Fair Value of Assets and Liabilities (Tables)

6 Months Ended

Jun. 30, 2016

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, 2016.



($ 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, 2016
Assets
Fixed income securities:
U.S. government and agencies	$	2,658		$	865		$	—					$	3,523
Municipal	—			7,669			149						7,818
Corporate - public	—			30,798			74						30,872
Corporate - privately placed	—			11,243			585						11,828
Foreign government	—			1,152			—						1,152
ABS - CDO	—			691			33						724
ABS - consumer and other	—			957			45						1,002
RMBS	—			817			1						818
CMBS	—			348			20						368
Redeemable preferred stock	—			24			—						24
Total fixed income securities	2,658			54,564			907						58,129
Equity securities	4,972			175			118						5,265
Short-term investments	733			2,117			—						2,850
Other investments: Free-standing derivatives	—			88			1			$	(18	)	71
Separate account assets	3,438			—			—						3,438
Other assets	2			—			1						3
Total recurring basis assets	11,803			56,944			1,027			(18		)	69,756
Non-recurring basis⁽¹⁾	—			—			38						38
Total assets at fair value	$	11,803		$	56,944		$	1,065		$	(18	)	$	69,794
% of total assets at fair value	16.9		%	81.6		%	1.5		%	—		%	100		%

Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	—		$	—		$	(304	)				$	(304	)
Other liabilities: Free-standing derivatives	(3		)	(55		)	(8		)	$	33		(33		)
Total liabilities at fair value	$	(3	)	$	(55	)	$	(312	)	$	33		$	(337	)
% of total liabilities at fair value	0.9		%	16.3		%	92.6		%	(9.8		)%	100		%

_______________


⁽¹⁾	Includes $36 million of limited partnership interests and $2 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, 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 December 31, 2015
Assets
Fixed income securities:
U.S. government and agencies	$	3,056		$	861		$	5					$	3,922
Municipal	—			7,240			161						7,401
Corporate - public	—			30,356			46						30,402
Corporate - privately placed	—			10,923			502						11,425
Foreign government	—			1,033			—						1,033
ABS - CDO	—			716			61						777
ABS - consumer and other	—			1,500			50						1,550
RMBS	—			946			1						947
CMBS	—			446			20						466
Redeemable preferred stock	—			25			—						25
Total fixed income securities	3,056			54,046			846						57,948
Equity securities	4,786			163			133						5,082
Short-term investments	615			1,507			—						2,122
Other investments: Free-standing derivatives	—			65			1			$	(13	)	53
Separate account assets	3,658			—			—						3,658
Other assets	2			—			1						3
Total recurring basis assets	12,117			55,781			981			(13		)	68,866
Non-recurring basis ⁽¹⁾	—			—			55						55
Total assets at fair value	$	12,117		$	55,781		$	1,036		$	(13	)	$	68,921
% of total assets at fair value	17.6		%	80.9		%	1.5		%	—		%	100		%
Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	—		$	—		$	(299	)				$	(299	)
Other liabilities: Free-standing derivatives	(1		)	(23		)	(8		)	$	7		(25		)
Total liabilities at fair value	$	(1	)	$	(23	)	$	(307	)	$	7		$	(324	)
% of total liabilities at fair value	0.3		%	7.1		%	94.8		%	(2.2		)%	100		%

_______________


⁽¹⁾	Includes $42 million of limited partnership interests and $13 million of other investments 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, 2016
Derivatives embedded in life and annuity contracts – Equity-indexed and forward starting options	$	(250	)	Stochastic cash flow model	Projected option cost	1.0 - 2.2%	1.75%
December 31, 2015
Derivatives embedded in life and annuity contracts – Equity-indexed and forward starting options	$	(247	)	Stochastic cash flow model	Projected option cost	1.0 - 2.2%	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, 2016.



($ in millions)				Total gains (losses) included in:
	Balance as of March 31, 2016			Net income ⁽¹⁾			OCI			Transfers into Level 3			Transfers out of Level 3
Assets
Fixed income securities:
U.S. government and agencies	$	4		$	—		$	—		$	—		$	(4	)
Municipal	146			—			3			6			—
Corporate - public	63			—			—			—			—
Corporate - privately placed	549			3			8			16			(69		)
ABS - CDO	58			—			3			6			(3		)
ABS - consumer and other	44			—			(1		)	3			—
RMBS	1			—			—			—			—
CMBS	20			—			—			—			—
Total fixed income securities	885			3			13			31			(76		)
Equity securities	125			(8		)	1			—			—
Free-standing derivatives, net	(8		)	1			—			—			—
Other assets	1			—			—			—			—
Total recurring Level 3 assets	$	1,003		$	(4	)	$	14		$	31		$	(76	)
Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	(313	)	$	7		$	—		$	—		$	—
Total recurring Level 3 liabilities	$	(313	)	$	7		$	—		$	—		$	—

	Purchases			Sales			Issues			Settlements			Balance as of June 30, 2016
Assets
Fixed income securities:
U.S. government and agencies	$	—		$	—		$	—		$	—		$	—
Municipal	—			(6		)	—			—			149
Corporate - public	7			4			—			—			74
Corporate - privately placed	80			—			—			(2		)	585
ABS - CDO	—			—			—			(31		)	33
ABS - consumer and other	—			—			—			(1		)	45
RMBS	—			—			—			—			1
CMBS	—			—			—			—			20
Total fixed income securities	87			(2		)	—			(34		)	907
Equity securities	—			—			—			—			118
Free-standing derivatives, net	—			—			—			—			(7		)	⁽²⁾
Other assets	—			—			—			—			1
Total recurring Level 3 assets	$	87		$	(2	)	$	—		$	(34	)	$	1,019
Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	—		$	—		$	—		$	2		$	(304	)
Total recurring Level 3 liabilities	$	—		$	—		$	—		$	2		$	(304	)

_____________


⁽¹⁾	The effect to net income totals $3 million and is reported in the Condensed Consolidated Statements of Operations as follows: $(9) million in realized capital gains and losses, $5 million in net investment income, $(7) million in interest credited to contractholder funds and $14 million in life and annuity contract benefits.


⁽²⁾	Comprises $1 million of assets and $8 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, 2016.



($ in millions)				Total gains (losses) included in:
	Balance as of December 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		$	—		$	—		$	—		$	(4	)
Municipal	161			10			(5		)	6			—
Corporate - public	46			—			1			25			(7		)
Corporate - privately placed	502			4			13			16			(83		)
ABS - CDO	61			—			2			10			(3		)
ABS - consumer and other	50			—			(2		)	3			—
RMBS	1			—			—			—			—
CMBS	20			—			—			—			—
Total fixed income securities	846			14			9			60			(97		)
Equity securities	133			(32		)	8			—			—
Free-standing derivatives, net	(7		)	—			—			—			—
Other assets	1			—			—			—			—
Total recurring Level 3 assets	$	973		$	(18	)	$	17		$	60		$	(97	)
Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	(299	)	$	(8	)	$	—		$	—		$	—
Total recurring Level 3 liabilities	$	(299	)	$	(8	)	$	—		$	—		$	—

	Purchases			Sales			Issues			Settlements			Balance as of June 30, 2016
Assets
Fixed income securities:
U.S. government and agencies	$	—		$	—		$	—		$	(1	)	$	—
Municipal	—			(22		)	—			(1		)	149
Corporate - public	7			4			—			(2		)	74
Corporate - privately placed	143			—			—			(10		)	585
ABS - CDO	—			(2		)	—			(35		)	33
ABS - consumer and other	—			(5		)	—			(1		)	45
RMBS	—			—			—			—			1
CMBS	2			—			—			(2		)	20
Total fixed income securities	152			(25		)	—			(52		)	907
Equity securities	9			—			—			—			118
Free-standing derivatives, net	—			—			—			—			(7		)	⁽²⁾
Other assets	—			—			—			—			1
Total recurring Level 3 assets	$	161		$	(25	)	$	—		$	(52	)	$	1,019
Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	—		$	—		$	(1	)	$	4		$	(304	)
Total recurring Level 3 liabilities	$	—		$	—		$	(1	)	$	4		$	(304	)

_____________


⁽¹⁾	The effect to net income totals $(26) million and is reported in the Condensed Consolidated Statements of Operations as follows: $(25) million in realized capital gains and losses, $7 million in net investment income, $(6) million in interest credited to contractholder funds and $(2) million in life and annuity contract benefits.


⁽²⁾	Comprises $1 million of assets and $8 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, 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.

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,
	2016			2015			2016			2015
Assets
Fixed income securities:
Municipal	$	1		$	—		$	1		$	(1	)
Corporate	3			3			1			5
ABS	—			(1		)	—			(1		)
Total fixed income securities	4			2			2			3
Equity securities	(8		)	1			(32		)	—
Free-standing derivatives, net	1			1			—			1
Total recurring Level 3 assets	$	(3	)	$	4		$	(30	)	$	4
Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	7		$	9		$	(8	)	$	5
Total recurring Level 3 liabilities	$	7		$	9		$	(8	)	$	5

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

Financial liabilities



($ in millions)	June 30, 2016				December 31, 2015
	Carrying value		Fair value		Carrying value		Fair value
Contractholder funds on investment contracts	$	11,919	$	12,420	$	12,424	$	12,874
Long-term debt	5,109		5,868		5,124		5,648
Liability for collateral	896		896		840		840

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

Financial assets



($ in millions)	June 30, 2016				December 31, 2015
	Carrying value		Fair value		Carrying value		Fair value
Mortgage loans	$	4,453	$	4,666	$	4,338	$	4,489
Cost method limited partnerships	1,284		1,511		1,154		1,450
Bank loans	1,635		1,614		1,565		1,527
Agent loans	452		444		422		408

- Definition

Tabular disclosure of financial instruments measured at fair value, including those classified in shareholders' equity measured on a recurring or nonrecurring basis. Disclosures include, but are not limited to, fair value measurements recorded and the reasons for the measurements, level within the fair value hierarchy in which the fair value measurements are categorized and transfers between levels 1 and 2. Nonrecurring fair value measurements are those that are required or permitted in the statement of financial position in particular circumstances.

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