10-K Derivative Financial Instruments

12 Months Ended

Dec. 31, 2023

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Financial Instruments

Derivative Financial Instruments

We primarily invest in the following types of derivative financial instruments: interest rate swaps, futures, forward contracts, put and call options, collars, swaptions, embedded derivatives and warrants. We also enter into master netting agreements which reduce credit risk by permitting net settlement of transactions. At December 31, 2023 and 2022, we had received collateral of $35 and $57, respectively, related to our derivative financial instruments.

A summary of the aggregate contractual or notional amounts and estimated fair values related to derivative financial instruments at December 31, 2023 and 2022 is as follows:

	Contractual/ Notional Amount		Balance Sheet Location	Estimated Fair Value
				Asset		(Liability)
December 31, 2023
Hedging instruments
Interest rate swaps - fixed to floating	$	1,475	Other assets/other liabilities	$	15	$	(52)
Non-hedging instruments
Derivatives embedded in convertible securities	15		Fixed maturity securities	1		—
Interest rate swaps	5		Equity securities/other assets/other liabilities	—		—
Options	161		Other assets/other liabilities	—		(85)
Collars	19		Equity securities	14		(3)
Futures/Forwards	151		Equity securities/other assets/other liabilities	7		—
Subtotal non-hedging	351		Subtotal non-hedging	22		(88)
Total derivatives	$	1,826	Total derivatives	37		(140)
			Amounts netted	(15)		15
			Net derivatives	$	22	$	(125)
December 31, 2022
Hedging instruments
Interest rate swaps - fixed to floating	$	1,125	Other assets/other liabilities	$	3	$	(60)
Non-hedging instruments
Derivatives embedded in convertible securities	18		Fixed maturity securities	4		—
Interest rate swaps	5		Equity securities/other assets/other liabilities	—		—
Options	—		Other assets/other liabilities	1		—
Collars	19		Equity securities	23		(9)
Futures/Forwards	358		Equity securities/other assets/other liabilities	2		(2)
Subtotal non-hedging	400		Subtotal non-hedging	30		(11)
Total derivatives	$	1,525	Total derivatives	33		(71)
			Amounts netted	(12)		12
			Net derivatives	$	21	$	(59)

Fair Value Hedges

We have entered into various interest rate swap contracts to convert a portion of our interest rate exposure on our long-term debt from fixed rates to floating rates. The floating rates payable on all of our fair value hedges are benchmarked to the Secured Overnight Financing Rate. A summary of our outstanding fair value hedges at December 31, 2023 and 2022 is as follows:

Type of Fair Value Hedges	Year Entered Into	Outstanding Notional Amount				Interest Rate Received		Expiration Date
		2023		2022
Interest rate swap	2023	$	300	$	—	5.500	%	April 15, 2032
Interest rate swap	2023	150		—		2.550		September 15, 2030
Interest rate swap	2023	500		—		4.900		February 8, 2026
Interest rate swap	2023	125		—		4.101		September 1, 2027
Interest rate swap	2023	100		—		2.250		November 15, 2029
Interest rate swap	2022	150		150		5.500		April 15, 2032
Interest rate swap	2022	75		75		4.101		September 1, 2027
Interest rate swap	2022	75		75		2.250		November 15, 2029
Interest rate swap	2021	—		150		2.550		September 15, 2030
Interest rate swap	2021	—		100		2.250		November 15, 2029
Interest rate swap	2020	—		75		4.101		September 1, 2027
Interest rate swap	2018	—		50		4.101		September 1, 2027
Interest rate swap	2018	—		450		3.300		January 15, 2023
Total notional amount outstanding		$	1,475	$	1,125

The following amounts were recorded on our consolidated balance sheets related to cumulative basis adjustments for fair value hedges at December 31, 2023 and 2022:

Balance Sheet Classification in Which Hedged Item is Included	Carrying Amount of Hedged Liability				Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Liability
	2023		2022		2023		2022
Long-term debt	$	23,246	$	22,349	$	(37)	$	(57)

Cash Flow Hedges

We have entered into a series of forward starting pay fixed interest rate swaps with the objective of eliminating the variability of cash flows in the interest payments on future financings that were anticipated at the time of entering into the swaps. During 2023 and 2022, swaps in the notional amount of $550 and $700, respectively, were terminated.

The unrecognized loss for all expired and terminated cash flow hedges included in accumulated other comprehensive loss, net of tax, was $211 and $229 at December 31, 2023 and 2022, respectively. As of December 31, 2023, the total amount of amortization over the next twelve months for all cash flow hedges is estimated to increase interest expense by approximately $13. No amounts were excluded from effectiveness testing.

Non-Hedging Derivatives

A summary of the effect of non-hedging derivatives on our consolidated statements of income for the years ended December 31, 2023, 2022 and 2021 is as follows:

Type of Non-hedging Derivatives	Income Statement Location of Gain (Loss) Recognized	Derivative (Loss) Gain Recognized
Year ended December 31, 2023
Derivatives embedded in convertible securities	Net (losses) gains on financial instruments	$	(2)
Options (including swaptions)	Net (losses) gains on financial instruments	3
Collars	Net (losses) gains on financial instruments	(3)
Futures	Net (losses) gains on financial instruments	10
Total		$	8
Year ended December 31, 2022
Derivatives embedded in convertible securities	Net (losses) gains on financial instruments	$	(3)
Interest rate swaps	Net (losses) gains on financial instruments	(4)
Options (including swaptions)	Net (losses) gains on financial instruments	13
Collars	Net (losses) gains on financial instruments	10
Futures	Net (losses) gains on financial instruments	64
Total		$	80
Year ended December 31, 2021
Interest rate swaps	Net (losses) gains on financial instruments	$	(4)
Options	Net (losses) gains on financial instruments	4
Futures	Net (losses) gains on financial instruments	7
Total		$	7

In January 2023, we made an equity investment that resulted in our minority interest ownership of Project Freedom Holdings, LLC, which is the ultimate parent of LIBERTY Dental Plan Corporation (“Liberty Dental”). Liberty Dental engages in dental insurance and dental health care administration. As part of the Liberty Dental transaction, we entered into a shareholders’ agreement with the majority owners that provides for certain rights and obligations of each party, including certain put and call options. These options could result in our purchase of the units held by the majority owners in 2026 and 2027. We have calculated the fair value of the net put option, which is a Level III measurement (see Note 7, “Fair Value”), using a Monte Carlo simulation, which relies on assumptions, including cash flow projections, risk-free rates, volatility and details specific to the put and call options. Significant changes in assumptions could result in significantly lower or higher fair value measurements. The net put option’s fair value liability of $85, measured at the date of acquisition, is included in “Other noncurrent liabilities.” We have elected to not mark the net put option to market, and the fair value of the net put option will remain on the balance sheet until it's exercised or expires.