Fair Value of Assets and Liabilities (Tables)

6 Months Ended

Jun. 30, 2017

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, 2017.



($ 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, 2017
Assets
Fixed income securities:
U.S. government and agencies	$	2,773		$	653		$	—					$	3,426
Municipal	—			7,741			114						7,855
Corporate - public	—			32,079			60						32,139
Corporate - privately placed	—			11,846			266						12,112
Foreign government	—			1,047			—						1,047
ABS - CDO	—			520			91						611
ABS - consumer and other	—			512			120						632
RMBS	—			641			—						641
CMBS	—			146			24						170
Redeemable preferred stock	—			23			—						23
Total fixed income securities	2,773			55,208			675						58,656
Equity securities	5,643			308			166						6,117
Short-term investments	315			1,860			—						2,175
Other investments: Free-standing derivatives	—			126			1			$	(19	)	108
Separate account assets	3,416			—			—						3,416
Other assets	—			—			—						—
Total recurring basis assets	12,147			57,502			842			(19		)	70,472
Non-recurring basis⁽¹⁾	—			—			16						16
Total assets at fair value	$	12,147		$	57,502		$	858		$	(19	)	$	70,488
% of total assets at fair value	17.2		%	81.6		%	1.2		%	—		%	100		%

Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	—		$	—		$	(285	)				$	(285	)
Other liabilities: Free-standing derivatives	(1		)	(70		)	—			$	21		(50		)
Total liabilities at fair value	$	(1	)	$	(70	)	$	(285	)	$	21		$	(335	)
% of total liabilities at fair value	0.3		%	20.9		%	85.1		%	(6.3		)%	100		%

_______________


⁽¹⁾	Includes $15 million of limited partnership interests and $1 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, 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 December 31, 2016
Assets
Fixed income securities:
U.S. government and agencies	$	2,918		$	719		$	—					$	3,637
Municipal	—			7,208			125						7,333
Corporate - public	—			31,414			78						31,492
Corporate - privately placed	—			11,846			263						12,109
Foreign government	—			1,075			—						1,075
ABS - CDO	—			650			27						677
ABS - consumer and other	—			452			42						494
RMBS	—			727			1						728
CMBS	—			248			22						270
Redeemable preferred stock	—			24			—						24
Total fixed income securities	2,918			54,363			558						57,839
Equity securities	5,247			256			163						5,666
Short-term investments	850			3,423			15						4,288
Other investments: Free-standing derivatives	—			119			1			$	(9	)	111
Separate account assets	3,393			—			—						3,393
Other assets	—			—			1						1
Total recurring basis assets	12,408			58,161			738			(9		)	71,298
Non-recurring basis ⁽¹⁾	—			—			24						24
Total assets at fair value	$	12,408		$	58,161		$	762		$	(9	)	$	71,322
% of total assets at fair value	17.4		%	81.5		%	1.1		%	—		%	100		%
Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	—		$	—		$	(290	)				$	(290	)
Other liabilities: Free-standing derivatives	(1		)	(68		)	(3		)	$	28		(44		)
Total liabilities at fair value	$	(1	)	$	(68	)	$	(293	)	$	28		$	(334	)
% of total liabilities at fair value	0.3		%	20.4		%	87.7		%	(8.4		)%	100		%

_______________


⁽¹⁾	Includes $24 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, 2017
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%	1.74%
December 31, 2016
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%	1.75%

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, 2017.



($ in millions)				Total gains (losses) included in:
	Balance as of March 31, 2017			Net income ⁽¹⁾			OCI			Transfers into Level 3			Transfers out of Level 3
Assets
Fixed income securities:
Municipal	$	124		$	(2	)	$	5		$	—		$	—
Corporate - public	60			—			—			—			—
Corporate - privately placed	263			6			(7		)	30			—
ABS - CDO	147			—			—			3			(122		)
ABS - consumer and other	80			—			—			—			(5		)
CMBS	25			—			—			—			—
Total fixed income securities	699			4			(2		)	33			(127		)
Equity securities	170			3			3			—			—
Short-term investments	35			—			—			—			—
Free-standing derivatives, net	(1		)	2			—			—			—
Total recurring Level 3 assets	$	903		$	9		$	1		$	33		$	(127	)
Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	(286	)	$	—		$	—		$	—		$	—
Total recurring Level 3 liabilities	$	(286	)	$	—		$	—		$	—		$	—

	Purchases			Sales			Issues			Settlements			Balance as of June 30, 2017
Assets
Fixed income securities:
Municipal	$	5		$	(18	)	$	—		$	—		$	114
Corporate - public	(1		)	1			—			—			60
Corporate - privately placed	4			(29		)	—			(1		)	266
ABS - CDO	65			—			—			(2		)	91
ABS - consumer and other	48			—			—			(3		)	120
CMBS	—			—			—			(1		)	24
Total fixed income securities	121			(46		)	—			(7		)	675
Equity securities	2			(12		)	—			—			166
Short-term investments	5			(40		)	—			—			—
Free-standing derivatives, net	—			—			—			—			1			⁽²⁾
Total recurring Level 3 assets	$	128		$	(98	)	$	—		$	(7	)	$	842
Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	—		$	—		$	—		$	1		$	(285	)
Total recurring Level 3 liabilities	$	—		$	—		$	—		$	1		$	(285	)

_____________


⁽¹⁾	The effect to net income totals $9 million and is reported in the Condensed Consolidated Statements of Operations as follows: $5 million in realized capital gains and losses, $4 million in net investment income, $(1) million in interest credited to contractholder funds and $1 million in life and annuity contract benefits.


⁽²⁾	Comprises $1 million of assets.

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, 2017.



($ in millions)				Total gains (losses) included in:
	Balance as of December 31, 2016			Net income ⁽¹⁾			OCI			Transfers into Level 3			Transfers out of Level 3
Assets
Fixed income securities:
Municipal	$	125		$	(1	)	$	6		$	—		$	(1	)
Corporate - public	78			—			—			—			(16		)
Corporate - privately placed	263			6			(2		)	30			—
ABS - CDO	27			—			2			30			(122		)
ABS - consumer and other	42			—			—			—			(7		)
RMBS	1			—			—			—			—
CMBS	22			—			—			—			—
Total fixed income securities	558			5			6			60			(146		)
Equity securities	163			13			3			—			(3		)
Short-term investments	15			—			—			—			—
Free-standing derivatives, net	(2		)	3			—			—			—
Other assets	1			(1		)	—			—			—
Total recurring Level 3 assets	$	735		$	20		$	9		$	60		$	(149	)
Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	(290	)	$	3		$	—		$	—		$	—
Total recurring Level 3 liabilities	$	(290	)	$	3		$	—		$	—		$	—

	Purchases			Sales			Issues			Settlements			Balance as of June 30, 2017
Assets
Fixed income securities:
Municipal	$	5		$	(20	)	$	—		$	—		$	114
Corporate - public	(1		)	1			—			(2		)	60
Corporate - privately placed	4			(29		)	—			(6		)	266
ABS - CDO	160			—			—			(6		)	91
ABS - consumer and other	89			—			—			(4		)	120
RMBS	—			—			—			(1		)	—
CMBS	3			—			—			(1		)	24
Total fixed income securities	260			(48		)	—			(20		)	675
Equity securities	3			(13		)	—			—			166
Short-term investments	25			(40		)	—			—			—
Free-standing derivatives, net	—			—			—			—			1			⁽²⁾
Other assets	—			—			—			—			—
Total recurring Level 3 assets	$	288		$	(101	)	$	—		$	(20	)	$	842
Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	—		$	—		$	(1	)	$	3		$	(285	)
Total recurring Level 3 liabilities	$	—		$	—		$	(1	)	$	3		$	(285	)

_____________


⁽¹⁾	The effect to net income totals $23 million and is reported in the Condensed Consolidated Statements of Operations as follows: $7 million in realized capital gains and losses, $14 million in net investment income, $(6) million in interest credited to contractholder funds and $8 million in life and annuity contract benefits.


⁽²⁾	Comprises $1 million of assets.

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.

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,
	2017			2016			2017			2016
Assets
Fixed income securities:
Municipal	$	(3	)	$	1		$	(3	)	$	1
Corporate	—			3			—			1
Total fixed income securities	(3		)	4			(3		)	2
Equity securities	4			(8		)	14			(32		)
Free-standing derivatives, net	2			1			3			—
Other assets	—			—			(1		)	—
Total recurring Level 3 assets	$	3		$	(3	)	$	13		$	(30	)
Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	—		$	7		$	3		$	(8	)
Total recurring Level 3 liabilities	$	—		$	7		$	3		$	(8	)

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

Financial liabilities



($ in millions)	June 30, 2017				December 31, 2016
	Carrying value		Fair value		Carrying value		Fair value
Contractholder funds on investment contracts	$	10,846	$	11,441	$	11,313	$	12,009
Long-term debt	6,348		7,118		6,347		6,920
Liability for collateral	1,126		1,126		1,129		1,129

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

Financial assets



($ in millions)	June 30, 2017				December 31, 2016
	Carrying value		Fair value		Carrying value		Fair value
Mortgage loans	$	4,336	$	4,483	$	4,486	$	4,514
Cost method limited partnerships	1,269		1,511		1,282		1,493
Bank loans	1,754		1,759		1,669		1,677
Agent loans	499		495		467		467

- 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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