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Derivative Instruments
 6 Months Ended
Jun. 30, 2024
Derivative Instruments
(5) Derivative Instruments
Our business activities routinely deal with fluctuations in interest rates, equity prices, currency exchange rates and other asset and liability prices. We use derivative instruments to mitigate or reduce some of these risks. We have established policies for managing each of these risks, including prohibitions on derivatives market-making and other speculative derivatives activities. These policies require the use of derivative instruments in concert with other techniques to reduce or mitigate these risks. While we use derivatives to mitigate or reduce risks, certain derivatives do not meet the accounting requirements to be designated as hedging instruments and are denoted as “derivatives not designated as hedges” in the following disclosures. For derivatives that meet the accounting requirements to be designated as hedges, the following disclosures for these derivatives are denoted as “derivatives designated as hedges,” which include cash flow hedges.
 
The following table sets forth our positions in derivative instruments as of the dates indicated:
 
 
 
Derivative assets
 
 
Derivative liabilities
 
 
 
 
 
Fair value
 
 
 
 
Fair value
 
(Amounts in millions)
 
Balance
sheet classification
 
June 30,
2024
 
 
December 31,
2023
 
 
Balance
sheet classification
 
June 30,

2024
 
 
December 31,

2023
 
Derivatives designated as hedges
 
 
 
 
 
 
Cash flow hedges:
 
 
 
 
 
 
Interest rate swaps
   Other invested assets   $ 26     $ 55     Other liabilities   $ 636     $ 490  
Foreign currency swaps
   Other invested assets     12       10     Other liabilities     1       2  
Forward bond purchase commitments
   Other invested assets     21       51     Other liabilities     13       —   
   
 
 
    
 
 
      
 
 
    
 
 
  
Total cash flow hedges
       59       116         650       492  
   
 
 
    
 
 
      
 
 
    
 
 
  
Total derivatives designated as hedges
       59       116         650       492  
   
 
 
    
 
 
      
 
 
    
 
 
  
Derivatives not designated as hedges
            
Equity index options
   Other invested assets     21       15     Other liabilities     —        —   
Financial futures
(1)
   Other invested assets     —        —      Other liabilities     —        —   
Forward bond purchase commitments
   Other invested assets     —        —      Other liabilities     20       9  
Fixed indexed annuity embedded derivatives
   Other assets     —        —      Policyholder account balances 
(2)
     160       165  
Indexed universal life embedded derivatives
   Reinsurance recoverable     —        —      Policyholder account balances 
(3)
     16       15  
   
 
 
    
 
 
      
 
 
    
 
 
  
Total derivatives not designated as hedges
       21       15         196       189  
   
 
 
    
 
 
      
 
 
    
 
 
  
Total derivatives
     $ 80     $ 131       $ 846     $ 681  
   
 
 
    
 
 
      
 
 
    
 
 
  
 
(1)
 
The period end valuations of financial futures were zero as a result of settling the margins on these contracts on a daily basis.
(2)
 
Represents the embedded derivatives associated with our fixed indexed annuity liabilities.
(3)
 
Represents the embedded derivatives associated with our indexed universal life liabilities.
The fair value of derivative positions presented above was not offset by the respective collateral amounts received or provided under these agreements.
 

The activity associated with derivative instruments can generally be measured by the change in notional value over the periods presented. However, for fixed indexed annuity embedded derivatives and indexed universal life embedded derivatives, the change between periods is best illustrated by the number of policies. The following tables represent activity associated with derivative instruments as of the dates indicated:
 
 
  
 
 
December 31,
 
 
 
 
 
Maturities/
 
 
June 30,
 
(Notional in millions)
  
Measurement
 
2023
 
 
Additions
 
 
terminations
 
 
2024
 
Derivatives designated as hedges
  
 
 
 
 
Cash flow hedges:
              
Interest rate swaps
    Notional    $ 8,975      $ 231      $ (399 )    $ 8,807  
Foreign currency swaps
    Notional      131        13        —        144  
Forward bond purchase commitments
    Notional      1,075        1,528        —        2,603  
     
 
 
     
 
 
     
 
 
    
 
 
  
Total cash flow hedges
         10,181        1,772        (399 )      11,554  
     
 
 
     
 
 
     
 
 
    
 
 
  
Total derivatives designated as hedges
         10,181        1,772        (399 )      11,554  
     
 
 
     
 
 
     
 
 
    
 
 
  
Derivatives not designated as hedges
              
Equity index options
    Notional      702        308        (357 )      653  
Financial futures
    Notional      1,251        2,363        (2,455 )      1,159  
Forward bond purchase commitments
    Notional      500        —         —        500  
     
 
 
     
 
 
     
 
 
    
 
 
  
Total derivatives not designated as hedges
         2,453        2,671        (2,812 )      2,312  
     
 
 
     
 
 
     
 
 
    
 
 
  
Total derivatives
       $ 12,634      $ 4,443      $ (3,211 )    $ 13,866  
     
 
 
     
 
 
     
 
 
    
 
 
  
         
December 31,
            
Maturities/
    
June 30,
  
(Number of policies)
   
Measurement
   
2023
     
Additions
     
terminations
    
2024
  
Derivatives not designated as hedges
              
Fixed indexed annuity embedded derivatives
    Policies      5,826        —         (530 )      5,296  
Indexed universal life embedded derivatives
    Policies      749        —         (17 )      732  
Cash Flow Hedges
Certain derivative instruments are designated as cash flow hedges. The changes in fair value of these instruments are recorded as a component of other comprehensive income (loss) (“OCI”). We designate and account for the following as cash flow hedges when they have met the effectiveness requirements: (i) various types of interest rate swaps to convert floating rate investments to fixed rate investments; (ii) various types of interest rate swaps to convert floating rate liabilities into fixed rate liabilities; (iii) receive U.S. dollar fixed on foreign currency swaps to hedge the foreign currency cash flow exposure of foreign currency denominated investments; (iv) forward starting interest rate swaps to hedge against changes in interest rates associated with future fixed rate bond purchases and/or interest income; (v) forward bond purchase commitments to hedge against the variability in the anticipated cash flows required to purchase future fixed rate bonds; and (vi) other instruments to hedge the cash flows of various forecasted transactions.

The following table provides information about the pre-tax income effects of cash flow hedges for the three months ended June 30, 2024:
 
(Amounts in millions)
  
Gain (loss)
recognized in OCI
 
 
Gain (loss)
reclassified into

net income

from OCI
 
 
Classification of gain
(loss) reclassified into
net income
  
Gain (loss)
recognized in
net income
 
  
Classification of gain
(loss) recognized in
net income
Interest rate swaps hedging assets
    $ (77 )    $ 52     Net investment income    $ —       Net investment gains (losses)
Interest rate swaps hedging assets
      —        1     Net investment gains (losses)      —       Net investment gains (losses)
Interest rate swaps hedging liabilities
      —        (1 )    Interest expense      —       Net investment gains (losses)
Foreign currency swaps
      2       —      Net investment income      —       Net investment gains (losses)
Forward bond purchase commitments
      (33 )      —      Net investment gains (losses)      —       Net investment gains (losses)
  
 
 
    
 
 
       
 
 
     
Total
    $ (108 )    $ 52        $ —      
  
 
 
    
 
 
       
 
 
     
The following table provides information about the pre-tax income effects of cash flow hedges for the three months ended June 30, 2023:
 
(Amounts in millions)
  
Gain (loss)
recognized in OCI
 
 
Gain (loss)
reclassified into
net income

from OCI
 
  
Classification of gain
(loss) reclassified into
net income
  
Gain (loss)
recognized in
net income
 
  
Classification of gain
(loss) recognized in
net income
Interest rate swaps hedging assets
    $ (104 )    $ 55      Net investment income    $ —       Net investment gains (losses)
Interest rate swaps hedging assets
      —        3      Net investment gains (losses)      —       Net investment gains (losses)
Foreign currency swaps
      (2 )      —       Net investment income      —       Net investment gains (losses)
  
 
 
    
 
 
        
 
 
     
Total
    $ (106 )    $ 58         $ —      
  
 
 
    
 
 
        
 
 
     
The following table provides information about the pre-tax income effects of cash flow hedges for the six months ended June 30, 2024:
 
(Amounts in millions)
  
Gain (loss)
recognized in OCI
 
 
Gain (loss)
reclassified into
net income
from OCI
 
 
Classification of gain
(loss) reclassified into
net income
  
Gain (loss)
recognized in
net income
 
  
Classification of gain
(loss) recognized in
net income
Interest rate swaps hedging assets
    $ (225 )    $ 105     Net investment income    $ —       Net investment gains (losses)
Interest rate swaps hedging assets
      —        5     Net investment gains (losses)      —       Net investment gains (losses)
Interest rate swaps hedging liabilities
      —        (2 )    Interest expense      —       Net investment gains (losses)
Foreign currency swaps
      3       —      Net investment income      —       Net investment gains (losses)
Forward bond purchase commitments
      (44 )      —      Net investment gains (losses)      —       Net investment gains (losses)
  
 
 
    
 
 
       
 
 
     
Total
    $ (266 )    $ 108        $ —      
  
 
 
    
 
 
       
 
 
     
 

The following table provides information about the pre-tax income effects of cash flow hedges for the six months ended June 30, 2023:
 
(Amounts in millions)
  
Gain (loss)
recognized in OCI
 
 
Gain (loss)

reclassified into

net income

from OCI
 
 
Classification of gain
(loss) reclassified into
net income
  
Gain (loss)

recognized in

net income
 
  
Classification of gain
(loss) recognized in
net income
Interest rate swaps hedging assets
    $ 42     $ 109     Net investment income    $ —       Net investment gains (losses)
Interest rate swaps hedging assets
      —        8     Net investment gains (losses)      —       Net investment gains (losses)
Interest rate swaps hedging liabilities
      —        (1 )    Interest expense      —       Net investment gains (losses)
Interest rate swaps hedging liabilities
      —        1     Net investment gains (losses)      —       Net investment gains (losses)
Foreign currency swaps
      (3 )      —      Net investment income      —       Net investment gains (losses)
Foreign currency swaps
      —        2     Net investment gains (losses)      —       Net investment gains (losses)
  
 
 
    
 
 
       
 
 
     
Total
    $ 39     $ 119        $ —      
  
 
 
    
 
 
       
 
 
     
The following table provides a reconciliation of current period changes, net of applicable income taxes, for these designated derivatives presented in the separate component of stockholders’ equity labeled “derivatives qualifying as hedges,” as of and for the periods indicated:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
Three months ended

June 30,
 
  
Six months ended
June 30,
 
(Amounts in millions)
  
2024
 
  
2023
 
  
2024
 
  
2023
 
 
  
 
 
  
 
 
  
 
 
  
 
 
Beginning balance
    $ 849      $ 1,274      $ 1,010      $ 1,200  
Current period increases (decreases) in fair value, net of deferred taxes of $23, $23, $56 and $(8)
      (85 )       (83 )       (210 )       31  
Reclassification to net (income), net of deferred taxes of $18, $21, $38 and $42
      (34 )       (37 )       (70 )       (77 ) 
  
 
 
     
 
 
     
 
 
     
 
 
  
Ending balance
    $ 730      $ 1,154      $ 730      $ 1,154  
  
 
 
     
 
 
     
 
 
     
 
 
  
The total of derivatives designated as cash flow hedges of $
730
 million, net of taxes, recorded in stockholders’ equity as of June 30, 2024 is expected to be reclassified to net income (loss) in the future, concurrently with and primarily offsetting changes in interest expense and interest income on floating rate instruments and interest income on future fixed rate bond purchases. Of this amount, $
129
 million, net of taxes, is expected to be reclassified to net income (loss) in the next 12 months. Actual amounts may vary from this amount as a result of market conditions. All forecasted transactions associated with qualifying cash flow hedges are expected to occur by
2057
. During the six months ended June 30, 2024 and 2023, we reclassified $
3
 million and $
7
 million, respectively, to net income in connection with forecasted transactions that were no longer considered reasonably possible of occurring.
Derivatives Not Designated As Hedges
We enter into certain non-qualifying derivative instruments such as equity index options and financial futures to mitigate the risks associated with liabilities that have guaranteed minimum benefits, fixed indexed

annuities and indexed universal life. Our fixed indexed annuity and indexed universal life insurance products with certain features are required to be bifurcated as embedded derivatives. Additionally, we have forward bond purchase commitments to hedge against the variability in the anticipated cash flows required to purchase future fixed rate bonds.
The following table provides the pre-tax gain (loss) recognized in net income for the effects of derivatives not designated as hedges for the periods indicated:
 
  
Three months ended
June 30,
 
 
Six months ended
June 30,
 
 
Classification of gain (loss)
recognized in net income
(Amounts in millions)
  
2024
 
 
2023
 
 
2024
 
 
2023
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity index options
  
$
1
 
 
$
5
 
 
$
6
 
 
$
6
 
 
Net investment gains (losses)
Financial futures
  
 
(15
) 
 
 
(65
) 
 
 
(79
) 
 
 
(67
) 
 
Changes in fair value of market risk benefits and associated hedges
Forward bond purchase commitments
  
 
(7
) 
 
 
(3
) 
 
 
(11
) 
 
 
(3
) 
 
Net investment gains (losses)
Fixed indexed annuity embedded derivatives
  
 
(5
) 
 
 
(8
) 
 
 
(13
) 
 
 
(10
) 
 
Net investment gains (losses)
Indexed universal life embedded derivatives
  
 
2
 
 
 
2
 
 
 
6
 
 
 
7
 
 
Net investment gains (losses)
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
Total derivatives not designated as hedges
  
$
(24
) 
 
$
(69
) 
 
$
(91
) 
 
$
(67
) 
 
  
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
Derivative Counterparty Credit Risk
Most of our derivative arrangements with counterparties require the posting of collateral upon meeting certain net exposure thresholds. The following table presents additional information about derivative assets and liabilities subject to an enforceable master netting arrangement as of the dates indicated:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
June 30, 2024
 
 
December 31, 2023
 
(Amounts in millions)
  
Derivative
assets
(1)
 
 
Derivative

liabilities
 
(1)
 
 
Net

derivatives
 
 
Derivative

assets 
(1)
 
 
Derivative

liabilities
 
(1)
 
 
Net

derivatives
 
 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                      
Amounts presented in the balance sheet:
             
Gross amounts recognized
    $ 80     $ 670     $ (590 )    $ 131     $ 501     $ (370 ) 
Gross amounts offset in the balance sheet
      —        —        —        —        —        —   
  
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Net amounts presented in the balance sheet
      80       670       (590 )      131       501       (370 ) 
Gross amounts not offset in the balance sheet:
             
Financial instruments
(2)
      (38 )      (38 )      —        (59 )      (59 )      —   
Collateral received
      (17 )      —        (17 )      (19 )      —        (19 ) 
Collateral pledged
      —        (1,288 )      1,288       —        (1,100 )      1,100  
Over collateralization
      2       656       (654 )      —        658       (658 ) 
  
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
Net amount
    $ 27     $ —      $ 27     $ 53     $ —      $ 53  
  
 
 
    
 
 
    
 
 
    
 
 
    
 
 
    
 
 
  
 
(1)
 
Does not include amounts related to embedded derivatives as of June 30, 2024 and December 31, 2023.
(2)
 
Amounts represent derivative assets and/or liabilities that are presented gross within the balance sheet but are held with the same counterparty where we have a master netting arrangement. This adjustment results in presenting the net asset and net liability position for each counterparty.