Fair Value Measurements

3 Months Ended

Mar. 31, 2020

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, 2019, and ultimately management determines fair value. See our 2019 Annual Report on Form 10-K, Item 8, Note 3, Fair Value Measurements, Page 144, 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, 2020, and December 31, 2019. We do not have any liabilities carried at fair value.



(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, 2020			Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)		Total
Fixed maturities, available for sale:
Corporate	$	—	$	6,133	$	—	$	6,133
States, municipalities and political subdivisions	—		4,711		—		4,711
Commercial mortgage-backed	—		284		—		284
United States government	102		—		—		102
Government-sponsored enterprises	—		87		—		87
Foreign government	—		23		—		23
Subtotal	102		11,238		—		11,340
Common equities	6,017		—		—		6,017
Nonredeemable preferred equities	—		208		—		208
Separate accounts taxable fixed maturities	—		845		—		845
Top Hat savings plan mutual funds and common equity (included in Other assets)	38		—		—		38
Total	$	6,157	$	12,291	$	—	$	18,448

At December 31, 2019
Fixed maturities, available for sale:
Corporate	$	—	$	6,401	$	—	$	6,401
States, municipalities and political subdivisions	—		4,728		—		4,728
Commercial mortgage-backed	—		301		—		301
United States government	104		—		—		104
Government-sponsored enterprises	—		136		—		136
Foreign government	—		28		—		28
Subtotal	104		11,594		—		11,698
Common equities	7,518		—		—		7,518
Nonredeemable preferred equities	—		234		—		234
Separate accounts taxable fixed maturities	—		855		—		855
Top Hat savings plan mutual funds and common equity (included in Other assets)	45		—		—		45
Total	$	7,667	$	12,683	$	—	$	20,350

We also held Level 1 cash and cash equivalents of $486 million and $767 million at March 31, 2020 and December 31, 2019, respectively. Level 3 assets reported at fair value in our condensed consolidated financial statements are not material, and therefore no further disclosures are provided.

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,
Interest rate		Year of issue		2020		2019		2020		2019
6.900	%	1998	Senior debentures, due 2028	$	27	$	27	$	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				$	788	$	788	$	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, 2020			Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)		Total
Note payable	$	—	$	114	$	—	$	114
6.900% senior debentures, due 2028	—		35		—		35
6.920% senior debentures, due 2028	—		525		—		525
6.125% senior notes, due 2034	—		501		—		501
Total	$	—	$	1,175	$	—	$	1,175

At December 31, 2019
Note payable	$	—	$	39	$	—	$	39
6.900% senior debentures, due 2028	—		34		—		34
6.920% senior debentures, due 2028	—		506		—		506
6.125% senior notes, due 2034	—		512		—		512
Total	$	—	$	1,091	$	—	$	1,091

The following table shows the fair value of our life policy loans included in other invested assets and the 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, 2020			Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)		Total
Life policy loans	$	—	$	—	$	50	$	50

Deferred annuities	—		—		752		752
Structured settlements	—		201		—		201
Total	$	—	$	201	$	752	$	953

At December 31, 2019
Life policy loans	$	—	$	—	$	44	$	44

Deferred annuities	—		—		770		770
Structured settlements	—		212		—		212
Total	$	—	$	212	$	770	$	982

Outstanding principal and interest for these life policy loans totaled $33 million and $32 million at

March 31, 2020 and December 31, 2019, respectively.

Recorded reserves for the deferred annuities were $754 million and $760 million at March 31, 2020 and December 31, 2019, respectively. Recorded reserves for the structured settlements were $151 million at March 31, 2020 and December 31, 2019, respectively.

- 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.

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