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Fair Value

9 Months Ended

Sep. 30, 2020

5. Fair Value

Fair value is the price we would receive to sell an asset or pay to transfer a liability (exit price) in an orderly transaction between market participants. We determine fair value based on the following fair value hierarchy:

Level 1 – Unadjusted quoted prices for identical assets or liabilities in an active market.

Level 2 – Quoted prices for inactive markets or valuation techniques that require observable direct or indirect inputs for substantially the full term of the asset or liability. Level 2 inputs include the following:

•Quoted prices for similar assets or liabilities in active markets,

•Observable inputs other than quoted market prices, and

•Observable inputs derived principally from market data through correlation or other means.

Level 3 – Prices or valuation techniques with unobservable inputs significant to the overall fair value estimate. These valuations use critical assumptions not readily available to market participants. Level 3 valuations are based on market standard valuation methodologies, including discounted cash flows, matrix pricing or other similar techniques.

NAV – Investment funds are typically measured using NAV as a practical expedient in determining fair value and are not classified in the fair value hierarchy. The underlying investments of the investment funds may have significant unobservable inputs, which may include but are not limited to, comparable multiples and weighted average cost of capital rates applied in valuation models or a discounted cash flow model.

The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). If the inputs used to measure fair value fall within different levels of the hierarchy, the category level is based on the lowest priority level input that is significant to the instrument’s fair value measurement.

We use a number of valuation sources to determine fair values. Valuation sources can include quoted market prices; third-party commercial pricing services; third-party brokers; industry-standard, vendor modeling software that uses market observable inputs; and other internal modeling techniques based on projected cash flows. We periodically review the assumptions and inputs of third-party commercial pricing services through internal valuation price variance reviews, comparisons to internal pricing models, back testing to recent trades, or monitoring trading volumes.

The following represents the hierarchy for our assets and liabilities measured at fair value on a recurring basis:


	September 30, 2020
(In millions)	Total		NAV		Level 1		Level 2		Level 3
Assets
AFS securities
US government and agencies	$	73	$	—	$	73	$	—	$	—
US state, municipal and political subdivisions	927		—		—		893		34
Foreign governments	340		—		—		339		1
Corporate	51,129		—		—		50,229		900
CLO	8,370		—		—		8,179		191
ABS	4,200		—		—		3,221		979
CMBS	2,239		—		—		2,169		70
RMBS	6,710		—		—		6,710		—
Total AFS securities	73,988		—		73		71,740		2,175
Trading securities
US government and agencies	11		—		8		3		—
US state, municipal and political subdivisions	115		—		—		115		—

Corporate	1,532		—		—		1,526		6
CLO	3		—		—		—		3
ABS	119		—		—		84		35
CMBS	52		—		—		52		—
RMBS	237		—		—		178		59
Total trading securities	2,069		—		8		1,958		103
Equity securities	265		—		29		220		16
Mortgage loans	19		—		—		—		19
Investment funds	156		139		—		—		17
Funds withheld at interest – embedded derivative	1,259		—		—		—		1,259
Derivative assets	2,771		—		48		2,723		—
Short-term investments	165		—		45		110		10
Other investments	109		—		—		109		—
Cash and cash equivalents	7,548		—		7,548		—		—
Restricted cash	1,226		—		1,226		—		—
Investments in related parties
AFS securities
Corporate	784		—		—		20		764
CLO	1,344		—		—		1,333		11
ABS	2,729		—		—		666		2,063
Total AFS securities – related party	4,857		—		—		2,019		2,838
Trading securities
CLO	52		—		—		24		28
ABS	1,345		—		—		—		1,345
Total trading securities – related party	1,397		—		—		24		1,373
Equity securities	50		—		—		—		50
Investment funds	1,850		80		—		—		1,770
Funds withheld at interest – embedded derivative	721		—		—		—		721
Reinsurance recoverable	2,155		—		—		—		2,155
Total assets measured at fair value	$	100,605	$	219	$	8,977	$	78,903	$	12,506
									(Continued)


	September 30, 2020
(In millions)	Total		NAV		Level 1		Level 2		Level 3
Liabilities
Interest sensitive contract liabilities
Embedded derivative	$	11,741	$	—	$	—	$	—	$	11,741
Universal life benefits	1,363		—		—		—		1,363
Future policy benefits
AmerUs Life Insurance Company (AmerUs) Closed Block	1,577		—		—		—		1,577
Indianapolis Life Insurance Company (ILICO) Closed Block and life benefits	777		—		—		—		777
Derivative liabilities	147		—		5		137		5
Funds withheld liability – embedded derivative	50		—		—		50		—
Total liabilities measured at fair value	$	15,655	$	—	$	5	$	187	$	15,463
									(Concluded)


	December 31, 2019
(In millions)	Total		NAV		Level 1		Level 2		Level 3
Assets
AFS securities
US government and agencies	$	36	$	—	$	36	$	—	$	—
US state, municipal and political subdivisions	1,541		—		—		1,501		40
Foreign governments	327		—		—		327		—
Corporate	47,228		—		—		46,503		725
CLO	7,349		—		—		7,228		121
ABS	5,118		—		—		3,744		1,374
CMBS	2,400		—		—		2,354		46
RMBS	7,375		—		—		7,375		—
Total AFS securities	71,374		—		36		69,032		2,306
Trading securities
US government and agencies	11		—		8		3		—
US state, municipal and political subdivisions	135		—		—		135		—
Corporate	1,456		—		—		1,456		—
CLO	6		—		—		—		6
ABS	108		—		—		92		16
CMBS	51		—		—		51		—
RMBS	303		—		—		251		52
Total trading securities	2,070		—		8		1,988		74
Equity securities	247		—		43		201		3
Mortgage loans	27		—		—		—		27
Investment funds	154		132		—		—		22
Funds withheld at interest – embedded derivative	801		—		—		—		801
Derivative assets	2,888		—		10		2,878		—
Short-term investments	406		—		46		319		41
Other investments	93		—		—		93		—
Cash and cash equivalents	4,240		—		4,240		—		—
Restricted cash	402		—		402		—		—
									(Continued)


	December 31, 2019
(In millions)	Total		NAV		Level 1		Level 2		Level 3
Investments in related parties
AFS securities
Corporate	19		—		—		19		—
CLO	936		—		—		936		—
ABS	2,849		—		—		525		2,324
Total AFS securities – related party	3,804		—		—		1,480		2,324
Trading securities
CLO	74		—		—		36		38
ABS	711		—		—		—		711
Total trading securities – related party	785		—		—		36		749
Equity securities	64		—		—		—		64
Investment funds	819		687		—		—		132
Funds withheld at interest – embedded derivative	594		—		—		—		594

Reinsurance recoverable	1,821		—		—		—		1,821
Total assets measured at fair value	$	90,589	$	819	$	4,785	$	76,027	$	8,958
Liabilities
Interest sensitive contract liabilities
Embedded derivative	$	10,942	$	—	$	—	$	—	$	10,942
Universal life benefits	1,050		—		—		—		1,050
Future policy benefits
AmerUs Closed Block	1,546		—		—		—		1,546
ILICO Closed Block and life benefits	755		—		—		—		755
Derivative liabilities	97		—		1		93		3
Funds withheld liability – embedded derivative	31		—		—		31		—
Total liabilities measured at fair value	$	14,421	$	—	$	1	$	124	$	14,296
									(Concluded)

Fair Value Valuation Methods—We used the following valuation methods and assumptions to estimate fair value:

AFS and trading securities – We obtain the fair value for most marketable securities without an active market from several commercial pricing services. These are classified as Level 2 assets. The pricing services incorporate a variety of market observable information in their valuation techniques, including benchmark yields, trading activity, credit quality, issuer spreads, bids, offers and other reference data. This category typically includes US and non-US corporate bonds, US agency and government guaranteed securities, CLO, ABS, CMBS and RMBS.

We also have fixed maturity securities priced based on indicative broker quotes or by employing market accepted valuation models. For certain fixed maturity securities, the valuation model uses significant unobservable inputs and are included in Level 3 in our fair value hierarchy. Significant unobservable inputs used include: issue specific credit adjustments, material non-public financial information, estimation of future earnings and cash flows, default rate assumptions, liquidity assumptions and indicative quotes from market makers. These inputs are usually considered unobservable, as not all market participants have access to this data.

We value privately placed fixed maturity securities based on the credit quality and duration of comparable marketable securities, which may be securities of another issuer with similar characteristics. In some instances, we use a matrix-based pricing model. These models consider the current level of risk-free interest rates, corporate spreads, credit quality of the issuer and cash flow characteristics of the security. We also consider additional factors such as net worth of the borrower, value of collateral, capital structure of the borrower, presence of guarantees and our evaluation of the borrower’s ability to compete in its relevant market. Privately placed fixed maturity securities are classified as Level 2 or 3.

Equity securities – Fair values of publicly traded equity securities are based on quoted market prices and classified as Level 1. Other equity securities, typically private equities or equity securities not traded on an exchange, we value based on other sources, such as commercial pricing services or brokers, and are classified as Level 2 or 3.

Mortgage loans – Mortgage loans for which we have elected the fair value option or those held for sale are carried at fair value. We estimate fair value on a monthly basis using discounted cash flow analysis and rates being offered for similar loans to borrowers with similar credit ratings. Loans with similar characteristics are aggregated for purposes of the calculations. The discounted cash flow model uses unobservable inputs, including estimates of discount rates and loan prepayments. Mortgage loans are classified as Level 3.

Investment funds – Certain investment funds for which we elected the fair value option are included in Level 3 and are priced based on market accepted valuation models. The valuation models use significant unobservable inputs, which include material non-public financial information, estimation of future distributable earnings and demographic assumptions. These inputs are usually considered unobservable, as not all market participants have access to this data.

Funds withheld at interest embedded derivative – We estimate the fair value of the embedded derivative based on the change in the fair value of the assets supporting the funds withheld payable under modco and funds withheld reinsurance agreements. As a result, the fair value of the embedded derivative is classified as Level 2 or 3 based on the valuation methods used for the assets held supporting the reinsurance agreements.

Derivatives – Derivative contracts can be exchange traded or over-the-counter. Exchange-traded derivatives typically fall within Level 1 of the fair value hierarchy depending on trading activity. Over-the-counter derivatives are valued using valuation models or an income approach using third-party broker valuations. Valuation models require a variety of inputs, including contractual terms, market prices, yield curves, credit curves, measures of volatility, prepayment rates and correlation of the inputs. We consider and incorporate counterparty credit risk in the valuation process through counterparty credit rating requirements and monitoring of overall exposure. We also evaluate and include our own nonperformance risk in valuing derivatives. The majority of our derivatives trade in liquid markets; therefore, we can verify model inputs and model selection does not involve significant management judgment. These are typically classified within Level 2 of the fair value hierarchy.

Cash and cash equivalents, including restricted cash – The carrying amount for cash equals fair value. We estimate the fair value for cash equivalents based on quoted market prices. These assets are classified as Level 1.

Interest sensitive contract liabilities embedded derivative – Embedded derivatives related to interest sensitive contract liabilities with fixed indexed annuity products are classified as Level 3. The valuations include significant unobservable inputs associated with economic assumptions and actuarial assumptions for policyholder behavior.

AmerUs Closed Block – We elected the fair value option for the future policy benefits liability in the AmerUs Closed Block. Our valuation technique is to set the fair value of policyholder liabilities equal to the fair value of assets. There is an additional component which captures the fair value of the open block’s obligations to the closed block business. This component is the present value of the projected release of required capital and future earnings before income taxes on required capital supporting the AmerUs Closed Block, discounted at a rate which represents a market participant’s required rate of return, less the initial required capital. Unobservable inputs include estimates for these items. The AmerUs Closed Block policyholder liabilities and any corresponding reinsurance recoverable are classified as Level 3.

ILICO Closed Block – We elected the fair value option for the ILICO Closed Block. Our valuation technique is to set the fair value of policyholder liabilities equal to the fair value of assets. There is an additional component which captures the fair value of the open block’s obligations to the closed block business. This component uses the present value of future cash flows which include commissions, administrative expenses, reinsurance premiums and benefits, and an explicit cost of capital. The discount rate includes a margin to reflect the business and nonperformance risk. Unobservable inputs include estimates for these items. The ILICO Closed Block policyholder liabilities and corresponding reinsurance recoverable are classified as Level 3.

Universal life liabilities and other life benefits – We elected the fair value option for certain blocks of universal and other life business ceded to Global Atlantic. We use a present value of liability cash flows. Unobservable inputs include estimates of mortality, persistency, expenses, premium payments and a risk margin used in the discount rates that reflects the riskiness of the business. These universal life policyholder liabilities and corresponding reinsurance recoverable are classified as Level 3.

Fair Value Option—The following represents the gains (losses) recorded for instruments for which we have elected the fair value option, including related parties:


	Three months ended September 30,				Nine months ended September 30,
(In millions)	2020		2019		2020		2019
Trading securities	$	24	$	48	$	(8)	$	183
Mortgage loans	—		—		—		1
Investment funds	(57)		3		109		3
Future policy benefits	(4)		(37)		(31)		(129)
Total gains (losses)	$	(37)	$	14	$	70	$	58

Gains and losses on trading securities are recorded in investment related gains (losses) on the condensed consolidated statements of income. For fair value option mortgage loans, we record interest income in net investment income and subsequent changes in fair value in investment related gains (losses) on the condensed consolidated statements of income. Gains and losses related to investment funds, including related party investment funds, are recorded in net investment income on the condensed consolidated statements of income. We record the change in fair value of future policy benefits to future policy and other policy benefits on the condensed consolidated statements of income.

The following summarizes information for fair value option mortgage loans:


(In millions)	September 30, 2020		December 31, 2019
Unpaid principal balance	$	17	$	25
Mark to fair value	2		2
Fair value	$	19	$	27

There were no fair value option mortgage loans 90 days or more past due as of September 30, 2020 and December 31, 2019.

Level 3 Financial Instruments—The following tables are reconciliations for all Level 3 assets and liabilities measured at fair value on a recurring basis. All transfers in and out of Level 3 are based on changes in the availability of pricing sources, as described in the valuation methods above.


	Three months ended September 30, 2020
			Total realized and unrealized gains (losses)
(In millions)	Beginning balance		Included in income		Included in OCI		Net purchases, issuances, sales and settlements		Net transfers in (out)		Ending balance		Total gains (losses) included in earnings1		Total gains (losses) included in OCI1
Assets
AFS securities
US state, municipal and political subdivisions	$	40	$	—	$	(1)	$	(5)	$	—	$	34	$	—	$	(1)
Foreign governments	—		—		—		1		—		1		—		—
Corporate	874		(26)		62		39		(49)		900		—		75
CLO	160		—		2		(7)		36		191		—		2
ABS	868		(4)		12		(44)		147		979		—		13
CMBS	49		—		5		—		16		70		—		5
RMBS	16		—		2		(2)		(16)		—		—		—
Trading securities

Corporate	6		—		—		—		—		6		—		—
CLO	3		—		—		—		—		3		—		—
ABS	—		—		—		35		—		35		—		—
RMBS	55		(3)		—		—		7		59		—		—
Equity securities	6		—		—		10		—		16		2		—
Mortgage loans	25		—		—		(6)		—		19		—		—
Investment funds	17		—		—		—		—		17		—		—
Funds withheld at interest – embedded derivative	763		496		—		—		—		1,259		—		—
Short-term investments	114		—		—		(16)		(88)		10		—		—
Investments in related parties
AFS securities
Corporate	—		1		2		761		—		764		—		2
CLO	—		—		—		11		—		11		—		—
ABS	2,061		8		25		(31)		—		2,063		—		25
Trading securities
CLO	45		3		—		—		(20)		28		3		—
ABS	824		14		—		507		—		1,345		13		—
Equity securities	52		—		—		(2)		—		50		1		—
Investment funds	1,810		(56)		—		16		—		1,770		—		—
Funds withheld at interest – embedded derivative	560		161		—		—		—		721		—		—

Reinsurance recoverable	2,099		56		—		—		—		2,155		—		—
Total Level 3 assets	$	10,447	$	650	$	109	$	1,267	$	33	$	12,506	$	19	$	121


Liabilities
Interest sensitive contract liabilities
Embedded derivative	$	(11,140)	$	(553)	$	—	$	(48)	$	—	$	(11,741)	$	—	$	—
Universal life benefits	(1,323)		(40)		—		—		—		(1,363)		—		—
Future policy benefits
AmerUs Closed Block	(1,573)		(4)		—		—		—		(1,577)		—		—
ILICO Closed Block and life benefits	(761)		(16)		—		—		—		(777)		—		—
Derivative liabilities	(5)		—		—		—		—		(5)		—		—
Total Level 3 liabilities	$	(14,802)	$	(613)	$	—	$	(48)	$	—	$	(15,463)	$	—	$	—

1 Related to instruments held at end of period.


	Three months ended September 30, 2019
			Total realized and unrealized gains (losses)
(In millions)	Beginning balance		Included in income		Included in OCI		Net purchases, issuances, sales and settlements		Net transfers in (out)		Ending balance		Total gains (losses) included in earnings1
Assets
AFS securities
US state, municipal and political subdivisions	$	40	$	—	$	—	$	—	$	—	$	40	$	—

Corporate	821		(3)		10		189		(70)		947		—
CLO	200		—		1		34		(104)		131		—
ABS	1,396		1		12		16		(137)		1,288		—
CMBS	206		—		3		195		(73)		331		—

Trading securities

Corporate	6		—		—		—		(6)		—		—
CLO	7		(1)		—		—		—		6		—
ABS	6		—		—		(1)		78		83		—

RMBS	46		(5)		—		15		35		91		(2)
Equity securities	3		—		—		—		(2)		1		—
Mortgage loans	32		—		—		(4)		—		28		—
Investment funds	25		(1)		—		(2)		—		22		(1)
Funds withheld at interest – embedded derivative	704		100		—		—		—		804		—
Short-term investments	45		—		—		181		—		226		—
Investments in related parties
AFS securities

CLO	37		—		—		—		(37)		—		—
ABS	399		—		8		587		—		994		—
Trading securities
CLO	95		(5)		—		(7)		(23)		60		—
ABS	218		4		—		2		—		224		5
Equity securities	350		6		—		31		—		387		—
Investment funds	141		(1)		—		—		—		140		1
Funds withheld at interest – embedded derivative	501		154		—		—		—		655		—

Reinsurance recoverable	1,834		120		—		—		—		1,954		—
Total Level 3 assets	$	7,112	$	369	$	34	$	1,236	$	(339)	$	8,412	$	3

Liabilities
Interest sensitive contract liabilities
Embedded derivative	$	(9,905)	$	(265)	$	—	$	(103)	$	—	$	(10,273)	$	—
Universal life benefits	(1,051)		(91)		—		—		—		(1,142)		—
Future policy benefits
AmerUs Closed Block	(1,535)		(37)		—		—		—		(1,572)		—
ILICO Closed Block and life benefits	(769)		(28)		—		—		—		(797)		—
Derivative liabilities	(4)		—		—		—		—		(4)		—
Total Level 3 liabilities	$	(13,264)	$	(421)	$	—	$	(103)	$	—	$	(13,788)	$	—

1 Related to instruments held at end of period.


	Nine months ended September 30, 2020
			Total realized and unrealized gains (losses)
(In millions)	Beginning balance		Included in income		Included in OCI		Net purchases, issuances, sales and settlements		Net transfers in (out)		Ending balance		Total gains (losses) included in income1		Total gains (losses) included in OCI1
Assets
AFS securities
US state, municipal and political subdivisions	$	40	$	—	$	—	$	(6)	$	—	$	34	$	—	$	—
Foreign governments	—		—		—		1		—		1		—		—
Corporate	725		1		(1)		118		57		900		—		(1)
CLO	121		—		—		56		14		191		—		—
ABS	1,374		19		(71)		(301)		(42)		979		—		(69)
CMBS	46		(5)		(5)		(5)		39		70		—		(5)

Trading securities

Corporate	—		—		—		—		6		6		—		—
CLO	6		(3)		—		—		—		3		(1)		—
ABS	16		—		—		19		—		35		—		—
RMBS	52		(4)		—		—		11		59		5		—
Equity securities	3		3		—		10		—		16		3		—
Mortgage loans	27		—		—		(8)		—		19		—		—
Investment funds	22		(5)		—		—		—		17		(4)		—
Funds withheld at interest – embedded derivative	801		458		—		—		—		1,259		—		—
Short-term investments	41		—		—		(31)		—		10		—		—
Investments in related parties
AFS securities
Corporate	—		1		2		761		—		764		—		2
CLO	—		—		—		11		—		11		—		—
ABS	2,324		9		(20)		(85)		(165)		2,063		—		(20)
Trading securities
CLO	38		(11)		—		1		—		28		(11)		—
ABS	711		(13)		—		647		—		1,345		(14)		—
Equity securities	64		(5)		—		(3)		(6)		50		(5)		—
Investment funds	132		113		—		1,525		—		1,770		113		—
Funds withheld at interest – embedded derivative	594		127		—		—		—		721		—		—

Reinsurance recoverable	1,821		334		—		—		—		2,155		—		—
Total Level 3 assets	$	8,958	$	1,019	$	(95)	$	2,710	$	(86)	$	12,506	$	86	$	(93)

Liabilities
Interest sensitive contract liabilities
Embedded derivative	$	(10,942)	$	(910)	$	—	$	111	$	—	$	(11,741)	$	—	$	—
Universal life benefits	(1,050)		(313)		—		—		—		(1,363)		—		—
Future policy benefits
AmerUs Closed Block	(1,546)		(31)		—		—		—		(1,577)		—		—
ILICO Closed Block and life benefits	(755)		(22)		—		—		—		(777)		—		—
Derivative liabilities	(3)		(2)		—		—		—		(5)		(2)		—
Total Level 3 liabilities	$	(14,296)	$	(1,278)	$	—	$	111	$	—	$	(15,463)	$	(2)	$	—

1 Related to instruments held at end of period.


	Nine months ended September 30, 2019
			Total realized and unrealized gains (losses)
(In millions)	Beginning balance		Included in income		Included in OCI		Net purchases, issuances, sales and settlements		Net transfers in (out)		Ending balance		Total gains (losses) included in earnings1
Assets
AFS securities
US state, municipal and political subdivisions	$	—	$	—	$	—	$	40	$	—	$	40	$	—

Corporate	898		(2)		20		164		(133)		947		—
CLO	107		—		3		60		(39)		131		—
ABS	1,615		6		43		43		(419)		1,288		—
CMBS	187		1		7		154		(18)		331		—
RMBS	56		—		4		2		(62)		—		—
Trading securities


CLO	1		(1)		—		—		6		6		6
ABS	—		—		—		5		78		83		—
RMBS	134		(13)		—		15		(45)		91		3
Equity securities	3		—		—		—		(2)		1		—
Mortgage loans	32		1		—		(5)		—		28		1
Investment funds	29		(2)		—		(5)		—		22		(2)
Funds withheld at interest – embedded derivative	57		747		—		—		—		804		—
Short-term investments	—		—		—		226		—		226		—
Investments in related parties


AFS securities, ABS	328		—		21		748		(103)		994		—
Trading securities
CLO	113		(7)		—		(54)		8		60		2
ABS	149		(13)		—		(15)		103		224		(13)
Equity securities	133		15		—		239		—		387		(2)
Investment funds	120		1		—		19		—		140		3
Funds withheld at interest – embedded derivative	(110)		765		—		—		—		655		—

Reinsurance recoverable	1,676		278		—		—		—		1,954		—
Total Level 3 assets	$	5,528	$	1,776	$	98	$	1,636	$	(626)	$	8,412	$	(2)

Liabilities
Interest sensitive contract liabilities
Embedded derivative	$	(7,969)	$	(1,920)	$	—	$	(384)	$	—	$	(10,273)	$	—
Universal life benefits	(932)		(210)		—		—		—		(1,142)		—
Future policy benefits
AmerUs Closed Block	(1,443)		(129)		—		—		—		(1,572)		—
ILICO Closed Block and life benefits	(730)		(67)		—		—		—		(797)		—
Derivative liabilities	(4)		—		—		—		—		(4)		—
Total Level 3 liabilities	$	(11,078)	$	(2,326)	$	—	$	(384)	$	—	$	(13,788)	$	—

1 Related to instruments held at end of period.

The following represents the gross components of purchases, issuances, sales and settlements, net, and net transfers in (out) shown above:


	Three months ended September 30, 2020
(In millions)	Purchases		Issuances		Sales		Settlements		Net purchases, issuances, sales and settlements		Transfers in		Transfers out		Net transfers in (out)
Assets
AFS securities
US state, municipal and political subdivisions	$	—	$	—	$	(5)	$	—	$	(5)	$	—	$	—	$	—
Foreign governments	1		—		—		—		1		—		—		—
Corporate	58		—		—		(19)		39		157		(206)		(49)
CLO	12		—		(18)		(1)		(7)		36		—		36
ABS	47		—		(43)		(48)		(44)		218		(71)		147
CMBS	—		—		—		—		—		39		(23)		16
RMBS	—		—		(1)		(1)		(2)		—		(16)		(16)
Trading securities



ABS	35		—		—		—		35		—		—		—

RMBS	—		—		—		—		—		8		(1)		7
Equity securities	10		—		—		—		10		—		—		—
Mortgage loans	—		—		—		(6)		(6)		—		—		—

Short-term investments	1		—		(7)		(10)		(16)		—		(88)		(88)
Investments in related parties
AFS securities
Corporate	761		—		—		—		761		—		—		—
CLO	11		—		—		—		11		—		—		—
ABS	2		—		(10)		(23)		(31)		—		—		—
Trading securities
CLO	—		—		—		—		—		4		(24)		(20)
ABS	517		—		(10)		—		507		—		—		—
Equity securities	2		—		(1)		(3)		(2)		—		—		—
Investment funds	16		—		—		—		16		—		—		—

Total Level 3 assets	$	1,473	$	—	$	(95)	$	(111)	$	1,267	$	462	$	(429)	$	33

Liabilities
Interest sensitive contract liabilities – embedded derivative	$	—	$	(202)	$	—	$	154	$	(48)	$	—	$	—	$	—

Total Level 3 liabilities	$	—	$	(202)	$	—	$	154	$	(48)	$	—	$	—	$	—


	Three months ended September 30, 2019
(In millions)	Purchases		Issuances		Sales		Settlements		Net purchases, issuances, sales and settlements		Transfers in		Transfers out		Net transfers in (out)
Assets
AFS securities


Corporate	$	199	$	—	$	—	$	(10)	$	189	$	1	$	(71)	$	(70)
CLO	37		—		—		(3)		34		—		(104)		(104)
ABS	64		—		(21)		(27)		16		—		(137)		(137)
CMBS	251		—		(4)		(52)		195		—		(73)		(73)

Trading securities

Corporate	—		—		—		—		—		—		(6)		(6)

ABS	—		—		—		(1)		(1)		78		—		78

RMBS	15		—		—		—		15		35		—		35
Equity securities	—		—		—		—		—		—		(2)		(2)
Mortgage loans	—		—		—		(4)		(4)		—		—		—
Investment funds	—		—		(2)		—		(2)		—		—		—
Short-term investments	200		—		—		(19)		181		—		—		—
Investments in related parties
AFS securities

CLO	—		—		—		—		—		—		(37)		(37)
ABS	587		—		—		—		587		—		—		—
Trading securities
CLO	—		—		(7)		—		(7)		—		(23)		(23)
ABS	2		—		—		—		2		—		—		—
Equity securities	31		—		—		—		31		—		—		—

Total Level 3 assets	$	1,386	$	—	$	(34)	$	(116)	$	1,236	$	114	$	(453)	$	(339)

Liabilities
Interest sensitive contract liabilities – embedded derivative	$	—	$	(222)	$	—	$	119	$	(103)	$	—	$	—	$	—

Total Level 3 liabilities	$	—	$	(222)	$	—	$	119	$	(103)	$	—	$	—	$	—


	Nine months ended September 30, 2020
(In millions)	Purchases		Issuances		Sales		Settlements		Net purchases, issuances, sales and settlements		Transfers in		Transfers out		Net transfers in (out)
Assets
AFS securities
US state, municipal and political subdivisions	$	—	$	—	$	(5)	$	(1)	$	(6)	$	—	$	—	$	—
Foreign governments	1		—		—		—		1		—		—		—
Corporate	245		—		—		(127)		118		97		(40)		57
CLO	90		—		(25)		(9)		56		36		(22)		14
ABS	95		—		(6)		(390)		(301)		64		(106)		(42)
CMBS	—		—		(4)		(1)		(5)		39		—		39

Trading securities

Corporate	—		—		—		—		—		6		—		6

ABS	35		—		(16)		—		19		—		—		—
RMBS	—		—		—		—		—		12		(1)		11
Equity securities	10		—		—		—		10		—		—		—
Mortgage loans	—		—		—		(8)		(8)		—		—		—

Short-term investments	1		—		(7)		(25)		(31)		—		—		—
Investments in related parties
AFS securities
Corporate	761		—		—		—		761		—		—		—
CLO	11		—		—		—		11		—		—		—
ABS	7		—		(15)		(77)		(85)		—		(165)		(165)
Trading securities
CLO	13		—		(12)		—		1		—		—		—
ABS	671		—		(10)		(14)		647		—		—		—
Equity securities	3		—		(2)		(4)		(3)		—		(6)		(6)
Investment funds	1,525		—		—		—		1,525		—		—		—


Total Level 3 assets	$	3,468	$	—	$	(102)	$	(656)	$	2,710	$	254	$	(340)	$	(86)

Liabilities
Interest sensitive contract liabilities – embedded derivative	$	—	$	(964)	$	—	$	1,075	$	111	$	—	$	—	$	—

Total Level 3 liabilities	$	—	$	(964)	$	—	$	1,075	$	111	$	—	$	—	$	—


	Nine months ended September 30, 2019
(In millions)	Purchases		Issuances		Sales		Settlements		Net purchases, issuances, sales and settlements		Transfers in		Transfers out		Net transfers in (out)
Assets
AFS securities
US state, municipal and political subdivisions	$	40	$	—	$	—	$	—	$	40	$	—	$	—	$	—

Corporate	277		—		(2)		(111)		164		1		(134)		(133)
CLO	64		—		—		(4)		60		—		(39)		(39)
ABS	260		—		(41)		(176)		43		—		(419)		(419)
CMBS	252		—		(4)		(94)		154		—		(18)		(18)
RMBS	2		—		—		—		2		—		(62)		(62)
Trading securities


CLO	—		—		—		—		—		6		—		6
ABS	6		—		—		(1)		5		78		—		78
RMBS	15		—		—		—		15		34		(79)		(45)
Equity securities	—		—		—		—		—		—		(2)		(2)
Mortgage loans	—		—		—		(5)		(5)		—		—		—
Investment funds	—		—		(5)		—		(5)		—		—		—

Short-term investments	248		—		—		(22)		226		—		—		—
Investments in related parties


AFS securities, ABS	757		—		—		(9)		748		—		(103)		(103)
Trading securities
CLO	—		—		(54)		—		(54)		43		(35)		8
ABS	—		—		—		(15)		(15)		103		—		103
Equity securities	243		—		(4)		—		239		—		—		—
Investment funds	19		—		—		—		19		—		—		—


Total Level 3 assets	$	2,183	$	—	$	(110)	$	(437)	$	1,636	$	265	$	(891)	$	(626)

Liabilities
Interest sensitive contract liabilities – embedded derivative	$	—	$	(756)	$	—	$	372	$	(384)	$	—	$	—	$	—

Total Level 3 liabilities	$	—	$	(756)	$	—	$	372	$	(384)	$	—	$	—	$	—

Significant Unobservable Inputs—Significant unobservable inputs occur when we could not obtain or corroborate the quantitative detail of the inputs. This applies to fixed maturity securities, equity securities, mortgage loans and certain derivatives, as well as embedded derivatives in liabilities. Additional significant unobservable inputs are described below.

AFS and trading securities – For certain fixed maturity securities, internal models are used to calculate the fair value. We use a discounted cash flow approach. The discount rate is the significant unobservable input due to the determined credit spread being internally developed, illiquid, or as a result of other adjustments made to the base rate. The base rate represents a market comparable rate for securities with similar characteristics. This excludes assets for which significant unobservable inputs are not developed internally, primarily consisting of broker quotes.

Interest sensitive contract liabilities – embedded derivative – Significant unobservable inputs we use in the fixed indexed annuities embedded derivative of the interest sensitive contract liabilities valuation include:

1.Nonperformance risk – For contracts we issue, we use the credit spread, relative to the US Department of the Treasury (Treasury) curve, based on our public credit rating as of the valuation date. This represents our credit risk for use in the estimate of the fair value of embedded derivatives.

2.Option budget – We assume future hedge costs in the derivative’s fair value estimate. The level of option budgets determines the future costs of the options and impacts future policyholder account value growth.

3.Policyholder behavior – We regularly review the lapse and withdrawal assumptions (surrender rate). These are based on our initial pricing assumptions updated for actual experience. Actual experience may be limited for recently issued products.

The following summarizes the unobservable inputs for AFS and trading securities and the embedded derivatives of fixed indexed annuities:


	September 30, 2020
(In millions, except for percentages)	Fair value		Valuation technique	Unobservable inputs	Minimum		Maximum		Weighted average			Impact of an increase in the input on fair value
AFS and trading securities	$	5,468	Discounted cash flow	Discount	2.0	%	35.0	%	5.7	%	1	Decrease

Interest sensitive contract liabilities – fixed indexed annuities embedded derivatives	$	11,741	Option budget method	Nonperformance risk	0.1	%	1.5	%	0.8	%	2	Decrease
				Option budget	0.6	%	3.6	%	1.9	%	3	Increase
				Surrender rate	5.3	%	9.7	%	7.1	%	4	Decrease

	December 31, 2019
	Fair value		Valuation technique	Unobservable inputs	Minimum		Maximum		Weighted average			Impact of an increase in the input on fair value
AFS and trading securities	$	1,289	Discounted cash flow	Discount	3.0	%	9.0	%	6.6	%	1	Decrease

Interest sensitive contract liabilities – fixed indexed annuities embedded derivatives	$	10,942	Option budget method	Nonperformance risk	0.2	%	1.1	%	0.6	%	2	Decrease
				Option budget	0.7	%	3.7	%	1.9	%	3	Increase
				Surrender rate	3.5	%	8.1	%	7.1	%	4	Decrease

1 The discount weighted average is calculated based on the relative fair values of the securities.
2 The nonperformance risk weighted average is based on the projected excess benefits of reserves used in the calculation of the embedded derivative.
3 The option budget weighted average is calculated based on the indexed account values.
4 The surrender rate weighted average is calculated based on projected account values.

Financial Instruments Without Readily Determinable Fair Values—We have elected the measurement alternative for certain equity securities that do not have a readily determinable fair value. The equity securities are held at cost less any impairment. The carrying amount of the equity securities was $433 million with no recorded impairment as of September 30, 2020.

Fair Value of Financial Instruments Not Carried at Fair Value—The following represents our financial instruments not carried at fair value on the condensed consolidated balance sheets:


	September 30, 2020
(In millions)	Carrying Value		Fair Value		NAV		Level 1		Level 2		Level 3
Financial assets
Mortgage loans	$	14,572	$	15,114	$	—	$	—	$	—	$	15,114
Investment funds	567		567		567		—		—		—
Policy loans	387		387		—		—		387		—
Funds withheld at interest	47,334		47,334		—		—		—		47,334

Other investments	840		852		—		—		—		852
Investments in related parties
Mortgage loans	640		628		—		—		—		628
Investment funds	2,958		2,958		2,958		—		—		—
Funds withheld at interest	12,332		12,332		—		—		—		12,332
Other investments	467		489		—		—		—		489
Total financial assets not carried at fair value	$	80,097	$	80,661	$	3,525	$	—	$	387	$	76,749

Financial liabilities
Interest sensitive contract liabilities	$	92,088	$	96,125	$	—	$	—	$	—	$	96,125

Long-term debt	1,487		1,099		—		—		1,099		—
Securities to repurchase	1,098		1,098		—		—		1,098		—
Funds withheld liability	390		390		—		—		390		—
Total financial liabilities not carried at fair value	$	95,063	$	98,712	$	—	$	—	$	2,587	$	96,125


	December 31, 2019
(In millions)	Carrying Value		Fair Value		NAV		Level 1		Level 2		Level 3
Financial assets
Mortgage loans	$	14,279	$	14,719	$	—	$	—	$	—	$	14,719
Investment funds	596		596		596		—		—		—
Policy loans	417		417		—		—		417		—
Funds withheld at interest	14,380		14,380		—		—		—		14,380
Short-term investments	190		190		—		—		—		190
Other investments	65		65		—		—		—		65
Investments in related parties
Mortgage loans	653		641		—		—		—		641
Investment funds	2,731		2,731		2,731		—		—		—
Funds withheld at interest	12,626		12,626		—		—		—		12,626
Other investments	487		537		—		—		—		537
Total financial assets not carried at fair value	$	46,424	$	46,902	$	3,327	$	—	$	417	$	43,158

Financial liabilities
Interest sensitive contract liabilities	$	57,272	$	58,027	$	—	$	—	$	—	$	58,027
Short-term debt	475		475		—		—		475		—
Long-term debt	992		1,036		—		—		1,036		—
Securities to repurchase	512		512		—		—		512		—
Funds withheld liability	377		377		—		—		377		—
Total financial liabilities not carried at fair value	$	59,628	$	60,427	$	—	$	—	$	2,400	$	58,027

We estimate the fair value for financial instruments not carried at fair value using the same methods and assumptions as those we carry at fair value. The financial instruments presented above are reported at carrying value on the condensed consolidated balance sheets; however, in the case of policy loans, funds withheld at interest and liability, short-term investments, short-term debt, and securities to repurchase, the carrying amount approximates fair value.

Investment in related parties – Other investments – The fair value of related party other investments is determined using a discounted cash flow model using discount rates for similar investments.

Interest sensitive contract liabilities – The carrying and fair value of interest sensitive contract liabilities above includes fixed indexed and traditional fixed annuities without mortality or morbidity risks, funding agreements and payout annuities without life contingencies. The embedded derivatives within fixed indexed annuities without mortality or morbidity risks are excluded, as they are carried at fair value. The valuation of these investment contracts is based on discounted cash flow methodologies using significant unobservable inputs. The estimated fair value is determined using current market risk-free interest rates, adding a spread to reflect our nonperformance risk and subtracting a risk margin to reflect uncertainty inherent in the projected cash flows.

Long-term debt – We obtain the fair value of long-term debt from commercial pricing services. These are classified as Level 2. The pricing services incorporate a variety of market observable information in their valuation techniques including benchmark yields, trading activity, credit quality, issuer spreads, bids, offers and other reference data.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

+ References + Details