Fair Value Measurements

9 Months Ended

Sep. 30, 2021

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, 2020, and ultimately management determines fair value. See our 2020 Annual Report on Form 10-K, Item 8, Note 3, Fair Value Measurements, Page 143, 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 September 30, 2021 and December 31, 2020. 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 September 30, 2021
Fixed maturities, available for sale:
Corporate	$	—	$	7,496	$	—	$	7,496
States, municipalities and political subdivisions	—		4,970		—		4,970
Commercial mortgage-backed	—		279		—		279
United States government	130		—		—		130
Foreign government	—		26		—		26
Government-sponsored enterprises	—		7		—		7


Subtotal	130		12,778		—		12,908
Common equities	9,465		—		—		9,465
Nonredeemable preferred equities	—		422		—		422

Separate accounts taxable fixed maturities	—		923		—		923
Top Hat savings plan mutual funds and common equity (included in Other assets)	62		—		—		62
Total	$	9,657	$	14,123	$	—	$	23,780

At December 31, 2020
Fixed maturities, available for sale:
Corporate	$	—	$	6,895	$	—	$	6,895
States, municipalities and political subdivisions	—		4,997		—		4,997
Commercial mortgage-backed	—		285		—		285
United States government	120		—		—		120
Foreign government	—		29		—		29
Government-sponsored enterprises	—		12		—		12

Subtotal	120		12,218		—		12,338
Common equities	8,541		—		—		8,541
Nonredeemable preferred equities	—		315		—		315
Separate accounts taxable fixed maturities	—		903		—		903
Top Hat savings plan mutual funds and common equity (included in Other assets)	51		—		—		51
Total	$	8,712	$	13,436	$	—	$	22,148

We also held Level 1 cash and cash equivalents of $1.085 billion and $900 million at September 30, 2021 and December 31, 2020, respectively.

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		September 30,		December 31,		September 30,		December 31,
				2021		2020		2021		2020
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	371		370		374		374
Total				$	789	$	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 September 30, 2021
Note payable	$	—	$	59	$	—	$	59
6.900% senior debentures, due 2028	—		35		—		35
6.920% senior debentures, due 2028	—		508		—		508
6.125% senior notes, due 2034	—		510		—		510
Total	$	—	$	1,112	$	—	$	1,112

At December 31, 2020
Note payable	$	—	$	54	$	—	$	54
6.900% senior debentures, due 2028	—		35		—		35
6.920% senior debentures, due 2028	—		515		—		515
6.125% senior notes, due 2034	—		522		—		522
Total	$	—	$	1,126	$	—	$	1,126

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 September 30, 2021
Life policy loans	$	—	$	—	$	43	$	43

Deferred annuities	—		—		800		800
Structured settlements	—		205		—		205
Total	$	—	$	205	$	800	$	1,005

At December 31, 2020
Life policy loans	$	—	$	—	$	49	$	49

Deferred annuities	—		—		836		836
Structured settlements	—		227		—		227
Total	$	—	$	227	$	836	$	1,063

Outstanding principal and interest for these life policy loans totaled $30 million and $33 million at September 30, 2021 and December 31, 2020, respectively.

Recorded reserves for the deferred annuities were $767 million and $761 million at September 30, 2021 and December 31, 2020, respectively. Recorded reserves for the structured settlements were $139 million and $145 million at September 30, 2021 and December 31, 2020, 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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