Fair Value Measurements (Tables)

3 Months Ended

Mar. 31, 2020

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, 2020
Assets:
Available for sale (“AFS”) fixed maturities:
U.S. Government and government agencies	$	158	$	32	$	15	$	205
States, municipalities and political subdivisions	—		6,801		105		6,906
Foreign government	—		170		—		170
Residential MBS	—		2,968		163		3,131
Commercial MBS	—		875		32		907
Collateralized loan obligations	—		3,970		168		4,138
Other asset-backed securities	—		5,728		1,030		6,758
Corporate and other	25		22,346		1,548		23,919
Total AFS fixed maturities	183		42,890		3,061		46,134
Trading fixed maturities	1		95		—		96
Equity securities	1,056		67		436		1,559
Equity index call options	—		209		—		209
Assets of managed investment entities (“MIE”)	169		3,841		16		4,026
Variable annuity assets (separate accounts) (*)	—		497		—		497
Other assets — derivatives	—		125		—		125
Total assets accounted for at fair value	$	1,409	$	47,724	$	3,513	$	52,646
Liabilities:
Liabilities of managed investment entities	$	162	$	3,688	$	15	$	3,865
Derivatives in annuity benefits accumulated	—		—		3,099		3,099
Other liabilities — derivatives	—		10		—		10
Total liabilities accounted for at fair value	$	162	$	3,698	$	3,114	$	6,974

December 31, 2019
Assets:
Available for sale fixed maturities:
U.S. Government and government agencies	$	151	$	43	$	15	$	209
States, municipalities and political subdivisions	—		6,858		105		6,963
Foreign government	—		172		—		172
Residential MBS	—		2,987		173		3,160
Commercial MBS	—		892		35		927
Collateralized loan obligations	—		4,265		15		4,280
Other asset-backed securities	—		5,842		1,286		7,128
Corporate and other	29		21,879		1,758		23,666
Total AFS fixed maturities	180		42,938		3,387		46,505
Trading fixed maturities	2		111		—		113
Equity securities	1,433		67		437		1,937
Equity index call options	—		924		—		924
Assets of managed investment entities	213		4,506		17		4,736
Variable annuity assets (separate accounts) (*)	—		628		—		628
Other assets — derivatives	—		50		—		50
Total assets accounted for at fair value	$	1,828	$	49,224	$	3,841	$	54,893
Liabilities:
Liabilities of managed investment entities	$	206	$	4,349	$	16	$	4,571
Derivatives in annuity benefits accumulated	—		—		3,730		3,730
Other liabilities — derivatives	—		10		—		10
Total liabilities accounted for at fair value	$	206	$	4,359	$	3,746	$	8,311

(*)

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		1.9% – 3.6% over the risk-free rate
	Risk margin for uncertainty in cash flows		0.80% reduction in the discount rate
	Surrenders		4% – 21% of indexed account value
	Partial surrenders		2% – 9% of indexed account value
	Annuitizations		0.1% – 1% of indexed account value
	Deaths		1.9% – 10.6% of indexed account value
	Budgeted option costs		2.5% – 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 first three months of 2020 and 2019 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, 2019			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, 2020
AFS fixed maturities:
U.S. government agency	$	15		$	1		$	(1	)	$	—		$	—		$	—	$	—		$	15
State and municipal	105			—			1			—			(1		)	—		—			105
Residential MBS	173			5			(12		)	—			(5		)	2		—			163
Commercial MBS	35			—			—			—			(3		)	—		—			32
Collateralized loan obligations	15			(7		)	2			—			—			158		—			168
Other asset-backed securities	1,286			(14		)	(11		)	77			(178		)	13		(143		)	1,030
Corporate and other	1,758			(3		)	(27		)	119			(36		)	5		(268		)	1,548
Total AFS fixed maturities	3,387			(18		)	(48		)	196			(223		)	178		(411		)	3,061
Equity securities	437			(24		)	—			6			—			17		—			436
Assets of MIE	17			(1		)	—			—			—			—		—			16
Total Level 3 assets	$	3,841		$	(43	)	$	(48	)	$	202		$	(223	)	$	195	$	(411	)	$	3,513

Embedded derivatives	$	(3,730	)	$	647		$	—		$	(78	)	$	62		$	—	$	—		$	(3,099	)
Total Level 3 liabilities (*)	$	(3,730	)	$	647		$	—		$	(78	)	$	62		$	—	$	—		$	(3,099	)



				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
Collateralized loan obligations	116			—			—			—			—			—		—			116
Other asset-backed securities	731			(3		)	8			75			(114		)	—		(143		)	554
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	)


(*)	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, 2019			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, 2020
AFS fixed maturities:
U.S. government agency	$	15		$	1		$	(1	)	$	—		$	—		$	—	$	—		$	15
State and municipal	105			—			1			—			(1		)	—		—			105
Residential MBS	173			5			(12		)	—			(5		)	2		—			163
Commercial MBS	35			—			—			—			(3		)	—		—			32
Collateralized loan obligations	15			(7		)	2			—			—			158		—			168
Other asset-backed securities	1,286			(14		)	(11		)	77			(178		)	13		(143		)	1,030
Corporate and other	1,758			(3		)	(27		)	119			(36		)	5		(268		)	1,548
Total AFS fixed maturities	3,387			(18		)	(48		)	196			(223		)	178		(411		)	3,061
Equity securities	437			(24		)	—			6			—			17		—			436
Assets of MIE	17			(1		)	—			—			—			—		—			16
Total Level 3 assets	$	3,841		$	(43	)	$	(48	)	$	202		$	(223	)	$	195	$	(411	)	$	3,513

Embedded derivatives	$	(3,730	)	$	647		$	—		$	(78	)	$	62		$	—	$	—		$	(3,099	)
Total Level 3 liabilities (*)	$	(3,730	)	$	647		$	—		$	(78	)	$	62		$	—	$	—		$	(3,099	)



				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
Collateralized loan obligations	116			—			—			—			—			—		—			116
Other asset-backed securities	731			(3		)	8			75			(114		)	—		(143		)	554
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	)


(*)	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, 2020
Financial assets:
Cash and cash equivalents	$	1,673	$	1,673	$	1,673	$	—	$	—
Mortgage loans	1,346		1,350		—		—		1,350
Policy loans	161		161		—		—		161
Total financial assets not accounted for at fair value	$	3,180	$	3,184	$	1,673	$	—	$	1,511
Financial liabilities:
Annuity benefits accumulated (*)	$	40,218	$	39,773	$	—	$	—	$	39,773
Long-term debt	1,473		1,411		—		1,408		3
Total financial liabilities not accounted for at fair value	$	41,691	$	41,184	$	—	$	1,408	$	39,776

December 31, 2019
Financial assets:
Cash and cash equivalents	$	2,314	$	2,314	$	2,314	$	—	$	—
Mortgage loans	1,329		1,346		—		—		1,346
Policy loans	164		164		—		—		164
Total financial assets not accounted for at fair value	$	3,807	$	3,824	$	2,314	$	—	$	1,510
Financial liabilities:
Annuity benefits accumulated (*)	$	40,159	$	40,182	$	—	$	—	$	40,182
Long-term debt	1,473		1,622		—		1,619		3
Total financial liabilities not accounted for at fair value	$	41,632	$	41,804	$	—	$	1,619	$	40,185

(*)

Excludes $245 million and $247 million of life contingent annuities in the payout phase at March 31, 2020 and December 31, 2019, respectively.