XML 26 R14.htm IDEA: XBRL DOCUMENT

Fair Value

6 Months Ended

Jun. 30, 2021

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.

- 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