Fair Value Measurements (Tables)

9 Months Ended

Sep. 30, 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
September 30, 2019
Assets:
Available for sale (“AFS”) fixed maturities:
U.S. Government and government agencies	$	151	$	70	$	8	$	229
States, municipalities and political subdivisions	—		6,862		102		6,964
Foreign government	—		164		—		164
Residential MBS	—		2,406		156		2,562
Commercial MBS	—		911		55		966
Collateralized loan obligations	—		4,257		57		4,314
Other asset-backed securities	—		5,317		414		5,731
Corporate and other	29		22,258		2,286		24,573
Total AFS fixed maturities	180		42,245		3,078		45,503
Trading fixed maturities	2		106		—		108
Equity securities	1,518		66		420		2,004
Equity index call options	—		750		—		750
Assets of managed investment entities (“MIE”)	228		4,456		18		4,702
Variable annuity assets (separate accounts) (*)	—		601		—		601
Other assets — derivatives	—		69		—		69
Total assets accounted for at fair value	$	1,928	$	48,293	$	3,516	$	53,737
Liabilities:
Liabilities of managed investment entities	$	219	$	4,287	$	17	$	4,523
Derivatives in annuity benefits accumulated	—		—		3,469		3,469
Other liabilities — derivatives	—		6		—		6
Total liabilities accounted for at fair value	$	219	$	4,293	$	3,486	$	7,998

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		0.2% – 2.6% over the risk-free rate
	Risk margin for uncertainty in cash flows		0.80% reduction in the discount rate
	Surrenders		3% – 22% of indexed account value
	Partial surrenders		2% – 9% of indexed account value
	Annuitizations		0.1% – 1% of indexed account value
	Deaths		1.7% – 10.6% of indexed account value
	Budgeted option costs		2.3% – 3.3% 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 third quarter and first nine 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 June 30, 2019			Net earnings			Other comprehensive income (loss)			Purchases and issuances			Sales and settlements			Transfer into Level 3		Transfer out of Level 3			Balance at September 30, 2019
AFS fixed maturities:
U.S. government agency	$	8		$	—		$	—		$	—		$	—		$	—	$	—		$	8
State and municipal	82			—			2			—			—			18		—			102
Residential MBS	139			1			(1		)	—			(4		)	22		(1		)	156
Commercial MBS	50			1			—			—			—			4		—			55
Collateralized loan obligations	50			(2		)	1			8			—			—		—			57
Other asset-backed securities	367			—			1			49			(3		)	—		—			414
Corporate and other	2,014			—			20			324			(81		)	10		(1		)	2,286
Total AFS fixed maturities	2,710			—			23			381			(88		)	54		(2		)	3,078
Equity securities	377			(7		)	—			18			(2		)	34		—			420
Assets of MIE	19			(1		)	—			—			—			—		—			18
Total Level 3 assets	$	3,106		$	(8	)	$	23		$	399		$	(90	)	$	88	$	(2	)	$	3,516

Embedded derivatives (a)	$	(3,541	)	$	70		$	—		$	(63	)	$	65		$	—	$	—		$	(3,469	)
Total Level 3 liabilities (b)	$	(3,541	)	$	70		$	—		$	(63	)	$	65		$	—	$	—		$	(3,469	)



				Total realized/unrealized gains (losses) included in
	Balance at June 30, 2018			Net earnings			Other comprehensive income (loss)			Purchases and issuances			Sales and settlements			Transfer into Level 3		Transfer out of Level 3			Balance at September 30, 2018
AFS fixed maturities:
U.S. government agency	$	8		$	—		$	—		$	—		$	—		$	—	$	—		$	8
State and municipal	61			—			—			—			(1		)	—		—			60
Residential MBS	147			(2		)	(2		)	—			(6		)	13		(5		)	145
Commercial MBS	56			2			—			(1		)	—			—		—			57
Collateralized loan obligations	212			—			(2		)	—			—			—		—			210
Other asset-backed securities	792			—			(1		)	13			(23		)	—		—			781
Corporate and other	1,408			—			(3		)	312			(59		)	—		(12		)	1,646
Total AFS fixed maturities	2,684			—			(8		)	324			(89		)	13		(17		)	2,907
Equity securities	230			(5		)	—			81			—			—		(17		)	289
Assets of MIE	23			(1		)	—			—			—			—		—			22
Total Level 3 assets	$	2,937		$	(6	)	$	(8	)	$	405		$	(89	)	$	13	$	(34	)	$	3,218

Embedded derivatives	$	(2,776	)	$	(223	)	$	—		$	(151	)	$	45		$	—	$	—		$	(3,105	)
Total Level 3 liabilities (b)	$	(2,776	)	$	(223	)	$	—		$	(151	)	$	45		$	—	$	—		$	(3,105	)


(a)	Total realized/unrealized gains (losses) included in net earnings for the embedded derivatives reflects a favorable adjustment related to the unlocking of actuarial assumptions of $181 million in the third quarter of 2019.


(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 September 30, 2019
AFS fixed maturities:
U.S. government agency	$	9		$	—		$	—		$	—		$	(1	)	$	—	$	—		$	8
State and municipal	59			—			9			—			(2		)	36		—			102
Residential MBS	197			10			(6		)	—			(14		)	24		(55		)	156
Commercial MBS	56			3			—			—			(3		)	4		(5		)	55
Collateralized loan obligations	116			(5		)	7			8			—			13		(82		)	57
Other asset-backed securities	731			—			6			141			(135		)	—		(329		)	414
Corporate and other	1,996			2			71			985			(330		)	12		(450		)	2,286
Total AFS fixed maturities	3,164			10			87			1,134			(485		)	89		(921		)	3,078
Equity securities	336			(7		)	—			38			(3		)	56		—			420
Assets of MIE	21			(3		)	—			—			—			—		—			18
Total Level 3 assets	$	3,521		$	—		$	87		$	1,172		$	(488	)	$	145	$	(921	)	$	3,516

Embedded derivatives (a)	$	(2,720	)	$	(643	)	$	—		$	(276	)	$	170		$	—	$	—		$	(3,469	)
Total Level 3 liabilities (b)	$	(2,720	)	$	(643	)	$	—		$	(276	)	$	170		$	—	$	—		$	(3,469	)



				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 September 30, 2018
AFS fixed maturities:
U.S. government agency	$	8		$	—		$	—		$	—		$	—		$	—	$	—		$	8
State and municipal	148			—			(2		)	—			(2		)	—		(84		)	60
Residential MBS	122			(9		)	(2		)	—			(17		)	70		(19		)	145
Commercial MBS	36			1			—			20			—			—		—			57
Collateralized loan obligations	180			(2		)	(3		)	35			—			—		—			210
Other asset-backed securities	564			—			(3		)	318			(80		)	—		(18		)	781
Corporate and other	1,044			2			(21		)	784			(138		)	—		(25		)	1,646
Total AFS fixed maturities	2,102			(8		)	(31		)	1,157			(237		)	70		(146		)	2,907
Equity securities	165			9			—			106			(4		)	30		(17		)	289
Assets of MIE	23			(6		)	—			5			—			—		—			22
Total Level 3 assets	$	2,290		$	(5	)	$	(31	)	$	1,268		$	(241	)	$	100	$	(163	)	$	3,218

Embedded derivatives (a)	$	(2,542	)	$	(286	)	$	—		$	(395	)	$	118		$	—	$	—		$	(3,105	)
Total Level 3 liabilities (b)	$	(2,542	)	$	(286	)	$	—		$	(395	)	$	118		$	—	$	—		$	(3,105	)


(a)	Total realized/unrealized gains (losses) included in net earnings for the embedded derivatives reflects a favorable adjustment related to the unlocking of actuarial assumptions of $181 million in the first nine months of 2019 compared to a loss of $44 million in the first nine 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 June 30, 2019			Net earnings			Other comprehensive income (loss)			Purchases and issuances			Sales and settlements			Transfer into Level 3		Transfer out of Level 3			Balance at September 30, 2019
AFS fixed maturities:
U.S. government agency	$	8		$	—		$	—		$	—		$	—		$	—	$	—		$	8
State and municipal	82			—			2			—			—			18		—			102
Residential MBS	139			1			(1		)	—			(4		)	22		(1		)	156
Commercial MBS	50			1			—			—			—			4		—			55
Collateralized loan obligations	50			(2		)	1			8			—			—		—			57
Other asset-backed securities	367			—			1			49			(3		)	—		—			414
Corporate and other	2,014			—			20			324			(81		)	10		(1		)	2,286
Total AFS fixed maturities	2,710			—			23			381			(88		)	54		(2		)	3,078
Equity securities	377			(7		)	—			18			(2		)	34		—			420
Assets of MIE	19			(1		)	—			—			—			—		—			18
Total Level 3 assets	$	3,106		$	(8	)	$	23		$	399		$	(90	)	$	88	$	(2	)	$	3,516

Embedded derivatives (a)	$	(3,541	)	$	70		$	—		$	(63	)	$	65		$	—	$	—		$	(3,469	)
Total Level 3 liabilities (b)	$	(3,541	)	$	70		$	—		$	(63	)	$	65		$	—	$	—		$	(3,469	)



				Total realized/unrealized gains (losses) included in
	Balance at June 30, 2018			Net earnings			Other comprehensive income (loss)			Purchases and issuances			Sales and settlements			Transfer into Level 3		Transfer out of Level 3			Balance at September 30, 2018
AFS fixed maturities:
U.S. government agency	$	8		$	—		$	—		$	—		$	—		$	—	$	—		$	8
State and municipal	61			—			—			—			(1		)	—		—			60
Residential MBS	147			(2		)	(2		)	—			(6		)	13		(5		)	145
Commercial MBS	56			2			—			(1		)	—			—		—			57
Collateralized loan obligations	212			—			(2		)	—			—			—		—			210
Other asset-backed securities	792			—			(1		)	13			(23		)	—		—			781
Corporate and other	1,408			—			(3		)	312			(59		)	—		(12		)	1,646
Total AFS fixed maturities	2,684			—			(8		)	324			(89		)	13		(17		)	2,907
Equity securities	230			(5		)	—			81			—			—		(17		)	289
Assets of MIE	23			(1		)	—			—			—			—		—			22
Total Level 3 assets	$	2,937		$	(6	)	$	(8	)	$	405		$	(89	)	$	13	$	(34	)	$	3,218

Embedded derivatives	$	(2,776	)	$	(223	)	$	—		$	(151	)	$	45		$	—	$	—		$	(3,105	)
Total Level 3 liabilities (b)	$	(2,776	)	$	(223	)	$	—		$	(151	)	$	45		$	—	$	—		$	(3,105	)


(a)	Total realized/unrealized gains (losses) included in net earnings for the embedded derivatives reflects a favorable adjustment related to the unlocking of actuarial assumptions of $181 million in the third quarter of 2019.


(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 September 30, 2019
AFS fixed maturities:
U.S. government agency	$	9		$	—		$	—		$	—		$	(1	)	$	—	$	—		$	8
State and municipal	59			—			9			—			(2		)	36		—			102
Residential MBS	197			10			(6		)	—			(14		)	24		(55		)	156
Commercial MBS	56			3			—			—			(3		)	4		(5		)	55
Collateralized loan obligations	116			(5		)	7			8			—			13		(82		)	57
Other asset-backed securities	731			—			6			141			(135		)	—		(329		)	414
Corporate and other	1,996			2			71			985			(330		)	12		(450		)	2,286
Total AFS fixed maturities	3,164			10			87			1,134			(485		)	89		(921		)	3,078
Equity securities	336			(7		)	—			38			(3		)	56		—			420
Assets of MIE	21			(3		)	—			—			—			—		—			18
Total Level 3 assets	$	3,521		$	—		$	87		$	1,172		$	(488	)	$	145	$	(921	)	$	3,516

Embedded derivatives (a)	$	(2,720	)	$	(643	)	$	—		$	(276	)	$	170		$	—	$	—		$	(3,469	)
Total Level 3 liabilities (b)	$	(2,720	)	$	(643	)	$	—		$	(276	)	$	170		$	—	$	—		$	(3,469	)



				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 September 30, 2018
AFS fixed maturities:
U.S. government agency	$	8		$	—		$	—		$	—		$	—		$	—	$	—		$	8
State and municipal	148			—			(2		)	—			(2		)	—		(84		)	60
Residential MBS	122			(9		)	(2		)	—			(17		)	70		(19		)	145
Commercial MBS	36			1			—			20			—			—		—			57
Collateralized loan obligations	180			(2		)	(3		)	35			—			—		—			210
Other asset-backed securities	564			—			(3		)	318			(80		)	—		(18		)	781
Corporate and other	1,044			2			(21		)	784			(138		)	—		(25		)	1,646
Total AFS fixed maturities	2,102			(8		)	(31		)	1,157			(237		)	70		(146		)	2,907
Equity securities	165			9			—			106			(4		)	30		(17		)	289
Assets of MIE	23			(6		)	—			5			—			—		—			22
Total Level 3 assets	$	2,290		$	(5	)	$	(31	)	$	1,268		$	(241	)	$	100	$	(163	)	$	3,218

Embedded derivatives (a)	$	(2,542	)	$	(286	)	$	—		$	(395	)	$	118		$	—	$	—		$	(3,105	)
Total Level 3 liabilities (b)	$	(2,542	)	$	(286	)	$	—		$	(395	)	$	118		$	—	$	—		$	(3,105	)


(a)	Total realized/unrealized gains (losses) included in net earnings for the embedded derivatives reflects a favorable adjustment related to the unlocking of actuarial assumptions of $181 million in the first nine months of 2019 compared to a loss of $44 million in the first nine 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
September 30, 2019
Financial assets:
Cash and cash equivalents	$	2,693	$	2,693	$	2,693	$	—	$	—
Mortgage loans	1,174		1,195		—		—		1,195
Policy loans	166		166		—		—		166
Total financial assets not accounted for at fair value	$	4,033	$	4,054	$	2,693	$	—	$	1,361
Financial liabilities:
Annuity benefits accumulated (*)	$	39,401	$	39,468	$	—	$	—	$	39,468
Long-term debt	1,423		1,521		—		1,518		3
Total financial liabilities not accounted for at fair value	$	40,824	$	40,989	$	—	$	1,518	$	39,471

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 $250 million and $232 million of life contingent annuities in the payout phase at September 30, 2019 and December 31, 2018, respectively.