Fair Value Measurements (Tables)

6 Months Ended

Jun. 30, 2019

Fair Value Disclosures [Abstract]

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, 2019
Assets:
Available for sale (“AFS”) fixed maturities:
U.S. Government and government agencies	$	143	$	77	$	8	$	228
States, municipalities and political subdivisions	—		6,914		82		6,996
Foreign government	—		149		—		149
Residential MBS	—		2,528		139		2,667
Commercial MBS	—		924		50		974
Collateralized loan obligations	—		4,283		50		4,333
Other asset-backed securities	—		5,577		367		5,944
Corporate and other	29		21,376		2,014		23,419
Total AFS fixed maturities	172		41,828		2,710		44,710
Trading fixed maturities	4		102		—		106
Equity securities	1,532		76		377		1,985
Equity index call options	—		712		—		712
Assets of managed investment entities (“MIE”)	225		4,537		19		4,781
Variable annuity assets (separate accounts) (*)	—		616		—		616
Other assets — derivatives	—		54		—		54
Total assets accounted for at fair value	$	1,933	$	47,925	$	3,106	$	52,964
Liabilities:
Liabilities of managed investment entities	$	216	$	4,356	$	18	$	4,590
Derivatives in annuity benefits accumulated	—		—		3,541		3,541
Other liabilities — derivatives	—		12		—		12
Total liabilities accounted for at fair value	$	216	$	4,368	$	3,559	$	8,143
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
Collateralized loan obligations	—		4,162		116		4,278
Other asset-backed securities	—		4,802		731		5,533
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 F — “Derivatives.”

Unobservable Input	Range
Adjustment for insurance subsidiary’s credit risk	less than 0.1% – 2.4% 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 second quarter and first six 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 March 31, 2019			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, 2019
AFS fixed maturities:
U.S. government agency	$	8		$	—		$	—	$	—		$	—		$	—	$	—		$	8
State and municipal	63			—			2		—			(1		)	18		—			82
Residential MBS	169			4			—		—			(4		)	2		(32		)	139
Commercial MBS	55			2			—		—			(2		)	—		(5		)	50
Collateralized loan obligations	37			—			—		—			—			13		—			50
Other asset-backed securities	633			—			3		17			(18		)	—		(268		)	367
Corporate and other	2,346			—			20		229			(161		)	2		(422		)	2,014
Total AFS fixed maturities	3,311			6			25		246			(186		)	35		(727		)	2,710
Equity securities	354			(1		)	—		19			(1		)	6		—			377
Assets of MIE	20			(1		)	—		—			—			—		—			19
Total Level 3 assets	$	3,685		$	4		$	25	$	265		$	(187	)	$	41	$	(727	)	$	3,106
Embedded derivatives	$	(3,247	)	$	(251	)	$	—	$	(101	)	$	58		$	—	$	—		$	(3,541	)
Total Level 3 liabilities (b)	$	(3,247	)	$	(251	)	$	—	$	(101	)	$	58		$	—	$	—		$	(3,541	)

				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
Collateralized loan obligations	181			—			(4		)	35			—			—		—			212
Other asset-backed securities	731			—			(2		)	101			(20		)	—		(18		)	792
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	)

(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, 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, 2019
AFS fixed maturities:
U.S. government agency	$	9		$	—		$	—		$	—		$	(1	)	$	—	$	—		$	8
State and municipal	59			—			7			—			(2		)	18		—			82
Residential MBS	197			9			(5		)	—			(10		)	2		(54		)	139
Commercial MBS	56			2			—			—			(3		)	—		(5		)	50
Collateralized loan obligations	116			(3		)	6			—			—			13		(82		)	50
Other asset-backed securities	731			—			5			92			(132		)	—		(329		)	367
Corporate and other	1,996			2			51			661			(249		)	2		(449		)	2,014
Total AFS fixed maturities	3,164			10			64			753			(397		)	35		(919		)	2,710
Equity securities	336			—			—			20			(1		)	22		—			377
Assets of MIE	21			(2		)	—			—			—			—		—			19
Total Level 3 assets	$	3,521		$	8		$	64		$	773		$	(398	)	$	57	$	(919	)	$	3,106
Embedded derivatives	$	(2,720	)	$	(713	)	$	—		$	(213	)	$	105		$	—	$	—		$	(3,541	)
Total Level 3 liabilities (b)	$	(2,720	)	$	(713	)	$	—		$	(213	)	$	105		$	—	$	—		$	(3,541	)

				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
Collateralized loan obligations	180			(2		)	(1		)	35			—			—		—			212
Other asset-backed securities	564			—			(2		)	305			(57		)	—		(18		)	792
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	)

(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

Changes in balances of Level 3 financial assets and liabilities carried at fair value during the second quarter and first six 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 March 31, 2019			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, 2019
AFS fixed maturities:
U.S. government agency	$	8		$	—		$	—	$	—		$	—		$	—	$	—		$	8
State and municipal	63			—			2		—			(1		)	18		—			82
Residential MBS	169			4			—		—			(4		)	2		(32		)	139
Commercial MBS	55			2			—		—			(2		)	—		(5		)	50
Collateralized loan obligations	37			—			—		—			—			13		—			50
Other asset-backed securities	633			—			3		17			(18		)	—		(268		)	367
Corporate and other	2,346			—			20		229			(161		)	2		(422		)	2,014
Total AFS fixed maturities	3,311			6			25		246			(186		)	35		(727		)	2,710
Equity securities	354			(1		)	—		19			(1		)	6		—			377
Assets of MIE	20			(1		)	—		—			—			—		—			19
Total Level 3 assets	$	3,685		$	4		$	25	$	265		$	(187	)	$	41	$	(727	)	$	3,106
Embedded derivatives	$	(3,247	)	$	(251	)	$	—	$	(101	)	$	58		$	—	$	—		$	(3,541	)
Total Level 3 liabilities (b)	$	(3,247	)	$	(251	)	$	—	$	(101	)	$	58		$	—	$	—		$	(3,541	)

				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
Collateralized loan obligations	181			—			(4		)	35			—			—		—			212
Other asset-backed securities	731			—			(2		)	101			(20		)	—		(18		)	792
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	)

(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, 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, 2019
AFS fixed maturities:
U.S. government agency	$	9		$	—		$	—		$	—		$	(1	)	$	—	$	—		$	8
State and municipal	59			—			7			—			(2		)	18		—			82
Residential MBS	197			9			(5		)	—			(10		)	2		(54		)	139
Commercial MBS	56			2			—			—			(3		)	—		(5		)	50
Collateralized loan obligations	116			(3		)	6			—			—			13		(82		)	50
Other asset-backed securities	731			—			5			92			(132		)	—		(329		)	367
Corporate and other	1,996			2			51			661			(249		)	2		(449		)	2,014
Total AFS fixed maturities	3,164			10			64			753			(397		)	35		(919		)	2,710
Equity securities	336			—			—			20			(1		)	22		—			377
Assets of MIE	21			(2		)	—			—			—			—		—			19
Total Level 3 assets	$	3,521		$	8		$	64		$	773		$	(398	)	$	57	$	(919	)	$	3,106
Embedded derivatives	$	(2,720	)	$	(713	)	$	—		$	(213	)	$	105		$	—	$	—		$	(3,541	)
Total Level 3 liabilities (b)	$	(2,720	)	$	(713	)	$	—		$	(213	)	$	105		$	—	$	—		$	(3,541	)

				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
Collateralized loan obligations	180			(2		)	(1		)	35			—			—		—			212
Other asset-backed securities	564			—			(2		)	305			(57		)	—		(18		)	792
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	)

(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, 2019
Financial assets:
Cash and cash equivalents	$	2,374	$	2,374	$	2,374	$	—	$	—
Mortgage loans	1,073		1,080		—		—		1,080
Policy loans	170		170		—		—		170
Total financial assets not accounted for at fair value	$	3,617	$	3,624	$	2,374	$	—	$	1,250
Financial liabilities:
Annuity benefits accumulated (*)	$	38,806	$	38,634	$	—	$	—	$	38,634
Long-term debt	1,423		1,482		—		1,479		3
Total financial liabilities not accounted for at fair value	$	40,229	$	40,116	$	—	$	1,479	$	38,637
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 June 30, 2019 and December 31, 2018, respectively.