Fair Value Measurements (Tables)

3 Months Ended

Mar. 31, 2016

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
March 31, 2016
Assets:
Available for sale (“AFS”) fixed maturities:
U.S. Government and government agencies	$	105	$	218		$	15	$	338
States, municipalities and political subdivisions	—		6,960			92		7,052
Foreign government	—		147			—		147
Residential MBS	—		3,559			213		3,772
Commercial MBS	—		2,098			38		2,136
Asset-backed securities (“ABS”)	—		4,629			501		5,130
Corporate and other	37		14,579			730		15,346
Total AFS fixed maturities	142		32,190			1,589		33,921
Trading fixed maturities	10		239			—		249
Equity securities — AFS and trading	1,359		131			158		1,648
Assets of managed investment entities (“MIE”)	177		3,705			24		3,906
Variable annuity assets (separate accounts) (*)	—		595			—		595
Other investments — equity index call options	—		274			—		274
Other assets — derivatives	—		13			—		13
Total assets accounted for at fair value	$	1,688	$	37,147		$	1,771	$	40,606
Liabilities:
Liabilities of managed investment entities	$	165	$	3,468		$	23	$	3,656
Derivatives in annuity benefits accumulated	—		—			1,450		1,450
Derivatives in long-term debt	—		(8		)	—		(8		)
Other liabilities — derivatives	—		10			—		10
Total liabilities accounted for at fair value	$	165	$	3,470		$	1,473	$	5,108

December 31, 2015
Assets:
Available for sale fixed maturities:
U.S. Government and government agencies	$	100	$	192		$	15	$	307
States, municipalities and political subdivisions	—		6,767			89		6,856
Foreign government	—		154			—		154
Residential MBS	—		3,305			224		3,529
Commercial MBS	—		2,148			39		2,187
Asset-backed securities	—		4,464			470		4,934
Corporate and other	50		13,634			633		14,317
Total AFS fixed maturities	150		30,664			1,470		32,284
Trading fixed maturities	13		241			—		254
Equity securities — AFS and trading	1,362		217			140		1,719
Assets of managed investment entities	309		3,712			26		4,047
Variable annuity assets (separate accounts) (*)	—		608			—		608
Other investments — equity index call options	—		241			—		241
Other assets — derivatives	—		2			—		2
Total assets accounted for at fair value	$	1,834	$	35,685		$	1,636	$	39,155
Liabilities:
Liabilities of managed investment entities	$	289	$	3,468		$	24	$	3,781
Derivatives in annuity benefits accumulated	—		—			1,369		1,369
Derivatives in long-term debt	—		(2		)	—		(2		)
Other liabilities — derivatives	—		8			—		8
Total liabilities accounted for at fair value	$	289	$	3,474		$	1,393	$	5,156


(*)	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		0.20% – 3.20% over the risk free rate
	Risk margin for uncertainty in cash flows		0.58% reduction in the discount rate
	Surrenders		3% – 21% of indexed account value
	Partial surrenders		2% – 10% of indexed account value
	Annuitizations		0.25% – 1.0% of indexed account value
	Deaths		1.5% – 4.0% of indexed account value
	Budgeted option costs		1.75% – 3.5% 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 first three months of 2016 and 2015 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 December 31, 2015			Net income			Other comprehensive income (loss)			Purchases and issuances			Sales and settlements			Transfer into Level 3		Transfer out of Level 3			Balance at March 31, 2016
AFS fixed maturities:
U.S. government agency	$	15		$	—		$	—		$	—		$	—		$	—	$	—		$	15
State and municipal	89			—			3			—			—			—		—			92
Residential MBS	224			1			—			—			(7		)	11		(16		)	213
Commercial MBS	39			—			—			—			(1		)	—		—			38
Asset-backed securities	470			—			(6		)	4			(8		)	41		—			501
Corporate and other	633			(2		)	15			86			(7		)	5		—			730
Total AFS fixed maturities	1,470			(1		)	12			90			(23		)	57		(16		)	1,589
Equity securities	140			(17		)	8			12			—			15		—			158
Assets of MIE	26			(2		)	—			—			—			—		—			24
Total Level 3 assets	$	1,636		$	(20	)	$	20		$	102		$	(23	)	$	72	$	(16	)	$	1,771

Embedded derivatives	$	(1,369	)	$	(17	)	$	—		$	(82	)	$	18		$	—	$	—		$	(1,450	)
Total Level 3 liabilities (a)	$	(1,369	)	$	(17	)	$	—		$	(82	)	$	18		$	—	$	—		$	(1,450	)



						Total realized/unrealized gains (losses) included in
	Balance at December 31, 2014			Impact of accounting change (b)		Net income			Other comprehensive income (loss)			Purchases and issuances			Sales and settlements			Transfer into Level 3		Transfer out of Level 3			Balance at March 31, 2015
AFS fixed maturities:
U.S. government agency	$	15		$	—	$	—		$	—		$	—		$	—		$	—	$	—		$	15
State and municipal	100			—		—			—			—			—			—		(39		)	61
Residential MBS	300			—		(1		)	3			—			(7		)	41		(30		)	306
Commercial MBS	44			—		—			—			—			—			—		—			44
Asset-backed securities	226			—		—			—			5			(41		)	21		—			211
Corporate and other	546			—		—			6			44			(13		)	—		—			583
Total AFS fixed maturities	1,231			—		(1		)	9			49			(61		)	62		(69		)	1,220
Equity securities	93			—		—			(2		)	10			—			—		(17		)	84
Assets of MIE	31			—		(2		)	—			—			—			—		—			29
Total Level 3 assets	$	1,355		$	—	$	(3	)	$	7		$	59		$	(61	)	$	62	$	(86	)	$	1,333

Liabilities of MIE	$	(2,701	)	$	2,701	$	—		$	—		$	—		$	—		$	—	$	—		$	—
Embedded derivatives	(1,160		)	—		(50		)	—			(47		)	14			—		—			(1,243		)
Total Level 3 liabilities (a)	$	(3,861	)	$	2,701	$	(50	)	$	—		$	(47	)	$	14		$	—	$	—		$	(1,243	)


(a)	As discussed above, these tables exclude the portion of MIE liabilities allocated to Level 3, which are derived from the fair value of the MIE assets.


(b)	The impact of implementing new guidance adopted in 2015, as discussed above and in Note A — “Accounting Policies — 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		Fair Value
	Value		Total		Level 1		Level 2		Level 3
March 31, 2016
Financial assets:
Cash and cash equivalents	$	1,231	$	1,231	$	1,231	$	—	$	—
Mortgage loans	1,097		1,108		—		—		1,108
Policy loans	198		198		—		—		198
Total financial assets not accounted for at fair value	$	2,526	$	2,537	$	1,231	$	—	$	1,306
Financial liabilities:
Annuity benefits accumulated (*)	$	27,613	$	27,210	$	—	$	—	$	27,210
Long-term debt	1,006		1,125		—		1,110		15
Total financial liabilities not accounted for at fair value	$	28,619	$	28,335	$	—	$	1,110	$	27,225

December 31, 2015
Financial assets:
Cash and cash equivalents	$	1,220	$	1,220	$	1,220	$	—	$	—
Mortgage loans	1,067		1,074		—		—		1,074
Policy loans	201		201		—		—		201
Total financial assets not accounted for at fair value	$	2,488	$	2,495	$	1,220	$	—	$	1,275
Financial liabilities:
Annuity benefits accumulated (*)	$	26,422	$	25,488	$	—	$	—	$	25,488
Long-term debt	1,000		1,120		—		1,105		15
Total financial liabilities not accounted for at fair value	$	27,422	$	26,608	$	—	$	1,105	$	25,503


(*)	Excludes $199 million and $200 million of life contingent annuities in the payout phase at March 31, 2016 and December 31, 2015, respectively.