Fair Value Measurements

3 Months Ended

Mar. 31, 2017

Fair Value Disclosures [Abstract]

Fair Value Measurements

Fair Value Measurements

In accordance with accounting guidance for fair value measurements and disclosures, we categorized our financial instruments, based on the priority of the observable and market-based data for the valuation technique used, into a three-level fair value hierarchy. The fair value hierarchy gives the highest priority to quoted prices with readily available independent data in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable market inputs (Level 3). When various inputs for measurement fall within different levels of the fair value hierarchy, the lowest observable input that has a significant impact on fair value measurement is used. Our valuation techniques have not changed from those used at December 31, 2016, and ultimately management determines fair value. See our 2016 Annual Report on Form 10-K, Item 8, Note 3, Fair Value Measurements, Page 132, for information on characteristics and valuation techniques used in determining fair value.

Fair Value Disclosures for Assets

The following tables illustrate the fair value hierarchy for those assets measured at fair value on a recurring basis at March 31, 2017, and December 31, 2016. We do not have any material liabilities carried at fair value. There were no transfers between Level 1 and Level 2.

(Dollars in millions)	Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)		Total
At March 31, 2017
Fixed maturities, available for sale:
Corporate	$	—	$	5,814	$	1	$	5,815
States, municipalities and political subdivisions	—		3,952		—		3,952
Commercial mortgage-backed	—		287		—		287
Government-sponsored enterprises	—		216		—		216
United States government	16		—		—		16
Foreign government	—		10		—		10
Convertibles and bonds with warrants attached	—		5		—		5
Subtotal	16		10,284		1		10,301
Common equities, available for sale	5,453		—		—		5,453
Nonredeemable preferred equities, available for sale	—		223		—		223
Separate accounts taxable fixed maturities	—		764		—		764
Top Hat savings plan mutual funds and common equity (included in Other assets)	27		—		—		27
Total	$	5,496	$	11,271	$	1	$	16,768
At December 31, 2016
Fixed maturities, available for sale:
Corporate	$	—	$	5,703	$	78	$	5,781
States, municipalities and political subdivisions	—		3,828		—		3,828
Commercial mortgage-backed	—		287		—		287
Government-sponsored enterprises	—		164		—		164
United States government	10		—		—		10
Foreign government	—		10		—		10
Convertibles and bonds with warrants attached	—		5		—		5
Subtotal	10		9,997		78		10,085
Common equities, available for sale	5,123		—		—		5,123
Nonredeemable preferred equities, available for sale	—		211		—		211
Separate accounts taxable fixed maturities	—		750		—		750
Top Hat savings plan mutual funds and common   equity (included in Other assets)	24		—		—		24
Total	$	5,157	$	10,958	$	78	$	16,193

Each financial instrument that was deemed to have significant unobservable inputs when determining valuation is identified in the following tables by security type with a summary of changes in fair value as of March 31, 2017. Total Level 3 assets continue to be less than 1 percent of financial assets measured at fair value in the condensed consolidated balance sheets. Assets presented in the table below were valued based primarily on broker/dealer quotes for which there is a lack of transparency as to inputs used to develop the valuations. Transfers out of Level 3 included situations where a broker quote was used without observable inputs or data that could be corroborated by our pricing vendors in the prior period and significant other observable inputs were identified in the current period. The quantitative detail of these unobservable inputs is neither provided nor reasonably available to us.

The following table provides the change in Level 3 assets for the three months ended March 31:

(Dollars in millions)	Asset fair value measurements using significant unobservable inputs
		Corporate fixed maturities			Taxable fixed maturities - separate accounts		Nonredeemable preferred equities			Total
Beginning balance, January 1, 2017		$	78		$	—	$	—		$	78
Total gains or losses (realized/unrealized):
Included in net income		—			—		—			—
Included in other comprehensive income		—			—		—			—
Purchases		—			—		—			—
Sales		—			—		—			—
Transfers into Level 3		—			—		—			—
Transfers out of Level 3		(77		)	—		—			(77		)
Ending balance, March 31, 2017		$	1		$	—	$	—		$	1
Beginning balance, January 1, 2016		$	51		$	1	$	3		$	55
Total gains or losses (realized/unrealized):
Included in net income		—			—		—			—
Included in other comprehensive income		—			—		(1		)	(1		)
Purchases		5			—		—			5
Sales		—			—		—			—
Transfers into Level 3		—			—		—			—
Transfers out of Level 3		(5		)	—		—			(5		)
Ending balance, March 31, 2016		$	51		$	1	$	2		$	54

Additional disclosures for the Level 3 category are not material.

Fair Value Disclosures for Assets and Liabilities Not Carried at Fair Value

The disclosures below are presented to provide information about the effects of current market conditions on financial instruments that are not reported at fair value in our condensed consolidated financial statements.

This table summarizes the book value and principal amounts of our long-term debt:

(Dollars in millions)				Book value				Principal amount
Interest rate		Year of  issue		March 31,		December 31,		March 31,		December 31,
				2017		2016		2017		2016
6.900	%	1998	Senior debentures, due 2028	$	26	$	26	$	28	$	28
6.920	%	2005	Senior debentures, due 2028	391		391		391		391
6.125	%	2004	Senior notes, due 2034	370		370		374		374
			Total	$	787	$	787	$	793	$	793

The following table shows fair values of our note payable and long-term debt:

(Dollars in millions)	Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)		Total
At March 31, 2017
Note payable	$	—	$	17	$	—	$	17
6.900% senior debentures, due 2028	—		33		—		33
6.920% senior debentures, due 2028	—		497		—		497
6.125% senior notes, due 2034	—		450		—		450
Total	$	—	$	997	$	—	$	997
At December 31, 2016
Note payable	$	—	$	20	$	—	$	20
6.900% senior debentures, due 2028	—		33		—		33
6.920% senior debentures, due 2028	—		488		—		488
6.125% senior notes, due 2034	—		435		—		435
Total	$	—	$	976	$	—	$	976

The following table shows the fair value of our life policy loans included in other invested assets:

(Dollars in millions)	Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)		Total
At March 31, 2017
Life policy loans	$	—	$	—	$	40	$	40
At December 31, 2016
Life policy loans	$	—	$	—	$	40	$	40

Outstanding principal and interest for these life policy loans totaled $30 million and $31 million at March 31, 2017, and December 31, 2016, respectively.

The following table shows fair values of our deferred annuities and structured settlements included in life policy and investment contract reserves:

(Dollars in millions)	Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)		Total
At March 31, 2017
Deferred annuities	$	—	$	—	$	844	$	844
Structured settlements	—		203		—		203
Total	$	—	$	203	$	844	$	1,047
At December 31, 2016
Deferred annuities	$	—	$	—	$	839	$	839
Structured settlements	—		206		—		206
Total	$	—	$	206	$	839	$	1,045

Recorded reserves for the deferred annuities were $858 million and $861 million at March 31, 2017, and December 31, 2016, respectively. Recorded reserves for the structured settlements were $166 million and $170 million at March 31, 2017, and December 31, 2016, respectively.