Fair value measurements

9 Months Ended

Sep. 30, 2022

Fair Value Disclosures [Abstract]

Fair value measurements

Notes to Consolidated Financial Statements (Continued)

Note 16. Fair value measurements

Our financial assets and liabilities are summarized below as of September 30, 2022 and December 31, 2021, with fair values shown according to the fair value hierarchy (in millions). The carrying values of cash and cash equivalents, U.S. Treasury Bills, other receivables and accounts payable, accruals and other liabilities are considered to be reasonable estimates of their fair values.

	Carrying Value		Fair Value		Quoted Prices (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
September 30, 2022
Investments in fixed maturity securities:
U.S. Treasury, U.S. government corporations    and agencies	$	8,775	$	8,775	$	8,740	$	35	$	—
Foreign governments		8,505		8,505		8,207		298		—
Corporate bonds		1,029		1,029		—		1,029		—
Other		293		293		—		293		—
Investments in equity securities		306,167		306,167		294,094		7		12,066
Investment in Kraft Heinz & Occidental common stock		23,949		22,796		22,796		—		—
Loans and finance receivables		22,094		22,659		—		1,744		20,915
Derivative contract assets (1)		731		731		68		593		70
Derivative contract liabilities (1)		261		261		2		133		126
Notes payable and other borrowings:
Insurance and other		41,535		36,362		—		36,314		48
Railroad, utilities and energy		74,961		66,991		—		66,991		—
December 31, 2021
Investments in fixed maturity securities:
U.S. Treasury, U.S. government corporations    and agencies	$	3,303	$	3,303	$	3,261	$	42	$	—
Foreign governments		10,994		10,994		10,286		708		—
Corporate bonds		1,774		1,774		—		1,774		—
Other		363		363		—		363		—
Investments in equity securities		350,719		350,719		339,225		8		11,486
Investment in Kraft Heinz common stock		13,112		11,683		11,683		—		—
Loans and finance receivables		20,751		22,174		—		2,178		19,996
Derivative contract assets (1)		329		329		6		230		93
Derivative contract liabilities (1)		376		376		2		150		224
Notes payable and other borrowings:
Insurance and other		39,272		42,339		—		42,292		47
Railroad, utilities and energy		74,990		87,065		—		87,065		—

(1)Assets are included in other assets and liabilities are included in accounts payable, accruals and other liabilities.

Notes to Consolidated Financial Statements (Continued)

Note 16. Fair value measurements (Continued)

The fair values of substantially all of our financial instruments were measured using market or income approaches. The hierarchy for measuring fair value consists of Levels 1 through 3, which are described below.

Level 1 – Inputs represent unadjusted quoted prices for identical assets or liabilities exchanged in active markets.

Level 2 – Inputs include directly or indirectly observable inputs (other than Level 1 inputs) such as quoted prices for similar assets or liabilities exchanged in active or inactive markets; quoted prices for identical assets or liabilities exchanged in inactive markets; other inputs that may be considered in fair value determinations of the assets or liabilities, such as interest rates and yield curves, volatilities, prepayment speeds, loss severities, credit risks and default rates; and inputs that are derived principally from or corroborated by observable market data by correlation or other means. Pricing evaluations generally reflect discounted expected future cash flows, which incorporate yield curves for instruments with similar characteristics, such as credit ratings, estimated durations and yields for other instruments of the issuer or entities in the same industry sector.

Level 3 – Inputs include unobservable inputs used in the measurement of assets and liabilities. Management is required to use its own assumptions regarding unobservable inputs because there is little, if any, market activity in the assets or liabilities and it may be unable to corroborate the related observable inputs. Unobservable inputs require management to make certain projections and assumptions about the information that would be used by market participants in valuing assets or liabilities.

Reconciliations of significant assets and liabilities measured and carried at fair value on a recurring basis with the use of significant unobservable inputs (Level 3) for the nine months ended September 30, 2022 and 2021 follow (in millions).

	Balance at beginning of year			Gains included in earnings		Acquisitions, dispositions and settlements			Transfers out of Level 3		Balance at September 30
Investments in equity securities:
2022	$	11,480		$	581	$	—		$	—	$	12,061
2021		8,978			1,713		1,100			—		11,791
Equity index put option contract liabilities:
2021		(1,065	)		780		(1	)		—		(286	)

Quantitative information as of September 30, 2022 with respect to significant assets and liabilities measured and carried at fair value on a recurring basis with the use of significant unobservable inputs (Level 3) follows (dollars in millions).

	Fair Value		Principal Valuation Techniques	Unobservable Inputs	Weighted Average
Investments in equity securities:
Preferred stock	$	9,956	Discounted cash flow	Expected duration	7 years
				Discount for transferability    restrictions and subordination	372 bps
Common stock warrants		2,105	Warrant pricing model	Expected duration	7 years
				Volatility	39%

Investments in equity securities in the preceding table include our investments in certain preferred stocks and common stock warrants that do not have readily determinable market values as defined under GAAP. These investments are subject to contractual restrictions on transferability and may contain provisions that prevent us from economically hedging our investments. We applied discounted cash flow techniques in valuing the preferred stock and we made assumptions regarding the expected duration of the investment and the effects of subordination in liquidation. In valuing the common stock warrants, we used a warrant valuation model. While most of the inputs to the model are observable, we made assumptions regarding the expected duration and volatility of the warrants.