Fair Value Measurements (Tables)

6 Months Ended

Jun. 30, 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
June 30, 2016
Assets:
Available for sale (“AFS”) fixed maturities:
U.S. Government and government agencies	$	103	$	227		$	8	$	338
States, municipalities and political subdivisions	—		7,048			91		7,139
Foreign government	—		143			—		143
Residential MBS	—		3,516			231		3,747
Commercial MBS	—		2,006			36		2,042
Asset-backed securities (“ABS”)	—		5,022			478		5,500
Corporate and other	38		15,002			689		15,729
Total AFS fixed maturities	141		32,964			1,533		34,638
Trading fixed maturities	12		259			—		271
Equity securities — AFS and trading	1,305		87			166		1,558
Assets of managed investment entities (“MIE”)	338		4,046			26		4,410
Variable annuity assets (separate accounts) (*)	—		595			—		595
Other investments — equity index call options	—		368			—		368
Other assets — derivatives	—		18			—		18
Total assets accounted for at fair value	$	1,796	$	38,337		$	1,725	$	41,858
Liabilities:
Liabilities of managed investment entities	$	322	$	3,846		$	24	$	4,192
Derivatives in annuity benefits accumulated	—		—			1,557		1,557
Derivatives in long-term debt	—		(9		)	—		(9		)
Other liabilities — derivatives	—		13			—		13
Total liabilities accounted for at fair value	$	322	$	3,850		$	1,581	$	5,753

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		0.1% – 3.1% 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% 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 second quarter and first six 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 March 31, 2016			Net income			Other comprehensive income (loss)		Purchases and issuances			Sales and settlements			Transfer into Level 3		Transfer out of Level 3			Balance at June 30, 2016
AFS fixed maturities:
U.S. government agency	$	15		$	(8	)	$	1	$	—		$	—		$	—	$	—		$	8
State and municipal	92			—			—		—			(1		)	—		—			91
Residential MBS	213			1			1		—			(6		)	22		—			231
Commercial MBS	38			(1		)	—		—			(1		)	—		—			36
Asset-backed securities	501			—			3		11			(11		)	—		(26		)	478
Corporate and other	730			2			12		8			(68		)	10		(5		)	689
Total AFS fixed maturities	1,589			(6		)	17		19			(87		)	32		(31		)	1,533
Equity securities	158			—			8		—			—			—		—			166
Assets of MIE	24			(2		)	—		4			—			—		—			26
Total Level 3 assets	$	1,771		$	(8	)	$	25	$	23		$	(87	)	$	32	$	(31	)	$	1,725

Embedded derivatives	$	(1,450	)	$	(62	)	$	—	$	(72	)	$	27		$	—	$	—		$	(1,557	)
Total Level 3 liabilities (*)	$	(1,450	)	$	(62	)	$	—	$	(72	)	$	27		$	—	$	—		$	(1,557	)



				Total realized/unrealized gains (losses) included in
	Balance at March 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 June 30, 2015
AFS fixed maturities:
U.S. government agency	$	15		$	—		$	—		$	—		$	—		$	—	$	—		$	15
State and municipal	61			—			(2		)	25			—			—		—			84
Residential MBS	306			(1		)	(2		)	—			(9		)	16		(14		)	296
Commercial MBS	44			—			—			—			—			4		—			48
Asset-backed securities	211			1			—			115			(7		)	12		—			332
Corporate and other	583			(3		)	(17		)	35			(11		)	10		—			597
Total AFS fixed maturities	1,220			(3		)	(21		)	175			(27		)	42		(14		)	1,372
Equity securities	84			(4		)	3			35			—			—		—			118
Assets of MIE	29			(4		)	—			4			—			—		—			29
Total Level 3 assets	$	1,333		$	(11	)	$	(18	)	$	214		$	(27	)	$	42	$	(14	)	$	1,519

Embedded derivatives	$	(1,243	)	$	19		$	—		$	(48	)	$	14		$	—	$	—		$	(1,258	)
Total Level 3 liabilities (*)	$	(1,243	)	$	19		$	—		$	(48	)	$	14		$	—	$	—		$	(1,258	)


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



				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 June 30, 2016
AFS fixed maturities:
U.S. government agency	$	15		$	(8	)	$	1		$	—		$	—		$	—	$	—		$	8
State and municipal	89			—			3			—			(1		)	—		—			91
Residential MBS	224			2			1			—			(13		)	33		(16		)	231
Commercial MBS	39			(1		)	—			—			(2		)	—		—			36
Asset-backed securities	470			—			(3		)	15			(19		)	41		(26		)	478
Corporate and other	633			—			27			94			(75		)	15		(5		)	689
Total AFS fixed maturities	1,470			(7		)	29			109			(110		)	89		(47		)	1,533
Equity securities	140			(17		)	16			12			—			15		—			166
Assets of MIE	26			(4		)	—			4			—			—		—			26
Total Level 3 assets	$	1,636		$	(28	)	$	45		$	125		$	(110	)	$	104	$	(47	)	$	1,725

Embedded derivatives	$	(1,369	)	$	(79	)	$	—		$	(154	)	$	45		$	—	$	—		$	(1,557	)
Total Level 3 liabilities (a)	$	(1,369	)	$	(79	)	$	—		$	(154	)	$	45		$	—	$	—		$	(1,557	)



						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 June 30, 2015
AFS fixed maturities:
U.S. government agency	$	15		$	—	$	—		$	—		$	—		$	—		$	—	$	—		$	15
State and municipal	100			—		—			(2		)	25			—			—		(39		)	84
Residential MBS	300			—		(2		)	1			—			(16		)	57		(44		)	296
Commercial MBS	44			—		—			—			—			—			4		—			48
Asset-backed securities	226			—		1			—			120			(48		)	33		—			332
Corporate and other	546			—		(3		)	(11		)	79			(24		)	10		—			597
Total AFS fixed maturities	1,231			—		(4		)	(12		)	224			(88		)	104		(83		)	1,372
Equity securities	93			—		(4		)	1			45			—			—		(17		)	118
Assets of MIE	31			—		(6		)	—			4			—			—		—			29
Total Level 3 assets	$	1,355		$	—	$	(14	)	$	(11	)	$	273		$	(88	)	$	104	$	(100	)	$	1,519

Liabilities of MIE	$	(2,701	)	$	2,701	$	—		$	—		$	—		$	—		$	—	$	—		$	—
Embedded derivatives	(1,160		)	—		(31		)	—			(95		)	28			—		—			(1,258		)
Total Level 3 liabilities (a)	$	(3,861	)	$	2,701	$	(31	)	$	—		$	(95	)	$	28		$	—	$	—		$	(1,258	)


(a)	As discussed previously, 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
June 30, 2016
Financial assets:
Cash and cash equivalents	$	1,548	$	1,548	$	1,548	$	—	$	—
Mortgage loans	1,159		1,173		—		—		1,173
Policy loans	195		195		—		—		195
Total financial assets not accounted for at fair value	$	2,902	$	2,916	$	1,548	$	—	$	1,368
Financial liabilities:
Annuity benefits accumulated (*)	$	28,396	$	28,459	$	—	$	—	$	28,459
Long-term debt	1,007		1,141		—		1,126		15
Total financial liabilities not accounted for at fair value	$	29,403	$	29,600	$	—	$	1,126	$	28,474

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 $200 million of life contingent annuities in the payout phase at both June 30, 2016 and December 31, 2015