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FAIR VALUE MEASUREMENTS
9 Months Ended
Sep. 30, 2020
FAIR VALUE MEASUREMENTS  
FAIR VALUE MEASUREMENTS 4. Fair Value Measurements

Fair Value Measurements on a Recurring Basis

Assets and liabilities recorded at fair value in the Condensed Consolidated Balance Sheets are measured and classified in accordance with a fair value hierarchy consisting of three “levels” based on the observability of valuation inputs:

Level 1: Fair value measurements based on quoted prices (unadjusted) in active markets that we have the ability to access for identical assets or liabilities. Market price data generally is obtained from exchange or dealer markets. We do not adjust the quoted price for such instruments.

Level 2: Fair value measurements based on inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, and inputs other than quoted prices that are observable for the asset or liability, such as interest rates and yield curves that are observable at commonly quoted intervals.

Level 3: Fair value measurements based on valuation techniques that use significant inputs that are unobservable. Both observable and unobservable inputs may be used to determine the fair values of positions classified in Level 3. The circumstances for using these measurements include those in which there is little, if any, market activity for the asset or liability. Therefore, we must make certain assumptions about the inputs a hypothetical market participant would use to value that asset or liability.

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls is determined based on the lowest level input that is significant to the fair value measurement in its entirety.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following table presents information about assets and liabilities measured at fair value on a recurring basis and indicates the level of the fair value measurement based on the observability of the inputs used:

September 30, 2020

 

 

 

 

 

 

Counterparty

Cash

 

(in millions)

 

Level 1

 

Level 2

 

Level 3

 

Netting(a)

Collateral

 

Total

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Bonds available for sale:

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government and government sponsored entities

$

33

$

5,102

$

-

$

-

$

-

$

5,135

Obligations of states, municipalities and political subdivisions

 

-

 

13,990

 

2,183

 

-

 

-

 

16,173

Non-U.S. governments

 

41

 

15,126

 

7

 

-

 

-

 

15,174

Corporate debt

 

-

 

159,991

 

2,115

 

-

 

-

 

162,106

RMBS

 

-

 

20,759

 

12,655

 

-

 

-

 

33,414

CMBS

 

-

 

14,796

 

981

 

-

 

-

 

15,777

CDO/ABS

 

-

 

8,833

 

9,353

 

-

 

-

 

18,186

Total bonds available for sale

 

74

 

238,597

 

27,294

 

-

 

-

 

265,965

Other bond securities:

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government and government sponsored entities

 

-

 

1,870

 

-

 

-

 

-

 

1,870

Non-U.S. governments

 

-

 

-

 

-

 

-

 

-

 

-

Corporate debt

 

-

 

12

 

-

 

-

 

-

 

12

RMBS

 

-

 

320

 

168

 

-

 

-

 

488

CMBS

 

-

 

274

 

48

 

-

 

-

 

322

CDO/ABS

 

-

 

168

 

2,555

 

-

 

-

 

2,723

Total other bond securities

 

-

 

2,644

 

2,771

 

-

 

-

 

5,415

Equity securities

 

827

 

18

 

26

 

-

 

-

 

871

Other invested assets(b)

 

-

 

94

 

1,583

 

-

 

-

 

1,677

Derivative assets:

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate contracts

 

3

 

5,051

 

-

 

-

 

-

 

5,054

Foreign exchange contracts

 

-

 

1,585

 

3

 

-

 

-

 

1,588

Equity contracts

 

6

 

841

 

110

 

-

 

-

 

957

Credit contracts

 

-

 

-

 

1

 

-

 

-

 

1

Other contracts

 

-

 

-

 

13

 

-

 

-

 

13

Counterparty netting and cash collateral

 

-

 

-

 

-

 

(3,695)

 

(3,129)

 

(6,824)

Total derivative assets

 

9

 

7,477

 

127

 

(3,695)

 

(3,129)

 

789

Short-term investments

 

3,195

 

4,019

 

-

 

-

 

-

 

7,214

Other assets

 

-

 

-

 

112

 

-

 

-

 

112

Separate account assets

 

88,023

 

4,013

 

-

 

-

 

-

 

92,036

Total

$

92,128

$

256,862

$

31,913

$

(3,695)

$

(3,129)

$

374,079

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Policyholder contract deposits

$

-

$

-

$

9,322

$

-

$

-

$

9,322

Derivative liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate contracts

 

-

 

4,559

 

-

 

-

 

-

 

4,559

Foreign exchange contracts

 

-

 

619

 

-

 

-

 

-

 

619

Equity contracts

 

12

 

84

 

5

 

-

 

-

 

101

Credit contracts

 

-

 

24

 

45

 

-

 

-

 

69

Other contracts

 

-

 

-

 

7

 

-

 

-

 

7

Counterparty netting and cash collateral

 

-

 

-

 

-

 

(3,695)

 

(1,060)

 

(4,755)

Total derivative liabilities

 

12

 

5,286

 

57

 

(3,695)

 

(1,060)

 

600

Fortitude Re funds withheld payable

 

-

 

-

 

5,136

 

-

 

-

 

5,136

Other liabilities

 

-

 

-

 

-

 

-

 

-

 

-

Long-term debt

 

-

 

2,169

 

-

 

-

 

-

 

2,169

Total

$

12

$

7,455

$

14,515

$

(3,695)

$

(1,060)

$

17,227

December 31, 2019

 

 

 

 

 

 

Counterparty

Cash

 

(in millions)

 

Level 1

 

Level 2

 

Level 3

 

Netting(a)

 

Collateral

 

Total

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Bonds available for sale:

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government and government sponsored entities

$

135

$

5,245

$

-

$

-

$

-

$

5,380

Obligations of states, municipalities and political subdivisions

 

-

 

13,197

 

2,121

 

-

 

-

 

15,318

Non-U.S. governments

 

60

 

14,809

 

-

 

-

 

-

 

14,869

Corporate debt

 

-

 

147,973

 

1,663

 

-

 

-

 

149,636

RMBS

 

-

 

19,397

 

13,408

 

-

 

-

 

32,805

CMBS

 

-

 

13,377

 

1,053

 

-

 

-

 

14,430

CDO/ABS

 

-

 

10,962

 

7,686

 

-

 

-

 

18,648

Total bonds available for sale

 

195

 

224,960

 

25,931

 

-

 

-

 

251,086

Other bond securities:

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government and government sponsored entities

 

-

 

2,121

 

-

 

-

 

-

 

2,121

Non-U.S. governments

 

-

 

-

 

-

 

-

 

-

 

-

Corporate debt

 

-

 

18

 

-

 

-

 

-

 

18

RMBS

 

-

 

346

 

143

 

-

 

-

 

489

CMBS

 

-

 

272

 

50

 

-

 

-

 

322

CDO/ABS

 

-

 

187

 

3,545

 

-

 

-

 

3,732

Total other bond securities

 

-

 

2,944

 

3,738

 

-

 

-

 

6,682

Equity securities

 

756

 

77

 

8

 

-

 

-

 

841

Other invested assets(b)

 

-

 

86

 

1,192

 

-

 

-

 

1,278

Derivative assets:

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate contracts

 

1

 

3,199

 

-

 

-

 

-

 

3,200

Foreign exchange contracts

 

-

 

1,034

 

6

 

-

 

-

 

1,040

Equity contracts

 

5

 

593

 

171

 

-

 

-

 

769

Credit contracts

 

-

 

-

 

3

 

-

 

-

 

3

Other contracts

 

-

 

-

 

14

 

-

 

-

 

14

Counterparty netting and cash collateral

 

-

 

-

 

-

 

(2,427)

 

(1,806)

 

(4,233)

Total derivative assets

 

6

 

4,826

 

194

 

(2,427)

 

(1,806)

 

793

Short-term investments

 

2,299

 

3,044

 

-

 

-

 

-

 

5,343

Other assets

 

57

 

2,212

 

89

 

-

 

-

 

2,358

Separate account assets

 

89,069

 

4,203

 

-

 

-

 

-

 

93,272

Total

$

92,382

$

242,352

$

31,152

$

(2,427)

$

(1,806)

$

361,653

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Policyholder contract deposits

$

-

$

-

$

6,910

$

-

$

-

$

6,910

Derivative liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate contracts

 

4

 

2,745

 

-

 

-

 

-

 

2,749

Foreign exchange contracts

 

-

 

1,025

 

-

 

-

 

-

 

1,025

Equity contracts

 

8

 

111

 

20

 

-

 

-

 

139

Credit contracts

 

-

 

24

 

65

 

-

 

-

 

89

Other contracts

 

-

 

-

 

7

 

-

 

-

 

7

Counterparty netting and cash collateral

 

-

 

-

 

-

 

(2,427)

 

(527)

 

(2,954)

Total derivative liabilities

 

12

 

3,905

 

92

 

(2,427)

 

(527)

 

1,055

Other liabilities

 

-

 

45

 

-

 

-

 

-

 

45

Long-term debt

 

-

 

2,062

 

-

 

-

 

-

 

2,062

Total

$

12

$

6,012

$

7,002

$

(2,427)

$

(527)

$

10,072

(a)Represents netting of derivative exposures covered by qualifying master netting agreements.

(b)Excludes investments that are measured at fair value using the net asset value (NAV) per share (or its equivalent), which totaled $5.4 billion and $5.5 billion as of September 30, 2020 and December 31, 2019, respectively.

 

Changes in Level 3 Recurring Fair Value Measurements

The following tables present changes during the three- and nine-month periods ended September 30, 2020 and 2019 in Level 3 assets and liabilities measured at fair value on a recurring basis, and the realized and unrealized gains (losses) related to the Level 3 assets and liabilities in the Condensed Consolidated Balance Sheets at September 30, 2020 and 2019:

 

 

 

 

Net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Changes in

 

 

 

 

Realized

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized Gains

 

 

 

 

and

 

 

 

Purchases,

 

 

 

 

 

 

 

 

 

Changes in

 

(Losses) Included in

 

 

 

 

Unrealized

 

 

 

Sales,

 

 

 

 

 

 

 

 

 

Unrealized Gains

 

Other Comprehensive

 

 

 

 

Gains

 

 

 

Issuances

 

 

 

 

 

 

 

 

 

(Losses) Included

 

Income (Loss) for

 

 

Fair Value

(Losses)

 

Other

 

and

 

Gross

 

Gross

 

 

Fair Value

 

in Income on

 

Recurring Level 3

 

 

Beginning

 

Included

Comprehensive

Settlements,

Transfers

Transfers

 

Divested

 

End

 

Instruments Held

 

Instruments Held

(in millions)

 

of Period

 

in Income

 

Income (Loss)

 

Net

 

In

 

Out

Businesses

of Period

 

at End of Period

 

at End of Period

Three Months Ended September 30, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Bonds available for sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Obligations of states,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

municipalities and

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

political subdivisions

$

2,279

$

3

$

(4)

$

(30)

$

-

$

(65)

$

-

$

2,183

$

-

$

-

Non-U.S. governments

 

5

 

-

 

1

 

-

 

1

 

-

 

-

 

7

 

-

 

-

Corporate debt

 

1,900

 

(33)

 

52

 

(25)

 

452

 

(231)

 

-

 

2,115

 

-

 

38

RMBS

 

12,678

 

192

 

301

 

(412)

 

3

 

(107)

 

-

 

12,655

 

-

 

335

CMBS

 

1,149

 

3

 

36

 

(11)

 

-

 

(196)

 

-

 

981

 

-

 

27

CDO/ABS

 

9,461

 

5

 

180

 

(174)

 

125

 

(244)

 

-

 

9,353

 

-

 

172

Total bonds available for sale(a)

 

27,472

 

170

 

566

 

(652)

 

581

 

(843)

 

-

 

27,294

 

-

 

572

Other bond securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

RMBS

 

168

 

16

 

-

 

(16)

 

-

 

-

 

-

 

168

 

4

 

-

CMBS

 

47

 

1

 

-

 

-

 

-

 

-

 

-

 

48

 

1

 

-

CDO/ABS

 

2,531

 

124

 

-

 

(100)

 

-

 

-

 

-

 

2,555

 

34

 

-

Total other bond securities

 

2,746

 

141

 

-

 

(116)

 

-

 

-

 

-

 

2,771

 

39

 

-

Equity securities

 

43

 

-

 

2

 

1

 

7

 

(27)

 

-

 

26

 

1

 

-

Other invested assets

 

1,486

 

74

 

(2)

 

25

 

-

 

-

 

-

 

1,583

 

-

 

-

Other assets

 

111

 

-

 

-

 

2

 

-

 

-

 

(1)

 

112

 

-

 

-

Total

$

31,858

$

385

$

566

$

(740)

$

588

$

(870)

$

(1)

$

31,786

$

40

$

572

 

 

 

 

Net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Changes in

 

 

 

 

Realized

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized Gains

 

 

 

 

and

 

 

 

Purchases,

 

 

 

 

 

 

 

 

 

Changes in

 

(Losses) Included in

 

 

 

 

Unrealized

 

 

 

Sales,

 

 

 

 

 

 

 

 

 

Unrealized Gains

 

Other Comprehensive

 

 

 

 

(Gains)

 

 

 

Issuances

 

 

 

 

 

 

 

 

 

(Losses) Included

 

Income (Loss) for

 

 

Fair Value

Losses

 

Other

 

and

 

Gross

 

Gross

 

 

Fair Value

 

in Income on

 

Recurring Level 3

 

 

Beginning

 

Included

Comprehensive

Settlements,

Transfers

Transfers

 

Divested

 

End

 

Instruments Held

 

Instruments Held

(in millions)

 

of Period

 

in Income

 

Income (Loss)

 

Net

 

In

 

Out

Businesses

of Period

 

at End of Period

 

at End of Period

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Policyholder contract deposits

$

9,233

$

19

$

-

$

70

$

-

$

-

$

-

$

9,322

$

273

$

-

Derivative liabilities, net:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate contracts

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

 

-

Foreign exchange contracts

 

(1)

 

(2)

 

-

 

-

 

-

 

-

 

-

 

(3)

 

2

 

-

Equity contracts

 

(53)

 

9

 

-

 

(65)

 

(1)

 

5

 

-

 

(105)

 

-

 

-

Credit contracts

 

45

 

1

 

-

 

(2)

 

-

 

-

 

-

 

44

 

(7)

 

-

Other contracts

 

(3)

 

(19)

 

-

 

16

 

-

 

-

 

-

 

(6)

 

18

 

-

Total derivative liabilities, net(b)

 

(12)

 

(11)

 

-

 

(51)

 

(1)

 

5

 

-

 

(70)

 

13

 

-

Fortitude Re funds withheld

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

payable

 

4,510

 

656

 

-

 

(30)

 

-

 

-

 

-

 

5,136

 

(256)

 

-

Total

$

13,731

$

664

$

-

$

(11)

$

(1)

$

5

$

-

$

14,388

$

30

$

-

 

 

 

 

Net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Changes in

 

 

 

 

Realized

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized Gains

 

 

 

 

and

 

 

 

Purchases,

 

 

 

 

 

 

 

 

 

Changes in

 

(Losses) Included in

 

 

 

 

Unrealized

 

 

 

Sales,

 

 

 

 

 

 

 

 

 

Unrealized Gains

 

Other Comprehensive

 

 

 

 

Gains

 

 

 

Issuances

 

 

 

 

 

 

 

 

 

(Losses) Included

 

Income (Loss) for

 

 

Fair Value

 

(Losses)

 

Other

 

and

 

Gross

 

Gross

 

 

Fair Value

 

in Income on

 

Recurring Level 3

 

 

Beginning

 

Included

Comprehensive

Settlements,

Transfers

Transfers

 

Divested

 

End

 

Instruments Held

 

Instruments Held

(in millions)

 

of Period

 

in Income

 

Income (Loss)

 

Net

 

In

 

Out

Businesses

of Period

 

at End of Period

 

at End of Period

Nine Months Ended September 30, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Bonds available for sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Obligations of states,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

municipalities and

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

political subdivisions

$

2,121

$

8

$

195

$

127

$

27

$

(295)

$

-

$

2,183

$

-

$

193

Non-U.S. governments

 

-

 

-

 

1

 

5

 

7

 

(6)

 

-

 

7

 

-

 

-

Corporate debt

 

1,663

 

(101)

 

43

 

95

 

1,074

 

(659)

 

-

 

2,115

 

-

 

59

RMBS

 

13,408

 

532

 

(375)

 

(806)

 

29

 

(133)

 

-

 

12,655

 

-

 

(213)

CMBS

 

1,053

 

14

 

70

 

17

 

23

 

(196)

 

-

 

981

 

-

 

66

CDO/ABS

 

7,686

 

25

 

55

 

(19)

 

2,062

 

(456)

 

-

 

9,353

 

-

 

38

Total bonds available for sale(a)

 

25,931

 

478

 

(11)

 

(581)

 

3,222

 

(1,745)

 

-

 

27,294

 

-

 

143

Other bond securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

RMBS

 

143

 

16

 

-

 

9

 

-

 

-

 

-

 

168

 

3

 

-

CMBS

 

50

 

-

 

-

 

(2)

 

-

 

-

 

-

 

48

 

(1)

 

-

CDO/ABS

 

3,545

 

225

 

-

 

(1,215)

 

-

 

-

 

-

 

2,555

 

25

 

-

Total other bond securities

 

3,738

 

241

 

-

 

(1,208)

 

-

 

-

 

-

 

2,771

 

27

 

-

Equity securities

 

8

 

(1)

 

3

 

11

 

33

 

(28)

 

-

 

26

 

1

 

-

Other invested assets

 

1,192

 

11

 

(2)

 

232

 

150

 

-

 

-

 

1,583

 

(13)

 

-

Other assets

 

89

 

-

 

-

 

61

 

-

 

-

 

(38)

 

112

 

-

 

-

Total

$

30,958

$

729

$

(10)

$

(1,485)

$

3,405

$

(1,773)

$

(38)

$

31,786

$

15

$

143

 

 

 

 

Net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Changes in

 

 

 

 

Realized

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized Gains

 

 

 

 

and

 

 

 

Purchases,

 

 

 

 

 

 

 

 

 

Changes in

 

(Losses) Included in

 

 

 

 

Unrealized

 

 

 

Sales,

 

 

 

 

 

 

 

 

 

Unrealized Gains

 

Other Comprehensive

 

 

 

 

(Gains)

 

 

 

Issuances

 

 

 

 

 

 

 

 

 

(Losses) Included

 

Income (Loss) for

 

 

Fair Value

 

Losses

 

Other

 

and

 

Gross

 

Gross

 

 

 

Fair Value

 

in Income on

 

Recurring Level 3

 

 

Beginning

 

Included

Comprehensive

Settlements,

Transfers

Transfers

 

Divested

 

End

 

Instruments Held

 

Instruments Held

(in millions)

 

of Period

 

in Income

 

Income (Loss)

 

Net

 

In

 

Out

Businesses

 

of Period

 

at End of Period

 

at End of Period

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Policyholder contract deposits

$

6,910

$

2,250

$

-

$

162

$

-

$

-

$

-

$

9,322

$

(1,436)

$

-

Derivative liabilities, net:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate contracts

 

-

 

(1)

 

-

 

1

 

-

 

-

 

-

 

-

 

1

 

-

Foreign exchange contracts

 

(6)

 

2

 

-

 

1

 

-

 

-

 

-

 

(3)

 

2

 

-

Equity contracts

 

(151)

 

19

 

-

 

23

 

(1)

 

5

 

-

 

(105)

 

(62)

 

-

Credit contracts

 

62

 

(59)

 

-

 

41

 

-

 

-

 

-

 

44

 

8

 

-

Other contracts

 

(7)

 

(46)

 

-

 

47

 

-

 

-

 

-

 

(6)

 

45

 

-

Total derivative liabilities, net(b)

 

(102)

 

(85)

 

-

 

113

 

(1)

 

5

 

-

 

(70)

 

(6)

 

-

Fortitude Re funds withheld

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

payable

 

-

 

1,493

 

-

 

(30)

 

-

 

-

 

3,673

 

5,136

 

(919)

 

-

Total

$

6,808

$

3,658

$

-

$

245

$

(1)

$

5

$

3,673

$

14,388

$

(2,361)

$

-

 

 

 

 

Net

 

 

 

 

 

 

 

 

 

 

 

 

 

Changes in

 

 

 

 

Realized and

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized Gains

 

 

 

 

Unrealized

 

 

 

Purchases,

 

 

 

 

 

 

 

 

 

(Losses) Included

 

 

Fair Value

Gains (Losses)

 

Other

 

Sales,

 

Gross

 

Gross

 

 

 

Fair Value

 

in Income on

 

 

Beginning

 

Included

 

Comprehensive

 

Issuances and

 

Transfers

 

Transfers

 

Divested

 

End

 

Instruments Held

(in millions)

 

of Period

 

in Income

 

Income (Loss)

Settlements, Net

 

In

 

Out

Businesses

 

of Period

 

at End of Period

Three Months Ended September 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Bonds available for sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Obligations of states, municipalities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

and political subdivisions

$

2,162

$

(1)

$

119

$

92

$

-

$

(265)

$

-

$

2,107

$

-

Non-U.S. governments

 

2

 

6

 

-

 

-

 

5

 

-

 

-

 

13

 

-

Corporate debt

 

1,821

 

(36)

 

(2)

 

(535)

 

112

 

(85)

 

-

 

1,275

 

-

RMBS

 

13,863

 

166

 

15

 

(418)

 

16

 

(82)

 

-

 

13,560

 

-

CMBS

 

1,103

 

2

 

32

 

85

 

-

 

(172)

 

-

 

1,050

 

-

CDO/ABS

 

9,062

 

3

 

37

 

(170)

 

7

 

-

 

-

 

8,939

 

-

Total bonds available for sale

 

28,013

 

140

 

201

 

(946)

 

140

 

(604)

 

-

 

26,944

 

-

Other bond securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

RMBS

 

830

 

9

 

-

 

(24)

 

-

 

-

 

-

 

815

 

1

CMBS

 

88

 

1

 

-

 

(17)

 

-

 

(4)

 

-

 

68

 

(2)

CDO/ABS

 

4,150

 

115

 

-

 

(334)

 

-

 

-

 

-

 

3,931

 

28

Total other bond securities

 

5,068

 

125

 

-

 

(375)

 

-

 

(4)

 

-

 

4,814

 

27

Equity securities

 

35

 

-

 

-

 

(29)

 

2

 

-

 

-

 

8

 

(2)

Other invested assets

 

605

 

6

 

-

 

(22)

 

-

 

-

 

-

 

589

 

7

Other assets

 

61

 

-

 

-

 

(1)

 

-

 

-

 

-

 

60

 

-

Total

$

33,782

$

271

$

201

$

(1,373)

$

142

$

(608)

$

-

$

32,415

$

32

 

 

 

 

Net

 

 

 

 

 

 

 

 

 

 

 

 

 

Changes in

 

 

 

 

Realized and

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized Gains

 

 

 

 

Unrealized

 

 

 

Purchases,

 

 

 

 

 

 

 

 

 

(Losses) Included

 

 

Fair Value

(Gains) Losses

 

Other

 

Sales,

 

Gross

 

Gross

 

 

 

Fair Value

 

in Income on

 

 

Beginning

 

Included

 

Comprehensive

 

Issuances and

 

Transfers

 

Transfers

 

Divested

 

End

 

Instruments Held

(in millions)

 

of Period

 

in Income

 

Income (Loss)

Settlements, Net

 

In

 

Out

 

Businesses

 

of Period

 

at End of Period

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Policyholder contract deposits

$

6,065

$

861

$

-

$

240

$

-

$

-

$

-

$

7,166

$

(691)

Derivative liabilities, net:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate contracts

 

16

 

(3)

 

-

 

(13)

 

-

 

-

 

-

 

-

 

-

Foreign exchange contracts

 

(4)

 

6

 

-

 

(3)

 

-

 

-

 

-

 

(1)

 

-

Equity contracts

 

(113)

 

12

 

-

 

-

 

-

 

-

 

-

 

(101)

 

(13)

Credit contracts

 

173

 

(24)

 

-

 

(47)

 

-

 

-

 

-

 

102

 

14

Other contracts

 

(7)

 

(17)

 

-

 

17

 

-

 

-

 

-

 

(7)

 

15

Total derivative liabilities, net(b)

 

65

 

(26)

 

-

 

(46)

 

-

 

-

 

-

 

(7)

 

16

Total

$

6,130

$

835

$

-

$

194

$

-

$

-

$

-

$

7,159

$

(675)

 

 

 

 

Net

 

 

 

 

 

 

 

 

 

 

 

 

 

Changes in

 

 

 

 

Realized and

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized Gains

 

 

 

 

Unrealized

 

 

 

Purchases,

 

 

 

 

 

 

 

 

 

(Losses) Included

 

 

Fair Value

Gains (Losses)

 

Other

 

Sales,

 

Gross

 

Gross

 

 

 

Fair Value

 

in Income on

 

 

Beginning

 

Included

Comprehensive

 

Issuances and

 

Transfers

 

Transfers

 

Divested

 

End

 

Instruments Held

(in millions)

 

of Period

 

in Income

 

Income (Loss)

Settlements, Net

 

In

 

Out

Businesses

 

of Period

 

at End of Period

Nine Months Ended September 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Bonds available for sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Obligations of states, municipalities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

and political subdivisions

$

2,000

$

(2)

$

321

$

178

$

35

$

(425)

$

-

$

2,107

$

-

Non-U.S. governments

 

11

 

5

 

-

 

(4)

 

5

 

(4)

 

-

 

13

 

-

Corporate debt

 

864

 

(10)

 

79

 

(600)

 

1,155

 

(213)

 

-

 

1,275

 

-

RMBS

 

14,199

 

575

 

176

 

(1,234)

 

83

 

(239)

 

-

 

13,560

 

-

CMBS

 

917

 

8

 

62

 

381

 

58

 

(376)

 

-

 

1,050

 

-

CDO/ABS

 

9,102

 

15

 

204

 

(111)

 

103

 

(374)

 

-

 

8,939

 

-

Total bonds available for sale

 

27,093

 

591

 

842

 

(1,390)

 

1,439

 

(1,631)

 

-

 

26,944

 

-

Other bond securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

RMBS

 

1,290

 

69

 

-

 

(544)

 

-

 

-

 

-

 

815

 

(18)

CMBS

 

77

 

5

 

-

 

-

 

-

 

(14)

 

-

 

68

 

3

CDO/ABS

 

4,478

 

299

 

-

 

(749)

 

-

 

(97)

 

-

 

3,931

 

128

Total other bond securities

 

5,845

 

373

 

-

 

(1,293)

 

-

 

(111)

 

-

 

4,814

 

113

Equity securities

 

27

 

-

 

-

 

(20)

 

2

 

(1)

 

-

 

8

 

2

Other invested assets

 

587

 

24

 

1

 

(23)

 

-

 

-

 

-

 

589

 

27

Other assets

 

58

 

-

 

-

 

2

 

-

 

-

 

-

 

60

 

-

Total

$

33,610

$

988

$

843

$

(2,724)

$

1,441

$

(1,743)

$

-

$

32,415

$

142

 

 

 

 

Net

 

 

 

 

 

 

 

 

 

 

 

 

 

Changes in

 

 

 

 

Realized and

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized Gains

 

 

 

 

Unrealized

 

 

 

Purchases,

 

 

 

 

 

 

 

 

 

(Losses) Included

 

 

Fair Value

(Gains) Losses

 

Other

 

Sales,

 

Gross

 

Gross

 

 

 

Fair Value

 

in Income on

 

 

Beginning

 

Included

Comprehensive

 

Issuances and

 

Transfers

 

Transfers

 

Divested

 

End

 

Instruments Held

(in millions)

 

of Period

 

in Income

 

Income (Loss)

Settlements, Net

 

In

 

Out

 

Businesses

 

of Period

 

at End of Period

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Policyholder contract deposits

$

4,116

$

2,400

$

-

$

650

$

-

$

-

$

-

$

7,166

$

(2,044)

Derivative liabilities, net:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate contracts

 

15

 

-

 

-

 

(15)

 

-

 

-

 

-

 

-

 

1

Foreign exchange contracts

 

(5)

 

(4)

 

-

 

8

 

-

 

-

 

-

 

(1)

 

-

Equity contracts

 

(75)

 

(8)

 

-

 

(18)

 

-

 

-

 

-

 

(101)

 

19

Credit contracts

 

227

 

(51)

 

-

 

(74)

 

-

 

-

 

-

 

102

 

13

Other contracts

 

(9)

 

(50)

 

-

 

52

 

-

 

-

 

-

 

(7)

 

50

Total derivative liabilities, net(b)

 

153

 

(113)

 

-

 

(47)

 

-

 

-

 

-

 

(7)

 

83

Total

$

4,269

$

2,287

$

-

$

603

$

-

$

-

$

-

$

7,159

$

(1,961)

(a) As a result of the adoption of the Financial Instruments Credit Losses Standard on January 1, 2020, credit losses are included in net realized and unrealized (gains) losses included in income.

(b) Total Level 3 derivative exposures have been netted in these tables for presentation purposes only.

 

Net realized and unrealized gains and losses included in income related to Level 3 assets and liabilities shown above are reported in the Condensed Consolidated Statements of Income as follows:

 

 

Net

 

Net Realized

 

 

 

 

 

 

Investment

 

Capital

 

Other

 

 

(in millions)

 

Income

Gains (Losses)

 

Income

 

Total

Three Months Ended September 30, 2020

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

Bonds available for sale*

$

177

$

(7)

$

-

$

170

Other bond securities

 

143

 

(2)

 

-

 

141

Equity securities

 

-

 

-

 

-

 

-

Other invested assets

 

74

 

-

 

-

 

74

Nine Months Ended September 30, 2020

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

Bonds available for sale*

$

557

$

(79)

$

-

$

478

Other bond securities

 

(25)

 

266

 

-

 

241

Equity securities

 

-

 

(1)

 

-

 

(1)

Other invested assets

 

11

 

-

 

-

 

11

Three Months Ended September 30, 2019

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

Bonds available for sale

$

164

$

(24)

$

-

$

140

Other bond securities

 

110

 

15

 

-

 

125

Other invested assets

 

7

 

(1)

 

-

 

6

Nine Months Ended September 30, 2019

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

Bonds available for sale

$

651

$

(60)

$

-

$

591

Other bond securities

 

306

 

67

 

-

 

373

Other invested assets

 

25

 

(1)

 

-

 

24

 

 

 

 

 

 

 

 

 

 

 

Net

 

Net Realized

 

 

 

 

 

 

Investment

 

Capital

 

Other

 

 

(in millions)

 

Income

(Gains) Losses

 

Income

 

Total

Three Months Ended September 30, 2020

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

Policyholder contract deposits

$

-

$

19

$

-

$

19

Derivative liabilities, net

 

-

 

5

 

(16)

 

(11)

Fortitude Re funds withheld payable

 

-

 

656

 

-

 

656

Nine Months Ended September 30, 2020

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

Policyholder contract deposits

$

-

$

2,250

$

-

$

2,250

Derivative liabilities, net

 

-

 

(41)

 

(44)

 

(85)

Fortitude Re funds withheld payable

 

-

 

1,493

 

-

 

1,493

Three Months Ended September 30, 2019

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

Policyholder contract deposits

$

-

$

861

$

-

$

861

Derivative liabilities, net

 

-

 

(11)

 

(15)

 

(26)

Nine Months Ended September 30, 2019

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

Policyholder contract deposits

$

-

$

2,400

$

-

$

2,400

Derivative liabilities, net

 

-

 

(64)

 

(49)

 

(113)

*As a result of the adoption of the Financial Instruments Credit Losses Standard on January 1, 2020, credit losses are included in net realized capital gains (losses).

 

The following table presents the gross components of purchases, sales, issuances and settlements, net, shown above, for the three- and nine-month periods ended September 30, 2020 and 2019 related to Level 3 assets and liabilities in the Condensed Consolidated Balance Sheets:

 

 

 

 

 

 

Issuances

 

Purchases, Sales,

 

 

 

 

 

 

and

 

Issuances and

(in millions)

 

Purchases

 

Sales

 

Settlements(a)

 

Settlements, Net(a)

Three Months Ended September 30, 2020

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

Bonds available for sale:

 

 

 

 

 

 

 

 

Obligations of states, municipalities and political subdivisions

$

34

$

(18)

$

(46)

$

(30)

Non-U.S. governments

 

-

 

-

 

-

 

-

Corporate debt

 

23

 

(2)

 

(46)

 

(25)

RMBS

 

182

 

-

 

(594)

 

(412)

CMBS

 

2

 

(10)

 

(3)

 

(11)

CDO/ABS

 

234

 

(78)

 

(330)

 

(174)

Total bonds available for sale

 

475

 

(108)

 

(1,019)

 

(652)

Other bond securities:

 

 

 

 

 

 

 

 

RMBS

 

-

 

-

 

(16)

 

(16)

CMBS

 

-

 

-

 

-

 

-

CDO/ABS

 

-

 

-

 

(100)

 

(100)

Total other bond securities

 

-

 

-

 

(116)

 

(116)

Equity securities

 

1

 

-

 

-

 

1

Other invested assets

 

25

 

-

 

-

 

25

Other assets

 

-

 

-

 

2

 

2

Total assets

$

501

$

(108)

$

(1,133)

$

(740)

Liabilities:

 

 

 

 

 

 

 

 

Policyholder contract deposits

$

-

$

170

$

(100)

$

70

Derivative liabilities, net

 

(19)

 

-

 

(32)

 

(51)

Fortitude Re funds withheld payable

 

-

 

-

 

(30)

 

(30)

Other liabilities

 

-

 

-

 

-

 

-

Total liabilities

$

(19)

$

170

$

(162)

$

(11)

Three Months Ended September 30, 2019

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

Bonds available for sale:

 

 

 

 

 

 

 

 

Obligations of states, municipalities and political subdivisions

$

109

$

-

$

(17)

$

92

Non-U.S. governments

 

-

 

-

 

-

 

-

Corporate debt

 

1

 

(128)

 

(408)

 

(535)

RMBS

 

253

 

-

 

(671)

 

(418)

CMBS

 

92

 

-

 

(7)

 

85

CDO/ABS

 

458

 

(198)

 

(430)

 

(170)

Total bonds available for sale

 

913

 

(326)

 

(1,533)

 

(946)

Other bond securities:

 

 

 

 

 

 

 

 

RMBS

 

-

 

-

 

(24)

 

(24)

CMBS

 

-

 

(16)

 

(1)

 

(17)

CDO/ABS

 

-

 

(153)

 

(181)

 

(334)

Total other bond securities

 

-

 

(169)

 

(206)

 

(375)

Equity securities

 

-

 

-

 

(29)

 

(29)

Other invested assets

 

21

 

-

 

(43)

 

(22)

Other assets

 

-

 

-

 

(1)

 

(1)

Total assets

$

934

$

(495)

$

(1,812)

$

(1,373)

Liabilities:

 

 

 

 

 

 

 

 

Policyholder contract deposits

$

-

$

240

$

-

$

240

Derivative liabilities, net

 

(7)

 

-

 

(39)

 

(46)

Total liabilities

$

(7)

$

240

$

(39)

$

194

 

 

 

 

 

 

Issuances

 

Purchases, Sales,

 

 

 

 

 

 

and

 

Issuances and

(in millions)

 

Purchases

 

Sales

 

Settlements(a)

 

Settlements, Net(a)

Nine Months Ended September 30, 2020

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

Bonds available for sale:

 

 

 

 

 

 

 

 

Obligations of states, municipalities and political subdivisions

$

201

$

(20)

$

(54)

$

127

Non-U.S. governments

 

5

 

-

 

-

 

5

Corporate debt

 

256

 

(7)

 

(154)

 

95

RMBS

 

883

 

-

 

(1,689)

 

(806)

CMBS

 

56

 

(17)

 

(22)

 

17

CDO/ABS

 

715

 

(103)

 

(631)

 

(19)

Total bonds available for sale

 

2,116

 

(147)

 

(2,550)

 

(581)

Other bond securities:

 

 

 

 

 

 

 

 

RMBS

 

37

 

-

 

(28)

 

9

CMBS

 

-

 

-

 

(2)

 

(2)

CDO/ABS

 

35

 

(579)

 

(671)

 

(1,215)

Total other bond securities

 

72

 

(579)

 

(701)

 

(1,208)

Equity securities

 

11

 

-

 

-

 

11

Other invested assets

 

277

 

-

 

(45)

 

232

Other assets

 

55

 

-

 

6

 

61

Total assets

$

2,531

$

(726)

$

(3,290)

$

(1,485)

Liabilities:

 

 

 

 

 

 

 

 

Policyholder contract deposits

$

-

$

514

$

(352)

$

162

Derivative liabilities, net

 

(43)

 

8

 

148

 

113

Fortitude Re funds withheld payable

 

-

 

-

 

(30)

 

(30)

Other liabilities

 

-

 

-

 

-

 

-

Total liabilities

$

(43)

$

522

$

(234)

$

245

Nine Months Ended September 30, 2019

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

Bonds available for sale:

 

 

 

 

 

 

 

 

Obligations of states, municipalities and political subdivisions

$

243

$

(16)

$

(49)

$

178

Non-U.S. governments

 

-

 

-

 

(4)

 

(4)

Corporate debt

 

58

 

(129)

 

(529)

 

(600)

RMBS

 

860

 

(26)

 

(2,068)

 

(1,234)

CMBS

 

455

 

-

 

(74)

 

381

CDO/ABS

 

1,628

 

(508)

 

(1,231)

 

(111)

Total bonds available for sale

 

3,244

 

(679)

 

(3,955)

 

(1,390)

Other bond securities:

 

 

 

 

 

 

 

 

RMBS

 

-

 

(437)

 

(107)

 

(544)

CMBS

 

18

 

(16)

 

(2)

 

-

CDO/ABS

 

-

 

(153)

 

(596)

 

(749)

Total other bond securities

 

18

 

(606)

 

(705)

 

(1,293)

Equity securities

 

9

 

-

 

(29)

 

(20)

Other invested assets

 

64

 

-

 

(87)

 

(23)

Other assets

 

-

 

-

 

2

 

2

Total assets

$

3,335

$

(1,285)

$

(4,774)

$

(2,724)

Liabilities:

 

 

 

 

 

 

 

 

Policyholder contract deposits

$

-

$

616

$

34

$

650

Derivative liabilities, net

 

(29)

 

-

 

(18)

 

(47)

Total liabilities

$

(29)

$

616

$

16

$

603

(a)There were no issuances during the three- and nine-month periods ended September 30, 2020 and 2019.

 

Both observable and unobservable inputs may be used to determine the fair values of positions classified in Level 3 in the tables above. As a result, the unrealized gains (losses) on instruments held at September 30, 2020 and 2019 may include changes in fair value that were attributable to both observable (e.g., changes in market interest rates) and unobservable inputs (e.g., changes in unobservable long-dated volatilities).

Transfers of Level 3 Assets and Liabilities

The Net realized and unrealized gains (losses) included in income (loss) or Other comprehensive income (loss) as shown in the table above excludes $(79) million and $(207) million of net gains (losses) related to assets and liabilities transferred into Level 3 during the three- and nine-month periods ended September 30, 2020, respectively, and includes $18 million and $(13) million of net gains (losses) related to assets and liabilities transferred out of Level 3 during the three- and nine-month periods ended September 30, 2020, respectively.

The Net realized and unrealized gains (losses) included in income (loss) or Other comprehensive income (loss) as shown in the table above excludes $(40) million of net losses related to assets and liabilities transferred into Level 3 during the nine-month period ended September 30, 2019, and includes $24 million and $28 million of net gains related to assets and liabilities transferred out of Level 3 during the three- and nine-month periods ended September 30, 2019, respectively.

Transfers of Level 3 Assets

During the three- and nine-month periods ended September 30, 2020 and 2019, transfers into Level 3 assets primarily included certain investments in private placement corporate debt, RMBS, CMBS and CDO/ABS. Transfers of private placement corporate debt and certain ABS into Level 3 assets were primarily the result of limited market pricing information that required us to determine fair value for these securities based on inputs that are adjusted to better reflect our own assumptions regarding the characteristics of a specific security or associated market liquidity. The transfers of investments in RMBS, CMBS and CDO and certain ABS into Level 3 assets were due to diminished market transparency and liquidity for individual security types.

During the three- and nine-month periods ended September 30, 2020 and 2019, transfers out of Level 3 assets primarily included private placement and other corporate debt, CMBS, RMBS, CDO/ABS and certain investments in municipal securities. Transfers of certain investments in municipal securities, corporate debt, RMBS, CMBS and CDO/ABS out of Level 3 assets were based on consideration of market liquidity as well as related transparency of pricing and associated observable inputs for these investments. Transfers of certain investments in private placement corporate debt and certain ABS out of Level 3 assets were primarily the result of using observable pricing information that reflects the fair value of those securities without the need for adjustment based on our own assumptions regarding the characteristics of a specific security or the current liquidity in the market.

Transfers of Level 3 Liabilities

There were no significant transfers of derivative or other liabilities into or out of Level 3 for the three- and nine-month periods ended September 30, 2020 and 2019.

Divested Businesses

The Level 3 liabilities for the three- and nine-month periods ended September 30, 2020 includes an embedded derivative associated with the funds withheld payable to Fortitude Re that was established as a result of the Majority Interest Fortitude Sale.

QUANTITATIVE INFORMATION ABOUT LEVEL 3 FAIR VALUE MEASUREMENTS

The table below presents information about the significant unobservable inputs used for recurring fair value measurements for certain Level 3 instruments, and includes only those instruments for which information about the inputs is reasonably available to us, such as data from independent third-party valuation service providers and from internal valuation models. Because input information from third-parties with respect to certain Level 3 instruments (primarily CDO/ABS) may not be reasonably available to us, balances shown below may not equal total amounts reported for such Level 3 assets and liabilities:

 

Fair Value at

 

 

 

 

September 30,

Valuation

 

Range

(in millions)

2020

Technique

Unobservable Input(b)

(Weighted Average)(c)

Assets:

 

 

 

 

 

 

 

 

 

 

 

Obligations of states, municipalities

 

 

 

 

 

and political subdivisions

$

1,731

Discounted cash flow

Yield

2.87% - 3.39% (3.13%)

 

 

 

 

 

 

Corporate debt

 

1,672

Discounted cash flow

Yield

2.99% - 6.03% (4.51%)

 

 

 

 

 

 

RMBS(a)

 

11,810

Discounted cash flow

Constant prepayment rate

3.81% - 12.15% (7.98%)

 

 

 

 

Loss severity

28.62% - 77.94% (53.28%)

 

 

 

 

Constant default rate

1.30% - 6.14% (3.72%)

 

 

 

 

Yield

1.74% - 4.41% (3.08%)

 

 

 

 

 

 

CDO/ABS(a)

 

8,704

Discounted cash flow

Yield

2.01% - 5.53% (3.77%)

 

 

 

 

 

 

CMBS

 

561

Discounted cash flow

Yield

0.78% - 5.68% (3.23%)

Liabilities(d):

 

 

 

 

 

 

 

 

 

 

 

Embedded derivatives within

 

 

 

 

 

Policyholder contract deposits:

 

 

 

 

 

 

 

 

 

 

 

Variable annuity guaranteed minimum withdrawal benefits (GMWB)

 

3,832

Discounted cash flow

Equity volatility

7.15% - 56.25%

 

 

 

 

Base lapse rate

0.16% - 12.60%

 

 

 

 

Dynamic lapse multiplier

50.00% - 143.00%

 

 

 

 

Mortality multiplier(e)

38.00% - 147.00%

 

 

 

 

Utilization

90.00% - 100.00%

 

 

 

 

Equity / interest rate correlation

20.00% - 40.00%

 

 

 

 

NPA(f)

0.14% - 2.07%

 

 

 

 

 

 

Index annuities including certain GMWB

 

4,881

Discounted cash flow

Lapse rate

0.38% - 50.00%

 

 

 

 

Mortality multiplier(e)

24.00% - 180.00%

 

 

 

 

Utilization(g)

80.00% - 100.00%

 

 

 

 

Option budget

0.00% - 4.00%

 

 

 

 

NPA(f)

0.14% - 2.07%

 

 

 

 

 

 

Indexed life

 

577

Discounted cash flow

Base lapse rate

0.00% - 37.97%

 

 

 

 

Mortality rate

0.00% - 100.00%

 

 

 

 

NPA(f)

0.14% - 2.07%

 

 

Fair Value at

 

 

 

 

 

December 31,

Valuation

 

Range

(in millions)

 

2019

Technique

Unobservable Input(b)

(Weighted Average)(c)

Assets:

 

 

 

 

 

 

 

 

 

 

 

Obligations of states, municipalities

 

 

 

 

 

and political subdivisions

$

1,633

Discounted cash flow

Yield

3.35% - 3.95% (3.65%)

 

 

 

 

 

 

Corporate debt

 

1,087

Discounted cash flow

Yield

3.48% - 6.22% (4.85%)

 

 

 

 

 

 

RMBS(a)

 

11,746

Discounted cash flow

Constant prepayment rate

4.00% - 12.89% (8.44%)

 

 

 

 

Loss severity

33.68% - 76.91% (55.29%)

 

 

 

 

Constant default rate

1.68% - 6.17% (3.93%)

 

 

 

 

Yield

2.52% - 4.53% (3.52%)

 

 

 

 

 

 

CDO/ABS(a)

 

6,025

Discounted cash flow

Yield

2.92% - 4.91% (3.91%)

 

 

 

 

 

 

CMBS

 

476

Discounted cash flow

Yield

2.77% - 5.18% (3.97%)

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

Embedded derivatives within

 

 

 

 

 

Policyholder contract deposits:

 

 

 

 

 

 

 

 

 

 

 

GMWB

 

2,474

Discounted cash flow

Equity volatility

6.15% - 48.85%

 

 

 

 

Base lapse rate

0.16% - 12.60%

 

 

 

 

Dynamic lapse multiplier

50.00% - 143.00%

 

 

 

 

Mortality multiplier(d)

38.00% - 147.00%

 

 

 

 

Utilization

90.00% - 100.00%

 

 

 

 

Equity / interest rate correlation

20.00% - 40.00%

 

 

 

 

NPA(e)

0.12% - 1.53%

 

 

 

 

 

 

Index annuities

 

3,895

Discounted cash flow

Lapse rate

0.31% - 50.00%

 

 

 

 

Mortality multiplier(d)

24.00% - 180.00%

 

 

 

 

Option budget

1.00% - 4.00%

 

 

 

 

NPA(e)

0.12% - 1.53%

 

 

 

 

 

 

Indexed life

 

510

Discounted cash flow

Base lapse rate

0.00% - 37.97%

 

 

 

 

Mortality rate

0.00% - 100.00%

 

 

 

 

NPA(e)

0.12% - 1.53%

(a) Information received from third-party valuation service providers. The ranges of the unobservable inputs for constant prepayment rate, loss severity and constant default rate relate to each of the individual underlying mortgage loans that comprise the entire portfolio of securities in the RMBS and CDO securitization vehicles and not necessarily to the securitization vehicle bonds (tranches) purchased by us. The ranges of these inputs do not directly correlate to changes in the fair values of the tranches purchased by us, because there are other factors relevant to the fair values of specific tranches owned by us including, but not limited to, purchase price, position in the waterfall, senior versus subordinated position and attachment points.

(b) Represents discount rates, estimates and assumptions that we believe would be used by market participants when valuing these assets and liabilities.

(c) The weighted averaging for fixed maturity securities is based on the estimated fair value of the securities. Because the valuation methodology for embedded derivatives within Policyholder contract deposits uses a range of inputs that vary at the contract level over the cash flow projection period, management believes that presenting a range, rather than weighted average, is a more meaningful representation of the unobservable inputs used in the valuation.

(d) The Fortitude Re funds withheld payable has been excluded from the above table. As discussed in Note 7, the Fortitude Re funds withheld payable is created through modified coinsurance (modco) and funds withheld reinsurance arrangements where the investments supporting the reinsurance agreements are withheld by, and continue to reside on AIG’s balance sheet. This embedded derivative is valued as a total return swap with reference to the fair value of the invested assets held by AIG. Accordingly, the unobservable inputs utilized in the valuation of the embedded derivative are a component of the invested assets supporting the reinsurance agreements that are held on AIG’s balance sheet.

(e) Mortality inputs are shown as multipliers of the 2012 Individual Annuity Mortality Basic table.

(f) The non-performance risk adjustment (NPA) applied as a spread over risk-free curve for discounting.

(g) The partial withdrawal utilization unobservable input range shown applies only to policies with guaranteed minimum withdrawal benefit riders that are accounted for as an embedded derivative. The total embedded derivative liability at September 30, 2020 is approximately $611 million. The remaining guaranteed minimum riders on the Index Annuities are valued under the accounting guidance for certain nontraditional long-duration contracts.

The ranges of reported inputs for Obligations of states, municipalities and political subdivisions, Corporate debt, RMBS, CDO/ABS, and CMBS valued using a discounted cash flow technique consist of one standard deviation in either direction from the value-weighted average. The preceding table does not give effect to our risk management practices that might offset risks inherent in these Level 3 assets and liabilities.

 

Interrelationships between Unobservable Inputs

We consider unobservable inputs to be those for which market data is not available and that are developed using the best information available to us about the assumptions that market participants would use when pricing the asset or liability. Relevant inputs vary depending on the nature of the instrument being measured at fair value. The following paragraphs provide a general description of significant unobservable inputs along with interrelationships between and among the significant unobservable inputs and their impact on the fair value measurements. In practice, simultaneous changes in assumptions may not always have a linear effect on the inputs discussed below. Interrelationships may also exist between observable and unobservable inputs. Such relationships have not been included in the discussion below. For each of the individual relationships described below, the inverse relationship would also generally apply.

Fixed Maturity Securities

The significant unobservable input used in the fair value measurement of fixed maturity securities is yield. The yield is affected by the market movements in credit spreads and U.S. Treasury yields. The yield may be affected by other factors including constant prepayment rates, loss severity, and constant default rates. In general, increases in the yield would decrease the fair value of investments, and conversely, decreases in the yield would increase the fair value of investments.

Embedded derivatives within Policyholder contract deposits

Embedded derivatives reported within Policyholder contract deposits include interest crediting rates based on market indices within index annuities, indexed life, and GICs as well as GMWB within variable annuity and certain index annuity products. For any given contract, assumptions for unobservable inputs vary throughout the period over which cash flows are projected for purposes of valuing the embedded derivative. The following unobservable inputs are used for valuing embedded derivatives measured at fair value:

Long-term equity volatilities represent equity volatility beyond the period for which observable equity volatilities are available. Increases in assumed volatility will generally increase the fair value of both the projected cash flows from rider fees as well as the projected cash flows related to benefit payments. Therefore, the net change in the fair value of the liability may be either a decrease or an increase, depending on the relative changes in projected rider fees and projected benefit payments.

Equity / interest rate correlation estimates the relationship between changes in equity returns and interest rates in the economic scenario generator used to value our GMWB embedded derivatives. In general, a higher positive correlation assumes that equity markets and interest rates move in a more correlated fashion, which generally increases the fair value of the liability.

Base lapse rate assumptions are determined by company experience and are adjusted at the contract level using a dynamic lapse function, which reduces the base lapse rate when the contract is in-the-money (when the contract holder’s guaranteed value, as estimated by the company, is worth more than their underlying account value). Lapse rates are also generally assumed to be lower in periods when a surrender charge applies. Increases in assumed lapse rates will generally decrease the fair value of the liability, as fewer policyholders would persist to collect guaranteed withdrawal amounts.

Mortality rate assumptions, which vary by age and gender, are based on company experience and include a mortality improvement assumption. Increases in assumed mortality rates will decrease the fair value of the liability, while lower mortality rate assumptions will generally increase the fair value of the liability, because guaranteed payments will be made for a longer period of time.

Utilization assumptions estimate the timing when policyholders with a GMWB will elect to utilize their benefit and begin taking withdrawals. The assumptions may vary by the type of guarantee, tax-qualified status, the contract’s withdrawal history and the age of the policyholder. Utilization assumptions are based on company experience, which includes partial withdrawal behavior. Increases in assumed utilization rates will generally increase the fair value of the liability.

Option budget estimates the expected long-term cost of options used to hedge exposures associated with equity price changes. The level of option budgets determines future costs of the options, which impacts the growth in account value and the valuation of embedded derivatives.

Embedded derivatives within reinsurance contracts

The fair value of embedded derivatives associated with funds withheld reinsurance contracts is determined based upon a total return swap technique with reference to the fair value of the investments held by AIG related to AIG’s funds withheld payable. The fair value of the underlying assets is generally based on market observable inputs using industry standard valuation techniques. The valuation also requires certain significant inputs, which are generally not observable and accordingly, the valuation is considered Level 3 in the fair value hierarchy.

Investments in Certain Entities Carried at Fair Value Using Net Asset Value Per Share

The following table includes information related to our investments in certain other invested assets, including private equity funds, hedge funds and other alternative investments that calculate net asset value per share (or its equivalent). For these investments, which are measured at fair value on a recurring basis, we use the net asset value per share to measure fair value.

 

 

September 30, 2020

 

December 31, 2019

 

 

 

Fair Value

 

 

 

Fair Value

 

 

 

 

 

Using NAV

 

 

 

Using NAV

 

 

 

 

 

Per Share (or

 

Unfunded

 

Per Share (or

 

Unfunded

(in millions)

Investment Category Includes

 

its equivalent)

Commitments

 

its equivalent)

Commitments

Investment Category

 

 

 

 

 

 

 

 

 

 

Private equity funds:

 

 

 

 

 

 

 

 

 

 

Leveraged buyout

Debt and/or equity investments made as part of a transaction in which assets of mature companies are acquired from the current shareholders, typically with the use of financial leverage

$

1,382

$

1,697

 

$

1,189

$

1,543

 

 

 

 

 

 

 

 

 

 

 

Real Estate / Infrastructure

Investments in real estate properties and infrastructure positions, including power plants and other energy generating facilities

 

429

 

450

 

 

400

 

290

 

 

 

 

 

 

 

 

 

 

 

Venture capital

Early-stage, high-potential, growth companies expected to generate a return through an eventual realization event, such as an initial public offering or sale of the company

 

143

 

166

 

 

111

 

155

 

 

 

 

 

 

 

 

 

 

 

Growth equity

Funds that make investments in established companies for the purpose of growing their businesses

 

523

 

54

 

 

422

 

57

 

 

 

 

 

 

 

 

 

 

 

Mezzanine

Funds that make investments in the junior debt and equity securities of leveraged companies

 

349

 

282

 

 

325

 

414

 

 

 

 

 

 

 

 

 

 

 

Other

Includes distressed funds that invest in securities of companies that are in default or under bankruptcy protection, as well as funds that have multi-strategy, and other strategies

 

821

 

441

 

 

773

 

206

Total private equity funds

 

3,647

 

3,090

 

 

3,220

 

2,665

Hedge funds:

 

 

 

 

 

 

 

 

 

 

Event-driven

Securities of companies undergoing material structural changes, including mergers, acquisitions and other reorganizations

 

353

 

-

 

 

727

 

-

 

 

 

 

 

 

 

 

 

 

 

Long-short

Securities that the manager believes are undervalued, with corresponding short positions to hedge market risk

 

364

 

-

 

 

539

 

-

 

 

 

 

 

 

 

 

 

 

 

Macro

Investments that take long and short positions in financial instruments based on a top-down view of certain economic and capital market conditions

 

751

 

-

 

 

894

 

-

 

 

 

 

 

 

 

 

 

 

 

Other

Includes investments held in funds that are less liquid, as well as other strategies which allow for broader allocation between public and private investments

 

272

 

1

 

 

169

 

1

Total hedge funds

 

 

1,740

 

1

 

 

2,329

 

1

Total

 

$

5,387

$

3,091

 

$

5,549

$

2,666

Private equity fund investments included above are not redeemable, because distributions from the funds will be received when underlying investments of the funds are liquidated. Private equity funds are generally expected to have 10-year lives at their inception, but these lives may be extended at the fund manager’s discretion, typically in one or two-year increments.

 

The hedge fund investments included above, which are carried at fair value, are generally redeemable subject to the redemption notices period. The majority of our hedge fund investments are redeemable monthly or quarterly.

Fair Value Option

The following table presents the gains or losses recorded related to the eligible instruments for which we elected the fair value option:

 

Gain (Loss) Three Months Ended September 30,

Gain (Loss) Nine Months Ended September 30,

 

(in millions)

 

2020

 

2019

 

2020

 

2019

Assets:

 

 

 

 

 

 

 

 

Bonds

$

171

$

333

$

485

$

971

Alternative investments(a)

 

407

 

92

 

242

 

473

Liabilities:

 

 

 

 

 

 

 

 

Long-term debt(b)

 

18

 

(75)

 

(203)

 

(228)

Total gain

$

596

$

350

$

524

$

1,216

(a) Includes certain hedge funds, private equity funds and other investment partnerships.

(b) Includes GIAs, notes, bonds and mortgages payable.

We calculate the effect of these credit spread changes using discounted cash flow techniques that incorporate current market interest rates, our observable credit spreads on these liabilities and other factors that mitigate the risk of nonperformance such as cash collateral posted.

The following table presents the difference between fair value and the aggregate contractual principal amount of long-term debt for which the fair value option was elected:

 

September 30, 2020

 

December 31, 2019

 

 

 

Outstanding

 

 

 

 

 

Outstanding

 

 

(in millions)

Fair Value

Principal Amount

Difference

 

Fair Value

Principal Amount

Difference

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-term debt*

$

2,169

$

1,506

$

663

 

$

2,062

$

1,502

$

560

*Includes GIAs, notes, bonds, loans and mortgages payable.

FAIR VALUE MEASUREMENTS ON A NON-RECURRING BASIS

The following table presents assets measured at fair value on a non-recurring basis at the time of impairment and the related impairment charges recorded during the periods presented:

 

Assets at Fair Value

 

Impairment Charges

 

Non-Recurring Basis

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

(in millions)

Level 1

Level 2

Level 3

 

Total

 

 

2020

 

2019

 

 

2020

 

2019

September 30, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other investments

$

-

$

-

$

268

$

268

 

$

12

$

7

 

$

60

$

65

Other assets

 

-

 

-

 

31

 

31

 

 

2

 

45

 

 

14

 

62

Total

$

-

$

-

$

299

$

299

 

$

14

$

52

 

$

74

$

127

December 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other investments

$

-

$

-

$

329

$

329

 

 

 

 

 

 

 

 

 

 

Other assets

 

-

 

-

 

1

 

1

 

 

 

 

 

 

 

 

 

 

Total

$

-

$

-

$

330

$

330

 

 

 

 

 

 

 

 

 

 

FAIR VALUE INFORMATION ABOUT FINANCIAL INSTRUMENTS NOT MEASURED AT FAIR VALUE

The following table presents the carrying amounts and estimated fair values of our financial instruments not measured at fair value and indicates the level in the fair value hierarchy of the estimated fair value measurement based on the observability of the inputs used:

 

Estimated Fair Value

 

Carrying

(in millions)

 

Level 1

 

Level 2

 

Level 3

 

Total

 

Value

September 30, 2020

 

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

 

 

Mortgage and other loans receivable

$

-

$

99

$

48,118

$

48,217

$

45,590

Other invested assets

 

-

 

798

 

6

 

804

 

804

Short-term investments

 

-

 

13,434

 

-

 

13,434

 

13,434

Cash

 

3,191

 

-

 

-

 

3,191

 

3,191

Other assets

 

188

 

14

 

-

 

202

 

202

Liabilities:

 

 

 

 

 

 

 

 

 

 

Policyholder contract deposits associated

 

 

 

 

 

 

 

 

 

 

with investment-type contracts

 

-

 

224

 

143,873

 

144,097

 

129,170

Fortitude Re funds withheld payable

 

-

 

-

 

37,407

 

37,407

 

37,407

Other liabilities

 

-

 

3,823

 

-

 

3,823

 

3,823

Long-term debt and debt of consolidated investment entities

 

-

 

31,391

 

8,281

 

39,672

 

36,068

Separate account liabilities - investment contracts

 

-

 

87,564

 

-

 

87,564

 

87,564

December 31, 2019

 

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

 

 

Mortgage and other loans receivable

$

-

$

101

$

48,904

$

49,005

$

46,984

Other invested assets

 

-

 

735

 

6

 

741

 

742

Short-term investments

 

-

 

7,887

 

-

 

7,887

 

7,887

Cash

 

2,856

 

-

 

-

 

2,856

 

2,856

Other assets

 

291

 

20

 

-

 

311

 

311

Liabilities:

 

 

 

 

 

 

 

 

 

 

Policyholder contract deposits associated

 

 

 

 

 

 

 

 

 

 

with investment-type contracts

 

-

 

255

 

132,991

 

133,246

 

126,137

Other liabilities

 

15

 

3,048

 

-

 

3,063

 

3,063

Long-term debt and debt of consolidated investment entities

 

-

 

27,024

 

8,883

 

35,907

 

33,288

Separate account liabilities - investment contracts

 

-

 

88,770

 

-

 

88,770

 

88,770