Fair Value Measurements (Tables)

3 Months Ended

Mar. 31, 2019

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, 2019
Assets:
Available for sale (“AFS”) fixed maturities:
U.S. Government and government agencies	$	144	$	81	$	8	$	233
States, municipalities and political subdivisions	—		6,914		63		6,977
Foreign government	—		148		—		148
Residential MBS	—		2,587		169		2,756
Commercial MBS	—		869		55		924
Asset-backed securities	—		9,348		670		10,018
Corporate and other	29		20,000		2,346		22,375
Total AFS fixed maturities	173		39,947		3,311		43,431
Trading fixed maturities	8		99		—		107
Equity securities	1,507		69		354		1,930
Equity index call options	—		620		—		620
Assets of managed investment entities (“MIE”)	213		4,553		20		4,786
Variable annuity assets (separate accounts) (*)	—		610		—		610
Other assets — derivatives	—		25		—		25
Total assets accounted for at fair value	$	1,901	$	45,923	$	3,685	$	51,509
Liabilities:
Liabilities of managed investment entities	$	204	$	4,370	$	19	$	4,593
Derivatives in annuity benefits accumulated	—		—		3,247		3,247
Other liabilities — derivatives	—		28		—		28
Total liabilities accounted for at fair value	$	204	$	4,398	$	3,266	$	7,868

December 31, 2018
Assets:
Available for sale fixed maturities:
U.S. Government and government agencies	$	141	$	83	$	9	$	233
States, municipalities and political subdivisions	—		6,880		59		6,939
Foreign government	—		142		—		142
Residential MBS	—		2,547		197		2,744
Commercial MBS	—		864		56		920
Asset-backed securities	—		8,964		847		9,811
Corporate and other	28		19,184		1,996		21,208
Total AFS fixed maturities	169		38,664		3,164		41,997
Trading fixed maturities	9		96		—		105
Equity securities	1,410		68		336		1,814
Equity index call options	—		184		—		184
Assets of managed investment entities	203		4,476		21		4,700
Variable annuity assets (separate accounts) (*)	—		557		—		557
Other assets — derivatives	—		16		—		16
Total assets accounted for at fair value	$	1,791	$	44,061	$	3,521	$	49,373
Liabilities:
Liabilities of managed investment entities	$	195	$	4,297	$	20	$	4,512
Derivatives in annuity benefits accumulated	—		—		2,720		2,720
Other liabilities — derivatives	—		49		—		49
Total liabilities accounted for at fair value	$	195	$	4,346	$	2,740	$	7,281


(*)	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 Level 3 liabilities. See Note E — “Derivatives.”



	Unobservable Input		Range
	Adjustment for insurance subsidiary’s credit risk		0.1% – 2.2% over the risk free rate
	Risk margin for uncertainty in cash flows		0.73% reduction in the discount rate
	Surrenders		4% – 23% of indexed account value
	Partial surrenders		2% – 9% of indexed account value
	Annuitizations		0.1% – 1% of indexed account value
	Deaths		1.7% – 9.5% of indexed account value
	Budgeted option costs		2.6% – 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 2019 and 2018 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 December 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 March 31, 2019
AFS fixed maturities:
U.S. government agency	$	9		$	—		$	—		$	—		$	(1	)	$	—	$	—		$	8
State and municipal	59			—			5			—			(1		)	—		—			63
Residential MBS	197			5			(5		)	—			(6		)	—		(22		)	169
Commercial MBS	56			—			—			—			(1		)	—		—			55
Asset-backed securities	847			(3		)	8			75			(114		)	—		(143		)	670
Corporate and other	1,996			2			31			432			(88		)	—		(27		)	2,346
Total AFS fixed maturities	3,164			4			39			507			(211		)	—		(192		)	3,311
Equity securities	336			1			—			1			—			16		—			354
Assets of MIE	21			(1		)	—			—			—			—		—			20
Total Level 3 assets	$	3,521		$	4		$	39		$	508		$	(211	)	$	16	$	(192	)	$	3,685

Embedded derivatives	$	(2,720	)	$	(462	)	$	—		$	(112	)	$	47		$	—	$	—		$	(3,247	)
Total Level 3 liabilities (*)	$	(2,720	)	$	(462	)	$	—		$	(112	)	$	47		$	—	$	—		$	(3,247	)



				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 March 31, 2018
AFS fixed maturities:
U.S. government agency	$	8		$	—		$	—		$	—		$	—		$	—	$	—		$	8
State and municipal	148			—			(1		)	—			(1		)	—		(84		)	62
Residential MBS	122			(4		)	—			—			(6		)	7		(4		)	115
Commercial MBS	36			(1		)	—			12			—			—		—			47
Asset-backed securities	744			(2		)	3			204			(37		)	—		—			912
Corporate and other	1,044			1			(14		)	238			(31		)	—		—			1,238
Total AFS fixed maturities	2,102			(6		)	(12		)	454			(75		)	7		(88		)	2,382
Equity securities	165			(5		)	—			9			(4		)	29		—			194
Assets of MIE	23			(2		)	—			3			—			—		—			24
Total Level 3 assets	$	2,290		$	(13	)	$	(12	)	$	466		$	(79	)	$	36	$	(88	)	$	2,600

Embedded derivatives	$	(2,542	)	$	63		$	—		$	(103	)	$	33		$	—	$	—		$	(2,549	)
Total Level 3 liabilities (*)	$	(2,542	)	$	63		$	—		$	(103	)	$	33		$	—	$	—		$	(2,549	)


(*)	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 December 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 March 31, 2019
AFS fixed maturities:
U.S. government agency	$	9		$	—		$	—		$	—		$	(1	)	$	—	$	—		$	8
State and municipal	59			—			5			—			(1		)	—		—			63
Residential MBS	197			5			(5		)	—			(6		)	—		(22		)	169
Commercial MBS	56			—			—			—			(1		)	—		—			55
Asset-backed securities	847			(3		)	8			75			(114		)	—		(143		)	670
Corporate and other	1,996			2			31			432			(88		)	—		(27		)	2,346
Total AFS fixed maturities	3,164			4			39			507			(211		)	—		(192		)	3,311
Equity securities	336			1			—			1			—			16		—			354
Assets of MIE	21			(1		)	—			—			—			—		—			20
Total Level 3 assets	$	3,521		$	4		$	39		$	508		$	(211	)	$	16	$	(192	)	$	3,685

Embedded derivatives	$	(2,720	)	$	(462	)	$	—		$	(112	)	$	47		$	—	$	—		$	(3,247	)
Total Level 3 liabilities (*)	$	(2,720	)	$	(462	)	$	—		$	(112	)	$	47		$	—	$	—		$	(3,247	)



				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 March 31, 2018
AFS fixed maturities:
U.S. government agency	$	8		$	—		$	—		$	—		$	—		$	—	$	—		$	8
State and municipal	148			—			(1		)	—			(1		)	—		(84		)	62
Residential MBS	122			(4		)	—			—			(6		)	7		(4		)	115
Commercial MBS	36			(1		)	—			12			—			—		—			47
Asset-backed securities	744			(2		)	3			204			(37		)	—		—			912
Corporate and other	1,044			1			(14		)	238			(31		)	—		—			1,238
Total AFS fixed maturities	2,102			(6		)	(12		)	454			(75		)	7		(88		)	2,382
Equity securities	165			(5		)	—			9			(4		)	29		—			194
Assets of MIE	23			(2		)	—			3			—			—		—			24
Total Level 3 assets	$	2,290		$	(13	)	$	(12	)	$	466		$	(79	)	$	36	$	(88	)	$	2,600

Embedded derivatives	$	(2,542	)	$	63		$	—		$	(103	)	$	33		$	—	$	—		$	(2,549	)
Total Level 3 liabilities (*)	$	(2,542	)	$	63		$	—		$	(103	)	$	33		$	—	$	—		$	(2,549	)


(*)	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
March 31, 2019
Financial assets:
Cash and cash equivalents	$	2,000	$	2,000	$	2,000	$	—	$	—
Mortgage loans	1,078		1,071		—		—		1,071
Policy loans	172		172		—		—		172
Total financial assets not accounted for at fair value	$	3,250	$	3,243	$	2,000	$	—	$	1,243
Financial liabilities:
Annuity benefits accumulated (*)	$	37,768	$	36,881	$	—	$	—	$	36,881
Long-term debt	1,423		1,406		—		1,403		3
Total financial liabilities not accounted for at fair value	$	39,191	$	38,287	$	—	$	1,403	$	36,884

December 31, 2018
Financial assets:
Cash and cash equivalents	$	1,515	$	1,515	$	1,515	$	—	$	—
Mortgage loans	1,068		1,056		—		—		1,056
Policy loans	174		174		—		—		174
Total financial assets not accounted for at fair value	$	2,757	$	2,745	$	1,515	$	—	$	1,230
Financial liabilities:
Annuity benefits accumulated (*)	$	36,384	$	34,765	$	—	$	—	$	34,765
Long-term debt	1,302		1,231		—		1,228		3
Total financial liabilities not accounted for at fair value	$	37,686	$	35,996	$	—	$	1,228	$	34,768


(*)	Excludes $238 million and $232 million of life contingent annuities in the payout phase at March 31, 2019 and December 31, 2018, respectively.