Fair value measurements

12 Months Ended

Dec. 31, 2020

Fair Value Disclosures [Abstract]

Fair value measurements

Notes to Consolidated Financial Statements (Continued)

(20) Fair value measurements

Our financial assets and liabilities are summarized below as of December 31, 2020 and December 31, 2019, with fair values shown according to the fair value hierarchy (in millions). The carrying values of cash and cash equivalents, U.S. Treasury Bills, 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)
December 31, 2020
Investments in fixed maturity securities:
U.S. Treasury, U.S. government corporations and    agencies	$	3,403	$	3,403	$	3,358	$	45	$	—
Foreign governments		11,338		11,338		9,259		2,079		—
Corporate bonds		5,191		5,191		—		5,191		—
Other		478		478		—		478		—
Investments in equity securities		281,170		281,170		271,848		38		9,284
Investment in Kraft Heinz common stock		13,336		11,280		11,280		—		—
Loans and finance receivables		19,201		20,554		—		2,692		17,862
Derivative contract assets (1)		270		270		1		72		197
Derivative contract liabilities:
Railroad, utilities and energy (1)		121		121		6		96		19
Equity index put options		1,065		1,065		—		—		1,065
Notes payable and other borrowings:
Insurance and other		41,522		46,676		—		46,665		11
Railroad, utilities and energy		75,373		92,593		—		92,593		—
December 31, 2019
Investments in fixed maturity securities:
U.S. Treasury, U.S. government corporations and    agencies	$	3,090	$	3,090	$	3,046	$	44	$	—
Foreign governments		8,638		8,638		5,437		3,201		—
Corporate bonds		6,352		6,352		—		6,350		2
Other		605		605		—		605		—
Investments in equity securities		248,027		248,027		237,271		46		10,710
Investment in Kraft Heinz common stock		13,757		10,456		10,456		—		—
Loans and finance receivables		17,527		17,861		—		1,809		16,052
Derivative contract assets (1)		145		145		—		23		122
Derivative contract liabilities:
Railroad, utilities and energy (1)		76		76		6		59		11
Equity index put options		968		968		—		—		968
Notes payable and other borrowings:
Insurance and other		37,590		40,589		—		40,569		20
Railroad, utilities and energy		65,778		76,237		—		76,237		—

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

Notes to Consolidated Financial Statements (Continued)

(20) 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 assets and liabilities measured and carried at fair value on a recurring basis with the use of significant unobservable inputs (Level 3) for each of the three years ending December 31, 2020 follow (in millions).

	Investments in equity and fixed maturity securities			Net derivative contract liabilities
Balance December 31, 2017	$	6		$	(2,069	)
Gains (losses) included in:
Earnings		—			(118	)
Other comprehensive income		—			2
Regulatory assets and liabilities		—			3
Acquisitions		2			3
Dispositions and settlements		(1	)		(164	)
Balance December 31, 2018		7			(2,343	)
Gains (losses) included in:
Earnings		404			1,972
Other comprehensive income		—			(1	)
Regulatory assets and liabilities		—			(26	)
Acquisitions		10,000			6
Dispositions and settlements		(4	)		(465	)
Balance December 31, 2019		10,407			(857	)
Gains (losses) included in:
Earnings		(1,426	)		603
Other comprehensive income		—			—
Regulatory assets and liabilities		—			(17	)
Acquisitions		—			5
Dispositions and settlements		(2	)		(621	)
Balance December 31, 2020	$	8,979		$	(887	)

Notes to Consolidated Financial Statements (Continued)

(20) Fair value measurements (Continued)

We acquired investments in Occidental Cumulative Perpetual Preferred Stock (“Occidental Preferred”) and Occidental common stock warrants in August 2019 at an aggregate cost of $10 billion. We currently consider the related fair value measurements to contain Level 3 inputs. See Note 4 for information regarding these investments.

Quantitative information as of December 31, 2020, with respect to assets and liabilities measured and carried at fair value on a recurring basis with the use of significant unobservable inputs (Level 3) follows (in millions).

	Fair Value		Principal Valuation Techniques	Unobservable Inputs	Weighted Average
Investments in equity securities:
Preferred stock	$	8,891	Discounted cash flow	Expected duration	9 years
				Discount for transferability restrictions and subordination	375 bps
Common stock warrants		86	Warrant pricing model	Expected duration	9 years
				Volatility	32%
Derivative contract liabilities		1,065	Option pricing model	Volatility	19%

Investments in equity securities in the preceding table include our investments in the Occidental Preferred and Occidental common stock warrants. These investments are subject to contractual restrictions on transferability and contain provisions that currently prevent us from economically hedging our investments. In applying discounted cash flow techniques in valuing the Occidental Preferred, we made assumptions regarding the expected duration of the investment. The Occidental Preferred is redeemable at Occidental’s option beginning in 2029. We also made estimates regarding the impact of subordination, as the Occidental Preferred has a lower priority in liquidation than debt instruments. In valuing the Occidental 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. The Occidental common stock warrants contractually expire on the one-year anniversary on which no Occidental Preferred remains outstanding.

Our equity index put option contracts are illiquid and contain contract terms that are not standard in derivatives markets. For example, we are not required to post collateral under most of our contracts. We determine the fair value of the equity index put option contract liabilities based on the Black-Scholes option valuation model.