Fair Value Measurements (Tables)

9 Months Ended

Sep. 30, 2015

Assets and liabilities measured at fair value

Assets and liabilities measured and carried at fair value in the financial statements are summarized below (in millions):



	Level 1		Level 2			Level 3		Total
September 30, 2015
Assets:
Available for sale (“AFS”) fixed maturities:
U.S. Government and government agencies	$	115	$	205		$	15	$	335
States, municipalities and political subdivisions	—		7,073			93		7,166
Foreign government	—		166			—		166
Residential MBS	—		3,585			294		3,879
Commercial MBS	—		2,252			45		2,297
Asset-backed securities (“ABS”)	—		4,252			449		4,701
Corporate and other	48		13,876			646		14,570
Total AFS fixed maturities	163		31,409			1,542		33,114
Trading fixed maturities	13		256			—		269
Equity securities	1,473		235			123		1,831
Assets of managed investment entities (“MIE”)	155		3,432			26		3,613
Variable annuity assets (separate accounts) (*)	—		595			—		595
Other investments — derivatives	—		122			—		122
Other assets — derivatives	—		8			—		8
Total assets accounted for at fair value	$	1,804	$	36,057		$	1,691	$	39,552
Liabilities:
Liabilities of managed investment entities	$	141	$	3,123		$	23	$	3,287
Derivatives in annuity benefits accumulated	—		—			1,198		1,198
Derivatives in long-term debt	—		(7		)	—		(7		)
Other liabilities — derivatives	—		9			—		9
Total liabilities accounted for at fair value	$	141	$	3,125		$	1,221	$	4,487

December 31, 2014
Assets:
Available for sale fixed maturities:
U.S. Government and government agencies	$	164	$	174		$	15	$	353
States, municipalities and political subdivisions	—		6,647			100		6,747
Foreign government	—		194			—		194
Residential MBS	—		4,142			300		4,442
Commercial MBS	—		2,407			44		2,451
Asset-backed securities	—		3,661			226		3,887
Corporate and other	36		12,078			546		12,660
Total AFS fixed maturities	200		29,303			1,231		30,734
Trading fixed maturities	12		254			—		266
Equity securities	1,306		297			93		1,696
Assets of managed investment entities	174		2,903			31		3,108
Variable annuity assets (separate accounts) (*)	—		662			—		662
Other investments — derivatives	—		322			—		322
Total assets accounted for at fair value	$	1,692	$	33,741		$	1,355	$	36,788
Liabilities:
Liabilities of managed investment entities	$	118	$	—		$	2,701	$	2,819
Derivatives in annuity benefits accumulated	—		—			1,160		1,160
Other liabilities — derivatives	—		13			—		13
Total liabilities accounted for at fair value	$	118	$	13		$	3,861	$	3,992


(*)	Variable annuity liabilities equal the fair value of variable annuity assets.

Unobservable inputs used by management in determining fair value of embedded derivatives

The following table presents information about the unobservable inputs used by management in determining fair value of these embedded derivatives. See Note F — “Derivatives.”



Unobservable Input		Range
Adjustment for insurance subsidiary’s credit risk		0.30% – 2.60% over the risk free rate
Risk margin for uncertainty in cash flows		0.52% reduction in the discount rate
Surrenders		4% – 16% of indexed account value
Partial surrenders		2% – 10% of indexed account value
Annuitizations		1% – 1.5% of indexed account value
Deaths		1.5% – 3.0% of indexed account value
Budgeted option costs		2.25% – 3.50% of indexed account value

Changes in balances of Level 3 financial assets and liabilities

Changes in balances of Level 3 financial assets and liabilities carried at fair value during the third quarter and first nine months of 2015 and 2014 are presented below (in millions). The transfers into and out of Level 3 were due to changes in the availability of market observable inputs. All transfers are reflected in the table at fair value as of the end of the reporting period.



				Total realized/unrealized gains (losses) included in
	Balance at June 30, 2015			Net income			Other comprehensive income (loss)			Purchases and issuances			Sales and settlements			Transfer into Level 3		Transfer out of Level 3			Balance at September 30, 2015
AFS fixed maturities:
U.S. government agency	$	15		$	—		$	—		$	—		$	—		$	—	$	—		$	15
State and municipal	84			—			1			9			(1		)	—		—			93
Residential MBS	296			(3		)	(1		)	—			(8		)	10		—			294
Commercial MBS	48			—			(1		)	—			(1		)	—		(1		)	45
Asset-backed securities	332			—			—			110			(3		)	20		(10		)	449
Corporate and other	597			—			7			24			(13		)	31		—			646
Equity securities	118			—			(2		)	7			—			—		—			123
Assets of MIE	29			(3		)	—			—			—			—		—			26
Embedded derivatives	(1,258		)	130			—			(88		)	18			—		—			(1,198		)



				Total realized/unrealized gains (losses) included in
	Balance at June 30, 2014			Net income			Other comprehensive income (loss)			Purchases and issuances			Sales and settlements			Transfer into Level 3		Transfer out of Level 3			Balance at September 30, 2014
AFS fixed maturities:
U.S. government agency	$	15		$	—		$	—		$	—		$	—		$	—	$	—		$	15
State and municipal	61			(1		)	(1		)	—			—			7		—			66
Residential MBS	256			—			(1		)	8			(8		)	20		(12		)	263
Commercial MBS	28			(1		)	—			—			—			—		—			27
Asset-backed securities	204			—			(3		)	8			(7		)	—		(23		)	179
Corporate and other	313			(1		)	1			51			(13		)	91		—			442
Equity securities	81			—			(2		)	2			—			—		—			81
Assets of MIE	27			—			—			3			(1		)	—		—			29
Liabilities of MIE (*)	(2,322		)	5			—			(135		)	69			—		—			(2,383		)
Embedded derivatives	(1,026		)	(21		)	—			(51		)	13			—		—			(1,085		)


(*)	Total realized/unrealized gains (losses) included in net income includes gains of $6 million related to liabilities outstanding as of September 30, 2014. See Note H — “Managed Investment Entities.”



						Total realized/unrealized gains (losses) included in
	Balance at December 31, 2014			Impact of accounting change (*)		Net income			Other comprehensive income (loss)			Purchases and issuances			Sales and settlements			Transfer into Level 3		Transfer out of Level 3			Balance at September 30, 2015
AFS fixed maturities:
U.S. government agency	$	15		$	—	$	—		$	—		$	—		$	—		$	—	$	—		$	15
State and municipal	100			—		—			(1		)	34			(1		)	—		(39		)	93
Residential MBS	300			—		(5		)	—			—			(24		)	67		(44		)	294
Commercial MBS	44			—		—			(1		)	—			(1		)	4		(1		)	45
Asset-backed securities	226			—		1			—			230			(51		)	53		(10		)	449
Corporate and other	546			—		(3		)	(4		)	103			(37		)	41		—			646
Equity securities	93			—		(4		)	(1		)	52			—			—		(17		)	123
Assets of MIE	31			—		(9		)	—			4			—			—		—			26
Liabilities of MIE	(2,701		)	2,701		—			—			—			—			—		—			—
Embedded derivatives	(1,160		)	—		99			—			(183		)	46			—		—			(1,198		)


(*)	The impact of implementing new guidance adopted in 2015, as discussed above and in Note A — “Accounting Policies — Managed Investment Entities.”



				Total realized/unrealized gains (losses) included in
	Balance at December 31, 2013			Net income			Other comprehensive income (loss)			Purchases and issuances			Sales and settlements			Transfer into Level 3		Transfer out of Level 3			Balance at September 30, 2014
AFS fixed maturities:
U.S. government agency	$	15		$	—		$	—		$	—		$	—		$	—	$	—		$	15
State and municipal	61			(1		)	(1		)	—			—			7		—			66
Residential MBS	316			3			5			8			(23		)	58		(104		)	263
Commercial MBS	28			(1		)	—			—			—			—		—			27
Asset-backed securities	75			3			(2		)	68			(23		)	81		(23		)	179
Corporate and other	335			4			4			72			(59		)	91		(5		)	442
Equity securities	31			1			2			48			(9		)	22		(14		)	81
Assets of MIE	30			(2		)	—			3			(2		)	—		—			29
Liabilities of MIE (*)	(2,411		)	(3		)	—			(335		)	366			—		—			(2,383		)
Embedded derivatives	(804		)	(153		)	—			(162		)	34			—		—			(1,085		)


(*)	Total realized/unrealized gains (losses) included in net income includes gains of $12 million related to liabilities outstanding as of September 30, 2014. See Note H — “Managed Investment Entities.”

Fair value of financial instruments

The carrying value and fair value of financial instruments that are not carried at fair value in the financial statements are summarized below (in millions):



	Carrying Value		Fair Value		Level 1		Level 2		Level 3
September 30, 2015
Financial assets:
Cash and cash equivalents	$	894	$	894	$	894	$	—	$	—
Mortgage loans	994		1,005		—		—		1,005
Policy loans	221		221		—		—		221
Total financial assets not accounted for at fair value	$	2,109	$	2,120	$	894	$	—	$	1,226
Financial liabilities:
Annuity benefits accumulated (*)	$	25,825	$	25,083	$	—	$	—	$	25,083
Long-term debt	887		987		—		962		25
Total financial liabilities not accounted for at fair value	$	26,712	$	26,070	$	—	$	962	$	25,108

December 31, 2014
Financial assets:
Cash and cash equivalents	$	1,343	$	1,343	$	1,343	$	—	$	—
Mortgage loans	1,117		1,124		—		—		1,124
Policy loans	228		228		—		—		228
Total financial assets not accounted for at fair value	$	2,688	$	2,695	$	1,343	$	—	$	1,352
Financial liabilities:
Annuity benefits accumulated (*)	$	23,561	$	23,187	$	—	$	—	$	23,187
Long-term debt	1,061		1,180		—		1,106		74
Total financial liabilities not accounted for at fair value	$	24,622	$	24,367	$	—	$	1,106	$	23,261


(*)	Excludes $201 million and $203 million of life contingent annuities in the payout phase at September 30, 2015 and December 31, 2014, respectively.