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Derivative Instruments
 6 Months Ended
Jun. 30, 2021
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Instruments Derivative Instruments
Accounting for Derivative Instruments and Hedging Activities
See Note 2 – “Significant Accounting Policies and Pronouncements” of the Company’s 2020 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.
Types of Derivatives Used by the Company
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, forward bond purchase commitments, and embedded derivatives.
For detailed information on these derivative instruments and the related strategies, see Note 5 – “Derivative Instruments” of the Company’s 2020 Annual Report.
Summary of Derivative Positions
Derivatives, except for embedded derivatives, are included in other invested assets or other liabilities, at fair value. Embedded derivative assets and liabilities on 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 June 30, 2021 and December 31, 2020 (dollars in millions):
 June 30, 2021December 31, 2020
 Primary Underlying RiskNotionalCarrying Value/Fair ValueNotionalCarrying Value/Fair Value
 AmountAssetsLiabilitiesAmountAssetsLiabilities
Derivatives not designated as hedging instruments:
Interest rate swapsInterest rate$1,089 $74 $1 $1,084 $93 $1 
Financial futuresEquity254 — — 258 — — 
Foreign currency swapsForeign currency150 — 6 150 — 18 
Foreign currency forwardsForeign currency459 1 4 347 4 2 
CPI swapsCPI607 19 11 612 11 19 
Credit default swapsCredit1,893 36 1 1,517 13 — 
Equity optionsEquity479 23 — 395 29 — 
Synthetic GICsInterest rate16,489 — — 16,644 — — 
Embedded derivatives in:
Modco or funds withheld arrangements— 124 — — 58 — 
Indexed annuity products— — 726 — — 752 
Variable annuity products— — 154 — — 155 
Total non-hedging derivatives21,420 277 903 21,007 208 947 
Derivatives designated as hedging instruments:
Interest rate swapsForeign currency/Interest rate920 5 27 802 3 24 
Foreign currency swapsForeign currency193 3 1 234 8 1 
Foreign currency forwardsForeign currency1,327 9 24 1,255 10 15 
Forward bond purchase commitmentsInterest rate369 7 — — — — 
Total hedging derivatives2,809 24 52 2,291 21 40 
Total derivatives$24,229 $301 $955 $23,298 $229 $987 
Fair Value Hedges
The Company designates and reports certain foreign currency swaps to hedge the foreign currency fair value exposure of foreign currency denominated assets as fair value hedges when they meet the requirements of the general accounting principles for Derivatives and Hedging. The gain or loss on the hedged item attributable to a change in foreign currency and the offsetting gain or loss on the related foreign currency swaps as of June 30, 2021 and 2020 were (dollars in millions):
Type of Fair Value HedgeHedged ItemGains (Losses) Recognized for DerivativesGains (Losses) Recognized for Hedged Items
Investment Related Gains (Losses)
For the three months ended June 30, 2021:
Foreign currency swapsForeign-denominated fixed maturity securities$(2)$2 
For the three months ended June 30, 2020:
Foreign currency swapsForeign-denominated fixed maturity securities$15 $(13)
For the six months ended June 30, 2021:
Foreign currency swapsForeign-denominated fixed maturity securities$(2)$3 
For the six months ended June 30, 2020:
Foreign currency swapsForeign-denominated fixed maturity securities$(8)$2 
Cash Flow Hedges
Certain derivative instruments are designated as cash flow hedges when they meet the requirements of the general accounting principles for Derivatives and Hedging. The Company designates and accounts for the following as cash flow hedges: (i) certain interest rate swaps, in which the cash flows of assets and liabilities are variable based on a benchmark rate; (ii) certain interest rate swaps, in which the cash flows of assets are denominated in different currencies, commonly referred to as cross-currency swaps; and (iii) forward bond purchase commitments.
The following tables present the components of AOCI, before income tax, and the condensed consolidated income statement classification where the gain or loss is recognized related to cash flow hedges for the three and six months ended June 30, 2021 and 2020 (dollars in millions):
 Three months ended June 30,
 20212020
Balance, beginning of period$(71)$(87)
Gains deferred in other comprehensive income (loss)29 12 
Amounts reclassified to investment income— — 
Amounts reclassified to interest expense2 1 
Balance, end of period$(40)$(74)
 Six months ended June 30,
 20212020
Balance, beginning of period$(49)$(26)
Gains (losses) deferred in other comprehensive income (loss)5 (49)
Amounts reclassified to investment income— — 
Amounts reclassified to interest expense4 1 
Balance, end of period$(40)$(74)
As of June 30, 2021, approximately $6 million of before-tax deferred net losses on derivative instruments recorded in AOCI are expected to be reclassified to interest expense during the next twelve months. For the same time period, there was an immaterial amount of before-tax deferred net gains expected to be reclassified to investment income during the next twelve months.
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 and six months ended June 30, 2021 and 2020 (dollars in millions):
Derivative TypeGain (Loss) Deferred in AOCIGain (Loss) Reclassified into Income from AOCI
Investment IncomeInterest Expense
For the three months ended June 30, 2021:
Interest rate$29 $— $(2)
Foreign currency/interest rate— — — 
Total$29 $— $(2)
For the three months ended June 30, 2020:
Interest rate$(1)$— $(1)
Foreign currency/interest rate13 — — 
Total$12 $— $(1)
For the six months ended June 30, 2021:
Interest rate$6 $— $(4)
Foreign currency/interest rate(1)— — 
Total$5 $— $(4)
For the six months ended June 30, 2020:
Interest rate$(36)$— $(1)
Foreign currency/interest rate(13)— — 
Total$(49)$— $(1)
For the three and six months ended June 30, 2021 and 2020, there were no material amounts reclassified into earnings relating to instances in which the Company discontinued cash flow hedge accounting because the forecasted transaction did not occur by the anticipated date or within the additional time period permitted by the authoritative guidance for the accounting for derivatives and hedging.
Hedges of Net Investments in Foreign Operations
The Company uses foreign currency swaps and foreign currency forwards to hedge a portion of its net investment in certain foreign operations against adverse movements in exchange rates. The following table illustrates the Company’s net investments in foreign operations (“NIFO”) hedges and the gains (losses) deferred in AOCI for the three and six months ended June 30, 2021 and 2020 (dollars in millions):
 Derivative Gains (Losses) Deferred in AOCI     
 Three months ended June 30,Six months ended June 30,
Type of NIFO Hedge 2021202020212020
Foreign currency swaps$(2)$(6)$(3)$9 
Foreign currency forwards(10)(34)(24)46 
Total$(12)$(40)$(27)$55 
The cumulative foreign currency translation gain recorded in AOCI related to these hedges was $112 million and $139 million at June 30, 2021 and December 31, 2020, 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. There were no sales or substantial liquidations of net investments in foreign operations that would have required the reclassification of gains or losses from accumulated other comprehensive income (loss) into investment income during the periods presented.
Non-qualifying Derivatives and Derivatives for Purposes Other Than Hedging
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.
A summary of the effect of non-hedging derivatives, including embedded derivatives, on the Company’s condensed consolidated statements of income for the three and six months ended June 30, 2021 and 2020 is as follows (dollars in millions):
  Three months ended June 30,
Type of Non-hedging DerivativeIncome Statement Location of Gain (Loss)20212020
Interest rate swapsInvestment related gains (losses), net$33 $3 
Financial futuresInvestment related gains (losses), net(9)(48)
Foreign currency swapsInvestment related gains (losses), net3 3 
Foreign currency forwardsInvestment related gains (losses), net(1)1 
CPI swapsInvestment related gains (losses), net3 26 
Credit default swapsInvestment related gains (losses), net12 17 
Equity optionsInvestment related gains (losses), net(11)(25)
Subtotal30 (23)
Embedded derivatives in:
Modco or funds withheld arrangementsInvestment related gains (losses), net16 1 
Indexed annuity productsInterest credited(13)(7)
Variable annuity productsInvestment related gains (losses), net(17)107 
Total non-hedging derivatives$16 $78 
  Six months ended June 30,
Type of Non-hedging DerivativeIncome Statement Location of Gain (Loss)20212020
Interest rate swapsInvestment related gains (losses), net$(37)$109 
Financial futuresInvestment related gains (losses), net(19)(4)
Foreign currency swapsInvestment related gains (losses), net12 (10)
Foreign currency forwardsInvestment related gains (losses), net(9)(2)
CPI swapsInvestment related gains (losses), net21 (14)
Credit default swapsInvestment related gains (losses), net32 (7)
Equity optionsInvestment related gains (losses), net(21)28 
Subtotal(21)100 
Embedded derivatives in:
Modco or funds withheld arrangementsInvestment related gains (losses), net66 (229)
Indexed annuity productsInterest credited1 (1)
Variable annuity productsInvestment related gains (losses), net1 (21)
Total non-hedging derivatives$47 $(151)
Credit Derivatives
The following table presents the estimated fair value, maximum amount of future payments and weighted average years to maturity of credit default swaps sold by the Company at June 30, 2021 and December 31, 2020 (dollars in millions):
 June 30, 2021December 31, 2020
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$34 $715 12.4$11 $287 15.0
Subtotal34 715 12.411 287 15.0
BBB+/BBB/BBB-
Single name credit default swaps1 181 2.02 232 1.6
Credit default swaps referencing indices— 988 3.4— 988 3.9
Subtotal1 1,169 3.22 1,220 3.5
BB+/BB/BB-
Single name credit default swaps— 9 0.5— 10 0.7
Subtotal— 9 0.5— 10 0.7
Total$35 $1,893 6.7$13 $1,517 5.6
(1)The rating agency designations are based on ratings from Standard and Poor’s (“S&P”).
(2)Assumes the value of the referenced credit obligations is zero.
(3)The weighted average years to maturity of the credit default swaps is calculated based on weighted average notional amounts.
Netting Arrangements and Credit Risk
Certain of the Company’s derivatives are subject to enforceable master netting arrangements and reported as a net asset or liability in the condensed consolidated balance sheets. The Company nets all derivatives that are subject to such arrangements.
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, and repurchase/reverse repurchase programs.
The following table provides information relating to the netting of the Company’s derivative instruments as of June 30, 2021 and December 31, 2020 (dollars in millions):
    Gross Amounts Not
Offset in the Balance Sheet		 
Gross Amounts   RecognizedGross Amounts
Offset in the
Balance Sheet		Net Amounts
Presented in the
Balance Sheet
Financial Instruments (1)
Cash Collateral   Pledged/
Received		Net Amount
June 30, 2021:
Derivative assets$177 $(31)$146 $(36)$(100)$10 
Derivative liabilities75 (31)44 (121)(48)(125)
December 31, 2020:
Derivative assets$171 $(31)$140 $(30)$(98)$12 
Derivative liabilities80 (31)49 (146)(47)(144)
(1)Includes initial margin posted to a central clearing partner.
The Company may be exposed to credit-related losses in the event of non-performance by counterparties to derivative financial instruments. Generally, the credit exposure of the Company’s derivative contracts is limited to the fair value and accrued interest of non-collateralized derivative contracts in an asset position at the reporting date. As of June 30, 2021, the Company had credit exposure of $18 million.
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.