| Fair Value |
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.
Net Asset Value (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. Our carrying value reflects our pro rata ownership percentage as indicated by NAV in the investment fund financial statements, which we may adjust if we determine NAV is not calculated consistent with investment company fair value principles. 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: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | June 30, 2021 | | (In millions) | Total | | NAV | | Level 1 | | Level 2 | | Level 3 | | Assets | | | | | | | | | | | AFS securities | | | | | | | | | | | US government and agencies | $ | 334 | | | $ | — | | | $ | 324 | | | $ | 10 | | | $ | — | | US state, municipal and political subdivisions | 1,016 | | | — | | | — | | | 1,016 | | | — | | | Foreign governments | 416 | | | — | | | — | | | 414 | | | 2 | | | Corporate | 63,674 | | | — | | | — | | | 62,691 | | | 983 | | | CLO | 13,183 | | | — | | | — | | | 12,907 | | | 276 | | | ABS | 5,299 | | | — | | | — | | | 3,818 | | | 1,481 | | | CMBS | 2,454 | | | — | | | — | | | 2,403 | | | 51 | | | RMBS | 6,462 | | | — | | | — | | | 6,462 | | | — | | | Total AFS securities | 92,838 | | | — | | | 324 | | | 89,721 | | | 2,793 | | | Trading securities | | | | | | | | | | | US government and agencies | 6 | | | — | | | 3 | | | 3 | | | — | | US state, municipal and political subdivisions | 105 | | | — | | | — | | | 105 | | | — | | | | | | | | | | | | | Corporate | 1,544 | | | — | | | — | | | 1,544 | | | — | | | CLO | 3 | | | — | | | — | | | — | | | 3 | | | ABS | 132 | | | — | | | — | | | 94 | | | 38 | | | CMBS | 90 | | | — | | | — | | | 88 | | | 2 | | | RMBS | 185 | | | — | | | — | | | 129 | | | 56 | | | Total trading securities | 2,065 | | | — | | | 3 | | | 1,963 | | | 99 | | | Equity securities | 398 | | | — | | | 76 | | | 300 | | | 22 | | | Mortgage loans | 18 | | | — | | | — | | | — | | | 18 | | | Investment funds | 496 | | | 130 | | | — | | | — | | | 366 | | | Funds withheld at interest – embedded derivative | 1,373 | | | — | | | — | | | — | | | 1,373 | | | Derivative assets | 4,151 | | | — | | | 52 | | | 4,099 | | | — | | | Short-term investments | 101 | | | — | | | 58 | | | 43 | | | — | | | Other investments | 105 | | | — | | | — | | | 105 | | | — | | | Cash and cash equivalents | 8,057 | | | — | | | 8,057 | | | — | | | — | | | Restricted cash | 669 | | | — | | | 669 | | | — | | | — | | | Investments in related parties | | | | | | | | | | | AFS securities | | | | | | | | | | | Corporate | 177 | | | — | | | — | | | 177 | | | — | | | CLO | 2,039 | | | — | | | — | | | 2,039 | | | — | | | ABS | 4,831 | | | — | | | — | | | 594 | | | 4,237 | | | Total AFS securities – related party | 7,047 | | | — | | | — | | | 2,810 | | | 4,237 | | | Trading securities | | | | | | | | | | | CLO | 60 | | | — | | | — | | | 30 | | | 30 | | | ABS | 1,680 | | | — | | | — | | | — | | | 1,680 | | | Total trading securities – related party | 1,740 | | | — | | | — | | | 30 | | | 1,710 | | | Equity securities | 115 | | | — | | | — | | | — | | | 115 | | | Investment funds | 2,616 | | | 95 | | | — | | | — | | | 2,521 | | | Funds withheld at interest – embedded derivative | 752 | | | — | | | — | | | — | | | 752 | | | | | | | | | | | | | Reinsurance recoverable | 1,946 | | | — | | | — | | | — | | | 1,946 | | | Total assets measured at fair value | $ | 124,487 | | | $ | 225 | | | $ | 9,239 | | | $ | 99,071 | | | $ | 15,952 | | | | | | | | | | | | | Liabilities | | | | | | | | | | | Interest sensitive contract liabilities | | | | | | | | | | | Embedded derivative | $ | 13,635 | | | $ | — | | | $ | — | | | $ | — | | | $ | 13,635 | | | Universal life benefits | 1,188 | | | — | | | — | | | — | | | 1,188 | | Future policy benefits | | | | | | | | | | | AmerUs Life Insurance Company (AmerUs) Closed Block | 1,551 | | | — | | | — | | | — | | | 1,551 | | Indianapolis Life Insurance Company (ILICO) Closed Block and life benefits | 743 | | | — | | | — | | | — | | | 743 | | | Derivative liabilities | 214 | | | — | | | — | | | 210 | | | 4 | | | Funds withheld liability – embedded derivative | 49 | | | — | | | — | | | 49 | | | — | | | Total liabilities measured at fair value | $ | 17,380 | | | $ | — | | | $ | — | | | $ | 259 | | | $ | 17,121 | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | December 31, 2020 | | (In millions) | Total | | NAV | | Level 1 | | Level 2 | | Level 3 | | Assets | | | | | | | | | | | AFS securities | | | | | | | | | | | US government and agencies | $ | 351 | | | $ | — | | | $ | 332 | | | $ | 19 | | | $ | — | | US state, municipal and political subdivisions | 1,033 | | | — | | | — | | | 999 | | | 34 | | | Foreign governments | 368 | | | — | | | — | | | 366 | | | 2 | | | Corporate | 58,180 | | | — | | | — | | | 57,402 | | | 778 | | | CLO | 9,569 | | | — | | | — | | | 9,361 | | | 208 | | | ABS | 4,270 | | | — | | | — | | | 3,470 | | | 800 | | | CMBS | 2,169 | | | — | | | — | | | 2,126 | | | 43 | | | RMBS | 6,913 | | | — | | | — | | | 6,913 | | | — | | | Total AFS securities | 82,853 | | | — | | | 332 | | | 80,656 | | | 1,865 | | | Trading securities | | | | | | | | | | | US government and agencies | 6 | | | — | | | 3 | | | 3 | | | — | | US state, municipal and political subdivisions | 106 | | | — | | | — | | | 106 | | | — | | | Corporate | 1,577 | | | — | | | — | | | 1,577 | | | — | | | CLO | 4 | | | — | | | — | | | — | | | 4 | | | ABS | 128 | | | — | | | — | | | 93 | | | 35 | | | CMBS | 52 | | | — | | | — | | | 52 | | | — | | | RMBS | 220 | | | — | | | — | | | 173 | | | 47 | | | Total trading securities | 2,093 | | | — | | | 3 | | | 2,004 | | | 86 | | | Equity securities | 330 | | | — | | | 57 | | | 262 | | | 11 | | | Mortgage loans | 19 | | | — | | | — | | | — | | | 19 | | | Investment funds | 161 | | | 144 | | | — | | | — | | | 17 | | | Funds withheld at interest – embedded derivative | 1,944 | | | — | | | — | | | — | | | 1,944 | | | Derivative assets | 3,523 | | | — | | | 58 | | | 3,465 | | | — | | | Short-term investments | 222 | | | — | | | 146 | | | 74 | | | 2 | | | Other investments | 105 | | | — | | | — | | | 105 | | | — | | | Cash and cash equivalents | 7,704 | | | — | | | 7,704 | | | — | | | — | | | Restricted cash | 738 | | | — | | | 738 | | | — | | | — | | | | | | | | | | | | | Investments in related parties | | | | | | | | | | | AFS securities | | | | | | | | | | | Corporate | 215 | | | — | | | — | | | 20 | | | 195 | | | CLO | 1,520 | | | — | | | — | | | 1,520 | | | — | | | ABS | 4,785 | | | — | | | — | | | 676 | | | 4,109 | | | Total AFS securities – related party | 6,520 | | | — | | | — | | | 2,216 | | | 4,304 | | | Trading securities | | | | | | | | | | | CLO | 54 | | | — | | | — | | | 4 | | | 50 | | | ABS | 1,475 | | | — | | | — | | | — | | | 1,475 | | | Total trading securities – related party | 1,529 | | | — | | | — | | | 4 | | | 1,525 | | | Equity securities | 72 | | | — | | | — | | | — | | | 72 | | | Investment funds | 2,119 | | | 86 | | | — | | | — | | | 2,033 | | | Funds withheld at interest – embedded derivative | 862 | | | — | | | — | | | — | | | 862 | | | | | | | | | | | | | Reinsurance recoverable | 2,100 | | | — | | | — | | | — | | | 2,100 | | | Total assets measured at fair value | $ | 112,894 | | | $ | 230 | | | $ | 9,038 | | | $ | 88,786 | | | $ | 14,840 | | | Liabilities | | | | | | | | | | | Interest sensitive contract liabilities | | | | | | | | | | | Embedded derivative | $ | 12,873 | | | $ | — | | | $ | — | | | $ | — | | | $ | 12,873 | | | Universal life benefits | 1,308 | | | — | | | — | | | — | | | 1,308 | | Future policy benefits | | | | | | | | | | AmerUs Closed Block | 1,600 | | | — | | | — | | | — | | | 1,600 | | ILICO Closed Block and life benefits | 776 | | | — | | | — | | | — | | | 776 | | | Derivative liabilities | 298 | | | — | | | 2 | | | 292 | | | 4 | | | Funds withheld liability – embedded derivative | 59 | | | — | | | — | | | 59 | | | — | | | Total liabilities measured at fair value | $ | 16,914 | | | $ | — | | | $ | 2 | | | $ | 351 | | | $ | 16,561 | | | | | | | | | | | |
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: discount rates, 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 June 30, | | Six months ended June 30, | | (In millions) | 2021 | | 2020 | | 2021 | | 2020 | | Trading securities | $ | 61 | | | $ | 191 | | | $ | (8) | | | $ | (32) | | | | | | | | | | | Investment funds | 495 | | | 466 | | | 435 | | | 166 | | | Future policy benefits | (54) | | | (92) | | | 49 | | | (27) | | | Total gains (losses) | $ | 502 | | | $ | 565 | | | $ | 476 | | | $ | 107 | |
Gains and losses on trading securities are recorded in investment related gains (losses) on the condensed consolidated statements of income (loss). 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 (loss). 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 (loss). 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 (loss).
The following summarizes information for fair value option mortgage loans: | | | | | | | | | | | | | (In millions) | June 30, 2021 | | December 31, 2020 | | Unpaid principal balance | $ | 16 | | | $ | 17 | | | Mark to fair value | 2 | | | 2 | | | Fair value | $ | 18 | | | $ | 19 | |
There were no fair value option mortgage loans 90 days or more past due as of June 30, 2021 and December 31, 2020. Level 3 Financial Instruments—The following are reconciliations for 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 June 30, 2021 | | | | 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 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Foreign governments | $ | 2 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 2 | | | $ | — | | | $ | — | | | Corporate | 782 | | | 4 | | | 6 | | | 74 | | | 117 | | | 983 | | | — | | | 6 | | | CLO | 174 | | | — | | | — | | | 102 | | | — | | | 276 | | | — | | | — | | | ABS | 1,207 | | | 16 | | | (5) | | | 304 | | | (41) | | | 1,481 | | | — | | | (5) | | | CMBS | 48 | | | 1 | | | — | | | 2 | | | — | | | 51 | | | — | | | 1 | | | | | | | | | | | | | | | | | | | Trading securities | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | CLO | — | | | — | | | — | | | 3 | | | — | | | 3 | | | — | | | — | | | ABS | 35 | | | — | | | — | | | — | | | 3 | | | 38 | | | — | | | — | | | CMBS | — | | | — | | | — | | | 2 | | | — | | | 2 | | | — | | | — | | | RMBS | 59 | | | (5) | | | — | | | — | | | 2 | | | 56 | | | (1) | | | — | | | Equity securities | 14 | | | 8 | | | — | | | — | | | — | | | 22 | | | 7 | | | — | | | Mortgage loans | 18 | | | — | | | — | | | — | | | — | | | 18 | | | — | | | — | | | Investment funds | 171 | | | 13 | | | — | | | 182 | | | — | | | 366 | | | 13 | | | — | | | Funds withheld at interest – embedded derivative | 636 | | | 737 | | | — | | | — | | | — | | | 1,373 | | | — | | | — | | | | | | | | | | | | | | | | | | | Investments in related parties | | | | | | | | | | | | | | | | | AFS securities | | | | | | | | | | | | | | | | | Corporate | 201 | | | — | | | — | | | — | | | (201) | | | — | | | — | | | — | | | | | | | | | | | | | | | | | | | ABS | 4,131 | | | 5 | | | 2 | | | 99 | | | — | | | 4,237 | | | — | | | 2 | | | Trading securities | | | | | | | | | | | | | | | | | CLO | 44 | | | (7) | | | — | | | — | | | (7) | | | 30 | | | (7) | | | — | | | ABS | 1,641 | | | 8 | | | — | | | 31 | | | — | | | 1,680 | | | 7 | | | — | | | Equity securities | 114 | | | (8) | | | — | | | 9 | | | — | | | 115 | | | (8) | | | — | | | Investment funds | 1,970 | | | 483 | | | — | | | 68 | | | — | | | 2,521 | | | 483 | | | — | | | Funds withheld at interest – embedded derivative | 580 | | | 172 | | | — | | | — | | | — | | | 752 | | | — | | | — | | | | | | | | | | | | | | | | | | | Reinsurance recoverable | 1,880 | | | 66 | | | — | | | — | | | — | | | 1,946 | | | — | | | — | | | Total Level 3 assets | $ | 13,707 | | | $ | 1,493 | | | $ | 3 | | | $ | 876 | | | $ | (127) | | | $ | 15,952 | | | $ | 494 | | | $ | 4 | | | | | | | | | | | | | | | | | | | Liabilities | | | | | | | | | | | | | | | | | Interest sensitive contract liabilities | | | | | | | | | | | | | | | | | Embedded derivative | $ | (12,473) | | | $ | (1,183) | | | $ | — | | | $ | 21 | | | $ | — | | | $ | (13,635) | | | $ | — | | | $ | — | | | Universal life benefits | (1,108) | | | (80) | | | — | | | — | | | — | | | (1,188) | | | — | | | — | | | Future policy benefits | | | | | | | | | | | | | | | | | AmerUs Closed Block | (1,497) | | | (54) | | | — | | | — | | | — | | | (1,551) | | | — | | | — | | | ILICO Closed Block and life benefits | (757) | | | 14 | | | — | | | — | | | — | | | (743) | | | — | | | — | | | Derivative liabilities | (5) | | | 1 | | | — | | | — | | | — | | | (4) | | | 1 | | | — | | | Total Level 3 liabilities | $ | (15,840) | | | $ | (1,302) | | | $ | — | | | $ | 21 | | | $ | — | | | $ | (17,121) | | | $ | 1 | | | $ | — | | | | | | | | | | | | | | | | | | 1 Related to instruments held at end of period. | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Three months ended June 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 | $ | 37 | | | $ | — | | | $ | 3 | | | $ | — | | | $ | — | | | $ | 40 | | | $ | — | | | $ | 3 | | | | | | | | | | | | | | | | | | | Corporate | 1,233 | | | — | | | 41 | | | (32) | | | (368) | | | 874 | | | — | | | 41 | | | CLO | 122 | | | — | | | 2 | | | 39 | | | (3) | | | 160 | | | — | | | 2 | | | ABS | 917 | | | 1 | | | 9 | | | (39) | | | (20) | | | 868 | | | — | | | 10 | | | CMBS | 45 | | | (5) | | | (1) | | | (4) | | | 14 | | | 49 | | | — | | | (1) | | | RMBS | 42 | | | — | | | 2 | | | 1 | | | (29) | | | 16 | | | — | | | — | | | Trading securities | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Corporate | 32 | | | 4 | | | — | | | — | | | (30) | | | 6 | | | 4 | | | — | | | CLO | 3 | | | — | | | — | | | — | | | — | | | 3 | | | — | | | — | | | ABS | 14 | | | — | | | — | | | (14) | | | — | | | — | | | — | | | — | | | RMBS | 70 | | | 2 | | | — | | | — | | | (17) | | | 55 | | | 7 | | | — | | | Equity securities | 7 | | | (1) | | | — | | | — | | | — | | | 6 | | | (1) | | | — | | | Mortgage loans | 26 | | | — | | | — | | | (1) | | | — | | | 25 | | | (1) | | | — | | | Investment funds | 21 | | | (4) | | | — | | | — | | | — | | | 17 | | | (4) | | | — | | | Funds withheld at interest – embedded derivative | (374) | | | 1,137 | | | — | | | — | | | — | | | 763 | | | — | | | — | | | Short-term investments | 67 | | | — | | | (1) | | | 53 | | | (5) | | | 114 | | | — | | | — | | | Investments in related parties | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | AFS securities, ABS | 1,887 | | | 4 | | | 169 | | | 1 | | | — | | | 2,061 | | | — | | | 169 | | | Trading securities | | | | | | | | | | | | | | | | | CLO | 32 | | | 5 | | | — | | | — | | | 8 | | | 45 | | | 4 | | | — | | | ABS | 676 | | | 74 | | | — | | | 74 | | | — | | | 824 | | | 74 | | | — | | | Equity securities | 49 | | | 4 | | | — | | | (1) | | | — | | | 52 | | | 4 | | | — | | | Investment funds | 979 | | | 470 | | | — | | | 361 | | | — | | | 1,810 | | | 470 | | | — | | | Funds withheld at interest – embedded derivative | (15) | | | 575 | | | — | | | — | | | — | | | 560 | | | — | | | — | | | | | | | | | | | | | | | | | | | Reinsurance recoverable | 2,115 | | | (16) | | | — | | | — | | | — | | | 2,099 | | | — | | | — | | | Total Level 3 assets | $ | 7,985 | | | $ | 2,250 | | | $ | 224 | | | $ | 438 | | | $ | (450) | | | $ | 10,447 | | | $ | 557 | | | $ | 224 | | | | | | | | | | | | | | | | | | | Liabilities | | | | | | | | | | | | | | | | | Interest sensitive contract liabilities | | | | | | | | | | | | | | | | | Embedded derivative | $ | (9,089) | | | $ | (1,534) | | | $ | — | | | $ | (517) | | | $ | — | | | $ | (11,140) | | | $ | — | | | $ | — | | | Universal life benefits | (1,322) | | | (1) | | | — | | | — | | | — | | | (1,323) | | | — | | | — | | | Future policy benefits | | | | | | | | | | | | | | | | | AmerUs Closed Block | (1,481) | | | (92) | | | — | | | — | | | — | | | (1,573) | | | — | | | — | | | ILICO Closed Block and life benefits | (778) | | | 17 | | | — | | | — | | | — | | | (761) | | | — | | | — | | | Derivative liabilities | (7) | | | 2 | | | — | | | — | | | — | | | (5) | | | 2 | | | — | | | Total Level 3 liabilities | $ | (12,677) | | | $ | (1,608) | | | $ | — | | | $ | (517) | | | $ | — | | | $ | (14,802) | | | $ | 2 | | | $ | — | | | | | | | | | | | | | | | | | | 1 Related to instruments held at end of period. | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Six months ended June 30, 2021 | | | | 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 | $ | 34 | | | $ | — | | | $ | (1) | | | $ | (1) | | | $ | (32) | | | $ | — | | | $ | — | | | $ | (1) | | | Foreign governments | 2 | | | — | | | — | | | — | | | — | | | 2 | | | — | | | — | | | Corporate | 778 | | | 8 | | | 21 | | | 56 | | | 120 | | | 983 | | | — | | | 22 | | | CLO | 208 | | | — | | | 1 | | | 67 | | | — | | | 276 | | | — | | | 1 | | | ABS | 800 | | | 1 | | | 27 | | | 743 | | | (90) | | | 1,481 | | | — | | | 35 | | | CMBS | 43 | | | — | | | 5 | | | 3 | | | — | | | 51 | | | — | | | 4 | | | | | | | | | | | | | | | | | | | Trading securities | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | CLO | 4 | | | — | | | — | | | (1) | | | — | | | 3 | | | — | | | — | | | ABS | 35 | | | — | | | — | | | — | | | 3 | | | 38 | | | — | | | — | | | CMBS | — | | | — | | | — | | | 2 | | | — | | | 2 | | | — | | | — | | | RMBS | 47 | | | (8) | | | — | | | — | | | 17 | | | 56 | | | (3) | | | — | | | Equity securities | 11 | | | 11 | | | — | | | — | | | — | | | 22 | | | 11 | | | — | | | Mortgage loans | 19 | | | — | | | — | | | (1) | | | — | | | 18 | | | — | | | — | | | Investment funds | 17 | | | 16 | | | — | | | 224 | | | 109 | | | 366 | | | 16 | | | — | | | Funds withheld at interest – embedded derivative | 1,944 | | | (571) | | | — | | | — | | | — | | | 1,373 | | | — | | | — | | | Short-term investments | 2 | | | — | | | — | | | — | | | (2) | | | — | | | — | | | — | | | Investments in related parties | | | | | | | | | | | | | | | | | AFS securities | | | | | | | | | | | | | | | | | Corporate | 195 | | | — | | | 6 | | | — | | | (201) | | | — | | | — | | | — | | | | | | | | | | | | | | | | | | | ABS | 4,109 | | | — | | | (25) | | | 214 | | | (61) | | | 4,237 | | | — | | | (25) | | | Trading securities | | | | | | | | | | | | | | | | | CLO | 50 | | | 9 | | | — | | | — | | | (29) | | | 30 | | | 13 | | | — | | | ABS | 1,475 | | | 43 | | | — | | | 162 | | | — | | | 1,680 | | | 45 | | | — | | | Equity securities | 72 | | | 1 | | | — | | | 42 | | | — | | | 115 | | | 1 | | | — | | | Investment funds | 2,033 | | | 419 | | | — | | | 69 | | | — | | | 2,521 | | | 419 | | | — | | | Funds withheld at interest – embedded derivative | 862 | | | (110) | | | — | | | — | | | — | | | 752 | | | — | | | — | | | | | | | | | | | | | | | | | | | Reinsurance recoverable | 2,100 | | | (154) | | | — | | | — | | | — | | | 1,946 | | | — | | | — | | | Total Level 3 assets | $ | 14,840 | | | $ | (335) | | | $ | 34 | | | $ | 1,579 | | | $ | (166) | | | $ | 15,952 | | | $ | 502 | | | $ | 36 | | | | | | | | | | | | | | | | | | | Liabilities | | | | | | | | | | | | | | | | | Interest sensitive contract liabilities | | | | | | | | | | | | | | | | | Embedded derivative | $ | (12,873) | | | $ | (848) | | | $ | — | | | $ | 86 | | | $ | — | | | $ | (13,635) | | | $ | — | | | $ | — | | | Universal life benefits | (1,308) | | | 120 | | | — | | | — | | | — | | | (1,188) | | | — | | | — | | | Future policy benefits | | | | | | | | | | | | | | | | | AmerUs Closed Block | (1,600) | | | 49 | | | — | | | — | | | — | | | (1,551) | | | — | | | — | | | ILICO Closed Block and life benefits | (776) | | | 33 | | | — | | | — | | | — | | | (743) | | | — | | | — | | | Derivative liabilities | (4) | | | — | | | — | | | — | | | — | | | (4) | | | — | | | — | | | Total Level 3 liabilities | $ | (16,561) | | | $ | (646) | | | $ | — | | | $ | 86 | | | $ | — | | | $ | (17,121) | | | $ | — | | | $ | — | | | | | | | | | | | | | | | | | | 1 Related to instruments held at end of period. | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Six months ended June 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 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 40 | | | $ | — | | | $ | — | | | | | | | | | | | | | | | | | | | Corporate | 725 | | | (4) | | | (8) | | | (10) | | | 171 | | | 874 | | | — | | | (8) | | CLO | 121 | | | — | | | (4) | | | 69 | | | (26) | | | 160 | | | — | | | (4) | | ABS | 1,374 | | | 23 | | | (102) | | | (246) | | | (181) | | | 868 | | | — | | | (101) | | CMBS | 46 | | | (4) | | | (7) | | | (4) | | | 18 | | | 49 | | | — | | | (6) | | RMBS | — | | | — | | | — | | | — | | | 16 | | | 16 | | | — | | | — | | Trading securities | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Corporate | — | | | — | | | — | | | — | | | 6 | | | 6 | | | — | | | — | | CLO | 6 | | | (3) | | | — | | | — | | | — | | | 3 | | | (1) | | | — | | ABS | 16 | | | — | | | — | | | (16) | | | — | | | — | | | — | | | — | | RMBS | 52 | | | (1) | | | — | | | — | | | 4 | | | 55 | | | 5 | | | — | | Equity securities | 3 | | | 3 | | | — | | | — | | | — | | | 6 | | | 3 | | | — | | | Mortgage loans | 27 | | | — | | | — | | | (2) | | | — | | | 25 | | | — | | | — | | | Investment funds | 22 | | | (5) | | | — | | | — | | | — | | | 17 | | | (5) | | | — | | Funds withheld at interest – embedded derivative | 801 | | | (38) | | | — | | | — | | | — | | | 763 | | | — | | | — | | | Short-term investments | 41 | | | — | | | (1) | | | 74 | | | — | | | 114 | | | — | | | — | | Investments in related parties | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | AFS securities, ABS | 2,324 | | | 1 | | | (53) | | | (49) | | | (162) | | | 2,061 | | | — | | | (53) | | | Trading securities | | | | | | | | | | | | | | | | | CLO | 38 | | | (17) | | | — | | | 14 | | | 10 | | | 45 | | | (23) | | | — | | | ABS | 711 | | | (27) | | | — | | | 140 | | | — | | | 824 | | | (27) | | | — | | | Equity securities | 64 | | | (6) | | | — | | | — | | | (6) | | | 52 | | | (6) | | | — | | | Investment funds | 132 | | | 170 | | | — | | | 1,508 | | | — | | | 1,810 | | | 170 | | | — | | Funds withheld at interest – embedded derivative | 594 | | | (34) | | | — | | | — | | | — | | | 560 | | | — | | | — | | | | | | | | | | | | | | | | | | Reinsurance recoverable | 1,821 | | | 278 | | | — | | | — | | | — | | | 2,099 | | | — | | | — | | Total Level 3 assets | $ | 8,958 | | | $ | 336 | | | $ | (175) | | | $ | 1,478 | | | $ | (150) | | | $ | 10,447 | | | $ | 116 | | | $ | (172) | | | | | | | | | | | | | | | | | | Liabilities | | | | | | | | | | | | | | | | Interest sensitive contract liabilities | | | | | | | | | | | | | | | | Embedded derivative | $ | (10,942) | | | $ | (357) | | | $ | — | | | $ | 159 | | | $ | — | | | $ | (11,140) | | | $ | — | | | $ | — | | Universal life benefits | (1,050) | | | (273) | | | — | | | — | | | — | | | (1,323) | | | — | | | — | | Future policy benefits | | | | | | | | | | | | | | | | AmerUs Closed Block | (1,546) | | | (27) | | | — | | | — | | | — | | | (1,573) | | | — | | | — | | ILICO Closed Block and life benefits | (755) | | | (6) | | | — | | | — | | | — | | | (761) | | | — | | | — | | | Derivative liabilities | (3) | | | (2) | | | — | | | — | | | — | | | (5) | | | (2) | | | — | | Total Level 3 liabilities | $ | (14,296) | | | $ | (665) | | | $ | — | | | $ | 159 | | | $ | — | | | $ | (14,802) | | | $ | (2) | | | $ | — | | | | | | | | | | | | | | | | | | 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 June 30, 2021 | | (In millions) | Purchases | | Issuances | | Sales | | Settlements | | Net purchases, issuances, sales and settlements | | Transfers in | | Transfers out | | Net transfers in (out) | | Assets | | | | | | | | | | | | | | | | AFS securities | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Foreign governments | $ | 1 | | | $ | — | | | $ | — | | | $ | (1) | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | Corporate | 132 | | | — | | | (8) | | | (50) | | | 74 | | | 203 | | | (86) | | | 117 | | CLO | 110 | | | — | | | — | | | (8) | | | 102 | | | — | | | — | | | — | | ABS | 1,128 | | | — | | | (20) | | | (804) | | | 304 | | | 3 | | | (44) | | | (41) | | CMBS | 3 | | | — | | | — | | | (1) | | | 2 | | | — | | | — | | | — | | | | | | | | | | | | | | | | | | Trading securities | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | CLO | 3 | | | — | | | — | | | — | | | 3 | | | — | | | — | | | — | | | ABS | 35 | | | — | | | (35) | | | — | | | — | | | 3 | | | — | | | 3 | | CMBS | 2 | | | — | | | — | | | — | | | 2 | | | — | | | — | | | — | | RMBS | — | | | — | | | — | | | — | | | — | | | 4 | | | (2) | | | 2 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Investment funds | 182 | | | — | | | — | | | — | | | 182 | | | — | | | — | | | — | | | | | | | | | | | | | | | | | | Investments in related parties | | | | | | | | | | | | | | | | AFS securities | | | | | | | | | | | | | | | | | Corporate | — | | | — | | | — | | | — | | | — | | | — | | | (201) | | | (201) | | | | | | | | | | | | | | | | | | | ABS | 365 | | | — | | | — | | | (266) | | | 99 | | | — | | | — | | | — | | Trading securities | | | | | | | | | | | | | | | | | CLO | 4 | | | — | | | — | | | (4) | | | — | | | 12 | | | (19) | | | (7) | | ABS | 109 | | | — | | | — | | | (78) | | | 31 | | | — | | | — | | | — | | Equity securities | 11 | | | — | | | — | | | (2) | | | 9 | | | — | | | — | | | — | | Investment funds | 68 | | | — | | | — | | | — | | | 68 | | | — | | | — | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total Level 3 assets | $ | 2,153 | | | $ | — | | | $ | (63) | | | $ | (1,214) | | | $ | 876 | | | $ | 225 | | | $ | (352) | | | $ | (127) | | | | | | | | | | | | | | | | | | Liabilities | | | | | | | | | | | | | | | | Interest sensitive contract liabilities – embedded derivative | $ | — | | | $ | (197) | | | $ | — | | | $ | 218 | | | $ | 21 | | | $ | — | | | $ | — | | | $ | — | | | | | | | | | | | | | | | | | | Total Level 3 liabilities | $ | — | | | $ | (197) | | | $ | — | | | $ | 218 | | | $ | 21 | | | $ | — | | | $ | — | | | $ | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Three months ended June 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 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Corporate | $ | — | | | $ | — | | | $ | — | | | $ | (32) | | | $ | (32) | | | $ | 122 | | | $ | (490) | | | $ | (368) | | CLO | 44 | | | — | | | — | | | (5) | | | 39 | | | — | | | (3) | | | (3) | | ABS | 1 | | | — | | | — | | | (40) | | | (39) | | | 31 | | | (51) | | | (20) | | CMBS | — | | | — | | | (4) | | | — | | | (4) | | | 18 | | | (4) | | | 14 | | RMBS | 1 | | | — | | | — | | | — | | | 1 | | | — | | | (29) | | | (29) | | Trading securities | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Corporate | — | | | — | | | — | | | — | | | — | | | 6 | | | (36) | | | (30) | | | | | | | | | | | | | | | | | | | ABS | — | | | — | | | (14) | | | — | | | (14) | | | — | | | — | | | — | | RMBS | — | | | — | | | — | | | — | | | — | | | 4 | | | (21) | | | (17) | | | | | | | | | | | | | | | | | | | Mortgage loans | — | | | — | | | — | | | (1) | | | (1) | | | — | | | — | | | — | | | | | | | | | | | | | | | | | | Short-term investments | 53 | | | — | | | — | | | — | | | 53 | | | — | | | (5) | | | (5) | | Investments in related parties | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | AFS securities, ABS | 1 | | | — | | | — | | | — | | | 1 | | | — | | | — | | | — | | Trading securities | | | | | | | | | | | | | | | | | CLO | — | | | — | | | — | | | — | | | — | | | 11 | | | (3) | | | 8 | | ABS | 88 | | | — | | | — | | | (14) | | | 74 | | | — | | | — | | | — | | Equity securities | — | | | — | | | — | | | (1) | | | (1) | | | — | | | — | | | — | | Investment funds | 361 | | | — | | | — | | | — | | | 361 | | | — | | | — | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total Level 3 assets | $ | 549 | | | $ | — | | | $ | (18) | | | $ | (93) | | | $ | 438 | | | $ | 192 | | | $ | (642) | | | $ | (450) | | | | | | | | | | | | | | | | | | Liabilities | | | | | | | | | | | | | | | | Interest sensitive contract liabilities – embedded derivative | $ | — | | | $ | (646) | | | $ | — | | | $ | 129 | | | $ | (517) | | | $ | — | | | $ | — | | | $ | — | | | | | | | | | | | | | | | | | | Total Level 3 liabilities | $ | — | | | $ | (646) | | | $ | — | | | $ | 129 | | | $ | (517) | | | $ | — | | | $ | — | | | $ | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Six months ended June 30, 2021 | | (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 | $ | — | | | $ | — | | | $ | — | | | $ | (1) | | | $ | (1) | | | $ | — | | | $ | (32) | | | $ | (32) | | Foreign governments | 1 | | | — | | | — | | | (1) | | | — | | | — | | | — | | | — | | | Corporate | 110 | | | — | | | (9) | | | (45) | | | 56 | | | 235 | | | (115) | | | 120 | | CLO | 110 | | | — | | | — | | | (43) | | | 67 | | | — | | | — | | | — | | ABS | 935 | | | — | | | — | | | (192) | | | 743 | | | 57 | | | (147) | | | (90) | | CMBS | 3 | | | — | | | — | | | — | | | 3 | | | — | | | — | | | — | | | | | | | | | | | | | | | | | | Trading securities | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | CLO | 3 | | | — | | | (4) | | | — | | | (1) | | | — | | | — | | | — | | | ABS | 35 | | | — | | | (35) | | | — | | | — | | | 3 | | | — | | | 3 | | CMBS | 2 | | | — | | | — | | | — | | | 2 | | | — | | | — | | | — | | RMBS | — | | | — | | | — | | | — | | | — | | | 20 | | | (3) | | | 17 | | | | | | | | | | | | | | | | | | | Mortgage loans | — | | | — | | | — | | | (1) | | | (1) | | | — | | | — | | | — | | | Investment funds | 224 | | | — | | | — | | | — | | | 224 | | | 109 | | | — | | | 109 | | Short-term investments | — | | | — | | | — | | | — | | | — | | | — | | | (2) | | | (2) | | Investments in related parties | | | | | | | | | | | | | | | | AFS securities | | | | | | | | | | | | | | | | | Corporate | — | | | — | | | — | | | — | | | — | | | — | | | (201) | | | (201) | | | | | | | | | | | | | | | | | | | ABS | 1,026 | | | — | | | (751) | | | (61) | | | 214 | | | — | | | (61) | | | (61) | | Trading securities | | | | | | | | | | | | | | | | | CLO | 8 | | | — | | | (1) | | | (7) | | | — | | | — | | | (29) | | | (29) | | ABS | 228 | | | — | | | — | | | (66) | | | 162 | | | — | | | — | | | — | | Equity securities | 45 | | | — | | | — | | | (3) | | | 42 | | | — | | | — | | | — | | Investment funds | 69 | | | — | | | — | | | — | | | 69 | | | — | | | — | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total Level 3 assets | $ | 2,799 | | | $ | — | | | $ | (800) | | | $ | (420) | | | $ | 1,579 | | | $ | 424 | | | $ | (590) | | | $ | (166) | | | | | | | | | | | | | | | | | | Liabilities | | | | | | | | | | | | | | | | Interest sensitive contract liabilities – embedded derivative | $ | — | | | $ | (372) | | | $ | — | | | $ | 458 | | | $ | 86 | | | $ | — | | | $ | — | | | $ | — | | | | | | | | | | | | | | | | | | Total Level 3 liabilities | $ | — | | | $ | (372) | | | $ | — | | | $ | 458 | | | $ | 86 | | | $ | — | | | $ | — | | | $ | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Six months ended June 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 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Corporate | $ | 62 | | | $ | — | | | $ | (10) | | | $ | (62) | | | $ | (10) | | | $ | 209 | | | $ | (38) | | | $ | 171 | | CLO | 78 | | | — | | | — | | | (9) | | | 69 | | | — | | | (26) | | | (26) | | ABS | 48 | | | — | | | (13) | | | (281) | | | (246) | | | 44 | | | (225) | | | (181) | | CMBS | — | | | — | | | (4) | | | — | | | (4) | | | 18 | | | — | | | 18 | | RMBS | — | | | — | | | — | | | — | | | — | | | 16 | | | — | | | 16 | | Trading securities | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Corporate | — | | | — | | | — | | | — | | | — | | | 6 | | | — | | | 6 | | | | | | | | | | | | | | | | | | | ABS | — | | | — | | | (16) | | | — | | | (16) | | | — | | | — | | | — | | RMBS | — | | | — | | | — | | | — | | | — | | | 6 | | | (2) | | | 4 | | | | | | | | | | | | | | | | | | | Mortgage loans | — | | | — | | | — | | | (2) | | | (2) | | | — | | | — | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Short-term investments | 89 | | | — | | | — | | | (15) | | | 74 | | | — | | | — | | | — | | Investments in related parties | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | AFS securities, ABS | 5 | | | — | | | — | | | (54) | | | (49) | | | — | | | (162) | | | (162) | | Trading securities | | | | | | | | | | | | | | | | CLO | 27 | | | — | | | (13) | | | — | | | 14 | | | 13 | | | (3) | | | 10 | | ABS | 154 | | | — | | | — | | | (14) | | | 140 | | | — | | | — | | | — | | Equity securities | 3 | | | — | | | — | | | (3) | | | — | | | — | | | (6) | | | (6) | | Investment funds | 1,508 | | | — | | | — | | | — | | | 1,508 | | | — | | | — | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Total Level 3 assets | $ | 1,974 | | | $ | — | | | $ | (56) | | | $ | (440) | | | $ | 1,478 | | | $ | 312 | | | $ | (462) | | | $ | (150) | | | | | | | | | | | | | | | | | | Liabilities | | | | | | | | | | | | | | | | Interest sensitive contract liabilities – embedded derivative | $ | — | | | $ | (762) | | | $ | — | | | $ | 921 | | | $ | 159 | | | $ | — | | | $ | — | | | $ | — | | | | | | | | | | | | | | | | | | Total Level 3 liabilities | $ | — | | | $ | (762) | | | $ | — | | | $ | 921 | | | $ | 159 | | | $ | — | | | $ | — | | | $ | — | |
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 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: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | June 30, 2021 | | (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 | | $ | 4,796 | | | Discounted cash flow | | Discount rate | | 1.4 | % | | 18.0 | % | | 4.9 | % | 1 | | Decrease | | | | | | | | | | | | | | | | | Interest sensitive contract liabilities – fixed indexed annuities embedded derivatives | | $ | 13,635 | | | Option budget method | | Nonperformance risk | | 0.0 | % | | 0.8 | % | | 0.5 | % | 2 | | Decrease | | | | | | | Option budget | | 0.5 | % | | 3.4 | % | | 1.8 | % | 3 | | Increase | | | | | | | Surrender rate | | 5.1 | % | | 9.7 | % | | 7.1 | % | 4 | | Decrease | | | | | | | | | | | | | | | | | | | December 31, 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 | | $ | 5,858 | | | Discounted cash flow | | Discount rate | | 1.7 | % | | 35.0 | % | | 4.6 | % | 1 | | Decrease | | | | | | | | | | | | | | | | | Interest sensitive contract liabilities – fixed indexed annuities embedded derivatives | | $ | 12,873 | | | Option budget method | | Nonperformance risk | | 0.0 | % | | 1.1 | % | | 0.5 | % | 2 | | Decrease | | | | | | | Option budget | | 0.6 | % | | 3.5 | % | | 1.9 | % | 3 | | Increase | | | | | | | Surrender rate | | 5.3 | % | | 9.5 | % | | 7.1 | % | 4 | | Decrease | | | | | | | | | | | | | | | | | 1 The discount rate 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 carrying amount of the equity securities was $202 million, with a cumulative recorded impairment of $231 million as of June 30, 2021 and December 31, 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: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | June 30, 2021 | | (In millions) | Carrying Value | | Fair Value | | NAV | | Level 1 | | Level 2 | | Level 3 | | Financial assets | | | | | | | | | | | | | Mortgage loans | $ | 17,372 | | | $ | 17,883 | | | $ | — | | | $ | — | | | $ | — | | | $ | 17,883 | | | Investment funds | 663 | | | 663 | | | 663 | | | — | | | — | | | — | | | Policy loans | 329 | | | 329 | | | — | | | — | | | 329 | | | — | | | Funds withheld at interest | 44,055 | | | 44,055 | | | — | | | — | | | — | | | 44,055 | | | | | | | | | | | | | | | Other investments | 1,575 | | | 1,575 | | | — | | | — | | | — | | | 1,575 | | | Investments in related parties | | | | | | | | | | | | | Mortgage loans | 819 | | | 831 | | | — | | | — | | | — | | | 831 | | | Investment funds | 3,708 | | | 3,708 | | | 3,708 | | | — | | | — | | | — | | | Funds withheld at interest | 11,824 | | | 11,824 | | | — | | | — | | | — | | | 11,824 | | | Other investments | 147 | | | 151 | | | — | | | — | | | — | | | 151 | | | Total financial assets not carried at fair value | $ | 80,492 | | | $ | 81,019 | | | $ | 4,371 | | | $ | — | | | $ | 329 | | | $ | 76,319 | | | | | | | | | | | | | | | Financial liabilities | | | | | | | | | | | | | Interest sensitive contract liabilities | $ | 100,445 | | | $ | 103,416 | | | $ | — | | | $ | — | | | $ | — | | | $ | 103,416 | | | | | | | | | | | | | | | Long-term debt | 2,468 | | | 2,820 | | | — | | | — | | | 2,820 | | | — | | | Securities to repurchase | 598 | | | 598 | | | — | | | — | | | 598 | | | — | | | Funds withheld liability | 388 | | | 388 | | | — | | | — | | | 388 | | | — | | | Total financial liabilities not carried at fair value | $ | 103,899 | | | $ | 107,222 | | | $ | — | | | $ | — | | | $ | 3,806 | | | $ | 103,416 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | December 31, 2020 | | (In millions) | Carrying Value | | Fair Value | | NAV | | Level 1 | | Level 2 | | Level 3 | | Financial assets | | | | | | | | | | | | | Mortgage loans | $ | 15,245 | | | $ | 15,811 | | | $ | — | | | $ | — | | | $ | — | | | $ | 15,811 | | | Investment funds | 642 | | | 642 | | | 642 | | | — | | | — | | | — | | | Policy loans | 369 | | | 369 | | | — | | | — | | | 369 | | | — | | | Funds withheld at interest | 46,668 | | | 46,668 | | | — | | | — | | | — | | | 46,668 | | | | | | | | | | | | | | | Other investments | 467 | | | 471 | | | — | | | — | | | — | | | 471 | | | Investments in related parties | | | | | | | | | | | | | Mortgage loans | 674 | | | 694 | | | — | | | — | | | — | | | 694 | | | Investment funds | 3,165 | | | 3,165 | | | 3,165 | | | — | | | — | | | — | | | Funds withheld at interest | 12,168 | | | 12,168 | | | — | | | — | | | — | | | 12,168 | | | Other investments | 469 | | | 499 | | | — | | | — | | | — | | | 499 | | | Total financial assets not carried at fair value | $ | 79,867 | | | $ | 80,487 | | | $ | 3,807 | | | $ | — | | | $ | 369 | | | $ | 76,311 | | | | | | | | | | | | | | | Financial liabilities | | | | | | | | | | | | | Interest sensitive contract liabilities | $ | 94,685 | | | $ | 98,945 | | | $ | — | | | $ | — | | | $ | — | | | $ | 98,945 | | | | | | | | | | | | | | | Long-term debt | 1,976 | | | 2,259 | | | — | | | — | | | 2,259 | | | — | | | Securities to repurchase | 598 | | | 598 | | | — | | | — | | | 598 | | | — | | | Funds withheld liability | 393 | | | 393 | | | — | | | — | | | 393 | | | — | | Total financial liabilities not carried at fair value | $ | 97,652 | | | $ | 102,195 | | | $ | — | | | $ | — | | | $ | 3,250 | | | $ | 98,945 | |
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, and securities to repurchase, the carrying amount approximates fair value.
Other investments – The fair value of 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.
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