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Life Policy and Investment Contract Reserves
 9 Months Ended
Sep. 30, 2023
Liability for Future Policy Benefit, before Reinsurance [Abstract]  
Long-Duration Insurance Contracts Disclosure Life Policy and Investment Contract Reserves
In the first quarter of 2023, we adopted ASU 2018-12 which resulted in changes to the life policy and investment contract reserves and the expansion of required disclosures. The below disclosures represent application of the updated guidance. See Note 1, Accounting Policies, for further discussion.

We establish the reserves for traditional life policies including term, whole life and other products based on certain cash flow assumptions including expected expenses, mortality, morbidity, lapse rates and timing of claim presentation. These assumptions are established based on our current expectations and are reviewed annually to determine any necessary updates. Assumptions are also updated on an interim basis if evidence suggests that they should be revised. We use both our own experience and industry experience, adjusted for historical trends, in arriving at our assumptions for expected mortality, morbidity and lapse rates. These reserves also include a discount rate assumption that is based on market value discount rates and is updated quarterly. Certain assumptions, including the mortality, lapse and long-term interest rate reversion targets, were updated in the second quarter of 2023 as part of our annual assumption unlocking. Changes in the inputs, judgments and assumptions during the period and the related measurement impact on the liability are reflected in the below tables.
 
We establish reserves for the company's deferred annuity, universal life and structured settlement policies equal to the cumulative account balances, which include premium deposits plus credited interest less charges and withdrawals. Some of our universal life policies contain no-lapse guarantee provisions. For these policies, we establish a reserve in addition to the account balance, based on expected no-lapse guarantee benefits and expected policy assessments.

The following table summarizes our life policy and investment contract reserves and provides a reconciliation of the balances described in the below tables to those in the condensed consolidated balance sheets:
(Dollars in millions)September 30,
2023		December 31,
2022
Life policy reserves:
Term$956 $961 
Whole life381 408 
Other97 94 
Subtotal1,434 1,463 
Investment contract reserves:
Deferred annuities680 734 
Universal life575 578 
Structured settlements124 129 
Other107 111 
Subtotal1,486 1,552 
Total life policy and investment contract reserves$2,920 $3,015 
The table below shows the ASU 2018-12 adoption impacts to the life policy and investment contract reserves as of January 1, 2021 (transition date), pretax:
(Dollars in millions)TermWhole lifeDeferred annuityUniversal lifeOtherTotal
At January 1, 2021
Balance, pre-adoption at December 31, 2020$901 $363 $761 $567 $323 $2,915 
Removal of shadow adjustments— — — — 13 13 
Net premiums in excess of gross premiums14 1 — — — 15 
Remeasurement at market value discount rates372 245 — — — 617 
Balance, post-adoption at January 1, 2021$1,287 $609 $761 $567 $336 $3,560 

The table below shows the ASU 2018-12 adoption impacts to the life reinsurance recoverable asset as of January 1, 2021, pretax:
(Dollars in millions)TermWhole lifeDeferred annuityUniversal lifeOtherTotal
At January 1, 2021
Balance, pre-adoption at December 31, 2020$113 $26 $— $— $78 $217 
Remeasurement at market value discount rates29 18 — — — 47 
Other adjustments20 1 — 2 — 23 
Balance, post-adoption at January 1, 2021$162 $45 $— $2 $78 $287 

Other above includes structured settlements, other life policy reserves and other investment contract reserves. The removal of shadow adjustments above represents an increase to the life policy and investment contract reserve balance as it is no longer required under ASU 2018-12 for liabilities amortized in accordance with deferred acquisition costs. Shadow adjustments were historically included to present the carrying amount of the liability as if unrealized holding gains and losses had been realized. The net premiums in excess of gross premiums adjustment represents an increase to the liability as the remeasured net premiums, calculated as the present value of future benefits and related expenses using updated cash flow assumptions as of the transition date less the carrying amount of the liability prior to transition, exceeded the present value of future gross premiums. For purposes of calculating the updated present value of future benefits and related expenses above, the discount rate assumption that was used prior to adoption of ASU 2018-12 was retained. The remeasurement at market value discount rates adjustment represents the increase to the liability as a result of updating the discount rate assumption for our term and whole life products from the rates used prior to adoption of ASU 2018-12 to market value discount rates that existed at the transition date. As the discount rate assumption decreased significantly from the date the contracts were initially made, this adjustment represents the largest impact on the liability as a result of the initial adoption of ASU 2018-12. The life reinsurance recoverable asset is included in the remeasurement as the assumptions used in estimating the life reinsurance recoverable are consistent with those used in estimating the related liabilities. Other adjustments includes a reclassification from prepaid reinsurance premiums to reinsurance recoverable.

The shadow removal and remeasurement at market value discount rates adjustments were recorded as an increase to the life policy and investment contract reserves liability and a decrease to opening AOCI as of the transition date. The net premiums in excess of gross premiums adjustment was recorded as an increase to the life policy and investment contract reserves liability and a decrease to the opening balance of retained earnings as of the transition date.
The balances and changes in the term and whole life policy reserves included in life policy and investment contract reserves is as follows:
(Dollars in millions)Three months ended September 30,
20232022
TermWhole lifeTermWhole life
Present value of expected net premiums:
Balance, beginning of period$1,664 $212 $1,723 $210 
Beginning balance at original discount rate1,712 219 1,704 209 
Effect of changes in cash flow assumptions— (1)(13)(2)
Effect of actual variances from expected experience(3)2 (3)— 
Adjusted beginning of period balance1,709 220 1,688 207 
Issuances33 7 50 11 
Interest accrual18 3 17 2 
Net premiums collected(45)(7)(44)(6)
Ending balance at original discount rate1,715 223 1,711 214 
Effect of changes in discount rate assumptions(133)(17)(94)(13)
Balance, end of period1,582 206 1,617 201 
Present value of expected future policy benefits:
Balance, beginning of period2,662 633 2,702 646 
Beginning balance at original discount rate2,737 615 2,663 590 
Effect of changes in cash flow assumptions— — (12)(2)
Effect of actual variances from expected experience(6)2 (2)— 
Adjusted beginning of period balance2,731 617 2,649 588 
Issuances33 7 49 11 
Interest accrual30 8 29 7 
Benefits paid(39)(9)(48)(7)
Ending balance at original discount rate2,755 623 2,679 599 
Effect of changes in discount rate assumptions(234)(37)(159)(5)
Balance, end of period2,521 586 2,520 594 
Net liability for future policy benefits:
Present value of expected future policy benefits less expected net premiums939 380 903 393 
Impact of flooring at cohort level17 1 22 2 
Net life policy reserves956 381 925 395 
Less reinsurance recoverable at original discount rate(99)(25)(98)(25)
Less effect of discount rate assumption changes on reinsurance recoverable(7)(3)(9)(4)
Net life policy reserves, after reinsurance recoverable$850 $353 $818 $366 
Weighted-average duration of the net life policy reserves in years11161116
(Dollars in millions)Nine months ended September 30,
20232022
TermWhole lifeTermWhole life
Present value of expected net premiums:
Balance, beginning of period$1,643 $208 $1,801 $241 
Beginning balance at original discount rate1,708 217 1,503 201 
Effect of changes in cash flow assumptions(5)(7)132 (3)
Effect of actual variances from expected experience(15)3 5 — 
Adjusted beginning of period balance1,688 213 1,640 198 
Issuances111 24 154 30 
Interest accrual53 7 49 6 
Net premiums collected(137)(21)(132)(20)
Ending balance at original discount rate1,715 223 1,711 214 
Effect of changes in discount rate assumptions(133)(17)(94)(13)
Balance, end of period1,582 206 1,617 201 
Present value of expected future policy benefits:
Balance, beginning of period2,584 614 2,993 826 
Beginning balance at original discount rate2,692 607 2,425 577 
Effect of changes in cash flow assumptions5 (10)150 (5)
Effect of actual variances from expected experience(19)3 15 — 
Adjusted beginning of period balance2,678 600 2,590 572 
Issuances111 24 153 29 
Interest accrual90 23 84 22 
Benefits paid(124)(24)(148)(24)
Ending balance at original discount rate2,755 623 2,679 599 
Effect of changes in discount rate assumptions(234)(37)(159)(5)
Balance, end of period2,521 586 2,520 594 
Net liability for future policy benefits:
Present value of expected future policy benefits less expected net premiums939 380 903 393 
Impact of flooring at cohort level 17 1 22 2 
Net life policy reserves956 381 925 395 
Less reinsurance recoverable at original discount rate(99)(25)(98)(25)
Less effect of discount rate assumption changes on reinsurance recoverable(7)(3)(9)(4)
Net life policy reserves, after reinsurance recoverable$850 $353 $818 $366 
Weighted-average duration of the net life policy reserves in years11161116

The total impact of flooring at cohort level in the above tables includes the effect of discount rate assumption changes of $5 million and $13 million at September 30, 2023 and 2022, respectively.
The following table shows the amount of undiscounted and discounted expected future benefit payments and expected gross premiums for our term and whole life policies:
(Dollars in millions)At September 30,
20232022
UndiscountedDiscountedUndiscountedDiscounted
Term
Expected future benefit payments$4,768 $2,521 $4,618 $2,520 
Expected future gross premiums4,364 2,464 4,402 2,528 
Whole life
Expected future benefit payments$1,631 $586 $1,540 $594 
Expected future gross premiums653 379 596 356 

The following table shows the amount of revenue and interest recognized in the condensed consolidated statements of income related to our term and whole life policies:

(Dollars in millions)Three months ended September 30,Nine months ended September 30,
2023202220232022
Gross premiums
Term$71 $70 $217 $210 
Whole life14 11 39 35 
Total$85 $81 $256 $245 
Interest accretion
Term$13 $12 $37 $35 
Whole life5 5 16 16 
Total$18 $17 $53 $51 

Adverse development that resulted in an immediate charge to income due to net premiums exceeding gross premiums was immaterial for the three and nine months ended September 30, 2023, and 2022.

The following table shows the weighted-average interest rate for our term and whole life products:
At September 30,
20232022
Term
Interest accretion rate5.29 %5.15 %
Current discount rate5.73 5.18 
Whole life
Interest accretion rate5.92 %5.97 %
Current discount rate5.95 5.51 

The discount rate assumption was developed by calculating forward rates from market yield curves of upper-medium grade fixed-income instruments.
The following table shows the balances and changes in policyholders' account balances included in investment contract reserves:
(Dollars in millions)Three months ended September 30,Nine months ended September 30,
2023202220232022
Deferred annuityUniversal lifeDeferred annuityUniversal lifeDeferred annuityUniversal lifeDeferred annuityUniversal life
Balance, beginning of period$696 $456 $755 $457 $734 $457 $763 $454 
Premiums received13 8 12 8 38 28 23 29 
Policy charges— (9)— (10)— (29)— (29)
Surrenders and withdrawals(32)(2)(17)(4)(100)(9)(37)(9)
Benefit payments(3)(1)(3)(1)(9)(5)(13)(4)
Interest credited6 4 5 5 17 14 16 14 
Balance, end of period$680 $456 $752 $455 $680 $456 $752 $455 
Weighted average crediting rate3.45 %4.29 %3.10 %4.24 %3.45 %4.29 %3.10 %4.24 %
Net amount at risk$— $3,989 $— $4,108 $— $3,989 $— $4,108 
Cash surrender value675 424 748 421 675 424 748 421 

The net amount at risk above represents the guaranteed benefit amount in excess of the current account balances.

The following table shows the balance of account values by range of guaranteed minimum crediting rates, in basis points, and the related range of the difference between rates being credited to policyholders and the respective guaranteed minimums for our deferred annuity and universal life contracts:
(Dollars in millions)At guaranteed minimum1 to 50 basis points above51-150 basis points aboveGreater than 150 basis pointsTotal
At September 30, 2023
Deferred annuity
1.00-3.00%$5 $380 $16 $229 630 
3.01-4.00%50 — — — 50 
Total$55 $380 $16 $229 $680 
Universal life
1.00-3.00%$60 $— $57 $3 $120 
3.01-4.00%54 — — — 54 
Greater than 4.00%282 — — — 282 
Total$396 $— $57 $3 $456 
At September 30, 2022
Deferred annuity
1.00-3.00%$467 $— $170 $64 $701 
3.01-4.00%51 — — — 51 
Total$518 $— $170 $64 $752 
Universal life
1.00-3.00%$59 $46 $8 $2 $115 
3.01-4.00%52 — — — 52 
Greater than 4.00%288 — — — 288 
Total$399 $46 $8 $2 $455 
The following table shows the balances and changes in the other additional liability related to the no-lapse guarantees contained within our universal life contracts:
(Dollars in millions)Three months ended September 30,Nine months ended September 30,
2023202220232022
Balance, beginning of period$122 $122 $121 $133 
Balance, beginning of period before shadow reserve adjustments124 123 123 131 
Effect of changes in cash flow assumptions— — (5)(2)
Effect of actual variances from expected experience2 1 1 6 
Adjusted beginning of period balance126 124 119 135 
Interest accrual1 1 3 3 
Excess death benefits(4)(2)(6)(14)
Attributed assessments3 3 9 9 
Effect of changes in interest rate assumptions(5)(4)(4)(11)
Balance, end of period before shadow reserve adjustments121 122 121 122 
Shadow reserve adjustments(2)(3)(2)(3)
Balance, end of period119 119 119 119 
Less reinsurance recoverable, end of period7 5 7 5 
Net other additional liability, after reinsurance recoverable$126 $124 $126 $124 
Weighted-average duration of the other additional liability in years32343234

The following table shows balances and changes in separate accounts balances during the period:
(Dollars in millions)Three months ended September 30,Nine months ended September 30,
2023202220232022
Balance, beginning of period$911 $860 $892 $959 
Interest credited before policy charges11 9 31 29 
Change in unrealized gains and losses impacting separate accounts liabilities— 20 — (85)
Benefit payments(3)— (6)(10)
Other(1)(1)1 (5)
Balance, end of period$918 $888 $918 $888 
Cash surrender value$912 $886 $912 $886