Fair Value (Tables)

6 Months Ended

Jun. 30, 2018

The assets and liabilities measured at estimated fair value on a recurring basis and their corresponding placement in the fair value hierarchy, including those items for which the Company has elected the FVO, are presented below at:



	June 30, 2018
	Fair Value Hierarchy
	Level 1		Level 2		Level 3		Total Estimated Fair Value
	(In millions)
Assets
Fixed maturity securities:
U.S. corporate	$	—	$	22,144	$	819	$	22,963
U.S. government and agency	4,634		7,444		—		12,078
RMBS	—		6,766		929		7,695
Foreign corporate	—		5,750		996		6,746
State and political subdivision	—		3,987		8		3,995
CMBS	—		3,713		178		3,891
ABS	—		1,896		154		2,050
Foreign government	—		1,335		—		1,335
Total fixed maturity securities	4,634		53,035		3,084		60,753
Equity securities	15		18		120		153
Short-term investments	53		62		—		115
Real estate joint ventures (1)	—		—		17		17
Other limited partnership interests (1)	—		—		24		24
Commercial mortgage loans held by CSEs — FVO	—		96		—		96
Derivative assets: (2)
Interest rate	—		762		—		762
Foreign currency exchange rate	—		178		—		178
Credit	—		20		8		28
Equity market	—		934		143		1,077
Total derivative assets	—		1,894		151		2,045
Embedded derivatives within asset host contracts (3)	—		—		184		184
Separate account assets	182		103,615		4		103,801
Total assets	$	4,884	$	158,720	$	3,584	$	167,188
Liabilities
Derivative liabilities: (2)
Interest rate	$	—	$	985	$	—	$	985
Foreign currency exchange rate	—		92		1		93
Credit	—		2		—		2
Equity market	1		1,708		434		2,143
Total derivative liabilities	1		2,787		435		3,223
Embedded derivatives within liability host contracts (3)	—		—		1,682		1,682
Long-term debt of CSEs — FVO	—		5		—		5
Total liabilities	$	1	$	2,792	$	2,117	$	4,910



	December 31, 2017
	Fair Value Hierarchy
	Level 1		Level 2		Level 3		Total Estimated Fair Value
	(In millions)
Assets
Fixed maturity securities:
U.S. corporate	$	—	$	21,491	$	889	$	22,380
U.S. government and agency	8,002		7,911		—		15,913
RMBS	—		6,836		981		7,817
Foreign corporate	—		5,723		1,048		6,771
State and political subdivision	—		4,098		—		4,098
CMBS	—		3,155		136		3,291
ABS	—		1,691		105		1,796
Foreign government	—		1,262		5		1,267
Total fixed maturity securities	8,002		52,167		3,164		63,333
Equity securities (4)	18		19		124		161
Short-term investments	135		120		14		269
Commercial mortgage loans held by CSEs — FVO	—		115		—		115
Derivative assets: (2)
Interest rate	1		1,111		—		1,112
Foreign currency exchange rate	—		155		—		155
Credit	—		30		10		40
Equity market	15		773		149		937
Total derivative assets	16		2,069		159		2,244
Embedded derivatives within asset host contracts (3)	—		—		227		227
Separate account assets	410		109,741		5		110,156
Total assets	$	8,581	$	164,231	$	3,693	$	176,505
Liabilities
Derivative liabilities: (2)
Interest rate	$	—	$	837	$	—	$	837
Foreign currency exchange rate	—		117		1		118
Credit	—		1		—		1
Equity market	—		1,736		437		2,173
Total derivative liabilities	—		2,691		438		3,129
Embedded derivatives within liability host contracts (3)	—		—		2,234		2,234
Long-term debt of CSEs — FVO	—		11		—		11
Total liabilities	$	—	$	2,702	$	2,672	$	5,374

__________________


(1)	In connection with the adoption of new guidance related to the recognition and measurement of financial instruments (see Note 1), effective January 1, 2018 on a modified retrospective basis, the Company carries real estate joint ventures and other limited partnership interests previously accounted under the cost method of accounting at estimated fair value.

(2)

Derivative assets are presented within other invested assets on the consolidated balance sheets and derivative liabilities are presented within other liabilities on the consolidated balance sheets. The amounts are presented gross in the tables above to reflect the presentation on the consolidated balance sheets, but are presented net for purposes of the rollforward in the Fair Value Measurements Using Significant Unobservable Inputs (Level 3) tables.

(3)

Embedded derivatives within asset host contracts are presented within premiums, reinsurance and other receivables and other invested assets on the consolidated balance sheets. Embedded derivatives within liability host contracts are presented within policyholder account balances on the consolidated balance sheets. At June 30, 2018 and December 31, 2017, debt and equity securities also included embedded derivatives of $0 and ($52) million, respectively.


(4)	The Company reclassified Federal Home Loan Bank stock in the prior period from equity securities to other invested assets.

Fair Value Inputs, Quantitative Information

The following table presents certain quantitative information about the significant unobservable inputs used in the fair value measurement, and the sensitivity of the estimated fair value to changes in those inputs, for the more significant asset and liability classes measured at fair value on a recurring basis using significant unobservable inputs (Level 3) at:



					June 30, 2018				December 31, 2017				Impact of Increase in Input on Estimated Fair Value (2)
	Valuation Techniques		Significant Unobservable Inputs		Range			Weighted Average (1)	Range			Weighted Average (1)	Impact of Increase in Input on Estimated Fair Value (2)
Fixed maturity securities (3)
U.S. corporate and foreign corporate	•	Matrix pricing	•	Offered quotes (4)	87	-	137	106	93	-	142	110	Increase
	•	Market pricing	•	Quoted prices (4)	53	-	353	105	—	-	443	76	Increase
RMBS	•	Market pricing	•	Quoted prices (4)	56	-	107	95	3	-	107	94	Increase (5)
ABS	•	Market pricing	•	Quoted prices (4)	100	-	102	100	100	-	104	101	Increase (5)
	•	Consensus pricing	•	Offered quotes (4)					100	-	100	100	Increase (5)
Derivatives
Credit	•	Present value techniques	•	Credit spreads (7)	97	-	99		—	-	—		Decrease (6)
	•	Consensus pricing	•	Offered quotes (8)
Equity market	•	Present value techniques or option pricing models	•	Volatility (9)	17%	-	30%		11%	-	31%		Increase (6)
			•	Correlation (10)	10%	-	30%		10%	-	30%
Embedded derivatives
Direct, assumed and ceded guaranteed minimum benefits	•	Option pricing techniques	•	Mortality rates:
				Ages 0 - 40	0%	-	0.09%		0%	-	0.09%		Decrease (11)
				Ages 41 - 60	0.04%	-	0.65%		0.04%	-	0.65%		Decrease (11)
				Ages 61 - 115	0.26%	-	100%		0.26%	-	100%		Decrease (11)
			•	Lapse rates:
				Durations 1 - 10	0.25%	-	100%		0.25%	-	100%		Decrease (12)
				Durations 11 - 20	2%	-	100%		2%	-	100%		Decrease (12)
				Durations 21 - 116	2%	-	100%		2%	-	100%		Decrease (12)
			•	Utilization rates	0%	-	25%		0%	-	25%		Increase (13)
			•	Withdrawal rates	0.25%	-	10%		0.25%	-	10%		(14)
			•	Long-term equity volatilities	17.40%	-	25%		17.40%	-	25%		Increase (15)
			•	Nonperformance risk spread	1.12%	-	2.06%		0.64%	-	1.43%		Decrease (16)

___________________


(1)	The weighted average for fixed maturity securities is determined based on the estimated fair value of the securities.


(2)	The impact of a decrease in input would have the opposite impact on estimated fair value. For embedded derivatives, changes to direct and assumed guaranteed minimum benefits are based on liability positions; changes to ceded guaranteed minimum benefits are based on asset positions.


(3)	Significant increases (decreases) in expected default rates in isolation would result in substantially lower (higher) valuations.


(4)	Range and weighted average are presented in accordance with the market convention for fixed maturity securities of dollars per hundred dollars of par.


(5)	Changes in the assumptions used for the probability of default is accompanied by a directionally similar change in the assumption used for the loss severity and a directionally opposite change in the assumptions used for prepayment rates.


(6)	Changes in estimated fair value are based on long U.S. dollar net asset positions and will be inversely impacted for short U.S. dollar net asset positions.


(7)	Represents the risk quoted in basis points of a credit default event on the underlying instrument. Credit derivatives with significant unobservable inputs are primarily comprised of written credit default swaps.


(8)	At June 30, 2018 and December 31, 2017, independent non-binding broker quotations were used in the determination of less than 1% and 1% of the total net derivative estimated fair value, respectively.


(9)	Ranges represent the underlying equity volatility quoted in percentage points. Since this valuation methodology uses a range of inputs across multiple volatility surfaces to value the derivative, presenting a range is more representative of the unobservable input used in the valuation.


(10)	Ranges represent the different correlation factors utilized as components within the valuation methodology. Presenting a range of correlation factors is more representative of the unobservable input used in the valuation. Increases (decreases) in correlation in isolation will increase (decrease) the significance of the change in valuations.


(11)	Mortality rates vary by age and by demographic characteristics such as gender. Mortality rate assumptions are based on company 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 valuing the embedded derivative.

(12)

Base lapse rates are adjusted at the contract level based on a comparison of the actuarially calculated guaranteed values and the current policyholder account value, as well as other factors, such as the applicability of any surrender charges. 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. Lapse rates are also generally assumed to be lower in periods when a surrender charge applies. For any given contract, lapse rates vary throughout the period over which cash flows are projected for purposes of valuing the embedded derivative.

(13)

The utilization rate assumption estimates the percentage of contract holders with a GMIB or lifetime withdrawal benefit who will elect to utilize the benefit upon becoming eligible. The rates may vary by the type of guarantee, the amount by which the guaranteed amount is greater than the account value, the contract’s withdrawal history and by the age of the policyholder. For any given contract, utilization rates vary throughout the period over which cash flows are projected for purposes of valuing the embedded derivative.

(14)

The withdrawal rate represents the percentage of account balance that any given policyholder will elect to withdraw from the contract each year. The withdrawal rate assumption varies by age and duration of the contract, and also by other factors such as benefit type. For any given contract, withdrawal rates vary throughout the period over which cash flows are projected for purposes of valuing the embedded derivative. For GMWBs, any increase (decrease) in withdrawal rates results in an increase (decrease) in the estimated fair value of the guarantees. For GMABs and GMIBs, any increase (decrease) in withdrawal rates results in a decrease (increase) in the estimated fair value.


(15)	Long-term equity volatilities represent equity volatility beyond the period for which observable equity volatilities are available. For any given contract, long-term equity volatility rates vary throughout the period over which cash flows are projected for purposes of valuing the embedded derivative.


(16)	Nonperformance risk spread varies by duration and by currency. For any given contract, multiple nonperformance risk spreads will apply, depending on the duration of the cash flow being discounted for purposes of valuing the embedded derivative.

Fair Value, Measured on Recurring Basis, Unobservable Input Reconciliation

The following tables summarize the change of all assets and (liabilities) measured at estimated fair value on a recurring basis using significant unobservable inputs (Level 3):



	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
	Fixed Maturity Securities
	Corporate (1)			Structured Securities			State and Political Subdivision			Foreign Government		Equity Securities
	(In millions)
Three Months Ended June 30, 2018
Balance, beginning of period	$	1,845		$	1,195		$	—		$	—	$	123
Total realized/unrealized gains (losses) included in net income (loss) (6) (7)	6			5			—			—		—
Total realized/unrealized gains (losses) included in AOCI	(70		)	—			2			—		—
Purchases (8)	81			202			2			—		—
Sales (8)	(24		)	(54		)	—			—		(3		)
Issuances (8)	—			—			—			—		—
Settlements (8)	—			—			—			—		—
Transfers into Level 3 (9)	3			—			4			—		—
Transfers out of Level 3 (9)	(26		)	(87		)	—			—		—
Balance, end of period	$	1,815		$	1,261		$	8		$	—	$	120
Three Months Ended June 30, 2017
Balance, beginning of period	$	2,344		$	1,626		$	7		$	—	$	142
Total realized/unrealized gains (losses) included in net income (loss) (6) (7)	1			6			—			—		1
Total realized/unrealized gains (losses) included in AOCI	21			22			—			—		1
Purchases (8)	171			24			—			—		—
Sales (8)	(247		)	(138		)	—			—		(10		)
Issuances (8)	—			—			—			—		—
Settlements (8)	—			—			—			—		—
Transfers into Level 3 (9)	29			—			—			—		—
Transfers out of Level 3 (9)	(24		)	(59		)	(7		)	—		—
Balance, end of period	$	2,295		$	1,481		$	—		$	—	$	134
Changes in unrealized gains (losses) included in net income (loss) for the instruments still held at June 30, 2018 (10)	$	6		$	5		$	—		$	—	$	—
Changes in unrealized gains (losses) included in net income (loss) for the instruments still held at June 30, 2017 (10)	$	—		$	6		$	—		$	—	$	—



	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
	Real Estate Joint Ventures (2)			Other Limited Partnership Interests (2)			Short-term Investments			Net Derivatives (3)			Net Embedded Derivatives (4)			Separate Account Assets (5)
	(In millions)
Three Months Ended June 30, 2018
Balance, beginning of period	$	22		$	26		$	—		$	(273	)	$	(1,587	)	$	7
Total realized/unrealized gains (losses) included in net income (loss) (6) (7)	(2		)	—			—			(13		)	231			—
Total realized/unrealized gains (losses) included in AOCI	—			—			—			—			—			—
Purchases (8)	—			—			—			2			—			—
Sales (8)	(3		)	(2		)	—			—			—			(3		)
Issuances (8)	—			—			—			—			—			—
Settlements (8)	—			—			—			—			(142		)	(1		)
Transfers into Level 3 (9)	—			—			—			—			—			1
Transfers out of Level 3 (9)	—			—			—			—			—			—
Balance, end of period	$	17		$	24		$	—		$	(284	)	$	(1,498	)	$	4
Three Months Ended June 30, 2017
Balance, beginning of period	$	—		$	—		$	1		$	(890	)	$	(2,377	)	$	15
Total realized/unrealized gains (losses) included in net income (loss) (6) (7)	—			—			—			106			151			—
Total realized/unrealized gains (losses) included in AOCI	—			—			—			—			—			—
Purchases (8)	—			—			91			4			—			7
Sales (8)	—			—			—			—			—			(8		)
Issuances (8)	—			—			—			—			—			—
Settlements (8)	—			—			—			—			(251		)	(1		)
Transfers into Level 3 (9)	—			—			—			—			—			—
Transfers out of Level 3 (9)	—			—			(1		)	—			—			(7		)
Balance, end of period	$	—		$	—		$	91		$	(780	)	$	(2,477	)	$	6
Changes in unrealized gains (losses) included in net income (loss) for the instruments still held at June 30, 2018 (10)	$	(2	)	$	—		$	—		$	(13	)	$	183		$	—
Changes in unrealized gains (losses) included in net income (loss) for the instruments still held at June 30, 2017 (10)	$	—		$	—		$	—		$	106		$	235		$	—



	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
	Fixed Maturity Securities
	Corporate (1)			Structured Securities			State and Political Subdivision			Foreign Government			Equity Securities
	(In millions)
Six Months Ended June 30, 2018
Balance, beginning of period	$	1,937		$	1,222		$	—		$	5		$	124
Total realized/unrealized gains (losses) included in net income (loss) (6) (7)	9			11			—			—			(1		)
Total realized/unrealized gains (losses) included in AOCI	(77		)	(9		)	3			—			—
Purchases (8)	136			213			2			—			—
Sales (8)	(164		)	(119		)	—			(2		)	(3		)
Issuances (8)	—			—			—			—			—
Settlements (8)	—			—			—			—			—
Transfers into Level 3 (9)	33			—			3			—			—
Transfers out of Level 3 (9)	(59		)	(57		)	—			(3		)	—
Balance, end of period	$	1,815		$	1,261		$	8		$	—		$	120
Six Months Ended June 30, 2017
Balance, beginning of period	$	2,310		$	1,695		$	17		$	—		$	137
Total realized/unrealized gains (losses) included in net income (loss) (6) (7)	(2		)	9			—			—			—
Total realized/unrealized gains (losses) included in AOCI	127			37			—			—			3
Purchases (8)	291			68			—			—			4
Sales (8)	(298		)	(224		)	—			—			(10		)
Issuances (8)	—			—			—			—			—
Settlements (8)	—			—			—			—			—
Transfers into Level 3 (9)	3			—			—			—			—
Transfers out of Level 3 (9)	(136		)	(104		)	(17		)	—			—
Balance, end of period	$	2,295		$	1,481		$	—		$	—		$	134
Changes in unrealized gains (losses) included in net income (loss) for the instruments still held at June 30, 2018 (10)	$	7		$	11		$	—		$	—		$	—
Changes in unrealized gains (losses) included in net income (loss) for the instruments still held at June 30, 2017 (10)	$	—		$	10		$	—		$	—		$	—



	Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
	Real Estate Joint Ventures (2)			Other Limited Partnership Interests (2)			Short-term Investments			Net Derivatives (3)			Net Embedded Derivatives (4)			Separate Account Assets (5)
	(In millions)
Six Months Ended June 30, 2018
Balance, beginning of period	$	22		$	28		$	14		$	(279	)	$	(2,007	)	$	5
Total realized/unrealized gains (losses) included in net income (loss) (6) (7)	(1		)	(1		)	—			(8		)	782			—
Total realized/unrealized gains (losses) included in AOCI	—			—			—			—			—			—
Purchases (8)	—			—			—			3			—			1
Sales (8)	(4		)	(3		)	(14		)	—			—			(1		)
Issuances (8)	—			—			—			—			—			—
Settlements (8)	—			—			—			—			(273		)	(1		)
Transfers into Level 3 (9)	—			—			—			—			—			—
Transfers out of Level 3 (9)	—			—			—			—			—			—
Balance, end of period	$	17		$	24		$	—		$	(284	)	$	(1,498	)	$	4
Six Months Ended June 30, 2017
Balance, beginning of period	$	—		$	—		$	2		$	(954	)	$	(2,761	)	$	10
Total realized/unrealized gains (losses) included in net income (loss) (6) (7)	—			—			—			96			468			—
Total realized/unrealized gains (losses) included in AOCI	—			—			—			—			—			—
Purchases (8)	—			—			91			4			—			1
Sales (8)	—			—			(1		)	—			—			(2		)
Issuances (8)	—			—			—			—			—			—
Settlements (8)	—			—			—			74			(184		)	—
Transfers into Level 3 (9)	—			—			—			—			—			2
Transfers out of Level 3 (9)	—			—			(1		)	—			—			(5		)
Balance, end of period	$	—		$	—		$	91		$	(780	)	$	(2,477	)	$	6
Changes in unrealized gains (losses) included in net income (loss) for the instruments still held at June 30, 2018 (10)	$	(1	)	$	(1	)	$	—		$	(8	)	$	752		$	—
Changes in unrealized gains (losses) included in net income (loss) for the instruments still held at June 30, 2017 (10)	$	—		$	—		$	—		$	93		$	521		$	—

________________


(1)	Comprised of U.S. and foreign corporate securities.


(2)	In connection with the adoption of new guidance related to the recognition and measurement of financial instruments (see Note 1), effective January 1, 2018 on a modified retrospective basis, the Company carries real estate joint ventures and other limited partnership interests previously accounted under the cost method of accounting at estimated fair value.


(3)	Freestanding derivative assets and liabilities are presented net for purposes of the rollforward.


(4)	Embedded derivative assets and liabilities are presented net for purposes of the rollforward.


(5)	Investment performance related to separate account assets is fully offset by corresponding amounts credited to contract holders within separate account liabilities. Therefore, such changes in estimated fair value are not recorded in net income (loss). For the purpose of this disclosure, these changes are presented within net investment gains (losses).

(6)

Amortization of premium/accretion of discount is included within net investment income. Impairments charged to net income (loss) on securities are included in net investment gains (losses). Lapses associated with net embedded derivatives are included in net derivative gains (losses). Substantially all realized/unrealized gains (losses) included in net income (loss) for net derivatives and net embedded derivatives are reported in net derivative gains (losses).


(7)	Interest and dividend accruals, as well as cash interest coupons and dividends received, are excluded from the rollforward.


(8)	Items purchased/issued and then sold/settled in the same period are excluded from the rollforward. Fees attributed to embedded derivatives are included in settlements.


(9)	Gains and losses, in net income (loss) and OCI, are calculated assuming transfers into and/or out of Level 3 occurred at the beginning of the period. Items transferred into and then out of Level 3 in the same period are excluded from the rollforward.


(10)	Changes in unrealized gains (losses) included in net income (loss) relate to assets and liabilities still held at the end of the respective periods. Substantially all changes in unrealized gains (losses) included in net income (loss) for net derivatives and net embedded derivatives are reported in net derivative gains (losses).

Fair Value Option

The following table presents information for certain assets and liabilities of CSEs, which are accounted for under the FVO. These assets and liabilities were initially measured at fair value.



	June 30, 2018		December 31, 2017
	(In millions)
Assets (1)
Unpaid principal balance	$	59	$	70
Difference between estimated fair value and unpaid principal balance	37		45
Carrying value at estimated fair value	$	96	$	115
Liabilities (1)
Contractual principal balance	$	5	$	10
Difference between estimated fair value and contractual principal balance	—		1
Carrying value at estimated fair value	$	5	$	11

__________________

(1)

These assets and liabilities are comprised of commercial mortgage loans and long-term debt. Changes in estimated fair value on these assets and liabilities and gains or losses on sales of these assets are recognized in net investment gains (losses). Interest income on commercial mortgage loans held by CSEs — FVO is recognized in net investment income. Interest expense from long-term debt of CSEs — FVO is recognized in other expenses.

Fair Value of Financial Instruments Carried at Other Than Fair Value

The carrying values and estimated fair values for such financial instruments, and their corresponding placement in the fair value hierarchy, are summarized as follows at:



	June 30, 2018
			Fair Value Hierarchy
	Carrying Value		Level 1		Level 2		Level 3		Total Estimated Fair Value
	(In millions)
Assets
Mortgage loans	$	12,141	$	—	$	—	$	12,225	$	12,225
Policy loans	$	1,043	$	—	$	683	$	423	$	1,106
Other invested assets	$	85	$	—	$	72	$	13	$	85
Premiums, reinsurance and other receivables	$	1,475	$	—	$	88	$	1,586	$	1,674
Liabilities
Policyholder account balances	$	15,724	$	—	$	—	$	14,687	$	14,687
Long-term debt	$	35	$	—	$	40	$	—	$	40
Other liabilities	$	475	$	—	$	125	$	344	$	469
Separate account liabilities	$	1,188	$	—	$	1,188	$	—	$	1,188



	December 31, 2017
			Fair Value Hierarchy
	Carrying Value		Level 1		Level 2		Level 3		Total Estimated Fair Value
	(In millions)
Assets
Mortgage loans	$	10,525	$	—	$	—	$	10,768	$	10,768
Policy loans	$	1,106	$	—	$	746	$	439	$	1,185
Real estate joint ventures (1)	$	5	$	—	$	—	$	22	$	22
Other limited partnership interests (1)	$	36	$	—	$	—	$	28	$	28
Other invested assets (2)	$	71	$	—	$	71	$	—	$	71
Premiums, reinsurance and other receivables	$	1,556	$	—	$	126	$	1,783	$	1,909
Liabilities
Policyholder account balances	$	15,626	$	—	$	—	$	15,760	$	15,760
Long-term debt	$	35	$	—	$	42	$	—	$	42
Other liabilities	$	459	$	—	$	93	$	368	$	461
Separate account liabilities	$	1,206	$	—	$	1,206	$	—	$	1,206

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(1)	In connection with the adoption of new guidance related to the recognition and measurement of financial instruments (see Note 1), effective January 1, 2018 on a modified retrospective basis, the Company carries real estate joint ventures and other limited partnership interests previously accounted under the cost method of accounting at estimated fair value.


(2)	The Company reclassified Federal Home Loan Bank stock in the prior period from equity securities to other invested assets.