Fair Value Measurements (Tables)

3 Months Ended

Mar. 31, 2017

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, 2017
Assets:
Available for sale (“AFS”) fixed maturities:
U.S. Government and government agencies	$	122	$	158		$	8	$	288
States, municipalities and political subdivisions	—		6,758			143		6,901
Foreign government	—		138			—		138
Residential MBS	—		3,541			175		3,716
Commercial MBS	—		1,224			29		1,253
Asset-backed securities (“ABS”)	—		5,998			594		6,592
Corporate and other	30		16,710			828		17,568
Total AFS fixed maturities	152		34,527			1,777		36,456
Trading fixed maturities	26		333			—		359
Equity securities — AFS and trading	1,383		81			173		1,637
Assets of managed investment entities (“MIE”)	896		4,409			26		5,331
Variable annuity assets (separate accounts) (*)	—		614			—		614
Equity index call options	—		573			—		573
Other assets — derivatives	—		—			—		—
Total assets accounted for at fair value	$	2,457	$	40,537		$	1,976	$	44,970
Liabilities:
Liabilities of managed investment entities	$	857	$	4,219		$	25	$	5,101
Derivatives in annuity benefits accumulated	—		—			1,963		1,963
Derivatives in long-term debt	—		—			—		—
Other liabilities — derivatives	—		32			—		32
Total liabilities accounted for at fair value	$	857	$	4,251		$	1,988	$	7,096

December 31, 2016
Assets:
Available for sale fixed maturities:
U.S. Government and government agencies	$	133	$	174		$	8	$	315
States, municipalities and political subdivisions	—		6,641			140		6,781
Foreign government	—		136			—		136
Residential MBS	—		3,445			190		3,635
Commercial MBS	—		1,468			25		1,493
Asset-backed securities	—		5,475			484		5,959
Corporate and other	29		15,484			712		16,225
Total AFS fixed maturities	162		32,823			1,559		34,544
Trading fixed maturities	30		329			—		359
Equity securities — AFS and trading	1,305		79			174		1,558
Assets of managed investment entities	380		4,356			29		4,765
Variable annuity assets (separate accounts) (*)	—		600			—		600
Equity index call options	—		492			—		492
Other assets — derivatives	—		1			—		1
Total assets accounted for at fair value	$	1,877	$	38,680		$	1,762	$	42,319
Liabilities:
Liabilities of managed investment entities	$	363	$	4,158		$	28	$	4,549
Derivatives in annuity benefits accumulated	—		—			1,759		1,759
Derivatives in long-term debt	—		(1		)	—		(1		)
Other liabilities — derivatives	—		30			—		30
Total liabilities accounted for at fair value	$	363	$	4,187		$	1,787	$	6,337


(*)	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		0.2% – 2.8% over the risk free rate
	Risk margin for uncertainty in cash flows		0.68% reduction in the discount rate
	Surrenders		3% – 21% of indexed account value
	Partial surrenders		2% – 10% of indexed account value
	Annuitizations		0.1% – 1% of indexed account value
	Deaths		1.5% – 8.0% of indexed account value
	Budgeted option costs		2.4% – 3.6% of indexed account value

Changes in balances of Level 3 financial assets

Changes in balances of Level 3 financial assets and liabilities carried at fair value during the first three months of 2017 and 2016 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, 2016			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, 2017
AFS fixed maturities:
U.S. government agency	$	8		$	—		$	—	$	—		$	—		$	—	$	—		$	8
State and municipal	140			—			3		—			—			—		—			143
Residential MBS	190			1			—		1			(8		)	7		(16		)	175
Commercial MBS	25			—			—		—			—			4		—			29
Asset-backed securities	484			—			—		104			(11		)	17		—			594
Corporate and other	712			1			4		120			(38		)	29		—			828
Total AFS fixed maturities	1,559			2			7		225			(57		)	57		(16		)	1,777
Equity securities	174			(6		)	7		12			—			—		(14		)	173
Assets of MIE	29			(1		)	—		2			—			—		(4		)	26
Total Level 3 assets	$	1,762		$	(5	)	$	14	$	239		$	(57	)	$	57	$	(34	)	$	1,976

Embedded derivatives	$	(1,759	)	$	(147	)	$	—	$	(79	)	$	22		$	—	$	—		$	(1,963	)
Total Level 3 liabilities (*)	$	(1,759	)	$	(147	)	$	—	$	(79	)	$	22		$	—	$	—		$	(1,963	)



				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 (*)	$	(1,369	)	$	(17	)	$	—		$	(82	)	$	18		$	—	$	—		$	(1,450	)


(*)	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.

Changes in balances of Level 3 financial liabilities



				Total realized/unrealized gains (losses) included in
	Balance at December 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 March 31, 2017
AFS fixed maturities:
U.S. government agency	$	8		$	—		$	—	$	—		$	—		$	—	$	—		$	8
State and municipal	140			—			3		—			—			—		—			143
Residential MBS	190			1			—		1			(8		)	7		(16		)	175
Commercial MBS	25			—			—		—			—			4		—			29
Asset-backed securities	484			—			—		104			(11		)	17		—			594
Corporate and other	712			1			4		120			(38		)	29		—			828
Total AFS fixed maturities	1,559			2			7		225			(57		)	57		(16		)	1,777
Equity securities	174			(6		)	7		12			—			—		(14		)	173
Assets of MIE	29			(1		)	—		2			—			—		(4		)	26
Total Level 3 assets	$	1,762		$	(5	)	$	14	$	239		$	(57	)	$	57	$	(34	)	$	1,976

Embedded derivatives	$	(1,759	)	$	(147	)	$	—	$	(79	)	$	22		$	—	$	—		$	(1,963	)
Total Level 3 liabilities (*)	$	(1,759	)	$	(147	)	$	—	$	(79	)	$	22		$	—	$	—		$	(1,963	)



				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 (*)	$	(1,369	)	$	(17	)	$	—		$	(82	)	$	18		$	—	$	—		$	(1,450	)


(*)	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.

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, 2017
Financial assets:
Cash and cash equivalents	$	1,890	$	1,890	$	1,890	$	—	$	—
Mortgage loans	1,159		1,158		—		—		1,158
Policy loans	190		190		—		—		190
Total financial assets not accounted for at fair value	$	3,239	$	3,238	$	1,890	$	—	$	1,348
Financial liabilities:
Annuity benefits accumulated (*)	$	30,799	$	29,997	$	—	$	—	$	29,997
Long-term debt	1,283		1,382		—		1,379		3
Total financial liabilities not accounted for at fair value	$	32,082	$	31,379	$	—	$	1,379	$	30,000

December 31, 2016
Financial assets:
Cash and cash equivalents	$	2,107	$	2,107	$	2,107	$	—	$	—
Mortgage loans	1,147		1,146		—		—		1,146
Policy loans	192		192		—		—		192
Total financial assets not accounted for at fair value	$	3,446	$	3,445	$	2,107	$	—	$	1,338
Financial liabilities:
Annuity benefits accumulated (*)	$	29,703	$	28,932	$	—	$	—	$	28,932
Long-term debt	1,284		1,356		—		1,353		3
Total financial liabilities not accounted for at fair value	$	30,987	$	30,288	$	—	$	1,353	$	28,935


(*)	Excludes $203 million and $204 million of life contingent annuities in the payout phase at March 31, 2017 and December 31, 2016, respectively.