See Note 2 – “Significant Accounting Policies and Pronouncements” of the Company’s 2019 Annual Report for a detailed discussion of the accounting treatment for derivative instruments, including embedded derivatives. See Note 6 – “Fair Value of Assets and Liabilities” for additional disclosures related to the fair value hierarchy for derivative instruments, including embedded derivatives.

Commonly used derivative instruments include, but are not necessarily limited to: credit default swaps, financial futures, equity options, foreign currency swaps, foreign currency forwards, interest rate swaps, synthetic guaranteed investment contracts (“GICs”), consumer price index (“CPI”) swaps, longevity swaps, mortality swaps and embedded derivatives.

Derivatives, except for embedded derivatives and longevity and mortality swaps, are carried on the Company’s condensed consolidated balance sheets in other invested assets or other liabilities, at fair value. Longevity and mortality swaps are included on the condensed consolidated balance sheets in other assets or other liabilities, at fair value. Embedded derivative assets and liabilities on modified coinsurance (“modco”) or funds withheld arrangements are included on the condensed consolidated balance sheets with the host contract in funds withheld at interest, at fair value. Embedded derivative liabilities on indexed annuity and variable annuity products are included on the condensed consolidated balance sheets with the host contract in interest-sensitive contract liabilities, at fair value. The following table presents the notional amounts and gross fair value of derivative instruments prior to taking into account the netting effects of master netting agreements as of March 31, 2020 and December 31, 2019 (dollars in millions):



		March 31, 2020						December 31, 2019
	Primary Underlying Risk	Notional		Carrying Value/Fair Value				Notional		Carrying Value/Fair Value
	Primary Underlying Risk	Amount		Assets		Liabilities		Amount		Assets		Liabilities
Derivatives not designated as hedging instruments:
Interest rate swaps	Interest rate	$	1,057	$	104	$	8	$	909	$	70	$	3
Financial futures	Equity	323		—		—		307		—		—
Foreign currency swaps	Foreign currency	150		—		23		150		—		9
Foreign currency forwards	Foreign currency	175		3		—		175		1		—
CPI swaps	CPI	527		1		65		441		—		28
Credit default swaps	Credit	1,641		3		6		1,306		5		—
Equity options	Equity	320		58		—		364		15		—
Synthetic GICs	Interest rate	14,240		—		—		13,823		—		—
Embedded derivatives in:
Modco or funds withheld arrangements		—		—		109		—		121		—
Indexed annuity products		—		—		751		—		—		767
Variable annuity products		—		—		291		—		—		163
Total non-hedging derivatives		18,433		169		1,253		17,475		212		970
Derivatives designated as hedging instruments:
Interest rate swaps	Foreign currency/Interest rate	435		5		53		535		1		29
Foreign currency swaps	Foreign currency	322		31		23		342		17		2
Foreign currency forwards	Foreign currency	1,112		102		1		1,094		28		2
Total hedging derivatives		1,869		138		77		1,971		46		33
Total derivatives		$	20,302	$	307	$	1,330	$	19,446	$	258	$	1,003

The Company designates and reports certain foreign currency swaps to hedge the foreign currency fair value exposure of foreign currency denominated assets as fair value hedges when they meet the requirements of the general accounting principles for Derivatives and Hedging. The gain or loss on the hedged item attributable to a change in foreign currency and the offsetting gain or loss on the related foreign currency swaps as of March 31, 2020 and 2019 were (dollars in millions):



Type of Fair Value Hedge	Hedged Item	Gains (Losses) Recognized for Derivatives			Gains (Losses) Recognized for Hedged Items
		Investment Related Gains (Losses)
For the three months ended March 31, 2020:
Foreign currency swaps	Foreign-denominated fixed maturity securities	$	(22	)	$	14
For the three months ended March 31, 2019:
Foreign currency swaps	Foreign-denominated fixed maturity securities	$	(1	)	$	(1	)

Certain derivative instruments are designated as cash flow hedges when they meet the requirements of the general accounting principles for Derivatives and Hedging. The Company designates and accounts for the following as cash flow hedges: (i) certain interest rate swaps, in which the cash flows of assets and liabilities are variable based on a benchmark rate; and (ii) certain interest rate swaps, in which the cash flows of assets are denominated in different currencies, commonly referred to as cross-currency swaps.



	Three months ended March 31,
	2020			2019
Balance beginning of period	$	(26	)	$	9
Gains (losses) deferred in other comprehensive income (loss)	(61		)	(10		)
Amounts reclassified to investment income	—			—
Amounts reclassified to interest expense	—			—
Balance end of period	$	(87	)	$	(1	)

As of March 31, 2020, the before-tax deferred net gains (losses) on derivative instruments recorded in AOCI that are expected to be reclassified to earnings during the next twelve months are approximately $(1) million and $(5) million in investment income and interest expense, respectively.

The following table presents the effect of derivatives in cash flow hedging relationships on the condensed consolidated statements of income and the condensed consolidated statements of comprehensive income for the three months ended March 31, 2020 and 2019 (dollars in millions):



Derivative Type	Gain (Loss) Deferred in OCI			Gain (Loss) Reclassified into Income from OCI
				Investment Income		Interest Expense
For the three months ended March 31, 2020:
Interest rate	$	(36	)	$	—	$	—
Currency	(25		)	—		—
Total	$	(61	)	$	—	$	—
For the three months ended March 31, 2019:
Interest rate	$	(12	)	$	—	$	—
Currency/Interest rate	2			—		—
Total	$	(10	)	$	—	$	—

For the three months ended March 31, 2020 and 2019, there were no amounts reclassified into earnings relating to instances in which the Company discontinued cash flow hedge accounting because the forecasted transaction did not occur by the anticipated date or within the additional time period permitted by the authoritative guidance for the accounting for derivatives and hedging.

The Company uses foreign currency swaps and foreign currency forwards to hedge a portion of its net investment in certain foreign operations against adverse movements in exchange rates. The following table illustrates the Company’s net investments in foreign operations (“NIFO”) hedges for the three months ended March 31, 2020 and 2019 (dollars in millions):

The cumulative foreign currency translation gain recorded in AOCI related to these hedges was $263 million and $168 million at March 31, 2020 and December 31, 2019, respectively. If a hedged foreign operation was sold or substantially liquidated, the amounts in AOCI would be reclassified to the condensed consolidated statements of income. A pro rata portion would be reclassified upon partial sale of a hedged foreign operation.

The Company uses various other derivative instruments for risk management purposes that either do not qualify or have not been qualified for hedge accounting treatment. The gain or loss related to the change in fair value for these derivative instruments is recognized in investment related gains (losses), net in the condensed consolidated statements of income, except where otherwise noted.



		Gain (Loss) for the three months ended March 31,
Type of Non-hedging Derivative	Income Statement Location of Gain (Loss)	2020			2019
Interest rate swaps	Investment related gains (losses), net	$	106		$	24
Financial futures	Investment related gains (losses), net	44			(22		)
Foreign currency swaps	Investment related gains (losses), net	(13		)	1
Foreign currency forwards	Investment related gains (losses), net	(3		)	—
CPI swaps	Investment related gains (losses), net	(40		)	(9		)
Credit default swaps	Investment related gains (losses), net	(24		)	15
Equity options	Investment related gains (losses), net	53			(23		)
Longevity swaps	Other revenues	—			2
Mortality swaps	Other revenues	—			1
Subtotal		123			(11		)
Embedded derivatives in:
Modco or funds withheld arrangements	Investment related gains (losses), net	(230		)	(2		)
Indexed annuity products	Interest credited	6			3
Variable annuity products	Investment related gains (losses), net	(128		)	18
Total non-hedging derivatives		$	(229	)	$	8



	March 31, 2020						December 31, 2019
Rating Agency Designation of Referenced Credit Obligations⁽¹⁾	Estimated Fair Value of Credit Default Swaps			Maximum Amount of Future Payments under Credit Default Swaps⁽²⁾		Weighted Average Years to Maturity⁽³⁾	Estimated Fair Value of Credit Default Swaps		Maximum Amount of Future Payments under Credit Default Swaps⁽²⁾		Weighted Average Years to Maturity⁽³⁾
AAA/AA+/AA/AA-/A+/A/A-
Single name credit default swaps	$	1		$	127	1.4	$	2	$	142	1.7
Subtotal	1			127		1.4	2		142		1.7
BBB+/BBB/BBB-
Single name credit default swaps	—			281		1.8	3		291		1.9
Credit default swaps referencing indices	(4		)	1,228		4.7	—		873		4.7
Subtotal	(4		)	1,509		4.1	3		1,164		4.0
BB+/BB/BB-
Single name credit default swaps	—			5		0.2	—		—		0.0
Subtotal	—			5		0.2	—		—		0.0
Total	$	(3	)	$	1,641	3.9	$	5	$	1,306	3.7

The Company has elected to include all derivatives, except embedded derivatives, in the table below, irrespective of whether they are subject to an enforceable master netting arrangement or a similar agreement. See Note 4 – “Investments” for information regarding the Company’s securities borrowing, lending, repurchase and repurchase/reverse repurchase programs.



								Gross Amounts Not Offset in the Balance Sheet
	Gross Amounts Recognized		Gross Amounts Offset in the Balance Sheet			Net Amounts Presented in the Balance Sheet		Financial Instruments ⁽¹⁾			Cash Collateral Pledged/ Received			Net Amount
March 31, 2020:
Derivative assets	$	307	$	(55	)	$	252	$	—		$	(247	)	$	5
Derivative liabilities	179		(55		)	124		(127		)	(115		)	(118		)
December 31, 2019:
Derivative assets	$	137	$	(20	)	$	117	$	—		$	(119	)	$	(2	)
Derivative liabilities	73		(20		)	53		(92		)	(52		)	(91		)

The Company may be exposed to credit-related losses in the event of non-performance by counterparties to derivative financial instruments with a positive fair value. Generally, the credit exposure of the Company’s derivative contracts is limited to the fair value at the reporting date plus or minus any collateral posted or held by the Company. The Company had no credit exposure related to its derivative contracts as of March 31, 2020 and December 31, 2019, as the net amount of collateral pledged to the Company from counterparties exceeded the fair value of the derivative contracts.

Derivatives may be exchange-traded or they may be privately negotiated contracts, which are referred to as over-the-counter (“OTC”) derivatives. Certain of the Company’s OTC derivatives are cleared and settled through central clearing counterparties (“OTC cleared”) and others are bilateral contracts between two counterparties. The Company manages its credit risk related to OTC derivatives by entering into transactions with creditworthy counterparties, maintaining collateral arrangements and through the use of master netting agreements that provide for a single net payment to be made by one counterparty to another at each due

date and upon termination. The Company is only exposed to the default of the central clearing counterparties for OTC cleared derivatives, and these transactions require initial and daily variation margin collateral postings. Exchange-traded derivatives are settled on a daily basis, thereby reducing the credit risk exposure in the event of non-performance by counterparties to such financial instruments.