Fair Value Measurements

12 Months Ended

Dec. 31, 2023

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, 2022, and ultimately management determines fair value. Financial instruments reported at fair value in our consolidated financial statements are categorized based upon the following characteristics or inputs to the valuation techniques:

•Level 1 – Financial assets and liabilities for which inputs are observable and are obtained from reliable quoted prices for identical assets or liabilities in active markets. This is the most reliable fair value measurement and includes, for example, active exchange-traded equity securities.

•Level 2 – Financial assets and liabilities for which values are based on quoted prices in markets that are not active or for which values are based on similar assets and liabilities that are actively traded. This also includes pricing models for which the inputs are corroborated by market data.

The technique used for the Level 2 fixed-maturity securities is the application of market-based modeling. The inputs used for all classes of fixed-maturity securities listed in the table below include relevant market information by asset class, trade activity of like securities, marketplace quotes, benchmark yields, spreads off benchmark yields, interest rates, U.S. Treasury or swap curves, yield to maturity and economic events. Specific to mortgage-backed securities, key inputs also include prepayment and default projections based on performance of the underlying collateral and current market data. Level 2 fixed-maturity securities are priced by a nationally recognized pricing vendor.

The Level 2 nonredeemable preferred equities technique used is the application of market-based modeling. The inputs used, similar to those used by the pricing vendor for our fixed-maturity securities, include relevant market information, trade activity of like securities, yield to maturity, corporate action notices and economic events. Level 2 nonredeemable preferred equities are priced by a nationally recognized pricing vendor.

•Level 3 – Financial assets and liabilities for which values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. Level 3 inputs include the following:

◦Quotes from brokers or other external sources that are not considered binding;

◦Quotes from brokers or other external sources where it cannot be determined that market participants would in fact transact for the asset or liability at the quoted price; or

◦Quotes from brokers or other external sources where the inputs are not deemed observable.

The following tables illustrate the fair value hierarchy for those assets measured at fair value on a recurring basis at December 31, 2023 and 2022. We do not have any liabilities carried at fair value.


(Dollars in millions)	Level 1				Level 3
At December 31, 2023			Level 2				Total
Fixed maturities, available for sale:
Corporate	$	—	$	7,452	$	—	$	7,452
States, municipalities and political subdivisions	—		4,703		—		4,703
Government-sponsored enterprises	—		1,224		—		1,224
United States government	200		—		—		200
Mortgage-backed	—		187		—		187
Foreign government	—		25		—		25

Subtotal	200		13,591		—		13,791
Common equities	10,641		—		—		10,641
Nonredeemable preferred equities	—		348		—		348
Separate accounts taxable fixed maturities	—		854		—		854
Top Hat savings plan mutual funds and common equity (included in Other assets)	67		—		—		67
Total	$	10,908	$	14,793	$	—	$	25,701

At December 31, 2022
Fixed maturities, available for sale:
Corporate	$	—	$	6,869	$	—	$	6,869
States, municipalities and political subdivisions	—		4,622		—		4,622
Government-sponsored enterprises	—		183		—		183
United States government	191		—		—		191
Mortgage-backed	—		234		—		234
Foreign government	—		33		—		33

Subtotal	191		11,941		—		12,132
Common equities	9,454		—		—		9,454
Nonredeemable preferred equities	—		387		—		387
Separate accounts taxable fixed maturities	—		815		—		815
Top Hat savings plan mutual funds and common equity (included in Other assets)	57		—		—		57
Total	$	9,702	$	13,143	$	—	$	22,845

We also held Level 1 cash and cash equivalents of $907 million and $1.264 billion at December 31, 2023 and 2022, respectively. Level 3 assets reported at fair value in our consolidated financial statements are not material, and therefore no further disclosures are provided.

Fair Value Disclosure 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 consolidated financial statements.

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


(Dollars in millions)	Level 1		Level 2		Level 3		Total
At December 31, 2023
Note payable	$	—	$	25	$	—	$	25
6.900% senior debentures, due 2028	—		29		—		29
6.920% senior debentures, due 2028	—		420		—		420
6.125% senior notes, due 2034	—		394		—		394
Total	$	—	$	868	$	—	$	868

At December 31, 2022
Note payable	$	—	$	50	$	—	$	50
6.900% senior debentures, due 2028	—		29		—		29
6.920% senior debentures, due 2028	—		418		—		418
6.125% senior notes, due 2034	—		388		—		388
Total	$	—	$	885	$	—	$	885

Fair value of the note payable was determined based upon the outstanding balance at December 31, 2023 and 2022, because it is short term and tied to a variable interest rate. Fair value of the long-term debt was determined under the fair value measurements and disclosure accounting rules based on market pricing of similar debt instruments that are actively traded. We determine fair value for our debt the same way that we value corporate fixed maturities in our investment portfolio. Fair value can vary with macroeconomic conditions. Regardless of the fluctuations in fair value, the outstanding principal amount of our long-term debt was $793 million at December 31, 2023 and 2022. None of the long-term debt is encumbered by rating triggers. The note payable and long-term debt were classified as Level 2 as an active market does not exist, but fair value is determined based on observable inputs.

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


(Dollars in millions)	Level 1		Level 2		Level 3		Total
At December 31, 2023
Life policy loans	$	—	$	—	$	39	$	39

At December 31, 2022
Life policy loans	$	—	$	—	$	37	$	37

Outstanding principal and interest for these life policy loans totaled $33 million and $31 million at December 31, 2023 and 2022, respectively. To determine the fair value, we make the following significant assumptions: (1) the discount rates used to calculate the present value of expected payments are the risk-free spot rates, as nonperformance risk is minimal; and (2) the loan repayment rate by which policyholders pay off their loan balances is in line with past experience.

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


(Dollars in millions)	Level 1		Level 2		Level 3		Total
At December 31, 2023
Deferred annuities	$	—	$	—	$	603	$	603
Structured settlements	—		141		—		141
Total	$	—	$	141	$	603	$	744

At December 31, 2022
Deferred annuities	$	—	$	—	$	621	$	621
Structured settlements	—		143		—		143
Total	$	—	$	143	$	621	$	764

Recorded reserves for the deferred annuities were $656 million and $734 million at December 31, 2023 and 2022, respectively. Recorded reserves for the structured settlements were $123 million and $129 million at December 31, 2023 and 2022, respectively.

Fair values for deferred annuities were calculated based upon internally developed models because active markets and observable inputs do not exist. To determine the fair value, we made the following significant assumptions: (1) the discount rates used to calculate the present value of expected payments are the risk-free spot rates plus an A3 rated bond spread for financial issuers at December 31, 2023 and 2022, to account for nonperformance risk; (2) the rate of interest credited to policyholders is the portfolio net earned interest rate less a spread for expenses and profit; and (3) additional lapses occur when the credited interest rate is exceeded by an assumed competitor credited rate, which is a function of the risk-free rate of the economic scenario being modeled.

Fair values for structured settlements were calculated based on internally developed models which assume the discount rates used to calculate the present value of expected payments are the risk-free spot rates plus an A3 rated bond spread for financial issuers at December 31, 2023 and 2022, to account for nonperformance risk. The structured settlements were classified as Level 2, as an active market does not exist, but fair value is based on observable inputs.

- 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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