level 3 and into Level 2 principally due to the availability of trading activity and/or market observable inputs to

measure and validate their fair values. In addition, AFS fixed maturities with fair value of $219 million were transferred from Level 2 into the Level 3 classification. These transfers in the aggregate represent approximately 2.1% of total equity at June 30, 2020.

During the six months ended June 30, 2019, AFS fixed maturities with fair values of $73 million were transferred out of Level 3 and into Level 2 principally due to the availability of trading activity and/or market observable inputs to measure and validate their fair values. In addition, AFS fixed maturities with fair value of $14 million were transferred from Level 2 into the Level 3 classification. These transfers in the aggregate represent approximately 0.6% of total equity at June 30, 2019.

The tables below present reconciliations for all Level 3 assets and liabilities for the three and six months ended June 30, 2020 and 2019, respectively.

Level 3 Instruments - Fair Value Measurements


	Corporate		State and Political Subdivisions		Asset-backed
	(in millions)
Balance, April 1, 2020	$	1,174	$	36	$	40
Total gains and (losses), realized and unrealized, included in:
Net income (loss) as:
Net investment income (loss)	1		—		—
Investment gains (losses), net	(11)		—		—
Subtotal	(10)		—		—
Other comprehensive income (loss)	6		5		8
Purchases	284		—		(48)
Sales	(44)		(1)		—
Transfers into Level 3 (1)	219		—		—
Transfers out of Level 3 (1)	23		—		—
Balance, June 30, 2020	$	1,652	$	40	$	—

Balance, April 1, 2019	$	1,169	$	39	$	534
Total gains and (losses), realized and unrealized, included in:
Net income (loss) as:
Net investment income (loss)	2		—		—
Investment gains (losses), net	—		—		—
Subtotal	2		—		—
Other comprehensive income (loss)	1		1		1
Purchases	151		—		(1)
Sales	(26)		(1)		—
Transfers into Level 3 (1)	(3)		—		—
Transfers out of Level 3 (1)	(4)		—		—
Balance, June 30, 2019	$	1,290	$	39	$	534

______________

(1)Transfers into/out of the Level 3 classification are reflected at beginning-of-period fair values.


	Corporate		State and Political Subdivisions		Asset-backed
	(in millions)
Balance, January 1, 2020	$	1,246	$	39	$	100
Total gains and (losses), realized and unrealized, included in:
Net income (loss) as:
Net investment income (loss)	2		—		—
Investment gains (losses), net	(13)		—		—
Subtotal	(11)		—		—


	Corporate		State and Political Subdivisions		Asset-backed
	(in millions)
Other comprehensive income (loss)	(54)		2		—
Purchases	345		—		—
Sales	(90)		(1)		—
Transfers into Level 3 (1)	219		—		—
Transfers out of Level 3 (1)	(3)		—		(100)
Balance, June 30, 2020	$	1,652	$	40	$	—

Balance, January 1, 2019	$	1,174	$	38	$	519
Total gains and (losses), realized and unrealized, included in:
Net income (loss) as:
Net investment income (loss)	3		—		—
Investment gains (losses), net	—		—		—
Subtotal	3		—		—
Other comprehensive income (loss)	10		2		5
Purchases	221		—		10
Sales	(59)		(1)		—
Transfers into Level 3 (1)	14		—		—
Transfers out of Level 3 (1)	(73)		—		—
Balance, June 30, 2019	$	1,290	$	39	$	534

______________

(1)Transfers into/out of the Level 3 classification are reflected at beginning-of-period fair values.


	Other Equity Investments		GMIB Reinsurance Contract Asset		Separate Accounts Assets		GMxB Derivative Features Liability
	(in millions)
Balance, April 1, 2020	$	15	$	3,305	$	—	$	(9,509)
Realized and unrealized gains (losses), included in Net income (loss) as:
Investment gains (losses), net	—		—		—		—
Net derivative gains (losses), excluding non-performance risk	—		(139)		—		(370)
Non-performance risk (1)	—		272		—		(2,411)
Total realized and unrealized gains (losses)	—		133		—		(2,781)
Other comprehensive income (loss)	—		—		—		—
Purchases (2)	1		12		—		(107)
Sales (3)	—		(17)		—		15
Settlements	—		—		—		—
Change in estimate (4)	—		—		—		—
Activity related to consolidated VIEs/VOEs	—		—		—		—
Transfers into Level 3 (5)	—		—		—		—
Transfers out of Level 3 (5)	—		—		—		—
Balance, June 30, 2020	$	16	$	3,433	$	—	$	(12,382)

Balance, April 1, 2019	$	18	$	2,009	$	23	$	(5,944)
Realized and unrealized gains (losses), included in Net income (loss) as:
Investment gains (losses), net	—		—		—		—
Net derivative gains (losses), excluding non-performance risk	—		178		—		(707)
Non-performance risk (1)	—		12		—		—
Total realized and unrealized gains (losses)	—		190		—		(707)
Other comprehensive income (loss)	—		—		—		—
Purchases (2)	—		11		3		(103)
Sales (3)	—		(14)		—		5
Settlements	—		—		(2)		—
Activity related to consolidated VIEs/VOEs	(2)		—		—		—
Transfers into Level 3 (5)	—		—		—		—
Transfers out of Level 3 (5)	—		—		—		—
Balance, June 30, 2019	$	16	$	2,196	$	24	$	(6,749)

______________

(1)The Company’s non-performance risk is recorded through Net derivative gains (losses).

(2)For the GMIB reinsurance contract asset and GMxB derivative features liability, represents attributed fee.

(3)For the GMIB reinsurance contract asset, represents recoveries from reinsurers and for GMxB derivative features liability, represents benefits paid.

(4)For the GMIB reinsurance contract asset, represents a transfer from amounts due from reinsurers.

(5)Transfers into/out of the Level 3 classification are reflected at beginning-of-period fair values.


	Other Equity Investments		GMIB Reinsurance Contract Asset		Separate Accounts Assets		GMxB Derivative Features Liability
	(in millions)
Balance, January 1, 2020	$	16	$	2,466	$	—	$	(8,246)
Realized and unrealized gains (losses), included in Net income (loss) as:
Investment gains (losses), net	—		—		—		—
Net derivative gains (losses), excluding non-performance risk	—		1,082		—		(4,440)
Non-performance risk (1)	—		(56)		—		494
Total realized and unrealized gains (losses)	—		1,026		—		(3,946)
Other comprehensive income (loss)	—
Purchases (2)	1		23		—		(215)
Sales (3)	—		(37)		—		25
Settlements	—		—		—		—
Change in estimate (4)	—		(45)		—		—
Activity related to consolidated VIEs/VOEs	(1)		—		—		—
Transfers into Level 3 (5)	—		—		—		—
Transfers out of Level 3 (5)	—		—		—		—
Balance, June 30, 2020	$	16	$	3,433	$	—	$	(12,382)

Balance, January 1, 2019	$	48	$	1,991	$	21	$	(5,431)
Realized and unrealized gains (losses), included in Net income (loss) as:
Investment gains (losses), net	—		—		—		—
Net derivative gains (losses), excluding non-performance risk	—		165		—		(656)
Non-performance risk (1)	—		52		—		(460)
Total realized and unrealized gains (losses)	—		217		—		(1,116)
Other comprehensive income (loss)	—		—		—		—
Purchases (2)	—		23		8		(210)
Sales (3)	—		(35)		—		8
Settlements	—		—		(3)		—
Activity related to consolidated VIEs/VOEs	(3)		—		—		—
Transfers into Level 3(5)	—		—		—		—
Transfers out of Level 3 (5)	(29)		—		(1)		—
Balance, June 30, 2019	$	16	$	2,196	$	25	$	(6,749)

______________

(1)The Company’s non-performance risk is recorded through Net derivative gains (losses).

(2)For the GMIB reinsurance contract asset and GMxB derivative features liability, represents attributed fee.

(3)For the GMIB reinsurance contract asset, represents recoveries from reinsurers and for GMxB derivative features liability, represents benefits paid.

(4)For the GMIB reinsurance contract asset, represents a transfer from amounts due from reinsurers.

(5)Transfers into/out of the Level 3 classification are reflected at beginning-of-period fair values.

The table below details changes in unrealized gains (losses) for the six months ended June 30, 2020 and 2019 by category for Level 3 assets and liabilities still held at June 30, 2020 and 2019, respectively.

Change in Unrealized Gains (Losses) for Level 3 Instruments


	Net Income (Loss)
	Net Derivative Gains (Losses)		OCI
	(in millions)
Held at June 30, 2020:
Change in unrealized gains (losses):
Fixed maturities, AFS:
Corporate	$	—	$	(54)
State and political subdivisions	—		2


Total fixed maturities, AFS	—		(52)
GMIB reinsurance contracts	1,026		—

GMxB derivative features liability	(3,946)		—
Total	$	(2,920)	$	(52)

Held at June 30, 2019:
Change in unrealized gains (losses):
Fixed maturities, AFS:
Corporate	$	—	$	10
State and political subdivisions	—		2

Asset-backed	—		5
Total fixed maturities, AFS	—		17
GMIB reinsurance contracts	217		—

GMxB derivative features liability	(1,116)		—
Total	$	(899)	$	17

Quantitative and Qualitative Information about Level 3 Fair Value Measurements

The following tables disclose quantitative information about Level 3 fair value measurements by category for assets and liabilities at June 30, 2020 and December 31, 2019, respectively.

Quantitative Information about Level 3 Fair Value Measurements at June 30, 2020

Fair

Value

Valuation Technique

Significant

Unobservable Input

Range

Weighted Average (2)

(in millions)

Assets:

Investments:

Fixed maturities, AFS:

Corporate

237

Matrix pricing
model

Spread over Benchmark

0 - 580 bps

34 bps

1,062

Market
comparable
companies

EBITDA multiples
Discount rate
Cash flow multiples

3.7x - 33.6x
6.2% - 23.4%
0.9x - 25.0x

14.0x
10.2%
11.1x

GMIB reinsurance contract asset

3,433

Discounted cash flow

Non-performance risk
Lapse rates
Withdrawal rates
Utilization rates
Volatility rates - Equity
Mortality Rates (1):
Ages 0 - 40
Ages 41 - 60
Ages 61 - 115

55 - 144 bps
0.8%-10%
0%-8%
0%-49%
14%-34%

0.01%-0.18%
0.07%-0.54%
0.42%-42.20%

73 bps
1.55%
1.11%
6.20%
24%

All ages 2.76%

Fair

Value

Valuation Technique

Significant

Unobservable Input

Range

Weighted Average (2)

(in millions)

Liabilities:

GMIBNLG

12,081

Discounted cash flow

Non-performance risk
Lapse rates
Withdrawal rates
Annuitization rates
Mortality Rates (1):
Ages 0 - 40
Ages 41 - 60
Ages 61 - 115

166.0 bps
0.8%-19.9%
0.3%-11%
0%-100%

0.01%-0.19%
0.06%-0.53%
0.41%-41.39%

2.59%
1.17%
6.19%

All ages 1.38%

GWBL/GMWB

167

Discounted cash flow

Non-performance risk
Lapse rates
Withdrawal rates
Utilization rates
Volatility rates - Equity

166.0 bps
0.8%-10%
0%-7%
100% once starting
14%-34%

1.55%
1.11%

24.08%

GIB

124

Discounted cash flow

Non-performance risk
Lapse rates
Withdrawal rates
Utilization rates
Volatility rates - Equity

166.0 bps
1.2%-19.9%
0%-8%
0%-100%
14%-34%

1.55%
1.11%
6.20%
24%

GMAB

Discounted cash flow

Non-performance risk
Lapse rates
Volatility rates - Equity

166.0 bps
1%-10%
14%-34%

1.55%
24%

______________

(1)Mortality rates vary by age and demographic characteristic such as gender. Mortality rate assumptions are based on a combination of company and industry experience. A mortality improvement assumption is also applied. For any given contract, mortality rates vary throughout the period over which cash flows are projected for purposes of valuating the embedded derivatives.

(2)For Lapses, Withdrawals, and Utilizations the rates were weighted by counts, for Mortality weighted average rates are shown for all ages combined and for Withdrawals the weighted averages were based on an estimated split of partial withdrawal and dollar-for-dollar withdrawals.

Quantitative Information about Level 3 Fair Value Measurements at December 31, 2019

Fair

Value

Valuation Technique

Significant

Unobservable Input

Range

Weighted Average

(in millions)

Assets:

Investments:

Fixed maturities, AFS:

Corporate

Matrix pricing model

Spread over benchmark

65 - 580 bps

186 bps

1,025

Market comparable companies

EBITDA multiples
Discount rate
Cash flow multiples

3.3x - 56.7x
3.9% - 16.5%
0.8x - 48.1x

14.3x
10.0%
10.7x

GMIB reinsurance contract asset

2,466

Discounted cash flow

Non-performance risk
Lapse rates
Withdrawal rates
Utilization rates
Volatility rates - Equity
Mortality rates (1):
Ages 0 - 40
Ages 41 - 60
Ages 60 - 115

55 - 109 bps
0.8% - 10%
0.0% - 8.0%
0.0% - 49.0%
9.0% - 30.0%

0.01% - 0.18%
0.07% - 0.54%
0.42% - 42.20%

Liabilities:

GMIBNLG

8,128

Discounted cash flow

Non-performance risk
Lapse rates
Withdrawal rates
Annuitization rates

Mortality rates (1):
Ages 0 - 40
Ages 41 - 60
Ages 60 - 115

124 bps
0.8% - 19.9%
0.3% - 11.0%
0.0% - 100.0%

0.01% - 0.19%
0.06% - 0.53%
0.41% - 41.39%

GWBL/GMWB

109

Discounted cash flow

Non-performance risk
Lapse rates
Withdrawal rates
Utilization rates
Volatility rates - Equity

124 bps
0.8% - 10.0%
0.0% - 7.0%
100% after starting
9.0% - 30.0%

GIB

Discounted cash flow

Non-performance risk
Lapse rates
Withdrawal rates
Utilization rates
Volatility rates - Equity

124 bps
1.2% - 19.9%
0.0% - 8.0%
0.0% - 100.0%
9.0% - 30.0%

GMAB

Discounted cash flow

Lapse rates
Volatility rates - Equity

1.0% - 10.0%
9.0% - 30.0%

______________

Level 3 Financial Instruments for which Quantitative Inputs are Not Available

Certain Privately Placed Debt Securities with Limited Trading Activity

Excluded from the tables above at June 30, 2020 and December 31, 2019, respectively, are approximately $409 million and $325 million of Level 3 fair value measurements of investments for which the underlying quantitative inputs are not developed by the Company and are not readily available. These investments primarily consist of certain privately placed debt securities with limited trading activity, including residential mortgage- and asset-backed instruments, and their fair values generally reflect unadjusted prices obtained from independent valuation service providers and indicative, non-binding quotes obtained from third-party broker-dealers recognized as market participants. Significant increases or decreases in the fair value amounts received from these pricing sources may result in the Company’s reporting significantly higher or lower fair value measurements for these Level 3 investments.

•The fair value of private placement securities is determined by application of a matrix pricing model or a market comparable company value technique. The significant unobservable input to the matrix pricing model valuation technique is the spread over the industry-specific benchmark yield curve. Generally, an increase or decrease in spreads would lead to directionally inverse movement in the fair value measurements of these securities. The significant unobservable input to the market comparable company valuation technique is the discount rate. Generally, a significant increase (decrease) in the discount rate would result in significantly lower (higher) fair value measurements of these securities.

•Residential mortgage-backed securities classified as Level 3 primarily consist of non-agency paper with low trading activity. Included in the tables above at June 30, 2020 and December 31, 2019, there were no Level 3 securities that were determined by application of a matrix pricing model and for which the spread over the U.S. Treasury curve is the most significant unobservable input to the pricing result. Generally, a change in spreads would lead to directionally inverse movement in the fair value measurements of these securities.

•Asset-backed securities classified as Level 3 primarily consist of non-agency mortgage loan trust certificates, including subprime and Alt-A paper, credit tenant loans, and equipment financings. Included in the tables above at June 30, 2020 and December 31, 2019, there were no securities that were determined by the application of matrix-pricing for which the spread over the U.S. Treasury curve is the most significant unobservable input to the pricing result. Significant increases (decreases) in spreads would have resulted in significantly lower (higher) fair value measurements.

GMIB Reinsurance Contract Asset and GMxB Derivative Features Liability

Significant unobservable inputs with respect to the fair value measurement of the Level 3 GMIB reinsurance contract asset and the Level 3 liabilities identified in the table above are developed using the Company data.

The significant unobservable inputs used in the fair value measurement of the Company’s GMIB reinsurance contract asset are lapse rates, withdrawal rates and GMIB utilization rates. Significant increases in GMIB utilization rates or decreases in lapse or withdrawal rates in isolation would tend to increase the GMIB reinsurance contract asset.

Fair value measurement of the GMIB reinsurance contract asset and liabilities includes dynamic lapse and GMIB utilization assumptions whereby projected contractual lapses and GMIB utilization reflect the projected net amount of

risks of the contract. As the net amount of risk of a contract increases, the assumed lapse rate decreases and the GMIB utilization increases. Increases in volatility would increase the asset and liabilities.

The significant unobservable inputs used in the fair value measurement of the Company’s GMIBNLG liability are lapse rates, withdrawal rates, GMIB utilization rates, adjustment for Non-performance risk and NLG forfeiture rates. NLG forfeiture rates are caused by excess withdrawals above the annual GMIB accrual rate that cause the NLG to expire. Significant decreases in lapse rates, NLG forfeiture rates, adjustment for non-performance risk and GMIB utilization rates would tend to increase the GMIBNLG liability, while decreases in withdrawal rates and volatility rates would tend to decrease the GMIBNLG liability.

The significant unobservable inputs used in the fair value measurement of the Company’s GMWB and GWBL liability are lapse rates and withdrawal rates. Significant increases in withdrawal rates or decreases in lapse rates in isolation would tend to increase these liabilities. Increases in volatility would increase these liabilities.

Carrying Value of Financial Instruments Not Otherwise Disclosed in Note 3 and Note 4

The carrying values and fair values at June 30, 2020 and December 31, 2019 for financial instruments not otherwise disclosed in Note 3 and Note 4 are presented in the table below.

Carrying Values and Fair Values for Financial Instruments Not Otherwise Disclosed


	Carrying Value		Fair Value
					Level 1		Level 2		Level 3		Total
	(in millions)
June 30, 2020:
Mortgage loans on real estate	$	12,506	$	—	$	—	$	12,572	$	12,572
Policy loans	$	3,225	$	—	$	—	$	4,390	$	4,390
Loans to affiliates	$	1,200	$	—	$	1,245	$	—	$	1,245
Policyholders’ liabilities: Investment contracts	$	2,047	$	—	$	—	$	2,293	$	2,293
FHLBNY funding agreements (1)	$	6,700	$	—	$	6,793	$	—	$	6,793
Separate Accounts liabilities	$	8,445	$	—	$	—	$	8,445	$	8,445

December 31, 2019:
Mortgage loans on real estate	$	12,090	$	—	$	—	$	12,317	$	12,317
Policy loans	$	3,270	$	—	$	—	$	4,199	$	4,199
Loans to affiliates	$	1,200	$	—	$	1,224	$	—	$	1,224
Policyholders’ liabilities: Investment contracts	$	1,922	$	—	$	—	$	2,029	$	2,029
FHLBNY funding agreements (1)	$	6,909	$	—	$	6,957	$	—	$	6,957
Separate Accounts liabilities	$	9,041	$	—	$	—	$	9,041	$	9,041

______________

(1)Federal Home Loan Bank of New York (“FHLBNY”)

Mortgage Loans on Real Estate

Fair values for commercial and agricultural mortgage loans on real estate are measured by discounting future contractual cash flows to be received on the mortgage loan using interest rates at which loans with similar characteristics and credit quality would be made. The discount rate is derived based on the appropriate U.S. Treasury rate with a like term to the remaining term of the loan to which a spread reflective of the risk premium associated with the specific loan is added. Fair values for mortgage loans anticipated to be foreclosed and problem mortgage loans are limited to the fair value of the underlying collateral, if lower.

Policy Loans

The fair value of policy loans is calculated by discounting expected cash flows based upon the U.S. Treasury yield curve and historical loan repayment patterns.

Loans to Affiliates

The fair value of loans to affiliates is calculated by matrix or model pricing. The matrix pricing approach to fair value is a discounted cash flow methodology that incorporates market interest rates commensurate with the credit quality and duration of the investment.

FHLB Funding Agreements

The fair values of the Company’s funding agreements are determined by discounted cash flow analysis based on the indicative funding agreement rates published by the FHLB.

Policyholder Liabilities - Investment Contracts and Separate Accounts Liabilities

The fair values for deferred annuities and certain annuities, which are included in Policyholders’ account balances and liabilities for investment contracts with fund investments in Separate Accounts are estimated using projected cash flows discounted at rates reflecting current market rates. Significant unobservable inputs reflected in the cash flows include lapse rates and withdrawal rates. Incremental adjustments may be made to the fair value to reflect non-performance risk. Certain other products such as the Company’s association plans contracts, supplementary contracts not involving life contingencies (“SCNILC”), Access Accounts and Escrow Shield Plus product reserves are held at book value.

Financial Instruments Exempt from Fair Value Disclosure or Otherwise Not Required to be Disclosed

Exempt from Fair Value Disclosure Requirements

Certain financial instruments are exempt from the requirements for fair value disclosure, such as insurance liabilities other than financial guarantees and investment contracts, limited partnerships accounted for under the equity method and pension and other postretirement obligations.

Otherwise Not Required to be Included in the Table Above

The Company’s investment in Corporate Owned Life Insurance (“COLI”) policies are recorded at their cash surrender value and are therefore not required to be included in the table above. See Note 2 to the Company’s consolidated financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2019 for further description of the Company’s accounting policy related to its investment in COLI policies.

- 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.

+ References + Details