DERIVATIVES

12 Months Ended

Dec. 31, 2021

Derivative Instruments and Hedging Activities Disclosure [Abstract]

The Company uses derivatives as part of its overall asset/liability risk management primarily to reduce exposures to equity market and interest rate risks. Derivative hedging strategies are designed to reduce these risks from an economic perspective and are all executed within the framework of a “Derivative Use Plan” approved by applicable states’ insurance law. The Company does not designate any derivatives as hedge accounting. Operation of these hedging programs is based on models involving numerous estimates and assumptions, including, among others, mortality, lapse, surrender and withdrawal rates, election rates, fund performance, market volatility and interest rates. A wide range of derivative contracts can be used in these hedging programs, including exchange traded equity and interest rate futures contracts as well as equity options. The derivative contracts are collectively managed in an effort to reduce the economic impact of unfavorable changes in guaranteed benefits’ exposures attributable to movements in capital markets.

Derivatives Utilized to Hedge Crediting Rate Exposure on MSO and IUL Products/Investment Options

The Company hedges crediting rates in the MSO that are in the variable life insurance products and IUL insurance products. These products permit the contract owner to participate in the performance of an index, ETF or commodity price movement up to a cap for a set period of time. They also contain a protection feature, in which the Company will absorb, up to a certain percentage, the loss of value in an index, ETF or commodity price, which varies by product segment.

In order to support the returns associated with these features, the Company enters into derivative contracts whose payouts, in combination with fixed income investments, emulate those of the index, ETF or commodity price, subject to caps and buffers, thereby substantially reducing any exposure to market-related earnings volatility.

The tables below present quantitative disclosures about the Company’s derivative instruments, including those embedded in other contracts required to be accounted for as derivative instruments:

The following table presents the gross notional amount and estimated fair value of the Company’s derivatives:

Derivative Instruments by Category


	December 31, 2021						December 31, 2020
			Fair Value						Fair Value
	Notional Amount		Derivative Assets		Derivative Liabilities		Notional Amount		Derivative Assets		Derivative Liabilities
	(in millions)







Derivatives: (1)
Equity contracts:
Futures	$	295	$	—	$	—	$	278	$	—	$	—

Options	59		8		5		59		13		10
Interest rate contracts:
Futures	120		—		—		—		—		—








Other contracts:
Margin	—		18		—		—		17		—
Collateral	—		—		3		—		—		3
Total:	474		26		8		337		30		13

Embedded derivatives:



MSO and IUL indexed features (2)	—		—		132		—		—		131
Total embedded derivatives	—		—		132		—		—		131
Total derivative instruments	$	474	$	26	$	140	$	337	$	30	$	144

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(1)Reported in other invested assets in the balance sheets.

(2)Reported in policyholders’ account balances in the balance sheets.

The following table presents the effects of derivative instruments on the statements of income and comprehensive income (loss).


	Year Ended December 31,
	2021		2020			2019
	Net Derivatives Gain(Losses) (1)
	(in millions)







Derivatives:
Equity contracts:
Futures	$	68		$	25		$	78

Options	3			3			18
Interest rate contracts:
Futures	1			—			—










Total:	72			28			96

Embedded Derivatives:



MSO and IUL indexed features	(73)			(44)			(92)
Total Embedded Derivatives	(73)			(44)			(92)

Total Derivatives	$	(1)		$	(16)		$	4

(1)Reported in net derivative gains (losses) in the statements of income (loss).

Equity-Based and Treasury Futures Contracts Margin

All outstanding equity-based futures contracts as of December 31, 2021 and 2020 are exchange-traded and net settled daily in cash. As of December 31, 2021 and 2020, respectively, the Company had open exchange-traded futures

positions on: (i) the S&P 500, Nasdaq, Russell 2000 and Emerging Market indices, having initial margin requirements of $14 million and $16 million and (ii) the 2-year, 5-year and 10-year U.S. Treasury Notes on U.S. Treasury bonds and ultra-long bonds, having initial margin requirements of $3 million and $0 million.

Collateral Arrangements

The Company generally has executed a CSA under the ISDA Master Agreement it maintains with each of its OTC derivative counterparties that requires both posting and accepting collateral either in the form of cash or high-quality securities, such as U.S. Treasury securities, U.S. government and government agency securities and investment grade corporate bonds. The Company nets the fair value of all derivative financial instruments with counterparties for which an ISDA Master Agreement and related CSA have been executed. As of December 31, 2021 and 2020, respectively, the Company held $3 million and $3 million in cash and securities collateral delivered by trade counterparties, representing the fair value of the related derivative agreements.

The following table presents information about the Company’s offsetting of financial assets and liabilities and derivative instruments as of December 31, 2021 and 2020:

Offsetting of Financial Assets and Liabilities and Derivative Instruments

As of December 31, 2021


	Gross Amount Recognized		Gross Amount Offset in the Balance Sheets		Net Amount Presented in the Balance Sheets		Gross Amount not Offset in the Balance Sheets (1)		Net Amount
	(in millions)
Assets:
Derivative assets	$	26	$	8	$	18	$	—	$	18
Other financial assets	1		—		1		—		1
Other invested assets	$	27	$	8	$	19	$	—	$	19

Liabilities:
Derivative liabilities	$	8	$	8	$	—	$	—	$	—
Other financial liabilities	42		—		42		—		42
Other liabilities	$	50	$	8	$	42	$	—	$	42

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(1) Financial instruments sent (held).

Offsetting of Financial Assets and Liabilities and Derivative Instruments

As of December 31, 2020


	Gross Amount Recognized		Gross Amount Offset in the Balance Sheets		Net Amount Presented in the Balance Sheets		Gross Amount not Offset in the Balance Sheets (1)		Net Amount
	(in millions)
Assets:
Derivative assets	$	30	$	13	$	17	$	—	$	17
Other financial instruments	65		—		65		—		65
Other invested assets	$	95	$	13	$	82	$	—	$	82

Liabilities:
Derivative liabilities	$	13	$	13	$	—	$	—	$	—
Other financial liabilities	72		—		72		—		72
Other liabilities	$	85	$	13	$	72	$	—	$	72

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(1)Financial instruments sent (held).