Fair value measurements

6 Months Ended

Jun. 30, 2021

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 June 30, 2021 and December 31, 2020, 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)
June 30, 2021
Investments in fixed maturity securities:
U.S. Treasury, U.S. government corporations    and agencies	$	3,471	$	3,471	$	3,428	$	43	$	—
Foreign governments		12,704		12,704		10,355		2,349		—
Corporate bonds		3,877		3,877		—		3,877		—
Other		408		408		—		408		—
Investments in equity securities		307,942		307,942		295,990		8		11,944
Investment in Kraft Heinz common stock		13,300		13,272		13,272		—		—
Loans and finance receivables		19,900		21,175		—		2,438		18,737
Derivative contract assets (1)		414		414		5		209		200
Derivative contract liabilities:
Railroad, utilities and energy (1)		141		141		4		83		54
Equity index put options		355		355		—		—		355
Notes payable and other borrowings:
Insurance and other		40,561		44,162		—		44,118		44
Railroad, utilities and energy		74,662		87,965		—		87,965		—
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		—

^{(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 six months ended June 30, 2021 and 2020 follow (in millions).

	Balance at beginning of year			Gains (losses) included in earnings			Acquisitions, dispositions and settlements		Balance at June 30
Investments in equity securities:
2021	$	8,978		$	1,559		$	1,100	$	11,637
2020		10,405			(2,469	)		—		7,936
Equity index put option contract liabilities:
2021		(1,065	)		710			—		(355	)
2020		(968	)		(597	)		—		(1,565	)

Quantitative information as of June 30, 2021 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	$	10,935	Discounted cash flow	Expected duration	8 years
				Discount for transferability    restrictions and subordination	355 basis points
Common stock warrants		702	Warrant pricing model	Expected duration	8 years
				Volatility	36%
Equity index put option contract liabilities		355	Option pricing model	Volatility	17%

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.

Notes to Consolidated Financial Statements (Continued)

Note 16. Fair value measurements (Continued)

Our equity index put option derivative 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.