__________________________________________________________________________________________________________
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________________
FORM 10-Q
_________________
(Mark One)
☒Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended June 30, 2017
OR
☐Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from to
Commission File Number: 1-6028
_________________
LINCOLN NATIONAL CORPORATION
(Exact name of registrant as specified in its charter)
_________________
|
|
Indiana |
35-1140070 |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
|
|
150 N. Radnor Chester Road, Suite A305, Radnor, Pennsylvania |
19087 |
(Address of principal executive offices) |
(Zip Code) |
(484) 583-1400
(Registrant’s telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report.)
_________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ☒ Accelerated filer ☐ Non-accelerated filer ☐ (Do not check if a smaller reporting company)
Smaller reporting company ☐ Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐No ☒
As of July 31, 2017, there were 221,444,368 shares of the registrant’s common stock outstanding.
_________________________________________________________________________________________________________
Lincoln National Corporation
Table of Contents
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PART I
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2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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3. |
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4. |
93 | ||||
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PART II
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1. |
94 | ||||
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1A. |
94 | ||||
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2. |
95 | ||||
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6. |
95 | ||||
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E-1 |
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PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
LINCOLN NATIONAL CORPORATION
(in millions, except share data)
|
As of |
As of |
||||||
June 30, |
December 31, |
|||||||
|
2017 |
2016 |
||||||
|
(Unaudited) |
|||||||
ASSETS |
||||||||
Investments: |
||||||||
Available-for-sale securities, at fair value: |
||||||||
Fixed maturity securities (amortized cost: 2017 – $86,194; 2016 – $84,287) |
$ |
93,014 |
$ |
89,013 | ||||
Variable interest entities’ fixed maturity securities (amortized cost: 2017 – $0; 2016 – $200) |
- |
200 | ||||||
Equity securities (cost: 2017 – $262; 2016 – $260) |
275 | 275 | ||||||
Trading securities |
1,678 | 1,712 | ||||||
Mortgage loans on real estate |
10,023 | 9,889 | ||||||
Real estate |
23 | 24 | ||||||
Policy loans |
2,416 | 2,451 | ||||||
Derivative investments |
1,054 | 927 | ||||||
Other investments |
2,156 | 2,230 | ||||||
Total investments |
110,639 | 106,721 | ||||||
Cash and invested cash |
1,978 | 2,722 | ||||||
Deferred acquisition costs and value of business acquired |
8,555 | 9,134 | ||||||
Premiums and fees receivable |
365 | 430 | ||||||
Accrued investment income |
1,082 | 1,062 | ||||||
Reinsurance recoverables |
5,228 | 5,265 | ||||||
Funds withheld reinsurance assets |
607 | 617 | ||||||
Goodwill |
2,273 | 2,273 | ||||||
Other assets |
5,099 | 5,006 | ||||||
Separate account assets |
135,825 | 128,397 | ||||||
Total assets |
$ |
271,651 |
$ |
261,627 | ||||
|
||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY |
||||||||
Liabilities |
||||||||
Future contract benefits |
$ |
22,293 |
$ |
21,576 | ||||
Other contract holder funds |
79,216 | 78,903 | ||||||
Short-term debt |
450 |
- |
||||||
Long-term debt |
4,901 | 5,345 | ||||||
Reinsurance related embedded derivatives |
53 | 53 | ||||||
Funds withheld reinsurance liabilities |
1,862 | 1,976 | ||||||
Deferred gain on business sold through reinsurance |
2 | 24 | ||||||
Payables for collateral on investments |
4,952 | 4,995 | ||||||
Other liabilities |
6,101 | 5,880 | ||||||
Separate account liabilities |
135,825 | 128,397 | ||||||
Total liabilities |
255,655 | 247,149 | ||||||
|
||||||||
Contingencies and Commitments (See Note 8) |
||||||||
|
||||||||
Stockholders’ Equity |
||||||||
Preferred stock – 10,000,000 shares authorized |
- |
- |
||||||
Common stock – 800,000,000 shares authorized; 222,237,262 and 226,335,105 shares |
||||||||
issued and outstanding as of June 30, 2017, and December 31, 2016, respectively |
5,774 | 5,869 | ||||||
Retained earnings |
7,511 | 7,043 | ||||||
Accumulated other comprehensive income (loss) |
2,711 | 1,566 | ||||||
Total stockholders’ equity |
15,996 | 14,478 | ||||||
Total liabilities and stockholders’ equity |
$ |
271,651 |
$ |
261,627 |
See accompanying Notes to Consolidated Financial Statements
1
LINCOLN NATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited, in millions, except per share data)
|
||||||||||||
|
For the Three |
For the Six |
||||||||||
|
Months Ended |
Months Ended |
||||||||||
|
June 30, |
June 30, |
||||||||||
2017 |
2016 |
2017 |
2016 |
|||||||||
Revenues |
||||||||||||
Insurance premiums |
$ |
801 |
$ |
728 |
$ |
1,608 |
$ |
1,544 | ||||
Fee income |
1,393 | 1,288 | 2,747 | 2,523 | ||||||||
Net investment income |
1,262 | 1,199 | 2,499 | 2,371 | ||||||||
Realized gain (loss): |
||||||||||||
Total other-than-temporary impairment losses on securities |
(4 |
) |
(36 |
) |
(8 |
) |
(92 |
) |
||||
Portion of loss recognized in other comprehensive income |
- |
8 |
- |
28 | ||||||||
Net other-than-temporary impairment losses on securities |
||||||||||||
recognized in earnings |
(4 |
) |
(28 |
) |
(8 |
) |
(64 |
) |
||||
Realized gain (loss), excluding other-than-temporary |
||||||||||||
impairment losses on securities |
(6 |
) |
(17 |
) |
(41 |
) |
(95 |
) |
||||
Total realized gain (loss) |
(10 |
) |
(45 |
) |
(49 |
) |
(159 |
) |
||||
Amortization of deferred gain on business sold through reinsurance |
4 | 18 | 22 | 37 | ||||||||
Other revenues |
127 | 119 | 250 | 235 | ||||||||
Total revenues |
3,577 | 3,307 | 7,077 | 6,551 | ||||||||
Expenses |
||||||||||||
Interest credited |
646 | 639 | 1,293 | 1,272 | ||||||||
Benefits |
1,287 | 1,208 | 2,578 | 2,540 | ||||||||
Commissions and other expenses |
1,034 | 978 | 2,048 | 1,953 | ||||||||
Interest and debt expense |
63 | 68 | 127 | 136 | ||||||||
Strategic digitization expense |
14 |
- |
23 |
- |
||||||||
Total expenses |
3,044 | 2,893 | 6,069 | 5,901 | ||||||||
Income (loss) before taxes |
533 | 414 | 1,008 | 650 | ||||||||
Federal income tax expense (benefit) |
122 | 89 | 162 | 114 | ||||||||
Net income (loss) |
411 | 325 | 846 | 536 | ||||||||
Other comprehensive income (loss), net of tax |
864 | 1,264 | 1,145 | 2,350 | ||||||||
Comprehensive income (loss) |
$ |
1,275 |
$ |
1,589 |
$ |
1,991 |
$ |
2,886 | ||||
|
||||||||||||
Net Income (Loss) Per Common Share |
||||||||||||
Basic |
$ |
1.84 |
$ |
1.37 |
$ |
3.77 |
$ |
2.24 | ||||
Diluted |
1.81 | 1.35 | 3.70 | 2.18 | ||||||||
|
||||||||||||
Cash Dividends Declared Per Common Share |
$ |
0.29 |
$ |
0.25 |
$ |
0.58 |
$ |
0.50 |
See accompanying Notes to Consolidated Financial Statements
2
LINCOLN NATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited, in millions, except per share data)
|
||||||
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For the Six |
|||||
|
Months Ended |
|||||
|
June 30, |
|||||
|
2017 |
2016 |
||||
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Common Stock |
||||||
Balance as of beginning-of-year |
$ |
5,869 |
$ |
6,298 | ||
Stock compensation/issued for benefit plans |
58 | 11 | ||||
Retirement of common stock/cancellation of shares |
(153 |
) |
(303 |
) |
||
Balance as of end-of-period |
5,774 | 6,006 | ||||
|
||||||
Retained Earnings |
||||||
Balance as of beginning-of-year |
7,043 | 6,474 | ||||
Net income (loss) |
846 | 536 | ||||
Retirement of common stock |
(247 |
) |
(172 |
) |
||
Common stock dividends declared |
(131 |
) |
(119 |
) |
||
Balance as of end-of-period |
7,511 | 6,719 | ||||
|
||||||
Accumulated Other Comprehensive Income (Loss) |
||||||
Balance as of beginning-of-year |
1,566 | 845 | ||||
Other comprehensive income (loss), net of tax |
1,145 | 2,350 | ||||
Balance as of end-of-period |
2,711 | 3,195 | ||||
Total stockholders’ equity as of end-of-period |
$ |
15,996 |
$ |
15,920 |
See accompanying Notes to Consolidated Financial Statements
3
LINCOLN NATIONAL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in millions)
|
For the Six |
|||||
|
Months Ended |
|||||
|
June 30, |
|||||
|
2017 |
2016 |
||||
Cash Flows from Operating Activities |
||||||
Net income (loss) |
$ |
846 |
$ |
536 | ||
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: |
||||||
Deferred acquisition costs, value of business acquired, deferred sales inducements |
||||||
and deferred front-end loads deferrals and interest, net of amortization |
30 | (17 |
) |
|||
Trading securities purchases, sales and maturities, net |
60 | 113 | ||||
Change in premiums and fees receivable |
65 | 6 | ||||
Change in accrued investment income |
(20 |
) |
- |
|||
Change in future contract benefits and other contract holder funds |
(864 |
) |
5 | |||
Change in reinsurance related assets and liabilities |
(92 |
) |
(347 |
) |
||
Change in accrued expenses |
(96 |
) |
(180 |
) |
||
Change in federal income tax accruals |
162 | (3 |
) |
|||
Realized (gain) loss |
49 | 159 | ||||
Amortization of deferred gain on business sold through reinsurance |
(22 |
) |
(37 |
) |
||
Other |
84 | 301 | ||||
Net cash provided by (used in) operating activities |
202 | 536 | ||||
|
||||||
Cash Flows from Investing Activities |
||||||
Purchases of available-for-sale securities |
(5,513 |
) |
(5,727 |
) |
||
Sales of available-for-sale securities |
842 | 2,068 | ||||
Maturities of available-for-sale securities |
2,840 | 2,579 | ||||
Purchases of alternative investments |
(124 |
) |
(129 |
) |
||
Sales and repayments of alternative investments |
100 | 95 | ||||
Issuance of mortgage loans on real estate |
(705 |
) |
(956 |
) |
||
Repayment and maturities of mortgage loans on real estate |
571 | 376 | ||||
Issuance and repayment of policy loans, net |
34 | 38 | ||||
Net change in collateral on investments and derivatives |
(12 |
) |
1,474 | |||
Other |
(37 |
) |
(58 |
) |
||
Net cash provided by (used in) investing activities |
(2,004 |
) |
(240 |
) |
||
|
||||||
Cash Flows from Financing Activities |
||||||
Proceeds from sales leaseback transaction |
45 |
- |
||||
Deposits of fixed account values, including the fixed portion of variable |
5,216 | 5,015 | ||||
Withdrawals of fixed account values, including the fixed portion of variable |
(2,934 |
) |
(2,769 |
) |
||
Transfers to and from separate accounts, net |
(770 |
) |
(967 |
) |
||
Common stock issued for benefit plans |
33 | (11 |
) |
|||
Repurchase of common stock |
(400 |
) |
(475 |
) |
||
Dividends paid to common stockholders |
(132 |
) |
(122 |
) |
||
Net cash provided by (used in) financing activities |
1,058 | 671 | ||||
|
||||||
Net increase (decrease) in cash and invested cash |
(744 |
) |
967 | |||
Cash and invested cash as of beginning-of-year |
2,722 | 3,146 | ||||
Cash and invested cash as of end-of-period |
$ |
1,978 |
$ |
4,113 |
See accompanying Notes to Consolidated Financial Statements
4
LINCOLN NATIONAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Nature of Operations and Basis of Presentation
Nature of Operations
Lincoln National Corporation and its majority-owned subsidiaries (“LNC” or the “Company,” which also may be referred to as “we,” “our” or “us”) operate multiple insurance businesses through four business segments. See Note 13 for additional details. The collective group of businesses uses “Lincoln Financial Group” as its marketing identity. Through our business segments, we sell a wide range of wealth protection, accumulation and retirement income products and solutions. These products include fixed and indexed annuities, variable annuities, universal life insurance (“UL”), variable universal life insurance (“VUL”), linked-benefit UL, indexed universal life insurance (“IUL”), term life insurance, employer-sponsored retirement plans and services, and group life, disability and dental.
Basis of Presentation
The accompanying unaudited consolidated financial statements are prepared in accordance with United States of America generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions for the Securities and Exchange Commission (“SEC”) Quarterly Report on Form 10-Q, including Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. Therefore, the information contained in the Notes to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016 (“2016 Form 10-K”), should be read in connection with the reading of these interim unaudited consolidated financial statements.
Certain GAAP policies, which significantly affect the determination of financial condition, results of operations and cash flows, are summarized in our 2016 Form 10-K.
Certain amounts reported in prior year's consolidated financial statements have been reclassified to conform to the presentation adopted in the current year. Specifically, we reclassified cash flows from certain investing activities into their own respective line items within the Consolidated Statements of Cash Flows. Previously, these amounts were reported within purchases of other investments or sales or maturities of other investments line items, as applicable, within cash flows from investing activities. These reclassifications had no effect on net income (loss), net cash provided by (used in) investing activities, or stockholders’ equity for the prior year.
In the opinion of management, these statements include all normal recurring adjustments necessary for a fair presentation of the Company’s results. Operating results for the six month period ended June 30, 2017, are not necessarily indicative of the results that may be expected for the full year ending December 31, 2017. All material inter-company accounts and transactions have been eliminated in consolidation.
5
2. New Accounting Standards
Adoption of New Accounting Standards
The following table provides a description of our adoption of new Accounting Standard Updates (“ASUs”) issued by the Financial Accounting Standards Board (“FASB”) and the impact of the adoption on our financial statements:
Standard |
Description |
Date of Adoption |
Effect on Financial Statements or Other Significant Matters |
ASU 2016-05, Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships |
The amendments clarify that a change in the counterparty to a derivative instrument identified in a hedging relationship in and of itself does not require dedesignation of that hedging relationship provided that all other hedge accounting criteria continue to be met. We adopted the guidance in this ASU prospectively. |
January 1, 2017 |
The adoption of this ASU did not have an effect on our consolidated financial condition or results of operations. |
ASU 2016-06, Contingent Put and Call Options in Debt Instruments |
The amendments clarify the requirements for assessing whether contingent call and put options that can accelerate the payment of principal on debt instruments are clearly and closely related to their debt hosts. Upon adoption of this ASU, entities will be required to assess embedded call and put options solely in accordance with the four-step decision sequence that was developed by the FASB Derivatives Implementation Group. We adopted this ASU using a modified retrospective basis applied to existing debt instruments. |
January 1, 2017 |
The adoption of this ASU did not have an effect on our consolidated financial condition or results of operations. |
Future Adoption of New Accounting Standards
The following table provides a description of future adoptions of new accounting standards that may have an impact on our financial statements when adopted:
Standard |
Description |
Projected Date of Adoption |
Effect on Financial Statements or Other Significant Matters |
ASU 2014-09, Revenue from Contracts with Customers & ASU 2015-14, Revenue from Contracts with Customers; Deferral of the Effective Date |
This standard establishes the core principle of recognizing revenue to depict the transfer of promised goods and services. The amendments define a five-step process that systematically identifies the various components of the revenue recognition process, culminating with the recognition of revenue upon satisfaction of an entity’s performance obligation. Retrospective application is required. After performing extensive outreach, the FASB decided to delay the effective date of ASU 2014-09 for one year. |
January 1, 2018 |
Our primary revenue sources will continue to be recognized in accordance with ASC Topic 944, Financial Services – Insurance. Our analysis indicates that approximately $1 billion of our revenue reported in fee income and other revenue in our Consolidated Statements of Comprehensive Income (Loss) for the year ended December 31, 2016, is within the scope of this ASU. We continue to evaluate the impact of adopting this ASU on our consolidated financial condition and results of operations. |
6
Standard |
Description |
Projected Date of Adoption |
Effect on Financial Statements or Other Significant Matters |
ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities |
These amendments require, among other things, the fair value measurement of investments in equity securities and certain other ownership interests that do not result in consolidation and are not accounted for under the equity method of accounting. The change in fair value of the impacted investments in equity securities must be recognized in net income. In addition, the amendments include certain enhancements to the presentation and disclosure requirements for financial assets and financial liabilities. Early adoption of the ASU is generally not permitted, except as defined in the ASU. The amendments should be adopted in the financial statements through a cumulative-effect adjustment to the beginning balance of retained earnings. |
January 1, 2018 |
We hold equity securities and hybrid preferred securities classified as available-for-sale (“AFS”) securities that are currently measured at fair value with changes in fair value recognized through other comprehensive income (loss) (“OCI”). We are currently evaluating these two classifications of securities to determine those securities that meet the definition of an equity security as defined in this ASU. See Note 4 for details regarding our equity and hybrid preferred securities currently classified as AFS. |
ASU 2016-02, Leases |
This standard establishes a new accounting model for leases. Lessees will recognize most leases on the balance sheet as a right-of-use asset and a related lease liability. The lease liability is measured as the present value of the lease payments over the lease term with the right-of-use asset measured at the lease liability amount and including adjustments for certain lease incentives and initial direct costs. Lease expense recognition will continue to differentiate between finance leases and operating leases resulting in a similar pattern of lease expense recognition as under current GAAP. This ASU permits a modified retrospective adoption approach that includes a number of optional practical expedients that entities may elect upon adoption. Early adoption is permitted. |
January 1, 2019 |
We are currently identifying all of our leases that will be within the scope of this standard; as such, we continue to evaluate the quantitative impact of adopting this ASU on our Consolidated Balance Sheets. Based on our initial assessment, we do not expect there to be a significant difference in our pattern of lease expense recognition under this ASU. |
ASU 2016-08, Principal versus Agent Considerations (Reporting Revenue Gross versus Net) |
These amendments clarify the implementation guidance on principal versus agent considerations in ASU 2014-09, including how an entity should identify the unit of accounting for the principal versus agent evaluation. In addition, the amendments clarify how to apply the control principle to certain types of arrangements, such as service transactions, by explaining what a principal controls before the good or service is transferred to the customer. Transition requirements are consistent with ASU 2014-09. |
January 1, 2018 |
We are currently evaluating the impact of adopting this ASU on our consolidated financial condition and results of operations. See comments under ASU 2014-09 for more information. |
ASU 2016-10, Identifying Performance Obligations and Licensing |
These amendments clarify, among other things, the accounting guidance in ASU 2014-09 regarding how an entity will determine whether promised goods or services are separately identifiable, which is an important consideration in determining whether to account for goods or services as a separate performance obligation. Transition requirements are consistent with ASU 2014-09. |
January 1, 2018 |
We are currently evaluating the impact of adopting this ASU on our consolidated financial condition and results of operations. See comments under ASU 2014-09 for more information. |
7
Standard |
Description |
Projected Date of Adoption |
Effect on Financial Statements or Other Significant Matters |
ASU 2016-12, Narrow Scope Improvements and Practical Expedients |
The standard update amends the revenue recognition guidance in ASU 2014-09 related to transition, collectability, noncash consideration and the presentation of sales and other similar taxes. The amendments clarify that, for a contract to be considered completed at transition, substantially all of the revenue must have been recognized under current GAAP. The amendments also clarify how an entity should evaluate the collectability threshold and when an entity can recognize nonrefundable consideration received as revenue if an arrangement does not meet the standard’s contract criteria. Transition requirements are consistent with ASU 2014-09. |
January 1, 2018 |
We are currently evaluating the impact of adopting this ASU on our consolidated financial condition and results of operations. See comments under ASU 2014-09 for more information. |
ASU 2016-13, Measurement of Credit Losses on Financial Instruments |
These amendments adopt a new model to measure and recognize credit losses for most financial assets. The method used to measure estimated credit losses for AFS debt securities will be unchanged from current GAAP; however, the amendments require credit losses to be recognized through an allowance rather than as a reduction to the amortized cost of those debt securities. The amendments will permit entities to recognize improvements in credit loss estimates on AFS debt securities by reducing the allowance account immediately through earnings. The amendments will be adopted through a cumulative effect adjustment to the beginning balance of retained earnings as of the first reporting period in which the amendments are effective. Early adoption is permitted for annual periods beginning after December 15, 2018, and interim periods therein. |
January 1, 2020 |
We are currently evaluating the impact of adopting this ASU on our consolidated financial condition and results of operations, with a primary focus on our fixed maturity securities (see Note 4). We currently reduce the amortized cost of the individual security when recognizing other-than-temporary impairment (“OTTI”) on these securities. Upon adoption of ASU 2016-13, we will no longer reduce the amortized cost of each individual security; rather we will establish a valuation allowance, and any declines or improvements in credit quality will be recognized through the valuation allowance. |
ASU 2016-15, Classification of Certain Cash Receipts and Cash Payments |
These amendments clarify the classification of eight specific cash flow issues in an entity’s statement of cash flows where it was determined by the FASB that there is diversity in practice. Early adoption of the amendments is permitted, and retrospective transition is required for each period presented in the statement of cash flows. |
January 1, 2018 |
We are currently evaluating these disclosure requirements and will amend classifications in our Consolidated Statements of Cash Flows upon adoption as applicable. |
ASU 2016-16, Intra-Entity Asset Transfers Other Than Inventory |
This amendment requires an entity to recognize current and deferred income taxes for an intra-entity asset transfer, other than inventory, when the transfer occurs, thereby eliminating the current GAAP exception that prohibits the recognition of income taxes until the asset has been sold to an outside party. Early adoption is permitted as of the beginning of the annual reporting period for which financial statements have not been issued. |
January 1, 2018 |
We are currently evaluating the impact of adopting this ASU on our consolidated financial condition and results of operations. |
8
Standard |
Description |
Projected Date of Adoption |
Effect on Financial Statements or Other Significant Matters |
ASU 2016-18, Restricted Cash |
This amendment requires that amounts generally described as restricted cash and restricted cash equivalents should be included within cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. Early adoption is permitted using a retrospective transition method applied to each period presented. |
January 1, 2018 |
We will provide these additional disclosures in our Consolidated Statements of Cash Flows upon the adoption date as applicable. |
ASU 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers |
These amendments clarify 13 issues related to the adoption of ASU 2014-09. The most significant issue of these amendments for us is the clarification that all contracts within the scope of Topic 944 are excluded from the scope of ASU 2014-09, rather than just insurance contracts as described in ASU 2014-09. Transition requirements are consistent with ASU 2014-09. |
January 1, 2018 |
We are currently evaluating the impact of adopting this ASU on our consolidated financial condition and results of operations. See comments under ASU 2014-09 for more information. |
ASU 2017-04, Simplifying the Test for Goodwill Impairment |
These amendments eliminate the requirement in current GAAP to perform Step 2 of the goodwill impairment test in favor of only applying Step 1. Under Step 1, the fair value of the reporting unit is compared with its carrying value, and an impairment charge is recognized when the carrying value exceeds the reporting unit’s fair value. An entity still has the option to first perform a qualitative assessment of an individual reporting unit to determine if the quantitative assessment in Step 1 is necessary. ASU 2017-04 should be adopted prospectively, and early adoption is permitted on impairment testing dates after January 1, 2017. |
Impairment tests performed after January 1, 2020 |
We are currently evaluating the impact of adopting this ASU on our consolidated financial condition and results of operations. |
ASU 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost |
These amendments require that an entity report the service cost component of employee pension and postretirement benefit plans in the same line item as other compensation costs from services rendered by the applicable employees during the period. The other components of net benefit cost are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations. ASU 2017-07 requires retrospective adoption related to the presentation of net periodic pension cost and postretirement benefit cost. |
January 1, 2018 |
We are currently evaluating the impact of adopting this ASU on our consolidated financial condition and results of operations. |
ASU 2017-08, Premium Amortization on Purchased Callable Debt Securities |
These amendments require an entity to shorten the amortization period for certain callable debt securities held at a premium so that the premium is amortized to the earliest call date. Early adoption is permitted, and the ASU requires adoption under a modified retrospective basis through a cumulative-effect adjustment to the beginning balance of retained earnings. |
January 1, 2019 |
We are currently evaluating the impact of adopting this ASU on our consolidated financial condition and results of operations. |
ASU 2017-09, Compensation – Stock Compensation: Scope of Modification Accounting |
These amendments provide guidance when changes to the terms or conditions of a share-based payment award would require modification accounting. An entity should account for the effects of a modification unless the following are the same immediately before and after the modification: (a) the fair value of the award, (b) the vesting conditions of the award and (c) the classification of the award as an equity instrument or a liability instrument. These amendments are to be applied prospectively to awards modified on or after the effective date. Early adoption is permitted. |
January 1, 2018 |
We are currently evaluating the impact of adopting this ASU on our consolidated financial condition and results of operations. |
9
3. Variable Interest Entities (“VIEs”)
Consolidated VIEs
See Note 4 in our 2016 Form 10-K for a detailed discussion of our consolidated VIEs, which information is incorporated herein by reference.
As of March 2017 and December 2016, our $200 million and $400 million credit-linked notes (“CLNs”) matured, respectively, and we no longer reflect the assets and liabilities associated with these VIEs on our Consolidated Balance Sheets or recognize the results of operations of these VIEs on our Consolidated Statements of Comprehensive Income (Loss). We no longer have any exposure related to these VIEs.
Asset and liability information (dollars in millions) for the consolidated VIEs included on our Consolidated Balance Sheets was as follows:
|
||||||||||||||||||||||
|
As of June 30, 2017 |
As of December 31, 2016 |
||||||||||||||||||||
|
Number |
Number |
||||||||||||||||||||
|
of |
Notional |
Carrying |
of |
Notional |
Carrying |
||||||||||||||||
|
Instruments |
Amounts |
Value |
Instruments |
Amounts |
Value |
||||||||||||||||
Assets |
||||||||||||||||||||||
Fixed maturity securities: |
||||||||||||||||||||||
Asset-backed credit card loans (1) |
N/A |
$ |
- |
$ |
- |
N/A |
$ |
- |
$ |
200 | ||||||||||||
Total return swap |
1 | 542 |
- |
1 | 533 |
- |
||||||||||||||||
Credit default swaps |
- |
- |
- |
1 | 200 |
- |
||||||||||||||||
Total assets |
1 |
$ |
542 |
$ |
- |
2 |
$ |
733 |
$ |
200 | ||||||||||||
|
(1) |
Reported in variable interest entities’ fixed maturity securities on our Consolidated Balance Sheets. |
As of June 30, 2017, and December 31, 2016, we did not recognize any liabilities from consolidated VIEs on our Consolidated Balance Sheets. We did hold one contingent forward instrument as of December 31, 2016; however, the instrument had a zero notional and carrying value.
The gains (losses) for the consolidated VIEs (in millions) recorded on our Consolidated Statements of Comprehensive Income (Loss) were as follows:
|
|||||||||||||
|
For the Three |
For the Six |
|||||||||||
|
Months Ended |
Months Ended |
|||||||||||
|
June 30, |
June 30, |
|||||||||||
|
2017 |
2016 |
2017 |
2016 |
|||||||||
Non-Qualifying Hedges |
|||||||||||||
Credit default swaps |
$ |
- |
$ |
(1 |
) |
$ |
- |
$ |
5 | ||||
Contingent forwards |
- |
- |
- |
- |
|||||||||
Total non-qualifying hedges (1) |
$ |
- |
$ |
(1 |
) |
$ |
- |
$ |
5 |
(1) |
Reported in realized gain (loss) on our Consolidated Statements of Comprehensive Income (Loss). |
Unconsolidated VIEs
See Note 4 in our 2016 Form 10-K for a detailed discussion of our unconsolidated VIEs, which information is incorporated herein by reference.
Limited Partnerships and Limited Liability Companies
We invest in certain limited partnerships (“LPs”) and limited liability companies (“LLCs”), including qualified affordable housing projects, that we have concluded are VIEs. We do not hold any substantive kick-out or participation rights in the LPs and LLCs, and we do not receive any performance fees or decision maker fees from the LPs and LLCs. Based on our analysis of the LPs and LLCs, we are not the primary beneficiary of the VIEs as we do not have the power to direct the most significant activities of the LPs and LLCs.
The carrying amounts of our investments in the LPs and LLCs are recognized in other investments on our Consolidated Balance Sheets and were $1.4 billion and $1.3 billion as of June 30, 2017, and December 31, 2016, respectively. Included in these carrying amounts are our investments in qualified affordable housing projects, which were $34 million and $37 million as of June 30, 2017, and December 31, 2016, respectively. We do not have any contingent commitments to provide additional capital funding to these qualified affordable housing projects. We received returns from these qualified affordable housing projects in the form of income tax credits and other tax
10
benefits of $2 million for the six months ended June 30, 2017, and 2016, respectively, which were recognized in federal income tax expense (benefit) on our Consolidated Statements of Comprehensive Income (Loss).
Our exposure to loss is limited to the capital we invest in the LPs and LLCs, and there have been no indicators of impairment that would require us to recognize an impairment loss related to the LPs and LLCs as of June 30, 2017.
4. Investments
AFS Securities
See Note 1 in our 2016 Form 10-K for information regarding our accounting policy relating to AFS securities, which also includes additional disclosures regarding our fair value measurements.
The amortized cost, gross unrealized gains, losses and OTTI and fair value of AFS securities (in millions) were as follows:
|
|||||||||||||||
|
As of June 30, 2017 |
||||||||||||||
|
Amortized |
Gross Unrealized |
Fair |
||||||||||||
|
Cost |
Gains |
Losses |
OTTI (1) |
Value |
||||||||||
Fixed maturity securities: |
|||||||||||||||
Corporate bonds |
$ |
74,934 |
$ |
6,108 |
$ |
500 |
$ |
(6 |
) |
$ |
80,548 | ||||
Asset-backed securities ("ABS") |
996 | 46 | 12 | (20 |
) |
1,050 | |||||||||
U.S. government bonds |
536 | 44 | 2 |
- |
578 | ||||||||||
Foreign government bonds |
397 | 58 |
- |
- |
455 | ||||||||||
Residential mortgage-backed securities ("RMBS") |
3,412 | 160 | 38 | (18 |
) |
3,552 | |||||||||
Commercial mortgage-backed securities ("CMBS") |
466 | 10 | 2 | (2 |
) |
476 | |||||||||
Collateralized loan obligations ("CLOs") |
697 | 4 | 2 | (4 |
) |
703 | |||||||||
State and municipal bonds |
4,172 | 850 | 12 |
- |
5,010 | ||||||||||
Hybrid and redeemable preferred securities |
584 | 85 | 27 |
- |
642 | ||||||||||
Total fixed maturity securities |
86,194 | 7,365 | 595 | (50 |
) |
93,014 | |||||||||
Equity securities |
262 | 19 | 6 |
- |
275 | ||||||||||
Total AFS securities |
$ |
86,456 |
$ |
7,384 |
$ |
601 |
$ |
(50 |
) |
$ |
93,289 |
|
|||||||||||||||
|
As of December 31, 2016 |
||||||||||||||
|
Amortized |
Gross Unrealized |
Fair |
||||||||||||
|
Cost |
Gains |
Losses |
OTTI (1) |
Value |
||||||||||
Fixed maturity securities: |
|||||||||||||||
Corporate bonds |
$ |
73,275 |
$ |
4,754 |
$ |
970 |
$ |
(5 |
) |
$ |
77,064 | ||||
ABS |
1,047 | 39 | 14 | (13 |
) |
1,085 | |||||||||
U.S. government bonds |
384 | 37 | 2 |
- |
419 | ||||||||||
Foreign government bonds |
449 | 58 | 1 |
- |
506 | ||||||||||
RMBS |
3,534 | 147 | 73 | (6 |
) |
3,614 | |||||||||
CMBS |
345 | 8 | 4 | (1 |
) |
350 | |||||||||
CLOs |
742 | 1 | 3 | (4 |
) |
744 | |||||||||
State and municipal bonds |
3,929 | 718 | 20 |
- |
4,627 | ||||||||||
Hybrid and redeemable preferred securities |
582 | 70 | 48 |
- |
604 | ||||||||||
VIEs’ fixed maturity securities |
200 |
- |
- |
- |
200 | ||||||||||
Total fixed maturity securities |
84,487 | 5,832 | 1,135 | (29 |
) |
89,213 | |||||||||
Equity securities |
260 | 19 | 4 |
- |
275 | ||||||||||
Total AFS securities |
$ |
84,747 |
$ |
5,851 |
$ |
1,139 |
$ |
(29 |
) |
$ |
89,488 |
(1) |
Includes unrealized (gains) and losses on impaired securities related to changes in the fair value of such securities subsequent to the impairment measurement date. |
11
The amortized cost and fair value of fixed maturity AFS securities by contractual maturities (in millions) as of June 30, 2017, were as follows:
|
||||||
|
Amortized |
Fair |
||||
|
Cost |
Value |
||||
Due in one year or less |
$ |
3,559 |
$ |
3,750 | ||
Due after one year through five years |
16,854 | 18,006 | ||||
Due after five years through ten years |
15,756 | 16,742 | ||||
Due after ten years |
44,454 | 48,735 | ||||
Subtotal |
80,623 | 87,233 | ||||
Structured securities (ABS, MBS, CLOs) |
5,571 | 5,781 | ||||
Total fixed maturity AFS securities |
$ |
86,194 |
$ |
93,014 |
Actual maturities may differ from contractual maturities because issuers may have the right to call or pre-pay obligations.
The fair value and gross unrealized losses, including the portion of OTTI recognized in OCI, of AFS securities (dollars in millions), aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, were as follows:
|
|||||||||||||||||||
|
As of June 30, 2017 |
||||||||||||||||||
Less Than or Equal |
Greater Than |
||||||||||||||||||
|
to Twelve Months |
Twelve Months |
Total |
||||||||||||||||
|
Gross |
Gross |
Gross |
||||||||||||||||
Unrealized |
Unrealized |
Unrealized |
|||||||||||||||||
|
Fair |
Losses and |
Fair |
Losses and |
Fair |
Losses and |
|||||||||||||
|
Value |
OTTI |
Value |
OTTI |
Value |
OTTI |
|||||||||||||
Fixed maturity securities: |
|||||||||||||||||||
Corporate bonds |
$ |
8,521 |
$ |
223 |
$ |
2,417 |
$ |
279 |
$ |
10,938 |
$ |
502 | |||||||
ABS |
84 | 3 | 260 | 21 | 344 | 24 | |||||||||||||
U.S. government bonds |
172 | 2 |
- |
- |
172 | 2 | |||||||||||||
RMBS |
805 | 35 | 146 | 5 | 951 | 40 | |||||||||||||
CMBS |
92 | 2 | 8 | 2 | 100 | 4 | |||||||||||||
CLOs |
227 | 2 | 19 |
- |
246 | 2 | |||||||||||||
State and municipal bonds |
132 | 7 | 47 | 5 | 179 | 12 | |||||||||||||
Hybrid and redeemable |
|||||||||||||||||||
preferred securities |
22 | 1 | 151 | 26 | 173 | 27 | |||||||||||||
Total fixed maturity securities |
10,055 | 275 | 3,048 | 338 | 13,103 | 613 | |||||||||||||
Equity securities |
10 | 4 | 15 | 1 | 25 | 5 | |||||||||||||
Total AFS securities |
$ |
10,065 |
$ |
279 |
$ |
3,063 |
$ |
339 |
$ |
13,128 |
$ |
618 | |||||||
|
|||||||||||||||||||
Total number of AFS securities in an unrealized loss position |
1,155 |
12
|
|||||||||||||||||||
|
As of December 31, 2016 |
||||||||||||||||||
Less Than or Equal |
Greater Than |
||||||||||||||||||
|
to Twelve Months |
Twelve Months |
Total |
||||||||||||||||
|
Gross |
Gross |
Gross |
||||||||||||||||
Unrealized |
Unrealized |
Unrealized |
|||||||||||||||||
|
Fair |
Losses and |
Fair |
Losses and |
Fair |
Losses and |
|||||||||||||
|
Value |
OTTI |
Value |
OTTI |
Value |
OTTI |
|||||||||||||
Fixed maturity securities: |
|||||||||||||||||||
Corporate bonds |
$ |
15,820 |
$ |
569 |
$ |
3,187 |
$ |
403 |
$ |
19,007 |
$ |
972 | |||||||
ABS |
201 | 4 | 298 | 25 | 499 | 29 | |||||||||||||
U.S. government bonds |
18 | 2 |
- |
- |
18 | 2 | |||||||||||||
Foreign government bonds |
29 | 1 |
- |
- |
29 | 1 | |||||||||||||
RMBS |
989 | 58 | 392 | 23 | 1,381 | 81 | |||||||||||||
CMBS |
190 | 4 | 19 | 2 | 209 | 6 | |||||||||||||
CLOs |
259 | 3 | 25 |
- |
284 | 3 | |||||||||||||
State and municipal bonds |
227 | 12 | 47 | 8 | 274 | 20 | |||||||||||||
Hybrid and redeemable |
|||||||||||||||||||
preferred securities |
76 | 4 | 143 | 44 | 219 | 48 | |||||||||||||
Total fixed maturity securities |
17,809 | 657 | 4,111 | 505 | 21,920 | 1,162 | |||||||||||||
Equity securities |
4 | 2 | 44 | 2 | 48 | 4 | |||||||||||||
Total AFS securities |
$ |
17,813 |
$ |
659 |
$ |
4,155 |
$ |
507 |
$ |
21,968 |
$ |
1,166 | |||||||
|
|||||||||||||||||||
Total number of AFS securities in an unrealized loss position |
1,744 |
The fair value, gross unrealized losses, the portion of OTTI recognized in OCI (in millions) and number of AFS securities where the fair value had declined and remained below amortized cost by greater than 20% were as follows:
|
|||||||||||||
|
As of June 30, 2017 |
||||||||||||
|
Number |
||||||||||||
|
Fair |
Gross Unrealized |
of |
||||||||||
|
Value |
Losses |
OTTI |
Securities (1) |
|||||||||
Less than six months |
$ |
64 |
$ |
26 |
$ |
- |
21 | ||||||
Six months or greater, but less than nine months |
41 | 14 |
- |
5 | |||||||||
Nine months or greater, but less than twelve months |
2 | 1 | 1 | 3 | |||||||||
Twelve months or greater |
253 | 110 | 9 | 51 | |||||||||
Total |
$ |
360 |
$ |
151 |
$ |
10 | 80 |
|
|||||||||||||
|
As of December 31, 2016 |
||||||||||||
|
Number |
||||||||||||
|
Fair |
Gross Unrealized |
of |
||||||||||
|
Value |
Losses |
OTTI |
Securities (1) |
|||||||||
Less than six months |
$ |
174 |
$ |
52 |
$ |
2 | 19 | ||||||
Nine months or greater, but less than twelve months |
1 | 1 |
- |
2 | |||||||||
Twelve months or greater |
364 | 167 | 10 | 62 | |||||||||
Total |
$ |
539 |
$ |
220 |
$ |
12 | 83 |
(1) |
We may reflect a security in more than one aging category based on various purchase dates. |
We regularly review our investment holdings for OTTI. Our gross unrealized losses, including the portion of OTTI recognized in OCI, on AFS securities decreased by $548 million for the six months ended June 30, 2017. As discussed further below, we believe the unrealized loss position as of June 30, 2017, did not represent OTTI as (i) we did not intend to sell these fixed maturity AFS securities; (ii) it is not more likely than not that we will be required to sell these fixed maturity AFS securities before recovery of their amortized cost basis; (iii) the estimated future cash flows were equal to or greater than the amortized cost basis of the debt securities; and (iv) we had the ability and intent to hold the equity AFS securities for a period of time sufficient for recovery.
Based upon this evaluation as of June 30, 2017, management believes we have the ability to generate adequate amounts of cash from our normal operations (e.g., insurance premiums and fees and investment income) to meet cash requirements with a prudent margin of safety without requiring the sale of our temporarily-impaired securities.
13
As of June 30, 2017, the unrealized losses associated with our corporate bond securities were attributable primarily to widening credit spreads and rising interest rates since purchase. We performed a detailed analysis of the financial performance of the underlying issuers and determined that we expected to recover the entire amortized cost for each temporarily-impaired security.
As of June 30, 2017, the unrealized losses associated with our mortgage-backed securities (“MBS”) and ABS were attributable primarily to widening credit spreads and rising interest rates since purchase. We assessed for credit impairment using a cash flow model that incorporates key assumptions including default rates, severities and prepayment rates. We estimated losses for a security by forecasting the underlying loans in each transaction. The forecasted loan performance was used to project cash flows to the various tranches in the structure, as applicable. Our forecasted cash flows also considered, as applicable, independent industry analyst reports and forecasts and other independent market data. Based upon our assessment of the expected credit losses of the security given the performance of the underlying collateral compared to our subordination or other credit enhancement, we expected to recover the entire amortized cost of each temporarily-impaired security.
As of June 30, 2017, the unrealized losses associated with our hybrid and redeemable preferred securities were attributable primarily to wider credit spreads caused by illiquidity in the market and subordination within the capital structure, as well as credit risk of underlying issuers. For our hybrid and redeemable preferred securities, we evaluated the financial performance of the underlying issuers based upon credit performance and investment ratings and determined that we expected to recover the entire amortized cost of each temporarily-impaired security.
Changes in the amount of credit loss of OTTI recognized in net income (loss) where the portion related to other factors was recognized in OCI (in millions) on fixed maturity AFS securities were as follows:
|
||||||||||||
|
For the Three |
For the Six |
||||||||||
|
Months Ended |
Months Ended |
||||||||||
|
June 30, |
June 30, |
||||||||||
|
2017 |
2016 |
2017 |
2016 |
||||||||
Balance as of beginning-of-period |
$ |
393 |
$ |
413 |
$ |
430 |
$ |
382 | ||||
Increases attributable to: |
||||||||||||
Credit losses on securities for which an |
||||||||||||
OTTI was not previously recognized |
4 | 26 | 5 | 61 | ||||||||
Credit losses on securities for which an |
||||||||||||
OTTI was previously recognized |
- |
2 | 3 | 7 | ||||||||
Decreases attributable to: |
||||||||||||
Securities sold, paid down or matured |
(7 |
) |
(10 |
) |
(48 |
) |
(19 |
) |
||||
Balance as of end-of-period |
$ |
390 |
$ |
431 |
$ |
390 |
$ |
431 |
During the six months ended June 30, 2017 and 2016, we recorded credit losses on securities for which an OTTI was not previously recognized as we determined the cash flows expected to be collected would not be sufficient to recover the entire amortized cost basis of the debt security. The credit losses we recorded on securities for which an OTTI was not previously recognized were attributable primarily to one or a combination of the following reasons:
· |
Failure of the issuer of the security to make scheduled payments; |
· |
Deterioration of creditworthiness of the issuer; |
· |
Deterioration of conditions specifically related to the security; |
· |
Deterioration of fundamentals of the industry in which the issuer operates; and |
· |
Deterioration of the rating of the security by a rating agency. |
We recognize the OTTI attributed to the noncredit portion as a separate component in OCI referred to as unrealized OTTI on AFS securities.
14
Details of the amount of credit loss of OTTI recognized in net income (loss) for which a portion related to other factors was recognized in OCI (in millions), were as follows:
|
||||||||||||
|
As of June 30, 2017 |
|||||||||||
|
Net |
|||||||||||
|
Unrealized |
OTTI in |
||||||||||
|
Amortized |
Gain/(Loss) |
Fair |
Credit |
||||||||
|
Cost |
Position |
Value |
Losses |
||||||||
Corporate bonds |
$ |
22 |
$ |
6 |
$ |
28 |
$ |
43 | ||||
ABS |
199 | 20 | 219 | 112 | ||||||||
RMBS |
292 | 18 | 310 | 188 | ||||||||
CMBS |
18 | 2 | 20 | 39 | ||||||||
CLOs |
11 | 4 | 15 | 5 | ||||||||
State and municipal bonds |
- |
- |
- |
3 | ||||||||
Total |
$ |
542 |
$ |
50 |
$ |
592 |
$ |
390 |
|
||||||||||||
|
As of December 31, 2016 |
|||||||||||
|
Net |
|||||||||||
|
Unrealized |
OTTI in |
||||||||||
|
Amortized |
Gain/(Loss) |
Fair |
Credit |
||||||||
|
Cost |
Position |
Value |
Losses |
||||||||
Corporate bonds |
$ |
80 |
$ |
5 |
$ |
85 |
$ |
77 | ||||
ABS |
212 | 13 | 225 | 112 | ||||||||
RMBS |
332 | 6 | 338 | 194 | ||||||||
CMBS |
29 | 1 | 30 | 39 | ||||||||
CLOs |
11 | 4 | 15 | 5 | ||||||||
State and municipal bonds |
2 |
- |
2 | 3 | ||||||||
Total |
$ |
666 |
$ |
29 |
$ |
695 |
$ |
430 |
Mortgage Loans on Real Estate
See Note 1 in our 2016 Form 10-K for information regarding our accounting policy relating to mortgage loans on real estate.
Mortgage loans on real estate principally involve commercial real estate. The commercial loans are geographically diversified throughout the U.S. with the largest concentrations in California and Texas, which accounted for 20% and 11%, respectively, of mortgage loans on real estate as of June 30, 2017, and December 31, 2016.
The following provides the current and past due composition of our mortgage loans on real estate (in millions):
|
||||||||
|
As of |
As of |
||||||
|
June 30, |
December 31, |
||||||
|
2017 |
2016 |
||||||
Current |
$ |
10,023 |
$ |
9,888 | ||||
60 to 90 days past due |
- |
- |
||||||
Greater than 90 days past due |
2 | 2 | ||||||
Valuation allowance associated with impaired mortgage loans on real estate |
(2 |
) |
(2 |
) |
||||
Unamortized premium (discount) |
- |
1 | ||||||
Total carrying value |
$ |
10,023 |
$ |
9,889 |
The number of impaired mortgage loans on real estate, each of which had an associated specific valuation allowance, and the carrying value of impaired mortgage loans on real estate (dollars in millions) were as follows:
|
||||||||
|
As of |
As of |
||||||
|
June 30, |
December 31, |
||||||
|
2017 |
2016 |
||||||
Number of impaired mortgage loans on real estate |
2 | 2 | ||||||
|
||||||||
Principal balance of impaired mortgage loans on real estate |
$ |
7 |
$ |
7 | ||||
Valuation allowance associated with impaired mortgage loans on real estate |
(2 |
) |
(2 |
) |
||||
Carrying value of impaired mortgage loans on real estate |
$ |
5 |
$ |
5 |
15
The changes in the valuation allowance associated with impaired mortgage loans on real estate (in millions) were as follows:
|
||||||||||||||
|
For the Three |
For the Six |
||||||||||||
|
Months Ended |
Months Ended |
||||||||||||
|
June 30, |
June 30, |
||||||||||||
|
2017 |
2016 |
2017 |
2016 |
||||||||||
Balance as of beginning-of-period |
$ |
2 |
$ |
2 |
$ |
2 |
$ |
2 | ||||||
Additions |
- |
- |
- |
- |
||||||||||
Charge-offs, net of recoveries |
- |
- |
- |
- |
||||||||||
Balance as of end-of-period |
$ |
2 |
$ |
2 |
$ |
2 |
$ |
2 |
Additional information related to impaired mortgage loans on real estate (in millions) was as follows:
|
||||||||||||
|
For the Three |
For the Six |
||||||||||
|
Months Ended |
Months Ended |
||||||||||
|
June 30, |
June 30, |
||||||||||
|
2017 |
2016 |
2017 |
2016 |
||||||||
Average carrying value for impaired mortgage loans on real estate |
$ |
5 |
$ |
6 |
$ |
5 |
$ |
6 | ||||
Interest income recognized on impaired mortgage loans on real estate |
- |
- |
- |
- |
||||||||
Interest income collected on impaired mortgage loans on real estate |
- |
- |
- |
- |
As described in Note 1 in our 2016 Form 10-K, we use the loan-to-value and debt-service coverage ratios as credit quality indicators for our mortgage loans, which were as follows (dollars in millions):
|
||||||||||||||
|
As of June 30, 2017 |
As of December 31, 2016 |
||||||||||||
|
Debt- |
Debt- |
||||||||||||
|
Service |
Service |
||||||||||||
|
Carrying |
% of |
Coverage |
Carrying |
% of |
Coverage |
||||||||
Loan-to-Value Ratio |
Value |
Total |
Ratio |
Value |
Total |
Ratio |
||||||||
Less than 65% |
$ |
8,993 | 89.7% |
2.22 |
$ |
8,709 | 88.0% |
2.16 |
||||||
65% to 74% |
892 | 8.9% |
1.89 |
1,009 | 10.2% |
1.87 |
||||||||
75% to 100% |
133 | 1.3% |
0.82 |
166 | 1.7% |
0.82 |
||||||||
Greater than 100% |
5 | 0.1% |
1.04 |
5 | 0.1% |
1.04 |
||||||||
Total mortgage loans on real estate |
$ |
10,023 | 100.0% |
$ |
9,889 | 100.0% |
Alternative Investments
As of June 30, 2017, and December 31, 2016, alternative investments included investments in 206 and 202 different partnerships, respectively, and the portfolios represented approximately 1% of our overall invested assets.
Realized Gain (Loss) Related to Certain Investments
The detail of the realized gain (loss) related to certain investments (in millions) was as follows:
|
||||||||||||
|
For the Three |
For the Six |
||||||||||
|
Months Ended |
Months Ended |
||||||||||
|
June 30, |
June 30, |
||||||||||
|
2017 |
2016 |
2017 |
2016 |
||||||||
Fixed maturity AFS securities: (1) |
||||||||||||
Gross gains |
$ |
3 |
$ |
7 |
$ |
11 |
$ |
61 | ||||
Gross losses |
(13 |
) |
(65 |
) |
(25 |
) |
(163 |
) |
||||
Equity AFS securities: |
||||||||||||
Gross gains |
- |
2 | 1 | 2 | ||||||||
Gross losses |
- |
(1 |
) |
- |
(1 |
) |
||||||
Gain (loss) on other investments |
(2 |
) |
(3 |
) |
(5 |
) |
(63 |
) |
||||
Associated amortization of DAC, VOBA, DSI and DFEL |
||||||||||||
and changes in other contract holder funds |
(6 |
) |
(5 |
) |
(13 |
) |
(8 |
) |
||||
Total realized gain (loss) related to certain investments, pre-tax |
$ |
(18 |
) |
$ |
(65 |
) |
$ |
(31 |
) |
$ |
(172 |
) |
(1) |
These amounts are represented net of related fair value hedging activity. See Note 5 for more information. |
16
Details underlying write-downs taken as a result of OTTI (in millions) that were recognized in net income (loss) and included in realized gain (loss) on AFS securities above, and the portion of OTTI recognized in OCI (in millions) were as follows:
|
||||||||||||
|
For the Three |
For the Six |
||||||||||
|
Months Ended |
Months Ended |
||||||||||
|
June 30, |
June 30, |
||||||||||
|
2017 |
2016 |
2017 |
2016 |
||||||||
OTTI Recognized in Net Income (Loss) |
||||||||||||
Fixed maturity securities: |
||||||||||||
Corporate bonds |
$ |
(4 |
) |
$ |
(26 |
) |
$ |
(5 |
) |
$ |
(62 |
) |
ABS |
- |
(1 |
) |
(1 |
) |
(3 |
) |
|||||
RMBS |
- |
(1 |
) |
(1 |
) |
(3 |
) |
|||||
State and municipal bonds |
- |
- |
(1 |
) |
- |
|||||||
Total fixed maturity securities |
(4 |
) |
(28 |
) |
(8 |
) |
(68 |
) |
||||
Equity securities |
- |
(1 |
) |
- |
(1 |
) |
||||||
Gross OTTI recognized in net income (loss) |
(4 |
) |
(29 |
) |
(8 |
) |
(69 |
) |
||||
Associated amortization of DAC, VOBA, DSI and DFEL |
- |
1 |
- |
5 | ||||||||
Net OTTI recognized in net income (loss), pre-tax |
$ |
(4 |
) |
$ |
(28 |
) |
$ |
(8 |
) |
$ |
(64 |
) |
|
||||||||||||
Portion of OTTI Recognized in OCI |
||||||||||||
Gross OTTI recognized in OCI |
$ |
- |
$ |
10 |
$ |
- |
$ |
36 | ||||
Change in DAC, VOBA, DSI and DFEL |
- |
(2 |
) |
- |
(8 |
) |
||||||
Net portion of OTTI recognized in OCI, pre-tax |
$ |
- |
$ |
8 |
$ |
- |
$ |
28 |
Determination of Credit Losses on Corporate Bonds and ABS
As of June 30, 2017, and December 31, 2016, we reviewed our corporate bond and ABS portfolios for potential shortfall in contractual principal and interest based on numerous subjective and objective inputs. The factors used to determine the amount of credit loss for each individual security, include, but are not limited to, near term risk, substantial discrepancy between book and market value, sector or company-specific volatility, negative operating trends and trading levels wider than peers.
Credit ratings express opinions about the credit quality of a security. Securities rated investment grade, that is those rated BBB- or higher by Standard & Poor’s (“S&P”) Rating Services or Baa3 or higher by Moody’s Investors Service (“Moody’s”), are generally considered by the rating agencies and market participants to be low credit risk. As of June 30, 2017, and December 31, 2016, 96% and 95%, respectively, of the fair value of our corporate bond portfolio was rated investment grade. As of June 30, 2017, and December 31, 2016, the portion of our corporate bond portfolio rated below investment grade had an amortized cost of $3.5 billion and $3.8 billion, respectively, and a fair value of $3.4 billion and $3.7 billion, respectively. As of June 30, 2017, and December 31, 2016, 96% of the fair value of our ABS portfolio was rated investment grade. As of June 30, 2017, and December 31, 2016, the portion of our ABS portfolio rated below investment grade had an amortized cost of $86 million and $91 million, respectively, and a fair value of $73 million and $75 million, respectively. Based upon the analysis discussed above, we believe as of June 30, 2017, and December 31, 2016, that we would recover the amortized cost of each fixed maturity security.
Determination of Credit Losses on MBS
As of June 30, 2017, and December 31, 2016, default rates were projected by considering underlying MBS loan performance and collateral type. Projected default rates on existing delinquencies vary between 10% to 100% depending on loan type and severity of delinquency status. In addition, we estimate the potential contributions of currently performing loans that may become delinquent in the future based on the change in delinquencies and loan liquidations experienced in the recent history. Finally, we develop a default rate timing curve by aggregating the defaults for all loans in the pool (delinquent loans, foreclosure and real estate owned and new delinquencies from currently performing loans) and the associated loan-level loss severities.
We use certain available loan characteristics such as lien status, loan sizes and occupancy to estimate the loss severity of loans. Second lien loans are assigned 100% severity, if defaulted. For first lien loans, we assume a minimum of 30% severity with higher severity assumed for investor properties and further adjusted by housing price assumptions. With the default rate timing curve and loan-level loss severity, we derive the future expected credit losses.
17
Payables for Collateral on Investments
The carrying value of the payables for collateral on investments (in millions) included on our Consolidated Balance Sheets and the fair value of the related investments or collateral consisted of the following:
|
||||||||||||
|
As of June 30, 2017 |
As of December 31, 2016 |
||||||||||
|
Carrying |
Fair |
Carrying |
Fair |
||||||||
|
Value |
Value |
Value |
Value |
||||||||
Collateral payable for derivative investments (1) |
$ |
1,054 |
$ |
1,054 |
$ |
894 |
$ |
894 | ||||
Securities pledged under securities lending agreements (2) |
208 | 200 | 216 | 209 | ||||||||
Securities pledged under repurchase agreements (3) |
540 | 587 | 535 | 589 | ||||||||
Investments pledged for Federal Home Loan Bank of |
||||||||||||
Indianapolis (“FHLBI”) (4) |
3,150 | 4,654 | 3,350 | 4,947 | ||||||||
Total payables for collateral on investments |
$ |
4,952 |
$ |
6,495 |
$ |
4,995 |
$ |
6,639 |
(1) |
We obtain collateral based upon contractual provisions with our counterparties. These agreements take into consideration the counterparties’ credit rating as compared to ours, the fair value of the derivative investments and specified thresholds that if exceeded result in the receipt of cash that is typically invested in cash and invested cash. See Note 5 for additional information. |
(2) |
Our pledged securities under securities lending agreements are included in fixed maturity AFS securities on our Consolidated Balance Sheets. We generally obtain collateral in an amount equal to 102% and 105% of the fair value of the domestic and foreign securities, respectively. We value collateral daily and obtain additional collateral when deemed appropriate. The cash received in our securities lending program is typically invested in cash and invested cash or fixed maturity AFS securities. |
(3) |
Our pledged securities under repurchase agreements are included in fixed maturity AFS securities on our Consolidated Balance Sheets. We obtain collateral in an amount equal to 95% of the fair value of the securities, and our agreements with third parties contain contractual provisions to allow for additional collateral to be obtained when necessary. The cash received in our repurchase program is typically invested in fixed maturity AFS securities. |
(4) |
Our pledged investments for FHLBI are included in fixed maturity AFS securities and mortgage loans on real estate on our Consolidated Balance Sheets. The collateral requirements are generally 105% to 115% of the fair value for fixed maturity AFS securities and 155% to 175% of the fair value for mortgage loans on real estate. The cash received in these transactions is primarily invested in cash and invested cash or fixed maturity AFS securities. |
Increase (decrease) in payables for collateral on investments (in millions) consisted of the following:
|
|||||||
|
For the Six |
||||||
|
Months Ended |
||||||
|
June 30, |
||||||
|
2017 |
2016 |
|||||
Collateral payable for derivative investments |
$ |
160 |
$ |
1,617 | |||
Securities pledged under securities lending agreements |
(8 |
) |
7 | ||||
Securities pledged under repurchase agreements |
5 | 16 | |||||
Investments pledged for FHLBI |
(200 |
) |
- |
||||
Total increase (decrease) in payables for collateral on investments |
$ |
(43 |
) |
$ |
1,640 |
18
We have elected not to offset our repurchase agreements and securities lending transactions in our financial statements. The remaining contractual maturities of repurchase agreements and securities lending transactions accounted for as secured borrowings were as follows:
|
|||||||||||||||
|
As of June 30, 2017 |
||||||||||||||
|
Overnight and Continuous |
Up to 30 Days |
30 - 90 Days |
Greater Than 90 Days |
Total |
||||||||||
Repurchase Agreements |
|||||||||||||||
Corporate bonds |
$ |
- |
$ |
100 |
$ |
290 |
$ |
150 |
$ |
540 | |||||
Total |
- |
100 | 290 | 150 | 540 | ||||||||||
Securities Lending |
|||||||||||||||
Corporate bonds |
208 |
- |
- |
- |
208 | ||||||||||
Total |
208 |
- |
- |
- |
208 | ||||||||||
Total gross secured borrowings |
$ |
208 |
$ |
100 |
$ |
290 |
$ |
150 |
$ |
748 | |||||
|
|
As of December 31, 2016 |
||||||||||||||
|
Overnight and Continuous |
Up to 30 Days |
30 - 90 Days |
Greater Than 90 Days |
Total |
||||||||||
Repurchase Agreements |
|||||||||||||||
Corporate bonds |
$ |
- |
$ |
- |
$ |
389 |
$ |
146 |
$ |
535 | |||||
Total |
- |
- |
389 | 146 | 535 | ||||||||||
Securities Lending |
|||||||||||||||
Corporate bonds |
212 |
- |
- |
- |
212 | ||||||||||
Foreign government bonds |
4 |
- |
- |
- |
4 | ||||||||||
Total |
216 |
- |
- |
- |
216 | ||||||||||
Total gross secured borrowings |
$ |
216 |
$ |
- |
$ |
389 |
$ |
146 |
$ |
751 | |||||
|
We accept collateral in the form of securities in connection with repurchase agreements. In instances where we are permitted to sell or re-pledge the securities received, we report the fair value of the collateral received and a related obligation to return the collateral in the financial statements. In addition, we receive securities in connection with securities borrowing agreements, which we are permitted to sell or re-pledge. As of June 30, 2017, the fair value of all collateral received that we are permitted to sell or re-pledge was $177 million. As of June 30, 2017, we have re-pledged $80 million of this collateral to cover initial margin on certain derivative investments.
Investment Commitments
As of June 30, 2017, our investment commitments were $1.7 billion, which included $794 million of LPs, $443 million of mortgage loans on real estate and $466 million of private placement securities.
Concentrations of Financial Instruments
As of June 30, 2017, and December 31, 2016, our most significant investments in one issuer were our investments in securities issued by the Federal Home Loan Mortgage Corporation with a fair value of $1.4 billion and $1.5 billion, respectively, or 1% of our invested assets portfolio, and our investments in securities issued by Federal National Mortgage Association with a fair value of $1.0 billion and $1.1 billion, respectively, or 1% of our invested assets portfolio. These concentrations include both AFS and trading securities.
As of June 30, 2017, and December 31, 2016, our most significant investments in one industry were our investment securities in the consumer non-cyclical industry with a fair value of $14.7 billion and $13.7 billion, respectively, or 13% of our invested assets portfolio, and our investment securities in the utilities industry with a fair value of $13.8 billion and $13.2 billion, respectively, or 12% of our invested assets portfolio. These concentrations include both AFS and trading securities.
5. Derivative Instruments
We maintain an overall risk management strategy that incorporates the use of derivative instruments to minimize significant unplanned fluctuations in earnings that are caused by interest rate risk, foreign currency exchange risk, equity market risk, default risk, basis risk and credit risk. See Note 1 in our 2016 Form 10-K for a detailed discussion of the accounting treatment for derivative instruments. See Note 6 in our 2016 Form 10-K for a detailed discussion of our derivative instruments and use of them in our overall risk management strategy, which information is incorporated herein by reference. See Note 12 for additional disclosures related to the fair value of our derivative instruments and Note 3 for derivative instruments related to our consolidated VIEs.
19
We have derivative instruments with off-balance-sheet risks whose notional or contract amounts exceed the related credit exposure. Outstanding derivative instruments with off-balance-sheet risks (in millions) were as follows:
|
||||||||||||||||||
|
As of June 30, 2017 |
As of December 31, 2016 |
||||||||||||||||
|
Notional |
Fair Value |
Notional |
Fair Value |
||||||||||||||
|
Amounts |
Asset |
Liability |
Amounts |
Asset |
Liability |
||||||||||||
Qualifying Hedges |
||||||||||||||||||
Cash flow hedges: |
||||||||||||||||||
Interest rate contracts (1) |
$ |
3,607 |
$ |
47 |
$ |
92 |
$ |
3,552 |
$ |
68 |
$ |
122 | ||||||
Foreign currency contracts (1) |
1,512 | 116 | 21 | 1,177 | 153 | 10 | ||||||||||||
Total cash flow hedges |
5,119 | 163 | 113 | 4,729 | 221 | 132 | ||||||||||||
Fair value hedges: |
||||||||||||||||||
Interest rate contracts (1) |
1,477 | 263 | 182 | 1,512 | 258 | 182 | ||||||||||||
Non-Qualifying Hedges |
||||||||||||||||||
Interest rate contracts (1) |
78,622 | 766 | 151 | 70,290 | 985 | 701 | ||||||||||||
Foreign currency contracts (1) |
8 |
- |
- |
14 |
- |
- |
||||||||||||
Equity market contracts (1) |
29,704 | 529 | 390 | 28,315 | 541 | 616 | ||||||||||||
Credit contracts (1) |
63 |
- |
- |
66 |
- |
- |
||||||||||||
Embedded derivatives: |
||||||||||||||||||
Guaranteed living benefit ("GLB") (2) |
- |
298 |
- |
- |
- |
- |
||||||||||||
GLB (3) |
- |
- |
- |
- |
- |
371 | ||||||||||||
Reinsurance related (4) |
- |
- |
53 |
- |
- |
53 | ||||||||||||
Indexed annuity and IUL contracts (5) |
- |
- |
1,268 |
- |
- |
1,139 | ||||||||||||
Total derivative instruments |
$ |
114,993 |
$ |
2,019 |
$ |
2,157 |
$ |
104,926 |
$ |
2,005 |
$ |
3,194 |
(1) |
Reported in derivative investments and other liabilities on our Consolidated Balance Sheets. |
(2) |
Reported in other assets on our Consolidated Balance Sheets. |
(3) |
Reported in other liabilities on our Consolidated Balance Sheets. |
(4) |
Reported in reinsurance related embedded derivatives on our Consolidated Balance Sheets. |
(5) |
Reported in future contract benefits on our Consolidated Balance Sheets. |
Beginning in the first quarter 2017, consistent with changes enacted by the Chicago Mercantile Exchange (“CME”), the Company offset the variation margin payments with the derivative balances that are cleared through CME.
The maturity of the notional amounts of derivative instruments (in millions) was as follows:
|
||||||||||||||||||
|
Remaining Life as of June 30, 2017 |
|||||||||||||||||
|
Less Than |
1 - 5 |
6 - 10 |
11 - 30 |
Over 30 |
|||||||||||||
|
1 Year |
Years |
Years |
Years |
Years |
Total |
||||||||||||
Interest rate contracts (1) |
$ |
15,024 |
$ |
22,369 |
$ |
30,174 |
$ |
14,926 |
$ |
1,213 |
$ |
83,706 | ||||||
Foreign currency contracts (2) |
19 | 151 | 378 | 962 | 10 | 1,520 | ||||||||||||
Equity market contracts |
17,594 | 9,784 | 869 | 15 | 1,442 | 29,704 | ||||||||||||
Credit contracts |
- |
63 |
- |
- |
- |
63 | ||||||||||||
Total derivative instruments |
||||||||||||||||||
with notional amounts |
$ |
32,637 |
$ |
32,367 |
$ |
31,421 |
$ |
15,903 |
$ |
2,665 |
$ |
114,993 |
(1) |
As of June 30, 2017, the latest maturity date for which we were hedging our exposure to the variability in future cash flows for these instruments was April 2067. |
(2) |
As of June 30, 2017, the latest maturity date for which we were hedging our exposure to the variability in future cash flows for these instruments was September 2049. |
20
The change in our unrealized gain (loss) on derivative instruments in accumulated OCI (“AOCI”) (in millions) was as follows:
|
||||||
|
For the Six |
|||||
|
Months Ended |
|||||
|
June 30, |
|||||
|
2017 |
2016 |
||||
Unrealized Gain (Loss) on Derivative Instruments |
||||||
Balance as of beginning-of-year |
$ |
49 |
$ |
132 | ||
Other comprehensive income (loss): |
||||||
Unrealized holding gains (losses) arising during the period: |
||||||
Cash flow hedges: |
||||||
Interest rate contracts |
1 | (240 |
) |
|||
Foreign currency contracts |
45 | 32 | ||||
Change in foreign currency exchange rate adjustment |
(75 |
) |
35 | |||
Change in DAC, VOBA, DSI and DFEL |
(8 |
) |
(6 |
) |
||
Income tax benefit (expense) |
13 | 62 | ||||
Less: |
||||||
Reclassification adjustment for gains (losses) |
||||||
included in net income (loss): |
||||||
Cash flow hedges: |
||||||
Interest rate contracts (1) |
2 | 4 | ||||
Interest rate contracts (2) |
(9 |
) |
(2 |
) |
||
Foreign currency contracts (1) |
9 | 3 | ||||
Foreign currency contracts (3) |
5 | 4 | ||||
Associated amortization of DAC, VOBA, DSI and DFEL |
(2 |
) |
(1 |
) |
||
Income tax benefit (expense) |
(2 |
) |
(3 |
) |
||
Balance as of end-of-period |
$ |
22 |
$ |
10 |
(1) |
The OCI offset is reported within net investment income on our Consolidated Statements of Comprehensive Income (Loss). |
(2) |
The OCI offset is reported within interest and debt expense on our Consolidated Statements of Comprehensive Income (Loss). |
(3) |
The OCI offset is reported within realized gain (loss) on our Consolidated Statements of Comprehensive Income (Loss). |
21
The gains (losses) on derivative instruments (in millions) recorded within income (loss) from continuing operations on our Consolidated Statements of Comprehensive Income (Loss) were as follows:
|
|||||||||||||
|
For the Three |
For the Six |
|||||||||||
|
Months Ended |
Months Ended |
|||||||||||
|
June 30, |
June 30, |
|||||||||||
|
2017 |
2016 |
2017 |
2016 |
|||||||||
Qualifying Hedges |
|||||||||||||
Cash flow hedges: |
|||||||||||||
Interest rate contracts (1) |
$ |
1 |
$ |
3 |
$ |
2 |
$ |
4 | |||||
Interest rate contracts (2) |
(5 |
) |
(2 |
) |
(9 |
) |
(2 |
) |
|||||
Foreign currency contracts (1) |
4 | 1 | 9 | 3 | |||||||||
Foreign currency contracts (3) |
- |
- |
5 | 4 | |||||||||
Total cash flow hedges |
- |
2 | 7 | 9 | |||||||||
Fair value hedges: |
|||||||||||||
Interest rate contracts (1) |
(6 |
) |
(7 |
) |
(13 |
) |
(15 |
) |
|||||
Interest rate contracts (2) |
7 | 8 | 15 | 16 | |||||||||
Interest rate contracts (3) |
(9 |
) |
(32 |
) |
- |
(86 |
) |
||||||
Total fair value hedges |
(8 |
) |
(31 |
) |
2 | (85 |
) |
||||||
Non-Qualifying Hedges |
|||||||||||||
Interest rate contracts (3) |
193 | 614 | 143 | 1,590 | |||||||||
Foreign currency contracts (3) |
(2 |
) |
(7 |
) |
1 | (3 |
) |
||||||
Equity market contracts (3) |
(289 |
) |
(252 |
) |
(817 |
) |
(582 |
) |
|||||
Equity market contracts (4) |
5 | 3 | 14 | 2 | |||||||||
Credit contracts (3) |
- |
(4 |
) |
- |
(7 |
) |
|||||||
Embedded derivatives: |
|||||||||||||
GLB (3) |
72 | (542 |
) |
669 | (1,505 |
) |
|||||||
Reinsurance related (3) |
(3 |
) |
(23 |
) |
- |
(47 |
) |
||||||
Indexed annuity and IUL contracts (3) |
(64 |
) |
(19 |
) |
(184 |
) |
(12 |
) |
|||||
Total derivative instruments |
$ |
(96 |
) |
$ |
(259 |
) |
$ |
(165 |
) |
$ |
(640 |
) |
(1) |
Reported in net investment income on our Consolidated Statements of Comprehensive Income (Loss). |
(2) |
Reported in interest and debt expense on our Consolidated Statements of Comprehensive Income (Loss). |
(3) |
Reported in realized gain (loss) on our Consolidated Statements of Comprehensive Income (Loss). |
(4) |
Reported in commissions and other expenses on our Consolidated Statements of Comprehensive Income (Loss). |
Gains (losses) recognized as a component of OCI (in millions) on derivative instruments designated and qualifying as cash flow hedges were as follows:
|
|||||||||||||
|
For the Three |
For the Six |
|||||||||||
|
Months Ended |
Months Ended |
|||||||||||
|
June 30, |
June 30, |
|||||||||||
|
2017 |
2016 |
2017 |
2016 |
|||||||||
Offset to net investment income |
$ |
5 |
$ |
4 |
$ |
11 |
$ |
7 | |||||
Offset to realized gain (loss) |
- |
- |
5 | 4 | |||||||||
Offset to interest and debt expense |
(5 |
) |
(2 |
) |
(9 |
) |
(2 |
) |
|||||
|
As of June 30, 2017, $6 million of the deferred net gains (losses) on derivative instruments in AOCI were expected to be reclassified to earnings during the next 12 months. This reclassification would be due primarily to interest rate variances related to our interest rate swap agreements.
For the six months ended June 30, 2017 and 2016, there were no material reclassifications to earnings due to hedged firm commitments no longer deemed probable or due to hedged forecasted transactions that had not occurred by the end of the originally specified time period.
22
Information related to our credit default swaps for which we are the seller (dollars in millions) was as follows:
|
|||||||||||||||||
As of June 30, 2017 |
|||||||||||||||||
|
Credit |
||||||||||||||||
|
Reason |
Nature |
Rating of |
Number |
Maximum |
||||||||||||
|
for |
of |
Underlying |
of |
Fair |
Potential |
|||||||||||
Credit Contract Type |
Maturity |
Entering |
Recourse |
Obligation (1) |
Instruments |
Value (2) |
Payout |
||||||||||
Basket credit default swaps |
6/20/2022 |
(3) |
(4) |
BBB+ |
1 |
$ |
1 |
$ |
63 | ||||||||
|
1 |
$ |
1 |
$ |
63 |
|
||||||||||||||||
As of December 31, 2016 |
||||||||||||||||
|
Credit |
|||||||||||||||
|
Reason |
Nature |
Rating of |
Number |
Maximum |
|||||||||||
|
for |
of |
Underlying |
of |
Fair |
Potential |
||||||||||
Credit Contract Type |
Maturity |
Entering |
Recourse |
Obligation (1) |
Instruments |
Value (2) |
Payout |
|||||||||
Single name credit default swaps |
3/20/2017 (5) |
(6) |
(4) |
BBB+ |
2 |
$ |
- |
$ |
40 | |||||||
|
2 |
$ |
- |
$ |
40 |
(1) |
Represents average credit ratings based on the midpoint of the applicable ratings among Moody’s, S&P and Fitch Ratings, as scaled to the corresponding S&P ratings. |
(2) |
Broker quotes are used to determine the market value of our credit default swaps. |
(3) |
Credit default swaps were entered into in order to hedge the liability exposure on certain variable annuity products. |
(4) |
Sellers do not have the right to demand indemnification or compensation from third parties in case of a loss (payment) on the contract. |
(5) |
These credit default swaps were sold to a counterparty of the consolidated VIEs discussed in Note 4 in our 2016 Form 10-K. |
(6) |
Credit default swaps were entered into in order to generate income by providing default protection in return for a quarterly payment. |
Details underlying the associated collateral of our credit default swaps for which we are the seller if credit risk-related contingent features were triggered (in millions) were as follows:
|
|||||||||
|
As of |
As of |
|||||||
|
June 30, |
December 31, |
|||||||
|
2017 |
2016 |
|||||||
Maximum potential payout |
$ |
63 |
$ |
40 | |||||
Less: Counterparty thresholds |
- |
- |
|||||||
Maximum collateral potentially required to post |
$ |
63 |
$ |
40 |
Certain of our credit default swap agreements contain contractual provisions that allow for the netting of collateral with our counterparties related to all of our collateralized financing transactions that we have outstanding. If these netting agreements were not in place, we would have been required to post collateral if the market value was less than zero. As of June 30, 2017 the market value was $1 million.
Credit Risk
We are exposed to credit losses in the event of non-performance by our counterparties on various derivative contracts and reflect assumptions regarding the credit or non-performance risk (“NPR”). The NPR is based upon assumptions for each counterparty’s credit spread over the estimated weighted average life of the counterparty exposure less collateral held. As of June 30, 2017, the NPR adjustment was less than $1 million. The credit risk associated with such agreements is minimized by entering into agreements with financial institutions with long-standing, superior performance records. Additionally, we maintain a policy of requiring derivative contracts to be governed by an International Swaps and Derivatives Association (“ISDA”) Master Agreement. We are required to maintain minimum ratings as a matter of routine practice in negotiating ISDA agreements. Under some ISDA agreements, our insurance subsidiaries have agreed to maintain certain financial strength or claims-paying ratings. A downgrade below these levels could result in termination of derivative contracts, at which time any amounts payable by us would be dependent on the market value of the underlying derivative contracts. In certain transactions, we and the counterparty have entered into a credit support annex requiring either party to post collateral when net exposures exceed pre-determined thresholds. These thresholds vary by counterparty and credit rating. The amount of such exposure is essentially the net replacement cost or market value less collateral held for such agreements with each counterparty if the net market value is in our favor. As of June 30, 2017, our exposure was $4 million.
23
The amounts recognized (in millions) by S&P credit rating of counterparty, for which we had the right to reclaim cash collateral or were obligated to return cash collateral, were as follows:
|
|||||||||||||
|
As of June 30, 2017 |
As of December 31, 2016 |
|||||||||||
|
Collateral |
Collateral |
Collateral |
Collateral |
|||||||||
|
Posted by |
Posted by |
Posted by |
Posted by |
|||||||||
S&P |
Counter- |
LNC |
Counter- |
LNC |
|||||||||
Credit |
Party |
(Held by |
Party |
(Held by |
|||||||||
Rating of |
(Held by |
Counter- |
(Held by |
Counter- |
|||||||||
Counterparty |
LNC) |
Party) |
LNC) |
Party) |
|||||||||
AA- |
$ |
96 |
$ |
- |
$ |
53 |
$ |
(32 |
) |
||||
A+ |
39 | (235 |
) |
10 | (217 |
) |
|||||||
A |
579 | (287 |
) |
466 | (381 |
) |
|||||||
A- |
39 |
- |
67 |
- |
|||||||||
BBB+ |
301 | (5 |
) |
298 |
- |
||||||||
|
$ |
1,054 |
$ |
(527 |
) |
$ |
894 |
$ |
(630 |
) |
Balance Sheet Offsetting
Information related to the effects of offsetting on our Consolidated Balance Sheets (in millions) was as follows:
|
||||||||||||
|
As of June 30, 2017 |
|||||||||||
|
Embedded |
|||||||||||
|
Derivative |
Derivative |
||||||||||
|
Instruments |
Instruments |
Total |
|||||||||
|
||||||||||||
Financial Assets |
||||||||||||
Gross amount of recognized assets |
$ |
1,600 |
$ |
298 |
$ |
1,898 | ||||||
Gross amounts offset |
(546 |
) |
- |
(546 |
) |
|||||||
Net amount of assets |
1,054 | 298 | 1,352 | |||||||||
Gross amounts not offset: |
||||||||||||
Cash collateral |
(1,054 |
) |
- |
(1,054 |
) |
|||||||
Net amount |
$ |
- |
$ |
298 |
$ |
298 | ||||||
|
||||||||||||
Financial Liabilities |
||||||||||||
Gross amount of recognized liabilities |
$ |
611 |
$ |
1,321 |
$ |
1,932 | ||||||
Gross amounts offset |
(121 |
) |
- |
(121 |
) |
|||||||
Net amount of liabilities |
490 | 1,321 | 1,811 | |||||||||
Gross amounts not offset: |
||||||||||||
Cash collateral |
(527 |
) |
- |
(527 |
) |
|||||||
Net amount |
$ |
(37 |
) |
$ |
1,321 |
$ |
1,284 |
24
|
As of December 31, 2016 |
|||||||||||
|
Embedded |
|||||||||||
|
Derivative |
Derivative |
||||||||||
|
Instruments |
Instruments |
Total |
|||||||||
|
||||||||||||
Financial Assets |
||||||||||||
Gross amount of recognized assets |
$ |
1,470 |
$ |
- |
$ |
1,470 | ||||||
Gross amounts offset |
(543 |
) |
- |
(543 |
) |
|||||||
Net amount of assets |
927 |
- |
927 | |||||||||
Gross amounts not offset: |
||||||||||||
Cash collateral |
(894 |
) |
- |
(894 |
) |
|||||||
Net amount |
$ |
33 |
$ |
- |
$ |
33 | ||||||
|
||||||||||||
Financial Liabilities |
||||||||||||
Gross amount of recognized liabilities |
$ |
1,089 |
$ |
1,563 |
$ |
2,652 | ||||||
Gross amounts offset |
(536 |
) |
- |
(536 |
) |
|||||||
Net amount of liabilities |
553 | 1,563 | 2,116 | |||||||||
Gross amounts not offset: |
||||||||||||
Cash collateral |
(630 |
) |
- |
(630 |
) |
|||||||
Net amount |
$ |
(77 |
) |
$ |
1,563 |
$ |
1,486 |
6. Federal Income Taxes
The effective tax rate is the ratio of tax expense over pre-tax income (loss). The effective tax rate was 23% and 16% for the three and six months ended June 30, 2017, respectively. The effective tax rate was 21% and 18% for the three and six months ended June 30, 2016, respectively. The effective tax rate was significantly lower than the prevailing corporate federal income tax rate. Differences in the effective rates and the U.S. statutory rate of 35% were the result of the separate accounts dividends-received deduction, certain tax preferred investment income, foreign tax credits and other tax preference items.
7. Guaranteed Benefit Features
Information on the guaranteed death benefit (“GDB”) features outstanding (dollars in millions) was as follows:
|
||||||||
|
As of |
As of |
||||||
|
June 30, |
December 31, |
||||||
|
2017 (1) |
2016 (1) |
||||||
Return of Net Deposits |
||||||||
Total account value |
$ |
92,182 |
$ |
87,707 | ||||
Net amount at risk (2) |
179 | 824 | ||||||
Average attained age of contract holders |
64 years |
63 years |
||||||
|
||||||||
Minimum Return |
||||||||
Total account value |
$ |
107 |
$ |
105 | ||||
Net amount at risk (2) |
19 | 22 | ||||||
Average attained age of contract holders |
76 years |
75 years |
||||||
Guaranteed minimum return |
5% | 5% | ||||||
|
||||||||
Anniversary Contract Value |
||||||||
Total account value |
$ |
25,666 |
$ |
24,605 | ||||
Net amount at risk (2) |
482 | 782 | ||||||
Average attained age of contract holders |
70 years |
69 years |
(1) |
Our variable contracts with guarantees may offer more than one type of guarantee in each contract; therefore, the amounts listed are not mutually exclusive. |
(2) |
Represents the amount of death benefit in excess of the account balance that is subject to market fluctuations. |
25
The determination of GDB liabilities is based on models that involve a range of scenarios and assumptions, including those regarding expected market rates of return and volatility, contract surrender rates and mortality experience. The following summarizes the balances of and changes in the liabilities for GDBs (in millions), which were recorded in future contract benefits on our Consolidated Balance Sheets:
|
|||||||
|
For the Six |
||||||
|
Months Ended |
||||||
|
June 30, |
||||||
|
2017 |
2016 |
|||||
Balance as of beginning-of-year |
$ |
110 |
$ |
115 | |||
Changes in reserves |
(2 |
) |
22 | ||||
Benefits paid |
(11 |
) |
(24 |
) |
|||
Balance as of end-of-period |
$ |
97 |
$ |
113 |
Variable Annuity Contracts
Account balances of variable annuity contracts, including those with guarantees, (in millions) were invested in separate account investment options as follows:
|
||||||||
|
As of |
As of |
||||||
|
June 30, |
December 31, |
||||||
|
2017 |
2016 |
||||||
Asset Type |
||||||||
Domestic equity |
$ |
55,453 |
$ |
52,244 | ||||
International equity |
18,610 | 17,396 | ||||||
Bonds |
27,829 | 27,532 | ||||||
Money market |
13,327 | 12,010 | ||||||
Total |
$ |
115,219 |
$ |
109,182 | ||||
|
||||||||
Percent of total variable annuity |
||||||||
separate account values |
99% | 99% |
Secondary Guarantee Products
Future contract benefits and other contract holder funds include reserves for our secondary guarantee products sold through our Life Insurance segment. These UL and VUL products with secondary guarantees represented 34% and 35% of total life insurance in-force reserves as of June 30, 2017, and December 31, 2016, respectively. UL and VUL products with secondary guarantees represented 28% and 27% of total sales for the three and six months ended June 30, 2017, respectively, compared to 33% and 31% for the corresponding periods in 2016.
8. Contingencies and Commitments
Regulatory bodies, such as state insurance departments, the SEC, Financial Industry Regulatory Authority and other regulatory bodies regularly make inquiries and conduct examinations or investigations concerning our compliance with, among other things, insurance laws, securities laws, laws governing the activities of broker-dealers, registered investment advisors and unclaimed property laws.
LNC is involved in various pending or threatened legal or regulatory proceedings, including purported class actions, arising from the conduct of business both in the ordinary course and otherwise. In some of the matters, very large and/or indeterminate amounts, including punitive and treble damages, are sought. Modern pleading practice in the U.S. permits considerable variation in the assertion of monetary damages or other relief. Jurisdictions may permit claimants not to specify the monetary damages sought or may permit claimants to state only that the amount sought is sufficient to invoke the jurisdiction of the trial court. In addition, jurisdictions may permit plaintiffs to allege monetary damages in amounts well exceeding verdicts obtained in the jurisdiction for similar matters. This variability in pleadings, together with the actual experiences of LNC in litigating or resolving through settlement numerous claims over an extended period of time, demonstrates to management that the monetary relief which may be specified in a lawsuit or claim bears little relevance to its merits or disposition value.
Due to the unpredictable nature of litigation, the outcome of a litigation matter and the amount or range of potential loss at particular points in time is normally difficult to ascertain. Uncertainties can include how fact finders will evaluate documentary evidence and the credibility and effectiveness of witness testimony, and how trial and appellate courts will apply the law in the context of the pleadings or evidence presented, whether by motion practice, or at trial or on appeal. Disposition valuations are also subject to the uncertainty of how opposing parties and their counsel will themselves view the relevant evidence and applicable law.
We establish liabilities for litigation and regulatory loss contingencies when information related to the loss contingencies shows both that it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated. It is possible that some matters could
26
require us to pay damages or make other expenditures or establish accruals in amounts that could not be estimated as of June 30, 2017. While the potential future charges could be material in the particular quarterly or annual periods in which they are recorded, based on information currently known by management, management does not believe any such charges are likely to have a material adverse effect on LNC’s financial condition.
For some matters, the Company is able to estimate a reasonably possible range of loss. For such matters in which a loss is probable, an accrual has been made. For such matters where a loss is believed to be reasonably possible, but not probable, no accrual has been made. Accordingly, the estimate contained in this paragraph reflects two types of matters. For some matters included within this estimate, an accrual has been made, but there is a reasonable possibility that an exposure exists in excess of the amount accrued. In these cases, the estimate reflects the reasonably possible range of loss in excess of the accrued amount. For other matters included within this estimation, no accrual has been made because a loss, while potentially estimable, is believed to be reasonably possible but not probable. In these cases, the estimate reflects the reasonably possible loss or range of loss. As of June 30, 2017, we estimate the aggregate range of reasonably possible losses to be up to approximately $50 million.
For other matters, we are not currently able to estimate the reasonably possible loss or range of loss. We are often unable to estimate the possible loss or range of loss until developments in such matters have provided sufficient information to support an assessment of the range of possible loss, such as quantification of a damage demand from plaintiffs, discovery from other parties and investigation of factual allegations, rulings by the court on motions or appeals, analysis by experts and the progress of settlement negotiations. On a quarterly and annual basis, we review relevant information with respect to litigation contingencies and update our accruals, disclosures and estimates of reasonably possible losses or ranges of loss based on such reviews.
See Note 13 in our 2016 Form 10-K and Note 8 in our Form 10-Q for the quarter ended March 31, 2017, for additional discussion of commitments and contingencies, which information is incorporated herein by reference.
9. Shares and Stockholders’ Equity
Common Shares
The changes in our common stock (number of shares) were as follows:
|
||||||||
|
For the Three |
For the Six |
||||||
|
Months Ended |
Months Ended |
||||||
|
June 30, |
June 30, |
||||||
|
2017 |
2016 |
2017 |
2016 |
||||
Common Stock |
||||||||
Balance as of beginning-of-period |
224,888,259 | 239,005,252 | 226,335,105 | 243,835,893 | ||||
Stock issued for exercise of warrants |
289,636 | 13,335 | 334,930 | 38,148 | ||||
Stock compensation/issued for benefit plans |
89,455 | 9,537 | 1,461,286 | 670,142 | ||||
Retirement/cancellation of shares |
(3,030,088 |
) |
(6,243,433 |
) |
(5,894,059 |
) |
(11,759,492 |
) |
Balance as of end-of-period |
222,237,262 | 232,784,691 | 222,237,262 | 232,784,691 | ||||
|
||||||||
Common Stock as of End-of-Period |
||||||||
Basic basis |
222,237,262 | 232,784,691 | 222,237,262 | 232,784,691 | ||||
Diluted basis (1) |
226,044,165 | 236,179,176 | 226,044,165 | 236,179,176 |
(1) |
Effective October 1, 2016, we early adopted ASU 2016-09, Improvements to Employee Share-Based Payment Accounting. We have updated certain previously reported interim results and metrics as of January 1, 2016, in accordance with this guidance. For more information, see Note 1 – Earnings Per Share in our 2016 Form 10-K. |
Our common stock is without par value.
27
Average Shares
A reconciliation of the denominator (number of shares) in the calculations of basic and diluted earnings (loss) per common share was as follows:
|
||||||||
|
For the Three |
For the Six |
||||||
|
Months Ended |
Months Ended |
||||||
|
June 30, |
June 30, |
||||||
|
2017 |
2016 |
2017 |
2016 |
||||
Weighted-average shares, as used in basic calculation |
223,555,299 | 236,463,183 | 224,581,848 | 239,069,774 | ||||
Shares to cover exercise of outstanding warrants |
694,403 | 1,098,405 | 858,916 | 1,100,176 | ||||
Shares to cover non-vested stock (1) |
1,426,550 | 872,481 | 1,551,173 | 967,816 | ||||
Average stock options outstanding during the period (1) |
2,339,558 | 2,090,988 | 2,510,344 | 1,948,817 | ||||
Assumed acquisition of shares with assumed proceeds |
||||||||
from exercising outstanding warrants |
(105,156 |
) |
(265,103 |
) |
(127,696 |
) |
(278,312 |
) |
Assumed acquisition of shares with assumed |
||||||||
proceeds and benefits from exercising stock |
||||||||
options (at average market price for the period) (1) |
(1,464,321 |
) |
(1,429,907 |
) |
(1,541,738 |
) |
(1,364,709 |
) |
Shares repurchasable from measured but |
||||||||
unrecognized stock option expense (1) |
(59,959 |
) |
(34,492 |
) |
(68,519 |
) |
(17,797 |
) |
Average deferred compensation shares |
927,508 | 1,101,384 | 938,661 | 1,070,657 | ||||
Weighted-average shares, as used in diluted calculation (1) |
227,313,882 | 239,896,939 | 228,702,989 | 242,496,422 |
(1) |
Effective October 1, 2016, we early adopted ASU 2016-09, Improvements to Employee Share-Based Payment Accounting. We have updated certain previously reported interim results and metrics as of January 1, 2016, in accordance with this guidance. For more information, see Note 1 – Earnings Per Share in our 2016 Form 10-K. |
In the event the average market price of LNC common stock exceeds the issue price of stock options and the options have a dilutive effect to our earnings per share (“EPS”), such options will be shown in the table above.
We have participants in our deferred compensation plans who selected LNC stock as the measure for the investment return attributable to all or a portion of their deferral amounts. For the three and six months ended June 30, 2017 and 2016, the effect of settling this obligation in LNC stock (“equity classification”) was more dilutive than the scenario of settling in cash (“liability classification”). Therefore, for our EPS calculation for these periods, we added these shares to the denominator and adjusted the numerator to present net income as if the shares had been accounted for under equity classification by removing the mark-to-market adjustment included in net income attributable to these deferred units of LNC stock. The amount of this adjustment was $(1) million for the three and six months ended June 30, 2017, respectively, and less than $1 million and $7 million for the three and six months ended June 30, 2016, respectively.
28
AOCI
The following summarizes the components and changes in AOCI (in millions):
|
For the Six |
|||||
|
Months Ended |
|||||
|
June 30, |
|||||
|
2017 |
2016 |
||||
Unrealized Gain (Loss) on AFS Securities |
||||||
Balance as of beginning-of-year |
$ |
1,784 |
$ |
991 | ||
Unrealized holding gains (losses) arising during the period |
2,058 | 5,394 | ||||
Change in foreign currency exchange rate adjustment |
69 | (33 |
) |
|||
Change in DAC, VOBA, DSI, future contract benefits and other contract holder funds |
(356 |
) |
(1,620 |
) |
||
Income tax benefit (expense) |
(626 |
) |
(1,321 |
) |
||
Less: |
||||||
Reclassification adjustment for gains (losses) included in net income (loss) |
(13 |
) |
(101 |
) |
||
Associated amortization of DAC, VOBA, DSI and DFEL |
(11 |
) |
(7 |
) |
||
Income tax benefit (expense) |
8 | 38 | ||||
Balance as of end-of-period |
$ |
2,945 |
$ |
3,481 | ||
Unrealized OTTI on AFS Securities |
||||||
Balance as of beginning-of-year |
$ |
25 |
$ |
26 | ||
(Increases) attributable to: |
||||||
Gross OTTI recognized in OCI during the period |
- |
(36 |
) |
|||
Change in DAC, VOBA, DSI and DFEL |
- |
8 | ||||
Income tax benefit (expense) |
- |
10 | ||||
Decreases attributable to: |
||||||
Changes in fair value, sales, maturities or other settlements of AFS securities |
21 | 5 | ||||
Change in DAC, VOBA, DSI and DFEL |
(4 |
) |
(1 |
) |
||
Income tax benefit (expense) |
(6 |
) |
(2 |
) |
||
Balance as of end-of-period |
$ |
36 |
$ |
10 | ||
Unrealized Gain (Loss) on Derivative Instruments |
||||||
Balance as of beginning-of-year |
$ |
49 |
$ |
132 | ||
Unrealized holding gains (losses) arising during the period |
46 | (208 |
) |
|||
Change in foreign currency exchange rate adjustment |
(75 |
) |
35 | |||
Change in DAC, VOBA, DSI and DFEL |
(8 |
) |
(6 |
) |
||
Income tax benefit (expense) |
13 | 62 | ||||
Less: |
||||||
Reclassification adjustment for gains (losses) included in net income (loss) |
7 | 9 | ||||
Associated amortization of DAC, VOBA, DSI and DFEL |
(2 |
) |
(1 |
) |
||
Income tax benefit (expense) |
(2 |
) |
(3 |
) |
||
Balance as of end-of-period |
$ |
22 |
$ |
10 | ||
Foreign Currency Translation Adjustment |
||||||
Balance as of beginning-of-year |
$ |
(27 |
) |
$ |
(5 |
) |
Foreign currency translation adjustment arising during the period |
7 | (13 |
) |
|||
Balance as of end-of-period |
$ |
(20 |
) |
$ |
(18 |
) |
Funded Status of Employee Benefit Plans |
||||||
Balance as of beginning-of-year |
$ |
(265 |
) |
$ |
(299 |
) |
Adjustment arising during the period |
(7 |
) |
11 | |||
Balance as of end-of-period |
$ |
(272 |
) |
$ |
(288 |
) |
29
The following summarizes the reclassifications out of AOCI (in millions) and the associated line item in the Consolidated Statements of Comprehensive Income (Loss):
|
||||||||
|
For the Six |
|||||||
|
Months Ended |
|||||||
|
June 30, |
|||||||
|
2017 |
2016 |
||||||
Unrealized Gain (Loss) on AFS Securities |
||||||||
Gross reclassification |
$ |
(13 |
) |
$ |
(101 |
) |
Total realized gain (loss) |
|
Associated amortization of DAC, |
||||||||
VOBA, DSI and DFEL |
(11 |
) |
(7 |
) |
Total realized gain (loss) |
|||
Reclassification before income |
Income (loss) from continuing |
|||||||
tax benefit (expense) |
(24 |
) |
(108 |
) |
operations before taxes |
|||
Income tax benefit (expense) |
8 | 38 |
Federal income tax expense (benefit) |
|||||
Reclassification, net of income tax |
$ |
(16 |
) |
$ |
(70 |
) |
Net income (loss) |
|
|
||||||||
Unrealized OTTI on AFS Securities |
||||||||
Gross reclassification |
$ |
(1 |
) |
$ |
1 |
Total realized gain (loss) |
||
Change in DAC, VOBA, DSI and DFEL |
- |
- |
Total realized gain (loss) |
|||||
Reclassification before income |
Income (loss) from continuing |
|||||||
tax benefit (expense) |
(1 |
) |
1 |
operations before taxes |
||||
Income tax benefit (expense) |
- |
- |
Federal income tax expense (benefit) |
|||||
Reclassification, net of income tax |
$ |
(1 |
) |
$ |
1 |
Net income (loss) |
||
|
||||||||
Unrealized Gain (Loss) on Derivative Instruments |
||||||||
Gross reclassifications: |
||||||||
Interest rate contracts |
$ |
2 |
$ |
4 |
Net investment income |
|||
Interest rate contracts |
(9 |
) |
(2 |
) |
Interest and debt expense |
|||
Foreign currency contracts |
9 | 7 |
Net investment income |
|||||
Foreign currency contracts |
5 |
- |
Total realized gain (loss) |
|||||
Total gross reclassifications |
7 | 9 | ||||||
Associated amortization of DAC, |
||||||||
VOBA, DSI and DFEL |
(2 |
) |
(1 |
) |
Commissions and other expenses |
|||
Reclassifications before income |
Income (loss) from continuing |
|||||||
tax benefit (expense) |
5 | 8 |
operations before taxes |
|||||
Income tax benefit (expense) |
(2 |
) |
(3 |
) |
Federal income tax expense (benefit) |
|||
Reclassifications, net of income tax |
$ |
3 |
$ |
5 |
Net income (loss) |
30
10. Realized Gain (Loss)
Details underlying realized gain (loss) (in millions) reported on our Consolidated Statements of Comprehensive Income (Loss) were as follows:
|
||||||||||||
|
For the Three |
For the Six |
||||||||||
|
Months Ended |
Months Ended |
||||||||||
|
June 30, |
June 30, |
||||||||||
|
2017 |
2016 |
2017 |
2016 |
||||||||
Total realized gain (loss) related to certain investments (1) |
$ |
(18 |
) |
$ |
(65 |
) |
$ |
(31 |
) |
$ |
(172 |
) |
Realized gain (loss) on the mark-to-market on certain instruments (2) |
(5 |
) |
(8 |
) |
5 |
- |
||||||
Indexed annuity and IUL contracts net derivatives results: (3) |
||||||||||||
Gross gain (loss) |
(7 |
) |
(9 |
) |
(17 |
) |
(33 |
) |
||||
Associated amortization of DAC, VOBA, DSI and DFEL |
2 | 4 | 1 | 6 | ||||||||
Variable annuity net derivatives results: (4) |
||||||||||||
Gross gain (loss) |
23 | 37 | (5 |
) |
48 | |||||||
Associated amortization of DAC, VOBA, DSI and DFEL |
(5 |
) |
(4 |
) |
(2 |
) |
(8 |
) |
||||
Total realized gain (loss) |
$ |
(10 |
) |
$ |
(45 |
) |
$ |
(49 |
) |
$ |
(159 |
) |
(1) |
See “Realized Gain (Loss) Related to Certain Investments” section in Note 4. |
(2) |
Represents changes in the fair values of certain derivative investments (not including those associated with our variable and indexed annuity and IUL contracts net derivatives results), reinsurance related embedded derivatives and trading securities. |
(3) |
Represents the net difference between the change in the fair value of the S&P 500 Index ® call options that we hold and the change in the fair value of the embedded derivative liabilities of our indexed annuity and IUL contracts along with changes in the fair value of embedded derivative liabilities related to index call options we may purchase in the future to hedge contract holder index allocations applicable to future reset periods for our indexed annuity products. |
(4) |
Includes the net difference in the change in embedded derivative reserves of our GLB riders and the change in the fair value of the derivative instruments we own to hedge the change in embedded derivative reserves on our GLB riders and the benefit ratio unlocking on our GLB and GDB riders, including the cost of purchasing the hedging instruments. |
11. Stock-Based Compensation Plans
We sponsor stock-based compensation plans for our employees and directors and for the employees and agents of our subsidiaries that provide for the grant of stock options, performance shares (performance-vested shares as opposed to service-vested shares), stock appreciation rights (“SARs”), restricted stock units (“RSUs”) and deferred stock units (“DSUs”). We issue new shares to satisfy option exercises.
LNC stock-based awards granted were as follows:
|
|||||||
|
For the |
For the |
|||||
|
Three |
Six |
|||||
|
Months |
Months |
|||||
|
Ended |
Ended |
|||||
|
June 30, |
June 30, |
|||||
|
2017 |
2017 |
|||||
10-year LNC stock options |
15,270 | 407,637 | |||||
Performance shares |
5,126 | 154,351 | |||||
RSUs |
37,365 | 435,865 | |||||
Non-employee: |
|||||||
SARs |
- |
26,494 | |||||
Agent stock options |
- |
102,638 | |||||
Director DSUs |
7,059 | 14,534 |
31
12. Fair Value of Financial Instruments
The carrying values and estimated fair values of our financial instruments (in millions) were as follows:
|
||||||||||||
|
As of June 30, 2017 |
As of December 31, 2016 |
||||||||||
|
Carrying |
Fair |
Carrying |
Fair |
||||||||
|
Value |
Value |
Value |
Value |
||||||||
Assets |
||||||||||||
AFS securities: |
||||||||||||
Fixed maturity securities |
$ |
93,014 |
$ |
93,014 |
$ |
89,013 |
$ |
89,013 | ||||
VIEs’ fixed maturity securities |
- |
- |
200 | 200 | ||||||||
Equity securities |
275 | 275 | 275 | 275 | ||||||||
Trading securities |
1,678 | 1,678 | 1,712 | 1,712 | ||||||||
Mortgage loans on real estate |
10,023 | 10,157 | 9,889 | 9,853 | ||||||||
Derivative investments (1) |
1,054 | 1,054 | 927 | 927 | ||||||||
Other investments |
2,156 | 2,156 | 2,230 | 2,230 | ||||||||
Cash and invested cash |
1,978 | 1,978 | 2,722 | 2,722 | ||||||||
Other assets: |
||||||||||||
GLB direct embedded derivatives (2) |
298 | 298 |
- |
- |
||||||||
GLB ceded embedded derivatives |
85 | 85 | 203 | 203 | ||||||||
Separate account assets |
135,825 | 135,825 | 128,397 | 128,397 | ||||||||
|
||||||||||||
Liabilities |
||||||||||||
Future contract benefits – indexed annuity |
||||||||||||
and IUL contracts embedded derivatives |
(1,268 |
) |
(1,268 |
) |
(1,139 |
) |
(1,139 |
) |
||||
Other contract holder funds: |
||||||||||||
Remaining guaranteed interest and similar contracts |
(625 |
) |
(625 |
) |
(629 |
) |
(629 |
) |
||||
Account values of certain investment contracts |
(31,982 |
) |
(36,201 |
) |
(31,516 |
) |
(35,647 |
) |
||||
Short-term debt |
(450 |
) |
(457 |
) |
- |
- |
||||||
Long-term debt |
(4,901 |
) |
(5,485 |
) |
(5,345 |
) |
(5,679 |
) |
||||
Reinsurance related embedded derivatives |
(53 |
) |
(53 |
) |
(53 |
) |
(53 |
) |
||||
Other liabilities: |
||||||||||||
Derivative liabilities (1) |
(169 |
) |
(169 |
) |
(553 |
) |
(553 |
) |
||||
GLB direct embedded derivatives (2) |
- |
- |
(371 |
) |
(371 |
) |
(1) |
We have master netting agreements with each of our derivative counterparties, which allow for the netting of our derivative asset and liability positions by counterparty. |
(2) |
Portions of our GLB direct embedded derivatives are ceded to third-party reinsurance counterparties. Refer to Note 5 for additional detail. |
Valuation Methodologies and Associated Inputs for Financial Instruments Not Carried at Fair Value
The following discussion outlines the methodologies and assumptions used to determine the fair value of our financial instruments not carried at fair value on our Consolidated Balance Sheets. Considerable judgment is required to develop these assumptions used to measure fair value. Accordingly, the estimates shown are not necessarily indicative of the amounts that would be realized in a one-time, current market exchange of all of our financial instruments.
Mortgage Loans on Real Estate
The fair value of mortgage loans on real estate is established using a discounted cash flow method based on credit rating, maturity and future income. The ratings for mortgages in good standing are based on property type, location, market conditions, occupancy, debt-service coverage, loan-to-value, quality of tenancy, borrower and payment record. The fair value for impaired mortgage loans is based on the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s market price or the fair value of the collateral if the loan is collateral dependent. The inputs used to measure the fair value of our mortgage loans on real estate are classified as Level 2 within the fair value hierarchy.
Other Investments
The carrying value of our assets classified as other investments approximates fair value. Other investments includes primarily LPs and other privately held investments that are accounted for using the equity method of accounting and the carrying value is based on our proportional share of the net assets of the LPs. The inputs used to measure the fair value of our LPs and other privately held investments are classified as Level 3 within the fair value hierarchy. Other investments also includes securities that are not LPs or other privately held investments and the inputs used to measure the fair value of these securities are classified as Level 1 within the fair value hierarchy.
32
Other Contract Holder Funds
Other contract holder funds include remaining guaranteed interest and similar contracts and account values of certain investment contracts. The fair value for the remaining guaranteed interest and similar contracts is estimated using discounted cash flow calculations as of the balance sheet date. These calculations are based on interest rates currently offered on similar contracts with maturities that are consistent with those remaining for the contracts being valued. As of June 30, 2017, and December 31, 2016, the remaining guaranteed interest and similar contracts carrying value approximated fair value. The fair value of the account values of certain investment contracts is based on their approximate surrender value as of the balance sheet date. The inputs used to measure the fair value of our other contract holder funds are classified as Level 3 within the fair value hierarchy.
Short-Term and Long-Term Debt
The fair value of short-term and long-term debt is based on quoted market prices. The inputs used to measure the fair value of our short-term and long-term debt are classified as Level 2 within the fair value hierarchy.
Financial Instruments Carried at Fair Value
We did not have any assets or liabilities measured at fair value on a nonrecurring basis as of June 30, 2017, or December 31, 2016, and we noted no changes in our valuation methodologies between these periods.
The following summarizes our financial instruments carried at fair value (in millions) on a recurring basis by the fair value hierarchy levels described in “Summary of Significant Accounting Policies” in Note 1 of our 2016 Form 10-K:
|
||||||||||||||||
|
As of June 30, 2017 |
|||||||||||||||
|
Quoted |
|||||||||||||||
|
Prices |
|||||||||||||||
|
in Active |
|||||||||||||||
|
Markets for |
Significant |
Significant |
|||||||||||||
|
Identical |
Observable |
Unobservable |
Total |
||||||||||||
|
Assets |
Inputs |
Inputs |
Fair |
||||||||||||
|
(Level 1) |
(Level 2) |
(Level 3) |
Value |
||||||||||||
Assets |
||||||||||||||||
Investments: |
||||||||||||||||
Fixed maturity AFS securities: |
||||||||||||||||
Corporate bonds |
$ |
- |
$ |
78,031 |
$ |
2,517 |
$ |
80,548 | ||||||||
ABS |
- |
1,007 | 43 | 1,050 | ||||||||||||
U.S. government bonds |
564 | 9 | 5 | 578 | ||||||||||||
Foreign government bonds |
- |
346 | 109 | 455 | ||||||||||||
RMBS |
- |
3,545 | 7 | 3,552 | ||||||||||||
CMBS |
- |
455 | 21 | 476 | ||||||||||||
CLOs |
- |
675 | 28 | 703 | ||||||||||||
State and municipal bonds |
- |
5,010 |
- |
5,010 | ||||||||||||
Hybrid and redeemable preferred securities |
67 | 493 | 82 | 642 | ||||||||||||
Equity AFS securities |
13 | 79 | 183 | 275 | ||||||||||||
Trading securities |
73 | 1,546 | 59 | 1,678 | ||||||||||||
Derivative investments (1) |
- |
1,150 | 571 | 1,721 | ||||||||||||
Other investments |
150 |
- |
- |
150 | ||||||||||||
Cash and invested cash |
- |
1,978 |
- |
1,978 | ||||||||||||
Other assets: |
||||||||||||||||
GLB direct embedded derivatives |
- |
- |
298 | 298 | ||||||||||||
GLB ceded embedded derivatives |
- |
- |
85 | 85 | ||||||||||||
Separate account assets |
772 | 135,053 |
- |
135,825 | ||||||||||||
Total assets |
$ |
1,639 |
$ |
229,377 |
$ |
4,008 |
$ |
235,024 | ||||||||
|
||||||||||||||||
Liabilities |
||||||||||||||||
Future contract benefits – indexed annuity |
||||||||||||||||
and IUL contracts embedded derivatives |
$ |
- |
$ |
- |
$ |
(1,268 |
) |
$ |
(1,268 |
) |
||||||
Long-term debt |
- |
(1,135 |
) |
- |
(1,135 |
) |
||||||||||
Reinsurance related embedded derivatives |
- |
(53 |
) |
- |
(53 |
) |
||||||||||
Other liabilities – derivative liabilities (1) |
- |
(420 |
) |
(416 |
) |
(836 |
) |
|||||||||
Total liabilities |
$ |
- |
$ |
(1,608 |
) |
$ |
(1,684 |
) |
$ |
(3,292 |
) |
33
|
As of December 31, 2016 |
|||||||||||||||
|
Quoted |
|||||||||||||||
|
Prices |
|||||||||||||||
|
in Active |
|||||||||||||||
|
Markets for |
Significant |
Significant |
|||||||||||||
|
Identical |
Observable |
Unobservable |
Total |
||||||||||||
|
Assets |
Inputs |
Inputs |
Fair |
||||||||||||
|
(Level 1) |
(Level 2) |
(Level 3) |
Value |
||||||||||||
Assets |
||||||||||||||||
Investments: |
||||||||||||||||
Fixed maturity AFS securities: |
||||||||||||||||
Corporate bonds |
$ |
- |
$ |
74,659 |
$ |
2,405 |
$ |
77,064 | ||||||||
ABS |
- |
1,052 | 33 | 1,085 | ||||||||||||
U.S. government bonds |
408 | 11 |
- |
419 | ||||||||||||
Foreign government bonds |
- |
395 | 111 | 506 | ||||||||||||
RMBS |
- |
3,611 | 3 | 3,614 | ||||||||||||
CMBS |
- |
343 | 7 | 350 | ||||||||||||
CLOs |
- |
676 | 68 | 744 | ||||||||||||
State and municipal bonds |
- |
4,627 |
- |
4,627 | ||||||||||||
Hybrid and redeemable preferred securities |
60 | 468 | 76 | 604 | ||||||||||||
VIEs’ fixed maturity securities |
- |
200 |
- |
200 | ||||||||||||
Equity AFS securities |
17 | 81 | 177 | 275 | ||||||||||||
Trading securities |
102 | 1,545 | 65 | 1,712 | ||||||||||||
Derivative investments (1) |
- |
1,406 | 599 | 2,005 | ||||||||||||
Other investments |
146 |
- |
- |
146 | ||||||||||||
Cash and invested cash |
- |
2,722 |
- |
2,722 | ||||||||||||
Other assets – GLB ceded embedded derivatives |
- |
- |
203 | 203 | ||||||||||||
Separate account assets |
863 | 127,534 |
- |
128,397 | ||||||||||||
Total assets |
$ |
1,596 |
$ |
219,330 |
$ |
3,747 |
$ |
224,673 | ||||||||
|
||||||||||||||||
Liabilities |
||||||||||||||||
Future contract benefits – indexed annuity |
||||||||||||||||
and IUL contracts embedded derivatives |
$ |
- |
$ |
- |
$ |
(1,139 |
) |
$ |
(1,139 |
) |
||||||
Long-term debt |
- |
(1,203 |
) |
- |
(1,203 |
) |
||||||||||
Reinsurance related embedded derivatives |
- |
(53 |
) |
- |
(53 |
) |
||||||||||
Other liabilities: |
||||||||||||||||
Derivative liabilities (1) |
- |
(939 |
) |
(692 |
) |
(1,631 |
) |
|||||||||
GLB direct embedded derivatives |
- |
- |
(371 |
) |
(371 |
) |
||||||||||
Total liabilities |
$ |
- |
$ |
(2,195 |
) |
$ |
(2,202 |
) |
$ |
(4,397 |
) |
(1) |
Derivative investment assets and liabilities presented within the fair value hierarchy are presented on a gross basis by derivative type and not on a master netting basis by counterparty. |
34
The following summarizes changes to our financial instruments carried at fair value (in millions) and classified within Level 3 of the fair value hierarchy. This summary excludes any effect of amortization of deferred acquisition costs (“DAC”), value of business acquired (“VOBA”), deferred sales inducements (“DSI”) and deferred front-end loads (“DFEL”). The gains and losses below may include changes in fair value due in part to observable inputs that are a component of the valuation methodology.
|
||||||||||||||||||
|
For the Three Months Ended June 30, 2017 |
|||||||||||||||||
|
Gains |
Issuances, |
Transfers |
|||||||||||||||
|
Items |
(Losses) |
Sales, |
Into or |
||||||||||||||
|
Included |
in |
Maturities, |
Out |
||||||||||||||
|
Beginning |
in |
OCI |
Settlements, |
of |
Ending |
||||||||||||
|
Fair |
Net |
and |
Calls, |
Level 3, |
Fair |
||||||||||||
|
Value |
Income |
Other (1) |
Net |
Net (2) |
Value |
||||||||||||
Investments: (3) |
||||||||||||||||||
Fixed maturity AFS securities: |
||||||||||||||||||
Corporate bonds |
$ |
2,403 |
$ |
5 |
$ |
53 |
$ |
57 |
$ |
(1 |
) |
$ |
2,517 | |||||
ABS |
29 |
- |
- |
- |
14 | 43 | ||||||||||||
U.S. government bonds |
5 |
- |
- |
- |
- |
5 | ||||||||||||
Foreign government bonds |
110 |
- |
(1 |
) |
- |
- |
109 | |||||||||||
RMBS |
7 |
- |
- |
- |
- |
7 | ||||||||||||
CMBS |
44 |
- |
1 | 14 | (38 |
) |
21 | |||||||||||
CLOs |
88 |
- |
- |
13 | (73 |
) |
28 | |||||||||||
State and municipal bonds |
1 |
- |
- |
- |
(1 |
) |
- |
|||||||||||
Hybrid and redeemable |
||||||||||||||||||
preferred securities |
79 |
- |
8 |
- |
(5 |
) |
82 | |||||||||||
Equity AFS securities |
182 |
- |
- |
1 |
- |
183 | ||||||||||||
Trading securities |
60 | 1 | 1 |
- |
(3 |
) |
59 | |||||||||||
Derivative investments |
112 | 58 | 65 | (80 |
) |
- |
155 | |||||||||||
Other assets: (5) |
||||||||||||||||||
GLB direct embedded derivatives |
226 | 72 |
- |
- |
- |
298 | ||||||||||||
GLB ceded embedded derivatives |
116 | (31 |
) |
- |
- |
- |
85 | |||||||||||
Future contract benefits – indexed annuity |
||||||||||||||||||
and IUL contracts embedded derivatives (5) |
(1,238 |
) |
(64 |
) |
- |
34 |
- |
(1,268 |
) |
|||||||||
Total, net |
$ |
2,224 |
$ |
41 |
$ |
127 |
$ |
39 |
$ |
(107 |
) |
$ |
2,324 |
35
|
||||||||||||||||||
|
For the Three Months Ended June 30, 2016 |
|||||||||||||||||
|
Gains |
Issuances, |
Transfers |
|||||||||||||||
|
Items |
(Losses) |
Sales |
Into or |
||||||||||||||
|
Included |
in |
Maturities, |
Out |
||||||||||||||
|
Beginning |
in |
OCI |
Settlements, |
of |
Ending |
||||||||||||
|
Fair |
Net |
and |
Calls, |
Level 3, |
Fair |
||||||||||||
|
Value |
Income |
Other (1) |
Net |
Net (2) |
Value |
||||||||||||
Investments: (3) |
||||||||||||||||||
Fixed maturity AFS securities: |
||||||||||||||||||
Corporate bonds |
$ |
2,185 |
$ |
(6 |
) |
$ |
46 |
$ |
118 |
$ |
82 |
$ |
2,425 | |||||
ABS |
44 |
- |
- |
14 | 4 | 62 | ||||||||||||
U.S. government bonds |
- |
- |
- |
10 |
- |
10 | ||||||||||||
Foreign government bonds |
111 |
- |
1 |
- |
- |
112 | ||||||||||||
RMBS |
1 |
- |
- |
15 |
- |
16 | ||||||||||||
CMBS |
9 | 2 | (1 |
) |
(2 |
) |
- |
8 | ||||||||||
CLOs |
591 |
- |
- |
40 | (586 |
) |
45 | |||||||||||
Hybrid and redeemable |
||||||||||||||||||
preferred securities |
92 |
- |
(3 |
) |
- |
- |
89 | |||||||||||
Equity AFS securities |
167 |
- |
3 |
- |
- |
170 | ||||||||||||
Trading securities |
74 | 1 | (1 |
) |
- |
(9 |
) |
65 | ||||||||||
Derivative investments |
190 | 183 | 79 | (29 |
) |
- |
423 | |||||||||||
Other investments (4) |
2 | (1 |
) |
- |
- |
- |
1 | |||||||||||
Other assets – GLB ceded |
||||||||||||||||||
embedded derivatives (5) |
433 | 106 |
- |
- |
- |
539 | ||||||||||||
Future contract benefits – indexed annuity |
||||||||||||||||||
and IUL contracts embedded |
||||||||||||||||||
derivatives (5) |
(1,088 |
) |
(19 |
) |
- |
5 |
- |
(1,102 |
) |
|||||||||
Other liabilities: |
||||||||||||||||||
Credit default swaps (4) |
(12 |
) |
(4 |
) |
- |
- |
- |
(16 |
) |
|||||||||
GLB direct embedded derivatives (5) |
(1,916 |
) |
(542 |
) |
- |
- |
- |
(2,458 |
) |
|||||||||
Total, net |
$ |
883 |
$ |
(280 |
) |
$ |
124 |
$ |
171 |
$ |
(509 |
) |
$ |
389 |
36
|
||||||||||||||||||
|
For the Six Months Ended June 30, 2017 |
|||||||||||||||||
|
Gains |
Issuances, |
Transfers |
|||||||||||||||
|
Items |
(Losses) |
Sales, |
Into or |
||||||||||||||
|
Included |
in |
Maturities, |
Out |
||||||||||||||
|
Beginning |
in |
OCI |
Settlements, |
of |
Ending |
||||||||||||
|
Fair |
Net |
and |
Calls, |
Level 3, |
Fair |
||||||||||||
|
Value |
Income |
Other (1) |
Net |
Net (2) |
Value |
||||||||||||
Investments: (3) |
||||||||||||||||||
Fixed maturity AFS securities: |
||||||||||||||||||
Corporate bonds |
$ |
2,405 |
$ |
11 |
$ |
118 |
$ |
(147 |
) |
$ |
130 |
$ |
2,517 | |||||
ABS |
33 |
- |
1 |
- |
9 | 43 | ||||||||||||
U.S. government bonds |
- |
- |
- |
- |
5 | 5 | ||||||||||||
Foreign government bonds |
111 |
- |
(2 |
) |
- |
- |
109 | |||||||||||
RMBS |
3 |
- |
- |
4 |
- |
7 | ||||||||||||
CMBS |
7 |
- |
1 | 55 | (42 |
) |
21 | |||||||||||
CLOs |
68 |
- |
- |
18 | (58 |
) |
28 | |||||||||||
State and municipal bonds |
- |
(1 |
) |
- |
- |
1 |
- |
|||||||||||
Hybrid and redeemable |
||||||||||||||||||
preferred securities |
76 |
- |
11 |
- |
(5 |
) |
82 | |||||||||||
Equity AFS securities |
177 | 1 | (1 |
) |
6 |
- |
183 | |||||||||||
Trading securities |
65 | 2 | 8 | (16 |
) |
- |
59 | |||||||||||
Derivative investments |
(93 |
) |
(11 |
) |
88 | 171 |
- |
155 | ||||||||||
Other assets: (5) |
||||||||||||||||||
GLB direct embedded derivatives |
- |
298 |
- |
- |
- |
298 | ||||||||||||
GLB ceded embedded derivatives |
203 | (118 |
) |
- |
- |
- |
85 | |||||||||||
Future contract benefits – indexed annuity |
||||||||||||||||||
and IUL contracts embedded derivatives (5) |
(1,139 |
) |
(184 |
) |
- |
55 |
- |
(1,268 |
) |
|||||||||
Other liabilities – GLB direct embedded |
||||||||||||||||||
derivatives (5) |
(371 |
) |
371 |
- |
- |
- |
- |
|||||||||||
Total, net |
$ |
1,545 |
$ |
369 |
$ |
224 |
$ |
146 |
$ |
40 |
$ |
2,324 |
37
|
For the Six Months Ended June 30, 2016 |
|||||||||||||||||
|
Gains |
Issuances, |
Transfers |
|||||||||||||||
|
Items |
(Losses) |
Sales, |
Into or |
||||||||||||||
|
Included |
in |
Maturities, |
Out |
||||||||||||||
|
Beginning |
in |
OCI |
Settlements, |
of |
Ending |
||||||||||||
|
Fair |
Net |
and |
Calls, |
Level 3, |
Fair |
||||||||||||
|
Value |
Income |
Other (1) |
Net |
Net (2) |
Value |
||||||||||||
Investments: (3) |
||||||||||||||||||
Fixed maturity AFS securities: |
||||||||||||||||||
Corporate bonds |
$ |
1,993 |
$ |
- |
$ |
64 |
$ |
146 |
$ |
222 |
$ |
2,425 | ||||||
ABS |
45 |
- |
(1 |
) |
14 | 4 | 62 | |||||||||||
U.S. government bonds |
- |
- |
- |
10 |
- |
10 | ||||||||||||
Foreign government bonds |
111 |
- |
1 |
- |
- |
112 | ||||||||||||
RMBS |
1 |
- |
- |
15 |
- |
16 | ||||||||||||
CMBS |
10 | 2 | (1 |
) |
(3 |
) |
- |
8 | ||||||||||
CLOs |
551 |
- |
2 | 78 | (586 |
) |
45 | |||||||||||
Hybrid and redeemable |
||||||||||||||||||
preferred securities |
94 |
- |
(5 |
) |
- |
- |
89 | |||||||||||
Equity AFS securities |
164 |
- |
2 | 4 |
- |
170 | ||||||||||||
Trading securities |
73 | 2 | 1 | (1 |
) |
(10 |
) |
65 | ||||||||||
Derivative investments |
555 | (258 |
) |
171 | (45 |
) |
- |
423 | ||||||||||
Other investments (4) |
- |
1 |
- |
- |
- |
1 | ||||||||||||
Other assets – GLB ceded |
||||||||||||||||||
embedded derivatives (5) |
268 | 271 |
- |
- |
- |
539 | ||||||||||||
Future contract benefits – indexed annuity |
||||||||||||||||||
and IUL contracts embedded derivatives (5) |
(1,100 |
) |
(12 |
) |
- |
10 |
- |
(1,102 |
) |
|||||||||
VIEs’ liabilities – derivative instruments (5) |
(4 |
) |
4 |
- |
- |
- |
- |
|||||||||||
Other liabilities: |
||||||||||||||||||
Credit default swaps (4) |
(9 |
) |
(7 |
) |
- |
- |
- |
(16 |
) |
|||||||||
GLB direct embedded derivatives (5) |
(953 |
) |
(1,505 |
) |
- |
- |
- |
(2,458 |
) |
|||||||||
Total, net |
$ |
1,799 |
$ |
(1,502 |
) |
$ |
234 |
$ |
228 |
$ |
(370 |
) |
$ |
389 |
(1) |
The changes in fair value of the interest rate swaps are offset by an adjustment to derivative investments (see Note 5). |
(2) |
Transfers into or out of Level 3 for AFS and trading securities are displayed at amortized cost as of the beginning-of-period. For AFS and trading securities, the difference between beginning-of-period amortized cost and beginning-of-period fair value was included in OCI and earnings, respectively, in the prior period. |
(3) |
Amortization and accretion of premiums and discounts are included in net investment income on our Consolidated Statements of Comprehensive Income (Loss). Gains (losses) from sales, maturities, settlements and calls and OTTI are included in realized gain (loss) on our Consolidated Statements of Comprehensive Income (Loss). |
(4) |
The changes in fair value of the credit default swaps and contingency forwards are included in realized gain (loss) on our Consolidated Statements of Comprehensive Income (Loss). |
(5) |
Gains (losses) from sales, maturities, settlements and calls are included in realized gain (loss) on our Consolidated Statements of Comprehensive Income (Loss). |
38
The following provides the components of the items included in issuances, sales, maturities, settlements and calls, net, excluding any effect of amortization of DAC, VOBA, DSI and DFEL and changes in future contract benefits, (in millions) as reported above:
|
||||||||||||||||||
|
For the Three Months Ended June 30, 2017 |
|||||||||||||||||
|
Issuances |
Sales |
Maturities |
Settlements |
Calls |
Total |
||||||||||||
Investments: |
||||||||||||||||||
Fixed maturity AFS securities: |
||||||||||||||||||
Corporate bonds |
$ |
162 |
$ |
(3 |
) |
$ |
(25 |
) |
$ |
(64 |
) |
$ |
(13 |
) |
$ |
57 | ||
CMBS |
14 |
- |
- |
- |
- |
14 | ||||||||||||
CLOs |
13 |
- |
- |
- |
- |
13 | ||||||||||||
Equity AFS securities |
1 |
- |
- |
- |
- |
1 | ||||||||||||
Derivative investments |
48 | (29 |
) |
(99 |
) |
- |
- |
(80 |
) |
|||||||||
Future contract benefits – indexed annuity |
||||||||||||||||||
and IUL contracts embedded derivatives |
(13 |
) |
- |
- |
47 |
- |
34 | |||||||||||
Total, net |
$ |
225 |
$ |
(32 |
) |
$ |
(124 |
) |
$ |
(17 |
) |
$ |
(13 |
) |
$ |
39 |
|
||||||||||||||||||
|
For the Three Months Ended June 30, 2016 |
|||||||||||||||||
|
Issuances |
Sales |
Maturities |
Settlements |
Calls |
Total |
||||||||||||
Investments: |
||||||||||||||||||
Fixed maturity AFS securities: |
||||||||||||||||||
Corporate bonds |
$ |
172 |
$ |
(8 |
) |
$ |
- |
$ |
(46 |
) |
$ |
- |
$ |
118 | ||||
ABS |
15 |
- |
- |
(1 |
) |
- |
14 | |||||||||||
U.S. government bonds |
- |
- |
- |
10 |
- |
10 | ||||||||||||
RMBS |
15 |
- |
- |
- |
- |
15 | ||||||||||||
CMBS |
- |
(1 |
) |
- |
(1 |
) |
- |
(2 |
) |
|||||||||
CLOs |
40 |
- |
- |
- |
- |
40 | ||||||||||||
Derivative investments |
45 | (43 |
) |
(31 |
) |
- |
- |
(29 |
) |
|||||||||
Future contract benefits – indexed annuity |
||||||||||||||||||
and IUL contracts embedded derivatives |
(19 |
) |
- |
- |
24 |
- |
5 | |||||||||||
Total, net |
$ |
268 |
$ |
(52 |
) |
$ |
(31 |
) |
$ |
(14 |
) |
$ |
- |
$ |
171 |
|
||||||||||||||||||
|
For the Six Months Ended June 30, 2017 |
|||||||||||||||||
|
Issuances |
Sales |
Maturities |
Settlements |
Calls |
Total |
||||||||||||
Investments: |
||||||||||||||||||
Fixed maturity AFS securities: |
||||||||||||||||||
Corporate bonds |
$ |
200 |
$ |
(65 |
) |
$ |
(47 |
) |
$ |
(127 |
) |
$ |
(108 |
) |
$ |
(147 |
) |
|
RMBS |
4 |
- |
- |
- |
- |
4 | ||||||||||||
CMBS |
55 |
- |
- |
- |
- |
55 | ||||||||||||
CLOs |
18 |
- |
- |
- |
- |
18 | ||||||||||||
Equity AFS securities |
8 | (2 |
) |
- |
- |
- |
6 | |||||||||||
Trading securities |
2 | (17 |
) |
- |
(1 |
) |
- |
(16 |
) |
|||||||||
Derivative investments |
95 | 265 | (189 |
) |
- |
- |
171 | |||||||||||
Future contract benefits – indexed annuity |
||||||||||||||||||
and IUL contracts embedded derivatives |
(31 |
) |
- |
- |
86 |
- |
55 | |||||||||||
Total, net |
$ |
351 |
$ |
181 |
$ |
(236 |
) |
$ |
(42 |
) |
$ |
(108 |
) |
$ |
146 | |||
|
39
|
||||||||||||||||||
|
For the Six Months Ended June 30, 2016 |
|||||||||||||||||
|
Issuances |
Sales |
Maturities |
Settlements |
Calls |
Total |
||||||||||||
Investments: |
||||||||||||||||||
Fixed maturity AFS securities: |
||||||||||||||||||
Corporate bonds |
$ |
289 |
$ |
- |
$ |
(3 |
) |
$ |
(83 |
) |
$ |
(57 |
) |
$ |
146 | |||
ABS |
15 |
- |
- |
(1 |
) |
- |
14 | |||||||||||
U.S. government bonds |
- |
- |
- |
10 |
- |
10 | ||||||||||||
RMBS |
15 |
- |
- |
- |
- |
15 | ||||||||||||
CMBS |
- |
(1 |
) |
- |
(2 |
) |
- |
(3 |
) |
|||||||||
CLOs |
80 |
- |
- |
(2 |
) |
- |
78 | |||||||||||
Equity AFS securities |
4 |
- |
- |
- |
- |
4 | ||||||||||||
Trading securities |
- |
- |
- |
(1 |
) |
- |
(1 |
) |
||||||||||
Derivative investments |
85 | (85 |
) |
(45 |
) |
- |
- |
(45 |
) |
|||||||||
Future contract benefits – indexed annuity |
||||||||||||||||||
and IUL contracts embedded derivatives |
(45 |
) |
- |
- |
55 |
- |
10 | |||||||||||
Total, net |
$ |
443 |
$ |
(86 |
) |
$ |
(48 |
) |
$ |
(24 |
) |
$ |
(57 |
) |
$ |
228 |
The following summarizes changes in unrealized gains (losses) included in net income, excluding any effect of amortization of DAC, VOBA, DSI and DFEL and changes in future contract benefits, related to financial instruments carried at fair value classified within Level 3 that we still held (in millions):
|
|||||||||||||
|
For the Three |
For the Six |
|||||||||||
|
Months Ended |
Months Ended |
|||||||||||
|
June 30, |
June 30, |
|||||||||||
|
2017 |
2016 |
2017 |
2016 |
|||||||||
Derivative investments |
$ |
(2 |
) |
$ |
216 |
$ |
(76 |
) |
$ |
(177 |
) |
||
Other investments |
- |
(1 |
) |
- |
1 | ||||||||
Embedded derivatives: |
|||||||||||||
Indexed annuity and IUL contracts |
- |
(1 |
) |
(15 |
) |
(24 |
) |
||||||
GLB |
231 | (409 |
) |
978 | (1,233 |
) |
|||||||
VIEs’ liabilities – derivative instruments |
- |
- |
- |
4 | |||||||||
Credit default swaps |
- |
(3 |
) |
- |
(7 |
) |
|||||||
Total, net (1) |
$ |
229 |
$ |
(198 |
) |
$ |
887 |
$ |
(1,436 |
) |
(1) |
Included in realized gain (loss) on our Consolidated Statements of Comprehensive Income (Loss). |
The following provides the components of the transfers into and out of Level 3 (in millions) as reported above:
|
||||||||||||||||||
|
For the Three |
For the Three |
||||||||||||||||
|
Months Ended |
Months Ended |
||||||||||||||||
|
June 30, 2017 |
June 30, 2016 |
||||||||||||||||
|
Transfers |
Transfers |
Transfers |
Transfers |
||||||||||||||
|
Into |
Out of |
Into |
Out of |
||||||||||||||
|
Level 3 |
Level 3 |
Total |
Level 3 |
Level 3 |
Total |
||||||||||||
Investments: |
||||||||||||||||||
Fixed maturity AFS securities: |
||||||||||||||||||
Corporate bonds |
$ |
1 |
$ |
(2 |
) |
$ |
(1 |
) |
$ |
165 |
$ |
(83 |
) |
$ |
82 | |||
ABS |
15 | (1 |
) |
14 | 4 |
- |
4 | |||||||||||
CMBS |
3 | (41 |
) |
(38 |
) |
- |
- |
- |
||||||||||
CLOs |
- |
(73 |
) |
(73 |
) |
- |
(586 |
) |
(586 |
) |
||||||||
State and municipal bonds |
- |
(1 |
) |
(1 |
) |
- |
- |
- |
||||||||||
Hybrid and redeemable preferred |
||||||||||||||||||
securities |
- |
(5 |
) |
(5 |
) |
- |
- |
- |
||||||||||
Trading securities |
- |
(3 |
) |
(3 |
) |
1 | (10 |
) |
(9 |
) |
||||||||
Total, net |
$ |
19 |
$ |
(126 |
) |
$ |
(107 |
) |
$ |
170 |
$ |
(679 |
) |
$ |
(509 |
) |
40
|
||||||||||||||||||
|
For the Six |
For the Six |
||||||||||||||||
|
Months Ended |
Months Ended |
||||||||||||||||
|
June 30, 2017 |
June 30, 2016 |
||||||||||||||||
|
Transfers |
Transfers |
Transfers |
Transfers |
||||||||||||||
|
Into |
Out of |
Into |
Out of |
||||||||||||||
|
Level 3 |
Level 3 |
Total |
Level 3 |
Level 3 |
Total |
||||||||||||
Investments: |
||||||||||||||||||
Fixed maturity AFS securities: |
||||||||||||||||||
Corporate bonds |
$ |
161 |
$ |
(31 |
) |
$ |
130 |
$ |
329 |
$ |
(107 |
) |
$ |
222 | ||||
ABS |
15 | (6 |
) |
9 | 4 |
- |
4 | |||||||||||
U.S. government bonds |
5 |
- |
5 |
- |
- |
- |
||||||||||||
CMBS |
3 | (45 |
) |
(42 |
) |
- |
- |
- |
||||||||||
CLOs |
30 | (88 |
) |
(58 |
) |
- |
(586 |
) |
(586 |
) |
||||||||
State and municipal bonds |
2 | (1 |
) |
1 |
- |
- |
- |
|||||||||||
Hybrid and redeemable preferred |
||||||||||||||||||
securities |
- |
(5 |
) |
(5 |
) |
- |
- |
- |
||||||||||
Trading securities |
3 | (3 |
) |
- |
1 | (11 |
) |
(10 |
) |
|||||||||
Total, net |
$ |
219 |
$ |
(179 |
) |
$ |
40 |
$ |
334 |
$ |
(704 |
) |
$ |
(370 |
) |
Transfers into and out of Level 3 are generally the result of observable market information on a security no longer being available or becoming available to our pricing vendors. For the six months ended June 30, 2017 and 2016, transfers in and out of Level 3 were attributable primarily to the securities’ observable market information no longer being available or becoming available. Transfers into and out of Levels 1 and 2 are generally the result of a change in the type of input used to measure the fair value of an asset or liability at the end of the reporting period. When quoted prices in active markets become available, transfers from Level 2 to Level 1 will result. When quoted prices in active markets become unavailable, but we are able to employ a valuation methodology using significant observable inputs, transfers from Level 1 to Level 2 will result. For the six months ended June 30, 2017 and 2016, the transfers between Levels 1 and 2 of the fair value hierarchy were less than $1 million for our financial instruments carried at fair value.
41
The following summarizes the fair value (in millions), valuation techniques and significant unobservable inputs of the Level 3 fair value measurements as of June 30, 2017:
|
||||||||||||||||
|
Fair |
Valuation |
Significant |
Assumption or |
||||||||||||
|
Value |
Technique |
Unobservable Inputs |
Input Ranges |
||||||||||||
Assets |
||||||||||||||||
Investments: |
||||||||||||||||
Fixed maturity AFS and trading |
||||||||||||||||
securities: |
||||||||||||||||
Corporate bonds |
$ |
1,885 |
Discounted cash flow |
Liquidity/duration adjustment (1) |
0.7 |
% |
- |
41.9 |
% |
|||||||
ABS |
25 |
Discounted cash flow |
Liquidity/duration adjustment (1) |
3.0 |
% |
- |
3.0 |
% |
||||||||
Foreign government bonds |
78 |
Discounted cash flow |
Liquidity/duration adjustment (1) |
1.8 |
% |
- |
3.6 |
% |
||||||||
Hybrid and redeemable |
||||||||||||||||
preferred securities |
4 |
Discounted cash flow |
Liquidity/duration adjustment (1) |
1.9 |
% |
- |
1.9 |
% |
||||||||
Equity AFS securities |
25 |
Discounted cash flow |
Liquidity/duration adjustment (1) |
4.5 |
% |
- |
5.0 |
% |
||||||||
Other assets – GLB direct and ceded |
||||||||||||||||
embedded derivatives |
383 |
Discounted cash flow |
Long-term lapse rate (2) |
1 |
% |
- |
30 |
% |
||||||||
|
Utilization of guaranteed withdrawals (3) |
85 |
% |
- |
100 |
% |
||||||||||
|
Claims utilization factor (4) |
60 |
% |
- |
100 |
% |
||||||||||
|
Premiums utilization factor (4) |
80 |
% |
- |
115 |
% |
||||||||||
|
NPR (5) |
0.01 |
% |
- |
0.33 |
% |
||||||||||
|
Mortality rate (6) |
(8) |
||||||||||||||
|
Volatility (7) |
1 |
% |
- |
29 |
% |
||||||||||
Liabilities |
||||||||||||||||
Future contract benefits – indexed |
||||||||||||||||
annuity and IUL contracts |
||||||||||||||||
embedded derivatives |
$ |
(1,268 |
) |
Discounted cash flow |
Lapse rate (2) |
1 |
% |
- |
9 |
% |
||||||
|
Mortality rate (6) |
(8) |
(1) |
The liquidity/duration adjustment input represents an estimated market participant composite of adjustments attributable to liquidity premiums, expected durations, structures and credit quality that would be applied to the market observable information of an investment. |
(2) |
The lapse rate input represents the estimated probability of a contract surrendering during a year, and thereby forgoing any future benefits. The range for indexed annuity and IUL contracts represents the lapse rates during the surrender charge period. |
(3) |
The utilization of guaranteed withdrawals input represents the estimated percentage of contract holders that utilize the guaranteed withdrawal feature. |
(4) |
The utilization factors are applied to the present value of claims or premiums, as appropriate, in the GLB reserve calculation to estimate the impact of inefficient withdrawal behavior, including taking less than or more than the maximum guaranteed withdrawal. |
(5) |
The NPR input represents the estimated additional credit spread that market participants would apply to the market observable discount rate when pricing a contract. |
(6) |
The mortality rate input represents the estimated probability of when an individual belonging to a particular group, categorized according to age or some other factor such as gender, will die. |
(7) |
The volatility input represents overall volatilities assumed for the underlying variable annuity funds, which include a mixture of equity and fixed-income assets. Fair value of the variable annuity GLB embedded derivatives would increase if higher volatilities were used for valuation. |
(8) |
The mortality rate is based on a combination of company and industry experience, adjusted for improvement factors. |
From the table above, we have excluded Level 3 fair value measurements obtained from independent, third-party pricing sources. We do not develop the significant inputs used to measure the fair value of these assets and liabilities, and the information regarding the significant inputs is not readily available to us. Independent broker-quoted fair values are non-binding quotes developed by market makers or broker-dealers obtained from third-party sources recognized as market participants. The fair value of a broker-quoted asset or liability is based solely on the receipt of an updated quote from a single market maker or a broker-dealer recognized as a market participant as we do not adjust broker quotes when used as the fair value measurement for an asset or liability. Significant increases or decreases in any of the quotes received from a third-party broker-dealer may result in a significantly higher or lower fair value measurement.
42
Changes in any of the significant inputs presented in the table above may result in a significant change in the fair value measurement of the asset or liability as follows:
· |
Investments – An increase in the liquidity/duration adjustment input would result in a decrease in the fair value measurement. |
· |
Indexed annuity and IUL contracts embedded derivatives – An increase in the lapse rate or mortality rate inputs would result in a decrease in the fair value measurement. |
· |
GLB embedded derivatives – Assuming our GLB direct embedded derivative is in a liability position, an increase in our lapse rate, NPR or mortality rate inputs would result in a decrease in the fair value measurement; and an increase in the utilization of guaranteed withdrawal or volatility inputs would result in an increase in the fair value measurement. Assuming our GLB ceded embedded derivative is in an asset position, the fair value measurement would move in the opposite direction from the GLB direct embedded derivative. |
For each category discussed above, the unobservable inputs are not inter-related; therefore, a directional change in one input will not affect the other inputs.
As part of our ongoing valuation process, we assess the reasonableness of our valuation techniques or models and make adjustments as necessary. For more information, see “Summary of Significant Accounting Policies” in Note 1 of our 2016 Form 10-K.
13. Segment Information
We provide products and services and report results through our Annuities, Retirement Plan Services, Life Insurance and Group Protection segments. We also have Other Operations, which includes the financial data for operations that are not directly related to the business segments. Our reporting segments reflect the manner by which our chief operating decision makers view and manage the business. See Note 21 of our 2016 Form 10-K for a brief description of these segments and Other Operations.
Segment operating revenues and income (loss) from operations are internal measures used by our management and Board of Directors to evaluate and assess the results of our segments. Income (loss) from operations is GAAP net income excluding the after-tax effects of the following items, as applicable:
· |
Realized gains and losses associated with the following (“excluded realized gain (loss)”): |
§ |
Sales or disposals and impairments of securities; |
§ |
Changes in the fair value of derivatives, embedded derivatives within certain reinsurance arrangements and trading securities; |
§ |
Changes in the fair value of the derivatives we own to hedge our GDB riders within our variable annuities; |
§ |
Changes in the fair value of the embedded derivatives of our GLB riders reflected within variable annuity net derivative results accounted for at fair value; |
§ |
Changes in the fair value of the derivatives we own to hedge our GLB riders reflected within variable annuity net derivative results; and |
§ |
Changes in the fair value of the embedded derivative liabilities related to index call options we may purchase in the future to hedge contract holder index allocations applicable to future reset periods for our indexed annuity products accounted for at fair value; |
· |
Changes in reserves resulting from benefit ratio unlocking on our GDB and GLB riders; |
· |
Income (loss) from reserve changes, net of related amortization, on business sold through reinsurance; |
· |
Gains (losses) on early extinguishment of debt; |
· |
Losses from the impairment of intangible assets; |
· |
Income (loss) from discontinued operations; and |
· |
Income (loss) from the initial adoption of new accounting standards. |
Operating revenues represent GAAP revenues excluding the pre-tax effects of the following items, as applicable:
· |
Excluded realized gain (loss); |
· |
Revenue adjustments from the initial adoption of new accounting standards; |
· |
Amortization of DFEL arising from changes in GDB and GLB benefit ratio unlocking; and |
· |
Amortization of deferred gains arising from reserve changes on business sold through reinsurance. |
We use our prevailing corporate federal income tax rate of 35% while taking into account any permanent differences for events recognized differently in our financial statements and federal income tax returns when reconciling our non-GAAP measures to the most comparable GAAP measure. Operating revenues and income (loss) from operations do not replace revenues and net income as the GAAP measures of our consolidated results of operations.
43
Segment information (in millions) was as follows:
|
|||||||||||||
|
For the Three |
For the Six |
|||||||||||
|
Months Ended |
Months Ended |
|||||||||||
|
June 30, |
June 30, |
|||||||||||
|
2017 |
2016 |
2017 |
2016 |
|||||||||
Revenues |
|||||||||||||
Operating revenues: |
|||||||||||||
Annuities |
$ |
1,076 |
$ |
983 |
$ |
2,138 |
$ |
2,022 | |||||
Retirement Plan Services |
290 | 270 | 571 | 537 | |||||||||
Life Insurance |
1,655 | 1,538 | 3,260 | 3,016 | |||||||||
Group Protection |
541 | 525 | 1,082 | 1,059 | |||||||||
Other Operations |
67 | 79 | 155 | 161 | |||||||||
Excluded realized gain (loss), pre-tax |
(52 |
) |
(89 |
) |
(132 |
) |
(245 |
) |
|||||
Amortization of deferred gain arising from reserve changes on business |
|||||||||||||
sold through reinsurance, pre-tax |
- |
1 | 1 | 1 | |||||||||
Amortization of DFEL associated with benefit ratio unlocking, pre-tax |
- |
- |
2 |
- |
|||||||||
Total revenues |
$ |
3,577 |
$ |
3,307 |
$ |
7,077 |
$ |
6,551 |
|
|||||||||||||
|
For the Three |
For the Six |
|||||||||||
|
Months Ended |
Months Ended |
|||||||||||
|
June 30, |
June 30, |
|||||||||||
|
2017 |
2016 |
2017 |
2016 |
|||||||||
Net Income (Loss) |
|||||||||||||
Income (loss) from operations: |
|||||||||||||
Annuities |
$ |
251 |
$ |
235 |
$ |
532 |
$ |
453 | |||||
Retirement Plan Services |
37 | 31 | 74 | 61 | |||||||||
Life Insurance |
133 | 120 | 263 | 195 | |||||||||
Group Protection |
35 | 15 | 42 | 20 | |||||||||
Other Operations |
(37 |
) |
(28 |
) |
(51 |
) |
(39 |
) |
|||||
Excluded realized gain (loss), after-tax |
(34 |
) |
(57 |
) |
(85 |
) |
(159 |
) |
|||||
Income (loss) from reserve changes (net of related amortization) |
|||||||||||||
on business sold through reinsurance, after-tax |
- |
- |
- |
1 | |||||||||
Benefit ratio unlocking, after-tax |
26 | 9 | 71 | 4 | |||||||||
Net income (loss) |
$ |
411 |
$ |
325 |
$ |
846 |
$ |
536 |
44
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following Management’s Discussion and Analysis (“MD&A”) is intended to help the reader understand the financial condition as of June 30, 2017, compared with December 31, 2016, and the results of operations for the three and six months ended June 30, 2017, compared with the corresponding periods in 2016 of Lincoln National Corporation and its consolidated subsidiaries. Unless otherwise stated or the context otherwise requires, “LNC,” “Company,” “we,” “our” or “us” refers to Lincoln National Corporation and its consolidated subsidiaries. The MD&A is provided as a supplement to, and should be read in conjunction with our consolidated financial statements and the accompanying notes to the consolidated financial statements (“Notes”) presented in “Part I – Item 1. Financial Statements”; our Form 10-K for the year ended December 31, 2016 (“2016 Form 10-K”), including the sections entitled “Part I – Item 1A. Risk Factors,” “Part II – Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Part II – Item 8. Financial Statements and Supplementary Data”; our quarterly report on Form 10-Q filed in 2017; and our current reports on Form 8-K filed in 2017. For more detailed information on the risks and uncertainties associated with the Company’s business activities, see the risks described in “Part I – Item 1A. Risk Factors” in our 2016 Form 10-K as updated by “Part II – Item 1A. Risk Factors” in our first quarter 2017 Form 10-Q and below.
In this report, in addition to providing consolidated revenues and net income (loss), we also provide segment operating revenues and income (loss) from operations because we believe they are meaningful measures of revenues and the profitability of our operating segments. Financial information that follows is presented in accordance with United States of America generally accepted accounting principles (“GAAP”), unless otherwise indicated. See Note 1 in our 2016 Form 10-K for a discussion of GAAP.
Operating revenues and income (loss) from operations are the financial performance measures we use to evaluate and assess the results of our segments. Accordingly, we define and report operating revenues and income (loss) from operations by segment in Note 13. Our management believes that operating revenues and income (loss) from operations explain the results of our ongoing businesses in a manner that allows for a better understanding of the underlying trends in our current businesses because the excluded items are unpredictable and not necessarily indicative of current operating fundamentals or future performance of the business segments, and, in many instances, decisions regarding these items do not necessarily relate to the operations of the individual segments. In addition, we believe that our definitions of operating revenues and income (loss) from operations will provide investors with a more valuable measure of our performance because it better reveals trends in our business.
FORWARD-LOOKING STATEMENTS – CAUTIONARY LANGUAGE
Certain statements made in this report and in other written or oral statements made by us or on our behalf are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 (“PSLRA”). A forward-looking statement is a statement that is not a historical fact and, without limitation, includes any statement that may predict, forecast, indicate or imply future results, performance or achievements, and may contain words like: “believe,” “anticipate,” “expect,” “estimate,” “project,” “will,” “shall” and other words or phrases with similar meaning in connection with a discussion of future operating or financial performance. In particular, these include statements relating to future actions, trends in our businesses, prospective services or products, future performance or financial results and the outcome of contingencies, such as legal proceedings. We claim the protection afforded by the safe harbor for forward-looking statements provided by the PSLRA.
Forward-looking statements involve risks and uncertainties that may cause actual results to differ materially from the results contained in the forward-looking statements. Risks and uncertainties that may cause actual results to vary materially, some of which are described within the forward-looking statements, include, among others:
· |
Deterioration in general economic and business conditions that may affect account values, investment results, guaranteed benefit liabilities, premium levels, claims experience and the level of pension benefit costs, funding and investment results; |
· |
Adverse global capital and credit market conditions could affect our ability to raise capital, if necessary, and may cause us to realize impairments on investments and certain intangible assets, including goodwill and the valuation allowance against deferred tax assets, which may reduce future earnings and/or affect our financial condition and ability to raise additional capital or refinance existing debt as it matures; |
· |
Because of our holding company structure, the inability of our subsidiaries to pay dividends to the holding company in sufficient amounts could harm the holding company’s ability to meet its obligations; |
· |
Legislative, regulatory or tax changes, both domestic and foreign, that affect: the cost of, or demand for, our subsidiaries’ products; the required amount of reserves and/or surplus; our ability to conduct business and our captive reinsurance arrangements as well as restrictions on revenue sharing and 12b‑1 payments; the potential for U.S. federal tax reform; and the effect of the Department of Labor’s (“DOL”) regulation defining fiduciary; |
· |
Actions taken by reinsurers to raise rates on in-force business; |
· |
Declines in or sustained low interest rates causing a reduction in investment income, the interest margins of our businesses, estimated gross profits (“EGPs”) and demand for our products; |
· |
Rapidly increasing interest rates causing contract holders to surrender life insurance and annuity policies, thereby causing realized investment losses, and reduced hedge performance related to variable annuities; |
· |
Uncertainty about the effect of continuing promulgation and implementation of rules and regulations under the Dodd-Frank Wall Street Reform and Consumer Protection Act on us, the economy and financial services sector in particular; |
· |
The initiation of legal or regulatory proceedings against us, and the outcome of any legal or regulatory proceedings, such as: adverse actions related to present or past business practices common in businesses in which we compete; adverse decisions in significant
45 |
actions including, but not limited to, actions brought by federal and state authorities and class action cases; new decisions that result in changes in law; and unexpected trial court rulings; |
· |
A decline in the equity markets causing a reduction in the sales of our subsidiaries’ products; a reduction of asset-based fees that our subsidiaries charge on various investment and insurance products; an acceleration of the net amortization of deferred acquisition costs (“DAC”), value of business acquired (“VOBA”), deferred sales inducements (“DSI”) and deferred front-end loads (“DFEL”); and an increase in liabilities related to guaranteed benefit features of our subsidiaries’ variable annuity products; |
· |
Ineffectiveness of our risk management policies and procedures, including various hedging strategies used to offset the effect of changes in the value of liabilities due to changes in the level and volatility of the equity markets and interest rates; |
· |
A deviation in actual experience regarding future persistency, mortality, morbidity, interest rates or equity market returns from the assumptions used in pricing our subsidiaries’ products, in establishing related insurance reserves and in the net amortization of DAC, VOBA, DSI and DFEL, which may reduce future earnings; |
· |
Changes in GAAP that may result in unanticipated changes to our net income; |
· |
Lowering of one or more of our debt ratings issued by nationally recognized statistical rating organizations and the adverse effect such action may have on our ability to raise capital and on our liquidity and financial condition; |
· |
Lowering of one or more of the insurer financial strength ratings of our insurance subsidiaries and the adverse effect such action may have on the premium writings, policy retention, profitability of our insurance subsidiaries and liquidity; |
· |
Significant credit, accounting, fraud, corporate governance or other issues that may adversely affect the value of certain investments in our portfolios, as well as counterparties to which we are exposed to credit risk, requiring that we realize losses on investments; |
· |
Inability to protect our intellectual property rights or claims of infringement of the intellectual property rights of others; |
· |
Interruption in telecommunication, information technology or other operational systems or failure to safeguard the confidentiality or privacy of sensitive data on such systems from cyberattacks or other breaches of our data security systems; |
· |
The effect of acquisitions and divestitures, restructurings, product withdrawals and other unusual items; |
· |
The adequacy and collectability of reinsurance that we have purchased; |
· |
Acts of terrorism, a pandemic, war or other man-made and natural catastrophes that may adversely affect our businesses and the cost and availability of reinsurance; |
· |
Competitive conditions, including pricing pressures, new product offerings and the emergence of new competitors, that may affect the level of premiums and fees that our subsidiaries can charge for their products; |
· |
The unknown effect on our subsidiaries’ businesses resulting from evolving market preferences and the changing demographics of our client base; and |
· |
The unanticipated loss of key management, financial planners or wholesalers. |
The risks included here are not exhaustive. Our annual report on Form 10-K, quarterly report on Form 10-Q, current reports on Form 8-K and other documents filed with the Securities and Exchange Commission (“SEC”) include additional factors that could affect our businesses and financial performance. Moreover, we operate in a rapidly changing and competitive environment. New risk factors emerge from time to time, and it is not possible for management to predict all such risk factors.
Further, it is not possible to assess the effect of all risk factors on our businesses or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results. In addition, we disclaim any obligation to update any forward-looking statements to reflect events or circumstances that occur after the date of this report.
We are a holding company that operates multiple insurance and retirement businesses through subsidiary companies. Through our business segments, we sell a wide range of wealth protection, accumulation and retirement income products and solutions. These products include fixed and indexed annuities, variable annuities, universal life insurance (“UL”), variable universal life insurance (“VUL”), linked-benefit UL, indexed universal life insurance (“IUL”), term life insurance, employer-sponsored retirement plans and services, and group life, disability and dental.
We provide products and services and report results through our Annuities, Retirement Plan Services, Life Insurance and Group Protection segments. We also have Other Operations. These segments and Other Operations are described in “Part I – Item 1. Business” of our 2016 Form 10-K.
For information on how we derive our revenues, see the discussion in results of operations by segment below.
Our current market conditions, significant operational matters, industry trends, issues and outlook are described in “Part II – Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Introduction – Executive Summary” of our 2016 Form 10-K.
For factors that could cause actual results to differ materially from those set forth in this section, see “Forward-Looking Statements – Cautionary Language” above and “Part I – Item 1A. Risk Factors” in our 2016 Form 10-K as updated by “Part II – Item 1A. Risk Factors” in our first quarter 2017 Form 10-Q and below.
46
Critical Accounting Policies and Estimates
The MD&A included in our 2016 Form 10-K contains a detailed discussion of our critical accounting policies and estimates. The following information updates the “Critical Accounting Policies and Estimates” provided in our 2016 Form 10-K and, accordingly, should be read in conjunction with the “Critical Accounting Policies and Estimates” discussed in our 2016 Form 10-K.
DAC, VOBA, DSI and DFEL
Unlocking
As stated in “Part II – Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Estimates – Unlocking” in our 2016 Form 10-K, we conduct our annual comprehensive review of the assumptions and projection models underlying the amortization of DAC, VOBA, DSI, DFEL, embedded derivatives and reserves for life insurance and annuity products in the third quarter of each year.
Reversion to the Mean
As variable fund returns do not move in a systematic manner, we reset the baseline of account values from which EGPs are projected, which we refer to as our reversion to the mean (“RTM”) process, as discussed in our 2016 Form 10-K.
If we had unlocked our RTM assumption as of June 30, 2017, we would have recorded a favorable unlocking of approximately $180 million, pre-tax, for Annuities, approximately $35 million, pre-tax, for Life Insurance and approximately $25 million, pre-tax, for Retirement Plan Services.
Investments
Investment Valuation
The following summarizes our available-for-sale (“AFS”) and trading securities and derivative investments carried at fair value by pricing source and fair value hierarchy level (in millions) as of June 30, 2017:
|
||||||||||||||||
|
Quoted |
|||||||||||||||
|
Prices |
|||||||||||||||
|
in Active |
|||||||||||||||
|
Markets for |
Significant |
Significant |
|||||||||||||
|
Identical |
Observable |
Unobservable |
|||||||||||||
|
Assets |
Inputs |
Inputs |
Total |
||||||||||||
|
(Level 1) |
(Level 2) |
(Level 3) |
Fair Value |
||||||||||||
Priced by third-party pricing services |
$ |
867 |
$ |
79,569 |
$ |
- |
$ |
80,436 | ||||||||
Priced by independent broker quotations |
- |
- |
1,192 | 1,192 | ||||||||||||
Priced by matrices |
- |
12,357 |
- |
12,357 | ||||||||||||
Priced by other methods (1) |
- |
- |
2,017 | 2,017 | ||||||||||||
Total |
$ |
867 |
$ |
91,926 |
$ |
3,209 |
$ |
96,002 | ||||||||
|
||||||||||||||||
Percent of total |
1% | 96% | 3% | 100% |
(1) |
Represents primarily securities for which pricing models were used to compute fair value. |
For more information about the valuation of our financial instruments carried at fair value, see “Part II – Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Introduction – Critical Accounting Policies and Estimates – Investments – Investment Valuation” in our 2016 Form 10-K and Note 12 herein.
As of June 30, 2017, we evaluated the markets that our securities trade in and concluded that none were inactive. We will continue to re-evaluate this conclusion, as needed, based on market conditions. We use unobservable inputs to measure the fair value of securities trading in less liquid or illiquid markets with limited or no pricing information. We obtain broker quotes for securities such as synthetic convertibles, index-linked certificates of deposit and collateralized debt obligations (“CDOs”) when sufficient security structure or other market information is not available to produce an evaluation. For broker-quoted only securities, non-binding quotes from market makers or broker-dealers are obtained from sources recognized as market participants. Broker-quoted securities are based solely on receipt of updated quotes from a single market maker or a broker-dealer recognized as a market participant. Our broker-quoted only securities are generally classified as Level 3 of the fair value hierarchy. As of June 30, 2017, we used broker quotes for 17 securities as our final price source, representing less than 1% of total securities owned.
47
Derivatives
Our accounting policies for derivatives and the potential effect on interest spreads in a falling rate environment are discussed in Note 5 of this report and “Part II – Item 7A. Quantitative and Qualitative Disclosures About Market Risk” in our 2016 Form 10-K.
Guaranteed Living Benefits
Within our individual annuity business, 65% and 66% of our variable annuity account values contained guaranteed living benefits (“GLB”) features as of June 30, 2017 and 2016, respectively. Underperforming equity markets increase our exposure to potential benefits with the GLB features. A contract with a GLB feature is “in the money” if the contract holder’s account balance falls below the present value of guaranteed withdrawal or income benefits, assuming no lapses. As of June 30, 2017 and 2016, 7% and 11%, respectively, of all in-force contracts with a GLB feature were “in the money,” and our exposure, after reinsurance, as of June 30, 2017 and 2016, was $474 million and $724 million, respectively. However, the only way the contract holder can realize the excess of the present value of benefits over the account value of the contract is through a series of withdrawals or income payments that do not exceed a maximum amount. If, after the series of withdrawals or income payments, the account value is exhausted, the contract holder will continue to receive a series of annuity payments. The account value can also fluctuate with equity market returns on a daily basis resulting in increases or decreases in the excess of the present value of benefits over account value.
For information on our variable annuity hedge program performance, see our discussion in “Realized Gain (Loss) and Benefit Ratio Unlocking – Variable Annuity Net Derivatives Results” below.
For information on our estimates of the potential instantaneous effect to net income that could result from sudden changes that may occur in equity markets, interest rates and implied market volatilities, see our discussion in “Part II – Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Introduction – Critical Accounting Policies and Estimates – Derivatives – GLB” in our 2016 Form 10-K.
48
RESULTS OF CONSOLIDATED OPERATIONS
Details underlying the consolidated results, deposits, net flows and account values (in millions) were as follows:
|
||||||||||||||||
|
For the Three |
For the Six |
||||||||||||||
|
Months Ended |
Months Ended |
||||||||||||||
|
June 30, |
June 30, |
||||||||||||||
|
2017 |
2016 |
Change |
2017 |
2016 |
Change |
||||||||||
Net Income (Loss) |
||||||||||||||||
Income (loss) from operations: |
||||||||||||||||
Annuities |
$ |
251 |
$ |
235 | 7% |
$ |
532 |
$ |
453 | 17% | ||||||
Retirement Plan Services |
37 | 31 | 19% | 74 | 61 | 21% | ||||||||||
Life Insurance |
133 | 120 | 11% | 263 | 195 | 35% | ||||||||||
Group Protection |
35 | 15 | 133% | 42 | 20 | 110% | ||||||||||
Other Operations |
(37 |
) |
(28 |
) |
-32% |
(51 |
) |
(39 |
) |
-31% |
||||||
Excluded realized gain (loss), after-tax |
(34 |
) |
(57 |
) |
40% | (85 |
) |
(159 |
) |
47% | ||||||
Income (expense) from reserve changes |
||||||||||||||||
(net of related amortization) on business |
||||||||||||||||
sold through reinsurance, after-tax |
- |
- |
NM |
- |
1 |
-100% |
||||||||||
Benefit ratio unlocking, after-tax |
26 | 9 | 189% | 71 | 4 |
NM |
||||||||||
Net income (loss) |
$ |
411 |
$ |
325 | 26% |
$ |
846 |
$ |
536 | 58% |
|
||||||||||||||||
|
For the Three |
For the Six |
||||||||||||||
|
Months Ended |
Months Ended |
||||||||||||||
|
June 30, |
June 30, |
||||||||||||||
|
2017 |
2016 |
Change |
2017 |
2016 |
Change |
||||||||||
Deposits |
||||||||||||||||
Annuities |
$ |
1,991 |
$ |
2,113 |
-6% |
$ |
4,008 |
$ |
4,466 |
-10% |
||||||
Retirement Plan Services |
1,978 | 1,660 | 19% | 4,229 | 3,452 | 23% | ||||||||||
Life Insurance |
1,543 | 1,391 | 11% | 2,959 | 2,630 | 13% | ||||||||||
Total deposits |
$ |
5,512 |
$ |
5,164 | 7% |
$ |
11,196 |
$ |
10,548 | 6% | ||||||
|
||||||||||||||||
Net Flows |
||||||||||||||||
Annuities |
$ |
(1,075 |
) |
$ |
(452 |
) |
NM |
$ |
(2,019 |
) |
$ |
(486 |
) |
NM |
||
Retirement Plan Services |
395 | 4 |
NM |
511 | 82 |
NM |
||||||||||
Life Insurance |
1,101 | 978 | 13% | 2,025 | 1,808 | 12% | ||||||||||
Total net flows |
$ |
421 |
$ |
530 |
-21% |
$ |
517 |
$ |
1,404 |
-63% |
|
||||||||
|
As of June 30, |
|||||||
|
2017 |
2016 |
Change |
|||||
Account Values |
||||||||
Annuities |
$ |
131,029 |
$ |
122,851 | 7% | |||
Retirement Plan Services |
62,568 | 55,430 | 13% | |||||
Life Insurance |
47,180 | 44,402 | 6% | |||||
Total account values |
$ |
240,777 |
$ |
222,683 | 8% |
Comparison of the Three Months Ended June 30, 2017 to 2016
Net income increased due primarily to the following:
· |
Growth in business in force and average account values. |
· |
Favorable investment income on alternative investments and higher prepayment and bond make-whole premiums. |
· |
Higher realized losses in 2016 driven by asset disposals and an increase in other-than-temporary impairment (“OTTI”) attributable to individual credit risks within our corporate bond holdings. |
· |
More favorable total loss ratio experience in our Group Protection segment. |
The increase in net income was partially offset by the following:
· |
Strategic digitization expense incurred during 2017 as part of our strategic digitization initiative. |
· |
Higher incentive compensation as a result of production performance. |
49
· |
Lower amortization of deferred gain on business sold through reinsurance. |
· |
Spread compression due to average new money rates trailing our current portfolio yields, partially offset by actions implemented to |
reduce interest crediting rates.
Comparison of the Six Months Ended June 30, 2017 to 2016
Net income increased due primarily to the following:
· |
Growth in business in force and average account values. |
· |
Favorable investment income on alternative investments and higher prepayment and bond make-whole premiums. |
· |
Legal expenses in 2016 related to certain investments. |
· |
Higher federal income tax benefits in 2017 driven by one-time and run-rate adjustments primarily associated with our separate account dividends-received deduction. |
· |
Higher realized losses in 2016 driven by asset disposals and an increase in OTTI attributable to individual credit risks within our corporate bond holdings. |
· |
Gains on variable annuity net derivative results in 2017 as compared to losses in 2016. |
· |
More favorable total loss ratio experience in our Group Protection segment. |
The increase in net income was partially offset by the following:
· |
Strategic digitization expense incurred during 2017 as part of our strategic digitization initiative. |
· |
Higher incentive compensation as a result of production performance. |
· |
Lower amortization of deferred gain on business sold through reinsurance. |
· |
Spread compression due to average new money rates trailing our current portfolio yields, partially offset by actions implemented to |
reduce interest crediting rates.
50
RESULTS OF ANNUITIES
Details underlying the results for Annuities (in millions) were as follows:
|
||||||||||||||||
|
For the Three |
For the Six |
||||||||||||||
|
Months Ended |
Months Ended |
||||||||||||||
|
June 30, |
June 30, |
||||||||||||||
|
2017 |
2016 |
Change |
2017 |
2016 |
Change |
||||||||||
Operating Revenues |
||||||||||||||||
Insurance premiums (1) |
$ |
106 |
$ |
68 | 56% |
$ |
230 |
$ |
219 | 5% | ||||||
Fee income |
553 | 510 | 8% | 1,086 | 1,003 | 8% | ||||||||||
Net investment income |
263 | 258 | 2% | 519 | 509 | 2% | ||||||||||
Operating realized gain (loss) (2) |
45 | 44 | 2% | 90 | 87 | 3% | ||||||||||
Other revenues (3) |
109 | 103 | 6% | 213 | 204 | 4% | ||||||||||
Total operating revenues |
1,076 | 983 | 9% | 2,138 | 2,022 | 6% | ||||||||||
Operating Expenses |
||||||||||||||||
Interest credited |
145 | 144 | 1% | 292 | 283 | 3% | ||||||||||
Benefits (1) |
174 | 136 | 28% | 366 | 353 | 4% | ||||||||||
Commissions and other expenses |
447 | 407 | 10% | 890 | 818 | 9% | ||||||||||
Total operating expenses |
766 | 687 | 11% | 1,548 | 1,454 | 6% | ||||||||||
Income (loss) from operations before taxes |
310 | 296 | 5% | 590 | 568 | 4% | ||||||||||
Federal income tax expense (benefit) |
59 | 61 |
-3% |
58 | 115 |
-50% |
||||||||||
Income (loss) from operations |
$ |
251 |
$ |
235 | 7% |
$ |
532 |
$ |
453 | 17% |
(1) |
Insurance premiums include primarily our income annuities that have a corresponding offset in benefits. Benefits include changes in income annuity reserves driven by premiums. |
(2) |
See “Realized Gain (Loss) and Benefit Ratio Unlocking” below. |
(3) |
Consists primarily of revenues attributable to broker-dealer services that are subject to market volatility. |
Comparison of the Three Months Ended June 30, 2017 to 2016
Income from operations for this segment increased due primarily to the following:
· |
Higher fee income driven by higher average daily variable account values. |
· |
Higher net investment income, net of interest credited, driven by higher prepayments and bond make-whole premiums and favorable investment income on alternative investments within our surplus portfolio. |
The increase in income from operations was partially offset by higher commissions and other expenses due to higher average account values, resulting in higher trail commissions.
Comparison of the Six Months Ended June 30, 2017 to 2016
Income from operations for this segment increased due primarily to the following:
· |
Higher federal income tax benefits in 2017 driven by one-time and run-rate adjustments primarily associated with our separate account dividends-received deduction. |
· |
Higher fee income driven by higher average daily variable account values. |
The increase in income from operations was partially offset by higher commissions and other expenses due to higher average account values, resulting in higher trail commissions.
We provide information about this segment’s operating revenue and operating expense line items, the period in which amounts are recognized, key drivers of changes and historical details underlying the line items and their associated drivers below.
See the Variable Account Value Information table within “Fee Income” below for drivers of changes in our variable account values and the Fixed Account Value Information table within “Net Investment Income and Interest Credited” below for drivers of changes in our fixed account values.
See “Consolidated Investments – Commercial Mortgage Prepayment and Bond Make-Whole Premiums” below for more information on prepayment and bond make-whole premiums.
51
See “Consolidated Investments – Alternative Investments” below for more information on alternative investments.
Additional Information
New deposits are an important component of net flows and key to our efforts to grow our business. Although deposits do not significantly affect current period income from operations, they can significantly impact future income from operations. For the three and six months ended June 30, 2017, 38% of our variable annuity deposits were on products without GLB riders, respectively, compared to 29% and 27% for the corresponding periods in 2016. As a result of evolving market trends, our variable annuity deposits were significantly lower than historical periods resulting in negative net flows for the three and six months ended June 30, 2017 and 2016.
The other component of net flows relates to the retention of the business. An important measure of retention is the reduction in account values caused by full surrenders, deaths and other contract benefits. These outflows as a percentage of average account values were 9% for the three and six months ended June 30, 2017, respectively, compared to 8% for the corresponding periods in 2016.
Our fixed annuity business includes products with discretionary crediting rates that are reset on an annual basis and are not subject to surrender charges. Our ability to retain annual reset annuities will be subject to current competitive conditions at the time interest rates for these products reset. We expect to manage the effects of spreads on near-term income from operations through portfolio management and, to a lesser extent, crediting rate actions, which assumes no significant changes in net flows into or out of our fixed accounts or other changes that may cause interest rate spreads to differ from our expectations. For information on interest rate spreads and interest rate risk, see “Item 3. Quantitative and Qualitative Disclosures About Market Risk – Interest Rate Risk” herein and “Part II – Item 7A. Quantitative and Qualitative Disclosures About Market Risk – Interest Rate Risk – Interest Rate Risk on Fixed Insurance Businesses – Falling Rates” and “Part I – Item 1A. Risk Factors – Market Conditions – Changes in interest rates and sustained low interest rates may cause interest rate spreads to decrease and changes in interest rates may also result in increased contract withdrawals” in our 2016 Form 10-K.
The DOL’s fiduciary advice regulation phased implementation first became effective on June 9, 2017, with full implementation by January 1, 2018. For information about regulatory risk including the impact of the DOL regulation, see “Department of Labor regulation defining fiduciary could cause changes to the manner in which we deliver products and services as well as changes in nature and amount of compensation and fees” in “Part II – Item 1A. Risk Factors” below.
For factors that could cause actual results to differ materially from those set forth in this section, see “Forward-Looking Statements – Cautionary Language” above and “Part I – Item 1A. Risk Factors” in our 2016 Form 10-K as updated by “Part II – Item 1A. Risk Factors” in our first quarter 2017 Form 10-Q and below.
Fee Income
Details underlying fee income, account values and net flows (in millions) were as follows:
|
||||||||||||||||
|
For the Three |
For the Six |
||||||||||||||
|
Months Ended |
Months Ended |
||||||||||||||
|
June 30, |
June 30, |
||||||||||||||
|
2017 |
2016 |
Change |
2017 |
2016 |
Change |
||||||||||
Fee Income |
||||||||||||||||
Mortality, expense and other assessments |
$ |
546 |
$ |
506 | 8% |
$ |
1,072 |
$ |
994 | 8% | ||||||
Surrender charges |
8 | 8 | 0% | 17 | 16 | 6% | ||||||||||
DFEL: |
||||||||||||||||
Deferrals |
(9 |
) |
(10 |
) |
10% | (19 |
) |
(19 |
) |
0% | ||||||
Amortization, net of interest |
8 | 6 | 33% | 16 | 12 | 33% | ||||||||||
Total fee income |
$ |
553 |
$ |
510 | 8% |
$ |
1,086 |
$ |
1,003 | 8% |
52
|
As of or For the Three |
As of or For the Six |
||||||||||||||
|
Months Ended |
Months Ended |
||||||||||||||
|
June 30, |
June 30, |
||||||||||||||
|
2017 |
2016 |
Change |
2017 |
2016 |
Change |
||||||||||
Variable Account Value Information |
||||||||||||||||
Variable annuity deposits (1) |
$ |
1,167 |
$ |
1,217 |
-4% |
$ |
2,249 |
$ |
2,291 |
-2% |
||||||
Increases (decreases) in variable annuity |
||||||||||||||||
account values: |
||||||||||||||||
Net flows (1) |
(1,290 |
) |
(818 |
) |
-58% |
(2,627 |
) |
(1,658 |
) |
-58% |
||||||
Change in market value (1) |
2,968 | 1,389 | 114% | 7,681 | 1,408 |
NM |
||||||||||
Transfers to the variable portion |
||||||||||||||||
of variable annuity products |
||||||||||||||||
from the fixed portion of |
||||||||||||||||
variable annuity products |
373 | 594 |
-37% |
729 | 1,312 |
-44% |
||||||||||
Variable annuity account values (1) |
108,698 | 100,968 | 8% | 108,698 | 100,968 | 8% | ||||||||||
Average daily variable annuity account |
||||||||||||||||
values (1) |
107,988 | 100,468 | 7% | 106,760 | 98,454 | 8% | ||||||||||
Average daily S&P 500 (2) |
2,396 | 2,074 | 16% | 2,360 | 2,013 | 17% |
(1) |
Excludes the fixed portion of variable. |
(2) |
We generally use the Standard & Poor’s (“S&P”) 500 index as a benchmark for the performance of our variable account values. The account values of our variable annuity contracts are invested by our policyholders in a variety of investment options including, but not limited to, domestic and international equity securities and fixed income, which do not necessarily align with S&P 500 index performance. See Note 7 for additional information. |
We charge contract holders mortality and expense assessments on variable annuity accounts to cover insurance and administrative expenses. These assessments are a function of the rates priced into the product and the average daily variable account values. Average daily account values are driven by net flows and variable fund returns. Charges on GLB riders are assessed based on a contractual rate that is applied either to the account value or the guaranteed amount. In addition, for our fixed annuity contracts and for some variable contracts, we collect surrender charges when contract holders surrender their contracts during their surrender charge periods to protect us from premature withdrawals. Fee income includes charges on both our variable and fixed annuity products, but excludes the attributed fees on our GLB riders; see “Part II – Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Realized Gain (Loss) and Benefit Ratio Unlocking – Operating Realized Gain (Loss)” in our 2016 Form 10-K for discussion of these attributed fees.
53
Net Investment Income and Interest Credited
Details underlying net investment income, interest credited (in millions) and our interest rate spread were as follows:
|
||||||||||||||||
|
For the Three |
For the Six |
||||||||||||||
|
Months Ended |
Months Ended |
||||||||||||||
|
June 30, |
June 30, |
||||||||||||||
|
2017 |
2016 |
Change |
2017 |
2016 |
Change |
||||||||||
Net Investment Income |
||||||||||||||||
Fixed maturity securities, mortgage loans |
||||||||||||||||
on real estate and other, net of |
||||||||||||||||
investment expenses |
$ |
210 |
$ |
215 |
-2% |
$ |
422 |
$ |
429 |
-2% |
||||||
Commercial mortgage loan prepayment and |
||||||||||||||||
bond make-whole premiums (1) |
11 | 4 | 175% | 16 | 7 | 129% | ||||||||||
Surplus investments (2) |
42 | 39 | 8% | 81 | 73 | 11% | ||||||||||
Total net investment income |
$ |
263 |
$ |
258 | 2% |
$ |
519 |
$ |
509 | 2% | ||||||
|
||||||||||||||||
Interest Credited |
||||||||||||||||
Amount provided to contract holders |
$ |
142 |
$ |
142 | 0% |
$ |
284 |
$ |
281 | 1% | ||||||
DSI deferrals |
(3 |
) |
(4 |
) |
25% | (5 |
) |
(11 |
) |
55% | ||||||
Interest credited before DSI amortization |
139 | 138 | 1% | 279 | 270 | 3% | ||||||||||
DSI amortization |
6 | 6 | 0% | 13 | 13 | 0% | ||||||||||
Total interest credited |
$ |
145 |
$ |
144 | 1% |
$ |
292 |
$ |
283 | 3% |
(1) |
See “Consolidated Investments – Commercial Mortgage Loan Prepayment and Bond Make-Whole Premiums” below for additional information. |
(2) |
Represents net investment income on the required statutory surplus for this segment and includes the effect of investment income on alternative investments for such assets that are held in the portfolios supporting statutory surplus versus the portfolios supporting product liabilities. |
|
||||||||||||
|
For the Three |
For the Six |
||||||||||
|
Months Ended |
Basis |
Months Ended |
Basis |
||||||||
|
June 30, |
Point |
June 30, |
Point |
||||||||
|
2017 |
2016 |
Change |
2017 |
2016 |
Change |
||||||
Interest Rate Spread (1) |
||||||||||||
Fixed maturity securities, mortgage loans |
||||||||||||
on real estate and other, net of |
||||||||||||
investment expenses |
3.99% | 4.16% | (17 |
) |
4.03% | 4.20% | (17 |
) |
||||
Commercial mortgage loan prepayment and |
||||||||||||
bond make-whole premiums |
0.20% | 0.08% | 12 | 0.15% | 0.08% | 7 | ||||||
Net investment income yield on reserves |
4.19% | 4.24% | (5 |
) |
4.18% | 4.28% | (10 |
) |
||||
Interest rate credited to contract holders |
2.37% | 2.41% | (4 |
) |
2.40% | 2.38% | 2 | |||||
Interest rate spread |
1.82% | 1.83% | (1 |
) |
1.78% | 1.90% | (12 |
) |
(1) |
The prior year interest rate spread has been restated to conform to the current year presentation, which has been modified to be consistent across our business segments. |
54
|
||||||||||||||||
|
As of or For the Three |
As of or For the Six |
||||||||||||||
|
Months Ended |
Months Ended |
||||||||||||||
|
June 30, |
June 30, |
||||||||||||||
|
2017 |
2016 |
Change |
2017 |
2016 |
Change |
||||||||||
Fixed Account Value Information |
||||||||||||||||
Fixed annuity deposits (1) |
$ |
824 |
$ |
896 |
-8% |
$ |
1,759 |
$ |
2,175 |
-19% |
||||||
Increases (decreases) in fixed annuity |
||||||||||||||||
account values: |
||||||||||||||||
Net flows (1) |
215 | 366 |
-41% |
608 | 1,172 |
-48% |
||||||||||
Transfers from the fixed portion |
||||||||||||||||
of variable annuity products to |
||||||||||||||||
the variable portion of variable |
||||||||||||||||
annuity products |
(373 |
) |
(594 |
) |
37% | (729 |
) |
(1,312 |
) |
44% | ||||||
Reinvested interest credited (1) |
192 | 168 | 14% | 434 | 300 | 45% | ||||||||||
Fixed annuity account values (1) |
22,331 | 21,883 | 2% | 22,331 | 21,883 | 2% | ||||||||||
Average fixed account values (1) |
22,333 | 21,915 | 2% | 22,230 | 21,832 | 2% | ||||||||||
Average invested assets on reserves (2) |
18,352 | 18,002 | 2% | 18,254 | 18,009 | 1% |
(1) |
Includes the fixed portion of variable. |
(2) |
The prior year average invested assets on reserves has been restated to conform to the current year presentation, which has been modified to be consistent across our business segments. |
A portion of our investment income earned is credited to the contract holders of our deferred fixed annuity products, including the fixed portion of variable annuity contracts. We expect to earn a spread between what we earn on the underlying general account investments supporting the fixed annuity product line, including the fixed portion of variable annuity contracts, and what we credit to our fixed annuity contract holders’ accounts, including the fixed portion of variable annuity contracts. Changes in commercial mortgage loan prepayments and bond make-whole premiums, investment income on alternative investments and surplus investment income can vary significantly from period to period due to a number of factors and, therefore, may contribute to investment income results that are not indicative of the underlying trends.
Benefits
Benefits for this segment include changes in income annuity reserves driven by premiums, changes in benefit reserves and our expected costs associated with purchases of derivatives used to hedge our benefit ratio unlocking on benefit reserves associated with our guaranteed death benefit and guaranteed living benefit riders. For a corresponding offset of changes in income annuity reserves, see footnote 1 of “Income (Loss) from Operations” above.
55
Commissions and Other Expenses
Details underlying commissions and other expenses (in millions) were as follows:
|
||||||||||||||||
|
For the Three |
For the Six |
||||||||||||||
|
Months Ended |
Months Ended |
||||||||||||||
|
June 30, |
June 30, |
||||||||||||||
|
2017 |
2016 |
Change |
2017 |
2016 |
Change |
||||||||||
Commissions and Other Expenses |
||||||||||||||||
Commissions: |
||||||||||||||||
Deferrable |
$ |
84 |
$ |
92 |
-9% |
$ |
167 |
$ |
190 |
-12% |
||||||
Non-deferrable |
138 | 124 | 11% | 279 | 244 | 14% | ||||||||||
General and administrative expenses |
106 | 102 | 4% | 206 | 206 | 0% | ||||||||||
Inter-segment reimbursement associated |
||||||||||||||||
with reserve financing and |
||||||||||||||||
LOC expenses (1) |
1 |
- |
NM |
2 | 1 | 100% | ||||||||||
Taxes, licenses and fees |
8 | 6 | 33% | 19 | 17 | 12% | ||||||||||
Total expenses incurred, excluding |
||||||||||||||||
broker-dealer |
337 | 324 | 4% | 673 | 658 | 2% | ||||||||||
DAC deferrals |
(98 |
) |
(105 |
) |
7% | (194 |
) |
(217 |
) |
11% | ||||||
Total pre-broker-dealer expenses |
||||||||||||||||
incurred, excluding amortization, |
||||||||||||||||
net of interest |
239 | 219 | 9% | 479 | 441 | 9% | ||||||||||
DAC and VOBA amortization, |
||||||||||||||||
net of interest |
99 | 86 | 15% | 200 | 173 | 16% | ||||||||||
Broker-dealer expenses incurred |
109 | 102 | 7% | 211 | 204 | 3% | ||||||||||
Total commissions and other |
||||||||||||||||
expenses |
$ |
447 |
$ |
407 | 10% |
$ |
890 |
$ |
818 | 9% | ||||||
|
||||||||||||||||
DAC Deferrals |
||||||||||||||||
As a percentage of sales/deposits |
4.9% | 5.0% | 4.8% | 4.9% |
(1) |
Includes reimbursements to Annuities from the Life Insurance segment for reserve financing, net of expenses incurred by Annuities for its use of letters of credit (“LOCs”). The inter-segment amounts are not reported on our Consolidated Statements of Comprehensive Income (Loss). |
Commissions and other costs that result directly from and are essential to the successful acquisition of new or renewal business are deferred to the extent recoverable and are amortized over the lives of the contracts in relation to EGPs. Certain types of commissions, such as trail commissions that are based on account values, are expensed as incurred rather than deferred and amortized. Broker-dealer expenses that vary with and are related to sales are expensed as incurred and not deferred and amortized. Fluctuations in these expenses correspond with fluctuations in other revenues.
56
RESULTS OF RETIREMENT PLAN SERVICES
Details underlying the results for Retirement Plan Services (in millions) were as follows:
|
||||||||||||||||
|
For the Three |
For the Six |
||||||||||||||
|
Months Ended |
Months Ended |
||||||||||||||
|
June 30, |
June 30, |
||||||||||||||
|
2017 |
2016 |
Change |
2017 |
2016 |
Change |
||||||||||
Operating Revenues |
||||||||||||||||
Fee income |
$ |
62 |
$ |
57 | 9% |
$ |
121 |
$ |
112 | 8% | ||||||
Net investment income |
224 | 209 | 7% | 441 | 417 | 6% | ||||||||||
Other revenues (1) |
4 | 4 | 0% | 9 | 8 | 13% | ||||||||||
Total operating revenues |
290 | 270 | 7% | 571 | 537 | 6% | ||||||||||
Operating Expenses |
||||||||||||||||
Interest credited |
134 | 127 | 6% | 265 | 251 | 6% | ||||||||||
Benefits |
- |
- |
NM |
1 | 1 | 0% | ||||||||||
Commissions and other expenses |
106 | 102 | 4% | 207 | 202 | 2% | ||||||||||
Total operating expenses |
240 | 229 | 5% | 473 | 454 | 4% | ||||||||||
Income (loss) from operations before taxes |
50 | 41 | 22% | 98 | 83 | 18% | ||||||||||
Federal income tax expense (benefit) |
13 | 10 | 30% | 24 | 22 | 9% | ||||||||||
Income (loss) from operations |
$ |
37 |
$ |
31 | 19% |
$ |
74 |
$ |
61 | 21% |
(1) |
Consists primarily of mutual fund account program revenues from mid to large employers. |
Comparison of the Three and Six Months Ended June 30, 2017 to 2016
Income from operations for this segment increased due primarily to the following:
· |
Higher fee income driven by higher average daily variable account values. |
· |
Higher net investment income, net of interest credited, driven by higher prepayment and bond make-whole premiums and more favorable investment income on alternative investments within our surplus portfolio, partially offset by spread compression due to average new money rates trailing our current portfolio yields. |
The increase in income from operations was partially offset by higher commissions and other expenses due to higher incentive compensation as a result of production performance.
We provide information about this segment’s operating revenue and operating expense line items, the period in which amounts are recognized, key drivers of changes and historical details underlying the line items and their associated drivers below.
See the Variable Account Value Information table within “Fee Income” below for drivers of changes in our variable account values and the Fixed Account Value Information table within “Net Investment Income and Interest Credited” below for drivers of changes in our fixed account values.
See “Consolidated Investments – Commercial Mortgage Prepayment and Bond Make-Whole Premiums” below for more information on prepayment and bond make-whole premiums.
See “Consolidated Investments – Alternative Investments” below for more information on alternative investments.
Additional Information
Net flows in this business fluctuate based on the timing of larger plans being implemented on our platform and terminating over the course of the year.
New deposits are an important component of net flows and key to our efforts to grow our business. Although deposits do not significantly affect current period income from operations, they can significantly impact future income from operations. The other component of net flows relates to the retention of the business. An important measure of retention is the reduction in account values caused primarily by plan sponsor terminations and participant withdrawals. These outflows as a percentage of average account values were 10% and 12% for the three and six months ended June 30, 2017 respectively, compared to 12% for the corresponding periods in 2016.
57
Our net flows are negatively affected by the continued net outflows from our oldest blocks of annuities business (as presented on our Account Value Roll Forward table below as “Multi-Fund® and Other”), which are among our higher margin product lines in this segment, due to the fact that they are mature blocks with low distribution and servicing costs. The proportion of these products to our total account values was 27% and 29% as of June 30, 2017 and 2016, respectively. Due to this expected overall shift in business mix toward products with lower returns, an increase in new deposit production continues to be necessary to maintain earnings at current levels.
Our fixed annuity business includes products with discretionary and index-based crediting rates that are reset on either a quarterly or semi-annual basis. Our ability to retain quarterly or semi-annual reset annuities will be subject to current competitive conditions at the time interest rates for these products reset. We expect to manage the effects of spreads on near-term income from operations through portfolio management and, to a lesser extent, crediting rate actions, which assumes no significant changes in net flows into or out of our fixed accounts or other changes that may cause interest rate spreads to differ from our expectations. For information on interest rate spreads and interest rate risk, see “Item 3. Quantitative and Qualitative Disclosures About Market Risk – Interest Rate Risk” herein and “Item 7A. Quantitative and Qualitative Disclosures About Market Risk – Interest Rate Risk – Interest Rate Risk on Fixed Insurance Businesses – Falling Rates” and “Part I – Item 1A. Risk Factors – Market Conditions – Changes in interest rates and sustained low interest rates may cause interest rate spreads to decrease and changes in interest rates may also result in increased contract withdrawals” in our 2016 Form 10-K.
The DOL’s fiduciary advice regulation phased implementation first became effective on June 9, 2017, with full implementation by January 1, 2018. For information about regulatory risk including the impact of the DOL regulation, see “Department of Labor regulation defining fiduciary could cause changes to the manner in which we deliver products and services as well as changes in nature and amount of compensation and fees” in “Part II – Item 1A. Risk Factors” below.
For factors that could cause actual results to differ materially from those set forth in this section, see “Forward-Looking Statements – Cautionary Language” above and “Part I – Item 1A. Risk Factors” in our 2016 Form 10-K as updated by “Part II – Item 1A. Risk Factors” in our first quarter 2017 Form 10-Q and below.
Fee Income
Details underlying fee income, account values and net flows (in millions) were as follows:
\
|
||||||||||||||||
|
For the Three |
For the Six |
||||||||||||||
|
Months Ended |
Months Ended |
||||||||||||||
|
June 30, |
June 30, |
||||||||||||||
|
2017 |
2016 |
Change |
2017 |
2016 |
Change |
||||||||||
Fee Income |
||||||||||||||||
Annuity expense assessments |
$ |
46 |
$ |
42 | 10% |
$ |
90 |
$ |
84 | 7% | ||||||
Mutual fund fees |
16 | 14 | 14% | 31 | 27 | 15% | ||||||||||
Total expense assessments |
62 | 56 | 11% | 121 | 111 | 9% | ||||||||||
Surrender charges |
- |
1 |
-100% |
- |
1 |
-100% |
||||||||||
Total fee income |
$ |
62 |
$ |
57 | 9% |
$ |
121 |
$ |
112 | 8% |
58
|
||||||||||||||||
|
For the Three |
For the Six |
||||||||||||||
|
Months Ended |
Months Ended |
||||||||||||||
|
June 30, |
June 30, |
||||||||||||||
|
2017 |
2016 |
Change |
2017 |
2016 |
Change |
||||||||||
Account Value Roll Forward (1) |
||||||||||||||||
Small Market: |
||||||||||||||||
Balance as of beginning-of-period |
$ |
9,752 |
$ |
8,755 | 11% |
$ |
9,735 |
$ |
8,653 | 13% | ||||||
Gross deposits |
570 | 489 | 17% | 1,145 | 946 | 21% | ||||||||||
Withdrawals |
(446 |
) |
(511 |
) |
13% | (1,401 |
) |
(955 |
) |
-47% |
||||||
Net flows |
124 | (22 |
) |
NM |
(256 |
) |
(9 |
) |
NM |
|||||||
Transfers between fixed and variable |
||||||||||||||||
accounts |
(1 |
) |
3 |
NM |
(4 |
) |
9 |
NM |
||||||||
Change in market value and reinvestment |
270 | 154 | 75% | 670 | 237 | 183% | ||||||||||
Balance as of end-of-period |
$ |
10,145 |
$ |
8,890 | 14% |
$ |
10,145 |
$ |
8,890 | 14% | ||||||
|
||||||||||||||||
Mid – Large Market: |
||||||||||||||||
Balance as of beginning-of-period |
$ |
34,410 |
$ |
29,656 | 16% |
$ |
32,387 |
$ |
29,279 | 11% | ||||||
Gross deposits |
1,291 | 1,031 | 25% | 2,845 | 2,208 | 29% | ||||||||||
Withdrawals |
(766 |
) |
(840 |
) |
9% | (1,581 |
) |
(1,802 |
) |
12% | ||||||
Net flows |
525 | 191 | 175% | 1,264 | 406 | 211% | ||||||||||
Transfers between fixed and variable |
||||||||||||||||
accounts |
(62 |
) |
20 |
NM |
(67 |
) |
32 |
NM |
||||||||
Change in market value and reinvestment |
921 | 514 | 79% | 2,210 | 664 | 233% | ||||||||||
Balance as of end-of-period |
$ |
35,794 |
$ |
30,381 | 18% |
$ |
35,794 |
$ |
30,381 | 18% | ||||||
|
||||||||||||||||
Multi-Fund® and Other: |
||||||||||||||||
Balance as of beginning-of-period |
$ |
16,571 |
$ |
16,088 | 3% |
$ |
16,312 |
$ |
16,168 | 1% | ||||||
Gross deposits |
117 | 140 |
-16% |
239 | 298 |
-20% |
||||||||||
Withdrawals |
(371 |
) |
(305 |
) |
-22% |
(736 |
) |
(613 |
) |
-20% |
||||||
Net flows |
(254 |
) |
(165 |
) |
-54% |
(497 |
) |
(315 |
) |
-58% |
||||||
Change in market value and reinvestment |
312 | 236 | 32% | 814 | 306 | 166% | ||||||||||
Balance as of end-of-period |
$ |
16,629 |
$ |
16,159 | 3% |
$ |
16,629 |
$ |
16,159 | 3% | ||||||
|
||||||||||||||||
Total: |
||||||||||||||||
Balance as of beginning-of-period |
$ |
60,733 |
$ |
54,499 | 11% |
$ |
58,434 |
$ |
54,100 | 8% | ||||||
Gross deposits |
1,978 | 1,660 | 19% | 4,229 | 3,452 | 23% | ||||||||||
Withdrawals |
(1,583 |
) |
(1,656 |
) |
4% | (3,718 |
) |
(3,370 |
) |
-10% |
||||||
Net flows |
395 | 4 |
NM |
511 | 82 |
NM |
||||||||||
Transfers between fixed and variable |
||||||||||||||||
accounts |
(63 |
) |
23 |
NM |
(71 |
) |
41 |
NM |
||||||||
Change in market value and reinvestment |
1,503 | 904 | 66% | 3,694 | 1,207 | 206% | ||||||||||
Balance as of end-of-period |
$ |
62,568 |
$ |
55,430 | 13% |
$ |
62,568 |
$ |
55,430 | 13% |
(1) |
Includes mutual fund account values and other third-party trustee-held assets. These items are not included in the separate accounts reported on our Consolidated Balance Sheets as we do not have any ownership interest in them. |
59
|
||||||||||||||||
|
As of or For the Three |
As of or For the Six |
||||||||||||||
|
Months Ended |
Months Ended |
||||||||||||||
|
June 30, |
June 30, |
||||||||||||||
|
2017 |
2016 |
Change |
2017 |
2016 |
Change |
||||||||||
Variable Account Value Information |
||||||||||||||||
Variable annuity deposits (1) |
$ |
460 |
$ |
364 | 26% |
$ |
918 |
$ |
717 | 28% | ||||||
Increases (decreases) in variable annuity |
||||||||||||||||
account values: |
||||||||||||||||
Net flows (1) |
(93 |
) |
(183 |
) |
49% | (659 |
) |
(295 |
) |
NM |
||||||
Change in market value (1) |
439 | 276 | 59% | 1,170 | 329 | 256% | ||||||||||
Transfers from the variable portion |
||||||||||||||||
of variable annuity products |
||||||||||||||||
to the fixed portion of |
||||||||||||||||
variable annuity products |
(41 |
) |
(79 |
) |
48% | (92 |
) |
(169 |
) |
46% | ||||||
Variable annuity account values (1) |
14,930 | 13,959 | 7% | 14,930 | 13,959 | 7% | ||||||||||
Average daily variable annuity account |
||||||||||||||||
values (1) |
14,797 | 13,923 | 6% | 14,638 | 13,655 | 7% | ||||||||||
Average daily S&P 500 |
2,396 | 2,074 | 16% | 2,360 | 2,013 | 17% |
(1) |
Excludes the fixed portion of variable. |
We charge expense assessments to cover insurance and administrative expenses. Expense assessments are generally equal to a percentage of the daily variable account values. Average daily account values are driven by net flows and the equity markets. Our expense assessments include fees we earn for the services that we provide to our mutual fund programs. In addition, for both our fixed and variable annuity contracts, we collect surrender charges when contract holders surrender their contracts during the surrender charge periods to protect us from premature withdrawals.
Net Investment Income and Interest Credited
Details underlying net investment income, interest credited (in millions) and our interest rate spread were as follows:
|
||||||||||||||||
|
For the Three |
For the Six |
||||||||||||||
|
Months Ended |
Months Ended |
||||||||||||||
|
June 30, |
June 30, |
||||||||||||||
|
2017 |
2016 |
Change |
2017 |
2016 |
Change |
||||||||||
Net Investment Income |
||||||||||||||||
Fixed maturity securities, mortgage loans |
||||||||||||||||
on real estate and other, net of |
||||||||||||||||
investment expenses |
$ |
195 |
$ |
189 | 3% |
$ |
389 |
$ |
381 | 2% | ||||||
Commercial mortgage loan prepayment and |
||||||||||||||||
bond make-whole premiums (1) |
8 | 2 | 300% | 12 | 4 | 200% | ||||||||||
Surplus investments (2) |
21 | 18 | 17% | 40 | 32 | 25% | ||||||||||
Total net investment income |
$ |
224 |
$ |
209 | 7% |
$ |
441 |
$ |
417 | 6% | ||||||
|
||||||||||||||||
Interest Credited |
$ |
134 |
$ |
127 | 6% |
$ |
265 |
$ |
251 | 6% |
(1) |
See “Consolidated Investments – Commercial Mortgage Loan Prepayment and Bond Make-Whole Premiums” below for additional information. |
(2) |
Represents net investment income on the required statutory surplus for this segment and includes the effect of investment income on alternative investments for such assets that are held in the portfolios supporting statutory surplus versus the portfolios supporting product liabilities.
60 |
|
||||||||||||
|
For the Three |
For the Six |
||||||||||
|
Months Ended |
Basis |
Months Ended |
Basis |
||||||||
|
June 30, |
Point |
June 30, |
Point |
||||||||
|
2017 |
2016 |
Change |
2017 |
2016 |
Change |
||||||
Interest Rate Spread |
||||||||||||
Fixed maturity securities, mortgage loans |
||||||||||||
on real estate and other, net of |
||||||||||||
investment expenses |
4.30% | 4.52% | (22 |
) |
4.33% | 4.55% | (22 |
) |
||||
Commercial mortgage loan prepayment and |
||||||||||||
bond make-whole premiums |
0.17% | 0.06% | 11 | 0.13% | 0.05% | 8 | ||||||
Net investment income yield on reserves |
4.47% | 4.58% | (11 |
) |
4.46% | 4.60% | (14 |
) |
||||
Interest rate credited to contract holders |
2.91% | 3.01% | (10 |
) |
2.92% | 3.00% | (8 |
) |
||||
Interest rate spread |
1.56% | 1.57% | (1 |
) |
1.54% | 1.60% | (6 |
) |
|
||||||||||||||||
|
As of or For the Three |
As of or For the Six |
||||||||||||||
|
Months Ended |
Months Ended |
||||||||||||||
|
June 30, |
June 30, |
||||||||||||||
|
2017 |
2016 |
Change |
2017 |
2016 |
Change |
||||||||||
Fixed Account Value Information |
||||||||||||||||
Fixed annuity deposits (1) |
$ |
557 |
$ |
448 | 24% |
$ |
1,267 |
$ |
869 | 46% | ||||||
Increases (decreases) in fixed annuity |
||||||||||||||||
account values: |
||||||||||||||||
Net flows (1) |
129 | (35 |
) |
NM |
301 | (187 |
) |
261% | ||||||||
Transfers to the fixed portion of |
||||||||||||||||
variable annuity products from |
||||||||||||||||
the variable portion of variable |
||||||||||||||||
annuity products |
41 | 79 |
-48% |
92 | 169 |
-46% |
||||||||||
Reinvested interest credited (1) |
133 | 126 | 6% | 269 | 250 | 8% | ||||||||||
Fixed annuity account values (1) |
18,413 | 16,996 | 8% | 18,413 | 16,996 | 8% | ||||||||||
Average fixed account values (1) |
18,302 | 16,865 | 9% | 18,143 | 16,717 | 9% | ||||||||||
Average invested assets on reserves |
18,137 | 16,754 | 8% | 17,995 | 16,714 | 8% |
(1) |
Includes the fixed portion of variable. |
A portion of our investment income earned is credited to the contract holders of our fixed annuity products, including the fixed portion of variable annuity contracts. We expect to earn a spread between what we earn on the underlying general account investments supporting the fixed annuity product line, including the fixed portion of variable annuity contracts, and what we credit to our fixed annuity contract holders’ accounts, including the fixed portion of variable annuity contracts. Commercial mortgage loan prepayments and bond make-whole premiums, investment income on alternative investments and surplus investment income can vary significantly from period to period due to a number of factors and, therefore, may contribute to investment income results that are not indicative of the underlying trends.
Benefits
Benefits for this segment include changes in benefit reserves and our expected costs associated with purchases of derivatives used to hedge our benefit ratio unlocking.
61
Commissions and Other Expenses
Details underlying commissions and other expenses (in millions) were as follows:
|
||||||||||||||||
|
For the Three |
For the Six |
||||||||||||||
|
Months Ended |
Months Ended |
||||||||||||||
|
June 30, |
June 30, |
||||||||||||||
|
2017 |
2016 |
Change |
2017 |
2016 |
Change |
||||||||||
Commissions and Other Expenses |
||||||||||||||||
Commissions: |
||||||||||||||||
Deferrable |
$ |
2 |
$ |
3 |
-33% |
$ |
6 |
$ |
7 |
-14% |
||||||
Non-deferrable |
17 | 16 | 6% | 32 | 32 | 0% | ||||||||||
General and administrative expenses |
85 | 80 | 6% | 162 | 155 | 5% | ||||||||||
Taxes, licenses and fees |
4 | 4 | 0% | 10 | 10 | 0% | ||||||||||
Total expenses incurred |
108 | 103 | 5% | 210 | 204 | 3% | ||||||||||
DAC deferrals |
(8 |
) |
(6 |
) |
-33% |
(15 |
) |
(13 |
) |
-15% |
||||||
Total expenses recognized before |
||||||||||||||||
amortization |
100 | 97 | 3% | 195 | 191 | 2% | ||||||||||
DAC and VOBA amortization, |
||||||||||||||||
net of interest: |
||||||||||||||||
Amortization, net of interest, |
||||||||||||||||
excluding unlocking |
6 | 6 | 0% | 12 | 12 | 0% | ||||||||||
Unlocking |
- |
(1 |
) |
100% |
- |
(1 |
) |
100% | ||||||||
Total commissions and other |
||||||||||||||||
expenses |
$ |
106 |
$ |
102 | 4% |
$ |
207 |
$ |
202 | 2% | ||||||
|
||||||||||||||||
DAC Deferrals |
||||||||||||||||
As a percentage of annuity sales/deposits |
0.8% | 0.7% | 0.7% | 0.8% |
Commissions and other costs that result directly from and are essential to the successful acquisition of new or renewal business are deferred to the extent recoverable and are amortized over the lives of the contracts in relation to EGPs. Certain types of commissions, such as trail commissions that are based on account values, are expensed as incurred rather than deferred and amortized. Distribution expenses associated with the sale of mutual fund products are expensed as incurred.
62
RESULTS OF LIFE INSURANCE
Details underlying the results for Life Insurance (in millions) were as follows:
|
||||||||||||||||
|
For the Three |
For the Six |
||||||||||||||
|
Months Ended |
Months Ended |
||||||||||||||
|
June 30, |
June 30, |
||||||||||||||
|
2017 |
2016 |
Change |
2017 |
2016 |
Change |
||||||||||
Operating Revenues |
||||||||||||||||
Insurance premiums (1) |
$ |
199 |
$ |
177 | 12% |
$ |
384 |
$ |
350 | 10% | ||||||
Fee income |
778 | 721 | 8% | 1,538 | 1,408 | 9% | ||||||||||
Net investment income |
672 | 633 | 6% | 1,329 | 1,244 | 7% | ||||||||||
Operating realized gain (loss) (2) |
(3 |
) |
- |
NM |
(7 |
) |
(1 |
) |
NM |
|||||||
Other revenues |
9 | 7 | 29% | 16 | 15 | 7% | ||||||||||
Total operating revenues |
1,655 | 1,538 | 8% | 3,260 | 3,016 | 8% | ||||||||||
Operating Expenses |
||||||||||||||||
Interest credited |
349 | 349 | 0% | 698 | 697 | 0% | ||||||||||
Benefits |
807 | 708 | 14% | 1,604 | 1,448 | 11% | ||||||||||
Commissions and other expenses |
305 | 306 | 0% | 577 | 593 |
-3% |
||||||||||
Total operating expenses |
1,461 | 1,363 | 7% | 2,879 | 2,738 | 5% | ||||||||||
Income (loss) from operations before taxes |
194 | 175 | 11% | 381 | 278 | 37% | ||||||||||
Federal income tax expense (benefit) |
61 | 55 | 11% | 118 | 83 | 42% | ||||||||||
Income (loss) from operations |
$ |
133 |
$ |
120 | 11% |
$ |
263 |
$ |
195 | 35% |
(1) |
Includes term insurance premiums, which have a corresponding partial offset in benefits for changes in reserves. |
(2) |
See “Realized Gain (Loss) and Benefit Ratio Unlocking” below. |
Comparison of the Three and Six Months Ended June 30, 2017 to 2016
Income from operations for this segment increased due primarily to the following:
· |
Higher fee income due primarily to growth in business in force. |
· |
Higher net investment income, net of interest credited, driven by favorable investment income on alternative investments and higher prepayment and bond make-whole premiums. |
The increase in income from operations was partially offset by higher benefits due to growth in business in force
We provide information about this segment’s operating revenue and operating expense line items, the period in which amounts are recognized, key drivers of changes and historical details underlying the line items and their associated drivers below.
See “Consolidated Investments – Alternative Investments” below for more information on alternative investments.
See “Consolidated Investments – Commercial Mortgage Loan Prepayment and Bond Make-Whole Premiums” below for more information on prepayment and bond make-whole premiums.
Strategies to Address Statutory Reserve Strain
Our insurance subsidiaries have statutory surplus and risk-based capital (“RBC”) levels above current regulatory required levels. Term products and UL products containing secondary guarantees require reserves calculated pursuant to the Valuation of Life Insurance Policies Model Regulation (“XXX”) and Actuarial Guideline 38 (“AG38”). For information on strategies we use to reduce the statutory reserve strain caused by XXX and AG38, see “Review of Consolidated Financial Condition – Liquidity and Capital Resources – Sources of Liquidity and Cash Flow – Insurance Subsidiaries’ Statutory Capital and Surplus” below.
Additional Information
Mortality was in line with our expectations during the second quarter of 2017, as better than expected frequency (i.e., claim count) was offset by slightly higher severity (i.e., claim size).
For information on interest rate spreads and interest rate risk, see “Item 3. Quantitative and Qualitative Disclosures About Market Risk – Interest Rate Risk” herein and “Part II – Item 7A. Quantitative and Qualitative Disclosures About Market Risk – Interest Rate Risk – Interest Rate Risk on Fixed Insurance Businesses – Falling Rates” and “Part I – Item 1A. Risk Factors – Market Conditions – Changes in
63
interest rates and sustained low interest rates may cause interest rate spreads to decrease and changes in interest rates may also result in increased contract withdrawals” in our 2016 Form 10-K.
For factors that could cause actual results to differ materially from those set forth in this section, see “Forward-Looking Statements – Cautionary Language” above and “Part I – Item 1A. Risk Factors” in our 2016 Form 10-K as updated by “Part II – Item 1A. Risk Factors” in our first quarter 2017 Form 10-Q and below.
Insurance Premiums
Insurance premiums relate to traditional products and are a function of the rates priced into the product and the level of business in force. Business in force, in turn, is driven by sales, persistency and mortality experience.
Fee Income
Details underlying fee income, sales, net flows, account values and in-force face amount (in millions) were as follows:
|
||||||||||||||||
|
For the Three |
For the Six |
||||||||||||||
|
Months Ended |
Months Ended |
||||||||||||||
|
June 30, |
June 30, |
||||||||||||||
|
2017 |
2016 |
Change |
2017 |
2016 |
Change |
||||||||||
Fee Income |
||||||||||||||||
Cost of insurance assessments |
$ |
493 |
$ |
445 | 11% |
$ |
983 |
$ |
881 | 12% | ||||||
Expense assessments |
371 | 315 | 18% | 712 | 609 | 17% | ||||||||||
Surrender charges |
14 | 14 | 0% | 28 | 22 | 27% | ||||||||||
DFEL: |
||||||||||||||||
Deferrals |
(187 |
) |
(139 |
) |
-35% |
(345 |
) |
(267 |
) |
-29% |
||||||
Amortization, net of interest |
87 | 86 | 1% | 160 | 163 |
-2% |
||||||||||
Total fee income |
$ |
778 |
$ |
721 | 8% |
$ |
1,538 |
$ |
1,408 | 9% |
|
For the Three |
For the Six |
||||||||||||||
|
Months Ended |
Months Ended |
||||||||||||||
|
June 30, |
June 30, |
||||||||||||||
|
2017 |
2016 |
Change |
2017 |
2016 |
Change |
||||||||||
Sales by Product |
||||||||||||||||
UL |
$ |
14 |
$ |
24 |
-42% |
$ |
31 |
$ |
43 |
-28% |
||||||
MoneyGuard® |
80 | 51 | 57% | 139 | 94 | 48% | ||||||||||
IUL |
16 | 18 |
-11% |
34 | 36 |
-6% |
||||||||||
VUL |
50 | 41 | 22% | 86 | 70 | 23% | ||||||||||
Term |
28 | 30 |
-7% |
55 | 54 | 2% | ||||||||||
Total individual life sales |
188 | 164 | 15% | 345 | 297 | 16% | ||||||||||
Executive Benefits |
9 | 9 | 0% | 33 | 16 | 106% | ||||||||||
Total sales |
$ |
197 |
$ |
173 | 14% |
$ |
378 |
$ |
313 | 21% | ||||||
|
||||||||||||||||
Net Flows |
||||||||||||||||
Deposits |
$ |
1,543 |
$ |
1,391 | 11% |
$ |
2,959 |
$ |
2,630 | 13% | ||||||
Withdrawals and deaths |
(442 |
) |
(413 |
) |
-7% |
(934 |
) |
(822 |
) |
-14% |
||||||
Net flows |
$ |
1,101 |
$ |
978 | 13% |
$ |
2,025 |
$ |
1,808 | 12% | ||||||
|
||||||||||||||||
Contract Holder Assessments |
$ |
1,160 |
$ |
1,041 | 11% |
$ |
2,281 |
$ |
2,045 | 12% |
|
||||||||
|
As of June 30, |
|||||||
|
2017 |
2016 |
Change |
|||||
Account Values |
||||||||
General account |
$ |
35,720 |
$ |
35,015 | 2% | |||
Separate account |
11,460 | 9,387 | 22% | |||||
Total account values |
$ |
47,180 |
$ |
44,402 | 6% | |||
|
||||||||
In-Force Face Amount |
||||||||
UL and other |
$ |
337,971 |
$ |
333,006 | 1% | |||
Term insurance |
366,628 | 342,366 | 7% | |||||
Total in-force face amount |
$ |
704,599 |
$ |
675,372 | 4% |
64
Fee income relates only to interest-sensitive products and includes cost of insurance assessments, expense assessments (net of deferrals and amortization related to DFEL) and surrender charges. Cost of insurance and expense assessments are deducted from our contract holders’ account values. These amounts are a function of the rates priced into the product and premiums received, face amount in force and account values. Business in force, in turn, is driven by sales, persistency and mortality experience.
Sales are not recorded as a component of revenues (other than for traditional products) and do not have a significant effect on current quarter income from operations but are indicators of future profitability. Generally, we have higher sales during the second half of the year with the fourth quarter being our strongest.
Sales in the table above and as discussed above were reported as follows:
· |
MoneyGuard®, our linked-benefit product – 15% of total expected premium deposits; |
· |
UL, IUL and VUL – first year commissionable premiums plus 5% of excess premiums received; |
· |
Executive Benefits – single premium bank-owned UL and VUL, 15% of single premium deposits, and corporate owned UL and VUL, first year commissionable premiums plus 5% of excess premium received; and |
· |
Term – 100% of annualized first year premiums. |
We monitor the business environment, including but not limited to the regulatory and interest rate environments, and make changes to our product offerings and in-force products as needed, and as permitted under the terms of the policies, to sustain the future profitability of our segment.
Net Investment Income and Interest Credited
Details underlying net investment income, interest credited (in millions) and our interest rate spread were as follows:
|
||||||||||||||||
|
For the Three |
For the Six |
||||||||||||||
|
Months Ended |
Months Ended |
||||||||||||||
|
June 30, |
June 30, |
||||||||||||||
|
2017 |
2016 |
Change |
2017 |
2016 |
Change |
||||||||||
Net Investment Income |
||||||||||||||||
Fixed maturity securities, mortgage loans |
||||||||||||||||
on real estate and other, net of |
||||||||||||||||
investment expenses |
$ |
581 |
$ |
578 | 1% |
$ |
1,162 |
$ |
1,159 | 0% | ||||||
Commercial mortgage loan prepayment |
||||||||||||||||
and bond make-whole premiums (1) |
14 | 6 | 133% | 20 | 13 | 54% | ||||||||||
Alternative investments (2) |
33 | 11 | 200% | 62 | 2 |
NM |
||||||||||
Surplus investments (3) |
44 | 38 | 16% | 85 | 70 | 21% | ||||||||||
Total net investment income |
$ |
672 |
$ |
633 | 6% |
$ |
1,329 |
$ |
1,244 | 7% | ||||||
|
||||||||||||||||
Interest Credited |
$ |
349 |
$ |
349 | 0% |
$ |
698 |
$ |
697 | 0% |
(1) |
See “Consolidated Investments – Commercial Mortgage Loan Prepayment and Bond Make-Whole Premiums” below for additional information. |
(2) |
See “Consolidated Investments – Alternative Investments” below for additional information. |
(3) |
Represents net investment income on the required statutory surplus for this segment and includes the effect of investment income on alternative investments for such assets that are held in the portfolios supporting statutory surplus versus the portfolios supporting product liabilities. |
65
|
||||||||||||
|
For the Three |
For the Six |
||||||||||
|
Months Ended |
Basis |
Months Ended |
Basis |
||||||||
|
June 30, |
Point |
June 30, |
Point |
||||||||
|
2017 |
2016 |
Change |
2017 |
2016 |
Change |
||||||
Interest Rate Yields and Spread |
||||||||||||
Attributable to interest-sensitive products: |
||||||||||||
Fixed maturity securities, mortgage loans |
||||||||||||
on real estate and other, net of |
||||||||||||
investment expenses |
5.05% | 5.22% | (17 |
) |
5.08% | 5.25% | (17 |
) |
||||
Commercial mortgage loan prepayment |
||||||||||||
and bond make-whole premiums |
0.12% | 0.06% | 6 | 0.09% | 0.06% | 3 | ||||||
Alternative investments |
0.32% | 0.11% | 21 | 0.30% | 0.01% | 29 | ||||||
Net investment income yield on reserves |
5.49% | 5.39% | 10 | 5.47% | 5.32% | 15 | ||||||
Interest rate credited to contract holders |
3.82% | 3.92% | (10 |
) |
3.83% | 3.92% | (9 |
) |
||||
Interest rate spread |
1.67% | 1.47% | 20 | 1.64% | 1.40% | 24 | ||||||
|
|
||||||||||||||||
|
For the Three |
For the Six |
||||||||||||||
|
Months Ended |
Months Ended |
||||||||||||||
|
June 30, |
June 30, |
||||||||||||||
|
2017 |
2016 |
Change |
2017 |
2016 |
Change |
||||||||||
Averages |
||||||||||||||||
Attributable to interest-sensitive products: |
||||||||||||||||
Invested assets on reserves |
$ |
41,797 |
$ |
40,195 | 4% |
$ |
41,544 |
$ |
40,085 | 4% | ||||||
General account values |
36,105 | 35,442 | 2% | 36,056 | 35,388 | 2% | ||||||||||
|
||||||||||||||||
Attributable to traditional products: |
||||||||||||||||
Invested assets on reserves |
4,384 | 4,219 | 4% | 4,359 | 4,180 | 4% |
A portion of the investment income earned for this segment is credited to contract holder accounts. Statutory reserves will typically grow at a faster rate than account values because of the AG38 reserve requirements. Invested assets are based upon the statutory reserve liabilities and are affected by various reserve adjustments, including financing transactions providing relief from AG38 reserve requirements. These financing transactions lead to a transfer of invested assets from this segment to Other Operations. We expect to earn a spread between what we earn on the underlying general account investments and what we credit to our contract holders’ accounts. We use our investment income to offset the earnings effect of the associated growth of our policy reserves for traditional products. Commercial mortgage loan prepayments and bond make-whole premiums and investment income on alternative investments can vary significantly from period to period due to a number of factors, and, therefore, may contribute to investment income results that are not indicative of the underlying trends.
Benefits
Details underlying benefits (dollars in millions) were as follows:
|
||||||||||||||||
|
For the Three |
For the Six |
||||||||||||||
|
Months Ended |
Months Ended |
||||||||||||||
|
June 30, |
June 30, |
||||||||||||||
|
2017 |
2016 |
Change |
2017 |
2016 |
Change |
||||||||||
Benefits |
||||||||||||||||
Death claims direct and assumed |
$ |
1,254 |
$ |
1,049 | 20% |
$ |
2,421 |
$ |
2,140 | 13% | ||||||
Death claims ceded |
(608 |
) |
(438 |
) |
-39% |
(1,084 |
) |
(888 |
) |
-22% |
||||||
Reserves released on death |
(154 |
) |
(171 |
) |
10% | (339 |
) |
(318 |
) |
-7% |
||||||
Net death benefits |
492 | 440 | 12% | 998 | 934 | 7% | ||||||||||
Change in secondary guarantee life |
||||||||||||||||
insurance product reserves |
168 | 150 | 12% | 335 | 291 | 15% | ||||||||||
Change in MoneyGuard® reserves |
76 | 51 | 49% | 145 | 99 | 46% | ||||||||||
Other benefits (1) |
71 | 67 | 6% | 126 | 124 | 2% | ||||||||||
Total benefits |
$ |
807 |
$ |
708 | 14% |
$ |
1,604 |
$ |
1,448 | 11% | ||||||
|
||||||||||||||||
Death claims per $1,000 of in-force |
2.81 | 2.62 | 7% | 2.86 | 2.80 | 2% |
(1) |
Includes primarily changes in reserves and dividends on traditional and other products. |
66
Benefits for this segment include claims incurred during the period in excess of the associated reserves for its interest-sensitive and traditional products. In addition, benefits include the change in secondary guarantee and linked-benefit life insurance product reserves. These reserves are affected by changes in expected future trends of assessments and benefits causing unlocking adjustments to these liabilities similar to DAC, VOBA and DFEL. Generally, we have higher mortality in the first quarter of the year due to the seasonality of claims. See “Future Contract Benefits and Other Contract Holder Funds” in Note 1 of our 2016 Form 10-K for additional information.
Commissions and Other Expenses
Details underlying commissions and other expenses (in millions) were as follows:
|
||||||||||||||||
|
For the Three |
For the Six |
||||||||||||||
|
Months Ended |
Months Ended |
||||||||||||||
|
June 30, |
June 30, |
||||||||||||||
|
2017 |
2016 |
Change |
2017 |
2016 |
Change |
||||||||||
Commissions and Other Expenses |
||||||||||||||||
Commissions |
$ |
190 |
$ |
174 | 9% |
$ |
365 |
$ |
321 | 14% | ||||||
General and administrative expenses |
146 | 130 | 12% | 283 | 255 | 11% | ||||||||||
Expenses associated with reserve financing |
23 | 21 | 10% | 46 | 41 | 12% | ||||||||||
Taxes, licenses and fees |
39 | 41 |
-5% |
78 | 80 |
-3% |
||||||||||
Total expenses incurred |
398 | 366 | 9% | 772 | 697 | 11% | ||||||||||
DAC and VOBA deferrals |
(219 |
) |
(198 |
) |
-11% |
(418 |
) |
(363 |
) |
-15% |
||||||
Total expenses recognized before |
||||||||||||||||
amortization |
179 | 168 | 7% | 354 | 334 | 6% | ||||||||||
DAC and VOBA amortization, |
||||||||||||||||
net of interest |
125 | 137 |
-9% |
221 | 257 |
-14% |
||||||||||
Other intangible amortization |
1 | 1 | 0% | 2 | 2 | 0% | ||||||||||
Total commissions and |
||||||||||||||||
other expenses |
$ |
305 |
$ |
306 | 0% |
$ |
577 |
$ |
593 |
-3% |
||||||
|
||||||||||||||||
DAC and VOBA Deferrals |
||||||||||||||||
As a percentage of sales |
111.2% | 114.5% | 110.6% | 116.0% |
Commissions and costs that result directly from and are essential to successful acquisition of new or renewal business are deferred to the extent recoverable and for our interest-sensitive products are generally amortized over the life of the contracts in relation to EGPs. For our traditional products, DAC and VOBA are amortized on either a straight-line basis or as a level percent of premium of the related
contracts, depending on the block of business. When comparing DAC and VOBA deferrals as a percentage of sales for the three and six months ended June 30, 2017, to the corresponding periods in 2016, the decrease was primarily a result of changes in sales mix to products with lower commission rates.
67
RESULTS OF GROUP PROTECTION
Details underlying the results for Group Protection (in millions) were as follows:
|
||||||||||||||||
|
For the Three |
For the Six |
||||||||||||||
|
Months Ended |
Months Ended |
||||||||||||||
|
June 30, |
June 30, |
||||||||||||||
|
2017 |
2016 |
Change |
2017 |
2016 |
Change |
||||||||||
Operating Revenues |
||||||||||||||||
Insurance premiums |
$ |
494 |
$ |
478 | 3% |
$ |
988 |
$ |
967 | 2% | ||||||
Net investment income |
43 | 43 | 0% | 87 | 86 | 1% | ||||||||||
Other revenues |
4 | 4 | 0% | 7 | 6 | 17% | ||||||||||
Total operating revenues |
541 | 525 | 3% | 1,082 | 1,059 | 2% | ||||||||||
Operating Expenses |
||||||||||||||||
Interest credited |
- |
1 |
-100% |
1 | 1 | 0% | ||||||||||
Benefits |
326 | 345 |
-6% |
676 | 685 |
-1% |
||||||||||
Commissions and other expenses |
162 | 156 | 4% | 341 | 342 | 0% | ||||||||||
Total operating expenses |
488 | 502 |
-3% |
1,018 | 1,028 |
-1% |
||||||||||
Income (loss) from operations before taxes |
53 | 23 | 130% | 64 | 31 | 106% | ||||||||||
Federal income tax expense (benefit) |
18 | 8 | 125% | 22 | 11 | 100% | ||||||||||
Income (loss) from operations |
$ |
35 |
$ |
15 | 133% |
$ |
42 |
$ |
20 | 110% |
|
||||||||||||||||
|
For the Three |
For the Six |
||||||||||||||
|
Months Ended |
Months Ended |
||||||||||||||
|
June 30, |
June 30, |
||||||||||||||
|
2017 |
2016 |
Change |
2017 |
2016 |
Change |
||||||||||
Income (Loss) from Operations by |
||||||||||||||||
Product Line |
||||||||||||||||
Life |
$ |
15 |
$ |
8 | 88% |
$ |
12 |
$ |
5 | 140% | ||||||
Disability |
20 | 7 | 186% | 30 | 15 | 100% | ||||||||||
Dental |
- |
- |
NM |
- |
(1 |
) |
100% | |||||||||
Total non-medical |
35 | 15 | 133% | 42 | 19 | 121% | ||||||||||
Medical |
- |
- |
NM |
- |
1 |
-100% |
||||||||||
Income (loss) from operations |
$ |
35 |
$ |
15 | 133% |
$ |
42 |
$ |
20 | 110% |
Comparison of the Three and Six Months Ended June 30, 2017 to 2016
Income from operations for this segment increased due primarily to the following:
· |
Higher insurance premiums due to more favorable persistency experience. |
· |
Lower benefits driven by favorable experience in all product lines. |
When comparing the three months ended June 30, 2017 to 2016, the increase in income from operations was partially offset by higher commissions and other expenses due to higher incentive compensation as a result of production performance.
We provide information about this segment’s operating revenue and operating expense line items, the period in which amounts are
recognized, key drivers of changes and historical details underlying the line items and their associated drivers below.
Additional Information
For the three and six months ended June 30, 2017, our total loss ratio decreased from the prior periods due primarily to lower incidence and new claims severity in our disability business and favorable mortality and life waiver experience. For information about the effect of the loss ratio sensitivity on our income (loss) from operations, see “Part II – Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Results of Group Protection – Additional Information” in our 2016 Form 10-K.
During the first quarter of 2016, we had higher amortization of DAC driven by higher lapses and re-pricing actions on our underperforming employer-paid life and disability business.
68
For information on the effects of current interest rates on our long-term disability claim reserves, see “Item 7A. Quantitative and Qualitative Disclosures About Market Risk – Interest Rate Risk – Effect of Interest Rate Sensitivity” in our 2016 Form 10-K.
For factors that could cause actual results to differ materially from those set forth in this section, see “Forward-Looking Statements –
Cautionary Language” above and “Part I – Item 1A. Risk Factors” in our 2016 Form 10-K as updated by “Part II – Item 1A. Risk Factors” below.
Insurance Premiums
Details underlying insurance premiums (in millions) were as follows:
|
||||||||||||||||
|
For the Three |
For the Six |
||||||||||||||
|
Months Ended |
Months Ended |
||||||||||||||
|
June 30, |
June 30, |
||||||||||||||
|
2017 |
2016 |
Change |
2017 |
2016 |
Change |
||||||||||
Insurance Premiums by Product Line |
||||||||||||||||
Life |
$ |
206 |
$ |
201 | 2% |
$ |
412 |
$ |
412 | 0% | ||||||
Disability |
226 | 220 | 3% | 451 | 442 | 2% | ||||||||||
Dental |
62 | 57 | 9% | 125 | 113 | 11% | ||||||||||
Total insurance premiums |
$ |
494 |
$ |
478 | 3% |
$ |
988 |
$ |
967 | 2% | ||||||
|
||||||||||||||||
Sales by Product Line |
||||||||||||||||
Life |
$ |
28 |
$ |
25 | 12% |
$ |
51 |
$ |
52 |
-2% |
||||||
Disability |
32 | 30 | 7% | 55 | 52 | 6% | ||||||||||
Dental |
28 | 16 | 75% | 39 | 26 | 50% | ||||||||||
Total sales |
$ |
88 |
$ |
71 | 24% |
$ |
145 |
$ |
130 | 12% |
Our cost of insurance and policy administration charges are embedded in the premiums charged to our customers. The premiums are a function of the rates priced into the product and our business in force. Business in force, in turn, is driven by sales and persistency experience.
Sales relate to new contract holders and new programs sold to existing contract holders. We believe that the trend in sales is an important indicator of development of business in force over time. Sales in the table above are the combined annualized premiums for our products.
Net Investment Income
We use our investment income to offset the earnings effect of the associated build of our reserves, which are a function of our insurance premiums and the yields on our invested assets.
69
Benefits and Interest Credited
Details underlying benefits and interest credited (in millions) and loss ratios by product line were as follows:
|
||||||||||||||||
|
For the Three |
For the Six |
||||||||||||||
|
Months Ended |
Months Ended |
||||||||||||||
|
June 30, |
June 30, |
||||||||||||||
|
2017 |
2016 |
Change |
2017 |
2016 |
Change |
||||||||||
Benefits and Interest Credited by |
||||||||||||||||
Product Line |
||||||||||||||||
Life |
$ |
136 |
$ |
141 |
-4% |
$ |
285 |
$ |
291 |
-2% |
||||||
Disability |
147 | 165 |
-11% |
303 | 314 |
-4% |
||||||||||
Dental |
43 | 40 | 8% | 89 | 81 | 10% | ||||||||||
Total benefits and interest credited |
$ |
326 |
$ |
346 |
-6% |
$ |
677 |
$ |
686 |
-1% |
||||||
|
||||||||||||||||
Loss Ratios by Product Line |
||||||||||||||||
Life |
66.1% | 70.4% | 69.3% | 70.8% | ||||||||||||
Disability |
65.4% | 74.8% | 67.1% | 71.0% | ||||||||||||
Dental |
68.7% | 70.4% | 71.0% | 71.9% | ||||||||||||
Total |
66.1% | 72.5% | 68.5% | 71.0% |
Generally, we have higher mortality in the first quarter of the year due to the seasonality of claims.
Commissions and Other Expenses
Details underlying commissions and other expenses (in millions) were as follows:
|
||||||||||||||||
|
For the Three |
For the Six |
||||||||||||||
|
Months Ended |
Months Ended |
||||||||||||||
|
June 30, |
June 30, |
||||||||||||||
|
2017 |
2016 |
Change |
2017 |
2016 |
Change |
||||||||||
Commissions and Other Expenses |
||||||||||||||||
Commissions |
$ |
62 |
$ |
61 | 2% |
$ |
125 |
$ |
124 | 1% | ||||||
General and administrative expenses |
86 | 83 | 4% | 169 | 161 | 5% | ||||||||||
Taxes, licenses and fees |
13 | 14 |
-7% |
27 | 28 |
-4% |
||||||||||
Total expenses incurred |
161 | 158 | 2% | 321 | 313 | 3% | ||||||||||
DAC deferrals |
(13 |
) |
(17 |
) |
24% | (27 |
) |
(31 |
) |
13% | ||||||
Total expenses recognized before |
||||||||||||||||
amortization |
148 | 141 | 5% | 294 | 282 | 4% | ||||||||||
DAC and VOBA amortization, net of |
||||||||||||||||
interest |
14 | 15 |
-7% |
47 | 60 |
-22% |
||||||||||
Total commissions and |
||||||||||||||||
other expenses |
$ |
162 |
$ |
156 | 4% |
$ |
341 |
$ |
342 | 0% | ||||||
|
||||||||||||||||
DAC Deferrals |
||||||||||||||||
As a percentage of insurance premiums |
2.6% | 3.6% | 2.7% | 3.2% |
Commissions and other costs that result directly from and are essential to the successful acquisition of new or renewal business are deferred to the extent recoverable and are amortized in relation to the revenues of the related contracts. Certain broker commissions that vary with and are related to paid premiums are expensed as incurred. The level of expenses is an important driver of profitability for this segment as group insurance contracts are offered within an environment that competes on the basis of price and service. Generally, we have higher amortization in the first quarter of the year due to a significant number of policies renewing in the quarter. When comparing DAC deferrals as a percentage of premiums for the three and six months ended June 30, 2017, to the corresponding periods in 2016, the decrease was primarily a result of changes in sales mix to products with lower DAC deferrals.
70
RESULTS OF OTHER OPERATIONS
Details underlying the results for Other Operations (in millions) were as follows:
|
||||||||||||||||
|
For the Three |
For the Six |
||||||||||||||
|
Months Ended |
Months Ended |
||||||||||||||
|
June 30, |
June 30, |
||||||||||||||
|
2017 |
2016 |
Change |
2017 |
2016 |
Change |
||||||||||
Operating Revenues |
||||||||||||||||
Insurance premiums (1) |
$ |
2 |
$ |
4 |
-50% |
$ |
5 |
$ |
9 |
-44% |
||||||
Net investment income |
60 | 56 | 7% | 123 | 115 | 7% | ||||||||||
Amortization of deferred gain on |
||||||||||||||||
business sold through reinsurance |
4 | 18 |
-78% |
21 | 35 |
-40% |
||||||||||
Other revenues |
1 | 1 | 0% | 6 | 2 | 200% | ||||||||||
Total operating revenues |
67 | 79 |
-15% |
155 | 161 |
-4% |
||||||||||
Operating Expenses |
||||||||||||||||
Interest credited |
18 | 19 |
-5% |
36 | 39 |
-8% |
||||||||||
Benefits |
27 | 32 |
-16% |
54 | 59 |
-8% |
||||||||||
Other expenses |
8 | 6 | 33% | 18 | (1 |
) |
NM |
|||||||||
Interest and debt expense |
63 | 68 |
-7% |
127 | 136 |
-7% |
||||||||||
Strategic digitization expense |
14 |
- |
NM |
23 |
- |
NM |
||||||||||
Total operating expenses |
130 | 125 | 4% | 258 | 233 | 11% | ||||||||||
Income (loss) from operations before taxes |
(63 |
) |
(46 |
) |
-37% |
(103 |
) |
(72 |
) |
-43% |
||||||
Federal income tax expense (benefit) |
(26 |
) |
(18 |
) |
-44% |
(52 |
) |
(33 |
) |
-58% |
||||||
Income (loss) from operations |
$ |
(37 |
) |
$ |
(28 |
) |
-32% |
$ |
(51 |
) |
$ |
(39 |
) |
-31% |
||
|
(1) |
Includes our disability income business, which has a corresponding offset in benefits for changes in reserves. |
Comparison of the Three Months Ended June 30, 2017 to 2016
Loss from operations for Other Operations increased due primarily to the following:
· |
Strategic digitization expense incurred during 2017 as part of our strategic digitization initiative. |
· |
Lower amortization of deferred gain on business sold through reinsurance as the gain was substantially amortized during the first quarter of 2017. |
The increase in loss from operations was partially offset by the following:
· |
Higher net investment income, net of interest credited, related to higher average invested assets driven by distributable earnings received from our segments, partially offset by repurchases of common stock. |
· |
Lower interest and debt expense driven by a decline in both average balances of outstanding debt and rates. |
Comparison of the Six Months Ended June 30, 2017 to 2016
Loss from operations for Other Operations increased due primarily to the following:
· |
Strategic digitization expense incurred during 2017 as part of our strategic digitization initiative. |
· |
Higher other expenses driven by legal accrual releases in 2016 and the effect of changes in our stock price on our deferred compensation plans, as our stock price modestly increased during 2017 compared to significantly decreasing during 2016 (see “Other Expenses” below for more information). |
· |
Lower amortization of deferred gain on business sold through reinsurance as the gain was substantially amortized during the first quarter of 2017. |
The increase in loss from operations was partially offset by the following:
· |
More favorable federal income tax benefits due to excess tax benefits associated with stock option exercises in 2017. |
· |
Lower interest and debt expense driven by a decline in both average balances of outstanding debt and rates. |
· |
Higher net investment income, net of interest credited, related to higher average invested assets driven by distributable earnings received from our segments, partially offset by repurchases of common stock. |
71
We provide information about Other Operations’ operating revenue and operating expense line items, the period in which amounts are recognized, key drivers of changes and historical details underlying the line items and their associated drivers below.
Additional Information
For information on our strategic digitization initiative, see “Part II – Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Introduction – Executive Summary – Significant Operational Matters – Strategic Digitization Initiative” in our 2016 Form 10-K.
For factors that could cause actual results to differ materially from those set forth in this section, see “Forward-Looking Statements – Cautionary Language” above and “Part I – Item 1A. Risk Factors” in our 2016 Form 10-K as updated by “Part II – Item 1A. Risk Factors” in our first quarter 2017 Form 10-Q and below.
Net Investment Income and Interest Credited
We utilize an internal formula to determine the amount of capital that is allocated to our business segments. Investment income on capital in excess of the calculated amounts is reported in Other Operations. If our business segments require increases in statutory reserves, surplus or investments, the amount of excess capital that is retained by Other Operations would decrease and net investment income would be negatively affected.
Write-downs for OTTI decrease the recorded value of our invested assets owned by the business segments. These write-downs are not included in the income from operations of our business segments. When impairment occurs, assets are transferred to the business segments’ portfolios and will reduce the future net investment income for Other Operations. Statutory reserve adjustments for our business segments can also cause allocations of invested assets between the business segments and Other Operations.
The majority of our interest credited relates to our reinsurance operations sold to Swiss Re Life & Health America, Inc. (“Swiss Re”) in 2001. A substantial amount of the business was sold through indemnity reinsurance transactions, which is still recorded in our consolidated financial statements. The interest credited corresponds to investment income earnings on the assets we continue to hold for this business. There is no effect to income or loss in Other Operations or on a consolidated basis for these amounts because interest earned on the blocks that continue to be reinsured is passed through to Swiss Re in the form of interest credited.
Benefits
Benefits are recognized when incurred for institutional pension products and disability income business.
Other Expenses
Details underlying other expenses (in millions) were as follows:
|
||||||||||||||||
|
For the Three |
For the Six |
||||||||||||||
|
Months Ended |
Months Ended |
||||||||||||||
|
June 30, |
June 30, |
||||||||||||||
|
2017 |
2016 |
Change |
2017 |
2016 |
Change |
||||||||||
General and administrative expenses: |
||||||||||||||||
Legal |
$ |
- |
$ |
(9 |
) |
100% |
$ |
- |
$ |
(9 |
) |
100% | ||||
Branding |
12 | 11 | 9% | 17 | 18 |
-6% |
||||||||||
Other (1) |
1 | 8 |
-88% |
11 | 2 |
NM |
||||||||||
Total general and administrative |
||||||||||||||||
expenses |
13 | 10 | 30% | 28 | 11 | 155% | ||||||||||
Taxes, licenses and fees |
(2 |
) |
(1 |
) |
-100% |
(4 |
) |
(7 |
) |
43% | ||||||
Inter-segment reimbursement associated |
||||||||||||||||
with reserve financing and LOC |
||||||||||||||||
expenses (2) |
(3 |
) |
(3 |
) |
0% | (6 |
) |
(5 |
) |
-20% |
||||||
Total other expenses |
$ |
8 |
$ |
6 | 33% |
$ |
18 |
$ |
(1 |
) |
NM |
(1) |
Includes expenses that are corporate in nature including charitable contributions, the portion of our deferred compensation plan expense attributable to participants’ selection of LNC stock as the measure for their investment return and other expenses not allocated to our business segments. |
(2) |
Consists of reimbursements to Other Operations from the Life Insurance segment for the use of proceeds from certain issuances of senior notes that were used as long-term structured solutions, net of expenses incurred by Other Operations for its use of LOCs. |
72
Interest and Debt Expense
Our current level of interest expense may not be indicative of the future due to, among other things, the timing of the use of cash, the availability of funds from our inter-company cash management program and the future cost of capital. For additional information on our financing activities, see “Review of Consolidated Financial Condition – Liquidity and Capital Resources – Sources of Liquidity and Cash Flow – Financing Activities” below.
REALIZED GAIN (LOSS) AND BENEFIT RATIO UNLOCKING
Details underlying realized gain (loss), after-DAC(1) and benefit ratio unlocking (in millions) were as follows:
|
||||||||||||||||
|
For the Three |
For the Six |
||||||||||||||
|
Months Ended |
Months Ended |
||||||||||||||
|
June 30, |
June 30, |
||||||||||||||
|
2017 |
2016 |
Change |
2017 |
2016 |
Change |
||||||||||
Components of Realized Gain (Loss), Pre-Tax |
||||||||||||||||
Total operating realized gain (loss) |
$ |
42 |
$ |
44 |
-5% |
$ |
83 |
$ |
86 |
-3% |
||||||
Total excluded realized gain (loss) |
(52 |
) |
(89 |
) |
42% | (132 |
) |
(245 |
) |
46% | ||||||
Total realized gain (loss), pre-tax |
$ |
(10 |
) |
$ |
(45 |
) |
78% |
$ |
(49 |
) |
$ |
(159 |
) |
69% | ||
|
||||||||||||||||
Reconciliation of Excluded Realized Gain (Loss) |
||||||||||||||||
Net of Benefit Ratio Unlocking, After-Tax |
||||||||||||||||
Total excluded realized gain (loss) |
$ |
(34 |
) |
$ |
(57 |
) |
40% |
$ |
(85 |
) |
$ |
(159 |
) |
47% | ||
Benefit ratio unlocking |
26 | 9 | 189% | 71 | 4 |
NM |
||||||||||
Excluded realized gain (loss) net of benefit ratio |
||||||||||||||||
unlocking, after-tax |
$ |
(8 |
) |
$ |
(48 |
) |
83% |
$ |
(14 |
) |
$ |
(155 |
) |
91% | ||
|
||||||||||||||||
Components of Excluded Realized Gain (Loss) |
||||||||||||||||
Net of Benefit Ratio Unlocking, After-Tax |
||||||||||||||||
Realized gain (loss) related to certain investments |
$ |
(12 |
) |
$ |
(42 |
) |
71% |
$ |
(20 |
) |
$ |
(112 |
) |
82% | ||
Gain (loss) on the mark-to-market on |
||||||||||||||||
certain instruments |
(1 |
) |
(5 |
) |
80% | 5 |
- |
NM |
||||||||
Variable annuity net derivatives results: |
||||||||||||||||
Hedge program performance, including unlocking |
||||||||||||||||
for GLB reserves hedged |
17 | (23 |
) |
174% | 27 | (117 |
) |
123% | ||||||||
GLB NPR component |
(8 |
) |
24 |
NM |
(18 |
) |
91 |
NM |
||||||||
Total variable annuity net derivatives results |
9 | 1 |
NM |
9 | (26 |
) |
135% | |||||||||
Indexed annuity forward-starting option |
(4 |
) |
(2 |
) |
-100% |
(8 |
) |
(17 |
) |
53% | ||||||
Excluded realized gain (loss) net of benefit |
||||||||||||||||
ratio unlocking, after-tax |
$ |
(8 |
) |
$ |
(48 |
) |
83% |
$ |
(14 |
) |
$ |
(155 |
) |
91% |
(1) |
DAC refers to the associated amortization of DAC, VOBA, DSI and DFEL and changes in other contract holder funds and funds withheld reinsurance assets and liabilities. |
Comparison of the Three Months Ended June 30, 2017 to 2016
We had lower realized losses due primarily to the following:
· |
A decrease in realized losses related to certain investments originating from fewer asset sales of select corporate bond holdings within the energy and other commodity sectors. |
· |
A decrease in OTTI attributable to individual credit risks within our corporate bond portfolio. |
· |
Higher gains on variable annuity net derivatives results in 2017 attributable to favorable hedge program performance due to less volatile capital markets, partially offset by an unfavorable GLB non-performance risk (“NPR”) component due to narrowing of our credit spread and a decrease in our associated reserves. |
73
Comparison of the Six Months Ended June 30, 2017 to 2016
We had lower realized losses due primarily to the following:
· |
A decrease in realized losses related to certain investments originating from decreased OTTI and fewer asset sales attributable to improvements of select corporate bond holdings within the energy and other commodity sectors. |
· |
Legal expenses in 2016 related to certain investments. |
· |
Gains on variable annuity net derivatives results in 2017 attributable to favorable hedge program performance due to less volatile capital markets, partially offset by unfavorable GLB NPR component due to narrowing of our credit spread and a decrease in our associated reserves. |
The above components of excluded realized gain (loss) are described net of benefit ratio unlocking, after-tax.
For factors that could cause actual results to differ materially from those set forth in this section, see “Forward-Looking Statements – Cautionary Language” above and “Part I – Item 1A. Risk Factors” in our 2016 Form 10-K as updated by “Part II – Item 1A. Risk Factors” in our first quarter Form 10-Q and below.
Operating Realized Gain (Loss)
See “Part II – Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Realized Gain (Loss) and Benefit Ratio Unlocking – Operating Realized Gain (Loss)” in our 2016 Form 10-K for a discussion of our operating realized gain (loss).
Realized Gain (Loss) Related to Certain Investments
See “Consolidated Investments – Realized Gain (Loss) Related to Certain Investments” below.
Gain (Loss) on the Mark-to-Market on Certain Instruments
See “Part II – Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Realized Gain (Loss) and Benefit Ratio Unlocking – Gain (Loss) on the Mark-to-Market on Certain Instruments” in our 2016 Form 10-K for a discussion of the mark-to-market on certain instruments and Note 3 for information about consolidated variable interest entities (“VIEs”).
Variable Annuity Net Derivatives Results
See “Part II – Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Realized Gain (Loss) and Benefit Ratio Unlocking – Variable Annuity Net Derivatives Results” in our 2016 Form 10-K for a discussion of our variable annuity net derivatives results and how our NPR adjustment is determined.
Details underlying our variable annuity hedging program (dollars in millions) were as follows:
|
||||||||||||||||||||
|
As of |
As of |
As of |
As of |
As of |
|||||||||||||||
|
June 30, |
March 31, |
December 31, |
September 30, |
June 30, |
|||||||||||||||
|
2017 |
2017 |
2016 |
2016 |
2016 |
|||||||||||||||
Variable annuity hedge program assets (liabilities) |
$ |
1,766 |
$ |
1,717 |
$ |
2,152 |
$ |
3,679 |
$ |
4,123 | ||||||||||
|
||||||||||||||||||||
Variable annuity reserves – asset (liability): |
||||||||||||||||||||
Embedded derivative reserves, pre-NPR (1) |
$ |
480 |
$ |
424 |
$ |
(103 |
) |
$ |
(1,503 |
) |
$ |
(2,078 |
) |
|||||||
NPR |
(97 |
) |
(82 |
) |
(64 |
) |
100 | 159 | ||||||||||||
Embedded derivative reserves |
383 | 342 | (167 |
) |
(1,403 |
) |
(1,919 |
) |
||||||||||||
Insurance benefit reserves |
(649 |
) |
(648 |
) |
(679 |
) |
(626 |
) |
(634 |
) |
||||||||||
Total variable annuity reserves – asset (liability) |
$ |
(266 |
) |
$ |
(306 |
) |
$ |
(846 |
) |
$ |
(2,029 |
) |
$ |
(2,553 |
) |
|||||
|
||||||||||||||||||||
10-year credit default swap (“CDS”) spread |
1.30% | 1.51% | 1.51% | 2.03% | 2.12% | |||||||||||||||
NPR factor related to 10-year CDS spread |
0.18% | 0.21% | 0.21% | 0.30% | 0.32% |
(1) |
Embedded derivative reserves in an asset (liability) position indicate that we estimate the present value of future benefits to be less (greater) than the present value of future net valuation premiums. |
74
The following shows the approximate hypothetical effect to net income, pre-DAC (1), pre-tax (in millions) for changes in the NPR factor along all points on the spread curve as of June 30, 2017:
|
||||||||||||||||||||
|
Hypothetical |
|||||||||||||||||||
|
Effect |
|||||||||||||||||||
NPR factor: |
||||||||||||||||||||
Down 18 basis points to zero |
$ |
(115 |
) |
|||||||||||||||||
Up 20 basis points |
60 |
(1) |
DAC refers to the associated amortization of DAC, VOBA, DSI and DFEL and changes in other contract holder funds and funds withheld reinsurance assets and liabilities. |
See “Critical Accounting Policies and Estimates – Derivatives – GLB” above for additional information about our guaranteed benefits.
Indexed Annuity Forward-Starting Option
See “Part II – Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Realized Gain (Loss) and Benefit Ratio Unlocking – Indexed Annuity Forward-Starting Option” in our 2016 Form 10-K for a discussion of our indexed annuity forward-starting option.
CONSOLIDATED INVESTMENTS
Details underlying our consolidated investment balances (in millions) were as follows:
|
|||||||||||||||
|
Percentage of |
||||||||||||||
|
Total Investments |
||||||||||||||
|
As of |
As of |
As of |
As of |
|||||||||||
|
June 30, |
December 31, |
June 30, |
December 31, |
|||||||||||
|
2017 |
2016 |
2017 |
2016 |
|||||||||||
Investments |
|||||||||||||||
AFS securities: |
|||||||||||||||
Fixed maturity |
$ |
93,014 |
$ |
89,013 | 84.1% | 83.4% | |||||||||
VIEs’ fixed maturity |
- |
200 | 0.0% | 0.2% | |||||||||||
Total fixed maturity |
93,014 | 89,213 | 84.1% | 83.6% | |||||||||||
Equity |
275 | 275 | 0.2% | 0.3% | |||||||||||
Trading securities |
1,678 | 1,712 | 1.5% | 1.6% | |||||||||||
Mortgage loans on real estate |
10,023 | 9,889 | 9.1% | 9.3% | |||||||||||
Real estate |
23 | 24 | 0.0% | 0.0% | |||||||||||
Policy loans |
2,416 | 2,451 | 2.2% | 2.3% | |||||||||||
Derivative investments |
1,054 | 927 | 1.0% | 0.9% | |||||||||||
Alternative investments |
1,334 | 1,269 | 1.2% | 1.2% | |||||||||||
Other investments |
822 | 961 | 0.7% | 0.8% | |||||||||||
Total investments |
$ |
110,639 |
$ |
106,721 | 100.0% | 100.0% |
Investment Objective
Invested assets are an integral part of our operations. We follow a balanced approach to investing for both current income and prudent risk management, with an emphasis on generating sufficient current income, net of income tax, to meet our obligations to customers, as well as other general liabilities. This balanced approach requires the evaluation of expected return and risk of each asset class utilized, while still meeting our income objectives. This approach is important to our asset-liability management because decisions can be made based upon both the economic and current investment income considerations affecting assets and liabilities. For a discussion of our risk management process, see “Part II – Item 7A. Quantitative and Qualitative Disclosures About Market Risk” in our 2016 Form 10-K.
Investment Portfolio Composition and Diversification
Fundamental to our investment policy is diversification across asset classes. Our investment portfolio, excluding cash and invested cash, is composed of fixed maturity securities, mortgage loans on real estate, real estate (either wholly-owned or in joint ventures) and other long-term investments. We purchase investments for our segmented portfolios that have yield, duration and other characteristics that take into account the liabilities of the products being supported.
We have the ability to maintain our investment holdings throughout credit cycles because of our capital position, the long-term nature of our liabilities and the matching of our portfolios of investment assets with the liabilities of our various products.
75
Fixed Maturity and Equity Securities Portfolios
Fixed maturity and equity securities consist of portfolios classified as AFS and trading. Details underlying our fixed maturity and equity securities portfolios by industry classification (in millions) are presented in the tables below. These tables agree in total with the presentation of AFS securities in Note 4; however, the categories below represent a more detailed breakout of the AFS portfolio. Therefore, the investment classifications listed below do not agree to the investment categories provided in Note 4.
|
||||||||||||||
|
As of June 30, 2017 |
|||||||||||||
|
Gross Unrealized |
% |
||||||||||||
|
Amortized |
Losses and |
Fair |
Fair |
||||||||||
|
Cost |
Gains |
OTTI (2) |
Value |
Value |
|||||||||
Fixed Maturity AFS Securities |
||||||||||||||
Industry corporate bonds: |
||||||||||||||
Financial services |
$ |
11,303 |
$ |
959 |
$ |
42 |
$ |
12,220 | 13.1% | |||||
Basic industry |
4,851 | 355 | 33 | 5,173 | 5.6% | |||||||||
Capital goods |
6,244 | 527 | 25 | 6,746 | 7.3% | |||||||||
Communications |
4,330 | 399 | 28 | 4,701 | 5.1% | |||||||||
Consumer cyclical |
5,521 | 371 | 37 | 5,855 | 6.3% | |||||||||
Consumer non-cyclical |
13,556 | 1,109 | 63 | 14,602 | 15.7% | |||||||||
Energy |
7,098 | 476 | 165 | 7,409 | 8.0% | |||||||||
Technology |
3,431 | 185 | 8 | 3,608 | 3.9% | |||||||||
Transportation |
2,780 | 181 | 16 | 2,945 | 3.2% | |||||||||
Industrial other |
907 | 41 | 12 | 936 | 1.0% | |||||||||
Utilities |
12,425 | 1,264 | 41 | 13,648 | 14.7% | |||||||||
Government related entities |
2,488 | 241 | 24 | 2,705 | 2.9% | |||||||||
Collateralized mortgage and other obligations ("CMOs"): |
||||||||||||||
Agency backed |
1,477 | 82 | 29 | 1,530 | 1.6% | |||||||||
Non-agency backed |
992 | 36 | (15 |
) |
1,043 | 1.1% | ||||||||
Mortgage pass through securities ("MPTS"): |
||||||||||||||
Agency backed |
943 | 42 | 6 | 979 | 1.1% | |||||||||
Commercial mortgage-backed securities ("CMBS"): |
||||||||||||||
Agency backed |
23 | 1 |
- |
24 | 0.0% | |||||||||
Non-agency backed |
443 | 9 |
- |
452 | 0.5% | |||||||||
Asset-backed securities ("ABS"): |
||||||||||||||
Collateralized loan obligations ("CLOs") |
682 | 4 | 2 | 684 | 0.7% | |||||||||
Commercial real estate ("CRE") CDOs |
15 |
- |
(4 |
) |
19 | 0.0% | ||||||||
Credit card |
92 | 21 | 1 | 112 | 0.1% | |||||||||
Equipment receivables |
41 |
- |
1 | 40 | 0.0% | |||||||||
Home equity |
649 | 16 | (11 |
) |
676 | 0.7% | ||||||||
Manufactured housing |
25 | 1 |
- |
26 | 0.0% | |||||||||
Other |
189 | 8 | 1 | 196 | 0.2% | |||||||||
Municipals: |
||||||||||||||
Taxable |
4,002 | 837 | 12 | 4,827 | 5.2% | |||||||||
Tax-exempt |
170 | 13 |
- |
183 | 0.2% | |||||||||
Government: |
||||||||||||||
United States |
536 | 44 | 2 | 578 | 0.6% | |||||||||
Foreign |
397 | 58 |
- |
455 | 0.5% | |||||||||
Hybrid and redeemable preferred securities |
584 | 85 | 27 | 642 | 0.7% | |||||||||
Total fixed maturity AFS securities |
86,194 | 7,365 | 545 | 93,014 | 100.0% | |||||||||
Equity AFS Securities |
262 | 19 | 6 | 275 | ||||||||||
Total AFS securities |
86,456 | 7,384 | 551 | 93,289 | ||||||||||
Trading Securities (1) |
1,471 | 212 | 5 | 1,678 | ||||||||||
Total AFS and trading securities |
$ |
87,927 |
$ |
7,596 |
$ |
556 |
$ |
94,967 |
76
|
As of December 31, 2016 |
|||||||||||||
|
Gross Unrealized |
% |
||||||||||||
|
Amortized |
Losses and |
Fair |
Fair |
||||||||||
|
Cost |
Gains |
OTTI (2) |
Value |
Value |
|||||||||
Fixed Maturity AFS Securities |
||||||||||||||
Industry corporate bonds: |
||||||||||||||
Financial services |
$ |
10,769 |
$ |
697 |
$ |
108 |
$ |
11,358 | 12.8% | |||||
Basic industry |
4,665 | 243 | 79 | 4,829 | 5.4% | |||||||||
Capital goods |
5,677 | 399 | 54 | 6,022 | 6.8% | |||||||||
Communications |
4,374 | 331 | 59 | 4,646 | 5.2% | |||||||||
Consumer cyclical |
5,459 | 296 | 75 | 5,680 | 6.4% | |||||||||
Consumer non-cyclical |
12,939 | 816 | 175 | 13,580 | 15.2% | |||||||||
Energy |
7,346 | 439 | 194 | 7,591 | 8.5% | |||||||||
Technology |
3,350 | 129 | 31 | 3,448 | 3.9% | |||||||||
Transportation |
2,921 | 143 | 41 | 3,023 | 3.4% | |||||||||
Industrial other |
972 | 38 | 27 | 983 | 1.1% | |||||||||
Utilities |
12,180 | 1,016 | 84 | 13,112 | 14.7% | |||||||||
Government related entities |
2,623 | 207 | 38 | 2,792 | 3.1% | |||||||||
CMOs: |
||||||||||||||
Agency backed |
1,444 | 86 | 47 | 1,483 | 1.7% | |||||||||
Non-agency backed |
1,070 | 15 | 11 | 1,074 | 1.2% | |||||||||
MPTS: |
||||||||||||||
Agency backed |
1,020 | 46 | 9 | 1,057 | 1.2% | |||||||||
CMBS: |
||||||||||||||
Agency backed |
23 | 1 |
- |
24 | 0.0% | |||||||||
Non-agency backed |
322 | 7 | 3 | 326 | 0.4% | |||||||||
ABS: |
||||||||||||||
CLOs |
727 | 1 | 3 | 725 | 0.8% | |||||||||
CRE CDOs |
15 |
- |
(4 |
) |
19 | 0.0% | ||||||||
Credit card |
292 | 21 | 1 | 312 | 0.3% | |||||||||
Equipment receivables |
42 |
- |
1 | 41 | 0.0% | |||||||||
Home equity |
679 | 11 | (3 |
) |
693 | 0.8% | ||||||||
Manufactured housing |
27 | 1 |
- |
28 | 0.0% | |||||||||
Stranded utility costs |
6 |
- |
- |
6 | 0.0% | |||||||||
Other |
201 | 6 | 2 | 205 | 0.2% | |||||||||
Municipals: |
||||||||||||||
Taxable |
3,804 | 714 | 19 | 4,499 | 5.0% | |||||||||
Tax-exempt |
125 | 4 | 1 | 128 | 0.1% | |||||||||
Government: |
||||||||||||||
United States |
384 | 37 | 2 | 419 | 0.5% | |||||||||
Foreign |
449 | 58 | 1 | 506 | 0.6% | |||||||||
Hybrid and redeemable preferred securities |
582 | 70 | 48 | 604 | 0.7% | |||||||||
Total fixed maturity AFS securities |
84,487 | 5,832 | 1,106 | 89,213 | 100.0% | |||||||||
Equity AFS Securities |
260 | 19 | 4 | 275 | ||||||||||
Total AFS securities |
84,747 | 5,851 | 1,110 | 89,488 | ||||||||||
Trading Securities (1) |
1,517 | 206 | 11 | 1,712 | ||||||||||
Total AFS and trading securities |
$ |
86,264 |
$ |
6,057 |
$ |
1,121 |
$ |
91,200 |
(1) |
Certain of our trading securities support our modified coinsurance arrangements (“Modco”), and the investment results are passed directly to the reinsurers. Refer to “Part II – Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Consolidated Investments – Fixed Maturity and Equity Securities Portfolios – Trading Securities” in our 2016 Form 10-K for further details. |
(2) |
Includes unrealized gains and (losses) on impaired securities related to changes in the fair value of such securities subsequent to the impairment measurement date. |
77
AFS Securities
In accordance with the AFS accounting guidance, we reflect stockholders’ equity as if unrealized gains and losses were actually recognized, and consider all related accounting adjustments that would occur upon such a hypothetical recognition of unrealized gains and losses. Such related balance sheet effects include adjustments to the balances of DAC, VOBA, DFEL, future contract benefits, other contract holder funds and deferred income taxes. Adjustments to each of these balances are charged or credited to accumulated other comprehensive income (loss). For instance, DAC is adjusted upon the recognition of unrealized gains or losses because the amortization of DAC is based upon an assumed emergence of gross profits on certain insurance business. Deferred income tax balances are also adjusted because unrealized gains or losses do not affect actual taxes currently paid.
The quality of our AFS fixed maturity securities portfolio, as measured at estimated fair value and by the percentage of fixed maturity AFS securities invested in various ratings categories, relative to the entire fixed maturity AFS security portfolio (in millions) was as follows:
|
|||||||||||||||||||
|
Rating Agency |
As of June 30, 2017 |
As of December 31, 2016 |
||||||||||||||||
NAIC |
Equivalent |
Amortized |
Fair |
% of |
Amortized |
Fair |
% of |
||||||||||||
Designation (1) |
Designation (1) |
Cost |
Value |
Total |
Cost |
Value |
Total |
||||||||||||
|
|||||||||||||||||||
Investment Grade Securities |
|||||||||||||||||||
1 |
Aaa / Aa / A |
$ |
46,261 |
$ |
50,679 | 54.5% |
$ |
45,661 |
$ |
49,061 | 55.0% | ||||||||
2 |
Baa |
36,047 | 38,538 | 41.4% | 34,643 | 36,134 | 40.5% | ||||||||||||
Total investment grade securities |
82,308 | 89,217 | 95.9% | 80,304 | 85,195 | 95.5% | |||||||||||||
|
|||||||||||||||||||
Below Investment Grade Securities |
|||||||||||||||||||
3 |
Ba |
2,690 | 2,709 | 2.9% | 2,881 | 2,849 | 3.2% | ||||||||||||
4 |
B |
943 | 868 | 0.9% | 940 | 845 | 1.0% | ||||||||||||
5 |
Caa and lower |
195 | 173 | 0.2% | 257 | 223 | 0.2% | ||||||||||||
6 |
In or near default |
58 | 47 | 0.1% | 105 | 101 | 0.1% | ||||||||||||
Total below investment grade securities |
3,886 | 3,797 | 4.1% | 4,183 | 4,018 | 4.5% | |||||||||||||
Total fixed maturity AFS securities |
$ |
86,194 |
$ |
93,014 | 100.0% |
$ |
84,487 |
$ |
89,213 | 100.0% | |||||||||
|
|||||||||||||||||||
Total securities below investment |
|||||||||||||||||||
grade as a percentage of total |
|||||||||||||||||||
fixed maturity AFS securities |
4.5% | 4.1% | 5.0% | 4.5% |
(1) |
Based upon the rating designations determined and provided by the National Association of Insurance Commissioners (“NAIC”) or the major credit rating agencies (Fitch Ratings (“Fitch”), Moody’s Investors Service (“Moody’s”) and S&P). For securities where the ratings assigned by the major credit rating agencies are not equivalent, the second highest rating assigned is used. For those securities where ratings by the major credit rating agencies are not available, which does not represent a significant amount of our total fixed maturity AFS securities, we base the ratings disclosed upon internal ratings. The average credit quality was A- as of June 30, 2017. |
Comparisons between the NAIC ratings and rating agency designations are published by the NAIC. The NAIC assigns securities quality ratings and uniform valuations, which are used by insurers when preparing their annual statements. The NAIC ratings are similar to the rating agency designations of the Nationally Recognized Statistical Rating Organizations for marketable bonds. NAIC ratings 1 and 2 include bonds generally considered investment grade (rated Baa3 or higher by Moody’s, or rated BBB- or higher by S&P and Fitch) by such ratings organizations. However, securities rated NAIC 1 and 2 could be deemed below investment grade by the rating agencies as a result of the current RBC rules for residential mortgage-backed securities (“RMBS”) and CMBS for statutory reporting. NAIC ratings 3 through 6 include bonds generally considered below investment grade (rated Ba or lower by Moody’s, or rated BB+ or lower by S&P and Fitch).
As of June 30, 2017, and December 31, 2016, 88.4% and 90.8%, respectively, of the total publicly traded and private securities in an unrealized loss position were investment grade. Our gross unrealized losses, including the portion of OTTI recognized in other comprehensive income (loss) (“OCI”), on AFS securities as of June 30, 2017, decreased by $548 million since December 31, 2016. As more fully described in Note 1 in our 2016 Form 10-K, we regularly review our investment holdings for OTTI. We believe the unrealized loss position as of June 30, 2017, does not represent OTTI as: (i) we do not intend to sell the debt securities; (ii) it is not more likely than not that we will be required to sell the debt securities before recovery of their amortized cost basis; (iii) the estimated future cash flows are equal to or greater than the amortized cost basis of the debt securities; and (iv) we have the ability and intent to hold the equity securities for a period of time sufficient for recovery. For further information on our unrealized losses on AFS securities, see “Composition by Industry Categories of our Unrealized Losses on AFS Securities” below.
78
In our evaluation of OTTI, we concluded: (i) that it is not more likely than not that we will be required to sell the fixed maturity AFS securities before recovery of their amortized cost basis; (ii) that the estimated future cash flows are equal to or greater than the amortized cost basis of the debt securities; and (iii) that we have the ability to hold the equity AFS securities for a period of time sufficient for recovery. This conclusion is consistent with our asset-liability management process. Management considers the following as part of the evaluation:
· |
The current economic environment and market conditions; |
· |
Our business strategy and current business plans; |
· |
The nature and type of security, including expected maturities and exposure to general credit, liquidity, market and interest rate risk; |
· |
Our analysis of data from financial models and other internal and industry sources to evaluate the current effectiveness of our hedging and overall risk management strategies; |
· |
The current and expected timing of contractual maturities of our assets and liabilities, expectations of prepayments on investments and expectations for surrenders and withdrawals of life insurance policies and annuity contracts; |
· |
The capital risk limits approved by management; and |
· |
Our current financial condition and liquidity demands. |
To determine the recoverability of a debt security, we consider the facts and circumstances surrounding the underlying issuer including, but not limited to, the following:
· |
Historical and implied volatility of the security; |
· |
Length of time and extent to which the fair value has been less than amortized cost; |
· |
Adverse conditions specifically related to the security or to specific conditions in an industry or geographic area; |
· |
Failure, if any, of the issuer of the security to make scheduled payments; and |
· |
Recoveries or additional declines in fair value subsequent to the balance sheet date. |
As reported on our Consolidated Balance Sheets, we had $112.6 billion of investments and cash, which exceeded the liabilities for our future obligations under insurance policies and contracts, net of amounts recoverable from reinsurers, which totaled $96.7 billion as of June 30, 2017. If it were necessary to liquidate securities prior to maturity or call to meet cash flow needs, we would first look to those securities that are in an unrealized gain position, which had a fair value of $80.2 billion as of June 30, 2017, rather than selling securities in an unrealized loss position. The amount of cash that we have on hand at any point in time takes into account our liquidity needs in the future, other sources of cash, such as the maturities of investments, interest and dividends we earn on our investments and the ongoing cash flows from new and existing business.
See “AFS Securities – Evaluation for Recovery of Amortized Cost” in Note 1 in our 2016 Form 10-K and Note 4 herein for additional discussion.
As of June 30, 2017, and December 31, 2016, the estimated fair value for all private placement securities was $14.4 billion and $14.1 billion, respectively, representing 13% of total invested assets.
For information regarding our VIEs’ fixed maturity securities, see Note 4 in our 2016 Form 10-K and Note 3 herein.
Mortgage-Backed Securities (Included in AFS and Trading Securities)
See “Part II – Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Consolidated Investments – Mortgage-Backed Securities” in our 2016 Form 10-K for a discussion of our mortgage-backed securities (“MBS”).
Our ABS home equity and RMBS had a market value of $4.3 billion and an unrealized gain of $170 million as of June 30, 2017.
79
The market value of AFS securities and trading securities backed by subprime loans was $546 million and represented approximately 1% of our total investment portfolio as of June 30, 2017. AFS securities represented $541 million, or 99%, and trading securities represented $5 million, or 1%, of the subprime exposure as of June 30, 2017. The table below summarizes our investments in AFS securities backed by pools of residential mortgages (in millions) as of June 30, 2017:
|
||||||||||||||||||||||||||||||
|
Subprime/ |
|||||||||||||||||||||||||||||
|
Agency |
Prime |
Alt-A |
Option ARM (1) |
Total |
|||||||||||||||||||||||||
|
||||||||||||||||||||||||||||||
|
Fair |
Amortized |
Fair |
Amortized |
Fair |
Amortized |
Fair |
Amortized |
Fair |
Amortized |
||||||||||||||||||||
|
Value |
Cost |
Value |
Cost |
Value |
Cost |
Value |
Cost |
Value |
Cost |
||||||||||||||||||||
Type |
||||||||||||||||||||||||||||||
RMBS |
$ |
2,509 |
$ |
2,420 |
$ |
352 |
$ |
334 |
$ |
309 |
$ |
293 |
$ |
382 |
$ |
365 |
$ |
3,552 |
$ |
3,412 | ||||||||||
ABS home equity |
2 | 2 | 57 | 58 | 149 | 144 | 468 | 445 | 676 | 649 | ||||||||||||||||||||
Total by type (2)(3) |
$ |
2,511 |
$ |
2,422 |
$ |
409 |
$ |
392 |
$ |
458 |
$ |
437 |
$ |
850 |
$ |
810 |
$ |
4,228 |
$ |
4,061 | ||||||||||
|
||||||||||||||||||||||||||||||
Rating |
||||||||||||||||||||||||||||||
AAA |
$ |
2,489 |
$ |
2,400 |
$ |
8 |
$ |
8 |
$ |
- |
$ |
- |
$ |
25 |
$ |
25 |
$ |
2,522 |
$ |
2,433 | ||||||||||
AA |
16 | 16 |
- |
- |
1 | 1 | 4 | 4 | 21 | 21 | ||||||||||||||||||||
A |
5 | 5 |
- |
- |
13 | 11 | 74 | 72 | 92 | 88 | ||||||||||||||||||||
BBB |
- |
- |
23 | 23 | 33 | 31 | 29 | 29 | 85 | 83 | ||||||||||||||||||||
BB and below |
1 | 1 | 378 | 361 | 411 | 394 | 718 | 680 | 1,508 | 1,436 | ||||||||||||||||||||
Total by rating (2)(3)(4) |
$ |
2,511 |
$ |
2,422 |
$ |
409 |
$ |
392 |
$ |
458 |
$ |
437 |
$ |
850 |
$ |
810 |
$ |
4,228 |
$ |
4,061 | ||||||||||
|
||||||||||||||||||||||||||||||
Origination Year |
||||||||||||||||||||||||||||||
2007 and prior |
$ |
655 |
$ |
588 |
$ |
409 |
$ |
392 |
$ |
457 |
$ |
436 |
$ |
830 |
$ |
790 |
$ |
2,351 |
$ |
2,206 | ||||||||||
2008 |
33 | 30 |
- |
- |
- |
- |
- |
- |
33 | 30 | ||||||||||||||||||||
2009 |
254 | 235 |
- |
- |
- |
- |
1 | 1 | 255 | 236 | ||||||||||||||||||||
2010 |
292 | 273 |
- |
- |
- |
- |
- |
- |
292 | 273 | ||||||||||||||||||||
2011 |
139 | 133 |
- |
- |
- |
- |
- |
- |
139 | 133 | ||||||||||||||||||||
2012 |
58 | 59 |
- |
- |
- |
- |
- |
- |
58 | 59 | ||||||||||||||||||||
2013 |
280 | 281 |
- |
- |
- |
- |
- |
- |
280 | 281 | ||||||||||||||||||||
2014 |
68 | 66 |
- |
- |
- |
- |
- |
- |
68 | 66 | ||||||||||||||||||||
2015 |
147 | 147 |
- |
- |
- |
- |
- |
- |
147 | 147 | ||||||||||||||||||||
2016 |
509 | 535 |
- |
- |
1 | 1 |
- |
- |
510 | 536 | ||||||||||||||||||||
2017 |
76 | 75 |
- |
- |
- |
- |
19 | 19 | 95 | 94 | ||||||||||||||||||||
Total by origination |
||||||||||||||||||||||||||||||
year (2)(3) |
$ |
2,511 |
$ |
2,422 |
$ |
409 |
$ |
392 |
$ |
458 |
$ |
437 |
$ |
850 |
$ |
810 |
$ |
4,228 |
$ |
4,061 | ||||||||||
|
||||||||||||||||||||||||||||||
Total AFS RMBS as a percentage of total AFS Securities |
4.5% | 4.7% | ||||||||||||||||||||||||||||
|
||||||||||||||||||||||||||||||
Total prime, Alt-A and subprime/option ARM as a percentage of total AFS securities |
1.8% | 1.9% |
(1) |
Includes the fair value and amortized cost of option adjustable rate mortgages (“ARM”) within RMBS, totaling $309 million and $294 million, respectively. |
(2) |
Does not include the fair value of trading securities totaling $120 million that primarily support our Modco reinsurance agreements because investment results for these agreements are passed directly to the reinsurers. The $120 million in trading securities consisted of $113 million prime, $2 million Alt-A and $5 million subprime. |
(3) |
Does not include the amortized cost of trading securities totaling $114 million that primarily support our Modco reinsurance agreements because investment results for these agreements are passed directly to the reinsurers. The $114 million in trading securities consisted of $107 million prime, $2 million Alt-A and $5 million subprime. |
(4) |
Based upon the rating designations determined and provided by the major credit rating agencies (Fitch, Moody’s and S&P). For securities where the ratings assigned by the major credit rating agencies are not equivalent, the second highest rating assigned is used. For those securities where ratings by the major credit rating agencies are not available, which does not represent a significant amount of our total fixed maturity AFS securities, we base the ratings disclosed upon internal ratings. |
None of these investments included any direct investments in subprime lenders or mortgages. We are not aware of material exposure to subprime loans in our alternative asset portfolio.
80
The following summarizes our investments in AFS securities backed by pools of commercial mortgages (in millions) as of June 30, 2017:
|
||||||||||||||||||||||||
|
Multiple Property |
Single Property |
CRE CDOs |
Total |
||||||||||||||||||||
|
Fair |
Amortized |
Fair |
Amortized |
Fair |
Amortized |
Fair |
Amortized |
||||||||||||||||
|
Value |
Cost |
Value |
Cost |
Value |
Cost |
Value |
Cost |
||||||||||||||||
Type |
||||||||||||||||||||||||
CMBS |
$ |
461 |
$ |
454 |
$ |
15 |
$ |
12 |
$ |
- |
$ |
- |
$ |
476 |
$ |
466 | ||||||||
CRE CDOs |
- |
- |
- |
- |
19 | 15 | 19 | 15 | ||||||||||||||||
Total by type (1)(2) |
$ |
461 |
$ |
454 |
$ |
15 |
$ |
12 |
$ |
19 |
$ |
15 |
$ |
495 |
$ |
481 | ||||||||
|
||||||||||||||||||||||||
Rating |
||||||||||||||||||||||||
AAA |
$ |
384 |
$ |
382 |
$ |
- |
$ |
- |
$ |
- |
$ |
- |
$ |
384 |
$ |
382 | ||||||||
AA |
- |
- |
7 | 6 |
- |
- |
7 | 6 | ||||||||||||||||
A |
49 | 46 | 8 | 6 | 4 | 4 | 61 | 56 | ||||||||||||||||
BBB |
9 | 9 |
- |
- |
- |
- |
9 | 9 | ||||||||||||||||
BB and below |
19 | 17 |
- |
- |
15 | 11 | 34 | 28 | ||||||||||||||||
Total by rating (1)(2)(3) |
$ |
461 |
$ |
454 |
$ |
15 |
$ |
12 |
$ |
19 |
$ |
15 |
$ |
495 |
$ |
481 | ||||||||
|
||||||||||||||||||||||||
Origination Year |
||||||||||||||||||||||||
2007 and prior |
$ |
44 |
$ |
40 |
$ |
15 |
$ |
12 |
$ |
19 |
$ |
15 |
$ |
78 |
$ |
67 | ||||||||
2010 |
49 | 46 |
- |
- |
- |
- |
49 | 46 | ||||||||||||||||
2012 |
5 | 5 |
- |
- |
- |
- |
5 | 5 | ||||||||||||||||
2013 |
116 | 115 |
- |
- |
- |
- |
116 | 115 | ||||||||||||||||
2016 |
85 | 87 |
- |
- |
- |
- |
85 | 87 | ||||||||||||||||
2017 |
162 | 161 |
- |
- |
- |
- |
162 | 161 | ||||||||||||||||
Total by origination year (1)(2) |
$ |
461 |
$ |
454 |
$ |
15 |
$ |
12 |
$ |
19 |
$ |
15 |
$ |
495 |
$ |
481 | ||||||||
|
||||||||||||||||||||||||
Total AFS securities backed by pools of commercial mortgages as a percentage of total AFS securities |
0.5% | 0.6% |
(1) |
Does not include the fair value of trading securities totaling $2 million that primarily support our Modco reinsurance agreements because investment results for these agreements are passed directly to the reinsurers. The $2 million in trading securities consisted of CMBS. |
(2) |
Does not include the amortized cost of trading securities totaling $2 million that primarily support our Modco reinsurance agreements because investment results for these agreements are passed directly to the reinsurers. The $2 million in trading securities consisted of CMBS. |
(3) |
Based upon the rating designations determined and provided by the major credit rating agencies (Fitch, Moody’s and S&P). For securities where the ratings assigned by the major credit agencies are not equivalent, the second highest rating assigned is used. For those securities where ratings by the major credit rating agencies are not available, which does not represent a significant amount of our total fixed maturity AFS securities, we base the ratings disclosed upon internal ratings. |
As of June 30, 2017, the fair value and amortized cost of our AFS exposure to Monoline insurers was $482 million and $443 million, respectively.
Composition by Industry Categories of our Unrealized Losses on AFS Securities
When considering unrealized gain and loss information, it is important to recognize that the information relates to the position of securities at a particular point in time and may not be indicative of the position of our investment portfolios subsequent to the balance sheet date. Further, because the timing of the recognition of realized investment gains and losses through the selection of which securities are sold is largely at management’s discretion, it is important to consider the information provided below within the context of the overall unrealized gain or loss position of our investment portfolios. These are important considerations that should be included in any evaluation of the potential effect of securities in an unrealized loss position on our future earnings.
81
The composition by industry categories of all securities in an unrealized loss position (in millions) as of June 30, 2017, was as follows:
|
|||||||||||||||
|
% |
||||||||||||||
|
Gross |
Gross |
|||||||||||||
|
% |
% |
Unrealized |
Unrealized |
|||||||||||
|
Fair |
Fair |
Amortized |
Amortized |
Losses |
Losses |
|||||||||
|
Value |
Value |
Cost |
Cost |
and OTTI |
and OTTI |
|||||||||
Oil field services |
$ |
365 | 2.8% |
$ |
458 | 3.3% |
$ |
93 | 15.0% | ||||||
Independent |
747 | 5.7% | 799 | 5.8% | 52 | 8.4% | |||||||||
Banking |
784 | 6.0% | 829 | 6.0% | 45 | 7.3% | |||||||||
Electric |
941 | 7.2% | 971 | 7.1% | 30 | 4.9% | |||||||||
ABS |
559 | 4.3% | 582 | 4.2% | 23 | 3.7% | |||||||||
MBS |
280 | 2.1% | 300 | 2.2% | 20 | 3.2% | |||||||||
Chemicals |
465 | 3.5% | 485 | 3.5% | 20 | 3.2% | |||||||||
Food and beverage |
554 | 4.2% | 573 | 4.2% | 19 | 3.1% | |||||||||
Integrated |
117 | 0.9% | 136 | 1.0% | 19 | 3.1% | |||||||||
Pharmaceuticals |
577 | 4.4% | 594 | 4.3% | 17 | 2.8% | |||||||||
CMOs |
499 | 3.8% | 516 | 3.8% | 17 | 2.8% | |||||||||
Property and casualty |
145 | 1.1% | 161 | 1.2% | 16 | 2.6% | |||||||||
Retail |
290 | 2.2% | 305 | 2.2% | 15 | 2.4% | |||||||||
Industries with unrealized losses |
|||||||||||||||
less than $15 million |
6,805 | 51.8% | 7,037 | 51.2% | 232 | 37.5% | |||||||||
Total by industry |
$ |
13,128 | 100.0% |
$ |
13,746 | 100.0% |
$ |
618 | 100.0% | ||||||
|
|||||||||||||||
Total by industry as a percentage |
|||||||||||||||
of total AFS securities |
14.1% | 15.9% | 100.0% |
As of June 30, 2017, the fair value and amortized cost of securities subject to enhanced analysis and monitoring for potential changes in unrealized loss position was $162 million and $196 million, respectively.
Mortgage Loans on Real Estate
The following tables summarize key information on mortgage loans on real estate (in millions):
|
||||||||||
|
As of June 30, 2017 |
As of December 31, 2016 |
||||||||
|
Carrying |
Carrying |
||||||||
|
Value |
% |
Value |
% |
||||||
Credit Quality Indicator |
||||||||||
Current |
$ |
10,021 | 100.0% |
$ |
9,887 | 100.0% | ||||
Delinquent and/or in foreclosure (1) |
2 | 0.0% | 2 | 0.0% | ||||||
Total mortgage loans on real estate |
$ |
10,023 | 100.0% |
$ |
9,889 | 100.0% |
(1) |
As of June 30, 2017, and December 31, 2016, there were one and three mortgage loans on real estate that were delinquent and in foreclosure, respectively. |
As of June 30, 2017, and December 31, 2016, there were two and three impaired mortgage loans on real estate, respectively, or less than 1% of the total dollar amount of mortgage loans on real estate. The total principal and interest past due on the mortgage loans on real estate that were two or more payments delinquent as of June 30, 2017, and December 31, 2016, was $2 million. See Note 1 in our 2016 Form 10-K for more information regarding our accounting policy relating to the impairment of mortgage loans on real estate.
|
|||||||||
|
|||||||||
|
As of |
As of |
|||||||
|
June 30, |
December 31, |
|||||||
|
2017 |
2016 |
|||||||
By Segment |
|||||||||
Annuities |
$ |
2,844 |
$ |
2,699 | |||||
Retirement Plan Services |
2,863 | 2,663 | |||||||
Life Insurance |
3,648 | 3,837 | |||||||
Group Protection |
319 | 310 | |||||||
Other Operations |
349 | 380 | |||||||
Total mortgage loans on real estate |
$ |
10,023 |
$ |
9,889 |
82
|
|||||||||||
|
As of June 30, 2017 |
As of June 30, 2017 |
|||||||||
|
Carrying |
Carrying |
|||||||||
|
Value |
% |
Value |
% |
|||||||
Property Type |
State Exposure |
||||||||||
Apartment |
$ |
3,454 | 34.5% |
CA |
$ |
2,044 | 20.4% | ||||
Office building |
2,257 | 22.5% |
TX |
1,111 | 11.1% | ||||||
Retail |
1,837 | 18.3% |
MD |
570 | 5.7% | ||||||
Industrial |
1,744 | 17.4% |
NY |
460 | 4.6% | ||||||
Mixed use |
350 | 3.5% |
OH |
455 | 4.5% | ||||||
Other commercial |
343 | 3.4% |
GA |
450 | 4.5% | ||||||
Hotel/motel |
38 | 0.4% |
FL |
442 | 4.4% | ||||||
Total |
$ |
10,023 | 100.0% |
VA |
394 | 3.9% | |||||
Geographic Region |
PA |
392 | 3.9% | ||||||||
Pacific |
$ |
2,660 | 26.5% |
TN |
377 | 3.8% | |||||
South Atlantic |
2,431 | 24.3% |
NC |
365 | 3.6% | ||||||
West South Central |
1,207 | 12.1% |
WA |
346 | 3.5% | ||||||
East North Central |
1,156 | 11.5% |
WI |
304 | 3.0% | ||||||
Middle Atlantic |
883 | 8.8% |
AZ |
262 | 2.6% | ||||||
Mountain |
635 | 6.3% |
OR |
240 | 2.4% | ||||||
East South Central |
468 | 4.7% |
MN |
206 | 2.1% | ||||||
West North Central |
404 | 4.0% |
Other states under 2% |
1,605 | 16.0% | ||||||
New England |
179 | 1.8% |
Total |
$ |
10,023 | 100.0% | |||||
Total |
$ |
10,023 | 100.0% |
|
|||||||||||
|
As of June 30, 2017 |
As of June 30, 2017 |
|||||||||
|
Principal |
Principal |
|||||||||
|
Amount |
% |
Amount |
% |
|||||||
Origination Year |
Future Principal Payments |
||||||||||
2012 and prior |
$ |
3,246 | 32.4% |
2017 |
$ |
183 | 1.8% | ||||
2013 |
923 | 9.2% |
2018 |
565 | 5.7% | ||||||
2014 |
1,231 | 12.3% |
2019 |
225 | 2.2% | ||||||
2015 |
1,882 | 18.8% |
2020 |
151 | 1.5% | ||||||
2016 |
2,045 | 20.3% |
2021 |
669 | 6.7% | ||||||
2017 |
698 | 7.0% |
2022 and thereafter |
8,232 | 82.1% | ||||||
Total |
$ |
10,025 | 100.0% |
Total |
$ |
10,025 | 100.0% |
See Note 4 for information regarding our loan-to-value and debt-service coverage ratios and our allowance for loan losses.
Alternative Investments
Investment income (loss) on alternative investments by business segment (in millions) was as follows:
|
||||||||||||||||
|
For the Three |
For the Six |
||||||||||||||
|
Months Ended |
Months Ended |
||||||||||||||
|
June 30, |
June 30, |
||||||||||||||
|
2017 |
2016 |
Change |
2017 |
2016 |
Change |
||||||||||
Annuities |
$ |
8 |
$ |
3 | 167% |
$ |
14 |
$ |
1 |
NM |
||||||
Retirement Plan Services |
4 | 1 | 300% | 7 |
- |
NM |
||||||||||
Life Insurance |
40 | 13 | 208% | 75 | 3 |
NM |
||||||||||
Group Protection |
2 | 1 | 100% | 5 |
- |
NM |
||||||||||
Other Operations |
1 |
- |
NM |
3 |
- |
NM |
||||||||||
Total (1) |
$ |
55 |
$ |
18 | 206% |
$ |
104 |
$ |
4 |
NM |
(1) |
Includes net investment income on the alternative investments supporting the required statutory surplus of our insurance businesses. |
As of June 30, 2017, and December 31, 2016, alternative investments included investments in 206 and 202 different partnerships, respectively, and the portfolio represented approximately 1% of our overall invested assets. The partnerships do not represent off-balance sheet financing and generally involve several third-party partners. Some of our partnerships contain capital calls, which require us
83
to contribute capital upon notification by the general partner. These capital calls are contemplated during the initial investment decision and are planned for well in advance of the call date. The capital calls are not material in size and are not material to our liquidity. Alternative investments are accounted for using the equity method of accounting and are included in other investments on our Consolidated Balance Sheets.
Non-Income Producing Investments
The carrying amount of fixed maturity securities, mortgage loans on real estate and real estate that were non-income producing as of June 30, 2017, and December 31, 2016, was $9 million and $7 million, respectively.
Net Investment Income
Details underlying net investment income (in millions) and our investment yield were as follows:
|
||||||||||||||||
|
For the Three |
For the Six |
||||||||||||||
|
Months Ended |
Months Ended |
||||||||||||||
|
June 30, |
June 30, |
||||||||||||||
|
2017 |
2016 |
Change |
2017 |
2016 |
Change |
||||||||||
Fixed maturity AFS securities |
$ |
1,045 |
$ |
1,035 | 1% |
$ |
2,083 |
$ |
2,084 | 0% | ||||||
Equity AFS securities |
2 | 4 |
-50% |
5 | 6 |
-17% |
||||||||||
Trading securities |
23 | 25 |
-8% |
47 | 51 |
-8% |
||||||||||
Mortgage loans on real estate |
109 | 105 | 4% | 219 | 197 | 11% | ||||||||||
Real estate |
1 |
- |
NM |
1 | 1 | 0% | ||||||||||
Policy loans |
34 | 35 |
-3% |
67 | 70 |
-4% |
||||||||||
Invested cash |
3 | 3 | 0% | 4 | 6 |
-33% |
||||||||||
Commercial mortgage loan prepayment |
||||||||||||||||
and bond make-whole premiums (1) |
37 | 13 | 185% | 54 | 25 | 116% | ||||||||||
Alternative investments (2) |
55 | 18 | 206% | 104 | 4 |
NM |
||||||||||
Consent fees |
1 | 1 | 0% | 2 | 4 |
-50% |
||||||||||
Other investments |
- |
1 |
-100% |
- |
- |
NM |
||||||||||
Investment income |
1,310 | 1,240 | 6% | 2,586 | 2,448 | 6% | ||||||||||
Investment expense |
(48 |
) |
(41 |
) |
-17% |
(87 |
) |
(77 |
) |
-13% |
||||||
Net investment income |
$ |
1,262 |
$ |
1,199 | 5% |
$ |
2,499 |
$ |
2,371 | 5% |
(1) |
See “Commercial Mortgage Loan Prepayment and Bond Make-Whole Premiums” below for additional information. |
(2) |
See “Alternative Investments” above for additional information. |
|
|||||||||||||
|
For the Three |
For the Six |
|||||||||||
|
Months Ended |
Basis |
Months Ended |
Basis |
|||||||||
|
June 30, |
Point |
June 30, |
Point |
|||||||||
|
2017 |
2016 |
Change |
2017 |
2016 |
Change |
|||||||
Interest Rate Yield |
|||||||||||||
Fixed maturity securities, mortgage loans on |
|||||||||||||
real estate and other, net of investment |
|||||||||||||
expenses |
4.57% | 4.72% | (15 |
) |
4.59% | 4.74% | (15 |
) |
|||||
Commercial mortgage loan prepayment and |
|||||||||||||
bond make-whole premiums |
0.14% | 0.05% | 9 | 0.10% | 0.05% | 5 | |||||||
Alternative investments |
0.21% | 0.07% | 14 | 0.20% | 0.01% | 19 | |||||||
Net investment income yield on invested |
|||||||||||||
assets |
4.92% | 4.84% | 8 | 4.89% | 4.80% | 9 |
|
|||||||||||||||||
|
For the Three |
For the Six |
|||||||||||||||
|
Months Ended |
Months Ended |
|||||||||||||||
|
June 30, |
June 30, |
|||||||||||||||
|
2017 |
2016 |
Change |
2017 |
2016 |
Change |
|||||||||||
Average invested assets at amortized cost |
$ |
102,556 |
$ |
99,177 | 3% |
$ |
102,132 |
$ |
98,718 | 3% |
We earn investment income on our general account assets supporting fixed annuity, term life, whole life, UL, interest-sensitive whole life and the fixed portion of retirement plan and VUL products. The profitability of our fixed annuity and life insurance products is affected by our ability to achieve target spreads, or margins, between the interest income earned on the general account assets and the interest credited to the contract holder on our average fixed account values, including the fixed portion of variable. Net investment income and
84
the interest rate yield table each include commercial mortgage loan prepayments and bond make-whole premiums, alternative investments and contingent interest and standby real estate equity commitments. These items can vary significantly from period to period due to a number of factors and, therefore, can provide results that are not indicative of the underlying trends.
Commercial Mortgage Loan Prepayment and Bond Make-Whole Premiums
Prepayment and make-whole premiums are collected when borrowers elect to call or prepay their debt prior to the stated maturity. A prepayment or make-whole premium allows investors to attain the same yield as if the borrower made all scheduled interest payments until maturity. These premiums are designed to make investors indifferent to prepayment.
Realized Gain (Loss) Related to Certain Investments
Details of the realized gain (loss) related to certain investments (in millions) were as follows:
|
||||||||||||||||
|
For the Three |
For the Six |
||||||||||||||
|
Months Ended |
Months Ended |
||||||||||||||
|
June 30, |
June 30, |
||||||||||||||
|
2017 |
2016 |
Change |
2017 |
2016 |
Change |
||||||||||
Fixed maturity AFS securities: (1) |
||||||||||||||||
Gross gains |
$ |
3 |
$ |
7 |
-57% |
$ |
11 |
$ |
61 |
-82% |
||||||
Gross losses |
(13 |
) |
(65 |
) |
80% | (25 |
) |
(163 |
) |
85% | ||||||
Equity AFS securities: |
||||||||||||||||
Gross gains |
- |
2 |
-100% |
1 | 2 |
-50% |
||||||||||
Gross losses |
- |
(1 |
) |
100% |
- |
(1 |
) |
100% | ||||||||
Gain (loss) on other investments |
(2 |
) |
(3 |
) |
33% | (5 |
) |
(63 |
) |
92% | ||||||
Associated amortization of DAC, VOBA, |
||||||||||||||||
DSI and DFEL and changes in |
||||||||||||||||
other contract holder funds |
(6 |
) |
(5 |
) |
-20% |
(13 |
) |
(8 |
) |
-63% |
||||||
Total realized gain (loss) related to |
||||||||||||||||
certain investments, pre-tax |
$ |
(18 |
) |
$ |
(65 |
) |
72% |
$ |
(31 |
) |
$ |
(172 |
) |
82% |
(1) |
These amounts are represented net of related fair value hedging activity. See Note 5 for more information. |
Amortization of DAC, VOBA, DSI and DFEL and changes in other contract holder funds reflect an assumption for an expected level of credit-related investment losses. When actual credit-related investment losses are realized, we recognize a true-up to our DAC, VOBA, DSI and DFEL amortization and changes in other contract holder funds within realized losses reflecting the incremental effect of actual versus expected credit-related investment losses. These actual to expected amortization adjustments could create volatility in net realized gains and losses.
Realized gains and losses generally originate from asset sales to reposition the portfolio or to respond to product experience. During the first six months of 2017 and 2016, we sold securities for gains and losses. In the process of evaluating whether a security with an unrealized loss reflects declines that are other-than-temporary, we consider our ability and intent to sell the security prior to a recovery of value. However, subsequent decisions on securities sales are made within the context of overall risk monitoring, assessing value relative to other comparable securities and overall portfolio maintenance. Although our portfolio managers may, at a given point in time, believe that the preferred course of action is to hold securities with unrealized losses that are considered temporary until such losses are recovered, the dynamic nature of portfolio management may result in a subsequent decision to sell. These subsequent decisions are consistent with the classification of our investment portfolio as AFS. We expect to continue to manage all non-trading invested assets within our portfolios in a manner that is consistent with the AFS classification.
We consider economic factors and circumstances within countries and industries where recent write-downs have occurred in our assessment of the position of securities we own of similarly situated issuers. While it is possible for realized or unrealized losses on a particular investment to affect other investments, our risk management strategy has been designed to identify correlation risks and other risks inherent in managing an investment portfolio. Once identified, strategies and procedures are developed to effectively monitor and manage these risks. The areas of risk correlation that we pay particular attention to are risks that may be correlated within specific financial and business markets, risks within specific industries and risks associated with related parties.
When the detailed analysis by our external asset managers and investment portfolio managers leads us to the conclusion that a security’s decline in fair value is other-than-temporary, the security is written down to estimated recovery value. In instances where declines are considered temporary, the security will continue to be carefully monitored. See “Part II – Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Introduction – Critical Accounting Policies and Estimates – Investments – Write-downs for OTTI and Allowance for Losses” in our 2016 Form 10-K for additional information on our portfolio management strategy.
85
Details underlying write-downs taken as a result of OTTI (in millions) were as follows:
|
||||||||||||||||
|
For the Three |
For the Six |
||||||||||||||
|
Months Ended |
Months Ended |
||||||||||||||
|
June 30, |
June 30, |
||||||||||||||
|
2017 |
2016 |
Change |
2017 |
2016 |
Change |
||||||||||
OTTI Recognized in Net Income (Loss) |
||||||||||||||||
Fixed maturity securities: |
||||||||||||||||
Corporate bonds |
$ |
(4 |
) |
$ |
(26 |
) |
85% |
$ |
(5 |
) |
$ |
(62 |
) |
92% | ||
ABS |
- |
(1 |
) |
100% | (1 |
) |
(3 |
) |
67% | |||||||
RMBS |
- |
(1 |
) |
100% | (1 |
) |
(3 |
) |
67% | |||||||
State and municipal bonds |
- |
- |
NM |
(1 |
) |
- |
NM |
|||||||||
Total fixed maturity securities |
(4 |
) |
(28 |
) |
86% | (8 |
) |
(68 |
) |
88% | ||||||
Equity securities |
- |
(1 |
) |
100% |
- |
(1 |
) |
100% | ||||||||
Gross OTTI recognized in net income (loss) |
(4 |
) |
(29 |
) |
86% | (8 |
) |
(69 |
) |
88% | ||||||
Associated amortization of DAC, |
||||||||||||||||
VOBA, DSI and DFEL |
- |
1 |
-100% |
- |
5 |
-100% |
||||||||||
Net OTTI recognized in net income |
||||||||||||||||
(loss), pre-tax |
$ |
(4 |
) |
$ |
(28 |
) |
86% |
$ |
(8 |
) |
$ |
(64 |
) |
88% | ||
|
||||||||||||||||
Portion of OTTI Recognized in OCI |
||||||||||||||||
Gross OTTI recognized in OCI |
$ |
- |
$ |
10 |
-100% |
$ |
- |
$ |
36 |
-100% |
||||||
Change in DAC, VOBA, DSI and DFEL |
- |
(2 |
) |
100% |
- |
(8 |
) |
100% | ||||||||
Net portion of OTTI recognized in OCI, |
||||||||||||||||
pre-tax |
$ |
- |
$ |
8 |
-100% |
$ |
- |
$ |
28 |
-100% |
The $8 million of impairments taken during the first six months of 2017 were all credit-related impairments. The decrease in write-downs for OTTI when comparing the first six months of 2017 to the corresponding period in 2016 was primarily attributable to the stabilization of certain corporate bond holdings within the energy and other commodity sectors that experienced deteriorating fundamentals in prior quarters.
86
REVIEW OF CONSOLIDATED FINANCIAL CONDITION
Liquidity and Capital Resources
Sources of Liquidity and Cash Flow
Liquidity refers to the ability of an enterprise to generate adequate amounts of cash from its normal operations to meet cash requirements with a prudent margin of safety. Our principal sources of cash flow from operating activities are insurance premiums and fees and investment income, while sources of cash flows from investing activities result from maturities and sales of invested assets. Our operating activities provided cash of $202 million and $536 million for the six months ended June 30, 2017 and 2016, respectively. When considering our liquidity and cash flow, it is important to distinguish between the needs of our insurance subsidiaries and the needs of the holding company, LNC. As a holding company with no operations of its own, LNC derives its cash primarily from its operating subsidiaries.
The sources of liquidity of the holding company are principally comprised of dividends and interest payments from subsidiaries, augmented by holding company short-term investments, bank lines of credit and the ongoing availability of long-term public financing under an SEC-filed shelf registration statement. These sources of liquidity and cash flow support the general corporate needs of the holding company, including its common stock dividends, interest and debt service, funding of callable securities, securities repurchases, acquisitions and investment in core businesses.
Details underlying the primary sources of our holding company cash flows (in millions) were as follows:
|
||||||||||||||||
|
For the Three |
For the Six |
||||||||||||||
|
Months Ended |
Months Ended |
||||||||||||||
|
June 30, |
June 30, |
||||||||||||||
|
2017 |
2016 |
Change |
2017 |
2016 |
Change |
||||||||||
Dividends from Subsidiaries |
||||||||||||||||
|
||||||||||||||||
The Lincoln National Life Insurance |
||||||||||||||||
Company |
$ |
244 |
$ |
325 |
-25% |
$ |
454 |
$ |
525 |
-14% |
||||||
First Penn-Pacific |
20 |
- |
NM |
20 |
- |
NM |
||||||||||
Lincoln National Management Corporation |
- |
- |
NM |
65 |
- |
NM |
||||||||||
Total dividends from subsidiaries |
$ |
264 |
$ |
325 |
-19% |
$ |
539 |
$ |
525 | |||||||
|
||||||||||||||||
Loan Repayments and Interest from |
||||||||||||||||
Subsidiaries |
||||||||||||||||
Interest on inter-company notes |
$ |
29 |
$ |
28 | 4% |
$ |
80 |
$ |
58 | 38% | ||||||
|
||||||||||||||||
Other Cash Flow Items |
||||||||||||||||
Amounts received from (paid for taxes on) |
||||||||||||||||
stock option exercises and restricted |
||||||||||||||||
stock, net |
$ |
4 |
$ |
- |
NM |
$ |
42 |
$ |
(11 |
) |
NM |
The table above focuses on significant and recurring cash flow items and excludes the effects of certain financing activities, namely the periodic issuance and retirement of debt and cash flows related to our inter-company cash management program (discussed below). Taxes have been eliminated from the analysis due to a tax sharing agreement among our primary subsidiaries resulting in a modest effect on net cash flows at the holding company. Also excluded from this analysis is the modest amount of investment income on short-term investments of the holding company. For information regarding limits on the dividends that our insurance subsidiaries may pay without prior approval, see “Part II – Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Review of Consolidated Financial Condition – Liquidity and Capital Resources – Restrictions on Dividends from Subsidiaries” in our 2016 Form 10-K as updated by “Part I – Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Review of Consolidated Financial Condition – Liquidity and Capital Resources – Restrictions on Dividends from Subsidiaries” in our first quarter of 2017 Form 10-Q.
87
Insurance Subsidiaries’ Statutory Capital and Surplus
Our regulatory capital levels are also affected by statutory accounting rules, which are subject to change by each applicable insurance regulator. Our term products and UL products containing secondary guarantees require reserves calculated pursuant to XXX and AG38, respectively. During the third quarter of 2013, the New York State Department of Financial Services announced that it would not recognize the NAIC revisions to AG38 in applying the New York law governing the reserves to be held for UL and VUL products containing secondary guarantees. The change, which was effective as of December 31, 2013, impacted the Lincoln Life & Annuity Company of New York (“LLANY”). Although LLANY discontinued the sale of these products in early 2013, the change affected those policies previously sold. We began phasing in the increase in reserves in 2013 at $90 million per year over five years, with the final increase in reserves occurring during the fourth quarter of 2017. As of June 30, 2017, we had increased reserves by $360 million. In April 2016, LLANY entered into a third-party reinsurance arrangement primarily covering UL policies containing secondary guarantees issued between 2002 through 2014 that mitigates the financial impact of the increase of these reserves.
As discussed in “Part I – Item 1. Risk Factors – Legislative, Regulatory, and Tax – Attempts to mitigate the impact of Regulation XXX and Actuarial Guideline 38 may fail in whole or in part resulting in an adverse effect on our financial condition and result of operations,” our insurance subsidiaries employ strategies to reduce the strain caused by XXX and AG38 by reinsuring the business to insurance captives. Our captive reinsurance and reinsurance subsidiaries provide a mechanism for financing a portion of the excess reserve amounts in a more efficient manner. We use long-dated LOCs and debt financing as well as other financing strategies to finance those reserves. Included in the LOCs issued as of June 30, 2017, was approximately $3.3 billion of long-dated LOCs issued to support inter-company reinsurance arrangements. Approximately $2.3 billion of such LOCs were issued to support reinsurance for UL products containing secondary guarantees ($350 million will expire in 2019, $1 million will expire in 2021 and $1.9 billion will expire in 2031), and $1.0 billion of such LOCs that will expire in 2023 were issued to support reinsurance for term business. We have also used the proceeds from senior note issuances of $875 million to execute long-term structured solutions supporting reinsurance of UL products containing secondary guarantees. Additionally, our captive reinsurance and reinsurance subsidiaries have issued long-term notes of $1.9 billion as of June 30, 2017, to finance a portion of the excess reserves. For information on these long-term notes issued by our captive reinsurance and reinsurance subsidiaries, see Note 4 in our 2016 Form 10-K. LOCs and related capital market solutions lower the capital effect of term products and UL products containing secondary guarantees. An inability to obtain appropriate capital market solutions could affect our returns on our in-force term products and UL products containing secondary guarantees. However, we believe that we have sufficient capital to support the increase in statutory reserves, based on our current reserve projections, if such structures were no longer available.
Our captive reinsurance and reinsurance subsidiaries free up capital the insurance subsidiaries can use for any number of purposes, including paying dividends to the holding company. Actuarial Guideline 48 (“AG48”) regulates the terms of captive reinsurance arrangements that are entered into or amended in certain ways after December 31, 2014. AG48 imposes restrictions on the types of assets that can be used to support these arrangements. We have implemented and plan to continue to implement these arrangements in compliance with AG48. The NAIC’s adoption of the new Valuation Manual that defines a principles-based reserving framework for newly issued life insurance policies was effective January 1, 2017. Principles-based reserving places a greater weight on our past experience and anticipated future experience as well as considers current economic conditions in calculating life insurance product reserves in accordance with statutory accounting principles. We adopted the new framework for primarily our newly issued term business in 2017 and will phase in the framework prior to January 1, 2020, for all other newly issued life insurance products. We believe that these changes may reduce our future use of captive reinsurance and reinsurance subsidiaries for reserve financing transactions for our life insurance business. For more information on principles-based reserving, see “Part I – Item 1. Business – Regulatory – Insurance Regulation in our 2016 Form 10-K.”
Statutory reserves established for variable annuity contracts and riders are sensitive to changes in the equity markets and are affected by the level of account values relative to the level of any guarantees, product design and reinsurance arrangements. As a result, the relationship between reserve changes and equity market performance is non-linear during any given reporting period. Market conditions greatly influence the ultimate capital required due to its effect on the valuation of reserves and derivative assets hedging these reserves. We also utilize inter-company reinsurance arrangements to manage our hedge program for variable annuity guarantees. The NAIC through its various committees, task forces and working groups has been evaluating the adequacy of existing NAIC model regulations with a focus on targeted improvements to the statutory reserving and accounting framework for variable annuities.
We continue to analyze the use of our existing captive reinsurance structures, as well as additional third-party reinsurance arrangements, and our current hedging strategies relative to managing the effects of equity markets and interest rates on the statutory reserves, statutory capital and the dividend capacity of our life insurance subsidiaries.
Financing Activities
Although our subsidiaries currently generate adequate cash flow to meet the needs of our normal operations, periodically we may issue debt or equity securities to maintain ratings and increase liquidity, as well as to fund internal growth, acquisitions and the retirement of our debt and equity securities.
We currently have an effective shelf registration statement, which allows us to issue, in unlimited amounts, securities, including debt securities, preferred stock, common stock, warrants, stock purchase contracts, stock purchase units and depository shares.
88
Details underlying debt and financing activities (in millions) for the six months ended June 30, 2017, were as follows:
|
|||||||||||||||||||||
|
Maturities, |
Change |
|||||||||||||||||||
|
Repayments |
in Fair |
|||||||||||||||||||
|
Beginning |
and |
Value |
Other |
Ending |
||||||||||||||||
|
Balance |
Issuance |
Refinancing |
Hedges |
Changes (1) |
Balance |
|||||||||||||||
Short-Term Debt |
|||||||||||||||||||||
Current maturities of long-term debt (2) |
$ |
- |
$ |
- |
$ |
- |
$ |
- |
$ |
450 |
$ |
450 | |||||||||
|
|||||||||||||||||||||
Long-Term Debt |
|||||||||||||||||||||
Senior notes |
$ |
3,888 |
$ |
- |
$ |
- |
$ |
6 |
$ |
(200 |
) |
$ |
3,694 | ||||||||
Bank borrowing |
250 |
- |
- |
- |
(250 |
) |
- |
||||||||||||||
Capital securities (3) |
1,207 |
- |
- |
- |
- |
1,207 | |||||||||||||||
Total long-term debt |
$ |
5,345 |
$ |
- |
$ |
- |
$ |
6 |
$ |
(450 |
) |
$ |
4,901 |
(1) |
Includes the net increase (decrease) in commercial paper, non-cash reclassification of long-term debt to current maturities of long-term debt, accretion (amortization) of discounts and premiums and amortization of debt issuance costs, as applicable. |
(2) |
As of June 30, 2017, consisted of a $200 million 7% fixed-rate senior note maturing on March 15, 2018, and a $250 million floating-rate senior note maturing on June 6, 2018. |
(3) |
To hedge the variability in rates, we have purchased forward starting swaps to lock in a fixed rate of approximately 5% over the remaining terms of the capital securities. |
As of June 30, 2017, the holding company had available liquidity of $523 million. Available liquidity consists of cash and invested cash, excluding cash held as collateral, and certain short-term investments that can be readily converted into cash, net of commercial paper outstanding.
For more information about our short-term and long-term debt and our credit facilities and LOCs, see Note 12 in our 2016 Form 10-K.
We have not accounted for repurchase agreements, securities lending transactions, or other transactions involving the transfer of financial assets with an obligation to repurchase the transferred assets as sales. For information about our collateralized financing transactions on our investments, see “Payables for Collateral on Investments” in Note 4.
If current credit ratings or claims-paying ratings were downgraded in the future, terms in our derivative agreements may be triggered, which could negatively affect overall liquidity. For the majority of our counterparties, there is a termination event with respect to LNC if its long-term senior debt ratings drop below BBB-/Baa3 (S&P/Moody’s); or with respect to Lincoln National Life Insurance Company (“LNL”) if its financial strength ratings drop below BBB-/Baa3 (S&P/Moody’s). Our long-term senior debt held a rating of A-/Baa1 (S&P/Moody’s) as of June 30, 2017. In addition, contractual selling agreements with intermediaries could be negatively affected, which could have an adverse effect on overall sales of annuities, life insurance and investment products. See “Part I – Item 1A. Risk Factors – Liquidity and Capital Position – A decrease in the capital and surplus of our insurance subsidiaries may result in a downgrade to our credit and insurer financial strength ratings” and “Part I – Item 1A. Risk Factors – Covenants and Ratings – A downgrade in our financial strength or credit ratings could limit our ability to market products, increase the number or value of policies being surrendered and/or hurt our relationships with creditors” in our 2016 Form 10-K for more information. See “Part I – Item 1. Business – Financial Strength Ratings” in our 2016 Form 10-K for additional information on our current financial strength ratings.
See “Part II – Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Review of Consolidated Financial Condition – Liquidity and Capital Resources – Financing Activities” in our 2016 Form 10-K for information on our credit ratings.
Alternative Sources of Liquidity
In order to manage our capital more efficiently, we have an inter-company cash management program where certain subsidiaries can lend to or borrow from the holding company to meet short-term borrowing needs. The cash management program is essentially a series of demand loans between LNC and participating subsidiaries that reduces overall borrowing costs by allowing LNC and its subsidiaries to access internal resources instead of incurring third-party transaction costs. As of June 30, 2017, the holding company had a net outstanding receivable (payable) of ($15) million from (to) certain subsidiaries resulting from loans made by subsidiaries in excess of amounts placed (borrowed) by the holding company and subsidiaries in the inter-company cash management account. Any change in holding company cash management program balances is offset by the immediate and equal change in holding company cash and invested cash. Loans under the cash management program are permitted under applicable insurance laws subject to certain restrictions. For our Indiana-domiciled insurance subsidiaries, the borrowing and lending limit is currently 3% of the insurance company’s admitted assets as of its most recent year end. For our New York-domiciled insurance subsidiary, it may borrow from LNC less than 2% of its admitted assets as of the last year end but may not lend any amounts to LNC.
Our insurance subsidiaries, by virtue of their general account fixed-income investment holdings, can access liquidity through securities lending programs and repurchase agreements. Our primary insurance subsidiary, LNL, is a member of the Federal Home Loan Bank of Indianapolis (“FHLBI”). Membership allows LNL access to the FHLBI’s financial services, including the ability to obtain loans and to
89
issue funding agreements as an alternative source of liquidity that are collateralized by qualifying mortgage-related assets, agency securities or U.S. Treasury securities. Based on regulatory limitations, LNL had an estimated maximum borrowing capacity of $5.0 billion under the FHLBI facility as of June 30, 2017. Borrowings under this facility are subject to the FHLBI’s discretion and require the availability of qualifying assets at LNL. As of June 30, 2017, our insurance subsidiaries had investments with a carrying value of $3.9 billion out on loan or subject to repurchase agreements. The cash received in our securities lending programs and repurchase agreements is typically invested in cash equivalents, short-term investments or fixed maturity securities. For additional details, see “Payables for Collateral on Investments” in Note 4.
Cash Flows from Collateral on Derivatives
Our cash flows associated with collateral received from and posted with counterparties change as the market value of the underlying derivative contract changes. As the value of a derivative asset decreases (or increases), the collateral required to be posted by our counterparties would also decrease (or increase). Likewise, when the value of a derivative liability decreases (or increases), the collateral we are required to post to our counterparties would also decrease (or increase). In the event of adverse changes in fair value of our derivative instruments, we may need to post collateral with a counterparty if our net derivative liability position reaches certain contractual levels. If we do not have sufficient high quality securities or cash and invested cash to provide as collateral, we have liquidity sources, as discussed above, to leverage that would be eligible for collateral posting. For additional information, see “Credit Risk” in Note 5.
Divestitures
For a discussion of our divestitures, see Note 3 in our 2016 Form 10-K.
Uses of Capital
Our principal uses of cash are to pay policy claims and benefits, operating expenses, commissions and taxes, to purchase new investments, to purchase reinsurance, to fund policy surrenders and withdrawals, to pay dividends to our stockholders, to repurchase our stock and to repay debt.
Return of Capital to Common Stockholders
One of the Company’s primary goals is to provide a return to our common stockholders through share price accretion, dividends and stock repurchases. In determining dividends, the Board of Directors takes into consideration items such as current and expected earnings, capital needs, rating agency considerations and requirements for financial flexibility. The amount and timing of share repurchase depends on key capital ratios, rating agency expectations, the generation of free cash flow and an evaluation of the costs and benefits associated with alternative uses of capital. Free cash flow for the holding company generally represents the amount of dividends and interest received from subsidiaries less interest paid on debt.
Details underlying this activity (in millions, except per share data), were as follows:
|
||||||||||||||||
|
For the Three |
For the Six |
||||||||||||||
|
Months Ended |
Months Ended |
||||||||||||||
|
June 30, |
June 30, |
||||||||||||||
|
2017 |
2016 |
Change |
2017 |
2016 |
Change |
||||||||||
Common dividends to stockholders |
$ |
65 |
$ |
60 | 8% |
$ |
131 |
$ |
121 | 8% | ||||||
Repurchase of common stock |
200 | 275 |
-27% |
400 | 475 |
-16% |
||||||||||
Total cash returned to stockholders |
$ |
265 |
$ |
335 |
-21% |
$ |
531 |
$ |
596 |
-11% |
||||||
|
||||||||||||||||
Number of shares repurchased |
3.030 | 6.243 |
-51% |
5.894 | 11.759 |
-50% |
||||||||||
Average price per share |
$ |
68.00 |
$ |
44.07 | 54% |
$ |
68.90 |
$ |
40.41 | 71% |
On November 1, 2016, our Board of Directors approved an increase of the quarterly dividend on our common stock from $0.25 to $0.29 per share. Additionally, we expect to repurchase additional shares of common stock during 2017 depending on market conditions and alternative uses of capital. For more information regarding share repurchases, see “Part II – Item 2(c)” below.
90
Other Uses of Capital
In addition to the amounts in the table above in “Return of Capital to Common Stockholders,” other uses of holding company cash flow (in millions) were as follows:
|
||||||||||||||||
|
For the Three |
For the Six |
||||||||||||||
|
Months Ended |
Months Ended |
||||||||||||||
|
June 30, |
June 30, |
||||||||||||||
|
2017 |
2016 |
Change |
2017 |
2016 |
Change |
||||||||||
Debt service (interest paid) |
$ |
64 |
$ |
74 |
-14% |
$ |
126 |
$ |
139 |
-9% |
||||||
Capital contribution to subsidiaries |
- |
- |
NM |
60 |
- |
NM |
||||||||||
Total |
$ |
64 |
$ |
74 |
-14% |
$ |
186 |
$ |
139 | 34% |
The above table focuses on significant and recurring cash flow items and excludes the effects of certain financing activities, namely the periodic retirement of debt and cash flows related to our inter-company cash management account. Taxes have been eliminated from the analysis due to a tax sharing agreement among our primary subsidiaries resulting in a modest effect on net cash flows at the holding company.
Significant Trends in Sources and Uses of Cash Flow
As stated above, LNC’s cash flow, as a holding company, is largely dependent upon the dividend capacity of its insurance company subsidiaries as well as their ability to advance funds to it through inter-company borrowing arrangements, which may be affected by factors influencing the insurance subsidiaries’ RBC and statutory earnings performance. We currently expect to be able to meet the holding company’s ongoing cash needs and to have sufficient capital to offer downside protection in the event that the capital and credit markets experience another period of extreme volatility and disruption. A decline in capital market conditions, which reduces our insurance subsidiaries’ statutory surplus and RBC, may require them to retain more capital and may pressure our subsidiaries’ dividends to the holding company, which may lead us to take steps to preserve or raise additional capital. For factors that could affect our expectations for liquidity and capital, see “Part I – Item 1A. Risk Factors” in our 2016 Form 10-K as updated by “Part II – Item 1A. Risk Factors” in our first quarter 2017 Form 10-Q and below.
For factors that could cause actual results to differ materially from those set forth in this section, see “Forward-Looking Statements – Cautionary Language” above and “Part I – Item 1A. Risk Factors” in our 2016 Form 10-K as updated by “Part II – Item 1A. Risk Factors” in our first quarter 2017 Form 10-Q and below.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We analyze and manage the risks arising from market exposures of financial instruments, as well as other risks, in an integrated asset-liability management process that considers diversification. By aggregating the potential effect of market and other risks on the entire enterprise, we estimate, review and in some cases manage the risk to our earnings and shareholder value. We have exposures to several market risks including interest rate risk, equity market risk, default risk, credit risk and, to a lesser extent, foreign currency exchange risk. The exposures of financial instruments to market risks, and the related risk management processes, are most important to our business where most of the invested assets support accumulation and investment-oriented insurance products. As an important element of our integrated asset-liability management processes, we use derivatives to minimize the effects of changes in interest levels, the shape of the yield curve, currency movements and volatility. In this context, derivatives serve to minimize interest rate risk by mitigating the effect of significant increases in interest rates on our earnings. Additional market exposures exist in our other general account insurance products and in our debt structure and derivatives positions. Our primary sources of market risk are substantial, relatively rapid and sustained increases or decreases in interest rates or a sharp drop in equity market values. These market risks are discussed in detail in the following pages and should be read in conjunction with our consolidated financial statements and the accompanying notes to the consolidated financial statements presented in “Item 1. Financial Statements,” as well as “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
Interest Rate Risk
Effect of Interest Rate Sensitivity
For information about the effect of interest rate sensitivity on our income (loss) from operations, see “Part II – Item 7A. Quantitative and Qualitative Disclosures About Market Risk – Interest Rate Risk – Effect of Interest Rate Sensitivity” in our 2016 Form 10-K.
Interest Rate Risk on Fixed Insurance Businesses
In periods of low interest rates, we have to reinvest the cash we receive as interest or return of principal on our investments in lower yielding instruments. Moreover, borrowers may prepay fixed-income securities, commercial mortgages and mortgage-backed securities in our general accounts in order to borrow at lower market rates, which exacerbates this risk. Because we are entitled to reset the interest rates on our fixed-rate annuities only at limited, pre-established intervals, and because many of our contracts have guaranteed minimum interest or crediting rates, our spreads could decrease and potentially become negative.
91
Prolonged historically low rates are not healthy for our business fundamentals. However, we have recognized this risk and have been proactive in our investment strategies, product designs, crediting rate strategies and overall asset-liability practices to mitigate the risk of unfavorable consequences in this type of environment. For some time now, new products have been sold with low minimum crediting floors, and we apply disciplined asset-liability management standards, such as locking in spreads on these products at the time of issue. See “Part I – Item 1A. Risk Factors – Market Conditions – Changes in interest rates and sustained low interest rates may cause interest rate spreads to decrease and changes in interest rates may also result in increased contract withdrawals” in our 2016 Form 10-K for additional information on interest rate risks.
The following provides detail on the percentage differences between the June 30, 2017, interest rates being credited to contract holders based on the second quarter of 2017 declared rates and the respective minimum guaranteed policy rate (in millions), broken out by contract holder account values reported within our segments:
|
|||||||||||||||||
|
Account Values |
||||||||||||||||
|
Retirement |
% |
|||||||||||||||
|
Plan |
Life |
Account |
||||||||||||||
|
Annuities |
Services |
Insurance (1) |
Total |
Values |
||||||||||||
Excess of Crediting Rates over Contract Minimums |
|||||||||||||||||
Discretionary rate setting products: (2) |
|||||||||||||||||
Occurring within the next twelve months: (3) |
|||||||||||||||||
No difference |
$ |
8,415 |
$ |
12,608 |
$ |
32,941 |
$ |
53,964 | 72.1% | ||||||||
Up to 0.50% |
1,919 | 857 | 434 | 3,210 | 4.3% | ||||||||||||
0.51% to 1.00% |
3,507 | 888 | 126 | 4,521 | 6.0% | ||||||||||||
1.01% to 1.50% |
1,584 | 175 |
- |
1,759 | 2.3% | ||||||||||||
1.51% to 2.00% |
217 |
- |
101 | 318 | 0.4% | ||||||||||||
2.01% to 2.50% |
152 |
- |
- |
152 | 0.2% | ||||||||||||
2.51% to 3.00% |
5 |
- |
- |
5 | 0.0% | ||||||||||||
3.01% or greater |
- |
- |
- |
- |
0.0% | ||||||||||||
Occurring after the next twelve months (4) |
4,610 |
- |
- |
4,610 | 6.2% | ||||||||||||
Total discretionary rate setting products |
20,409 | 14,528 | 33,602 | 68,539 | 91.5% | ||||||||||||
Other contracts (5) |
2,484 | 3,885 |
- |
6,369 | 8.5% | ||||||||||||
Total account values |
$ |
22,893 |
$ |
18,413 |
$ |
33,602 |
$ |
74,908 | 100.0% | ||||||||
|
|||||||||||||||||
Percentage of discretionary rate setting product account |
|||||||||||||||||
values at minimum guaranteed rates |
41.2% | 86.8% | 98.0% | 78.7% |
(1) |
Excludes policy loans. |
(2) |
Contracts currently within new money rate bands are grouped according to the corresponding portfolio rate band in which they will fall upon their first anniversary. |
(3) |
The average crediting rates were 38 basis points, 8 basis points and 1 basis points in excess of average minimum guaranteed rates for our Annuities, Retirement Plan Services and Life Insurance segments, respectively. |
(4) |
The average crediting rates were 101 basis points in excess of average minimum guaranteed rates. Of our account values for these products, 18% are scheduled to reset in more than one year but not more than two years; 16% are scheduled to reset in more than two years but not more than three years; and 66% are scheduled to reset in more than three years. |
(5) |
For Annuities, this amount relates primarily to income annuity and short-term dollar cost averaging business. For Retirement Plan Services, this amount relates primarily to indexed-based rate setting products in which the average crediting rates were 22 basis points in excess of average minimum guaranteed rates, and 71% of account values were already at their minimum guaranteed rates. |
The maturity structure and call provisions of the related portfolios are structured to afford protection against erosion of investment portfolio yields during periods of declining interest rates. We devote extensive effort to evaluating the risks associated with falling interest rates by simulating asset and liability cash flows for a wide range of interest rate scenarios. We seek to manage these exposures by maintaining a suitable maturity structure and by limiting our exposure to call risk in each respective investment portfolio.
Long-Term New Money Investment Yield Sensitivity
For information about the effect of long-term new money investment yield sensitivity on our income (loss) from operations, see “Part II – Item 7A. Quantitative and Qualitative Disclosures About Market Risk – Interest Rate Risk – Long-Term New Money Investment Yield Sensitivity” in our 2016 Form 10-K.
Derivatives
See Note 5 for information on our derivatives used to hedge our exposure to changes in interest rates.
92
Equity Market Risk
Our revenues, assets and liabilities are exposed to equity market risk that we often hedge with derivatives. Due to the use of our RTM process and our hedging strategies, we expect that, in general, short-term fluctuations in the equity markets should not have a significant effect on our quarterly earnings from unlocking of assumptions for DAC, VOBA, DSI, and DFEL. However, earnings are affected by equity market movements on account values and assets under management and the related fees we earn on those assets. Refer to “Part II – Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Introduction – Critical Accounting Policies and Estimates – DAC, VOBA, DSI and DFEL” in our 2016 Form 10-K for further discussion of the effects of equity markets on our RTM.
Effect of Equity Market Sensitivity
For information about the effect of equity market sensitivity on our income (loss) from operations, see “Part II – Item 7A. Quantitative and Qualitative Disclosures About Market Risk – Equity Market Risk – Effect of Equity Market Sensitivity” in our 2016 Form 10-K.
Credit Risk
We may use credit-related derivatives to minimize our exposure to credit-related events, and we also sell credit default swaps to offer credit protection to our contract holders and investors. Additionally, we are exposed to credit loss in the event of non-performance by our counterparties on various derivative contracts. See Note 5 for additional information on our credit risk.
Item 4. Controls and Procedures
Conclusions Regarding Disclosure Controls and Procedures
We maintain disclosure controls and procedures, which are designed to ensure that information required to be disclosed in the reports we file or submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. As of the end of the period required by this report, we, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act). Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are effective in timely alerting them to material information relating to us and our consolidated subsidiaries required to be disclosed in our periodic reports under the Exchange Act.
Changes in Internal Control Over Financial Reporting
There was no change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred during the quarter ended June 30, 2017, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
A control system, no matter how well designed and operated, can provide only reasonable assurance that the control system’s objectives will be met. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the company have been detected. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.
93
PART II – OTHER INFORMATION
Information regarding reportable legal proceedings is contained in Note 8 in “Part I – Item 1.”
Legislative, Regulatory and Tax
Federal Regulation
Department of Labor regulation defining fiduciary could cause changes to the manner in which we deliver products and services as well as changes in nature and amount of compensation and fees.
On April 8, 2016, the Department of Labor (“DOL”) released the DOL Fiduciary Rule, which became effective on June 9, 2017, and substantially expanded the range of activities that are considered to be fiduciary investment advice under the Employee Retirement Income Security Act of 1974 and the Internal Revenue Code. The DOL Fiduciary Rule provided for a phased implementation of the provisions of this new regulation, with the first part effective on June 9, 2017, and full implementation on January 1, 2018. Under the DOL Fiduciary Rule, the investment-related information and support that our advisors and employees may provide to plan sponsors, participants and IRA holders on a non-fiduciary basis will be limited more than what is allowed under the current law. As a result, changes to the methods that we use to (i) deliver products and services, and (ii) pay and receive compensation for our investment-related products and services have occurred, which may impact future sales or margins. In addition, to the extent that advisors with our affiliated retail broker-dealers (Lincoln Financial Network) provide fiduciary investment advice as defined in the DOL Fiduciary Rule, it could expose those broker-dealers and their advisors to additional risk of legal liability in connection with that advice, which ultimately impacts us.
On February 3, 2017, President Trump directed the DOL to prepare an updated economic and legal analysis on whether the DOL Fiduciary Rule (i) has harmed or is likely to harm investors due to a reduction of Americans’ access to certain retirement savings offerings, retirement product structures, retirement savings information or related advice, (ii) has resulted in dislocations or disruptions within the retirement services industry that may adversely affect investors or retirees and (iii) is likely to cause an increase in litigation and an increase in prices that investors or retirees must pay to gain access to retirement services.
On April 7, 2017, the DOL issued a final rule delaying the applicability date of the DOL Fiduciary Rule and related exemptions from April 10, 2017, to June 9, 2017. This rule also changed some requirements of the rule initially released in April 2016, including (i) advisers relying on the Best Interest Contract Exemption will need to adhere to the Impartial Conduct Standards during the transition period of June 9, 2017, through January 1, 2018, but will not need to send certain disclosures to retirement investors during that time period and (ii) advisers will be permitted to rely on the current exemption (Prohibited Transaction Exemption 84-24) until January 1, 2018, for the sale of all annuities and insurance, provided they adhere to that exemption’s Impartial Conduct Standards as of June 9, 2017. On June 29, 2017, the DOL issued another request for information seeking commentary on whether the January 1, 2018, implementation requirements should be delayed or whether there should be further changes to the final rule and related exemptions. This request was officially published in the Federal Register on July 6, 2017. As a result of this action, which is in response to the President's February 2, 2017, directive to the DOL to further study of the effects of the fiduciary rule on the retail retirement market, there may be additional changes to the DOL Fiduciary Rule and/or further delays to the dates.
94
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
(c) The following table summarizes purchases of equity securities by the Company during the quarter ended June 30, 2017 (dollars in millions, except per share data):
|
|||||||||||||
|
(a) Total |
(c) Total Number |
(d) Approximate Dollar |
||||||||||
|
Number |
(b) Average |
of Shares (or Units) |
Value of Shares (or |
|||||||||
|
of Shares |
Price Paid |
Purchased as Part of |
Units) that May Yet Be |
|||||||||
|
(or Units) |
per Share |
Publicly Announced |
Purchased Under the |
|||||||||
Period |
Purchased (1) |
(or Unit) |
Plans or Programs (2) |
Plans or Programs (2)(3) |
|||||||||
4/1/17 – 4/30/17 |
853,467 |
$ |
65.02 | 853,467 |
$ |
759 | |||||||
|
|||||||||||||
5/1/17 – 5/31/17 |
1,645,839 | 66.56 | 1,645,839 | 649 | |||||||||
|
|||||||||||||
6/1/17 – 6/30/17 |
530,782 | 65.99 | 530,782 | 614 |
(1) |
Of the total number of shares purchased, no shares were received in connection with the exercise of stock options and related taxes. For the quarter ended June 30, 2017, there were 3,030,088 shares purchased as part of publicly announced plans or programs. |
(2) |
On January 24, 2017, our Board of Directors authorized an increase in our securities repurchase authorization, bringing the total aggregate repurchase authorization to $1.0 billion. As of June 30, 2017, our remaining security repurchase authorization was $614 million. The security repurchase authorization does not have an expiration date. The amount and timing of share repurchase depends on key capital ratios, rating agency expectations, the generation of free cash flow and an evaluation of the costs and benefits associated with alternative uses of capital. Our stock repurchases may be effected from time to time through open market purchases or in privately negotiated transactions and may be made pursuant to a Rule 10b5-1 plan. |
(3) |
As of the last day of the applicable month. |
The Exhibits included in this report are listed in the Exhibit Index beginning on page E-1, which is incorporated herein by reference.
95
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
|
|
|
|
LINCOLN NATIONAL CORPORATION |
||
|
|||
|
By: |
/s/ RANDAL J. FREITAG |
|
|
Randal J. Freitag Executive Vice President and Chief Financial Officer |
||
|
|
|
|
|
By: |
/s/ CHRISTINE A. JANOFSKY |
|
|
|
Christine A. Janofsky Senior Vice President and Chief Accounting Officer |
|
Dated: August 3, 2017 |
|
|
96
LINCOLN NATIONAL CORPORATION
Exhibit Index for the Report on Form 10-Q
For the Quarter Ended June 30, 2017
3.1 |
Restated Articles of Incorporation of LNC are incorporated by reference to Exhibit 3.1 to LNC’s form 8-K (File No. 1-6028) filed with the SEC on July 8, 2013. |
3.2 |
Articles of Amendment of the Restated Articles of Incorporation of LNC are incorporated by reference to Exhibit 3.1 to LNC’s form 8-K (File No. 1-6028) filed with the SEC on June 1, 2017. |
3.3 |
Amended and Restated Bylaws of LNC are filed herewith. |
12 |
Historical Ratio of Earnings to Fixed Charges. |
31.1 |
Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
31.2 |
Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
32.1 |
Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
32.2 |
Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
101.INS |
XBRL Instance Document. |
101.SCH |
XBRL Taxonomy Extension Schema Document. |
101.CAL |
XBRL Taxonomy Extension Calculation Linkbase Document. |
101.LAB |
XBRL Taxonomy Extension Label Linkbase Document. |
101.PRE |
XBRL Taxonomy Extension Presentation Linkbase Document. |
101.DEF |
XBRL Taxonomy Extension Definition Linkbase Document. |
E-1
EXHIBIT 3.3
BYLAWS OF LINCOLN NATIONAL CORPORATION
(Effective May 26, 2017)
ARTICLE 1.
Shareholders
Section 1. Annual Meeting. An annual meeting of the shareholders shall be held at such hour and on such date as the board of directors may select in each year for the purpose of electing directors for the terms hereinafter provided and for the transaction of such other business as may properly come before the meeting. The board of directors may postpone an annual meeting for which notice has been given in accordance with Section 4 of this Article I.
Section 2. Special Meetings. Special meetings of the shareholders may be called by the board of directors. Only business within the purpose or purposes described in the meeting notice may be conducted at a special shareholders meeting. The board of directors may postpone a special meeting for which notice has been given in accordance with Section 4 of this Article I.
Section 3. Place of Meetings. All meetings of shareholders shall be held at such place, either within or without the State of Indiana, as may be designated by the board of directors.
Section 4. Notice of Meetings. A written or printed notice, stating the place, day and hour of the meeting, and in the case of a special meeting or when required by law or by the articles of incorporation or these bylaws, the purpose or purposes for which the meeting is called, shall be delivered or mailed by or at the direction of the secretary of the corporation no fewer than ten nor more than sixty days before the date of the meeting, to each shareholder of record entitled to vote at such meeting at such address as appears upon the stock records of the corporation.
Section 5. Quorum. Unless otherwise provided by the articles of incorporation or these bylaws, at any meeting of shareholders the majority of the outstanding shares entitled to vote at such meeting, represented in person or by proxy, shall constitute a quorum. If less than a majority of such shares are represented at a meeting, the person presiding at the meeting may adjourn the meeting from time to time. At any meeting at which a quorum is present, the person presiding at the meeting may adjourn the meeting from time to time. The shareholders present at a duly organized meeting may continue to transact business until adjournment, notwithstanding the withdrawal of enough shareholders to leave less than a quorum.
Section 6. Adjourned Meetings. At any adjourned meeting at which a quorum shall be represented any business may be transacted as might have been transacted at the meeting as originally notified. If a new record date is or must be established pursuant to law, notice of the adjourned meeting must be given to persons who are shareholders as of the new record date.
Section 7. Proxies. At all meetings of shareholders, a shareholder may vote either in person or by proxy executed in writing by the shareholder or a duly authorized attorney in fact. No proxy shall be valid after eleven months from the date of its execution, unless otherwise provided in the proxy.
Section 8. Voting of Shares. Except as otherwise provided by law, by the articles of incorporation, or by these bylaws, every shareholder shall have the right at every shareholders’ meeting to one vote for each share standing in his name on the books of the corporation on the date established by the board of directors as the record date for determination of shareholders entitled to vote at such meeting.
Section 9. Order of Business. The order of business at each shareholders’ meeting shall be established by the person presiding at the meeting.
Section 10. Notice of Shareholder Business. (A) At any annual meeting of the shareholders, only such business may be conducted as shall have been properly brought before the meeting. To be properly brought before an annual meeting, business (other than nominations of directors, which must be made in compliance with, and shall be exclusively governed by, Section 11 of this Article I) must be (a) specified in the notice of meeting given in accordance with Section 4 of this Article I, (b) otherwise properly brought before the meeting by or at the direction of the board of directors or the chief executive officer, or (c) otherwise properly brought before the meeting by a shareholder who shall be entitled to vote at such meeting and who complies with the notice procedures set forth in this Section 10. Except for proposals properly made in accordance with Rule 14a-8 (or any successor provision) under the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder (as so amended and inclusive of such rules and regulations, the “Exchange Act”) and included in the notice of meeting given by or at the direction of the board of directors, the foregoing clause (c) shall be the exclusive means for a shareholder to propose business to be brought before an annual meeting of the shareholders. Without qualification, for business to be properly brought before an annual meeting by a shareholder pursuant to clause (c) above, the shareholder must have given timely notice thereof in writing to the secretary of the corporation. To be timely, a shareholder’s notice must be delivered to or mailed and received at the principal office of the corporation, not less than ninety days nor more than one hundred twenty days prior to the first anniversary date of the annual meeting for the preceding year; provided, however, if and only if the annual meeting is not scheduled to be held within a period that commences thirty days before such anniversary date and ends thirty days after such anniversary date (an annual meeting date outside such period being referred to herein as an “Other Annual Meeting Date”), such shareholder notice shall be given in the manner provided herein by the close of business on the later of (i) the date ninety days prior to such Other Annual Meeting Date or (ii) the tenth day following the earlier of the date the corporation shall have mailed the notice of such meeting to shareholders or the date such Other Annual Meeting Date is first publicly announced. In no event shall any adjournment or postponement of an annual meeting or the announcement or notice thereof by the corporation commence a new time period (or extend any time period) for the giving of a shareholder’s notice as provided in this Section 10. A shareholder’s notice to the secretary of the corporation shall set forth as to each matter the shareholder proposes to bring before the annual meeting or as to the shareholder giving notice, as applicable, (a) a brief description of the business desired to be brought before the annual meeting, including the text of any proposal to be presented, and the reasons for conducting such business at the meeting, (b) the name and address, as they appear on the corporation’s stock records, of the shareholder proposing such business and any Shareholder Associated Person, (c) as of the date of the shareholder’s notice, the class and number of shares of the corporation which are beneficially owned or held of record by the shareholder and any Shareholder Associated Person and whether and the extent to which any derivative instrument, swap, option, warrant, short interest, hedge or profit interest has been entered into by or on
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behalf of any such person(s) with respect to shares of the corporation, (d) as of the date of the shareholder’s notice, whether and the extent to which any other transaction, agreement, arrangement or understanding (including any short position or any borrowing or lending of shares of the corporation) has been made by or on behalf of the shareholder or any Shareholder Associated Person, the effect or intent of which is to mitigate loss to, or to manage risk or benefit of share price changes for, any such person(s) or to increase or decrease the voting power or pecuniary or economic interest of such persons with respect to shares of the corporation and (e) any interest of the shareholder or any Shareholder Associated Person in such business desired to be brought before the annual meeting. Notwithstanding anything in these bylaws to the contrary, no business shall be conducted at an annual meeting except in accordance with the procedures set forth in this Section 10. Shareholders shall not be permitted to propose business to be brought before a special meeting of shareholders, and the only matters that may be brought before a special meeting of shareholders are the matters specified in the notice of meeting given in accordance with Section 4 of this Article I. The person presiding at any meeting shall, if the facts warrant, determine and declare to the meeting that business was not properly brought before the meeting in accordance with the bylaws, or that business was not lawful or appropriate for consideration by shareholders at the meeting, and if he should so determine, he shall so declare to the meeting and any such business shall not be transacted.
(B) For purposes of this Section 10 and Section 11 below, “Shareholder Associated Person” of any shareholder shall mean (i) any person controlling, directly or indirectly, or acting in concert with such shareholder, (ii) any beneficial owner of shares of the corporation owned of record or beneficially by such shareholder and (iii) any person controlling, controlled by or under common control with such Shareholder Associated Person, and “publicly announce” shall mean disclosure in a press release reported by a national news service or in a document publicly filed or furnished by the corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15 of the Exchange Act.
(C) A shareholder providing notice of business proposed to be brought before an annual meeting shall further update and supplement such notice, if necessary, so that the information provided or required to be provided in such notice pursuant to this Section 10 shall be true and correct as of the record date for the annual meeting, and such update and supplement shall be delivered to, or mailed and received by, the secretary of the corporation not later than five (5) business days after the record date for the annual meeting.
(D) If information submitted pursuant to this Section 10 by any shareholder shall be inaccurate to any material extent as determined by the board of directors, any committee thereof or any officer authorized by the board of directors or any such committee to make such determination, such information may be deemed not to have been provided in accordance with this Section 10 in which case such shareholder shall be deemed not to have complied with the notice provisions of this Section 10. Upon written request by the secretary of the corporation, the board of directors or any committee thereof, the shareholder proposing business at an annual meeting of shareholders shall provide, within ten days of delivery of such request (or such other period as may be specified in such request), written verification, satisfactory in the discretion of the board of directors, any committee thereof or any officer authorized by the board of directors or any such committee, to demonstrate the accuracy of any information submitted by the shareholder pursuant to this Section 10. If a shareholder fails to provide such written verification within such period, the information as to which written verification was requested may be
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deemed not to have been provided in accordance with this Section 10 in which case such shareholder shall be deemed not to have complied with the notice provisions of this Section 10.
(E) This Section 10 is expressly intended to apply to any business proposed to be brought before an annual meeting of shareholders other than any proposal made pursuant to Rule 14a-8 (or any successor provision) of the Exchange Act. In addition to the requirements of this Section 10 with respect to any business proposed to be brought before an annual meeting, a shareholder shall also comply with all applicable requirements of state law and the Exchange Act with respect to any such business. Nothing in this Section 10 shall be deemed to affect any right of a shareholder to request inclusion of proposals in, nor the right of the corporation to omit a proposal from, the corporation’s proxy statement pursuant to Rule 14a-8 (or any successor provision) under the Exchange Act.
Section 11. Notice of Shareholder Nominees. (A) Nominations of persons for election to the board of directors of the corporation may be made at any annual meeting of shareholders by or at the direction of the board of directors or by any shareholder of the corporation entitled to vote for the election of directors at the meeting. Such shareholder nominations shall be made pursuant to timely notice given in writing to the secretary of the corporation. To be timely, a shareholder’s notice must be delivered to or mailed and received at the principal office of the corporation, not less than ninety days nor more than one hundred twenty days prior to the first anniversary date of the annual meeting for the preceding year; provided, however, if and only if the annual meeting is scheduled to be held on an Other Annual Meeting Date, such shareholder notice shall be given in the manner provided herein by the close of business on the later of (i) the date ninety days prior to such Other Annual Meeting Date or (ii) the tenth day following the earlier of the date the corporation shall have mailed the notice of such meeting to shareholders or the date such Other Annual Meeting Date is first publicly announced. In the event the board of directors calls a special meeting of shareholders for the purpose of electing one or more directors to the board of directors, any shareholder may nominate a person or persons (as the case may be) for election to such position(s) as specified in the notice of meeting, provided that the shareholder’s notice of such nomination contains the information specified in this Section 11 and is delivered to the secretary of the corporation not later than the close of business on the tenth day following the earlier of the date the corporation shall have mailed the notice of such meeting to shareholders or the date on which the date of such special meeting and either the names of the nominees proposed by the board of directors to be elected at such meeting or the number of directors to be elected are first publicly announced. In no event shall any adjournment or postponement of an annual or special meeting or the announcement or notice thereof by the corporation commence a new time period (or extend any time period) for the giving of a shareholder’s notice as provided in this Section 11. Such shareholder’s notice shall set forth as to each person whom the shareholder proposes to nominate for election or re-election as a director, (a) the name, age, business address and residence address of such person, (b) the principal occupation or employment of such person, (c) as of the date of the shareholder’s notice, the class and number of shares of the corporation which are beneficially owned or held of record by such person and whether and the extent to which any derivative instrument, swap, option, warrant, short interest, hedge or profit interest has been entered into by or on behalf of such person with respect to shares of the corporation, (d) as of the date of the shareholder’s notice, whether and the extent to which any other transaction, agreement, arrangement or understanding (including any short position or any borrowing or lending of shares of the corporation) has been made by or on behalf of such person, the effect or intent of which is to mitigate loss to, or to manage risk or benefit of share price changes for, such person or to increase or decrease the voting power or pecuniary or
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economic interest of such person with respect to shares of the corporation and (e) any other information relating to such person that is required to be disclosed in solicitation of proxies for election of directors, or is otherwise required, in each case pursuant to Regulation 14A under the Exchange Act (including, without limitation, such person’s written consent to being named in the proxy statement as a nominee and to serving as a director if elected). In addition, such shareholder’s notice shall set forth as to the shareholder giving notice (a) the name and address, as they appear on the corporation’s stock records, of the shareholder proposing such nomination(s) and any Shareholder Associated Person, (b) as of the date of the shareholder’s notice, the class and number of shares of the corporation which are beneficially owned or held of record by the shareholder and any Shareholder Associated Person and whether and the extent to which any derivative instrument, swap, option, warrant, short interest, hedge or profit interest has been entered into by or on behalf of any such person(s) with respect to shares of the corporation, (c) as of the date of the shareholder’s notice, whether any other transaction, agreement, arrangement or understanding (including any short position or any borrowing or lending of shares of the corporation) has been made by or on behalf of the shareholder or any Shareholder Associated Person, the effect or intent of which is to mitigate loss to, or to manage risk or benefit of share price changes for, any such person(s) or to increase or decrease the voting power or pecuniary or economic interest of any such person(s) with respect to shares of the corporation and (d) to the extent known by the shareholder giving notice, the name and address of any other shareholder supporting the nominee for election or reelection as a director. No shareholder nomination shall be effective unless made in accordance with the procedures set forth in this Section 11. The person presiding at the meeting shall, if the facts warrant, determine and declare to the meeting that a shareholder nomination was not made in accordance with the bylaws, and if he should so determine, he shall so declare to the meeting and the defective nomination shall be disregarded.
(B) A shareholder providing notice of any nomination proposed to be made at a meeting shall further update and supplement such notice, if necessary, so that the information provided or required to be provided in such notice pursuant to this Section 11 shall be true and correct as of the record date for the meeting and such update and supplement shall be delivered to, or mailed and received by, the secretary of the corporation not later than five (5) business days after the record date for the meeting.
(C) At the request of the board of directors, any person nominated by the board of directors for election as a director shall furnish to the secretary of the corporation that information required to be set forth in a shareholder’s notice of nomination which pertains to the nominee.
(D) If information submitted pursuant to this Section 11 by any shareholder or nominee shall be inaccurate to any material extent as determined by the board of directors, any committee thereof or any officer authorized by the board of directors or any such committee to make such determination, such information may be deemed not to have been provided in accordance with this Section 11 in which case such shareholder shall be deemed not to have complied with the notice provisions of this Section 11. Upon written request by the secretary of the corporation, the board of directors or any committee thereof, the shareholder proposing a nominee at a meeting of shareholders or the nominee, if applicable, shall provide, within ten days of delivery of such request (or such other period as may be specified in such request), written verification, satisfactory in the discretion of the board of directors, any committee thereof or any officer authorized by the board of directors or any such committee, to demonstrate the accuracy of any
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information submitted by such person pursuant to this Section 11. If a shareholder or a nominee, if applicable, fails to provide such written verification within such period, the information as to which written verification was requested may be deemed not to have been provided in accordance with this Section 11 in which case such shareholder shall be deemed not to have complied with the notice provisions of this Section 11.
(E) In addition to the requirements of this Section 11 with respect to any nomination proposed to be made at a meeting, a shareholder shall also comply with all applicable requirements of state law and the Exchange Act with respect to any such nominations.
Section 12. Control Share Acquisitions. As used in this Section 12, the terms “control shares” and “control share acquisition” shall have the same meanings as set forth in Indiana Code Section 23-1-42-1 et seq. (the “Act”). Control shares of the corporation acquired in a control share acquisition shall have only such voting rights as are conferred by the Act. Control shares of the corporation acquired in a control share acquisition with respect to which the acquiring person has not filed with the corporation the statement required by the Act may, at any time during the period ending sixty days after the last acquisition of control shares by the acquiring person, be redeemed by the corporation at the fair value thereof pursuant to procedures authorized by a resolution of the board of directors. Such authority may be general or confined to specific instances.
Section 13. Voting Procedures on Change of Control. In addition to any other authority granted under Indiana law for the corporation to enter into any arrangement, agreement or understanding with respect to the voting of voting shares, pursuant to the authority granted in Indiana Code Section 23-1-22-4, the corporation shall have the power to enter into any arrangement, agreement or understanding of any nature whatsoever and for any duration whereby the board of directors or any group of directors of the corporation can specify or direct the voting by any other person of any shares of any class or series beneficially owned by such person, or as to which such person has the direct or indirect power to direct the voting, in connection with a change of control of the corporation. As used in this Section 13, the term “control” shall have the same meaning as set forth in Indiana Code Section 23-1-22-4.
In the event that an arrangement, agreement or understanding is in effect, and the voting shares of the corporation are not voted in accordance with any such arrangement, agreement or understanding, neither such voting shares nor such votes shall be counted in connection with any vote of the corporation’s shareholders relating to any aspect of a change of control.
Section 14. Inclusion of Shareholder Director Nominations in the Corporation’s Proxy Materials. Subject to the terms and conditions set forth in these bylaws, the corporation shall include in its proxy materials for an annual meeting of the shareholders the name, together with the Required Information (as defined below), of any person nominated for election (the “Shareholder Nominee”) to the board of directors by a Shareholder or group of Shareholders that satisfy the requirements of this Section 14 and that expressly elects at the time of providing the written notice required by this Section 14 (a “Proxy Access Notice”) to have its nominee included in the corporation’s proxy material pursuant to this Section 14. For the purposes of this Section 14:
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(1) “Voting Stock” shall mean outstanding shares of capital stock of the corporation entitled to vote generally for the election of directors;
(2) “Constituent Holder” shall mean any Shareholder, collective investment fund included within a Qualifying Fund (as defined in paragraph (D) below) or beneficial holder whose stock ownership is counted for the purposes of qualifying as an Eligible Shareholder (as defined in paragraph (D) below);
(3) “affiliate” and “associate” shall have the meanings ascribed thereto in Rule 405 under the Securities Act; provided, however, that the term “partner” as used in the definition of “associate” shall not include any limited partner that is not involved in the management of the relevant partnership; and
(4) a Shareholder (including any Constituent Holder) shall be deemed to “own” only those outstanding shares of Voting Stock as to which the Shareholder (or such Constituent Holder) possesses both (a) the full voting and investment rights pertaining to the shares and (b) the full economic interest in (including the opportunity for profit and risk of loss on) such shares. The number of shares calculated in accordance with the foregoing clauses (a) and (b) shall be deemed not to include (and to the extent any of the following arrangements have been entered into by affiliates of the Shareholder (or of any Constituent Holder), shall be reduced by) any shares (x) sold by such Shareholder or Constituent Holder (or any of either’s affiliates) in any transaction that has not been settled or closed, including any short sale, (y) borrowed by such Shareholder or Constituent Holder (or any of either’s affiliates) for any purposes or purchased by such Shareholder or Constituent Holder (or any of either’s affiliates) pursuant to an agreement to resell, or (z) subject to any option, warrant, forward contract, swap, contract of sale, other derivative or similar agreement entered into by or effecting such Shareholder or Constituent Holder (or any of either’s affiliates), whether any such instrument or agreement is to be settled with shares, cash or other consideration, in any such case which instrument or agreement has, or is intended to have, or if exercised by either party thereto would have, the purpose or effect of (i) reducing in any manner, presently or in the future, the full voting and investment rights pertaining to such shares, and/or (ii) hedging, offsetting or altering to any degree the full economic interest in (including the opportunity for profit and risk of loss on) such shares. A Shareholder (including any Constituent Holder) shall “own” shares held in the name of a nominee or other intermediary so long as the Shareholder (or such Constituent Holder) retains the right to instruct how the shares are voted with respect to the election of directors and the right to direct the disposition thereof and possesses the full economic interest in the shares. A Shareholder’s (including any Constituent Holder’s) ownership of shares shall be deemed to continue during any period in which such person has (i) loaned such shares, provided that the stockholder has the power to recall such loaned shares on not more than five (5) business days’ notice and includes in its Proxy Access Notice an agreement that it (A) will promptly recall such loaned shares upon being notified that any of its Shareholder Nominees will be included in the corporation’s proxy materials and (B) will continue to hold such recalled shares through the date of the annual meeting or (ii) delegated any voting power over such shares by means of a proxy, power of attorney or other instrument or arrangement which in all such cases is revocable at any time by the
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Shareholder. The terms “owned,” “owning” and other variations of the word “own” shall have correlative meanings.
(A) For purposes of this Section 14, the “Required Information” that the corporation will include in its proxy statement is (1) the information concerning the Shareholder Nominee and the Eligible Shareholder that the corporation determines is required to be disclosed in the corporation’s proxy statement by the regulations promulgated under the Exchange Act; and (2) if the Eligible Shareholder so elects, a Statement (as defined in paragraph (F) below). The corporation shall also include the name of the Shareholder Nominee in its proxy card. For the avoidance of doubt, and any other provision of these bylaws notwithstanding, the corporation may in its sole discretion solicit against, and include in the proxy statement its own statements or other information relating to, any Eligible Shareholder and/or Shareholder Nominee. |
(B) To be timely, a Shareholder’s Proxy Access Notice, together with all related materials provided for herein, must be delivered to the principal executive offices of the corporation within the time periods applicable to Shareholder notices of nominations pursuant to Section 11. In no event shall any adjournment or postponement of an annual general meeting, the date of which has been announced by the corporation, commence a new time period for the giving of a Proxy Access Notice. |
(1) the number of directors in office that will be included in the corporation’s proxy materials with respect to such annual general meeting for whom access to the corporation’s proxy materials was previously provided pursuant to this Section 14, other than any such director who at the time of such annual general meeting will have served as a director continuously, as a nominee of the board of directors, for at least two (2) successive annual terms; and |
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provided, further, that in the event the board of directors resolves to reduce the size of the board of directors effective on or prior to the date of the annual general meeting, the Permitted Number shall be calculated based on the number of directors in office as so reduced. An Eligible Shareholder submitting more than one Shareholder Nominee for inclusion in the corporation’s proxy statement pursuant to this paragraph (C) of this Section 14 shall rank such Shareholder Nominees based on the order that the Eligible Shareholder desires such Shareholder Nominees to be selected for inclusion in the corporation’s proxy statement and include such specified rank in its Proxy Access Notice. If the number of Shareholder Nominees pursuant to this paragraph (C) of this Section 14 for an annual meeting of the shareholders exceeds the Permitted Number, then the highest ranking qualifying Shareholder Nominee from each Eligible Shareholder will be selected by the corporation for inclusion in the proxy statement until the Permitted Number is reached, going in order of the amount (largest to smallest) of the ownership position as disclosed in each Eligible Shareholder’s Proxy Access Notice. If the Permitted Number is not reached after the highest ranking Shareholder Nominee from each Eligible Shareholder has been selected, this selection process will continue as many times as necessary, following the same order each time, until the Permitted Number is reached.
Notwithstanding anything to the contrary contained in this Section 14, the corporation shall not be required to include any Shareholder Nominees in its proxy materials pursuant to this Section 14 for any meeting of stockholders for which the secretary of the corporation receives notice (whether or not subsequently withdrawn) that a stockholder intends to nominate one or more persons for election to the board of directors pursuant to the advance notice requirements for shareholder nominees set forth in Section 11.
the other provisions of this paragraph (D), for purposes of determining the number of Shareholders whose holdings may be considered as part of an Eligible Shareholder’s holdings. For the avoidance of doubt, Proxy Access Request Required Shares will qualify as such only if the beneficial owner of such shares as of the date of the Proxy Access Notice has individually beneficially owned such shares continuously for the three-year (3 year) period ending on that date and through the other applicable dates referred to above (in addition to the other applicable requirements being met). |
(E) On the date on which an Eligible Shareholder delivers a nomination pursuant to this Section 14, such Eligible Shareholder (including each Constituent Holder) must provide the following information in writing to the secretary of the corporation with respect to such Eligible Shareholder (and each Constituent Holder): |
(1) the name and address of, and number of shares of Voting Stock owned by, such person; |
(2) one or more written statements from the record holder of the shares (and from each intermediary through which the shares are or have been held during the requisite three-year (3 year) holding period) verifying that, as of a date within seven (7) calendar days prior to the date the Proxy Access Notice is delivered to the corporation, such person owns, and has owned continuously for the preceding three (3) years, the Proxy Access Request Required Shares, and such person’s agreement to provide: |
(a) within ten (10) days after the record date for the annual general meeting, written statements from the record holder and intermediaries verifying such person’s continuous ownership of the Proxy Access Request Required Shares through the record date, together with any additional information reasonably requested by the corporation to verify such person’s ownership of the Proxy Access Request Required Shares; and |
(b) immediate notice to the corporation if the Eligible Shareholder ceases to own any of the Proxy Access Request Required Shares prior to the date of the applicable annual meeting of the shareholders; |
(3) the information that would be required to be submitted pursuant to Section 11 for Director nominations; |
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(5) a representation that the Eligible Shareholder (and each Constituent Holder): |
(a) acquired the Proxy Access Request Required Shares in the ordinary course of business and not with the intent to change or influence control of the corporation, and does not presently have any such intent; |
(b) has not nominated and will not nominate for election to the board of directors at the annual general meeting any person other than the Shareholder Nominees being nominated pursuant to this Section 14; |
(c) has not engaged and will not engage in, and has not and will not be a “participant” in another person’s, “solicitation” within the meaning of Rule 14a-1(l) under the Exchange Act in support of the election of any individual as a director at the annual general meeting other than its Shareholder Nominees or a nominee of the board of directors; |
(d) will not distribute to any Shareholder any form of proxy for the annual general meeting other than the form distributed by the corporation; and |
(e) will provide facts, statements and other information in all communications with the corporation and its Shareholders that are and will be true and correct in all material respects and do not and will not omit to state a material fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading, and will otherwise comply with all applicable laws, rules and regulations in connection with any actions taken pursuant to this Section 14 (and the other provisions of these bylaws to the extent related to this Section 14); |
(6)
in the case of a nomination by a group of Shareholders that together is such an Eligible Shareholder, the designation by all group members of one group member that is authorized to act on behalf of all members of the nominating Shareholder group with respect to the nomination and matters related thereto, including withdrawal of the nomination; and |
(7) an undertaking that the Eligible Shareholder (and each Constituent Holder) agrees to: |
(a) assume all liability stemming from, and indemnify and hold harmless the corporation and each of its directors, officers, and employees individually against any liability, loss or damages in connection with any threatened or pending action, suit or proceeding, whether legal, administrative or investigative, against the corporation or any of its directors, officers or employees arising out of any legal or regulatory violation arising out of the communications of the Eligible Shareholder (and any Constituent Holder) with the Shareholders of the corporation or out of the information that the Eligible Shareholder (and any Constituent Holder) provided to the corporation; and |
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(b) file with the Securities and Exchange Commission any solicitation by the Eligible Shareholder of Shareholders of the corporation relating to the annual general meeting at which the Shareholder Nominee will be nominated. |
In addition, on the date on which an Eligible Shareholder delivers a nomination pursuant to this Section 14, any Qualifying Fund whose stock ownership is counted for purposes of qualifying as an Eligible Shareholder must provide to the secretary of the corporation documentation reasonably satisfactory to the board of directors that demonstrates that the funds included within the Qualifying Fund satisfy the definition thereof.
In order to be considered timely, all information required by this Section 14 to be provided to the corporation must be supplemented (by delivery to the secretary of the corporation) (1) no later than ten (10) days following the record date for the applicable annual general meeting, to disclose the foregoing information as of such record date, and (2) no later than the fifth day before the annual general meeting, to disclose the foregoing information as of the date that is no earlier than ten (10) days prior to such annual general meeting. For the avoidance of doubt, the requirement to update and supplement such information shall not permit any Eligible Shareholder (or any Constituent Holder) or other person to change or add any proposed Shareholder Nominee or be deemed to cure any defects or limit the remedies (including without limitation under these bylaws) available to the corporation relating to any defect.
(F) The Eligible Shareholder may provide to the secretary of the corporation, at the time the information required by this Section 14 is originally provided, a written statement for inclusion in the corporation’s proxy statement for the annual general meeting, not to exceed five hundred (500) words, in support of the candidacy of such Eligible Shareholder’s Shareholder Nominee (the “Statement”). Notwithstanding anything to the contrary contained in this Section 14, the corporation may omit from its proxy materials any information or Statement that it, in good faith, believes is materially false or misleading, omits to state any material fact, or would violate any applicable law or regulation. |
(G) On the date on which an Eligible Shareholder delivers a nomination pursuant to this Section 14, each Shareholder Nominee must: |
(1) provide to the corporation an executed agreement, in a form deemed satisfactory by the board of directors or its designee (which form shall be provided by the corporation reasonably promptly upon written request of a Shareholder), that such Shareholder Nominee consents to being named in the corporation’s proxy statement and form of proxy card (and will not agree to be named in any other person’s proxy statement or form of proxy card with respect to the applicable annual general meeting of the corporation) as a nominee and to serving as a director of the corporation if elected; |
(2)
provide the information with respect to a Shareholder Nominee that would be required to be submitted pursuant to Section 11 for Director nominations; |
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(3) complete, sign and submit all questionnaires, representations and agreements required by these bylaws or of the corporation’s directors generally, including the questionnaire, representation and agreement required by Section 15; and |
(4) provide such additional information as necessary to permit the board of directors to determine if such Shareholder Nominee: |
(a)
is independent under the listing standards of each principal U.S. exchange upon which the Common Shares of the corporation are listed, any applicable rules of the Securities and Exchange Commission and any publicly disclosed standards used by the board of directors in determining and disclosing the independence of the corporation’s directors; |
(b) has any direct or indirect relationship with the corporation other than those relationships that have been deemed categorically immaterial pursuant to the corporation’s Corporate Governance Guidelines; |
(c) would, by serving on the board of directors, violate or cause the corporation to be in violation of these bylaws, the rules and listing standards of the principal U.S. exchange upon which the Common Shares of the corporation is listed or any applicable law, rule or regulation; and |
(d) is or has been subject to any event specified in Item 401(f) of Regulation S-K (or successor rule) of the Securities and Exchange Commission. |
In the event that any information or communications provided by the Eligible Shareholder (or any Constituent Holder) or the Shareholder Nominee to the corporation or its Shareholders ceases to be true and correct in all material respects or omits a material fact necessary to make the statements made, in light of the circumstances under which they were made, not misleading, each Eligible Shareholder (or any Constituent Holder) or Shareholder Nominee, as the case may be, shall promptly notify the secretary of the corporation of any defect in such previously provided information and of the information that is required to correct any such defect; it being understood for the avoidance of doubt that providing any such notification shall not be deemed to cure any such defect or limit the remedies (including without limitation under these bylaws) available to the corporation relating to any such defect.
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(2) whose service as a member of the board of directors would violate or cause the corporation to be in violation of these bylaws, the rules and listing standards of the principal U.S. exchange upon which the Common Shares of the corporation is traded, or any applicable law, rule or regulation; |
(3) who is or has been, within the past five years, an employee, officer or director of, or otherwise affiliated with, a competitor, as defined in Section 8 of the Clayton Antitrust Act of 1914; |
(5) who is subject to any order of the type specified in Rule 506(d) of Regulation D promulgated under the Securities Act; |
(7) who otherwise breaches or fails to comply in any material respect with its obligations pursuant to this Section 14 or any agreement, representation or undertaking required by these bylaws; or |
(8) was proposed by an Eligible Shareholder who ceases to be an Eligible Shareholder for any reason, including but not limited to not owning the Proxy Access Request Required Shares through the date of the applicable annual general meeting. |
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In addition, if any Constituent Holder (i) shall have provided information to the corporation in respect of a nomination under this Section 14 that was untrue in any material respect or omitted to state a material fact necessary in order to make the statement made, in light of the circumstances under which they were made, not misleading, as determined by the board of directors or any committee thereof, in each of the foregoing cases as determined by the board of directors in its sole discretion or (ii) otherwise breaches or fails to comply in any material respect with its obligations pursuant to this Section 14 or any agreement, representation or undertaking required by these bylaws, the Voting Stock owned by such Constituent Holder shall be excluded from the Proxy Access Request Required Shares and, if as a result the Eligible Shareholder no longer meets the requirements as such, all of the applicable Eligible Shareholder’s Shareholder Nominees shall be excluded from the applicable annual meeting of the shareholders or, if the proxy statement has already been filed, the ineligibility of all of such Shareholder’s Shareholder Nominees to be nominated.
Section 15.Submission of Questionnaire, Representation and Agreement. No person may be appointed, nominated or elected a director unless such person, at the time such person is nominated and appointed or elected, would then be able to serve as a director without conflicting in any material respect with any law or regulation applicable to the corporation, as determined in good faith by the board of directors. In addition, to be eligible to be a nominee for election or reelection as a director, a person must deliver (in accordance with the time periods prescribed for delivery of notice under Section 11) to the secretary of the corporation at the principal executive offices of the corporation a written questionnaire with respect to the background and qualification of such person and the background of any other person or entity on whose behalf the nomination is being made (which questionnaire shall be provided by the secretary of the corporation upon written request) and a written representation and agreement (in the form provided by the secretary of the corporation upon written request) that such person (i) will abide by the requirements of these Bylaws, (ii) is not and will not become a party to (a) any agreement, arrangement or understanding with, and has not given any commitment or assurance to, any person or entity as to how such person, if elected as a director, will act or vote on any issue or question (a “Voting Commitment”) that has not been disclosed to the corporation or (b) any Voting Commitment that could limit or interfere with such person’s ability to comply, if elected as a director, with such person’s fiduciary duties under applicable law, (iii) is not and will not become a party to any agreement, arrangement or understanding with any person or entity other than the corporation with respect to any direct or indirect compensation, reimbursement or indemnification in connection with service or action as a director that has not been disclosed therein, and (iv) in such person’s individual capacity and on behalf of any person or entity on whose behalf the nomination is being made, would be in compliance, if elected as a director, and will comply with all applicable publicly disclosed corporate governance, conflict of interest, confidentiality and stock ownership and trading policies and guidelines of the corporation.
ARTICLE II.
Board of Directors
Section 1. General Powers, Number, Classes and Tenure. The business of the corporation shall be managed by a board of directors. The number of directors which shall constitute the whole board of directors of the corporation shall be eleven. The number of directors may be increased or decreased from time to time by amendment of these bylaws, but no decrease shall
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have the effect of shortening the term of any incumbent director. At each annual meeting, all directors shall be elected for terms expiring at the next annual meeting of shareholders and until such director’s successor shall have been elected and qualified, but subject to prior death, resignation, retirement, disqualification, decrease in the number of directors or removal from office.
Section 2. Regular Meetings. A regular meeting of the board of directors shall be held without other notice than this bylaw immediately after, and at the same place as, the annual meeting of shareholders. The board of directors may provide, by resolution, the time and place, either within or without the State of Indiana, for the holding of additional regular meetings without other notice than such resolution.
Section 3. Special Meetings. Special meetings of the board of directors may be called by the chief executive officer, the chairman of the board or any director designated by the board as the Lead Director. The secretary of the corporation shall call special meetings of the board of directors when requested in writing to do so by six of the members thereof. Special meetings of the board of directors may be held either within or without the State of Indiana.
Section 4. Notice of Meetings. Except as otherwise provided in these bylaws, notice of any meeting of the board of directors shall be given, not less than two days before the date fixed for such meeting, by oral, telegraphic, telephonic, electronic or written communication stating the time and place thereof and delivered personally to each member of the board of directors or telegraphed, delivered electronically or mailed to him at his business address as it appears on the books of the corporation; provided, that in lieu of such notice, a director may sign a written waiver of notice either before the time of the meeting, at the time of the meeting or after the time of the meeting.
Section 5. Quorum. A majority of the whole board of directors shall be necessary to constitute a quorum for the transaction of any business except the filling of vacancies, but if less than such majority is present at a meeting, a majority of the directors present may adjourn the meeting from time to time without further notice.
Section 6. Manner of Acting. The act of a majority of the directors present at any meeting at which a quorum is present shall be the act of the board of directors, unless the act of a greater number is required by law or by the articles of incorporation or these bylaws. Unless otherwise provided by the articles of incorporation, any action required or permitted to be taken at any meeting of the board of directors may be taken without a meeting, if a written consent to such action is signed by all members of the board of directors and such written consent is filed with the minutes of proceedings of the board of directors. Unless otherwise provided by the articles of incorporation, any or all members of the board of directors may participate in a meeting of the board of directors by means of a conference telephone or similar communications equipment by which all persons participating in the meeting can communicate with each other, and participation in this manner constitutes presence in person at the meeting.
Section 7. Vacancies. Except as otherwise provided in the articles of incorporation or these bylaws, any vacancy occurring in the board of directors may be filled by a majority vote of the remaining directors, though less than a quorum of the board of directors, or, at the discretion of the board of directors, any vacancy may be filled by a vote of the shareholders.
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Section 8. Notice to Shareholders. Shareholders shall be notified of any increase in the number of directors and the name, address, principal occupation and other pertinent information about any director elected by the board of directors to fill any vacancy.
Section 9. Chairman of the Board. The board of directors shall annually elect one of its members to be chairman of the board and shall fill any vacancy in the position of chairman of the board at such time and in such manner as the board of directors shall determine. The chairman of the board may also be an officer of the corporation. The chairman of the board shall preside at all meetings of the shareholders and of the board of directors at which he may be present and shall have such other powers and duties as may be determined by the board of directors. In the absence of the chairman of the board, such other director may be designated by a majority of the directors to preside at all meetings of the shareholders and of the board of directors, but if the board of directors fails to designate one of its members to so preside, then the chief executive officer, if a director, shall so preside. If there is no chief executive officer or the chief executive officer is not a director, then the president, if a director, shall so preside.
Section 10. Election of Directors. Directors shall be elected as set forth in the articles of incorporation of the corporation. If a nominee fails to receive the required vote and is an incumbent director, the director shall within five (5) business days of such vote being certified by the inspector of elections promptly tender his or her resignation to the board of directors, subject to acceptance by the board of directors. The board of directors shall act on the tendered resignation within ninety days from the date of the certification of the election results. The director who tenders his or her resignation will not participate in the decision of the board of directors with respect to his or her resignation. If an incumbent director's resignation is not accepted by the board of directors, such director shall continue to serve until the next annual meeting of shareholders and until his or her successor is duly elected, or his or her earlier resignation or removal. If a director's resignation is accepted by the board of directors, or if a nominee fails to receive the required vote and the nominee is not an incumbent director, then the board of directors may fill the resulting vacancy pursuant to the provisions of Section 7 of this Article or may decrease the size of the board of directors pursuant to the provisions of Section 1 of this Article.
ARTICLE III.
Officers
Section 1. Elected Officers. The elected officers of the corporation shall include one of or both a chairman of the board and a president, and shall also include a secretary, and a treasurer. The elected officers of the corporation may include one or more vice presidents of a class or classes as the board of directors may determine, and such other officers as the board of directors may determine. The chairman of the board, if elected, and president, if elected, shall be chosen from among the directors. Any two or more offices may be held by the same person.
Section 2. Appointed Officers. The appointed officers of the corporation shall be one or more second vice presidents, assistant vice presidents, assistant treasurers, and assistant secretaries.
Section 3. Election or Appointment and Term of Office. The elected officers of the corporation may be elected by the board of directors at any meeting at which a quorum is present
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for a fixed term or a term expiring when their successor is duly elected and qualified. The appointed officers of the corporation may be appointed by the chief executive officer at any time for a fixed term or a term expiring when their successor is duly elected and qualified. Each officer shall hold office until their successor shall have been duly elected or appointed and shall have qualified or until their death, resignation, retirement or removal.
Section 4. Removal. Any officer may be removed by the board of directors and any appointed officer may be removed by the chief executive officer, whenever in their judgment the best interests of the corporation will be served thereby, but such removal shall be without prejudice to the contract rights, if any, of the person so removed.
Section 5. Vacancies. A vacancy in any elected office may be filled by the board of directors.
Section 6. Chief Executive Officer. If the elected officers of the corporation include both a chairman of the board and a president, the board of directors shall designate one of such officers to be the chief executive officer of the corporation. If the elected officers of the corporation include one of but not both a chairman of the board and a president, such officer shall be the chief executive officer of the corporation. The chief executive officer of the corporation shall be, subject to the board of directors, in general charge of the affairs of the corporation. The chief executive officer shall perform all duties incident to the office of the chief executive and such other duties as from time to time may be assigned to him by the board of directors.
Section 7. President. The president shall have such powers and duties as may be determined by the board of directors or are incident to the office of the president.
Section 8. Vice Presidents. A vice president shall perform such duties as may be assigned by the chief executive officer or the board of directors or are incident to the office of vice president. In the absence of the president and in accordance with such order of priority as may be established by the board of directors, he may perform the duties of the president, and when so acting, shall have all the powers of and be subject to all the restrictions upon the president. Any vice president may be designated as “executive,” “senior” or by departmental or functional classification.
Section 9. Second Vice Presidents and Assistant Vice Presidents. A second vice president and an assistant vice president shall perform such duties as may be assigned by the chief executive officer or the board of directors or are incident to the office of second vice president or assistant vice president.
Section 10. Secretary. The secretary shall (a) keep the minutes of the shareholders’ and board of directors’ meetings in one or more books provided for that purpose, (b) see that all notices are duly given in accordance with the provisions of these bylaws or as required by law, (c) be custodian of the corporate records and of the seal of the corporation and see that the seal of the corporation is affixed to all documents the execution of which on behalf of the corporation under its seal is duly authorized, and (d) in general perform all duties incident to the office of secretary and such other duties as may be assigned by the chief executive officer or the board of directors.
Section 11. Assistant Secretaries. In the absence of the secretary, an assistant secretary shall have the power to perform his duties including the certification, execution and attestation of
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corporate records and corporate instruments. Assistant secretaries shall perform such other duties as may be assigned to them by the chief executive officer or the board of directors.
Section 12. Treasurer. The treasurer shall (a) have charge and custody of all funds and securities of the corporation, (b) receive and give receipts for monies due and payable to the corporation from any source whatsoever, (c) deposit all such monies in the name of the corporation in such depositories as are selected by the board of directors, and (d) in general perform all duties incident to the office of treasurer and such other duties as may be assigned by the chief executive officer or the board of directors. If required by the board of directors, the treasurer shall give a bond for the faithful discharge of his duties in such form and with such surety or sureties as the board of directors shall determine.
Section 13. Assistant Treasurers. In the absence of the treasurer, an assistant treasurer shall have the power to perform his duties. Assistant treasurers shall perform such other duties as may be assigned to them by the chief executive officer or the board of directors.
ARTICLE IV.
Committees
Section 1. Board Committees. Except as provided in these bylaws, the board of directors may, by resolution adopted by a majority of the whole board of directors, from time to time designate from among its members one or more committees each of which, to the extent provided in such resolution and except as otherwise provided by law, shall have and exercise all the authority of the board of directors. Except as provided in these bylaws, each such committee shall serve at the pleasure of the board of directors. The designation of any such committee and the delegation thereto of authority shall not operate to relieve the board of directors, or any member thereof, of any responsibility imposed by law. Each such committee shall keep a record of its proceedings and shall adopt its own rules of procedure. It shall make such reports to the board of directors of its actions as may be required by the board.
Section 2. Advisory Committees. The board of directors may, by resolution adopted by a majority of the whole board of directors, from time to time designate one or more advisory committees, a majority of whose members shall be directors. An advisory committee shall serve at the pleasure of the board of directors, keep a record of its proceedings and adopt its own rules of procedure. It shall make such reports to the board of directors of its actions as may be required by the board.
Section 3. Manner of Acting. Unless otherwise provided by the articles of incorporation, any action required or permitted to be taken at any meeting of a committee established under this Article IV may be taken without a meeting, if a written consent to such action is signed by all members of the committee and such written consent is filed with the minutes of proceedings of the committee. Unless otherwise provided by the articles of incorporation, any or all members of such committee may participate in a meeting of the committee by means of a conference telephone or similar communications equipment by which all persons participating in the meeting can communicate with each other, and participation in this manner constitutes presence in person at the meeting.
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ARTICLE V.
Corporate Instruments and Loans
Section 1. Corporate Instruments. The board of directors may authorize any officer or officers to execute and deliver any instrument in the name of or on behalf of the corporation, and such authority may be general or confined to specific instances.
Section 2. Loans. No loans shall be contracted on behalf of the corporation and no evidences of indebtedness shall be issued in its name unless authorized by a resolution of the board of directors. Such authority may be general or confined to specific instances.
ARTICLE VI.
Stock Certificates, Transfer of Shares, Stock Records
Section 1. Certificates for Shares. Shares may, but need not be, represented by certificates. Each shareholder, upon request, shall be entitled to a certificate, signed by the president or a vice president and the secretary or any assistant secretary of the corporation, certifying the number of shares owned by him in the corporation. If such certificate is countersigned by the written signature of a transfer agent other than the corporation or its employee, the signatures of the officers of the corporation may be facsimiles. If such certificate is countersigned by the written signature of a registrar other than the corporation or its employee, the signatures of the transfer agent and the officers of the corporation may be facsimiles. In case any officer, transfer agent, or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent, or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if he were such officer, transfer agent, or registrar at the date of its issue. Certificates representing shares of the corporation shall be in such form consistent with the laws of the State of Indiana as shall be determined by the board of directors. All certificates for shares shall be consecutively numbered or otherwise identified. The name and address of the person to whom the shares are issued, with the number of shares and date of issue, shall be entered on the stock transfer records of the corporation.
Section 2. Transfer of Shares. Transfer of shares of the corporation shall be made on the stock transfer records of the corporation by the holder of record thereof or by his legal representative, who shall furnish proper evidence of authority to transfer, or by his attorney thereunto authorized by power of attorney duly executed and filed with the corporation, and, except as otherwise provided in these bylaws, on surrender for cancellation of the certificates for such shares.
Section 3. Lost, Destroyed or Wrongfully Taken Certificates. Any person claiming a certificate of stock to have been lost, destroyed or wrongfully taken, and who requests the issuance of a new certificate before the corporation has notice that the certificate alleged to have been lost, destroyed or wrongfully taken has been acquired by a bona fide purchaser, shall make an affidavit of that fact and shall give the corporation and its transfer agents and registrars a bond of indemnity with unlimited liability, in form and with one or more corporate sureties satisfactory to the chief executive officer or treasurer of the corporation (except that the chief executive officer or treasurer may authorize the acceptance of a bond of different amount, or a bond with personal surety thereon, or a personal agreement of indemnity), whereupon in the
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discretion of the chief executive officer or the treasurer and except as otherwise provided by law a new certificate may be issued of the same tenor and for the same number of shares as the one alleged to have been lost, destroyed or wrongfully taken. In lieu of a separate bond of indemnity in each case, the chief executive officer of the corporation may accept an assumption of liability under a blanket bond issued in favor of the corporation and its transfer agents and registrars by one or more corporate sureties satisfactory to him.
Section 4. Transfer Agent and Registrars. The board of directors by resolution may appoint a transfer agent or agents or a registrar or registrars of transfer, or both. All such appointments shall confer such powers, rights, duties and obligations consistent with the laws of the State of Indiana as the board of directors shall determine. The board of directors may appoint the treasurer of the corporation and one or more assistant treasurers to serve as transfer agent or agents.
Section 5. Record Date. For the purposes of determining shareholders entitled to vote at any meeting of shareholders or any adjournment thereof, or shareholders entitled to receive payment of any dividend, or in order to make a determination of shareholders for any other proper purpose, the board of directors shall fix in advance a date as a record date for any such determination of shareholders, such date in any case to be not more than seventy days before the meeting or action requiring a determination of shareholders.
ARTICLE VII.
Liability
No person or his personal representatives shall be liable to the corporation for any loss or damage suffered by it on account of any action taken or omitted to be taken by such person in good faith as an officer or employee of the corporation, or as a director, officer, partner, trustee, employee, or agent of another foreign or domestic corporation, partnership, joint venture, trust, employee benefit plan, or other enterprise, whether for profit or not, which he serves or served at the request of the corporation, if such person (a) exercised and used the same degree of care and skill as a prudent man would have exercised and used under like circumstances, charged with a like duty, or (b) took or omitted to take such action in reliance upon advice of counsel for the corporation or such enterprise or upon statements made or information furnished by persons employed or retained by the corporation or such enterprise upon which he had reasonable grounds to rely. The foregoing shall not be exclusive of other rights and defenses to which such person or his personal representatives may be entitled under law.
ARTICLE VIII.
Indemnification
Section 1. Actions by a Third Party. The corporation shall indemnify any person who is or was a party, or is threatened to be made a defendant or respondent, to a proceeding, including any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than actions by or in the right of the corporation), and whether formal or informal, who is or was a director, officer, or employee of the corporation or
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who, while a director, officer, or employee of the corporation, is or was serving at the corporation’s request as a director, officer, partner, trustee, employee, or agent of another foreign or domestic corporation, partnership, joint venture, trust, employee benefit plan, or other enterprise, whether for profit or not, against:
1. any reasonable expenses (including attorneys’ fees) incurred with respect to a proceeding, if such person is wholly successful on the merits or otherwise in the defense of such proceeding, or |
2. judgments, settlements, penalties, fines (including excise taxes assessed with respect to employee benefit plans) and reasonable expenses (including attorneys’ fees) incurred with respect to a proceeding where such person is not wholly successful on the merits or otherwise in the defense of the proceeding if: |
(i)the individual’s conduct was in good faith; and
(ii)the individual reasonably believed:
(a)in the case of conduct in the individual’s capacity as a director, officer or employee of the corporation, that the individual’s conduct was in the corporation’s best interests; and
(b)in all other cases, that the individual’s conduct was at least not opposed to the corporation’s best interests; and
(iii)in the case of any criminal proceeding, the individual either:
(a)had reasonable cause to believe the individual’s conduct was lawful; or
(b)had no reasonable cause to believe the individual’s conduct was unlawful.
The termination of a proceeding by a judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent is not, of itself, determinative that the director, officer, or employee did not meet the standard of conduct described in this section.
Section 2. Actions by or in the Right of the Corporation. The corporation shall indemnify any person who is or was a party or is threatened to be made a defendant or respondent, to a proceeding, including any threatened, pending or completed action, suit or proceeding, by or in the right of the corporation to procure a judgment in its favor, by reason of the fact that such person is or was a director, officer, or employee of the corporation or is or was serving at the request of the corporation as a director, officer, partner, trustee, employee, or agent of another foreign or domestic corporation, partnership, joint venture, trust, employee benefit plan, or other enterprise, whether for profit or not, against any reasonable expenses (including attorneys’ fees):
(A)if such person is wholly successful on the merits or otherwise in the defense of such proceeding, or
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(B)if not wholly successful:
(i)the individual’s conduct was in good faith; and
(ii)the individual reasonably believed:
(a)in the case of conduct in the individual’s capacity as a director, officer, or employee of the corporation, that the individual’s conduct was in the corporation’s best interests; and
(b)in all other cases, that the individual’s conduct was at least not opposed to the corporation’s best interests,
except that no indemnification shall be made in respect of any claim, issue, or matter as to which such person shall have been adjudged to be liable to the corporation unless and only to the extent that the court in which such action or suit was brought shall determine upon application, that despite the adjudication of liability but in view of all circumstances of the case, such person is fairly and reasonably entitled to indemnification for such expenses which such court shall deem proper.
Section 3. Methods of Determining Whether Standards for Indemnification Have Been Met. Any indemnification under Sections 1 or 2 of this Article (unless ordered by a court) shall be made by the corporation only as authorized in the specific case upon a determination that indemnification of the director, officer, or employee is proper in the circumstances because he has met the applicable standards of conduct set forth in Section 1 or 2. In the case of directors of the corporation such determination shall be made by any one of the following procedures:
(A)by the board of directors by a majority vote of a quorum consisting of directors not at the time parties to the proceeding;
(B)if a quorum cannot be obtained under (a), by majority vote of a committee duly designated by the board of directors (in which designation directors who are parties may participate), consisting solely of two or more directors not at the time parties to the proceeding;
(C)by special legal counsel:
(i)selected by the board of directors or a committee thereof in the manner prescribed in (a) or (b); or
(ii) if a quorum of the board of directors cannot be obtained under (a) and a committee cannot be designated under (b), selected by a majority vote of the full board of directors (in which selection directors who are parties may participate). |
In the case of persons who are not directors of the corporation, such determination shall be made (a) by the chief executive officer of the corporation or (b) if the chief executive officer so directs or in his absence, in the manner such determination would be made if the person were a director of the corporation.
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Section 4. Advancement of Defense Expenses. The corporation may pay for or reimburse the reasonable expenses incurred by a director, officer, or employee who is a party to a proceeding described in Section 1 or 2 of this Article in advance of the final disposition of said proceeding if:
(A)the director, officer, or employee furnishes the corporation a written affirmation of his good faith belief that he has met the standard of conduct described in Section 1 or 2; and
(B)the director, officer, or employee furnishes the corporation a written undertaking, executed personally or on his behalf, to repay the advance if it is ultimately determined that the director, officer or employee did not meet the standard of conduct; and
(C)a determination is made that the facts then known to those making the determination would not preclude indemnification under Section 1 or 2.
(D)The undertaking required by this Section must be an unlimited general obligation of the director, officer, or employee but need not be secured and may be accepted by the corporation without reference to the financial ability of such person to make repayment.
Section 5. Non-Exclusiveness of Indemnification. The indemnification and advancement of expenses provided for or authorized by this Article does not exclude any other rights to indemnification or advancement of expenses that a person may have under:
(A)the corporation’s articles of incorporation or bylaws or any agreement entered into between the corporation and such person;
(B)any resolution of the board of directors or the shareholders of the corporation;
(C) |
any other authorization adopted by the shareholders; or |
(D)otherwise as provided by law, both as to such person’s actions in his capacity as a director, officer, or employee of the corporation and as to actions in another capacity while holding such office.
Such indemnification shall continue as to a person who has ceased to be a director, officer, or employee, and shall inure to the benefit of the heirs and personal representatives of such person.
Section 6. Amendment or Repeal. No amendment or repeal of the foregoing indemnification provisions in this Article VIII shall adversely affect any right or protection in respect of acts or omissions of any covered person occurring prior to such amendment or repeal.
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ARTICLE IX.
Amendments
These bylaws may be altered, amended or repealed and new bylaws may be made by a majority of the whole board of directors at any regular or special meeting of the board of directors. Any bylaws made by the directors under the powers conferred hereby may be altered, amended or repealed by the directors or shareholders, provided, however, that no bylaw may be adopted that is inconsistent with the Indiana Business Corporation Law, as the same may be amended from time to time. Notwithstanding the foregoing and anything in these Bylaws or the Articles of Incorporation to the contrary, Sections 2, 5, 10, 11, 12 and 13 of Article I, Sections 1, 2, 3, 4, 5, 6, 7 and 10 of Article II, and all sections of Articles VII, VIII and IX of these bylaws shall not be altered, amended or repealed by the shareholders and no provision inconsistent therewith shall be adopted without either:
(1) |
the approval of the board of directors, or |
(2) at any regular or special meeting of the shareholders, the affirmative vote of a majority of the votes cast by holders of shares entitled to vote generally in the election of directors if notice of such alteration, amendment or repeal is contained in the notice of such meeting. |
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LINCOLN NATIONAL CORPORATION AND SUBSIDIARIES
HISTORICAL RATIO OF EARNINGS TO FIXED CHARGES
(dollars in millions)
|
||||||
|
For the Six |
|||||
|
Months Ended |
|||||
|
June 30, |
|||||
|
2017 |
2016 |
||||
Income (loss) from continuing operations before taxes |
$ |
1,008 |
$ |
650 | ||
Sub-total of fixed charges |
146 | 143 | ||||
Sub-total of adjusted income (loss) |
1,154 | 793 | ||||
Interest on annuities and financial products |
1,292 | 1,273 | ||||
Adjusted income (loss) base |
$ |
2,446 |
$ |
2,066 | ||
Fixed Charges |
||||||
Interest and debt expense |
$ |
127 |
$ |
136 | ||
Interest expense (income) related to uncertain tax positions |
12 |
- |
||||
Portion of rent expense representing interest |
7 | 7 | ||||
Sub-total of fixed charges excluding interest on |
||||||
annuities and financial products |
146 | 143 | ||||
Interest on annuities and financial products |
1,292 | 1,273 | ||||
Total fixed charges |
$ |
1,438 |
$ |
1,416 | ||
|
||||||
Ratio of sub-total of adjusted income (loss) to sub-total |
||||||
of fixed charges excluding interest on annuities and |
||||||
financial products |
7.90 | 5.55 | ||||
Ratio of adjusted income (loss) base to total fixed |
||||||
charges |
1.70 | 1.46 |
Certification Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
I, Dennis R. Glass, President and Chief Executive Officer, certify that:
1. |
I have reviewed this quarterly report on Form 10-Q of Lincoln National Corporation; |
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. |
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. |
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
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Dated: August 3, 2017 |
/s/ Dennis R. Glass |
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Name: Dennis R. Glass |
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Title: President and Chief Executive Officer |
Certification Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
I, Randal J. Freitag, Executive Vice President and Chief Financial Officer, certify that:
1.I have reviewed this quarterly report on Form 10-Q of Lincoln National Corporation;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
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Dated: August 3, 2017 |
/s/ Randal J. Freitag |
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Name: Randal J. Freitag |
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Title: Executive Vice President and Chief Financial Officer |
Certification Pursuant to 18 U.S.C. Section 1350,
As Adopted Pursuant to Section 906
Of the Sarbanes-Oxley Act of 2002
Pursuant to 18 U.S.C. § 1350, the undersigned officer of Lincoln National Corporation (the “Company”), hereby certifies that the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2017, (the “Report”) fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934 and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
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Dated: August 3, 2017 |
/s/ Dennis R. Glass |
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Name: Dennis R. Glass |
|
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Title: President and Chief Executive Officer |
The foregoing certification is being furnished solely pursuant to 18 U.S.C. § 1350 and is not being filed as part of the Report or as a separate disclosure document.
A signed original of this written statement required under Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
Certification Pursuant to 18 U.S.C. Section 1350,
As Adopted Pursuant to Section 906
Of the Sarbanes-Oxley Act of 2002
Pursuant to 18 U.S.C. § 1350, the undersigned officer of Lincoln National Corporation (the “Company”), hereby certifies that the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2017, (the “Report”) fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934 and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
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Dated: August 3, 2017 |
/s/ Randal J. Freitag |
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Name: Randal J. Freitag |
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Title: Executive Vice President and Chief Financial Officer |
The foregoing certification is being furnished solely pursuant to 18 U.S.C. § 1350 and is not being filed as part of the Report or as a separate disclosure document.
A signed original of this written statement required under Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
Document And Entity Information - shares |
6 Months Ended | |
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Jun. 30, 2017 |
Jul. 31, 2017 |
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Document And Entity Information [Abstract] | ||
Document Type | 10-Q | |
Amendment Flag | false | |
Document Period End Date | Jun. 30, 2017 | |
Document Fiscal Period Focus | Q2 | |
Document Fiscal Year Focus | 2017 | |
Entity Registrant Name | LINCOLN NATIONAL CORP | |
Entity Central Index Key | 0000059558 | |
Current Fiscal Year End Date | --12-31 | |
Entity Filer Category | Large Accelerated Filer | |
Entity Common Stock, Shares Outstanding | 221,444,368 |
Consolidated Balance Sheets (Parenthetical) - USD ($) $ in Millions |
Jun. 30, 2017 |
Dec. 31, 2016 |
---|---|---|
Available-for-sale securities, at fair value: | ||
Fixed maturity securities (amortized cost) | $ 86,194 | $ 84,287 |
Variable interest entities' fixed maturity securities (amortized cost) | 0 | 200 |
Equity securities (cost) | $ 262 | $ 260 |
Stockholders' Equity | ||
Preferred stock - shares authorized (in shares) | 10,000,000 | 10,000,000 |
Common stock - shares authorized (in shares) | 800,000,000 | 800,000,000 |
Common stock - shares issued (in shares) | 222,237,262 | 226,335,105 |
Common stock - shares outstanding (in shares) | 222,237,262 | 226,335,105 |
Consolidated Statements Of Stockholders' Equity - USD ($) $ in Millions |
Common Stock [Member] |
Retained Earnings [Member] |
Accumulated Other Comprehensive Income (Loss) [Member] |
Total |
---|---|---|---|---|
Balance as of beginning-of-year at Dec. 31, 2015 | $ 6,298 | $ 6,474 | $ 845 | |
Stock compensation/issued for benefit plans | 11 | |||
Net income (loss) | 536 | $ 536 | ||
Retirement of common stock/cancellation of shares | (303) | (172) | ||
Common stock dividends declared | (119) | |||
Other comprehensive income (loss), net of tax | 2,350 | 2,350 | ||
Balance as of end-of-period at Jun. 30, 2016 | 6,006 | 6,719 | 3,195 | 15,920 |
Balance as of beginning-of-year at Dec. 31, 2016 | 5,869 | 7,043 | 1,566 | 14,478 |
Stock compensation/issued for benefit plans | 58 | |||
Net income (loss) | 846 | 846 | ||
Retirement of common stock/cancellation of shares | (153) | (247) | ||
Common stock dividends declared | (131) | |||
Other comprehensive income (loss), net of tax | 1,145 | 1,145 | ||
Balance as of end-of-period at Jun. 30, 2017 | $ 5,774 | $ 7,511 | $ 2,711 | $ 15,996 |
Nature of Operations and Basis of Presentation |
6 Months Ended |
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Jun. 30, 2017 | |
Nature of Operations and Basis of Presentation [Abstract] | |
Nature of Operations and Basis of Presentation | LINCOLN NATIONAL CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. Nature of Operations and Basis of Presentation Nature of Operations Lincoln National Corporation and its majority-owned subsidiaries (“LNC” or the “Company,” which also may be referred to as “we,” “our” or “us”) operate multiple insurance businesses through four business segments. See Note 13 for additional details. The collective group of businesses uses “Lincoln Financial Group” as its marketing identity. Through our business segments, we sell a wide range of wealth protection, accumulation and retirement income products and solutions. These products include fixed and indexed annuities, variable annuities, universal life insurance (“UL”), variable universal life insurance (“VUL”), linked-benefit UL, indexed universal life insurance (“IUL”), term life insurance, employer-sponsored retirement plans and services, and group life, disability and dental. Basis of Presentation The accompanying unaudited consolidated financial statements are prepared in accordance with United States of America generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions for the Securities and Exchange Commission (“SEC”) Quarterly Report on Form 10-Q, including Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. Therefore, the information contained in the Notes to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016 (“2016 Form 10-K”), should be read in connection with the reading of these interim unaudited consolidated financial statements. Certain GAAP policies, which significantly affect the determination of financial condition, results of operations and cash flows, are summarized in our 2016 Form 10-K. Certain amounts reported in prior year's consolidated financial statements have been reclassified to conform to the presentation adopted in the current year. Specifically, we reclassified cash flows from certain investing activities into their own respective line items within the Consolidated Statements of Cash Flows. Previously, these amounts were reported within purchases of other investments or sales or maturities of other investments line items, as applicable, within cash flows from investing activities. These reclassifications had no effect on net income (loss), net cash provided by (used in) investing activities, or stockholders’ equity for the prior year. In the opinion of management, these statements include all normal recurring adjustments necessary for a fair presentation of the Company’s results. Operating results for the six month period ended June 30, 2017, are not necessarily indicative of the results that may be expected for the full year ending December 31, 2017. All material inter-company accounts and transactions have been eliminated in consolidation.
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New Accounting Standards |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
New Accounting Standards [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
New Accounting Standards |
2. New Accounting Standards Adoption of New Accounting Standards The following table provides a description of our adoption of new Accounting Standard Updates (“ASUs”) issued by the Financial Accounting Standards Board (“FASB”) and the impact of the adoption on our financial statements:
Future Adoption of New Accounting Standards The following table provides a description of future adoptions of new accounting standards that may have an impact on our financial statements when adopted:
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Variable Interest Entities ("VIE's") |
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Variable Interest Entities ("VIE's") [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Variable Interest Entities ("VIE's") | 3. Variable Interest Entities (“VIEs”) Consolidated VIEs See Note 4 in our 2016 Form 10-K for a detailed discussion of our consolidated VIEs, which information is incorporated herein by reference. As of March 2017 and December 2016, our $200 million and $400 million credit-linked notes (“CLNs”) matured, respectively, and we no longer reflect the assets and liabilities associated with these VIEs on our Consolidated Balance Sheets or recognize the results of operations of these VIEs on our Consolidated Statements of Comprehensive Income (Loss). We no longer have any exposure related to these VIEs. Asset and liability information (dollars in millions) for the consolidated VIEs included on our Consolidated Balance Sheets was as follows:
As of June 30, 2017, and December 31, 2016, we did not recognize any liabilities from consolidated VIEs on our Consolidated Balance Sheets. We did hold one contingent forward instrument as of December 31, 2016; however, the instrument had a zero notional and carrying value. The gains (losses) for the consolidated VIEs (in millions) recorded on our Consolidated Statements of Comprehensive Income (Loss) were as follows:
Unconsolidated VIEs See Note 4 in our 2016 Form 10-K for a detailed discussion of our unconsolidated VIEs, which information is incorporated herein by reference. Limited Partnerships and Limited Liability Companies We invest in certain limited partnerships (“LPs”) and limited liability companies (“LLCs”), including qualified affordable housing projects, that we have concluded are VIEs. We do not hold any substantive kick-out or participation rights in the LPs and LLCs, and we do not receive any performance fees or decision maker fees from the LPs and LLCs. Based on our analysis of the LPs and LLCs, we are not the primary beneficiary of the VIEs as we do not have the power to direct the most significant activities of the LPs and LLCs. The carrying amounts of our investments in the LPs and LLCs are recognized in other investments on our Consolidated Balance Sheets and were $1.4 billion and $1.3 billion as of June 30, 2017, and December 31, 2016, respectively. Included in these carrying amounts are our investments in qualified affordable housing projects, which were $34 million and $37 million as of June 30, 2017, and December 31, 2016, respectively. We do not have any contingent commitments to provide additional capital funding to these qualified affordable housing projects. We received returns from these qualified affordable housing projects in the form of income tax credits and other tax benefits of $2 million for the six months ended June 30, 2017, and 2016, respectively, which were recognized in federal income tax expense (benefit) on our Consolidated Statements of Comprehensive Income (Loss). Our exposure to loss is limited to the capital we invest in the LPs and LLCs, and there have been no indicators of impairment that would require us to recognize an impairment loss related to the LPs and LLCs as of June 30, 2017.
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Investments |
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Investments [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Investments | 4. Investments AFS Securities See Note 1 in our 2016 Form 10-K for information regarding our accounting policy relating to AFS securities, which also includes additional disclosures regarding our fair value measurements. The amortized cost, gross unrealized gains, losses and OTTI and fair value of AFS securities (in millions) were as follows:
The amortized cost and fair value of fixed maturity AFS securities by contractual maturities (in millions) as of June 30, 2017, were as follows:
Actual maturities may differ from contractual maturities because issuers may have the right to call or pre-pay obligations. The fair value and gross unrealized losses, including the portion of OTTI recognized in OCI, of AFS securities (dollars in millions), aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, were as follows:
The fair value, gross unrealized losses, the portion of OTTI recognized in OCI (in millions) and number of AFS securities where the fair value had declined and remained below amortized cost by greater than 20% were as follows:
We regularly review our investment holdings for OTTI. Our gross unrealized losses, including the portion of OTTI recognized in OCI, on AFS securities decreased by $548 million for the six months ended June 30, 2017. As discussed further below, we believe the unrealized loss position as of June 30, 2017, did not represent OTTI as (i) we did not intend to sell these fixed maturity AFS securities; (ii) it is not more likely than not that we will be required to sell these fixed maturity AFS securities before recovery of their amortized cost basis; (iii) the estimated future cash flows were equal to or greater than the amortized cost basis of the debt securities; and (iv) we had the ability and intent to hold the equity AFS securities for a period of time sufficient for recovery. Based upon this evaluation as of June 30, 2017, management believes we have the ability to generate adequate amounts of cash from our normal operations (e.g., insurance premiums and fees and investment income) to meet cash requirements with a prudent margin of safety without requiring the sale of our temporarily-impaired securities. As of June 30, 2017, the unrealized losses associated with our corporate bond securities were attributable primarily to widening credit spreads and rising interest rates since purchase. We performed a detailed analysis of the financial performance of the underlying issuers and determined that we expected to recover the entire amortized cost for each temporarily-impaired security. As of June 30, 2017, the unrealized losses associated with our mortgage-backed securities (“MBS”) and ABS were attributable primarily to widening credit spreads and rising interest rates since purchase. We assessed for credit impairment using a cash flow model that incorporates key assumptions including default rates, severities and prepayment rates. We estimated losses for a security by forecasting the underlying loans in each transaction. The forecasted loan performance was used to project cash flows to the various tranches in the structure, as applicable. Our forecasted cash flows also considered, as applicable, independent industry analyst reports and forecasts and other independent market data. Based upon our assessment of the expected credit losses of the security given the performance of the underlying collateral compared to our subordination or other credit enhancement, we expected to recover the entire amortized cost of each temporarily-impaired security. As of June 30, 2017, the unrealized losses associated with our hybrid and redeemable preferred securities were attributable primarily to wider credit spreads caused by illiquidity in the market and subordination within the capital structure, as well as credit risk of underlying issuers. For our hybrid and redeemable preferred securities, we evaluated the financial performance of the underlying issuers based upon credit performance and investment ratings and determined that we expected to recover the entire amortized cost of each temporarily-impaired security. Changes in the amount of credit loss of OTTI recognized in net income (loss) where the portion related to other factors was recognized in OCI (in millions) on fixed maturity AFS securities were as follows:
During the six months ended June 30, 2017 and 2016, we recorded credit losses on securities for which an OTTI was not previously recognized as we determined the cash flows expected to be collected would not be sufficient to recover the entire amortized cost basis of the debt security. The credit losses we recorded on securities for which an OTTI was not previously recognized were attributable primarily to one or a combination of the following reasons:
We recognize the OTTI attributed to the noncredit portion as a separate component in OCI referred to as unrealized OTTI on AFS securities.
Details of the amount of credit loss of OTTI recognized in net income (loss) for which a portion related to other factors was recognized in OCI (in millions), were as follows:
Mortgage Loans on Real Estate See Note 1 in our 2016 Form 10-K for information regarding our accounting policy relating to mortgage loans on real estate. Mortgage loans on real estate principally involve commercial real estate. The commercial loans are geographically diversified throughout the U.S. with the largest concentrations in California and Texas, which accounted for 20% and 11%, respectively, of mortgage loans on real estate as of June 30, 2017, and December 31, 2016. The following provides the current and past due composition of our mortgage loans on real estate (in millions):
The number of impaired mortgage loans on real estate, each of which had an associated specific valuation allowance, and the carrying value of impaired mortgage loans on real estate (dollars in millions) were as follows:
The changes in the valuation allowance associated with impaired mortgage loans on real estate (in millions) were as follows:
Additional information related to impaired mortgage loans on real estate (in millions) was as follows:
As described in Note 1 in our 2016 Form 10-K, we use the loan-to-value and debt-service coverage ratios as credit quality indicators for our mortgage loans, which were as follows (dollars in millions):
Alternative Investments As of June 30, 2017, and December 31, 2016, alternative investments included investments in 206 and 202 different partnerships, respectively, and the portfolios represented approximately 1% of our overall invested assets. Realized Gain (Loss) Related to Certain Investments The detail of the realized gain (loss) related to certain investments (in millions) was as follows:
Details underlying write-downs taken as a result of OTTI (in millions) that were recognized in net income (loss) and included in realized gain (loss) on AFS securities above, and the portion of OTTI recognized in OCI (in millions) were as follows:
Determination of Credit Losses on Corporate Bonds and ABS As of June 30, 2017, and December 31, 2016, we reviewed our corporate bond and ABS portfolios for potential shortfall in contractual principal and interest based on numerous subjective and objective inputs. The factors used to determine the amount of credit loss for each individual security, include, but are not limited to, near term risk, substantial discrepancy between book and market value, sector or company-specific volatility, negative operating trends and trading levels wider than peers. Credit ratings express opinions about the credit quality of a security. Securities rated investment grade, that is those rated BBB- or higher by Standard & Poor’s (“S&P”) Rating Services or Baa3 or higher by Moody’s Investors Service (“Moody’s”), are generally considered by the rating agencies and market participants to be low credit risk. As of June 30, 2017, and December 31, 2016, 96% and 95%, respectively, of the fair value of our corporate bond portfolio was rated investment grade. As of June 30, 2017, and December 31, 2016, the portion of our corporate bond portfolio rated below investment grade had an amortized cost of $3.5 billion and $3.8 billion, respectively, and a fair value of $3.4 billion and $3.7 billion, respectively. As of June 30, 2017, and December 31, 2016, 96% of the fair value of our ABS portfolio was rated investment grade. As of June 30, 2017, and December 31, 2016, the portion of our ABS portfolio rated below investment grade had an amortized cost of $86 million and $91 million, respectively, and a fair value of $73 million and $75 million, respectively. Based upon the analysis discussed above, we believe as of June 30, 2017, and December 31, 2016, that we would recover the amortized cost of each fixed maturity security. Determination of Credit Losses on MBS As of June 30, 2017, and December 31, 2016, default rates were projected by considering underlying MBS loan performance and collateral type. Projected default rates on existing delinquencies vary between 10% to 100% depending on loan type and severity of delinquency status. In addition, we estimate the potential contributions of currently performing loans that may become delinquent in the future based on the change in delinquencies and loan liquidations experienced in the recent history. Finally, we develop a default rate timing curve by aggregating the defaults for all loans in the pool (delinquent loans, foreclosure and real estate owned and new delinquencies from currently performing loans) and the associated loan-level loss severities. We use certain available loan characteristics such as lien status, loan sizes and occupancy to estimate the loss severity of loans. Second lien loans are assigned 100% severity, if defaulted. For first lien loans, we assume a minimum of 30% severity with higher severity assumed for investor properties and further adjusted by housing price assumptions. With the default rate timing curve and loan-level loss severity, we derive the future expected credit losses.
Payables for Collateral on Investments The carrying value of the payables for collateral on investments (in millions) included on our Consolidated Balance Sheets and the fair value of the related investments or collateral consisted of the following:
Increase (decrease) in payables for collateral on investments (in millions) consisted of the following:
We have elected not to offset our repurchase agreements and securities lending transactions in our financial statements. The remaining contractual maturities of repurchase agreements and securities lending transactions accounted for as secured borrowings were as follows:
We accept collateral in the form of securities in connection with repurchase agreements. In instances where we are permitted to sell or re-pledge the securities received, we report the fair value of the collateral received and a related obligation to return the collateral in the financial statements. In addition, we receive securities in connection with securities borrowing agreements, which we are permitted to sell or re-pledge. As of June 30, 2017, the fair value of all collateral received that we are permitted to sell or re-pledge was $177 million. As of June 30, 2017, we have re-pledged $80 million of this collateral to cover initial margin on certain derivative investments. Investment Commitments As of June 30, 2017, our investment commitments were $1.7 billion, which included $794 million of LPs, $443 million of mortgage loans on real estate and $466 million of private placement securities. Concentrations of Financial Instruments As of June 30, 2017, and December 31, 2016, our most significant investments in one issuer were our investments in securities issued by the Federal Home Loan Mortgage Corporation with a fair value of $1.4 billion and $1.5 billion, respectively, or 1% of our invested assets portfolio, and our investments in securities issued by Federal National Mortgage Association with a fair value of $1.0 billion and $1.1 billion, respectively, or 1% of our invested assets portfolio. These concentrations include both AFS and trading securities. As of June 30, 2017, and December 31, 2016, our most significant investments in one industry were our investment securities in the consumer non-cyclical industry with a fair value of $14.7 billion and $13.7 billion, respectively, or 13% of our invested assets portfolio, and our investment securities in the utilities industry with a fair value of $13.8 billion and $13.2 billion, respectively, or 12% of our invested assets portfolio. These concentrations include both AFS and trading securities.
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Derivative Instruments |
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Derivative Instruments | 5. Derivative Instruments
We maintain an overall risk management strategy that incorporates the use of derivative instruments to minimize significant unplanned fluctuations in earnings that are caused by interest rate risk, foreign currency exchange risk, equity market risk, default risk, basis risk and credit risk. See Note 1 in our 2016 Form 10-K for a detailed discussion of the accounting treatment for derivative instruments. See Note 6 in our 2016 Form 10-K for a detailed discussion of our derivative instruments and use of them in our overall risk management strategy, which information is incorporated herein by reference. See Note 12 for additional disclosures related to the fair value of our derivative instruments and Note 3 for derivative instruments related to our consolidated VIEs.
We have derivative instruments with off-balance-sheet risks whose notional or contract amounts exceed the related credit exposure. Outstanding derivative instruments with off-balance-sheet risks (in millions) were as follows:
Beginning in the first quarter 2017, consistent with changes enacted by the Chicago Mercantile Exchange (“CME”), the Company offset the variation margin payments with the derivative balances that are cleared through CME. The maturity of the notional amounts of derivative instruments (in millions) was as follows:
The change in our unrealized gain (loss) on derivative instruments in accumulated OCI (“AOCI”) (in millions) was as follows:
The gains (losses) on derivative instruments (in millions) recorded within income (loss) from continuing operations on our Consolidated Statements of Comprehensive Income (Loss) were as follows:
Gains (losses) recognized as a component of OCI (in millions) on derivative instruments designated and qualifying as cash flow hedges were as follows:
As of June 30, 2017, $6 million of the deferred net gains (losses) on derivative instruments in AOCI were expected to be reclassified to earnings during the next 12 months. This reclassification would be due primarily to interest rate variances related to our interest rate swap agreements. For the six months ended June 30, 2017 and 2016, there were no material reclassifications to earnings due to hedged firm commitments no longer deemed probable or due to hedged forecasted transactions that had not occurred by the end of the originally specified time period.
Information related to our credit default swaps for which we are the seller (dollars in millions) was as follows:
Details underlying the associated collateral of our credit default swaps for which we are the seller if credit risk-related contingent features were triggered (in millions) were as follows:
Certain of our credit default swap agreements contain contractual provisions that allow for the netting of collateral with our counterparties related to all of our collateralized financing transactions that we have outstanding. If these netting agreements were not in place, we would have been required to post collateral if the market value was less than zero. As of June 30, 2017 the market value was $1 million. Credit Risk We are exposed to credit losses in the event of non-performance by our counterparties on various derivative contracts and reflect assumptions regarding the credit or non-performance risk (“NPR”). The NPR is based upon assumptions for each counterparty’s credit spread over the estimated weighted average life of the counterparty exposure less collateral held. As of June 30, 2017, the NPR adjustment was less than $1 million. The credit risk associated with such agreements is minimized by entering into agreements with financial institutions with long-standing, superior performance records. Additionally, we maintain a policy of requiring derivative contracts to be governed by an International Swaps and Derivatives Association (“ISDA”) Master Agreement. We are required to maintain minimum ratings as a matter of routine practice in negotiating ISDA agreements. Under some ISDA agreements, our insurance subsidiaries have agreed to maintain certain financial strength or claims-paying ratings. A downgrade below these levels could result in termination of derivative contracts, at which time any amounts payable by us would be dependent on the market value of the underlying derivative contracts. In certain transactions, we and the counterparty have entered into a credit support annex requiring either party to post collateral when net exposures exceed pre-determined thresholds. These thresholds vary by counterparty and credit rating. The amount of such exposure is essentially the net replacement cost or market value less collateral held for such agreements with each counterparty if the net market value is in our favor. As of June 30, 2017, our exposure was $4 million.
The amounts recognized (in millions) by S&P credit rating of counterparty, for which we had the right to reclaim cash collateral or were obligated to return cash collateral, were as follows:
Balance Sheet Offsetting Information related to the effects of offsetting on our Consolidated Balance Sheets (in millions) was as follows:
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Federal Income Taxes |
6 Months Ended |
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Jun. 30, 2017 | |
Federal Income Taxes [Abstract] | |
Federal Income Taxes | 6. Federal Income Taxes The effective tax rate is the ratio of tax expense over pre-tax income (loss). The effective tax rate was 23% and 16% for the three and six months ended June 30, 2017, respectively. The effective tax rate was 21% and 18% for the three and six months ended June 30, 2016, respectively. The effective tax rate was significantly lower than the prevailing corporate federal income tax rate. Differences in the effective rates and the U.S. statutory rate of 35% were the result of the separate accounts dividends-received deduction, certain tax preferred investment income, foreign tax credits and other tax preference items.
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Guaranteed Benefit Features |
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Guaranteed Benefit Features | 7. Guaranteed Benefit Features Information on the guaranteed death benefit (“GDB”) features outstanding (dollars in millions) was as follows:
The determination of GDB liabilities is based on models that involve a range of scenarios and assumptions, including those regarding expected market rates of return and volatility, contract surrender rates and mortality experience. The following summarizes the balances of and changes in the liabilities for GDBs (in millions), which were recorded in future contract benefits on our Consolidated Balance Sheets:
Variable Annuity Contracts Account balances of variable annuity contracts, including those with guarantees, (in millions) were invested in separate account investment options as follows:
Secondary Guarantee Products Future contract benefits and other contract holder funds include reserves for our secondary guarantee products sold through our Life Insurance segment. These UL and VUL products with secondary guarantees represented 34% and 35% of total life insurance in-force reserves as of June 30, 2017, and December 31, 2016, respectively. UL and VUL products with secondary guarantees represented 28% and 27% of total sales for the three and six months ended June 30, 2017, respectively, compared to 33% and 31% for the corresponding periods in 2016.
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Contingencies and Commitments |
6 Months Ended |
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Jun. 30, 2017 | |
Contingencies and Commitments [Abstract] | |
Contingencies and Commitments | 8. Contingencies and Commitments Regulatory bodies, such as state insurance departments, the SEC, Financial Industry Regulatory Authority and other regulatory bodies regularly make inquiries and conduct examinations or investigations concerning our compliance with, among other things, insurance laws, securities laws, laws governing the activities of broker-dealers, registered investment advisors and unclaimed property laws.
LNC is involved in various pending or threatened legal or regulatory proceedings, including purported class actions, arising from the conduct of business both in the ordinary course and otherwise. In some of the matters, very large and/or indeterminate amounts, including punitive and treble damages, are sought. Modern pleading practice in the U.S. permits considerable variation in the assertion of monetary damages or other relief. Jurisdictions may permit claimants not to specify the monetary damages sought or may permit claimants to state only that the amount sought is sufficient to invoke the jurisdiction of the trial court. In addition, jurisdictions may permit plaintiffs to allege monetary damages in amounts well exceeding verdicts obtained in the jurisdiction for similar matters. This variability in pleadings, together with the actual experiences of LNC in litigating or resolving through settlement numerous claims over an extended period of time, demonstrates to management that the monetary relief which may be specified in a lawsuit or claim bears little relevance to its merits or disposition value.
Due to the unpredictable nature of litigation, the outcome of a litigation matter and the amount or range of potential loss at particular points in time is normally difficult to ascertain. Uncertainties can include how fact finders will evaluate documentary evidence and the credibility and effectiveness of witness testimony, and how trial and appellate courts will apply the law in the context of the pleadings or evidence presented, whether by motion practice, or at trial or on appeal. Disposition valuations are also subject to the uncertainty of how opposing parties and their counsel will themselves view the relevant evidence and applicable law.
We establish liabilities for litigation and regulatory loss contingencies when information related to the loss contingencies shows both that it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated. It is possible that some matters could require us to pay damages or make other expenditures or establish accruals in amounts that could not be estimated as of June 30, 2017. While the potential future charges could be material in the particular quarterly or annual periods in which they are recorded, based on information currently known by management, management does not believe any such charges are likely to have a material adverse effect on LNC’s financial condition. For some matters, the Company is able to estimate a reasonably possible range of loss. For such matters in which a loss is probable, an accrual has been made. For such matters where a loss is believed to be reasonably possible, but not probable, no accrual has been made. Accordingly, the estimate contained in this paragraph reflects two types of matters. For some matters included within this estimate, an accrual has been made, but there is a reasonable possibility that an exposure exists in excess of the amount accrued. In these cases, the estimate reflects the reasonably possible range of loss in excess of the accrued amount. For other matters included within this estimation, no accrual has been made because a loss, while potentially estimable, is believed to be reasonably possible but not probable. In these cases, the estimate reflects the reasonably possible loss or range of loss. As of June 30, 2017, we estimate the aggregate range of reasonably possible losses to be up to approximately $50 million. For other matters, we are not currently able to estimate the reasonably possible loss or range of loss. We are often unable to estimate the possible loss or range of loss until developments in such matters have provided sufficient information to support an assessment of the range of possible loss, such as quantification of a damage demand from plaintiffs, discovery from other parties and investigation of factual allegations, rulings by the court on motions or appeals, analysis by experts and the progress of settlement negotiations. On a quarterly and annual basis, we review relevant information with respect to litigation contingencies and update our accruals, disclosures and estimates of reasonably possible losses or ranges of loss based on such reviews. See Note 13 in our 2016 Form 10-K and Note 8 in our Form 10-Q for the quarter ended March 31, 2017, for additional discussion of commitments and contingencies, which information is incorporated herein by reference.
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Shares and Stockholders' Equity |
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Shares and Stockholders' Equity [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Shares and Stockholders' Equity | 9. Shares and Stockholders’ Equity Common Shares The changes in our common stock (number of shares) were as follows:
Our common stock is without par value.
Average Shares A reconciliation of the denominator (number of shares) in the calculations of basic and diluted earnings (loss) per common share was as follows:
In the event the average market price of LNC common stock exceeds the issue price of stock options and the options have a dilutive effect to our earnings per share (“EPS”), such options will be shown in the table above. We have participants in our deferred compensation plans who selected LNC stock as the measure for the investment return attributable to all or a portion of their deferral amounts. For the three and six months ended June 30, 2017 and 2016, the effect of settling this obligation in LNC stock (“equity classification”) was more dilutive than the scenario of settling in cash (“liability classification”). Therefore, for our EPS calculation for these periods, we added these shares to the denominator and adjusted the numerator to present net income as if the shares had been accounted for under equity classification by removing the mark-to-market adjustment included in net income attributable to these deferred units of LNC stock. The amount of this adjustment was $(1) million for the three and six months ended June 30, 2017, respectively, and less than $1 million and $7 million for the three and six months ended June 30, 2016, respectively.
AOCI The following summarizes the components and changes in AOCI (in millions):
The following summarizes the reclassifications out of AOCI (in millions) and the associated line item in the Consolidated Statements of Comprehensive Income (Loss):
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Realized Gain (Loss) |
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Realized Gain (Loss) [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Realized Gain (Loss) |
10. Realized Gain (Loss) Details underlying realized gain (loss) (in millions) reported on our Consolidated Statements of Comprehensive Income (Loss) were as follows:
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Stock-Based Compensation Plans |
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Stock-Based Compensation Plans [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock-Based Compensation Plans | 11. Stock-Based Compensation Plans We sponsor stock-based compensation plans for our employees and directors and for the employees and agents of our subsidiaries that provide for the grant of stock options, performance shares (performance-vested shares as opposed to service-vested shares), stock appreciation rights (“SARs”), restricted stock units (“RSUs”) and deferred stock units (“DSUs”). We issue new shares to satisfy option exercises. LNC stock-based awards granted were as follows:
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Fair Value of Financial Instruments |
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Fair Value of Financial Instruments [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value of Financial Instruments |
12. Fair Value of Financial Instruments The carrying values and estimated fair values of our financial instruments (in millions) were as follows:
Valuation Methodologies and Associated Inputs for Financial Instruments Not Carried at Fair Value The following discussion outlines the methodologies and assumptions used to determine the fair value of our financial instruments not carried at fair value on our Consolidated Balance Sheets. Considerable judgment is required to develop these assumptions used to measure fair value. Accordingly, the estimates shown are not necessarily indicative of the amounts that would be realized in a one-time, current market exchange of all of our financial instruments. Mortgage Loans on Real Estate The fair value of mortgage loans on real estate is established using a discounted cash flow method based on credit rating, maturity and future income. The ratings for mortgages in good standing are based on property type, location, market conditions, occupancy, debt-service coverage, loan-to-value, quality of tenancy, borrower and payment record. The fair value for impaired mortgage loans is based on the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s market price or the fair value of the collateral if the loan is collateral dependent. The inputs used to measure the fair value of our mortgage loans on real estate are classified as Level 2 within the fair value hierarchy. Other Investments The carrying value of our assets classified as other investments approximates fair value. Other investments includes primarily LPs and other privately held investments that are accounted for using the equity method of accounting and the carrying value is based on our proportional share of the net assets of the LPs. The inputs used to measure the fair value of our LPs and other privately held investments are classified as Level 3 within the fair value hierarchy. Other investments also includes securities that are not LPs or other privately held investments and the inputs used to measure the fair value of these securities are classified as Level 1 within the fair value hierarchy. Other Contract Holder Funds Other contract holder funds include remaining guaranteed interest and similar contracts and account values of certain investment contracts. The fair value for the remaining guaranteed interest and similar contracts is estimated using discounted cash flow calculations as of the balance sheet date. These calculations are based on interest rates currently offered on similar contracts with maturities that are consistent with those remaining for the contracts being valued. As of June 30, 2017, and December 31, 2016, the remaining guaranteed interest and similar contracts carrying value approximated fair value. The fair value of the account values of certain investment contracts is based on their approximate surrender value as of the balance sheet date. The inputs used to measure the fair value of our other contract holder funds are classified as Level 3 within the fair value hierarchy. Short-Term and Long-Term Debt The fair value of short-term and long-term debt is based on quoted market prices. The inputs used to measure the fair value of our short-term and long-term debt are classified as Level 2 within the fair value hierarchy. Financial Instruments Carried at Fair Value We did not have any assets or liabilities measured at fair value on a nonrecurring basis as of June 30, 2017, or December 31, 2016, and we noted no changes in our valuation methodologies between these periods. The following summarizes our financial instruments carried at fair value (in millions) on a recurring basis by the fair value hierarchy levels described in “Summary of Significant Accounting Policies” in Note 1 of our 2016 Form 10-K:
The following summarizes changes to our financial instruments carried at fair value (in millions) and classified within Level 3 of the fair value hierarchy. This summary excludes any effect of amortization of deferred acquisition costs (“DAC”), value of business acquired (“VOBA”), deferred sales inducements (“DSI”) and deferred front-end loads (“DFEL”). The gains and losses below may include changes in fair value due in part to observable inputs that are a component of the valuation methodology.
The following provides the components of the items included in issuances, sales, maturities, settlements and calls, net, excluding any effect of amortization of DAC, VOBA, DSI and DFEL and changes in future contract benefits, (in millions) as reported above:
The following summarizes changes in unrealized gains (losses) included in net income, excluding any effect of amortization of DAC, VOBA, DSI and DFEL and changes in future contract benefits, related to financial instruments carried at fair value classified within Level 3 that we still held (in millions):
The following provides the components of the transfers into and out of Level 3 (in millions) as reported above:
Transfers into and out of Level 3 are generally the result of observable market information on a security no longer being available or becoming available to our pricing vendors. For the six months ended June 30, 2017 and 2016, transfers in and out of Level 3 were attributable primarily to the securities’ observable market information no longer being available or becoming available. Transfers into and out of Levels 1 and 2 are generally the result of a change in the type of input used to measure the fair value of an asset or liability at the end of the reporting period. When quoted prices in active markets become available, transfers from Level 2 to Level 1 will result. When quoted prices in active markets become unavailable, but we are able to employ a valuation methodology using significant observable inputs, transfers from Level 1 to Level 2 will result. For the six months ended June 30, 2017 and 2016, the transfers between Levels 1 and 2 of the fair value hierarchy were less than $1 million for our financial instruments carried at fair value.
The following summarizes the fair value (in millions), valuation techniques and significant unobservable inputs of the Level 3 fair value measurements as of June 30, 2017:
From the table above, we have excluded Level 3 fair value measurements obtained from independent, third-party pricing sources. We do not develop the significant inputs used to measure the fair value of these assets and liabilities, and the information regarding the significant inputs is not readily available to us. Independent broker-quoted fair values are non-binding quotes developed by market makers or broker-dealers obtained from third-party sources recognized as market participants. The fair value of a broker-quoted asset or liability is based solely on the receipt of an updated quote from a single market maker or a broker-dealer recognized as a market participant as we do not adjust broker quotes when used as the fair value measurement for an asset or liability. Significant increases or decreases in any of the quotes received from a third-party broker-dealer may result in a significantly higher or lower fair value measurement.
Changes in any of the significant inputs presented in the table above may result in a significant change in the fair value measurement of the asset or liability as follows:
For each category discussed above, the unobservable inputs are not inter-related; therefore, a directional change in one input will not affect the other inputs. As part of our ongoing valuation process, we assess the reasonableness of our valuation techniques or models and make adjustments as necessary. For more information, see “Summary of Significant Accounting Policies” in Note 1 of our 2016 Form 10-K.
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Segment Information |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Segment Information [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Segment Information | 13. Segment Information We provide products and services and report results through our Annuities, Retirement Plan Services, Life Insurance and Group Protection segments. We also have Other Operations, which includes the financial data for operations that are not directly related to the business segments. Our reporting segments reflect the manner by which our chief operating decision makers view and manage the business. See Note 21 of our 2016 Form 10-K for a brief description of these segments and Other Operations. Segment operating revenues and income (loss) from operations are internal measures used by our management and Board of Directors to evaluate and assess the results of our segments. Income (loss) from operations is GAAP net income excluding the after-tax effects of the following items, as applicable:
Operating revenues represent GAAP revenues excluding the pre-tax effects of the following items, as applicable:
We use our prevailing corporate federal income tax rate of 35% while taking into account any permanent differences for events recognized differently in our financial statements and federal income tax returns when reconciling our non-GAAP measures to the most comparable GAAP measure. Operating revenues and income (loss) from operations do not replace revenues and net income as the GAAP measures of our consolidated results of operations.
Segment information (in millions) was as follows:
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Variable Interest Entities ("VIE's") (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2017 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Variable Interest Entities ("VIE's") [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Consolidated Variable Interest Entity Asset and Liability information |
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Consolidated Variable Interest Entity Settlement Payments and Mark-to-Market Adjustments |
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Investments (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Investments [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Reconciliation Of Available-For-Sale Securities From Cost Basis To Fair Value |
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Available-For-Sale Securities By Contractual Maturities |
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Fair Value And Gross Unrealized Losses In A Continuous Unrealized Loss Position |
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Schedule Of Available-For-Sale Securites Whose Value Is Below Amortized Cost |
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Schedule Of Changes In Amount Of Credit Losses Of OTTI Recognized In Net Income (Loss) |
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Schedule of Details Of The Amount Of Credit Losses Of OTTI Recognized In Net Income (Loss) |
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Composition Of Current And Past Due Mortgage Loans On Real Estate |
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Schedule Of Impaired Mortgage Loans |
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Schedule of changes in the valuation allowance associated with impaired mortgage loans on real estate |
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Schedule Of Average Carrying Value Of Impaired Mortgage Loans |
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Credit Quality Indicators For Mortgage Loans |
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Realized Gain (Loss) Related To Certain Investments |
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OTTI Recognized In Net Income (Loss) And OCI |
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Payables For Collateral On Investments |
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Schedule Of Increase (Decrease) In Payables For Collateral On Investments |
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Schedule Of Securities Pledged By Contractual Maturity |
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Derivative Instruments (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2017 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Derivative Instruments [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Outstanding Derivative Instruments With Off-Balance-Sheet Risks |
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Maturity Of The Notional Amounts Of Derivative Financial Instruments |
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Change In Our Unrealized Gain On Derivative Instruments In Accumulated OCI |
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Gains (Losses) On Derivative Instruments Recorded Within Income (Loss) From Continuing Operations |
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Gains (Losses) On Derivative Instruments Designated As Cash Flow Hedges |
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Open Credit Default Swap Liabilities |
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Collateral Support Agreements |
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Schedule Of Collateral Amounts With Rights To Reclaim Or Obligation To Return Cash |
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Schedule Of Offsetting Assets And Liabilities |
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Guaranteed Benefit Features (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Guaranteed Benefit Features [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Information On Guaranteed Death Benefit Features |
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Summary Of Guaranteed Death Benefit Liabilities |
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Account Balances Of Variable Annuity Contracts With Guarantees Invested In Separate Accounts |
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Shares and Stockholders' Equity (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Shares and Stockholders' Equity [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Changes In Common stock (Number Of Shares) |
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Reconciliation Of The Denominator Calculations Of Basic And Diluted EPS |
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Components And Changes In Accumulated OCI |
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Schedule of Reclassifications Out Of AOCI |
|
Realized Gain (Loss) (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2017 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Realized Gain (Loss) [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Details underlying realized (gain) loss |
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Stock-Based Compensation Plans (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock-Based Compensation Plans [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock Based Awards Granted Table |
|
Fair Value of Financial Instruments (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value of Financial Instruments [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Carrying And Estimated Fair Values Of Financial Instruments |
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Fair Value Of Assets And Liabilities On A Recurring Basis |
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Fair Value Measured On A Recurring Basis Reconciliation |
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Schedule Of Investment Holdings Movements |
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Changes In Unrealized Gains (Losses) Within Level 3 Financial Instruments Carried At Fair Value And Still Held |
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Components Of The Transfers In And Out Of Level 3 |
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Fair Value Inputs Quantitative Information |
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Segment Information (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Segment Information [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Reconciliation Of Revenue From Segments To Consolidated |
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Reconciliation Of Income (Loss) From Operations By Segment To Consolidated Net Income (Loss) |
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New Accounting Standards (Narrative) (Details) $ in Billions |
12 Months Ended |
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Dec. 31, 2016
USD ($)
| |
Accounting Standards Update 2014-09 [Member] | |
New Accounting Pronouncements or Change in Accounting Principle [Line Items] | |
Other fee income and other revenue within the scope of ASU 2014-09 | $ 1 |
Variable Interest Entities ("VIE's") (CLN Structures Summary Information ) (Details) $ in Millions |
6 Months Ended |
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Jun. 30, 2017
USD ($)
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Credit Linked Note Structure December 2006 [Member] | |
Credit Linked Notes Structures Summary Information [Line Items] | |
Amount of Issuance | $ 400 |
Maturity | Dec. 20, 2016 |
Credit Linked Note Structure April 2007 [Member] | |
Credit Linked Notes Structures Summary Information [Line Items] | |
Amount of Issuance | $ 200 |
Maturity | Mar. 20, 2017 |
Variable Interest Entities ("VIE's") (Narrative) (Details) |
6 Months Ended | ||
---|---|---|---|
Jun. 30, 2017
USD ($)
|
Jun. 30, 2016
USD ($)
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Dec. 31, 2016
USD ($)
contract
|
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Variable Interest Entity [Line Items] | |||
Carrying Amounts of our Investments in LPs and LLCs, As Recognized In Other Investments on our Consolidated Balance Sheets | $ 2,156,000,000 | $ 2,230,000,000 | |
Income Tax Credits And Other Tax Benefits From Qualified Affordable Housing Projects | 2,000,000 | $ 2,000,000 | |
Number of Instruments, Liabilities | contract | 1 | ||
Notional Amounts, Liabilities | $ 0 | ||
Carrying Value, Liabilities | 0 | 0 | |
Limited Partnerships and Limited Liability Companies [Member] | |||
Variable Interest Entity [Line Items] | |||
Carrying Amounts of our Investments in LPs and LLCs, As Recognized In Other Investments on our Consolidated Balance Sheets | 1,400,000,000 | 1,300,000,000 | |
Carrying Amount Of Investments In Qualified Affordable Housing Projects | $ 34,000,000 | $ 37,000,000 |
Variable Interest Entities ("VIE's") (Consolidated Variable Interest Entity Settlement Payments and Mark-to-Market Adjustments) (Details) - Derivative Instruments Not Designated and Not Qualifying as Hedging Instruments [Member] - USD ($) $ in Millions |
3 Months Ended | 6 Months Ended | ||||
---|---|---|---|---|---|---|
Jun. 30, 2017 |
Jun. 30, 2016 |
Jun. 30, 2017 |
Jun. 30, 2016 |
|||
Consolidated Variable Interest Entity Settlement Payments And Mark To Market Adjustments [Line Items] | ||||||
Gains (losses) for consolidated variable interest entities | [1] | $ (1) | $ 5 | |||
Credit default swaps [Member] | ||||||
Consolidated Variable Interest Entity Settlement Payments And Mark To Market Adjustments [Line Items] | ||||||
Gains (losses) for consolidated variable interest entities | (1) | 5 | ||||
Contingent forwards [Member] | ||||||
Consolidated Variable Interest Entity Settlement Payments And Mark To Market Adjustments [Line Items] | ||||||
Gains (losses) for consolidated variable interest entities | ||||||
|
Investments (Narrative) (Details) $ in Millions |
6 Months Ended | 12 Months Ended |
---|---|---|
Jun. 30, 2017
USD ($)
item
|
Dec. 31, 2016
USD ($)
item
|
|
Investment [Line Items] | ||
Increase (decrease) in gross AFS securities unrealized losses | $ (548) | |
Number of partnerships in alternative investment portfolio | item | 206 | 202 |
Alternative investments as a percentage of overall invested assets | 1.00% | 1.00% |
Fair value of collateral received that we are permitted to sell or re-pledge | $ 177 | |
Securities that have been re-pledged | 80 | |
Investment commitments | 1,700 | |
Investment commitments for limited partnerships | 794 | |
Investment commitments for mortgage loans on real estate | 443 | |
Investment commitments for private placements | $ 466 | |
California [Member] | ||
Investment [Line Items] | ||
Largest mortgage loan concentration in geographic region | 20.00% | 20.00% |
Texas [Member] | ||
Investment [Line Items] | ||
Largest mortgage loan concentration in geographic region | 11.00% | 11.00% |
Federal Home Loan Mortgage Corporation [Member] | ||
Investment [Line Items] | ||
Fair value | $ 1,400 | $ 1,500 |
Federal Home Loan Mortgage Corporation [Member] | Invested Assets [Member] | ||
Investment [Line Items] | ||
Concentration risk, percentage | 1.00% | 1.00% |
Fannie Mae [Member] | ||
Investment [Line Items] | ||
Fair value | $ 1,000 | $ 1,100 |
Fannie Mae [Member] | Invested Assets [Member] | ||
Investment [Line Items] | ||
Concentration risk, percentage | 1.00% | 1.00% |
Consumer Non-Cyclical Industry [Member] | ||
Investment [Line Items] | ||
Fair value | $ 14,700 | $ 13,700 |
Consumer Non-Cyclical Industry [Member] | Invested Assets [Member] | ||
Investment [Line Items] | ||
Concentration risk, percentage | 13.00% | 13.00% |
Utilities Industry [Member] | ||
Investment [Line Items] | ||
Fair value | $ 13,800 | $ 13,200 |
Utilities Industry [Member] | Invested Assets [Member] | ||
Investment [Line Items] | ||
Concentration risk, percentage | 12.00% | 12.00% |
Corporate bonds [Member] | ||
Investment [Line Items] | ||
Percentage of fair value rated as investment grade | 96.00% | 95.00% |
Amortized cost of portfolio rated below investment grade | $ 3,500 | $ 3,800 |
Fair value of portfolio rated below investment grade | $ 3,400 | $ 3,700 |
ABS [Member] | ||
Investment [Line Items] | ||
Percentage of fair value rated as investment grade | 96.00% | 96.00% |
Amortized cost of portfolio rated below investment grade | $ 86 | $ 91 |
Fair value of portfolio rated below investment grade | $ 73 | $ 75 |
MBS [Member] | ||
Investment [Line Items] | ||
Projected default rate on existing delinquencies on MBS (low end of range) | 10.00% | 10.00% |
Projected default rate on existing delinquencies on MBS (high end of range) | 100.00% | 100.00% |
Severity of second lien loans | 100.00% | 100.00% |
Severity of first lien loans | 30.00% | 30.00% |
Investments (Reconciliation Of Available-For-Sale Securities From Cost Basis To Fair Value) (Details) - USD ($) $ in Millions |
Jun. 30, 2017 |
Dec. 31, 2016 |
|||
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Amortized cost, gross unrealized gains, losses, OTTI and fair value of AFS securities | |||||
Amortized cost | $ 86,456 | $ 84,747 | |||
Gross unrealized gains | 7,384 | 5,851 | |||
Gross unrealized losses | 601 | 1,139 | |||
Gross unrealized OTTI | [1] | (50) | (29) | ||
Fair value | 93,289 | 89,488 | |||
Equity AFS securities [Member] | |||||
Amortized cost, gross unrealized gains, losses, OTTI and fair value of AFS securities | |||||
Amortized cost | 262 | 260 | |||
Gross unrealized gains | 19 | 19 | |||
Gross unrealized losses | 6 | 4 | |||
Fair value | 275 | 275 | |||
Fixed maturity AFS securities [Member] | |||||
Amortized cost, gross unrealized gains, losses, OTTI and fair value of AFS securities | |||||
Amortized cost | 86,194 | 84,487 | |||
Gross unrealized gains | 7,365 | 5,832 | |||
Gross unrealized losses | 595 | 1,135 | |||
Gross unrealized OTTI | [1] | (50) | (29) | ||
Fair value | 93,014 | 89,213 | |||
Corporate bonds [Member] | Fixed maturity AFS securities [Member] | |||||
Amortized cost, gross unrealized gains, losses, OTTI and fair value of AFS securities | |||||
Amortized cost | 74,934 | 73,275 | |||
Gross unrealized gains | 6,108 | 4,754 | |||
Gross unrealized losses | 500 | 970 | |||
Gross unrealized OTTI | [1] | (6) | (5) | ||
Fair value | 80,548 | 77,064 | |||
ABS [Member] | Fixed maturity AFS securities [Member] | |||||
Amortized cost, gross unrealized gains, losses, OTTI and fair value of AFS securities | |||||
Amortized cost | 996 | 1,047 | |||
Gross unrealized gains | 46 | 39 | |||
Gross unrealized losses | 12 | 14 | |||
Gross unrealized OTTI | [1] | (20) | (13) | ||
Fair value | 1,050 | 1,085 | |||
U.S. government bonds [Member] | Fixed maturity AFS securities [Member] | |||||
Amortized cost, gross unrealized gains, losses, OTTI and fair value of AFS securities | |||||
Amortized cost | 536 | 384 | |||
Gross unrealized gains | 44 | 37 | |||
Gross unrealized losses | 2 | 2 | |||
Fair value | 578 | 419 | |||
Foreign government bonds [Member] | Fixed maturity AFS securities [Member] | |||||
Amortized cost, gross unrealized gains, losses, OTTI and fair value of AFS securities | |||||
Amortized cost | 397 | 449 | |||
Gross unrealized gains | 58 | 58 | |||
Gross unrealized losses | 1 | ||||
Fair value | 455 | 506 | |||
RMBS [Member] | Fixed maturity AFS securities [Member] | |||||
Amortized cost, gross unrealized gains, losses, OTTI and fair value of AFS securities | |||||
Amortized cost | 3,412 | 3,534 | |||
Gross unrealized gains | 160 | 147 | |||
Gross unrealized losses | 38 | 73 | |||
Gross unrealized OTTI | [1] | (18) | (6) | ||
Fair value | 3,552 | 3,614 | |||
CMBS [Member] | Fixed maturity AFS securities [Member] | |||||
Amortized cost, gross unrealized gains, losses, OTTI and fair value of AFS securities | |||||
Amortized cost | 466 | 345 | |||
Gross unrealized gains | 10 | 8 | |||
Gross unrealized losses | 2 | 4 | |||
Gross unrealized OTTI | [1] | (2) | (1) | ||
Fair value | 476 | 350 | |||
CLOs [Member] | Fixed maturity AFS securities [Member] | |||||
Amortized cost, gross unrealized gains, losses, OTTI and fair value of AFS securities | |||||
Amortized cost | 697 | 742 | |||
Gross unrealized gains | 4 | 1 | |||
Gross unrealized losses | 2 | 3 | |||
Gross unrealized OTTI | [1] | (4) | (4) | ||
Fair value | 703 | 744 | |||
State and municipal bonds [Member] | Fixed maturity AFS securities [Member] | |||||
Amortized cost, gross unrealized gains, losses, OTTI and fair value of AFS securities | |||||
Amortized cost | 4,172 | 3,929 | |||
Gross unrealized gains | 850 | 718 | |||
Gross unrealized losses | 12 | 20 | |||
Fair value | 5,010 | 4,627 | |||
Hybrid and redeemable preferred securities [Member] | Fixed maturity AFS securities [Member] | |||||
Amortized cost, gross unrealized gains, losses, OTTI and fair value of AFS securities | |||||
Amortized cost | 584 | 582 | |||
Gross unrealized gains | 85 | 70 | |||
Gross unrealized losses | 27 | 48 | |||
Fair value | $ 642 | 604 | |||
VIEs' fixed maturity securities [Member] | Fixed maturity AFS securities [Member] | |||||
Amortized cost, gross unrealized gains, losses, OTTI and fair value of AFS securities | |||||
Amortized cost | 200 | ||||
Fair value | $ 200 | ||||
|
Investments (Available-For-Sale Securities By Contractual Maturities) (Details) - USD ($) $ in Millions |
Jun. 30, 2017 |
Dec. 31, 2016 |
---|---|---|
Available-for-sale Securities, Debt Maturities, Amortized Cost | ||
Amortized cost | $ 86,456 | $ 84,747 |
Available-for-sale Securities, Debt Maturities, Fair Value | ||
Fair Value | 93,289 | 89,488 |
Fixed maturity AFS securities [Member] | ||
Available-for-sale Securities, Debt Maturities, Amortized Cost | ||
Amortized cost | 86,194 | 84,487 |
Available-for-sale Securities, Debt Maturities, Fair Value | ||
Fair Value | 93,014 | $ 89,213 |
Fixed maturity AFS securities other than structured securities [Member] | Fixed maturity AFS securities [Member] | ||
Available-for-sale Securities, Debt Maturities, Amortized Cost | ||
Due in one year or less | 3,559 | |
Due after one year through five years | 16,854 | |
Due after five years through ten years | 15,756 | |
Due after ten years | 44,454 | |
Amortized cost | 80,623 | |
Available-for-sale Securities, Debt Maturities, Fair Value | ||
Due in one year or less | 3,750 | |
Due after one year through five years | 18,006 | |
Due after five years through ten years | 16,742 | |
Due after ten years | 48,735 | |
Fair Value | 87,233 | |
Structured securities [Member] | Fixed maturity AFS securities [Member] | ||
Available-for-sale Securities, Debt Maturities, Amortized Cost | ||
Amortized cost | 5,571 | |
Available-for-sale Securities, Debt Maturities, Fair Value | ||
Fair Value | $ 5,781 |
Investments (Fair Value And Gross Unrealized Losses In A Continuous Unrealized Loss Position) (Details) $ in Millions |
Jun. 30, 2017
USD ($)
security
|
Dec. 31, 2016
USD ($)
security
|
---|---|---|
Available-for-sale Securities, Continuous Unrealized Loss Position, Fair Value | ||
Less Than or Equal to Twelve Months | $ 10,065 | $ 17,813 |
Greater Than Twelve Months | 3,063 | 4,155 |
Continuous Unrealized Loss Position, Total | 13,128 | 21,968 |
Available-for-sale Securities, Continuous Unrealized Loss Position, Gross Unrealized Losses and OTTI | ||
Less Than or Equal to Twelve Months | 279 | 659 |
Greater Than Twelve Months | 339 | 507 |
Available-for-sale Securities, Continuous Unrealized Loss Position, Aggregate Losses | $ 618 | $ 1,166 |
Available-for-sale, Securities in Unrealized Loss Positions, Qualitative Disclosure, Number of Positions | security | 1,155 | 1,744 |
Equity AFS securities [Member] | ||
Available-for-sale Securities, Continuous Unrealized Loss Position, Fair Value | ||
Less Than or Equal to Twelve Months | $ 10 | $ 4 |
Greater Than Twelve Months | 15 | 44 |
Continuous Unrealized Loss Position, Total | 25 | 48 |
Available-for-sale Securities, Continuous Unrealized Loss Position, Gross Unrealized Losses and OTTI | ||
Less Than or Equal to Twelve Months | 4 | 2 |
Greater Than Twelve Months | 1 | 2 |
Available-for-sale Securities, Continuous Unrealized Loss Position, Aggregate Losses | 5 | 4 |
Fixed maturity securities [Member] | ||
Available-for-sale Securities, Continuous Unrealized Loss Position, Fair Value | ||
Less Than or Equal to Twelve Months | 10,055 | 17,809 |
Greater Than Twelve Months | 3,048 | 4,111 |
Continuous Unrealized Loss Position, Total | 13,103 | 21,920 |
Available-for-sale Securities, Continuous Unrealized Loss Position, Gross Unrealized Losses and OTTI | ||
Less Than or Equal to Twelve Months | 275 | 657 |
Greater Than Twelve Months | 338 | 505 |
Available-for-sale Securities, Continuous Unrealized Loss Position, Aggregate Losses | 613 | 1,162 |
Corporate bonds [Member] | Fixed maturity securities [Member] | ||
Available-for-sale Securities, Continuous Unrealized Loss Position, Fair Value | ||
Less Than or Equal to Twelve Months | 8,521 | 15,820 |
Greater Than Twelve Months | 2,417 | 3,187 |
Continuous Unrealized Loss Position, Total | 10,938 | 19,007 |
Available-for-sale Securities, Continuous Unrealized Loss Position, Gross Unrealized Losses and OTTI | ||
Less Than or Equal to Twelve Months | 223 | 569 |
Greater Than Twelve Months | 279 | 403 |
Available-for-sale Securities, Continuous Unrealized Loss Position, Aggregate Losses | 502 | 972 |
ABS [Member] | Fixed maturity securities [Member] | ||
Available-for-sale Securities, Continuous Unrealized Loss Position, Fair Value | ||
Less Than or Equal to Twelve Months | 84 | 201 |
Greater Than Twelve Months | 260 | 298 |
Continuous Unrealized Loss Position, Total | 344 | 499 |
Available-for-sale Securities, Continuous Unrealized Loss Position, Gross Unrealized Losses and OTTI | ||
Less Than or Equal to Twelve Months | 3 | 4 |
Greater Than Twelve Months | 21 | 25 |
Available-for-sale Securities, Continuous Unrealized Loss Position, Aggregate Losses | 24 | 29 |
U.S. government bonds [Member] | Fixed maturity securities [Member] | ||
Available-for-sale Securities, Continuous Unrealized Loss Position, Fair Value | ||
Less Than or Equal to Twelve Months | 172 | 18 |
Continuous Unrealized Loss Position, Total | 172 | 18 |
Available-for-sale Securities, Continuous Unrealized Loss Position, Gross Unrealized Losses and OTTI | ||
Less Than or Equal to Twelve Months | 2 | 2 |
Available-for-sale Securities, Continuous Unrealized Loss Position, Aggregate Losses | 2 | 2 |
Foreign government bonds [Member] | Fixed maturity securities [Member] | ||
Available-for-sale Securities, Continuous Unrealized Loss Position, Fair Value | ||
Less Than or Equal to Twelve Months | 29 | |
Continuous Unrealized Loss Position, Total | 29 | |
Available-for-sale Securities, Continuous Unrealized Loss Position, Gross Unrealized Losses and OTTI | ||
Less Than or Equal to Twelve Months | 1 | |
Available-for-sale Securities, Continuous Unrealized Loss Position, Aggregate Losses | 1 | |
RMBS [Member] | Fixed maturity securities [Member] | ||
Available-for-sale Securities, Continuous Unrealized Loss Position, Fair Value | ||
Less Than or Equal to Twelve Months | 805 | 989 |
Greater Than Twelve Months | 146 | 392 |
Continuous Unrealized Loss Position, Total | 951 | 1,381 |
Available-for-sale Securities, Continuous Unrealized Loss Position, Gross Unrealized Losses and OTTI | ||
Less Than or Equal to Twelve Months | 35 | 58 |
Greater Than Twelve Months | 5 | 23 |
Available-for-sale Securities, Continuous Unrealized Loss Position, Aggregate Losses | 40 | 81 |
CMBS [Member] | Fixed maturity securities [Member] | ||
Available-for-sale Securities, Continuous Unrealized Loss Position, Fair Value | ||
Less Than or Equal to Twelve Months | 92 | 190 |
Greater Than Twelve Months | 8 | 19 |
Continuous Unrealized Loss Position, Total | 100 | 209 |
Available-for-sale Securities, Continuous Unrealized Loss Position, Gross Unrealized Losses and OTTI | ||
Less Than or Equal to Twelve Months | 2 | 4 |
Greater Than Twelve Months | 2 | 2 |
Available-for-sale Securities, Continuous Unrealized Loss Position, Aggregate Losses | 4 | 6 |
CLOs [Member] | Fixed maturity securities [Member] | ||
Available-for-sale Securities, Continuous Unrealized Loss Position, Fair Value | ||
Less Than or Equal to Twelve Months | 227 | 259 |
Greater Than Twelve Months | 19 | 25 |
Continuous Unrealized Loss Position, Total | 246 | 284 |
Available-for-sale Securities, Continuous Unrealized Loss Position, Gross Unrealized Losses and OTTI | ||
Less Than or Equal to Twelve Months | 2 | 3 |
Available-for-sale Securities, Continuous Unrealized Loss Position, Aggregate Losses | 2 | 3 |
State and municipal bonds [Member] | Fixed maturity securities [Member] | ||
Available-for-sale Securities, Continuous Unrealized Loss Position, Fair Value | ||
Less Than or Equal to Twelve Months | 132 | 227 |
Greater Than Twelve Months | 47 | 47 |
Continuous Unrealized Loss Position, Total | 179 | 274 |
Available-for-sale Securities, Continuous Unrealized Loss Position, Gross Unrealized Losses and OTTI | ||
Less Than or Equal to Twelve Months | 7 | 12 |
Greater Than Twelve Months | 5 | 8 |
Available-for-sale Securities, Continuous Unrealized Loss Position, Aggregate Losses | 12 | 20 |
Hybrid and redeemable preferred securities [Member] | Fixed maturity securities [Member] | ||
Available-for-sale Securities, Continuous Unrealized Loss Position, Fair Value | ||
Less Than or Equal to Twelve Months | 22 | 76 |
Greater Than Twelve Months | 151 | 143 |
Continuous Unrealized Loss Position, Total | 173 | 219 |
Available-for-sale Securities, Continuous Unrealized Loss Position, Gross Unrealized Losses and OTTI | ||
Less Than or Equal to Twelve Months | 1 | 4 |
Greater Than Twelve Months | 26 | 44 |
Available-for-sale Securities, Continuous Unrealized Loss Position, Aggregate Losses | $ 27 | $ 48 |
Investments (Schedule Of Available-For-Sale Securities Whose Value Is Below Amortized Cost) (Details) $ in Millions |
6 Months Ended | 12 Months Ended | |||
---|---|---|---|---|---|
Jun. 30, 2017
USD ($)
security
|
Dec. 31, 2016
USD ($)
security
|
||||
Schedule of Available-for-sale Securities [Line Items] | |||||
Fair Value - Nine months or greater, but less than twelve months | $ 10,065 | $ 17,813 | |||
Fair Value - Twelve months or greater | 3,063 | 4,155 | |||
Fair Value - Total | 13,128 | 21,968 | |||
Fair Value | 93,289 | 89,488 | |||
Losses - Nine months or greater, but less than twelve months | 279 | 659 | |||
Losses - Twelve months or greater | 339 | 507 | |||
Losses - Total | $ 618 | $ 1,166 | |||
Number of Securities - Total | security | 1,155 | 1,744 | |||
Fair Value Decline, Greater Than 20% [Member] | |||||
Schedule of Available-for-sale Securities [Line Items] | |||||
Fair Value - Less than six months | $ 64 | $ 174 | |||
Fair Value - Six months or greater, but less than nine months | 41 | ||||
Fair Value - Nine months or greater, but less than twelve months | 2 | 1 | |||
Fair Value - Twelve months or greater | 253 | 364 | |||
Fair Value - Total | 360 | 539 | |||
Losses - Less than six months | 26 | 52 | |||
Losses - Six months or greater, but less than nine months | 14 | ||||
Losses - Nine months or greater, but less than twelve months | 1 | 1 | |||
Losses - Twelve months or greater | 110 | 167 | |||
Losses - Total | 151 | 220 | |||
OTTI - Less than six months | 2 | ||||
OTTI - Nine months or greater, but less than twelve months | 1 | ||||
OTTI - Twelve months or greater | 9 | 10 | |||
OTTI - Total | $ 10 | $ 12 | |||
Number of Securities - Less than six months | security | [1] | 21 | 19 | ||
Number of Securities - Six months or greater, but less than nine months | security | [1] | 5 | |||
Number of Securities - Nine months or greater, but less than twelve months | security | [1] | 3 | 2 | ||
Number of Securities - Twelve months or greater | security | [1] | 51 | 62 | ||
Number of Securities - Total | security | [1] | 80 | 83 | ||
|
Investments (Schedule Of Changes in Amount Of Credit Losses Of OTTI Recognized In Net Income (Loss)) (Details) - USD ($) $ in Millions |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2017 |
Jun. 30, 2016 |
Jun. 30, 2017 |
Jun. 30, 2016 |
|
Investments [Abstract] | ||||
Balance as of beginning of period | $ 393 | $ 413 | $ 430 | $ 382 |
Increases attributable to: | ||||
Credit losses on securities for which an OTTI was not previously recognized | 4 | 26 | 5 | 61 |
Credit losses on securities for which an OTTI was previously recognized | 2 | 3 | 7 | |
Decreases attributable to: | ||||
Securities sold, paid down or matured | (7) | (10) | (48) | (19) |
Balance as of end of period | $ 390 | $ 431 | $ 390 | $ 431 |
Investments (Schedule Of Details Of The Amount Of Credit Losses Of OTTI Recognized In Net Income (Loss)) (Details) - USD ($) $ in Millions |
6 Months Ended | 12 Months Ended | ||||
---|---|---|---|---|---|---|
Jun. 30, 2017 |
Dec. 31, 2016 |
Mar. 31, 2017 |
Jun. 30, 2016 |
Mar. 31, 2016 |
Dec. 31, 2015 |
|
Other than Temporary Impairment, Credit Losses Recognized in Earnings [Line Items] | ||||||
Amortized Cost | $ 542 | $ 666 | ||||
Net Unrealized Gain/(Loss) Position | 50 | 29 | ||||
Fair Value | 592 | 695 | ||||
OTTI in Credit Losses | 390 | 430 | $ 393 | $ 431 | $ 413 | $ 382 |
Corporate bonds [Member] | ||||||
Other than Temporary Impairment, Credit Losses Recognized in Earnings [Line Items] | ||||||
Amortized Cost | 22 | 80 | ||||
Net Unrealized Gain/(Loss) Position | 6 | 5 | ||||
Fair Value | 28 | 85 | ||||
OTTI in Credit Losses | 43 | 77 | ||||
ABS [Member] | ||||||
Other than Temporary Impairment, Credit Losses Recognized in Earnings [Line Items] | ||||||
Amortized Cost | 199 | 212 | ||||
Net Unrealized Gain/(Loss) Position | 20 | 13 | ||||
Fair Value | 219 | 225 | ||||
OTTI in Credit Losses | 112 | 112 | ||||
RMBS [Member] | ||||||
Other than Temporary Impairment, Credit Losses Recognized in Earnings [Line Items] | ||||||
Amortized Cost | 292 | 332 | ||||
Net Unrealized Gain/(Loss) Position | 18 | 6 | ||||
Fair Value | 310 | 338 | ||||
OTTI in Credit Losses | 188 | 194 | ||||
CMBS [Member] | ||||||
Other than Temporary Impairment, Credit Losses Recognized in Earnings [Line Items] | ||||||
Amortized Cost | 18 | 29 | ||||
Net Unrealized Gain/(Loss) Position | 2 | 1 | ||||
Fair Value | 20 | 30 | ||||
OTTI in Credit Losses | 39 | 39 | ||||
CLOs [Member] | ||||||
Other than Temporary Impairment, Credit Losses Recognized in Earnings [Line Items] | ||||||
Amortized Cost | 11 | 11 | ||||
Net Unrealized Gain/(Loss) Position | 4 | 4 | ||||
Fair Value | 15 | 15 | ||||
OTTI in Credit Losses | 5 | 5 | ||||
State and municipal bonds [Member] | ||||||
Other than Temporary Impairment, Credit Losses Recognized in Earnings [Line Items] | ||||||
Amortized Cost | 2 | |||||
Fair Value | 2 | |||||
OTTI in Credit Losses | $ 3 | $ 3 |
Investments (Composition Of Current And Past Due Mortgage Loans On Real Estate) (Details) - USD ($) $ in Millions |
Jun. 30, 2017 |
Mar. 31, 2017 |
Dec. 31, 2016 |
Jun. 30, 2016 |
Mar. 31, 2016 |
Dec. 31, 2015 |
---|---|---|---|---|---|---|
Mortgage Loans On Real Estate Aging [Abstract] | ||||||
Current | $ 10,023 | $ 9,888 | ||||
Greater than 90 days past due | 2 | 2 | ||||
Valuation allowance associated with impaired mortgage loans on real estate | (2) | $ (2) | (2) | $ (2) | $ (2) | $ (2) |
Unamortized premium (discount) | 1 | |||||
Total carrying value | $ 10,023 | $ 9,889 |
Investments (Schedule Of Impaired Mortgage Loans) (Details) $ in Millions |
Jun. 30, 2017
USD ($)
item
|
Mar. 31, 2017
USD ($)
|
Dec. 31, 2016
USD ($)
item
|
Jun. 30, 2016
USD ($)
|
Mar. 31, 2016
USD ($)
|
Dec. 31, 2015
USD ($)
|
---|---|---|---|---|---|---|
Information about impaired mortgage loans on real estate | ||||||
Number of impaired mortgage loans on real estate | item | 2 | 2 | ||||
Principal balance of impaired mortgage loans on real estate | $ 7 | $ 7 | ||||
Valuation allowance associated with impaired mortgage loans on real estate | (2) | $ (2) | (2) | $ (2) | $ (2) | $ (2) |
Carrying value of impaired mortgage loans on real estate | $ 5 | $ 5 |
Investments (Changes In The Valuation Allowance Of Impaired Mortgage Loans On Real Estate (Details) - USD ($) $ in Millions |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2017 |
Jun. 30, 2016 |
Jun. 30, 2017 |
Jun. 30, 2016 |
|
Allowance for Losses | ||||
Balance as of beginning-of-period | $ 2 | $ 2 | $ 2 | $ 2 |
Additions | ||||
Charge-offs, net of recoveries | ||||
Balance as of end-of-period | $ 2 | $ 2 | $ 2 | $ 2 |
Investments (Average Carrying Value On The Impaired Mortgage Loans On Real Estate) (Details) - USD ($) $ in Millions |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2017 |
Jun. 30, 2016 |
Jun. 30, 2017 |
Jun. 30, 2016 |
|
Information about impaired mortgage loans on real estate | ||||
Average carrying value for impaired mortgage loans on real estate | $ 5 | $ 6 | $ 5 | $ 6 |
Investments (Credit Quality Indicators For Mortgage Loans) (Details) $ in Millions |
Jun. 30, 2017
USD ($)
|
Dec. 31, 2016
USD ($)
|
---|---|---|
Mortgage Loans Credit Quality [Line Items] | ||
Carrying value of mortgage loans on real estate | $ 10,023 | $ 9,889 |
Percentage of total mortgage loans on real estate | 100.00% | 100.00% |
Loan-to-value ratio, less than 65% [Member] | ||
Mortgage Loans Credit Quality [Line Items] | ||
Carrying value of mortgage loans on real estate | $ 8,993 | $ 8,709 |
Percentage of total mortgage loans on real estate | 89.70% | 88.00% |
Debt-service coverage ratio | 2.22 | 2.16 |
Loan-to-value ratio, 65% to 74% [Member] | ||
Mortgage Loans Credit Quality [Line Items] | ||
Carrying value of mortgage loans on real estate | $ 892 | $ 1,009 |
Percentage of total mortgage loans on real estate | 8.90% | 10.20% |
Debt-service coverage ratio | 1.89 | 1.87 |
Loan-to-value ratio, 75% to 100% [Member] | ||
Mortgage Loans Credit Quality [Line Items] | ||
Carrying value of mortgage loans on real estate | $ 133 | $ 166 |
Percentage of total mortgage loans on real estate | 1.30% | 1.70% |
Debt-service coverage ratio | 0.82 | 0.82 |
Loan-To-Value Ratio, Greater Than 100% [Member] | ||
Mortgage Loans Credit Quality [Line Items] | ||
Carrying value of mortgage loans on real estate | $ 5 | $ 5 |
Percentage of total mortgage loans on real estate | 0.10% | 0.10% |
Debt-service coverage ratio | 1.04 | 1.04 |
Investments (Realized Gain (Loss) Related To Certain Investments) (Details) - USD ($) $ in Millions |
3 Months Ended | 6 Months Ended | |||||||
---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2017 |
Jun. 30, 2016 |
Jun. 30, 2017 |
Jun. 30, 2016 |
||||||
Realized gain (loss) related to certain investments | |||||||||
Gain (loss) on other investments | $ (2) | $ (3) | $ (5) | $ (63) | |||||
Associated amortization of DAC, VOBA, DSI and DFEL and changes in other contract holder funds | (6) | (5) | (13) | (8) | |||||
Total realized gain (loss) related to certain investments, pre-tax | [1] | (18) | (65) | (31) | (172) | ||||
Fixed maturity AFS securities [Member] | |||||||||
Realized gain (loss) related to certain investments | |||||||||
AFS securities. Gross gains | [2] | 3 | 7 | 11 | 61 | ||||
AFS securities. Gross losses | [2] | (13) | (65) | (25) | (163) | ||||
Equity AFS securities [Member] | |||||||||
Realized gain (loss) related to certain investments | |||||||||
AFS securities. Gross gains | 2 | 1 | 2 | ||||||
AFS securities. Gross losses | $ (1) | $ (1) | |||||||
|
Investments (OTTI Recognized In Net Income (Loss) And OCI) (Details) - USD ($) $ in Millions |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2017 |
Jun. 30, 2016 |
Jun. 30, 2017 |
Jun. 30, 2016 |
|
OTTI Recognized in Net Income (Loss) | ||||
Gross OTTI recognized in net income (loss) | $ (4) | $ (29) | $ (8) | $ (69) |
Associated amortization of DAC, VOBA, DSI and DFEL | 1 | 5 | ||
Net OTTI recognized in net income (loss), pre-tax | (4) | (28) | (8) | (64) |
Portion of OTTI Recognized in OCI | ||||
Gross OTTI recognized in OCI | 10 | 36 | ||
Change in DAC, VOBA, DSI and DFEL | (2) | (8) | ||
Net portion of OTTI recognized in OCI, pre-tax | 8 | 28 | ||
Equity AFS securities [Member] | ||||
OTTI Recognized in Net Income (Loss) | ||||
Gross OTTI recognized in net income (loss) | (1) | (1) | ||
Fixed maturity securities [Member] | ||||
OTTI Recognized in Net Income (Loss) | ||||
Gross OTTI recognized in net income (loss) | (4) | (28) | (8) | (68) |
Fixed maturity securities [Member] | Corporate bonds [Member] | ||||
OTTI Recognized in Net Income (Loss) | ||||
Gross OTTI recognized in net income (loss) | $ (4) | (26) | (5) | (62) |
Fixed maturity securities [Member] | ABS [Member] | ||||
OTTI Recognized in Net Income (Loss) | ||||
Gross OTTI recognized in net income (loss) | (1) | (1) | (3) | |
Fixed maturity securities [Member] | RMBS [Member] | ||||
OTTI Recognized in Net Income (Loss) | ||||
Gross OTTI recognized in net income (loss) | $ (1) | (1) | $ (3) | |
Fixed maturity securities [Member] | State and municipal bonds [Member] | ||||
OTTI Recognized in Net Income (Loss) | ||||
Gross OTTI recognized in net income (loss) | $ (1) |
Investments (Payables For Collateral On Investments) (Details) - USD ($) $ in Millions |
6 Months Ended | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2017 |
Dec. 31, 2016 |
||||||||||
Carrying Value Of Payables For Collateral On Investments [Abstract] | |||||||||||
Collateral payable for derivative investments | [1] | $ 1,054 | $ 894 | ||||||||
Securities pledged under securities lending agreements | [2] | 208 | 216 | ||||||||
Securities pledged under repurchase agreements | [3] | 540 | 535 | ||||||||
Investments pledged for Federal Home Loan Bank of Indianapolis ('FHLBI') | [4] | 3,150 | 3,350 | ||||||||
Total payables for collateral on investments | 4,952 | 4,995 | |||||||||
Fair Value Of Related Investments Or Collateral [Abstract] | |||||||||||
Collateral payable for derivative investments | [1] | 1,054 | 894 | ||||||||
Securities pledged under securities lending agreements | [2] | 200 | 209 | ||||||||
Securities pledged under repurchase agreements | [3] | 587 | 589 | ||||||||
Investments pledged for Federal Home Loan Bank of Indianapolis('FHLBI') | [4] | 4,654 | 4,947 | ||||||||
Total payables for collateral on investments | $ 6,495 | $ 6,639 | |||||||||
Percentage of the fair value of domestic securities obtained as collateral under securities lending agreements. | 102.00% | ||||||||||
Percentage of the fair value of foreign securities obtained as collateral under securities lending agreements. | 105.00% | ||||||||||
Percentage of the fair value of securities obtained as collateral under reverse repurchase agreements. | 95.00% | ||||||||||
Maximum [Member] | |||||||||||
Fair Value Of Related Investments Or Collateral [Abstract] | |||||||||||
Percentage of the fair value of FHLBI securities obtained as collateral under securities pledged for FHLBI for AFS Securities | 115.00% | ||||||||||
Percentage of the fair value of FHLBI securities obtained as collateral under securities pledged for FHLBI for mortgage loan | 175.00% | ||||||||||
Minimum [Member] | |||||||||||
Fair Value Of Related Investments Or Collateral [Abstract] | |||||||||||
Percentage of the fair value of FHLBI securities obtained as collateral under securities pledged for FHLBI for AFS Securities | 105.00% | ||||||||||
Percentage of the fair value of FHLBI securities obtained as collateral under securities pledged for FHLBI for mortgage loan | 155.00% | ||||||||||
|
Investments (Schedule Of Increase (Decrease) In Payables For Collateral On Investments) (Details) - USD ($) $ in Millions |
6 Months Ended | |
---|---|---|
Jun. 30, 2017 |
Jun. 30, 2016 |
|
Increase (decrease) in payables for collateral on investments | ||
Collateral payable for derivative investments | $ 160 | $ 1,617 |
Securities pledged under securities lending agreements | (8) | 7 |
Securities pledged under repurchase agreements | 5 | 16 |
Investments pledged for FHLBI | (200) | |
Total increase (decrease) in payables for collateral on investments | $ (43) | $ 1,640 |
Investments (Schedule of Securities Pledged by Contractual Maturity) (Details) - USD ($) $ in Millions |
6 Months Ended | 12 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2017 |
Dec. 31, 2016 |
|||
Transfer of Certain Financial Assets Accounted for as Secured Borrowings [Line Items] | ||||
Repurchase Agreements | $ 540 | $ 535 | ||
Securities Lending | [1] | 208 | 216 | |
Total gross secured borrowings | 748 | 751 | ||
Corporate bonds [Member] | ||||
Transfer of Certain Financial Assets Accounted for as Secured Borrowings [Line Items] | ||||
Repurchase Agreements | 540 | 535 | ||
Securities Lending | 208 | 212 | ||
Foreign government bonds [Member] | ||||
Transfer of Certain Financial Assets Accounted for as Secured Borrowings [Line Items] | ||||
Securities Lending | 4 | |||
Overnight and Continuous [Member] | ||||
Transfer of Certain Financial Assets Accounted for as Secured Borrowings [Line Items] | ||||
Securities Lending | 208 | 216 | ||
Total gross secured borrowings | 208 | 216 | ||
Overnight and Continuous [Member] | Corporate bonds [Member] | ||||
Transfer of Certain Financial Assets Accounted for as Secured Borrowings [Line Items] | ||||
Securities Lending | 208 | 212 | ||
Overnight and Continuous [Member] | Foreign government bonds [Member] | ||||
Transfer of Certain Financial Assets Accounted for as Secured Borrowings [Line Items] | ||||
Securities Lending | 4 | |||
Up to 30 days [Member] | ||||
Transfer of Certain Financial Assets Accounted for as Secured Borrowings [Line Items] | ||||
Repurchase Agreements | 100 | |||
Total gross secured borrowings | 100 | |||
Up to 30 days [Member] | Corporate bonds [Member] | ||||
Transfer of Certain Financial Assets Accounted for as Secured Borrowings [Line Items] | ||||
Repurchase Agreements | 100 | |||
30 to 90 Days [Member] | ||||
Transfer of Certain Financial Assets Accounted for as Secured Borrowings [Line Items] | ||||
Repurchase Agreements | 290 | 389 | ||
Total gross secured borrowings | 290 | 389 | ||
30 to 90 Days [Member] | Corporate bonds [Member] | ||||
Transfer of Certain Financial Assets Accounted for as Secured Borrowings [Line Items] | ||||
Repurchase Agreements | 290 | 389 | ||
Greater than 90 days [Member] | ||||
Transfer of Certain Financial Assets Accounted for as Secured Borrowings [Line Items] | ||||
Repurchase Agreements | 150 | 146 | ||
Total gross secured borrowings | 150 | 146 | ||
Greater than 90 days [Member] | Corporate bonds [Member] | ||||
Transfer of Certain Financial Assets Accounted for as Secured Borrowings [Line Items] | ||||
Repurchase Agreements | $ 150 | $ 146 | ||
|
Derivative Instruments (Narrative) (Details) - USD ($) |
6 Months Ended | |
---|---|---|
Jun. 30, 2017 |
Jun. 30, 2016 |
|
Cash Flow Hedge Gain (Loss) to be Reclassified within Twelve Months | $ 6,000,000 | |
Cash flow hedge, reclassified to earnings, net | 0 | $ 0 |
Exposure Associated With Collateralization Events | 4,000,000 | |
Maximum [Member] | ||
Collateral Requirement If Netting Agreements Not In Place | 1,000,000 | |
Non-performance Risk Adjustment | $ 1,000,000 |
Derivative Instruments (Outstanding Derivative Instruments With Off-Balance-Sheet Risks) (Details) - USD ($) $ in Millions |
Jun. 30, 2017 |
Dec. 31, 2016 |
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Outstanding derivative instruments with off-balance-sheet risks | |||||||||||||||||
Notional Amounts | $ 114,993 | ||||||||||||||||
Interest rate contracts [Member] | |||||||||||||||||
Outstanding derivative instruments with off-balance-sheet risks | |||||||||||||||||
Notional Amounts | [1] | 83,706 | |||||||||||||||
Foreign currency contracts [Member] | |||||||||||||||||
Outstanding derivative instruments with off-balance-sheet risks | |||||||||||||||||
Notional Amounts | [2] | 1,520 | |||||||||||||||
Equity market contracts [Member] | |||||||||||||||||
Outstanding derivative instruments with off-balance-sheet risks | |||||||||||||||||
Notional Amounts | 29,704 | ||||||||||||||||
Credit contracts [Member] | |||||||||||||||||
Outstanding derivative instruments with off-balance-sheet risks | |||||||||||||||||
Notional Amounts | 63 | ||||||||||||||||
Total Derivative Instruments [Member] | |||||||||||||||||
Outstanding derivative instruments with off-balance-sheet risks | |||||||||||||||||
Notional Amounts | 114,993 | $ 104,926 | |||||||||||||||
Asset Fair Value | 2,019 | 2,005 | |||||||||||||||
Liability Fair Value | 2,157 | 3,194 | |||||||||||||||
Derivative investments [Member] | Interest rate contracts [Member] | Derivative Instruments Not Designated and Not Qualifying as Hedging Instruments [Member] | |||||||||||||||||
Outstanding derivative instruments with off-balance-sheet risks | |||||||||||||||||
Notional Amounts | [3] | 78,622 | 70,290 | ||||||||||||||
Asset Fair Value | [3] | 766 | 985 | ||||||||||||||
Liability Fair Value | [3] | 151 | 701 | ||||||||||||||
Derivative investments [Member] | Foreign currency contracts [Member] | Derivative Instruments Not Designated and Not Qualifying as Hedging Instruments [Member] | |||||||||||||||||
Outstanding derivative instruments with off-balance-sheet risks | |||||||||||||||||
Notional Amounts | [3] | 8 | 14 | ||||||||||||||
Derivative investments [Member] | Equity market contracts [Member] | Derivative Instruments Not Designated and Not Qualifying as Hedging Instruments [Member] | |||||||||||||||||
Outstanding derivative instruments with off-balance-sheet risks | |||||||||||||||||
Notional Amounts | [3] | 29,704 | 28,315 | ||||||||||||||
Asset Fair Value | [3] | 529 | 541 | ||||||||||||||
Liability Fair Value | [3] | 390 | 616 | ||||||||||||||
Derivative investments [Member] | Credit contracts [Member] | Derivative Instruments Not Designated and Not Qualifying as Hedging Instruments [Member] | |||||||||||||||||
Outstanding derivative instruments with off-balance-sheet risks | |||||||||||||||||
Notional Amounts | [3] | 63 | 66 | ||||||||||||||
Derivative investments [Member] | Cash flow hedges | Designated as Hedging Instrument [Member] | |||||||||||||||||
Outstanding derivative instruments with off-balance-sheet risks | |||||||||||||||||
Notional Amounts | 5,119 | 4,729 | |||||||||||||||
Asset Fair Value | 163 | 221 | |||||||||||||||
Liability Fair Value | 113 | 132 | |||||||||||||||
Derivative investments [Member] | Cash flow hedges | Interest rate contracts [Member] | Designated as Hedging Instrument [Member] | |||||||||||||||||
Outstanding derivative instruments with off-balance-sheet risks | |||||||||||||||||
Notional Amounts | [3] | 3,607 | 3,552 | ||||||||||||||
Asset Fair Value | [3] | 47 | 68 | ||||||||||||||
Liability Fair Value | [3] | 92 | 122 | ||||||||||||||
Derivative investments [Member] | Cash flow hedges | Foreign currency contracts [Member] | Designated as Hedging Instrument [Member] | |||||||||||||||||
Outstanding derivative instruments with off-balance-sheet risks | |||||||||||||||||
Notional Amounts | [3] | 1,512 | 1,177 | ||||||||||||||
Asset Fair Value | [3] | 116 | 153 | ||||||||||||||
Liability Fair Value | [3] | 21 | 10 | ||||||||||||||
Derivative investments [Member] | Fair value hedges | Interest rate contracts [Member] | Designated as Hedging Instrument [Member] | |||||||||||||||||
Outstanding derivative instruments with off-balance-sheet risks | |||||||||||||||||
Notional Amounts | [3] | 1,477 | 1,512 | ||||||||||||||
Asset Fair Value | [3] | 263 | 258 | ||||||||||||||
Liability Fair Value | [3] | 182 | 182 | ||||||||||||||
Other assets [Member] | Embedded derivatives - GLB [Member] | Derivative Instruments Not Designated and Not Qualifying as Hedging Instruments [Member] | |||||||||||||||||
Outstanding derivative instruments with off-balance-sheet risks | |||||||||||||||||
Asset Fair Value | [4] | 298 | |||||||||||||||
Other liabilities [Member] | Embedded derivatives - GLB [Member] | Derivative Instruments Not Designated and Not Qualifying as Hedging Instruments [Member] | |||||||||||||||||
Outstanding derivative instruments with off-balance-sheet risks | |||||||||||||||||
Liability Fair Value | [5] | 371 | |||||||||||||||
Reinsurance related embedded derivatives [Member] | Embedded derivatives - Reinsurance related [Member] | Derivative Instruments Not Designated and Not Qualifying as Hedging Instruments [Member] | |||||||||||||||||
Outstanding derivative instruments with off-balance-sheet risks | |||||||||||||||||
Liability Fair Value | [6] | 53 | 53 | ||||||||||||||
Future contract benefits [Member] | Indexed annuity and IUL contracts embedded derivatives [Member] | Derivative Instruments Not Designated and Not Qualifying as Hedging Instruments [Member] | |||||||||||||||||
Outstanding derivative instruments with off-balance-sheet risks | |||||||||||||||||
Liability Fair Value | [7] | $ 1,268 | $ 1,139 | ||||||||||||||
|
Derivative Instruments (Maturity Of The Notional Amounts Of Derivative Financial Instruments) (Details) $ in Millions |
6 Months Ended | |||||
---|---|---|---|---|---|---|
Jun. 30, 2017
USD ($)
| ||||||
Maturity of the notional amounts of derivative financial instruments | ||||||
Remaining Life Less Than 1 Year | $ 32,637 | |||||
Remaining Life - 1 - 5 Years | 32,367 | |||||
Remaining Life - 6 - 10 Years | 31,421 | |||||
Remaining Life - 11 - 30 Years | 15,903 | |||||
Remaining Life Over - 30 Years | 2,665 | |||||
Remaining Life - Total Years | 114,993 | |||||
Interest rate contracts [Member] | ||||||
Maturity of the notional amounts of derivative financial instruments | ||||||
Remaining Life Less Than 1 Year | 15,024 | [1] | ||||
Remaining Life - 1 - 5 Years | 22,369 | [1] | ||||
Remaining Life - 6 - 10 Years | 30,174 | [1] | ||||
Remaining Life - 11 - 30 Years | 14,926 | [1] | ||||
Remaining Life Over - 30 Years | 1,213 | [1] | ||||
Remaining Life - Total Years | $ 83,706 | [1] | ||||
Derivative maturity date | Apr. 01, 2067 | |||||
Foreign currency contracts [Member] | ||||||
Maturity of the notional amounts of derivative financial instruments | ||||||
Remaining Life Less Than 1 Year | $ 19 | [2] | ||||
Remaining Life - 1 - 5 Years | 151 | [2] | ||||
Remaining Life - 6 - 10 Years | 378 | [2] | ||||
Remaining Life - 11 - 30 Years | 962 | [2] | ||||
Remaining Life Over - 30 Years | 10 | [2] | ||||
Remaining Life - Total Years | $ 1,520 | [2] | ||||
Derivative maturity date | Sep. 01, 2049 | |||||
Equity market contracts [Member] | ||||||
Maturity of the notional amounts of derivative financial instruments | ||||||
Remaining Life Less Than 1 Year | $ 17,594 | |||||
Remaining Life - 1 - 5 Years | 9,784 | |||||
Remaining Life - 6 - 10 Years | 869 | |||||
Remaining Life - 11 - 30 Years | 15 | |||||
Remaining Life Over - 30 Years | 1,442 | |||||
Remaining Life - Total Years | 29,704 | |||||
Credit contracts [Member] | ||||||
Maturity of the notional amounts of derivative financial instruments | ||||||
Remaining Life Less Than 1 Year | ||||||
Remaining Life - 1 - 5 Years | 63 | |||||
Remaining Life - 6 - 10 Years | ||||||
Remaining Life - 11 - 30 Years | ||||||
Remaining Life Over - 30 Years | ||||||
Remaining Life - Total Years | $ 63 | |||||
|
Derivative Instruments (Change In Our Unrealized Gain On Derivative Instruments In Accumulated OCI) (Details) - USD ($) $ in Millions |
3 Months Ended | 6 Months Ended | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2017 |
Jun. 30, 2016 |
Jun. 30, 2017 |
Jun. 30, 2016 |
||||||||
Change in our unrealized gain on derivative instruments in accumulated OCI | |||||||||||
Balance as of beginning-of-year | $ 1,566 | ||||||||||
Income tax expense (benefit) | $ 122 | $ 89 | 162 | $ 114 | |||||||
Balance as of end-of-period | 2,711 | 2,711 | |||||||||
Unrealized Gain (Loss) on Derivative Instruments [Member] | |||||||||||
Change in our unrealized gain on derivative instruments in accumulated OCI | |||||||||||
Balance as of beginning-of-year | 49 | 132 | |||||||||
Change in foreign currency exchange rate adjustment | (75) | 35 | |||||||||
Change in DAC, VOBA, DSI and DFEL | (8) | (6) | |||||||||
Income tax benefit (expense) | 13 | 62 | |||||||||
Reclassification adjustment for gains (losses) included in net income (loss) | 7 | 9 | |||||||||
Associated amortization of DAC, VOBA, DSI and DFEL | (2) | (1) | |||||||||
Income tax expense (benefit) | (2) | (3) | |||||||||
Balance as of end-of-period | $ 22 | $ 10 | 22 | 10 | |||||||
Unrealized Gain (Loss) on Derivative Instruments [Member] | Cash flow hedges | Interest rate contracts [Member] | |||||||||||
Change in our unrealized gain on derivative instruments in accumulated OCI | |||||||||||
Unrealized holding gains (losses) arising during the period | 1 | (240) | |||||||||
Unrealized Gain (Loss) on Derivative Instruments [Member] | Cash flow hedges | Interest rate contracts [Member] | Net Investment Income [Member] | |||||||||||
Change in our unrealized gain on derivative instruments in accumulated OCI | |||||||||||
Reclassification adjustment for gains (losses) included in net income (loss) | [1] | 2 | 4 | ||||||||
Unrealized Gain (Loss) on Derivative Instruments [Member] | Cash flow hedges | Interest rate contracts [Member] | Interest and Debt Expense [Member] | |||||||||||
Change in our unrealized gain on derivative instruments in accumulated OCI | |||||||||||
Reclassification adjustment for gains (losses) included in net income (loss) | [2] | (9) | (2) | ||||||||
Unrealized Gain (Loss) on Derivative Instruments [Member] | Cash flow hedges | Foreign currency contracts [Member] | |||||||||||
Change in our unrealized gain on derivative instruments in accumulated OCI | |||||||||||
Unrealized holding gains (losses) arising during the period | 45 | 32 | |||||||||
Unrealized Gain (Loss) on Derivative Instruments [Member] | Cash flow hedges | Foreign currency contracts [Member] | Net Investment Income [Member] | |||||||||||
Change in our unrealized gain on derivative instruments in accumulated OCI | |||||||||||
Reclassification adjustment for gains (losses) included in net income (loss) | [1] | 9 | 3 | ||||||||
Unrealized Gain (Loss) on Derivative Instruments [Member] | Cash flow hedges | Foreign currency contracts [Member] | Realized Gain (Loss) [Member] | |||||||||||
Change in our unrealized gain on derivative instruments in accumulated OCI | |||||||||||
Reclassification adjustment for gains (losses) included in net income (loss) | [3] | $ 5 | $ 4 | ||||||||
|
Derivative Instruments (Gains (Losses) On Derivative Instruments Recorded Within Income (Loss) From Continuing Operations) (Details) - USD ($) $ in Millions |
3 Months Ended | 6 Months Ended | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2017 |
Jun. 30, 2016 |
Jun. 30, 2017 |
Jun. 30, 2016 |
||||||||||
Gains (losses) | |||||||||||||
Gains (losses) | $ (96) | $ (259) | $ (165) | $ (640) | |||||||||
Designated as Hedging Instrument [Member] | Cash flow hedges | |||||||||||||
Gains (losses) | |||||||||||||
Gains (losses) | 2 | 7 | 9 | ||||||||||
Designated as Hedging Instrument [Member] | Fair value hedges | |||||||||||||
Gains (losses) | |||||||||||||
Gains (losses) | (8) | (31) | 2 | (85) | |||||||||
Designated as Hedging Instrument [Member] | Net Investment Income [Member] | Cash flow hedges | Interest rate contracts [Member] | |||||||||||||
Gains (losses) | |||||||||||||
Gains (losses) | [1] | 1 | 3 | 2 | 4 | ||||||||
Designated as Hedging Instrument [Member] | Net Investment Income [Member] | Cash flow hedges | Foreign currency contracts [Member] | |||||||||||||
Gains (losses) | |||||||||||||
Gains (losses) | [1] | 4 | 1 | 9 | 3 | ||||||||
Designated as Hedging Instrument [Member] | Net Investment Income [Member] | Fair value hedges | Interest rate contracts [Member] | |||||||||||||
Gains (losses) | |||||||||||||
Gains (losses) | [1] | (6) | (7) | (13) | (15) | ||||||||
Designated as Hedging Instrument [Member] | Interest and Debt Expense [Member] | Cash flow hedges | Interest rate contracts [Member] | |||||||||||||
Gains (losses) | |||||||||||||
Gains (losses) | [2] | (5) | (2) | (9) | (2) | ||||||||
Designated as Hedging Instrument [Member] | Interest and Debt Expense [Member] | Fair value hedges | Interest rate contracts [Member] | |||||||||||||
Gains (losses) | |||||||||||||
Gains (losses) | [2] | 7 | 8 | 15 | 16 | ||||||||
Designated as Hedging Instrument [Member] | Realized Gain (Loss) [Member] | Cash flow hedges | Foreign currency contracts [Member] | |||||||||||||
Gains (losses) | |||||||||||||
Gains (losses) | [3] | 5 | 4 | ||||||||||
Designated as Hedging Instrument [Member] | Realized Gain (Loss) [Member] | Fair value hedges | Interest rate contracts [Member] | |||||||||||||
Gains (losses) | |||||||||||||
Gains (losses) | [3] | (9) | (32) | (86) | |||||||||
Derivative Instruments Not Designated and Not Qualifying as Hedging Instruments [Member] | Realized Gain (Loss) [Member] | Interest rate contracts [Member] | |||||||||||||
Gains (losses) | |||||||||||||
Gains (losses) | [3] | 193 | 614 | 143 | 1,590 | ||||||||
Derivative Instruments Not Designated and Not Qualifying as Hedging Instruments [Member] | Realized Gain (Loss) [Member] | Foreign currency contracts [Member] | |||||||||||||
Gains (losses) | |||||||||||||
Gains (losses) | [3] | (2) | (7) | 1 | (3) | ||||||||
Derivative Instruments Not Designated and Not Qualifying as Hedging Instruments [Member] | Realized Gain (Loss) [Member] | Equity market contracts [Member] | |||||||||||||
Gains (losses) | |||||||||||||
Gains (losses) | [3] | (289) | (252) | (817) | (582) | ||||||||
Derivative Instruments Not Designated and Not Qualifying as Hedging Instruments [Member] | Realized Gain (Loss) [Member] | Credit contracts [Member] | |||||||||||||
Gains (losses) | |||||||||||||
Gains (losses) | [3] | (4) | (7) | ||||||||||
Derivative Instruments Not Designated and Not Qualifying as Hedging Instruments [Member] | Realized Gain (Loss) [Member] | Embedded derivatives - GLB [Member] | |||||||||||||
Gains (losses) | |||||||||||||
Gains (losses) | [3] | 72 | (542) | 669 | (1,505) | ||||||||
Derivative Instruments Not Designated and Not Qualifying as Hedging Instruments [Member] | Realized Gain (Loss) [Member] | Embedded derivatives - Reinsurance related [Member] | |||||||||||||
Gains (losses) | |||||||||||||
Gains (losses) | [3] | (3) | (23) | (47) | |||||||||
Derivative Instruments Not Designated and Not Qualifying as Hedging Instruments [Member] | Realized Gain (Loss) [Member] | Indexed annuity and IUL contracts embedded derivatives [Member] | |||||||||||||
Gains (losses) | |||||||||||||
Gains (losses) | [3] | (64) | (19) | (184) | (12) | ||||||||
Derivative Instruments Not Designated and Not Qualifying as Hedging Instruments [Member] | Commissions and other expenses [Member] | Equity market contracts [Member] | |||||||||||||
Gains (losses) | |||||||||||||
Gains (losses) | [4] | $ 5 | $ 3 | $ 14 | $ 2 | ||||||||
|
Derivative Instruments (Gains (Losses) On Derivative Instruments Designated As Cash Flow Hedges) (Details) - USD ($) $ in Millions |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2017 |
Jun. 30, 2016 |
Jun. 30, 2017 |
Jun. 30, 2016 |
|
Gains (losses) on derivative instruments designated and qualifying as cash flow hedges | ||||
Offset to net investment income | $ 1,262 | $ 1,199 | $ 2,499 | $ 2,371 |
Offset to realized gain (loss) | (10) | (45) | (49) | (159) |
Offset to interest and debt expense | (63) | (68) | (127) | (136) |
Designated as Hedging Instrument [Member] | Cash flow hedges | Other Comprehensive Income (Loss) [Member] | ||||
Gains (losses) on derivative instruments designated and qualifying as cash flow hedges | ||||
Offset to net investment income | 5 | 4 | 11 | 7 |
Offset to realized gain (loss) | 5 | 4 | ||
Offset to interest and debt expense | $ (5) | $ (2) | $ (9) | $ (2) |
Derivative Instruments (Open Credit Default Swap Liabilities) (Details) - Open Credit Default Swap Liabilities [Member] $ in Millions |
6 Months Ended | 12 Months Ended | |||||
---|---|---|---|---|---|---|---|
Jun. 30, 2017
USD ($)
item
|
Dec. 31, 2016
USD ($)
item
|
||||||
Summary Of Credit Derivatives | |||||||
Number of instruments | item | 1 | 2 | |||||
Fair value | [1] | $ 1 | |||||
Maximum potential payout | $ 63 | $ 40 | |||||
3/20/2017 maturity | |||||||
Summary Of Credit Derivatives | |||||||
Credit rating of underlying obligation | [2] | BBB+ | |||||
Number of instruments | item | 2 | ||||||
Maximum potential payout | $ 40 | ||||||
6/20/2022 maturity | |||||||
Summary Of Credit Derivatives | |||||||
Credit rating of underlying obligation | [2] | BBB+ | |||||
Number of instruments | item | 1 | ||||||
Fair value | [1] | $ 1 | |||||
Maximum potential payout | $ 63 | ||||||
|
Derivative Instruments (Collateral Support Agreements) (Details) - Open Credit Default Swap Liabilities [Member] - USD ($) $ in Millions |
Jun. 30, 2017 |
Dec. 31, 2016 |
---|---|---|
Credit risk related contingent features collateral | ||
Maximum potential payout | $ 63 | $ 40 |
Less: Counterparty thresholds | ||
Maximum collateral potentially required to post | $ 63 | $ 40 |
Derivative Instruments (Schedule Of Collateral Amounts With Rights To Reclaim Or Obligation To Return Cash) (Details) - USD ($) $ in Millions |
Jun. 30, 2017 |
Dec. 31, 2016 |
---|---|---|
Credit Derivatives [Line Items] | ||
Collateral Posted by Counter-Party (Held by LNC) | $ 1,054 | $ 894 |
Collateral Posted by LNC (Held by Counter-Party) | (527) | (630) |
AA- [Member] | ||
Credit Derivatives [Line Items] | ||
Collateral Posted by Counter-Party (Held by LNC) | 96 | 53 |
Collateral Posted by LNC (Held by Counter-Party) | (32) | |
A+ [Member] | ||
Credit Derivatives [Line Items] | ||
Collateral Posted by Counter-Party (Held by LNC) | 39 | 10 |
Collateral Posted by LNC (Held by Counter-Party) | (235) | (217) |
A [Member] | ||
Credit Derivatives [Line Items] | ||
Collateral Posted by Counter-Party (Held by LNC) | 579 | 466 |
Collateral Posted by LNC (Held by Counter-Party) | (287) | (381) |
A- [Member] | ||
Credit Derivatives [Line Items] | ||
Collateral Posted by Counter-Party (Held by LNC) | 39 | 67 |
Collateral Posted by LNC (Held by Counter-Party) | ||
BBB+ [Member] | ||
Credit Derivatives [Line Items] | ||
Collateral Posted by Counter-Party (Held by LNC) | 301 | 298 |
Collateral Posted by LNC (Held by Counter-Party) | $ (5) |
Derivative Instruments (Balance Sheet Offsetting) (Details) - USD ($) $ in Millions |
Jun. 30, 2017 |
Dec. 31, 2016 |
---|---|---|
Financial Assets | ||
Derivative Instruments, Gross amount of recognized assets | $ 1,600 | $ 1,470 |
Derivative Instruments, Gross amounts offset | (546) | (543) |
Derivative Instruments, Net amount of assets | 1,054 | 927 |
Derivative Instruments, Cash collateral | (1,054) | (894) |
Derivative Instruments, Net amount | 33 | |
Embedded Derivative Instruments, Gross amount of recognized assets | 298 | |
Embedded Derivative Instruments, Gross amounts offset | ||
Embedded Derivative Instruments, Net amount of assets | 298 | |
Embedded Derivative Instruments, Cash collateral | ||
Embedded Derivative Instruments, Net amount | 298 | |
Total, Gross amount of recognized assets | 1,898 | 1,470 |
Total, Gross amounts offset | (546) | (543) |
Total, Net amount of assets | 1,352 | 927 |
Total, Cash collateral | (1,054) | (894) |
Total, Net amount | 298 | 33 |
Financial Liabilities | ||
Derivative Instruments, Gross amount of recognized liabilities | 611 | 1,089 |
Derivative Instruments, Gross amounts offset | (121) | (536) |
Derivative Instruments, Net amount of liabilities | 490 | 553 |
Derivative Instruments, Cash collateral | (527) | (630) |
Derivative Instruments, Net amount | (37) | (77) |
Embedded Derivative Instruments, Gross amount of recognized liabilities | 1,321 | 1,563 |
Embedded Derivative Instruments, Gross amounts offset | ||
Embedded Derivative Instruments, Net amount of liabilities | 1,321 | 1,563 |
Embedded Derivative Instruments, Cash collateral | ||
Embedded Derivative Instruments, Net amount | 1,321 | 1,563 |
Total, Gross amount of recognized liabilities | 1,932 | 2,652 |
Total, Gross amounts offset | (121) | (536) |
Total, Net amount of liabilities | 1,811 | 2,116 |
Total, Cash collateral | (527) | (630) |
Total, Net amount | $ 1,284 | $ 1,486 |
Federal Income Taxes (Narrative) (Details) |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2017 |
Jun. 30, 2016 |
Jun. 30, 2017 |
Jun. 30, 2016 |
|
Federal Income Taxes [Abstract] | ||||
Effective tax rate | 23.00% | 21.00% | 16.00% | 18.00% |
Federal rate | 35.00% | 35.00% | 35.00% | 35.00% |
Guaranteed Benefit Features (Narrative) (Details) |
3 Months Ended | 6 Months Ended | |||
---|---|---|---|---|---|
Jun. 30, 2017 |
Jun. 30, 2016 |
Jun. 30, 2017 |
Jun. 30, 2016 |
Dec. 31, 2016 |
|
Guaranteed Benefit Features [Abstract] | |||||
Percent of permanent life insurance in force | 34.00% | 34.00% | 35.00% | ||
Percent of permanent life insurance sales | 28.00% | 33.00% | 27.00% | 31.00% |
Guaranteed Benefit Features (Information On Guaranteed Death Benefit Features) (Details) - USD ($) $ in Millions |
6 Months Ended | 12 Months Ended | |||||
---|---|---|---|---|---|---|---|
Jun. 30, 2017 |
Dec. 31, 2016 |
||||||
Return of Net Deposits [Member] | |||||||
Net Amount at Risk by Product and Guarantee [Line Items] | |||||||
Total Account Value | [1] | $ 92,182 | $ 87,707 | ||||
Net Amount At Risk | [1],[2] | $ 179 | $ 824 | ||||
Average attained age of contract holders | [1] | 64 years | 63 years | ||||
Minimum Return [Member] | |||||||
Net Amount at Risk by Product and Guarantee [Line Items] | |||||||
Total Account Value | [1] | $ 107 | $ 105 | ||||
Net Amount At Risk | [1],[2] | $ 19 | $ 22 | ||||
Average attained age of contract holders | [1] | 76 years | 75 years | ||||
Guaranteed minimum return | [1] | 5.00% | 5.00% | ||||
Anniversary Contract Value [Member] | |||||||
Net Amount at Risk by Product and Guarantee [Line Items] | |||||||
Total Account Value | [1] | $ 25,666 | $ 24,605 | ||||
Net Amount At Risk | [1],[2] | $ 482 | $ 782 | ||||
Average attained age of contract holders | [1] | 70 years | 69 years | ||||
|
Guaranteed Benefit Features (Summary Of Guaranteed Death Benefit Liabilities) (Details) - USD ($) $ in Millions |
6 Months Ended | |
---|---|---|
Jun. 30, 2017 |
Jun. 30, 2016 |
|
Guaranteed Benefit Features [Abstract] | ||
Balance as of beginning-of-year | $ 110 | $ 115 |
Changes in reserves | (2) | 22 |
Benefits paid | (11) | (24) |
Balance as of end-of-period | $ 97 | $ 113 |
Guaranteed Benefit Features (Account Balances Of Variable Annuity Contracts With Guarantees Invested In Separate Accounts) (Details) - Variable Annuity [Member] - USD ($) $ in Millions |
Jun. 30, 2017 |
Dec. 31, 2016 |
---|---|---|
Account Balances Of Variable Annuity Contracts With Guarantees Invested In Separate Accounts [Line Items] | ||
Total | $ 115,219 | $ 109,182 |
Percent of total variable annuity separate account values | 99.00% | 99.00% |
Domestic equity | ||
Account Balances Of Variable Annuity Contracts With Guarantees Invested In Separate Accounts [Line Items] | ||
Total | $ 55,453 | $ 52,244 |
International equity | ||
Account Balances Of Variable Annuity Contracts With Guarantees Invested In Separate Accounts [Line Items] | ||
Total | 18,610 | 17,396 |
Bonds | ||
Account Balances Of Variable Annuity Contracts With Guarantees Invested In Separate Accounts [Line Items] | ||
Total | 27,829 | 27,532 |
Money Market | ||
Account Balances Of Variable Annuity Contracts With Guarantees Invested In Separate Accounts [Line Items] | ||
Total | $ 13,327 | $ 12,010 |
Contingencies And Commitments (Narrative) (Details) $ in Millions |
Jun. 30, 2017
USD ($)
|
---|---|
Pending Litigation [Member] | |
Loss Contingencies [Line Items] | |
Loss contingency, estimate | $ 50 |
Shares and Stockholders' Equity (Narrative) (Details) - USD ($) $ in Millions |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2017 |
Jun. 30, 2016 |
Jun. 30, 2017 |
Jun. 30, 2016 |
|
Deferred compensation plan mark to market adjustment | $ (1.0) | $ (1.0) | $ 7.0 | |
Maximum [Member] | ||||
Deferred compensation plan mark to market adjustment | $ 1.0 |
Shares and Stockholders' Equity (Changes In Preferred And Common stock (Number Of Shares)) (Details) - shares |
3 Months Ended | 6 Months Ended | ||||
---|---|---|---|---|---|---|
Jun. 30, 2017 |
Jun. 30, 2016 |
Jun. 30, 2017 |
Jun. 30, 2016 |
|||
Changes In Preferred And Common Stock Number Of Shares [Line Items] | ||||||
Balance as of beginning-of-period | 226,335,105 | |||||
Balance as of end-of-period | 222,237,262 | 222,237,262 | ||||
Common stock as of end-of-period: | ||||||
Basic basis | 222,237,262 | 232,784,691 | 222,237,262 | 232,784,691 | ||
Diluted basis | [1] | 226,044,165 | 236,179,176 | 226,044,165 | 236,179,176 | |
Common Stock [Member] | ||||||
Changes In Preferred And Common Stock Number Of Shares [Line Items] | ||||||
Balance as of beginning-of-period | 224,888,259 | 239,005,252 | 226,335,105 | 243,835,893 | ||
Stock issued for exercise of warrants | 289,636 | 13,335 | 334,930 | 38,148 | ||
Stock compensation/issued for benefit plans | 89,455 | 9,537 | 1,461,286 | 670,142 | ||
Retirement/cancellation of shares | (3,030,088) | (6,243,433) | (5,894,059) | (11,759,492) | ||
Balance as of end-of-period | 222,237,262 | 232,784,691 | 222,237,262 | 232,784,691 | ||
|
Shares And Stockholders' Equity (Reconciliation Of The Denominator Calculations Of Basic And Diluted EPS) (Details) - shares |
3 Months Ended | 6 Months Ended | |||||
---|---|---|---|---|---|---|---|
Jun. 30, 2017 |
Jun. 30, 2016 |
Jun. 30, 2017 |
Jun. 30, 2016 |
||||
Reconciliation of the denominator (number of shares) in the calculations of basic and diluted earnings (loss) per common share | |||||||
Weighted-average shares, as used in basic calculation | 223,555,299 | 236,463,183 | 224,581,848 | 239,069,774 | |||
Shares to cover exercise of outstanding warrants | 694,403 | 1,098,405 | 858,916 | 1,100,176 | |||
Shares to cover non-vested stock | [1] | 1,426,550 | 872,481 | 1,551,173 | 967,816 | ||
Average stock options outstanding during the period | [1] | 2,339,558 | 2,090,988 | 2,510,344 | 1,948,817 | ||
Assumed acquisition of shares with assumed proceeds from exercising outstanding warrants | (105,156) | (265,103) | (127,696) | (278,312) | |||
Assumed acquisition of shares with assumed proceeds and benefits from exercising stock options (at average market price for the period) | [1] | (1,464,321) | (1,429,907) | (1,541,738) | (1,364,709) | ||
Shares repurchaseable from measured but unrecognized stock option expense | [1] | (59,959) | (34,492) | (68,519) | (17,797) | ||
Average deferred compensation shares | 927,508 | 1,101,384 | 938,661 | 1,070,657 | |||
Weighted-average shares, as used in diluted calculation | [1] | 227,313,882 | 239,896,939 | 228,702,989 | 242,496,422 | ||
|
Shares and Stockholders' Equity (Components And Changes In Accumulated OCI) (Details) - USD ($) $ in Millions |
3 Months Ended | 6 Months Ended | |
---|---|---|---|
Jun. 30, 2016 |
Jun. 30, 2017 |
Jun. 30, 2016 |
|
Accumulated Other Comprehensive Income (Loss) [Line Items] | |||
Balance as of beginning-of-year | $ 1,566 | ||
Increases Attributable To | |||
Gross OTTI recognized in OCI during the period | $ (10) | $ (36) | |
Less: | |||
Balance as of end-of-period | 2,711 | ||
Unrealized Gain (Loss) on AFS Securities [Member] | |||
Accumulated Other Comprehensive Income (Loss) [Line Items] | |||
Balance as of beginning-of-year | 1,784 | 991 | |
Unrealized holding gains (losses) arising during the year | 2,058 | 5,394 | |
Change in foreign currency exchange rate adjustment | 69 | (33) | |
Change in DAC, VOBA, DSI, future contract benefits and other contract holder funds | (356) | (1,620) | |
Income tax benefit (expense) | (626) | (1,321) | |
Less: | |||
Reclassification adjustment for gains (losses) included in net income (loss) | (13) | (101) | |
Associated amortization of DAC, VOBA, DSI, and DFEL | (11) | (7) | |
Income tax benefit (expense) | 8 | 38 | |
Less: | |||
Balance as of end-of-period | 3,481 | 2,945 | 3,481 |
Unrealized OTTI on AFS Securities [Member] | |||
Accumulated Other Comprehensive Income (Loss) [Line Items] | |||
Balance as of beginning-of-year | 25 | 26 | |
Increases Attributable To | |||
Gross OTTI recognized in OCI during the period | (36) | ||
Change in DAC, VOBA, DSI and DFEL | 8 | ||
Income tax benefit (expense) | 10 | ||
Decreases attributable to | |||
Changes in fair value, sales, maturities or other settlements of AFS securities | 21 | 5 | |
Change in DAC, VOBA, DSI, and DFEL | (4) | (1) | |
Income tax benefit (expense) | (6) | (2) | |
Less: | |||
Balance as of end-of-period | 10 | 36 | 10 |
Unrealized Gain (Loss) on Derivative Instruments [Member] | |||
Accumulated Other Comprehensive Income (Loss) [Line Items] | |||
Balance as of beginning-of-year | 49 | 132 | |
Unrealized holding gains (losses) arising during the year | 46 | (208) | |
Change in foreign currency exchange rate adjustment | (75) | 35 | |
Decreases attributable to | |||
Change in DAC, VOBA, DSI and DFEL | (8) | (6) | |
Income tax benefit (expense) | 13 | 62 | |
Less: | |||
Reclassification adjustment for gains (losses) included in net income (loss) | 7 | 9 | |
Associated amortization of DAC, VOBA, DSI and DFEL | (2) | (1) | |
Income tax benefit (expense) | (2) | (3) | |
Balance as of end-of-period | 10 | 22 | 10 |
Foreign Currency Translation Adjustment [Member] | |||
Accumulated Other Comprehensive Income (Loss) [Line Items] | |||
Balance as of beginning-of-year | (27) | (5) | |
Change in foreign currency exchange rate adjustment | 7 | (13) | |
Less: | |||
Balance as of end-of-period | (18) | (20) | (18) |
Funded Status of Employee Benefit Plans [Member] | |||
Accumulated Other Comprehensive Income (Loss) [Line Items] | |||
Balance as of beginning-of-year | (265) | (299) | |
Less: | |||
Adjustment arising during the period | (7) | 11 | |
Balance as of end-of-period | $ (288) | $ (272) | $ (288) |
Shares And Stockholders' Equity (Schedule of Reclassifications Out Of AOCI) (Details) - USD ($) $ in Millions |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2017 |
Jun. 30, 2016 |
Jun. 30, 2017 |
Jun. 30, 2016 |
|
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items] | ||||
Total realized gain (loss) | $ (10) | $ (45) | $ (49) | $ (159) |
Net investment income | 1,262 | 1,199 | 2,499 | 2,371 |
Interest and debt expense | (63) | (68) | (127) | (136) |
Commissions and other expenses | (1,034) | (978) | (2,048) | (1,953) |
Income (loss) from continuing operations before taxes | 533 | 414 | 1,008 | 650 |
Federal income tax expense (benefit) | 122 | 89 | 162 | 114 |
Net income (loss) | $ 411 | $ 325 | 846 | 536 |
Reclassification out of Accumulated Other Comprehensive Income [Member] | Unrealized Gain (Loss) on AFS Securities [Member] | ||||
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items] | ||||
Total realized gain (loss) | (13) | (101) | ||
Income (loss) from continuing operations before taxes | (24) | (108) | ||
Federal income tax expense (benefit) | 8 | 38 | ||
Net income (loss) | (16) | (70) | ||
Reclassification out of Accumulated Other Comprehensive Income [Member] | Unrealized Gain (Loss) on AFS Securities [Member] | Associated amortization of DAC, VOBA, DSI and DFEL [Member] | ||||
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items] | ||||
Total realized gain (loss) | (11) | (7) | ||
Reclassification out of Accumulated Other Comprehensive Income [Member] | Unrealized OTTI on AFS Securities [Member] | ||||
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items] | ||||
Total realized gain (loss) | (1) | 1 | ||
Income (loss) from continuing operations before taxes | (1) | 1 | ||
Net income (loss) | (1) | 1 | ||
Reclassification out of Accumulated Other Comprehensive Income [Member] | Unrealized Gain (Loss) on Derivative Instruments [Member] | ||||
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items] | ||||
Nonoperating income expense | 7 | 9 | ||
Income (loss) from continuing operations before taxes | 5 | 8 | ||
Federal income tax expense (benefit) | (2) | (3) | ||
Net income (loss) | 3 | 5 | ||
Reclassification out of Accumulated Other Comprehensive Income [Member] | Unrealized Gain (Loss) on Derivative Instruments [Member] | Interest rate contracts [Member] | ||||
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items] | ||||
Net investment income | 2 | 4 | ||
Interest and debt expense | (9) | (2) | ||
Reclassification out of Accumulated Other Comprehensive Income [Member] | Unrealized Gain (Loss) on Derivative Instruments [Member] | Foreign currency contracts [Member] | ||||
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items] | ||||
Total realized gain (loss) | 5 | |||
Net investment income | 9 | 7 | ||
Reclassification out of Accumulated Other Comprehensive Income [Member] | Unrealized Gain (Loss) on Derivative Instruments [Member] | Associated amortization of DAC, VOBA, DSI and DFEL [Member] | ||||
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items] | ||||
Commissions and other expenses | $ (2) | $ (1) |
Realized (Gain) Loss (Details) - USD ($) $ in Millions |
3 Months Ended | 6 Months Ended | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2017 |
Jun. 30, 2016 |
Jun. 30, 2017 |
Jun. 30, 2016 |
||||||||||
Details underlying realized gain (loss) | |||||||||||||
Total realized gain (loss) related to certain investments | [1] | $ (18) | $ (65) | $ (31) | $ (172) | ||||||||
Realized gain (loss) on the mark-to-market on certain instruments | [2] | (5) | (8) | 5 | |||||||||
Indexed annuity and IUL contracts net derivatives results: | |||||||||||||
Gross gain (loss) | [3] | (7) | (9) | (17) | (33) | ||||||||
Associated amortization of DAC, VOBA, DSI, and DFEL | [3] | 2 | 4 | 1 | 6 | ||||||||
Variable annuity net derivatives results: | |||||||||||||
Gross gain (loss) | [4] | 23 | 37 | (5) | 48 | ||||||||
Associated amortization of DAC, VOBA, DSI, and DFEL | [4] | (5) | (4) | (2) | (8) | ||||||||
Total realized gain (loss) | $ (10) | $ (45) | $ (49) | $ (159) | |||||||||
|
Stock-Based Compensation Plans (Details) - shares |
3 Months Ended | 6 Months Ended |
---|---|---|
Jun. 30, 2017 |
Jun. 30, 2017 |
|
Stock options [Member] | ||
Share-based compensation arrangement by share-based payment award [Line Items] | ||
Shares granted | 15,270 | 407,637 |
Performance Shares [Member] | ||
Share-based compensation arrangement by share-based payment award [Line Items] | ||
Shares granted | 5,126 | 154,351 |
Restricted Stock Units [Member] | ||
Share-based compensation arrangement by share-based payment award [Line Items] | ||
Shares granted | 37,365 | 435,865 |
Non-employee Stock Appreciation Rights [Member] | ||
Share-based compensation arrangement by share-based payment award [Line Items] | ||
Shares granted | 26,494 | |
Non-employee Agent Stock Options [Member] | ||
Share-based compensation arrangement by share-based payment award [Line Items] | ||
Shares granted | 102,638 | |
Non-employee Director Deferred Stock Units [Member] | ||
Share-based compensation arrangement by share-based payment award [Line Items] | ||
Shares granted | 7,059 | 14,534 |
Fair Value of Financial Instruments (Carrying and Estimated Fair Values of Financial Instruments) (Details) - USD ($) $ in Millions |
Jun. 30, 2017 |
Dec. 31, 2016 |
|||||
---|---|---|---|---|---|---|---|
AFS securities: | |||||||
AFS Fixed Maturity Securities | $ 93,014 | $ 89,013 | |||||
Variable interest entities' fixed maturity securities | 200 | ||||||
AFS Equity securities | 275 | 275 | |||||
Trading securities | 1,678 | 1,712 | |||||
Mortgage loans on real estate | 10,023 | 9,889 | |||||
Derivative investments | 1,054 | 927 | |||||
Other investments | 2,156 | 2,230 | |||||
Carrying Value [Member] | |||||||
AFS securities: | |||||||
AFS Equity securities | 275 | 275 | |||||
Trading securities | 1,678 | 1,712 | |||||
Mortgage loans on real estate | 10,023 | 9,889 | |||||
Derivative investments | [1] | 1,054 | 927 | ||||
Other investments | 2,156 | 2,230 | |||||
Cash and invested cash | 1,978 | 2,722 | |||||
Other assets - GLB direct embedded derivatives | [2] | 298 | |||||
Other assets - GLB ceded embedded derivatives | 85 | 203 | |||||
Separate account assets | 135,825 | 128,397 | |||||
Future contract benefits: | |||||||
Indexed annuity and IUL contracts embedded derivatives | (1,268) | (1,139) | |||||
Other contract holder funds: | |||||||
Remaining guaranteed interest and similar contracts | (625) | (629) | |||||
Account values of certain investment contracts | (31,982) | (31,516) | |||||
Short-term debt | (450) | ||||||
Long-term debt | (4,901) | (5,345) | |||||
Reinsurance related embedded derivatives | (53) | (53) | |||||
Other liabilities - derivative liabilities | [1] | (169) | (553) | ||||
Other liabilities - GLB direct embedded derivatives | [2] | (371) | |||||
Fair Value [Member] | |||||||
AFS securities: | |||||||
AFS Equity securities | 275 | 275 | |||||
Trading securities | 1,678 | 1,712 | |||||
Mortgage loans on real estate | 10,157 | 9,853 | |||||
Derivative investments | [1] | 1,054 | 927 | ||||
Other investments | 2,156 | 2,230 | |||||
Cash and invested cash | 1,978 | 2,722 | |||||
Other assets - GLB direct embedded derivatives | [2] | 298 | |||||
Other assets - GLB ceded embedded derivatives | 85 | 203 | |||||
Separate account assets | 135,825 | 128,397 | |||||
Future contract benefits: | |||||||
Indexed annuity and IUL contracts embedded derivatives | (1,268) | (1,139) | |||||
Other contract holder funds: | |||||||
Remaining guaranteed interest and similar contracts | (625) | (629) | |||||
Account values of certain investment contracts | (36,201) | (35,647) | |||||
Short-term debt | (457) | ||||||
Long-term debt | (5,485) | (5,679) | |||||
Reinsurance related embedded derivatives | (53) | (53) | |||||
Other liabilities - derivative liabilities | [1] | (169) | (553) | ||||
Other liabilities - GLB direct embedded derivatives | [2] | (371) | |||||
VIEs' fixed maturity securities [Member] | Carrying Value [Member] | |||||||
AFS securities: | |||||||
Variable interest entities' fixed maturity securities | 200 | ||||||
VIEs' fixed maturity securities [Member] | Fair Value [Member] | |||||||
AFS securities: | |||||||
Variable interest entities' fixed maturity securities | 200 | ||||||
Fixed maturity AFS securities [Member] | Carrying Value [Member] | |||||||
AFS securities: | |||||||
AFS Fixed Maturity Securities | 93,014 | 89,013 | |||||
Fixed maturity AFS securities [Member] | Fair Value [Member] | |||||||
AFS securities: | |||||||
AFS Fixed Maturity Securities | $ 93,014 | $ 89,013 | |||||
|
Fair Value of Financial Instruments (Fair Value of Assets and Liabilities on a Recurring Basis) (Details) - USD ($) $ in Millions |
Jun. 30, 2017 |
Dec. 31, 2016 |
|||
---|---|---|---|---|---|
Fair Value Assets And Liabilities Measured On Recurring Basis [Line Items] | |||||
Assets measured at fair value | $ 235,024 | $ 224,673 | |||
Liabilities measured at fair value | (3,292) | (4,397) | |||
Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] | |||||
Fair Value Assets And Liabilities Measured On Recurring Basis [Line Items] | |||||
Assets measured at fair value | 1,639 | 1,596 | |||
Significant Observable Inputs (Level 2) [Member] | |||||
Fair Value Assets And Liabilities Measured On Recurring Basis [Line Items] | |||||
Assets measured at fair value | 229,377 | 219,330 | |||
Liabilities measured at fair value | (1,608) | (2,195) | |||
Significant Unobservable Inputs (Level 3) [Member] | |||||
Fair Value Assets And Liabilities Measured On Recurring Basis [Line Items] | |||||
Assets measured at fair value | 4,008 | 3,747 | |||
Liabilities measured at fair value | (1,684) | (2,202) | |||
Corporate bonds [Member] | Fixed maturity AFS securities [Member] | |||||
Fair Value Assets And Liabilities Measured On Recurring Basis [Line Items] | |||||
Assets measured at fair value | 80,548 | 77,064 | |||
Corporate bonds [Member] | Significant Observable Inputs (Level 2) [Member] | Fixed maturity AFS securities [Member] | |||||
Fair Value Assets And Liabilities Measured On Recurring Basis [Line Items] | |||||
Assets measured at fair value | 78,031 | 74,659 | |||
Corporate bonds [Member] | Significant Unobservable Inputs (Level 3) [Member] | Fixed maturity AFS securities [Member] | |||||
Fair Value Assets And Liabilities Measured On Recurring Basis [Line Items] | |||||
Assets measured at fair value | 2,517 | 2,405 | |||
ABS [Member] | Fixed maturity AFS securities [Member] | |||||
Fair Value Assets And Liabilities Measured On Recurring Basis [Line Items] | |||||
Assets measured at fair value | 1,050 | 1,085 | |||
ABS [Member] | Significant Observable Inputs (Level 2) [Member] | Fixed maturity AFS securities [Member] | |||||
Fair Value Assets And Liabilities Measured On Recurring Basis [Line Items] | |||||
Assets measured at fair value | 1,007 | 1,052 | |||
ABS [Member] | Significant Unobservable Inputs (Level 3) [Member] | Fixed maturity AFS securities [Member] | |||||
Fair Value Assets And Liabilities Measured On Recurring Basis [Line Items] | |||||
Assets measured at fair value | 43 | 33 | |||
U.S. government bonds [Member] | Fixed maturity AFS securities [Member] | |||||
Fair Value Assets And Liabilities Measured On Recurring Basis [Line Items] | |||||
Assets measured at fair value | 578 | 419 | |||
U.S. government bonds [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] | Fixed maturity AFS securities [Member] | |||||
Fair Value Assets And Liabilities Measured On Recurring Basis [Line Items] | |||||
Assets measured at fair value | 564 | 408 | |||
U.S. government bonds [Member] | Significant Observable Inputs (Level 2) [Member] | Fixed maturity AFS securities [Member] | |||||
Fair Value Assets And Liabilities Measured On Recurring Basis [Line Items] | |||||
Assets measured at fair value | 9 | 11 | |||
U.S. government bonds [Member] | Significant Unobservable Inputs (Level 3) [Member] | Fixed maturity AFS securities [Member] | |||||
Fair Value Assets And Liabilities Measured On Recurring Basis [Line Items] | |||||
Assets measured at fair value | 5 | ||||
Foreign government bonds [Member] | Fixed maturity AFS securities [Member] | |||||
Fair Value Assets And Liabilities Measured On Recurring Basis [Line Items] | |||||
Assets measured at fair value | 455 | 506 | |||
Foreign government bonds [Member] | Significant Observable Inputs (Level 2) [Member] | Fixed maturity AFS securities [Member] | |||||
Fair Value Assets And Liabilities Measured On Recurring Basis [Line Items] | |||||
Assets measured at fair value | 346 | 395 | |||
Foreign government bonds [Member] | Significant Unobservable Inputs (Level 3) [Member] | Fixed maturity AFS securities [Member] | |||||
Fair Value Assets And Liabilities Measured On Recurring Basis [Line Items] | |||||
Assets measured at fair value | 109 | 111 | |||
RMBS [Member] | Fixed maturity AFS securities [Member] | |||||
Fair Value Assets And Liabilities Measured On Recurring Basis [Line Items] | |||||
Assets measured at fair value | 3,552 | 3,614 | |||
RMBS [Member] | Significant Observable Inputs (Level 2) [Member] | Fixed maturity AFS securities [Member] | |||||
Fair Value Assets And Liabilities Measured On Recurring Basis [Line Items] | |||||
Assets measured at fair value | 3,545 | 3,611 | |||
RMBS [Member] | Significant Unobservable Inputs (Level 3) [Member] | Fixed maturity AFS securities [Member] | |||||
Fair Value Assets And Liabilities Measured On Recurring Basis [Line Items] | |||||
Assets measured at fair value | 7 | 3 | |||
CMBS [Member] | Fixed maturity AFS securities [Member] | |||||
Fair Value Assets And Liabilities Measured On Recurring Basis [Line Items] | |||||
Assets measured at fair value | 476 | 350 | |||
CMBS [Member] | Significant Observable Inputs (Level 2) [Member] | Fixed maturity AFS securities [Member] | |||||
Fair Value Assets And Liabilities Measured On Recurring Basis [Line Items] | |||||
Assets measured at fair value | 455 | 343 | |||
CMBS [Member] | Significant Unobservable Inputs (Level 3) [Member] | Fixed maturity AFS securities [Member] | |||||
Fair Value Assets And Liabilities Measured On Recurring Basis [Line Items] | |||||
Assets measured at fair value | 21 | 7 | |||
CLOs [Member] | Fixed maturity AFS securities [Member] | |||||
Fair Value Assets And Liabilities Measured On Recurring Basis [Line Items] | |||||
Assets measured at fair value | 703 | 744 | |||
CLOs [Member] | Significant Observable Inputs (Level 2) [Member] | Fixed maturity AFS securities [Member] | |||||
Fair Value Assets And Liabilities Measured On Recurring Basis [Line Items] | |||||
Assets measured at fair value | 675 | 676 | |||
CLOs [Member] | Significant Unobservable Inputs (Level 3) [Member] | Fixed maturity AFS securities [Member] | |||||
Fair Value Assets And Liabilities Measured On Recurring Basis [Line Items] | |||||
Assets measured at fair value | 28 | 68 | |||
State and municipal bonds [Member] | Fixed maturity AFS securities [Member] | |||||
Fair Value Assets And Liabilities Measured On Recurring Basis [Line Items] | |||||
Assets measured at fair value | 5,010 | 4,627 | |||
State and municipal bonds [Member] | Significant Observable Inputs (Level 2) [Member] | Fixed maturity AFS securities [Member] | |||||
Fair Value Assets And Liabilities Measured On Recurring Basis [Line Items] | |||||
Assets measured at fair value | 5,010 | 4,627 | |||
Hybrid and redeemable preferred securities [Member] | Fixed maturity AFS securities [Member] | |||||
Fair Value Assets And Liabilities Measured On Recurring Basis [Line Items] | |||||
Assets measured at fair value | 642 | 604 | |||
Hybrid and redeemable preferred securities [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] | Fixed maturity AFS securities [Member] | |||||
Fair Value Assets And Liabilities Measured On Recurring Basis [Line Items] | |||||
Assets measured at fair value | 67 | 60 | |||
Hybrid and redeemable preferred securities [Member] | Significant Observable Inputs (Level 2) [Member] | Fixed maturity AFS securities [Member] | |||||
Fair Value Assets And Liabilities Measured On Recurring Basis [Line Items] | |||||
Assets measured at fair value | 493 | 468 | |||
Hybrid and redeemable preferred securities [Member] | Significant Unobservable Inputs (Level 3) [Member] | Fixed maturity AFS securities [Member] | |||||
Fair Value Assets And Liabilities Measured On Recurring Basis [Line Items] | |||||
Assets measured at fair value | 82 | 76 | |||
VIEs' fixed maturity securities [Member] | |||||
Fair Value Assets And Liabilities Measured On Recurring Basis [Line Items] | |||||
Assets measured at fair value | 200 | ||||
VIEs' fixed maturity securities [Member] | Significant Observable Inputs (Level 2) [Member] | |||||
Fair Value Assets And Liabilities Measured On Recurring Basis [Line Items] | |||||
Assets measured at fair value | 200 | ||||
Equity AFS securities [Member] | |||||
Fair Value Assets And Liabilities Measured On Recurring Basis [Line Items] | |||||
Assets measured at fair value | 275 | 275 | |||
Equity AFS securities [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] | |||||
Fair Value Assets And Liabilities Measured On Recurring Basis [Line Items] | |||||
Assets measured at fair value | 13 | 17 | |||
Equity AFS securities [Member] | Significant Observable Inputs (Level 2) [Member] | |||||
Fair Value Assets And Liabilities Measured On Recurring Basis [Line Items] | |||||
Assets measured at fair value | 79 | 81 | |||
Equity AFS securities [Member] | Significant Unobservable Inputs (Level 3) [Member] | |||||
Fair Value Assets And Liabilities Measured On Recurring Basis [Line Items] | |||||
Assets measured at fair value | 183 | 177 | |||
Trading securities [Member] | |||||
Fair Value Assets And Liabilities Measured On Recurring Basis [Line Items] | |||||
Assets measured at fair value | 1,678 | 1,712 | |||
Trading securities [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] | |||||
Fair Value Assets And Liabilities Measured On Recurring Basis [Line Items] | |||||
Assets measured at fair value | 73 | 102 | |||
Trading securities [Member] | Significant Observable Inputs (Level 2) [Member] | |||||
Fair Value Assets And Liabilities Measured On Recurring Basis [Line Items] | |||||
Assets measured at fair value | 1,546 | 1,545 | |||
Trading securities [Member] | Significant Unobservable Inputs (Level 3) [Member] | |||||
Fair Value Assets And Liabilities Measured On Recurring Basis [Line Items] | |||||
Assets measured at fair value | 59 | 65 | |||
Derivative investments [Member] | |||||
Fair Value Assets And Liabilities Measured On Recurring Basis [Line Items] | |||||
Assets measured at fair value | [1] | 1,721 | 2,005 | ||
Derivative investments [Member] | Significant Observable Inputs (Level 2) [Member] | |||||
Fair Value Assets And Liabilities Measured On Recurring Basis [Line Items] | |||||
Assets measured at fair value | [1] | 1,150 | 1,406 | ||
Derivative investments [Member] | Significant Unobservable Inputs (Level 3) [Member] | |||||
Fair Value Assets And Liabilities Measured On Recurring Basis [Line Items] | |||||
Assets measured at fair value | [1] | 571 | 599 | ||
Other investments [Member] | |||||
Fair Value Assets And Liabilities Measured On Recurring Basis [Line Items] | |||||
Assets measured at fair value | 150 | 146 | |||
Other investments [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] | |||||
Fair Value Assets And Liabilities Measured On Recurring Basis [Line Items] | |||||
Assets measured at fair value | 150 | 146 | |||
Invested cash [Member] | |||||
Fair Value Assets And Liabilities Measured On Recurring Basis [Line Items] | |||||
Assets measured at fair value | 1,978 | 2,722 | |||
Invested cash [Member] | Significant Observable Inputs (Level 2) [Member] | |||||
Fair Value Assets And Liabilities Measured On Recurring Basis [Line Items] | |||||
Assets measured at fair value | 1,978 | 2,722 | |||
GLB ceded embedded derivatives [Member] | Other assets [Member] | |||||
Fair Value Assets And Liabilities Measured On Recurring Basis [Line Items] | |||||
Assets measured at fair value | 85 | 203 | |||
GLB ceded embedded derivatives [Member] | Significant Unobservable Inputs (Level 3) [Member] | Other assets [Member] | |||||
Fair Value Assets And Liabilities Measured On Recurring Basis [Line Items] | |||||
Assets measured at fair value | 85 | 203 | |||
Separate Account Assets [Member] | |||||
Fair Value Assets And Liabilities Measured On Recurring Basis [Line Items] | |||||
Assets measured at fair value | 135,825 | 128,397 | |||
Separate Account Assets [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] | |||||
Fair Value Assets And Liabilities Measured On Recurring Basis [Line Items] | |||||
Assets measured at fair value | 772 | 863 | |||
Separate Account Assets [Member] | Significant Observable Inputs (Level 2) [Member] | |||||
Fair Value Assets And Liabilities Measured On Recurring Basis [Line Items] | |||||
Assets measured at fair value | 135,053 | 127,534 | |||
Indexed annuity and IUL contracts embedded derivatives [Member] | Future contract benefits [Member] | |||||
Fair Value Assets And Liabilities Measured On Recurring Basis [Line Items] | |||||
Liabilities measured at fair value | (1,268) | (1,139) | |||
Indexed annuity and IUL contracts embedded derivatives [Member] | Significant Unobservable Inputs (Level 3) [Member] | Future contract benefits [Member] | |||||
Fair Value Assets And Liabilities Measured On Recurring Basis [Line Items] | |||||
Liabilities measured at fair value | (1,268) | (1,139) | |||
Long-term Debt [Member] | |||||
Fair Value Assets And Liabilities Measured On Recurring Basis [Line Items] | |||||
Liabilities measured at fair value | (1,135) | (1,203) | |||
Long-term Debt [Member] | Significant Observable Inputs (Level 2) [Member] | |||||
Fair Value Assets And Liabilities Measured On Recurring Basis [Line Items] | |||||
Liabilities measured at fair value | (1,135) | (1,203) | |||
Reinsurance related embedded derivatives [Member] | |||||
Fair Value Assets And Liabilities Measured On Recurring Basis [Line Items] | |||||
Liabilities measured at fair value | (53) | (53) | |||
Reinsurance related embedded derivatives [Member] | Significant Observable Inputs (Level 2) [Member] | |||||
Fair Value Assets And Liabilities Measured On Recurring Basis [Line Items] | |||||
Liabilities measured at fair value | (53) | (53) | |||
Derivative Financial Instruments, Liabilities [Member] | Other liabilities [Member] | |||||
Fair Value Assets And Liabilities Measured On Recurring Basis [Line Items] | |||||
Liabilities measured at fair value | [1] | (836) | (1,631) | ||
Derivative Financial Instruments, Liabilities [Member] | Significant Observable Inputs (Level 2) [Member] | Other liabilities [Member] | |||||
Fair Value Assets And Liabilities Measured On Recurring Basis [Line Items] | |||||
Liabilities measured at fair value | [1] | (420) | (939) | ||
Derivative Financial Instruments, Liabilities [Member] | Significant Unobservable Inputs (Level 3) [Member] | Other liabilities [Member] | |||||
Fair Value Assets And Liabilities Measured On Recurring Basis [Line Items] | |||||
Liabilities measured at fair value | [1] | (416) | (692) | ||
GLB direct embedded derivatives [Member] | Other assets [Member] | |||||
Fair Value Assets And Liabilities Measured On Recurring Basis [Line Items] | |||||
Assets measured at fair value | 298 | ||||
GLB direct embedded derivatives [Member] | Other liabilities [Member] | |||||
Fair Value Assets And Liabilities Measured On Recurring Basis [Line Items] | |||||
Liabilities measured at fair value | (371) | ||||
GLB direct embedded derivatives [Member] | Significant Unobservable Inputs (Level 3) [Member] | Other assets [Member] | |||||
Fair Value Assets And Liabilities Measured On Recurring Basis [Line Items] | |||||
Assets measured at fair value | $ 298 | ||||
GLB direct embedded derivatives [Member] | Significant Unobservable Inputs (Level 3) [Member] | Other liabilities [Member] | |||||
Fair Value Assets And Liabilities Measured On Recurring Basis [Line Items] | |||||
Liabilities measured at fair value | $ (371) | ||||
|
Fair Value of Financial Instruments (Fair Value Measured On A Recurring Basis Reconciliation) (Details) - USD ($) $ in Millions |
3 Months Ended | 6 Months Ended | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jun. 30, 2017 |
Jun. 30, 2016 |
Jun. 30, 2017 |
Jun. 30, 2016 |
||||||||||||||
Level 3 Unobservable Input Reconciliation | |||||||||||||||||
Beginning Fair Value | $ 2,224 | $ 883 | $ 1,545 | $ 1,799 | |||||||||||||
Items Included in Net Income | 41 | (280) | 369 | (1,502) | |||||||||||||
Gains (Losses) in OCI and Other | [1] | 127 | 124 | 224 | 234 | ||||||||||||
Issuances, Sales, Maturities, Settlements, Calls, Net | 39 | 171 | 146 | 228 | |||||||||||||
Transfers In or Out of Level 3, Net | [2] | (107) | (509) | 40 | (370) | ||||||||||||
Ending Fair Value | 2,324 | 389 | 2,324 | 389 | |||||||||||||
Corporate bonds [Member] | Fixed maturity AFS securities [Member] | |||||||||||||||||
Level 3 Unobservable Input Reconciliation | |||||||||||||||||
Beginning Fair Value | [3] | 2,403 | 2,185 | 2,405 | 1,993 | ||||||||||||
Items Included in Net Income | [3] | 5 | (6) | 11 | |||||||||||||
Gains (Losses) in OCI and Other | [1],[3] | 53 | 46 | 118 | 64 | ||||||||||||
Issuances, Sales, Maturities, Settlements, Calls, Net | [3] | 57 | 118 | (147) | 146 | ||||||||||||
Transfers In or Out of Level 3, Net | [2],[3] | (1) | 82 | 130 | 222 | ||||||||||||
Ending Fair Value | [3] | 2,517 | 2,425 | 2,517 | 2,425 | ||||||||||||
ABS [Member] | Fixed maturity AFS securities [Member] | |||||||||||||||||
Level 3 Unobservable Input Reconciliation | |||||||||||||||||
Beginning Fair Value | [3] | 29 | 44 | 33 | 45 | ||||||||||||
Items Included in Net Income | [3] | ||||||||||||||||
Gains (Losses) in OCI and Other | [1],[3] | 1 | (1) | ||||||||||||||
Issuances, Sales, Maturities, Settlements, Calls, Net | [3] | 14 | 14 | ||||||||||||||
Transfers In or Out of Level 3, Net | [2],[3] | 14 | 4 | 9 | 4 | ||||||||||||
Ending Fair Value | [3] | 43 | 62 | 43 | 62 | ||||||||||||
U.S. government bonds [Member] | Fixed maturity AFS securities [Member] | |||||||||||||||||
Level 3 Unobservable Input Reconciliation | |||||||||||||||||
Beginning Fair Value | [3] | 5 | |||||||||||||||
Items Included in Net Income | [3] | ||||||||||||||||
Gains (Losses) in OCI and Other | [1],[3] | ||||||||||||||||
Issuances, Sales, Maturities, Settlements, Calls, Net | [3] | 10 | 10 | [3] | |||||||||||||
Transfers In or Out of Level 3, Net | [2],[3] | 5 | |||||||||||||||
Ending Fair Value | [3] | 5 | 10 | 5 | 10 | ||||||||||||
Foreign government bonds [Member] | Fixed maturity AFS securities [Member] | |||||||||||||||||
Level 3 Unobservable Input Reconciliation | |||||||||||||||||
Beginning Fair Value | [3] | 110 | 111 | 111 | 111 | ||||||||||||
Items Included in Net Income | [3] | ||||||||||||||||
Gains (Losses) in OCI and Other | [1],[3] | (1) | 1 | (2) | 1 | ||||||||||||
Issuances, Sales, Maturities, Settlements, Calls, Net | [3] | ||||||||||||||||
Transfers In or Out of Level 3, Net | [2],[3] | ||||||||||||||||
Ending Fair Value | [3] | 109 | 112 | 109 | 112 | ||||||||||||
RMBS [Member] | Fixed maturity AFS securities [Member] | |||||||||||||||||
Level 3 Unobservable Input Reconciliation | |||||||||||||||||
Beginning Fair Value | [3] | 7 | 1 | 3 | 1 | ||||||||||||
Items Included in Net Income | [3] | ||||||||||||||||
Gains (Losses) in OCI and Other | [1],[3] | ||||||||||||||||
Issuances, Sales, Maturities, Settlements, Calls, Net | [3] | 15 | 4 | 15 | |||||||||||||
Transfers In or Out of Level 3, Net | [2],[3] | ||||||||||||||||
Ending Fair Value | [3] | 7 | 16 | 7 | 16 | ||||||||||||
CMBS [Member] | Fixed maturity AFS securities [Member] | |||||||||||||||||
Level 3 Unobservable Input Reconciliation | |||||||||||||||||
Beginning Fair Value | [3] | 44 | 9 | 7 | 10 | ||||||||||||
Items Included in Net Income | [3] | 2 | 2 | ||||||||||||||
Gains (Losses) in OCI and Other | [1],[3] | 1 | (1) | 1 | (1) | ||||||||||||
Issuances, Sales, Maturities, Settlements, Calls, Net | [3] | 14 | (2) | 55 | (3) | ||||||||||||
Transfers In or Out of Level 3, Net | [2],[3] | (38) | (42) | ||||||||||||||
Ending Fair Value | [3] | 21 | 8 | 21 | 8 | ||||||||||||
CLOs [Member] | Fixed maturity AFS securities [Member] | |||||||||||||||||
Level 3 Unobservable Input Reconciliation | |||||||||||||||||
Beginning Fair Value | [3] | 88 | 591 | 68 | 551 | ||||||||||||
Items Included in Net Income | [3] | ||||||||||||||||
Gains (Losses) in OCI and Other | [1],[3] | 2 | |||||||||||||||
Issuances, Sales, Maturities, Settlements, Calls, Net | [3] | 13 | 40 | 18 | 78 | ||||||||||||
Transfers In or Out of Level 3, Net | [2],[3] | (73) | (586) | (58) | (586) | ||||||||||||
Ending Fair Value | [3] | 28 | 45 | 28 | 45 | ||||||||||||
State and municipal bonds [Member] | Fixed maturity AFS securities [Member] | |||||||||||||||||
Level 3 Unobservable Input Reconciliation | |||||||||||||||||
Beginning Fair Value | [3] | 1 | |||||||||||||||
Items Included in Net Income | [3] | (1) | |||||||||||||||
Gains (Losses) in OCI and Other | [1],[3] | ||||||||||||||||
Issuances, Sales, Maturities, Settlements, Calls, Net | [3] | ||||||||||||||||
Transfers In or Out of Level 3, Net | [2],[3] | (1) | 1 | ||||||||||||||
Hybrid and redeemable preferred securities [Member] | Fixed maturity AFS securities [Member] | |||||||||||||||||
Level 3 Unobservable Input Reconciliation | |||||||||||||||||
Beginning Fair Value | [3] | 79 | 92 | 76 | 94 | ||||||||||||
Items Included in Net Income | [3] | ||||||||||||||||
Gains (Losses) in OCI and Other | [1],[3] | 8 | (3) | 11 | (5) | ||||||||||||
Issuances, Sales, Maturities, Settlements, Calls, Net | [3] | ||||||||||||||||
Transfers In or Out of Level 3, Net | [2],[3] | (5) | (5) | ||||||||||||||
Ending Fair Value | [3] | 82 | 89 | 82 | 89 | ||||||||||||
Equity AFS securities [Member] | |||||||||||||||||
Level 3 Unobservable Input Reconciliation | |||||||||||||||||
Beginning Fair Value | [3] | 182 | 167 | 177 | 164 | ||||||||||||
Items Included in Net Income | [3] | 1 | |||||||||||||||
Gains (Losses) in OCI and Other | [1],[3] | 3 | (1) | 2 | |||||||||||||
Issuances, Sales, Maturities, Settlements, Calls, Net | [3] | 1 | 6 | 4 | |||||||||||||
Transfers In or Out of Level 3, Net | [2],[3] | ||||||||||||||||
Ending Fair Value | [3] | 183 | 170 | 183 | 170 | ||||||||||||
Trading securities [Member] | |||||||||||||||||
Level 3 Unobservable Input Reconciliation | |||||||||||||||||
Beginning Fair Value | [3] | 60 | 74 | 65 | 73 | ||||||||||||
Items Included in Net Income | [3] | 1 | 1 | 2 | 2 | ||||||||||||
Gains (Losses) in OCI and Other | [1],[3] | 1 | (1) | 8 | 1 | ||||||||||||
Issuances, Sales, Maturities, Settlements, Calls, Net | [3] | (16) | (1) | ||||||||||||||
Transfers In or Out of Level 3, Net | [2],[3] | (3) | (9) | (10) | |||||||||||||
Ending Fair Value | [3] | 59 | 65 | 59 | 65 | ||||||||||||
Derivative investments [Member] | |||||||||||||||||
Level 3 Unobservable Input Reconciliation | |||||||||||||||||
Beginning Fair Value | [3] | 112 | 190 | (93) | 555 | ||||||||||||
Items Included in Net Income | [3] | 58 | 183 | (11) | (258) | ||||||||||||
Gains (Losses) in OCI and Other | [1],[3] | 65 | 79 | 88 | 171 | ||||||||||||
Issuances, Sales, Maturities, Settlements, Calls, Net | [3] | (80) | (29) | 171 | (45) | ||||||||||||
Transfers In or Out of Level 3, Net | [2],[3] | ||||||||||||||||
Ending Fair Value | [3] | 155 | 423 | 155 | 423 | ||||||||||||
Other investments [Member] | |||||||||||||||||
Level 3 Unobservable Input Reconciliation | |||||||||||||||||
Beginning Fair Value | [3],[4] | 2 | |||||||||||||||
Items Included in Net Income | [3],[4] | (1) | 1 | ||||||||||||||
Ending Fair Value | [3],[4] | 1 | 1 | ||||||||||||||
GLB ceded embedded derivatives [Member] | Other assets [Member] | |||||||||||||||||
Level 3 Unobservable Input Reconciliation | |||||||||||||||||
Beginning Fair Value | [5] | 116 | 433 | 203 | 268 | ||||||||||||
Items Included in Net Income | [5] | (31) | 106 | (118) | 271 | ||||||||||||
Gains (Losses) in OCI and Other | [1],[5] | ||||||||||||||||
Issuances, Sales, Maturities, Settlements, Calls, Net | [5] | ||||||||||||||||
Transfers In or Out of Level 3, Net | [2],[5] | ||||||||||||||||
Ending Fair Value | [5] | 85 | 539 | 85 | 539 | ||||||||||||
Indexed annuity and IUL contracts embedded derivatives [Member] | Future contract benefits [Member] | |||||||||||||||||
Level 3 Unobservable Input Reconciliation | |||||||||||||||||
Beginning Fair Value | [5] | (1,238) | (1,088) | (1,139) | (1,100) | ||||||||||||
Items Included in Net Income | [5] | (64) | (19) | (184) | (12) | ||||||||||||
Gains (Losses) in OCI and Other | [1],[5] | ||||||||||||||||
Issuances, Sales, Maturities, Settlements, Calls, Net | [5] | 34 | 5 | 55 | 10 | ||||||||||||
Transfers In or Out of Level 3, Net | [2],[5] | ||||||||||||||||
Ending Fair Value | [5] | (1,268) | (1,102) | (1,268) | (1,102) | ||||||||||||
VIEs' liabilities - derivative instruments [Member] | |||||||||||||||||
Level 3 Unobservable Input Reconciliation | |||||||||||||||||
Beginning Fair Value | [5] | (4) | |||||||||||||||
Items Included in Net Income | [5] | 4 | |||||||||||||||
Credit default swaps [Member] | Other liabilities [Member] | |||||||||||||||||
Level 3 Unobservable Input Reconciliation | |||||||||||||||||
Beginning Fair Value | [4] | (12) | (9) | ||||||||||||||
Items Included in Net Income | [4] | (4) | (7) | ||||||||||||||
Gains (Losses) in OCI and Other | [1],[4] | ||||||||||||||||
Issuances, Sales, Maturities, Settlements, Calls, Net | [4] | ||||||||||||||||
Transfers In or Out of Level 3, Net | [2],[4] | ||||||||||||||||
Ending Fair Value | [4] | (16) | (16) | ||||||||||||||
GLB direct embedded derivatives [Member] | Other assets [Member] | |||||||||||||||||
Level 3 Unobservable Input Reconciliation | |||||||||||||||||
Beginning Fair Value | [5] | 226 | |||||||||||||||
Items Included in Net Income | [5] | 72 | 298 | ||||||||||||||
Gains (Losses) in OCI and Other | [1],[5] | ||||||||||||||||
Issuances, Sales, Maturities, Settlements, Calls, Net | [5] | ||||||||||||||||
Transfers In or Out of Level 3, Net | [2],[5] | ||||||||||||||||
Ending Fair Value | [5] | $ 298 | 298 | ||||||||||||||
GLB direct embedded derivatives [Member] | Other liabilities [Member] | |||||||||||||||||
Level 3 Unobservable Input Reconciliation | |||||||||||||||||
Beginning Fair Value | [5] | (1,916) | (371) | (953) | |||||||||||||
Items Included in Net Income | [5] | (542) | $ 371 | (1,505) | |||||||||||||
Ending Fair Value | [5] | $ (2,458) | $ (2,458) | ||||||||||||||
|
Fair Value of Financial Instruments (Schedule Of Investment Holdings Movements) (Details) - USD ($) $ in Millions |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2017 |
Jun. 30, 2016 |
Jun. 30, 2017 |
Jun. 30, 2016 |
|
Fair Value Investments Entities That Calculate Net Asset Value Per Share Unobservable Input Investment Holdings Movements [Abstract] | ||||
Issuances | $ 225 | $ 268 | $ 351 | $ 443 |
Sales | (32) | (52) | 181 | (86) |
Maturities | (124) | (31) | (236) | (48) |
Settlements | (17) | (14) | (42) | (24) |
Calls | (13) | (108) | (57) | |
Total | 39 | 171 | 146 | 228 |
Corporate bonds [Member] | Fixed maturity AFS securities [Member] | ||||
Fair Value Investments Entities That Calculate Net Asset Value Per Share Unobservable Input Investment Holdings Movements [Abstract] | ||||
Issuances | 162 | 172 | 200 | 289 |
Sales | (3) | (8) | (65) | |
Maturities | (25) | (47) | (3) | |
Settlements | (64) | (46) | (127) | (83) |
Calls | (13) | (108) | (57) | |
Total | 57 | 118 | (147) | 146 |
ABS [Member] | Fixed maturity AFS securities [Member] | ||||
Fair Value Investments Entities That Calculate Net Asset Value Per Share Unobservable Input Investment Holdings Movements [Abstract] | ||||
Issuances | 15 | 15 | ||
Settlements | (1) | (1) | ||
Total | 14 | 14 | ||
U.S. government bonds [Member] | Fixed maturity AFS securities [Member] | ||||
Fair Value Investments Entities That Calculate Net Asset Value Per Share Unobservable Input Investment Holdings Movements [Abstract] | ||||
Settlements | 10 | 10 | ||
Total | 10 | 10 | ||
RMBS [Member] | Fixed maturity AFS securities [Member] | ||||
Fair Value Investments Entities That Calculate Net Asset Value Per Share Unobservable Input Investment Holdings Movements [Abstract] | ||||
Issuances | 15 | 4 | 15 | |
Total | 15 | 4 | 15 | |
CMBS [Member] | Fixed maturity AFS securities [Member] | ||||
Fair Value Investments Entities That Calculate Net Asset Value Per Share Unobservable Input Investment Holdings Movements [Abstract] | ||||
Issuances | 14 | 55 | ||
Sales | (1) | (1) | ||
Settlements | (1) | (2) | ||
Total | 14 | (2) | 55 | (3) |
CLOs [Member] | Fixed maturity AFS securities [Member] | ||||
Fair Value Investments Entities That Calculate Net Asset Value Per Share Unobservable Input Investment Holdings Movements [Abstract] | ||||
Issuances | 13 | 40 | 18 | 80 |
Settlements | (2) | |||
Total | 13 | 40 | 18 | 78 |
Equity AFS securities [Member] | ||||
Fair Value Investments Entities That Calculate Net Asset Value Per Share Unobservable Input Investment Holdings Movements [Abstract] | ||||
Issuances | 1 | 8 | 4 | |
Sales | (2) | |||
Total | 1 | 6 | 4 | |
Trading securities [Member] | ||||
Fair Value Investments Entities That Calculate Net Asset Value Per Share Unobservable Input Investment Holdings Movements [Abstract] | ||||
Issuances | 2 | |||
Sales | (17) | |||
Settlements | (1) | (1) | ||
Total | (16) | (1) | ||
Derivative investments [Member] | ||||
Fair Value Investments Entities That Calculate Net Asset Value Per Share Unobservable Input Investment Holdings Movements [Abstract] | ||||
Issuances | 48 | 45 | 95 | 85 |
Sales | (29) | (43) | 265 | (85) |
Maturities | (99) | (31) | (189) | (45) |
Total | (80) | (29) | 171 | (45) |
Indexed annuity and IUL contracts embedded derivatives [Member] | Future contract benefits [Member] | ||||
Fair Value Investments Entities That Calculate Net Asset Value Per Share Unobservable Input Investment Holdings Movements [Abstract] | ||||
Issuances | (13) | (19) | (31) | (45) |
Settlements | 47 | 24 | 86 | 55 |
Total | $ 34 | $ 5 | $ 55 | $ 10 |
Fair Value of Financial Instruments (Changes In Unrealized Gains (Losses) Within Level 3 Financial Instruments Carried At Fair Value And Still Held) (Details) - USD ($) $ in Millions |
3 Months Ended | 6 Months Ended | ||||
---|---|---|---|---|---|---|
Jun. 30, 2017 |
Jun. 30, 2016 |
Jun. 30, 2017 |
Jun. 30, 2016 |
|||
Changes in unrealized gains (losses) within Level 3 financial instruments carried at fair value and still held | ||||||
Change in unrealized gains (losses) included in net income | [1] | $ 229 | $ (198) | $ 887 | $ (1,436) | |
Derivative investments [Member] | Realized Gain (Loss) [Member] | ||||||
Changes in unrealized gains (losses) within Level 3 financial instruments carried at fair value and still held | ||||||
Change in unrealized gains (losses) included in net income | (2) | 216 | (76) | (177) | ||
Other investments [Member] | Realized Gain (Loss) [Member] | ||||||
Changes in unrealized gains (losses) within Level 3 financial instruments carried at fair value and still held | ||||||
Change in unrealized gains (losses) included in net income | (1) | 1 | ||||
Indexed annuity and IUL contracts embedded derivatives [Member] | Realized Gain (Loss) [Member] | ||||||
Changes in unrealized gains (losses) within Level 3 financial instruments carried at fair value and still held | ||||||
Change in unrealized gains (losses) included in net income | (1) | (15) | (24) | |||
GLB direct and ceded embedded derivatives [Member] | Realized Gain (Loss) [Member] | ||||||
Changes in unrealized gains (losses) within Level 3 financial instruments carried at fair value and still held | ||||||
Change in unrealized gains (losses) included in net income | $ 231 | (409) | $ 978 | (1,233) | ||
VIEs' liabilities - derivative instruments [Member] | Realized Gain (Loss) [Member] | ||||||
Changes in unrealized gains (losses) within Level 3 financial instruments carried at fair value and still held | ||||||
Change in unrealized gains (losses) included in net income | 4 | |||||
Credit default swaps [Member] | Realized Gain (Loss) [Member] | ||||||
Changes in unrealized gains (losses) within Level 3 financial instruments carried at fair value and still held | ||||||
Change in unrealized gains (losses) included in net income | $ (3) | $ (7) | ||||
|
Fair Value of Financial Instruments (Components Of The Transfers In And Out Of Level 3) (Details) - USD ($) $ in Millions |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2017 |
Jun. 30, 2016 |
Jun. 30, 2017 |
Jun. 30, 2016 |
|
Fair Value, Measurement with Unobservable Inputs Reconciliation, Recurring Basis, Asset, Transfers, Net [Abstract] | ||||
Transfers In to Level 3 | $ 19 | $ 170 | $ 219 | $ 334 |
Transfers Out of Level 3 | (126) | (679) | (179) | (704) |
Transfers In or Out of Level 3, Net | (107) | (509) | 40 | (370) |
Corporate bonds [Member] | Fixed maturity AFS securities [Member] | ||||
Fair Value, Measurement with Unobservable Inputs Reconciliation, Recurring Basis, Asset, Transfers, Net [Abstract] | ||||
Transfers In to Level 3 | 1 | 165 | 161 | 329 |
Transfers Out of Level 3 | (2) | (83) | (31) | (107) |
Transfers In or Out of Level 3, Net | (1) | 82 | 130 | 222 |
ABS [Member] | Fixed maturity AFS securities [Member] | ||||
Fair Value, Measurement with Unobservable Inputs Reconciliation, Recurring Basis, Asset, Transfers, Net [Abstract] | ||||
Transfers In to Level 3 | 15 | 4 | 15 | 4 |
Transfers Out of Level 3 | (1) | (6) | ||
Transfers In or Out of Level 3, Net | 14 | 4 | 9 | 4 |
U.S. government bonds [Member] | Fixed maturity AFS securities [Member] | ||||
Fair Value, Measurement with Unobservable Inputs Reconciliation, Recurring Basis, Asset, Transfers, Net [Abstract] | ||||
Transfers In to Level 3 | 5 | |||
Transfers In or Out of Level 3, Net | 5 | |||
CMBS [Member] | Fixed maturity AFS securities [Member] | ||||
Fair Value, Measurement with Unobservable Inputs Reconciliation, Recurring Basis, Asset, Transfers, Net [Abstract] | ||||
Transfers In to Level 3 | 3 | 3 | ||
Transfers Out of Level 3 | (41) | (45) | ||
Transfers In or Out of Level 3, Net | (38) | (42) | ||
CLOs [Member] | Fixed maturity AFS securities [Member] | ||||
Fair Value, Measurement with Unobservable Inputs Reconciliation, Recurring Basis, Asset, Transfers, Net [Abstract] | ||||
Transfers In to Level 3 | 30 | |||
Transfers Out of Level 3 | (73) | (586) | (88) | (586) |
Transfers In or Out of Level 3, Net | (73) | (586) | (58) | (586) |
State and municipal bonds [Member] | Fixed maturity AFS securities [Member] | ||||
Fair Value, Measurement with Unobservable Inputs Reconciliation, Recurring Basis, Asset, Transfers, Net [Abstract] | ||||
Transfers In to Level 3 | 2 | |||
Transfers Out of Level 3 | (1) | (1) | ||
Transfers In or Out of Level 3, Net | (1) | 1 | ||
Hybrid and redeemable preferred securities [Member] | Fixed maturity AFS securities [Member] | ||||
Fair Value, Measurement with Unobservable Inputs Reconciliation, Recurring Basis, Asset, Transfers, Net [Abstract] | ||||
Transfers Out of Level 3 | (5) | (5) | ||
Transfers In or Out of Level 3, Net | (5) | (5) | ||
Trading securities [Member] | ||||
Fair Value, Measurement with Unobservable Inputs Reconciliation, Recurring Basis, Asset, Transfers, Net [Abstract] | ||||
Transfers In to Level 3 | 1 | 3 | 1 | |
Transfers Out of Level 3 | (3) | (10) | $ (3) | (11) |
Transfers In or Out of Level 3, Net | $ (3) | $ (9) | $ (10) |
Fair Value of Financial Instruments (Fair Value Inputs Quantitative Information) (Details) - USD ($) $ in Millions |
6 Months Ended | |
---|---|---|
Jun. 30, 2017 |
Dec. 31, 2016 |
|
Assets Fair Value Disclosure [Abstract] | ||
Assets Fair Value Disclosure | $ 235,024 | $ 224,673 |
Liabilities Fair Value Disclosure [Abstract] | ||
Liabilities measured at fair value | (3,292) | (4,397) |
Significant Unobservable Inputs (Level 3) [Member] | ||
Assets Fair Value Disclosure [Abstract] | ||
Assets Fair Value Disclosure | 4,008 | 3,747 |
Liabilities Fair Value Disclosure [Abstract] | ||
Liabilities measured at fair value | (1,684) | $ (2,202) |
Significant Unobservable Inputs (Level 3) [Member] | Discounted Cash Flow Valuation Technique [Member] | Corporate bonds [Member] | Fixed maturity AFS securities [Member] | ||
Assets Fair Value Disclosure [Abstract] | ||
Assets Fair Value Disclosure | $ 1,885 | |
Significant Unobservable Inputs (Level 3) [Member] | Discounted Cash Flow Valuation Technique [Member] | Corporate bonds [Member] | Maximum [Member] | Fixed maturity AFS securities [Member] | ||
Assets Fair Value Disclosure [Abstract] | ||
Liquidity Duration Adjustment | 41.90% | |
Significant Unobservable Inputs (Level 3) [Member] | Discounted Cash Flow Valuation Technique [Member] | Corporate bonds [Member] | Minimum [Member] | Fixed maturity AFS securities [Member] | ||
Assets Fair Value Disclosure [Abstract] | ||
Liquidity Duration Adjustment | 0.70% | |
Significant Unobservable Inputs (Level 3) [Member] | Discounted Cash Flow Valuation Technique [Member] | ABS [Member] | Fixed maturity AFS securities [Member] | ||
Assets Fair Value Disclosure [Abstract] | ||
Assets Fair Value Disclosure | $ 25 | |
Significant Unobservable Inputs (Level 3) [Member] | Discounted Cash Flow Valuation Technique [Member] | ABS [Member] | Maximum [Member] | Fixed maturity AFS securities [Member] | ||
Assets Fair Value Disclosure [Abstract] | ||
Liquidity Duration Adjustment | 3.00% | |
Significant Unobservable Inputs (Level 3) [Member] | Discounted Cash Flow Valuation Technique [Member] | ABS [Member] | Minimum [Member] | Fixed maturity AFS securities [Member] | ||
Assets Fair Value Disclosure [Abstract] | ||
Liquidity Duration Adjustment | 3.00% | |
Significant Unobservable Inputs (Level 3) [Member] | Discounted Cash Flow Valuation Technique [Member] | Foreign government bonds [Member] | Fixed maturity AFS securities [Member] | ||
Assets Fair Value Disclosure [Abstract] | ||
Assets Fair Value Disclosure | $ 78 | |
Significant Unobservable Inputs (Level 3) [Member] | Discounted Cash Flow Valuation Technique [Member] | Foreign government bonds [Member] | Maximum [Member] | Fixed maturity AFS securities [Member] | ||
Assets Fair Value Disclosure [Abstract] | ||
Liquidity Duration Adjustment | 3.60% | |
Significant Unobservable Inputs (Level 3) [Member] | Discounted Cash Flow Valuation Technique [Member] | Foreign government bonds [Member] | Minimum [Member] | Fixed maturity AFS securities [Member] | ||
Assets Fair Value Disclosure [Abstract] | ||
Liquidity Duration Adjustment | 1.80% | |
Significant Unobservable Inputs (Level 3) [Member] | Discounted Cash Flow Valuation Technique [Member] | Hybrid and redeemable preferred securities [Member] | Fixed maturity AFS securities [Member] | ||
Assets Fair Value Disclosure [Abstract] | ||
Assets Fair Value Disclosure | $ 4 | |
Significant Unobservable Inputs (Level 3) [Member] | Discounted Cash Flow Valuation Technique [Member] | Hybrid and redeemable preferred securities [Member] | Maximum [Member] | Fixed maturity AFS securities [Member] | ||
Assets Fair Value Disclosure [Abstract] | ||
Liquidity Duration Adjustment | 1.90% | |
Significant Unobservable Inputs (Level 3) [Member] | Discounted Cash Flow Valuation Technique [Member] | Hybrid and redeemable preferred securities [Member] | Minimum [Member] | Fixed maturity AFS securities [Member] | ||
Assets Fair Value Disclosure [Abstract] | ||
Liquidity Duration Adjustment | 1.90% | |
Significant Unobservable Inputs (Level 3) [Member] | Discounted Cash Flow Valuation Technique [Member] | Equity AFS securities [Member] | ||
Assets Fair Value Disclosure [Abstract] | ||
Assets Fair Value Disclosure | $ 25 | |
Significant Unobservable Inputs (Level 3) [Member] | Discounted Cash Flow Valuation Technique [Member] | Equity AFS securities [Member] | Maximum [Member] | ||
Assets Fair Value Disclosure [Abstract] | ||
Liquidity Duration Adjustment | 5.00% | |
Significant Unobservable Inputs (Level 3) [Member] | Discounted Cash Flow Valuation Technique [Member] | Equity AFS securities [Member] | Minimum [Member] | ||
Assets Fair Value Disclosure [Abstract] | ||
Liquidity Duration Adjustment | 4.50% | |
Significant Unobservable Inputs (Level 3) [Member] | Discounted Cash Flow Valuation Technique [Member] | GLB direct and ceded embedded derivatives [Member] | Other assets [Member] | ||
Assets Fair Value Disclosure [Abstract] | ||
Assets Fair Value Disclosure | $ 383 | |
Significant Unobservable Inputs (Level 3) [Member] | Discounted Cash Flow Valuation Technique [Member] | GLB direct and ceded embedded derivatives [Member] | Maximum [Member] | Other assets [Member] | ||
Fair Value Inputs [Abstract] | ||
Lapse Rate | 30.00% | |
Utilization of guaranteed withdrawal | 100.00% | |
Claims Utilization Factor | 100.00% | |
Premiums Utilization Factor | 115.00% | |
NPR | 0.33% | |
Volatility | 29.00% | |
Significant Unobservable Inputs (Level 3) [Member] | Discounted Cash Flow Valuation Technique [Member] | GLB direct and ceded embedded derivatives [Member] | Minimum [Member] | Other assets [Member] | ||
Fair Value Inputs [Abstract] | ||
Lapse Rate | 1.00% | |
Utilization of guaranteed withdrawal | 85.00% | |
Claims Utilization Factor | 60.00% | |
Premiums Utilization Factor | 80.00% | |
NPR | 0.01% | |
Volatility | 1.00% | |
Significant Unobservable Inputs (Level 3) [Member] | Discounted Cash Flow Valuation Technique [Member] | Future contract benefits - indexed annuity and IUL contracts embedded derivatives [Member] | ||
Liabilities Fair Value Disclosure [Abstract] | ||
Liabilities measured at fair value | $ (1,268) | |
Significant Unobservable Inputs (Level 3) [Member] | Discounted Cash Flow Valuation Technique [Member] | Future contract benefits - indexed annuity and IUL contracts embedded derivatives [Member] | Maximum [Member] | ||
Fair Value Inputs [Abstract] | ||
Lapse Rate | 9.00% | |
Significant Unobservable Inputs (Level 3) [Member] | Discounted Cash Flow Valuation Technique [Member] | Future contract benefits - indexed annuity and IUL contracts embedded derivatives [Member] | Minimum [Member] | ||
Fair Value Inputs [Abstract] | ||
Lapse Rate | 1.00% |
Segment Information (Narrative) (Details) |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2017 |
Jun. 30, 2016 |
Jun. 30, 2017 |
Jun. 30, 2016 |
|
Segment Information [Abstract] | ||||
Federal rate | 35.00% | 35.00% | 35.00% | 35.00% |
Segment Information (Reconciliation Of Revenue From Segments To Consolidated) (Details) - USD ($) $ in Millions |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2017 |
Jun. 30, 2016 |
Jun. 30, 2017 |
Jun. 30, 2016 |
|
Segment Reporting Information [Line Items] | ||||
Total revenues | $ 3,577 | $ 3,307 | $ 7,077 | $ 6,551 |
Annuities Segment [Member] | ||||
Segment Reporting Information [Line Items] | ||||
Total revenues | 1,076 | 983 | 2,138 | 2,022 |
Retirement Plan Services Segment [Member] | ||||
Segment Reporting Information [Line Items] | ||||
Total revenues | 290 | 270 | 571 | 537 |
Life Insurance Segment [Member] | ||||
Segment Reporting Information [Line Items] | ||||
Total revenues | 1,655 | 1,538 | 3,260 | 3,016 |
Group Protection Segment [Member] | ||||
Segment Reporting Information [Line Items] | ||||
Total revenues | 541 | 525 | 1,082 | 1,059 |
Other Operations [Member] | ||||
Segment Reporting Information [Line Items] | ||||
Total revenues | 67 | 79 | 155 | 161 |
Excluded realized gain (loss) pre-tax [Member] | ||||
Segment Reporting Information [Line Items] | ||||
Total revenues | $ (52) | (89) | (132) | (245) |
Amortization of deferred gain arising from reserve changes on business sold through reinsurance, pre-tax [Member] | ||||
Segment Reporting Information [Line Items] | ||||
Total revenues | $ 1 | 1 | $ 1 | |
Amortization Of DFEL Associated With Benefit Ratio Unlocking, Pre-Tax [Member] | ||||
Segment Reporting Information [Line Items] | ||||
Total revenues | $ 2 |
Segment Information (Reconciliation Of Income (Loss) From Operations By Segment To Consolidated Net Income (Loss)) (Details) - USD ($) $ in Millions |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2017 |
Jun. 30, 2016 |
Jun. 30, 2017 |
Jun. 30, 2016 |
|
Reconciliation of Net Income (Loss) from Segments to Consolidated [Abstract] | ||||
Net income (loss) | $ 411 | $ 325 | $ 846 | $ 536 |
Annuities Segment [Member] | ||||
Reconciliation of Net Income (Loss) from Segments to Consolidated [Abstract] | ||||
Income (loss) from continuing operations | 251 | 235 | 532 | 453 |
Retirement Plan Services Segment [Member] | ||||
Reconciliation of Net Income (Loss) from Segments to Consolidated [Abstract] | ||||
Income (loss) from continuing operations | 37 | 31 | 74 | 61 |
Life Insurance Segment [Member] | ||||
Reconciliation of Net Income (Loss) from Segments to Consolidated [Abstract] | ||||
Income (loss) from continuing operations | 133 | 120 | 263 | 195 |
Group Protection Segment [Member] | ||||
Reconciliation of Net Income (Loss) from Segments to Consolidated [Abstract] | ||||
Income (loss) from continuing operations | 35 | 15 | 42 | 20 |
Other Operations [Member] | ||||
Reconciliation of Net Income (Loss) from Segments to Consolidated [Abstract] | ||||
Income (loss) from continuing operations | (37) | (28) | (51) | (39) |
Excluded realized gain (loss), after-tax [Member] | ||||
Reconciliation of Net Income (Loss) from Segments to Consolidated [Abstract] | ||||
Income (loss) from continuing operations | (34) | (57) | (85) | (159) |
Income (loss) from reserve changes (net of related amortization) on business sold through reinsurance, after-tax [Member] | ||||
Reconciliation of Net Income (Loss) from Segments to Consolidated [Abstract] | ||||
Income (loss) from discontinued operations, after-tax | 1 | |||
Benefit ratio unlocking, after-tax [Member] | ||||
Reconciliation of Net Income (Loss) from Segments to Consolidated [Abstract] | ||||
Income (loss) from continuing operations | $ 26 | $ 9 | $ 71 | $ 4 |
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