Fair Value of Assets and Liabilities (Tables)

6 Months Ended

Jun. 30, 2015

Schedule of assets and liabilities that are measured at fair value on a recurring and non-recurring basis

The following table summarizes the Company’s assets and liabilities measured at fair value on a recurring and non-recurring basis as of June 30, 2015.



($ in millions)	Quoted prices in active markets for identical assets (Level 1)			Significant other observable inputs (Level 2)			Significant unobservable inputs (Level 3)			Counterparty and cash collateral netting			Balance as of June 30, 2015
Assets
Fixed income securities:
U.S. government and agencies	$	3,048		$	883		$	5					$	3,936
Municipal	—			8,379			215						8,594
Corporate	—			41,691			626						42,317
Foreign government	—			1,324			—						1,324
ABS	—			1,956			120						2,076
RMBS	—			1,082			1						1,083
CMBS	—			547			28						575
Redeemable preferred stock	—			25			—						25
Total fixed income securities	3,048			55,887			995						59,930
Equity securities	3,661			231			108						4,000
Short-term investments	446			2,340			35						2,821
Other investments: Free-standing derivatives	—			74			2			$	(16	)	60
Separate account assets	4,121			—			—						4,121
Other assets	—			—			1						1
Total recurring basis assets	11,276			58,532			1,141			(16		)	70,933
Non-recurring basis ⁽¹⁾	—			—			9						9
Total assets at fair value	$	11,276		$	58,532		$	1,150		$	(16	)	$	70,942
% of total assets at fair value	15.9		%	82.5		%	1.6		%	—		%	100		%

Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	—		$	—		$	(315	)				$	(315	)
Other liabilities: Free-standing derivatives	(1		)	(14		)	(9		)	$	5		(19		)
Total liabilities at fair value	$	(1	)	$	(14	)	$	(324	)	$	5		$	(334	)
% of total liabilities at fair value	0.3		%	4.2		%	97.0		%	(1.5		)%	100		%

_______________


⁽¹⁾	Includes $9 million of other investments written-down to fair value in connection with recognizing other-than-temporary impairments.

The following table summarizes the Company’s assets and liabilities measured at fair value on a recurring and non-recurring basis as of December 31, 2014.



($ in millions)	Quoted prices in active markets for identical assets (Level 1)			Significant other observable inputs (Level 2)			Significant unobservable inputs (Level 3)			Counterparty and cash collateral netting			Balance as of December 31, 2014
Assets
Fixed income securities:
U.S. government and agencies	$	3,240		$	1,082		$	6					$	4,328
Municipal	—			8,227			270						8,497
Corporate	—			41,253			891						42,144
Foreign government	—			1,645			—						1,645
ABS	—			3,782			196						3,978
RMBS	—			1,206			1						1,207
CMBS	—			592			23						615
Redeemable preferred stock	—			26			—						26
Total fixed income securities	3,240			57,813			1,387						62,440
Equity securities	3,787			234			83						4,104
Short-term investments	692			1,843			5						2,540
Other investments: Free-standing derivatives	—			95			2			$	(5	)	92
Separate account assets	4,396			—			—						4,396
Other assets	2			—			1						3
Total recurring basis assets	12,117			59,985			1,478			(5		)	73,575
Non-recurring basis ⁽¹⁾	—			—			9						9
Total assets at fair value	$	12,117		$	59,985		$	1,487		$	(5	)	$	73,584
% of total assets at fair value	16.5		%	81.5		%	2.0		%	—		%	100		%

Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	—		$	—		$	(323	)				$	(323	)
Other liabilities: Free-standing derivatives	(1		)	(50		)	(9		)	$	22		(38		)
Total liabilities at fair value	$	(1	)	$	(50	)	$	(332	)	$	22		$	(361	)
% of total liabilities at fair value	0.3		%	13.8		%	92.0		%	(6.1		)%	100		%

_______________


⁽¹⁾	Includes $6 million of mortgage loans and $3 million of limited partnership interests written-down to fair value in connection with recognizing other-than-temporary impairments.

Summary of quantitative information about the significant unobservable inputs

The following table summarizes quantitative information about the significant unobservable inputs used in Level 3 fair value measurements.



($ in millions)	Fair value			Valuation technique	Unobservable input	Range	Weighted average
June 30, 2015
Derivatives embedded in life and annuity contracts – Equity-indexed and forward starting options	$	(270	)	Stochastic cash flow model	Projected option cost	1.0 - 2.2%	1.76%
December 31, 2014
Derivatives embedded in life and annuity contracts – Equity-indexed and forward starting options	$	(278	)	Stochastic cash flow model	Projected option cost	1.0 - 2.0%	1.76%

Schedule of the rollforward of Level 3 assets and liabilities held at fair value on a recurring basis

The following table presents the rollforward of Level 3 assets and liabilities held at fair value on a recurring basis during the three months ended June 30, 2015.



($ in millions)				Total gains (losses) included in:
	Balance as of March 31, 2015			Net income ⁽¹⁾			OCI			Transfers into Level 3			Transfers out of Level 3
Assets
Fixed income securities:
U.S. government and agencies	$	5		$	—		$	—		$	—		$	—
Municipal	238			2			(6		)	—			(2		)
Corporate	878			3			2			—			(208		)
ABS	137			(1		)	2			—			(11		)
RMBS	1			—			—			—			—
CMBS	28			—			—			—			—
Total fixed income securities	1,287			4			(2		)	—			(221		)
Equity securities	93			1			2			—			—
Short-term investments	10			—			—			—			—
Free-standing derivatives, net	(7		)	1			—			—			—
Other assets	1			—			—			—			—
Total recurring Level 3 assets	$	1,384		$	6		$	—		$	—		$	(221	)

Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	(326	)	$	9		$	—		$	—		$	—
Total recurring Level 3 liabilities	$	(326	)	$	9		$	—		$	—		$	—

	Purchases			Sales			Issues			Settlements			Balance as of June 30, 2015
Assets
Fixed income securities:
U.S. government and agencies	$	—		$	—		$	—		$	—		$	5
Municipal	—			(16		)	—			(1		)	215
Corporate	—			—			—			(49		)	626
ABS	—			(5		)	—			(2		)	120
RMBS	—			—			—			—			1
CMBS	—			—			—			—			28
Total fixed income securities	—			(21		)	—			(52		)	995
Equity securities	12			—			—			—			108
Short-term investments	25			—			—			—			35
Free-standing derivatives, net	—			—			—			(1		)	(7		)	⁽²⁾
Other assets	—			—			—			—			1
Total recurring Level 3 assets	$	37		$	(21	)	$	—		$	(53	)	$	1,132

Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	—		$	—		$	—		$	2		$	(315	)
Total recurring Level 3 liabilities	$	—		$	—		$	—		$	2		$	(315	)

_____________


⁽¹⁾	The effect to net income totals $15 million and is reported in the Condensed Consolidated Statements of Operations as follows: $2 million in realized capital gains and losses, $4 million in net investment income and $9 million in interest credited to contractholder funds.


⁽²⁾	Comprises $2 million of assets and $9 million of liabilities.

The following table presents the rollforward of Level 3 assets and liabilities held at fair value on a recurring basis during the six months ended June 30, 2015.



($ in millions)				Total gains (losses) included in:
	Balance as of December 31, 2014			Net income ⁽¹⁾			OCI			Transfers into Level 3			Transfers out of Level 3
Assets
Fixed income securities:
U.S. government and agencies	$	6		$	—		$	—		$	—		$	—
Municipal	270			2			(4		)	—			(2		)
Corporate	891			—			(6		)	5			(208		)
ABS	196			(2		)	2			12			(84		)
RMBS	1			—			—			—			—
CMBS	23			—			—			—			—
Total fixed income securities	1,387			—			(8		)	17			(294		)
Equity securities	83			1			4			—			—
Short-term investments	5			—			—			—			—
Free-standing derivatives, net	(7		)	1			—			—			—
Other assets	1			—			—			—			—
Total recurring Level 3 assets	$	1,469		$	2		$	(4	)	$	17		$	(294	)

Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	(323	)	$	5		$	—		$	—		$	—
Total recurring Level 3 liabilities	$	(323	)	$	5		$	—		$	—		$	—

	Purchases			Sales			Issues			Settlements			Balance as of June 30, 2015
Assets
Fixed income securities:
U.S. government and agencies	$	—		$	—		$	—		$	(1	)	$	5
Municipal	—			(49		)	—			(2		)	215
Corporate	60			(46		)	—			(70		)	626
ABS	10			(5		)	—			(9		)	120
RMBS	—			—			—			—			1
CMBS	5			—			—			—			28
Total fixed income securities	75			(100		)	—			(82		)	995
Equity securities	20			—			—			—			108
Short-term investments	30			—			—			—			35
Free-standing derivatives, net	—			—			—			(1		)	(7		)	⁽²⁾
Other assets	—			—			—			—			1
Total recurring Level 3 assets	$	125		$	(100	)	$	—		$	(83	)	$	1,132

Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	—		$	—		$	(1	)	$	4		$	(315	)
Total recurring Level 3 liabilities	$	—		$	—		$	(1	)	$	4		$	(315	)

_____________


⁽¹⁾	The effect to net income totals $7 million and is reported in the Condensed Consolidated Statements of Operations as follows: $(4) million in realized capital gains and losses, $6 million in net investment income and $5 million in interest credited to contractholder funds.


⁽²⁾	Comprises $2 million of assets and $9 million of liabilities.

The following table presents the rollforward of Level 3 assets and liabilities held at fair value on a recurring basis during the three months ended June 30, 2014.



($ in millions)				Total gains (losses) included in:
	Balance as of March 31, 2014			Net income ⁽¹⁾			OCI			Transfers into Level 3			Transfers out of Level 3
Assets
Fixed income securities:
U.S. government and agencies	$	6		$	—		$	—		$	—		$	—
Municipal	335			—			6			—			(17		)
Corporate	999			8			9			—			(12		)
ABS	174			—			1			—			(44		)
RMBS	2			—			—			—			—
CMBS	54			—			—			—			—
Redeemable preferred stock	—			—			—			—			—
Total fixed income securities	1,570			8			16			—			(73		)
Equity securities	17			2			—			—			—
Short-term investments	30			—			—			—			—
Free-standing derivatives, net	(7		)	3			—			—			—
Other assets	—			1			—			—			—
Assets held for sale	347			—			—			—			—
Total recurring Level 3 assets	$	1,957		$	14		$	16		$	—		$	(73	)

Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	(319	)	$	(12	)	$	—		$	—		$	—
Liabilities held for sale	(230		)	—			—			—			—
Total recurring Level 3 liabilities	$	(549	)	$	(12	)	$	—		$	—		$	—

	Sold in LBL disposition			Purchases/ Issues ⁽²⁾			Sales			Settlements			Balance as of June 30, 2014
Assets
Fixed income securities:
U.S. government and agencies	$	—		$	—		$	—		$	—		$	6
Municipal	—			—			(17		)	(5		)	302
Corporate	—			16			(24		)	(31		)	965
ABS	—			20			—			(9		)	142
RMBS	—			—			—			(1		)	1
CMBS	—			1			—			—			55
Redeemable preferred stock	—			—			—			—			—
Total fixed income securities	—			37			(41		)	(46		)	1,471
Equity securities	—			2			(2		)	—			19
Short-term investments	—			10			(40		)	—			—
Free-standing derivatives, net	—			—			—			(1		)	(5		)	⁽³⁾
Other assets	—			—			—			—			1
Assets held for sale	(347		)	—			—			—			—
Total recurring Level 3 assets	$	(347	)	$	49		$	(83	)	$	(47	)	$	1,486

Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	—		$	(2	)	$	—		$	2		$	(331	)
Liabilities held for sale	230			—			—			—			—
Total recurring Level 3 liabilities	$	230		$	(2	)	$	—		$	2		$	(331	)

_____________________


⁽¹⁾	The effect to net income totals $2 million and is reported in the Condensed Consolidated Statements of Operations as follows: $9 million in realized capital gains and losses, $4 million in net investment income, $(10) million in interest credited to contractholder funds and $(1) million in life and annuity contract benefits.


⁽²⁾	Represents purchases for assets and issues for liabilities.


⁽³⁾	Comprises $3 million of assets and $8 million of liabilities.

Schedule of gains and losses included in net income for Level 3 assets and liabilities still held at the balance sheet date

The following table provides the change in unrealized gains and losses included in net income for Level 3 assets and liabilities held as of June 30.



($ in millions)	Three months ended June 30,						Six months ended June 30,
	2015			2014			2015			2014
Assets
Fixed income securities:
Municipal	$	—		$	(1	)	$	(1	)	$	(5	)
Corporate	3			4			5			7
ABS	(1		)	—			(1		)	—
CMBS	—			—			—			(1		)
Total fixed income securities	2			3			3			1
Equity securities	1			—			—			—
Free-standing derivatives, net	1			6			1			6
Other assets	—			1			—			1
Assets held for sale	—			—			—			(1		)
Total recurring Level 3 assets	$	4		$	10		$	4		$	7
Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	9		$	(12	)	$	5		$	(14	)
Liabilities held for sale	—			—			—			17
Total recurring Level 3 liabilities	$	9		$	(12	)	$	5		$	3

Schedule of carrying values and fair value estimates of financial instruments not carried at fair value

Presented below are the carrying values and fair value estimates of financial instruments not carried at fair value.

Financial assets



($ in millions)	June 30, 2015				December 31, 2014
	Carrying value		Fair value		Carrying value		Fair value
Mortgage loans	$	4,343	$	4,537	$	4,188	$	4,446
Cost method limited partnerships	1,130		1,482		1,122		1,488
Bank loans	1,763		1,754		1,663		1,638
Agent loans	404		393		368		361



($ in millions)	June 30, 2015				December 31, 2014
	Carrying value		Fair value		Carrying value		Fair value
Contractholder funds on investment contracts	$	13,118	$	13,680	$	13,734	$	14,390
Long-term debt	5,186		5,707		5,194		5,835
Liability for collateral	751		751		782		782