XML 22 R11.htm IDEA: XBRL DOCUMENT v3.22.1
DERIVATIVES
 3 Months Ended
Mar. 31, 2022
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
DERIVATIVES DERIVATIVES
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 Exposure to Variable Annuities with Guarantee Features
The Company has issued and continues to offer variable annuity products with GMxB features. The risk associated with the GMDB feature is that under-performance of the financial markets could result in GMDB benefits, in the event of death, being higher than what accumulated policyholders’ account balances would support. The risk associated with the GMIB feature is that under-performance of the financial markets could result in the present value of GMIB, in the event of annuitization, being higher than what accumulated policyholders’ account balances would support, taking into account the relationship between current annuity purchase rates and the GMIB guaranteed annuity purchase rates. The risk associated with products that have a GMxB derivative features liability is that under-performance of the financial markets could result in the GMxB derivative features’ benefits being higher than what accumulated policyholders’ account balances would support.
For GMxB features, the Company retains certain risks including basis, credit spread and some volatility risk and risk associated with actual experience versus expected actuarial assumptions for mortality, lapse and surrender, withdrawal and policyholder election rates, among other things. The derivative contracts are managed to correlate with changes in the value of the GMxB features that result from financial markets movements. A portion of exposure to realized equity volatility is hedged using equity options and variance swaps and a portion of exposure to credit risk is hedged using total return swaps on fixed income indices.
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
March 31, 2022December 31, 2021
Fair ValueFair Value
Notional
Amount		Derivative AssetsDerivative
Liabilities		Notional
Amount		Derivative AssetsDerivative
Liabilities
(in millions)
Derivatives: (1)
Equity contracts:
Futures$438 $— $— $295 $— $— 
Options60 5 3 59 8 5 
Interest rate contracts:
Futures126 — — 120 — — 
Other contracts:
Margin— 26 — — 18 — 
Collateral— — 2 — — 3 
Total: 624 31 5 474 26 8 
Embedded derivatives:
GMxB derivative features liability (2)— — (5)— — — 
MSO and IUL indexed features (3)— — 107 — — 132 
Total embedded derivatives— — 102 — — 132 
Total derivative instruments$624 $31 $107 $474 $26 $140 
______________
(1)Reported in other invested assets in the balance sheets.
(2)Reported in future policy benefits and other policyholders’ liabilities in the consolidated balance sheets.
(3)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).
Three Months Ended March 31,
 20222021
 
(in millions)
Derivatives:
Equity contracts:
Futures(9)17 
Swaps— — 
Options— 1 
Interest rate contracts:
Futures(12)— 
Swaps— — 
Swaptions— — 
Credit contracts:
Credit default swaps— — 
Currency contracts:
Currency swaps— — 
Currency forwards— — 
Other contracts:
Margin— — 
Collateral— — 
Total: (21)18 
Embedded Derivatives:
Amounts due from reinsurers— — 
GMIB reinsurance contracts— — 
GMxB derivative features liability6 — 
MSO and IUL indexed features12 (18)
Total Embedded Derivatives18 (18)
Total Derivatives instruments$(3)$— 
______________
(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 March 31, 2022 and December 31, 2021 are exchange-traded and net settled daily in cash. As of March 31, 2022 and December 31, 2021, 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 $23 million and $14 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 $4 million and $3 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 March 31, 2022 and December 31, 2021, respectively, the Company held $2 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 March 31, 2022 and December 31, 2021:
Offsetting of Financial Assets and Liabilities and Derivative Instruments
As of March 31, 2022
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$31 $5 $26 $— $26 
Other financial assets1 — 1 — 1 
Other invested assets$32 $5 $27 $— $27 
Liabilities:
Derivative liabilities$5 $5 $— $— $— 
Other financial liabilities142 — 142 — 142 
Other liabilities$147 $5 $142 $— $142 
______________
(1) Financial instruments sent (held).
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 instruments1 — 1 — 1 
Other invested assets$27 $8 $19 $— $19 
Liabilities:
Derivative liabilities$8 $8 $— $— $— 
Other financial liabilities42 — 42 — 42 
Other liabilities$50 $8 $42 $— $42 
______________
(1)Financial instruments sent (held).