Fair Value Measurements (Tables)

6 Months Ended

Jun. 30, 2018

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, 2018
Assets:
Available for sale (“AFS”) fixed maturities:
U.S. Government and government agencies	$	140	$	92	$	8	$	240
States, municipalities and political subdivisions	—		6,852		61		6,913
Foreign government	—		129		—		129
Residential MBS	—		2,739		147		2,886
Commercial MBS	—		878		56		934
Asset-backed securities	—		7,931		1,004		8,935
Corporate and other	29		18,174		1,408		19,611
Total AFS fixed maturities	169		36,795		2,684		39,648
Trading fixed maturities	38		99		—		137
Equity securities	1,471		76		230		1,777
Equity index call options	—		615		—		615
Assets of managed investment entities (“MIE”)	229		4,780		23		5,032
Variable annuity assets (separate accounts) (*)	—		636		—		636
Total assets accounted for at fair value	$	1,907	$	43,001	$	2,937	$	47,845
Liabilities:
Liabilities of managed investment entities	$	220	$	4,598	$	22	$	4,840
Derivatives in annuity benefits accumulated	—		—		2,776		2,776
Other liabilities — derivatives	—		72		—		72
Total liabilities accounted for at fair value	$	220	$	4,670	$	2,798	$	7,688

December 31, 2017
Assets:
Available for sale fixed maturities:
U.S. Government and government agencies	$	122	$	112	$	8	$	242
States, municipalities and political subdivisions	—		6,975		148		7,123
Foreign government	—		127		—		127
Residential MBS	—		3,105		122		3,227
Commercial MBS	—		926		36		962
Asset-backed securities	—		7,218		744		7,962
Corporate and other	30		17,662		1,044		18,736
Total AFS fixed maturities	152		36,125		2,102		38,379
Trading fixed maturities	44		304		—		348
Equity securities	1,411		86		165		1,662
Equity index call options	—		701		—		701
Assets of managed investment entities	307		4,572		23		4,902
Variable annuity assets (separate accounts) (*)	—		644		—		644
Total assets accounted for at fair value	$	1,914	$	42,432	$	2,290	$	46,636
Liabilities:
Liabilities of managed investment entities	$	293	$	4,372	$	22	$	4,687
Derivatives in annuity benefits accumulated	—		—		2,542		2,542
Other liabilities — derivatives	—		35		—		35
Total liabilities accounted for at fair value	$	293	$	4,407	$	2,564	$	7,264


(*)	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 E — “Derivatives.”



	Unobservable Input		Range
	Adjustment for insurance subsidiary’s credit risk		0.4% – 1.7% over the risk free rate
	Risk margin for uncertainty in cash flows		0.70% reduction in the discount rate
	Surrenders		3% – 23% of indexed account value
	Partial surrenders		2% – 9% of indexed account value
	Annuitizations		0.1% – 1% of indexed account value
	Deaths		1.6% – 8.0% of indexed account value
	Budgeted option costs		2.5% – 3.5% 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 second quarter and first six months of 2018 and 2017 are presented below (in millions). The transfers into and out of Level 3 were due to changes in the availability of market observable inputs and $29 million of equity securities transferred into Level 3 in the first quarter of 2018 related to a small number of limited partnerships and similar investments carried at cost under the prior guidance that are carried at fair value through net earnings under new guidance adopted on January 1, 2018, as discussed in Note A — “Accounting Policies — Investments.” 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, 2018			Net earnings			Other comprehensive income (loss)			Purchases and issuances			Sales and settlements			Transfer into Level 3		Transfer out of Level 3			Balance at June 30, 2018
AFS fixed maturities:
U.S. government agency	$	8		$	—		$	—		$	—		$	—		$	—	$	—		$	8
State and municipal	62			—			(1		)	—			—			—		—			61
Residential MBS	115			(3		)	—			—			(5		)	50		(10		)	147
Commercial MBS	47			—			—			9			—			—		—			56
Asset-backed securities	912			—			(6		)	136			(20		)	—		(18		)	1,004
Corporate and other	1,238			1			(4		)	234			(48		)	—		(13		)	1,408
Total AFS fixed maturities	2,382			(2		)	(11		)	379			(73		)	50		(41		)	2,684
Equity securities	194			19			—			16			—			1		—			230
Assets of MIE	24			(3		)	—			2			—			—		—			23
Total Level 3 assets	$	2,600		$	14		$	(11	)	$	397		$	(73	)	$	51	$	(41	)	$	2,937

Embedded derivatives (a)	$	(2,549	)	$	(126	)	$	—		$	(141	)	$	40		$	—	$	—		$	(2,776	)
Total Level 3 liabilities (b)	$	(2,549	)	$	(126	)	$	—		$	(141	)	$	40		$	—	$	—		$	(2,776	)



				Total realized/unrealized gains (losses) included in
	Balance at March 31, 2017			Net earnings			Other comprehensive income (loss)		Purchases and issuances			Sales and settlements			Transfer into Level 3		Transfer out of Level 3			Balance at June 30, 2017
AFS fixed maturities:
U.S. government agency	$	8		$	—		$	—	$	—		$	—		$	—	$	—		$	8
State and municipal	143			—			1		—			(1		)	—		—			143
Residential MBS	175			(3		)	2		—			(23		)	13		(11		)	153
Commercial MBS	29			1			—		15			—			—		—			45
Asset-backed securities	594			—			2		—			(25		)	19		(92		)	498
Corporate and other	828			4			4		168			(27		)	—		(24		)	953
Total AFS fixed maturities	1,777			2			9		183			(76		)	32		(127		)	1,800
Equity securities	173			(10		)	6		8			(3		)	—		(6		)	168
Assets of MIE	26			(5		)	—		2			—			—		—			23
Total Level 3 assets	$	1,976		$	(13	)	$	15	$	193		$	(79	)	$	32	$	(133	)	$	1,991

Embedded derivatives	$	(1,963	)	$	(112	)	$	—	$	(80	)	$	26		$	—	$	—		$	(2,129	)
Total Level 3 liabilities (b)	$	(1,963	)	$	(112	)	$	—	$	(80	)	$	26		$	—	$	—		$	(2,129	)


(a)	Total realized/unrealized gains (losses) included in net earnings for the embedded derivatives reflects losses related to the unlocking of actuarial assumptions of $44 million in the second quarter of 2018.


(b)	As previously discussed, 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, 2017			Net earnings			Other comprehensive income (loss)			Purchases and issuances			Sales and settlements			Transfer into Level 3		Transfer out of Level 3			Balance at June 30, 2018
AFS fixed maturities:
U.S. government agency	$	8		$	—		$	—		$	—		$	—		$	—	$	—		$	8
State and municipal	148			—			(2		)	—			(1		)	—		(84		)	61
Residential MBS	122			(7		)	—			—			(11		)	57		(14		)	147
Commercial MBS	36			(1		)	—			21			—			—		—			56
Asset-backed securities	744			(2		)	(3		)	340			(57		)	—		(18		)	1,004
Corporate and other	1,044			2			(18		)	472			(79		)	—		(13		)	1,408
Total AFS fixed maturities	2,102			(8		)	(23		)	833			(148		)	57		(129		)	2,684
Equity securities	165			14			—			25			(4		)	30		—			230
Assets of MIE	23			(5		)	—			5			—			—		—			23
Total Level 3 assets	$	2,290		$	1		$	(23	)	$	863		$	(152	)	$	87	$	(129	)	$	2,937

Embedded derivatives (a)	$	(2,542	)	$	(63	)	$	—		$	(244	)	$	73		$	—	$	—		$	(2,776	)
Total Level 3 liabilities (b)	$	(2,542	)	$	(63	)	$	—		$	(244	)	$	73		$	—	$	—		$	(2,776	)



				Total realized/unrealized gains (losses) included in
	Balance at December 31, 2016			Net earnings			Other comprehensive income (loss)		Purchases and issuances			Sales and settlements			Transfer into Level 3		Transfer out of Level 3			Balance at June 30, 2017
AFS fixed maturities:
U.S. government agency	$	8		$	—		$	—	$	—		$	—		$	—	$	—		$	8
State and municipal	140			—			4		—			(1		)	—		—			143
Residential MBS	190			(2		)	2		1			(31		)	20		(27		)	153
Commercial MBS	25			1			—		15			—			4		—			45
Asset-backed securities	484			—			2		104			(36		)	36		(92		)	498
Corporate and other	712			5			8		288			(65		)	29		(24		)	953
Total AFS fixed maturities	1,559			4			16		408			(133		)	89		(143		)	1,800
Equity securities	174			(16		)	13		20			(3		)	—		(20		)	168
Assets of MIE	29			(6		)	—		4			—			—		(4		)	23
Total Level 3 assets	$	1,762		$	(18	)	$	29	$	432		$	(136	)	$	89	$	(167	)	$	1,991

Embedded derivatives	$	(1,759	)	$	(259	)	$	—	$	(159	)	$	48		$	—	$	—		$	(2,129	)
Total Level 3 liabilities (b)	$	(1,759	)	$	(259	)	$	—	$	(159	)	$	48		$	—	$	—		$	(2,129	)


(a)	Total realized/unrealized gains (losses) included in net earnings for the embedded derivatives reflects losses related to the unlocking of actuarial assumptions of $44 million in the first six months of 2018.


(b)	As previously discussed, 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 March 31, 2018			Net earnings			Other comprehensive income (loss)			Purchases and issuances			Sales and settlements			Transfer into Level 3		Transfer out of Level 3			Balance at June 30, 2018
AFS fixed maturities:
U.S. government agency	$	8		$	—		$	—		$	—		$	—		$	—	$	—		$	8
State and municipal	62			—			(1		)	—			—			—		—			61
Residential MBS	115			(3		)	—			—			(5		)	50		(10		)	147
Commercial MBS	47			—			—			9			—			—		—			56
Asset-backed securities	912			—			(6		)	136			(20		)	—		(18		)	1,004
Corporate and other	1,238			1			(4		)	234			(48		)	—		(13		)	1,408
Total AFS fixed maturities	2,382			(2		)	(11		)	379			(73		)	50		(41		)	2,684
Equity securities	194			19			—			16			—			1		—			230
Assets of MIE	24			(3		)	—			2			—			—		—			23
Total Level 3 assets	$	2,600		$	14		$	(11	)	$	397		$	(73	)	$	51	$	(41	)	$	2,937

Embedded derivatives (a)	$	(2,549	)	$	(126	)	$	—		$	(141	)	$	40		$	—	$	—		$	(2,776	)
Total Level 3 liabilities (b)	$	(2,549	)	$	(126	)	$	—		$	(141	)	$	40		$	—	$	—		$	(2,776	)



				Total realized/unrealized gains (losses) included in
	Balance at March 31, 2017			Net earnings			Other comprehensive income (loss)		Purchases and issuances			Sales and settlements			Transfer into Level 3		Transfer out of Level 3			Balance at June 30, 2017
AFS fixed maturities:
U.S. government agency	$	8		$	—		$	—	$	—		$	—		$	—	$	—		$	8
State and municipal	143			—			1		—			(1		)	—		—			143
Residential MBS	175			(3		)	2		—			(23		)	13		(11		)	153
Commercial MBS	29			1			—		15			—			—		—			45
Asset-backed securities	594			—			2		—			(25		)	19		(92		)	498
Corporate and other	828			4			4		168			(27		)	—		(24		)	953
Total AFS fixed maturities	1,777			2			9		183			(76		)	32		(127		)	1,800
Equity securities	173			(10		)	6		8			(3		)	—		(6		)	168
Assets of MIE	26			(5		)	—		2			—			—		—			23
Total Level 3 assets	$	1,976		$	(13	)	$	15	$	193		$	(79	)	$	32	$	(133	)	$	1,991

Embedded derivatives	$	(1,963	)	$	(112	)	$	—	$	(80	)	$	26		$	—	$	—		$	(2,129	)
Total Level 3 liabilities (b)	$	(1,963	)	$	(112	)	$	—	$	(80	)	$	26		$	—	$	—		$	(2,129	)


(a)	Total realized/unrealized gains (losses) included in net earnings for the embedded derivatives reflects losses related to the unlocking of actuarial assumptions of $44 million in the second quarter of 2018.


(b)	As previously discussed, 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, 2017			Net earnings			Other comprehensive income (loss)			Purchases and issuances			Sales and settlements			Transfer into Level 3		Transfer out of Level 3			Balance at June 30, 2018
AFS fixed maturities:
U.S. government agency	$	8		$	—		$	—		$	—		$	—		$	—	$	—		$	8
State and municipal	148			—			(2		)	—			(1		)	—		(84		)	61
Residential MBS	122			(7		)	—			—			(11		)	57		(14		)	147
Commercial MBS	36			(1		)	—			21			—			—		—			56
Asset-backed securities	744			(2		)	(3		)	340			(57		)	—		(18		)	1,004
Corporate and other	1,044			2			(18		)	472			(79		)	—		(13		)	1,408
Total AFS fixed maturities	2,102			(8		)	(23		)	833			(148		)	57		(129		)	2,684
Equity securities	165			14			—			25			(4		)	30		—			230
Assets of MIE	23			(5		)	—			5			—			—		—			23
Total Level 3 assets	$	2,290		$	1		$	(23	)	$	863		$	(152	)	$	87	$	(129	)	$	2,937

Embedded derivatives (a)	$	(2,542	)	$	(63	)	$	—		$	(244	)	$	73		$	—	$	—		$	(2,776	)
Total Level 3 liabilities (b)	$	(2,542	)	$	(63	)	$	—		$	(244	)	$	73		$	—	$	—		$	(2,776	)



				Total realized/unrealized gains (losses) included in
	Balance at December 31, 2016			Net earnings			Other comprehensive income (loss)		Purchases and issuances			Sales and settlements			Transfer into Level 3		Transfer out of Level 3			Balance at June 30, 2017
AFS fixed maturities:
U.S. government agency	$	8		$	—		$	—	$	—		$	—		$	—	$	—		$	8
State and municipal	140			—			4		—			(1		)	—		—			143
Residential MBS	190			(2		)	2		1			(31		)	20		(27		)	153
Commercial MBS	25			1			—		15			—			4		—			45
Asset-backed securities	484			—			2		104			(36		)	36		(92		)	498
Corporate and other	712			5			8		288			(65		)	29		(24		)	953
Total AFS fixed maturities	1,559			4			16		408			(133		)	89		(143		)	1,800
Equity securities	174			(16		)	13		20			(3		)	—		(20		)	168
Assets of MIE	29			(6		)	—		4			—			—		(4		)	23
Total Level 3 assets	$	1,762		$	(18	)	$	29	$	432		$	(136	)	$	89	$	(167	)	$	1,991

Embedded derivatives	$	(1,759	)	$	(259	)	$	—	$	(159	)	$	48		$	—	$	—		$	(2,129	)
Total Level 3 liabilities (b)	$	(1,759	)	$	(259	)	$	—	$	(159	)	$	48		$	—	$	—		$	(2,129	)


(a)	Total realized/unrealized gains (losses) included in net earnings for the embedded derivatives reflects losses related to the unlocking of actuarial assumptions of $44 million in the first six months of 2018.


(b)	As previously discussed, 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
June 30, 2018
Financial assets:
Cash and cash equivalents	$	1,810	$	1,810	$	1,810	$	—	$	—
Mortgage loans	1,147		1,136		—		—		1,136
Policy loans	179		179		—		—		179
Total financial assets not accounted for at fair value	$	3,136	$	3,125	$	1,810	$	—	$	1,315
Financial liabilities:
Annuity benefits accumulated (*)	$	34,673	$	33,204	$	—	$	—	$	33,204
Long-term debt	1,301		1,265		—		1,262		3
Total financial liabilities not accounted for at fair value	$	35,974	$	34,469	$	—	$	1,262	$	33,207

December 31, 2017
Financial assets:
Cash and cash equivalents	$	2,338	$	2,338	$	2,338	$	—	$	—
Mortgage loans	1,125		1,119		—		—		1,119
Policy loans	184		184		—		—		184
Total financial assets not accounted for at fair value	$	3,647	$	3,641	$	2,338	$	—	$	1,303
Financial liabilities:
Annuity benefits accumulated (*)	$	33,110	$	32,461	$	—	$	—	$	32,461
Long-term debt	1,301		1,354		—		1,351		3
Total financial liabilities not accounted for at fair value	$	34,411	$	33,815	$	—	$	1,351	$	32,464


(*)	Excludes $213 million and $206 million of life contingent annuities in the payout phase at June 30, 2018 and December 31, 2017, respectively.