14. 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, 2020						As of December 31, 2019
	Carrying			Fair			Carrying			Fair
	Value			Value			Value			Value
Assets
Fixed maturity AFS securities	$	113,519		$	113,519		$	105,200		$	105,200
Trading securities		4,651			4,651			4,673			4,673
Equity securities		87			87			103			103
Mortgage loans on real estate		16,578			18,392			16,339			16,872
Derivative investments ⁽¹⁾		2,957			2,957			1,911			1,911
Other investments		4,564			4,564			2,983			2,983
Cash and invested cash		4,201			4,201			2,563			2,563
Other assets:
GLB direct embedded derivatives		-			-			450			450
GLB ceded embedded derivatives		571			571			60			60
Indexed annuity ceded embedded derivatives		664			664			927			927
Separate account assets		146,787			146,787			153,566			153,566

Liabilities
Future contract benefits – indexed annuity
and IUL contracts embedded derivatives		(2,272	)		(2,272	)		(2,585	)		(2,585	)
Other contract holder funds:
Remaining guaranteed interest and similar contracts		(1,868	)		(1,868	)		(1,900	)		(1,900	)
Account values of certain investment contracts		(40,081	)		(57,365	)		(38,639	)		(46,822	)
Short-term debt		-			-			(300	)		(304	)
Long-term debt		(6,736	)		(6,561	)		(6,067	)		(6,217	)
Reinsurance related embedded derivatives		(245	)		(245	)		(327	)		(327	)
Other liabilities:
Derivative liabilities⁽¹⁾		(1,279	)		(1,279	)		(349	)		(349	)
GLB direct embedded derivatives		(3,086	)		(3,086	)		-			-
GLB ceded embedded derivatives		-			-			(9	)		(9	)

⁽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.

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, including mortgage loans accounted for using the fair value option, 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. Other investments also includes Federal Home Loan Bank (“FHLB”) stock carried at cost and periodically evaluated for impairment based on ultimate recovery of par value. The inputs used to measure the fair value of our LPs, other privately held investments and FHLB stock are classified as Level 3 within the fair value hierarchy. The remaining assets in other investments include cash collateral receivables and securities that are not LPs or other privately held investments. The inputs used to measure the fair value of these assets are classified as Level 1 within the fair value hierarchy.

The following summarizes our financial instruments carried at fair value (in millions) on a recurring basis by the fair value hierarchy levels:



		As of June 30, 2020
		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		$	-		$	91,046			$	4,344		$	95,390
U.S. government bonds			467			32				5			504
State and municipal bonds			-			6,393				-			6,393
Foreign government bonds			-			350				86			436
RMBS			-			3,270				2			3,272
CMBS			-			1,225				1			1,226
ABS			-			5,292				424			5,716
Hybrid and redeemable preferred securities			75			417				90			582
Mortgage loans on real estate			-			777				-			777
Trading securities			5			3,973				673			4,651
Equity securities			12			46				29			87
Derivative investments ⁽¹⁾			-			2,345				2,020			4,365
Cash and invested cash			-			4,201				-			4,201
Other assets:
GLB ceded embedded derivatives			-			-				571			571
Indexed annuity ceded embedded derivatives			-			-				664			664
Separate account assets			552			146,225				-			146,777
Total assets		$	1,111		$	265,592			$	8,909		$	275,612

Liabilities
Future contract benefits – indexed annuity
and IUL contracts embedded derivatives		$	-		$	-			$	(2,272	)	$	(2,272	)
Reinsurance related embedded derivatives			-			(245	)			-			(245	)
Other liabilities:
Derivative liabilities ⁽¹⁾			-			(1,262	)			(1,425	)		(2,687	)
GLB direct embedded derivatives			-			-				(3,086	)		(3,086	)
Total liabilities		$	-		$	(1,507	)		$	(6,783	)	$	(8,290	)

‎


		As of December 31, 2019
		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		$	-		$	84,435			$	4,281		$	88,716
U.S. government bonds			424			6				5			435
State and municipal bonds			-			5,884				-			5,884
Foreign government bonds			-			303				90			393
RMBS			-			3,230				11			3,241
CMBS			-			1,082				1			1,083
ABS			-			4,621				268			4,889
Hybrid and redeemable preferred securities			77			404				78			559
Trading securities			50			3,957				666			4,673
Equity securities			25			48				30			103
Derivative investments ⁽¹⁾			-			1,212				1,735			2,947
Cash and invested cash			-			2,563				-			2,563
Other assets:
GLB direct embedded derivatives			-			-				450			450
GLB ceded embedded derivatives			-			-				60			60
Indexed annuity ceded embedded derivatives			-			-				927			927
Separate account assets			639			152,916				-			153,555
Total assets		$	1,215		$	260,661			$	8,602		$	270,478

Liabilities
Future contract benefits – indexed annuity
and IUL contracts embedded derivatives		$	-		$	-			$	(2,585	)	$	(2,585	)
Reinsurance related embedded derivatives			-			(327	)			-			(327	)
Other liabilities:
Derivative liabilities ⁽¹⁾			-			(518	)			(867	)		(1,385	)
GLB ceded embedded derivatives			-			-				(9	)		(9	)
Total liabilities		$	-		$	(845	)		$	(3,461	)	$	(4,306	)

⁽¹⁾Derivative investment assets and liabilities are presented within the fair value hierarchy on a gross basis by derivative type and not on a master netting basis by counterparty.

‎

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 DAC, VOBA, DSI and 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, 2020
							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	$	4,103		$	-		$	205		$	(14	)		50		$	4,344
U.S. government bonds		5			-			-			-			-			5
Foreign government bonds		87			-			(1	)		-			-			86
RMBS		1			-			-			-			1			2
CMBS		1			-			-			-			-			1
ABS		196			-			5			236			(13	)		424
Hybrid and redeemable
preferred securities		72			-			4			(4	)		18			90
Trading securities		651			28			-			(14	)		8			673
Equity securities		30			(1	)		-			-			-			29
Derivative investments		2,027			(1,402	)		(12	)		(18	)		-			595
Other assets: ⁽⁴⁾
GLB ceded embedded derivatives		728			(157	)		-			-			-			571
Indexed annuity ceded embedded derivatives		799			304			-			(439	)		-			664
Future contract benefits – indexed annuity
and IUL contracts embedded derivatives ⁽⁴⁾		(1,380	)		(831	)		-			(61	)		-			(2,272	)
Other liabilities – GLB direct embedded
derivatives ⁽⁴⁾		(4,596	)		1,510			-			-			-			(3,086	)
Total, net	$	2,724		$	(549	)	$	201		$	(314	)	$	64		$	2,126

‎



	For the Three Months Ended June 30, 2019
							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	$	3,521		$	1		$	24		$	171		$	(69	)	$	3,648
Foreign government bonds		110			-			3			-			-			113
CMBS		2			-			-			-			-			2
ABS		178			-			1			259			(118	)		320
Hybrid and redeemable
preferred securities		78			-			-			-			-			78
Trading securities		236			2			-			371			(86	)		523
Equity securities		25			-			-			43			-			68
Derivative investments		267			71			69			59			-			466
Other assets: ⁽⁴⁾
GLB direct embedded derivatives		439			(439	)		-			-			-			-
GLB ceded embedded derivatives		50			61			-			-			-			111
Indexed annuity ceded embedded derivatives		872			44			-			(13	)		-			903
Future contract benefits – indexed annuity
and IUL contracts embedded derivatives ⁽⁴⁾		(1,730	)		(154	)		-			(89	)		-			(1,973	)
Other liabilities: ⁽⁴⁾
GLB direct embedded derivatives		-			(1	)											(1	)
GLB ceded embedded derivatives		(8	)		8			-			-			-			-
Total, net	$	4,040		$	(407	)	$	97		$	801		$	(273	)	$	4,258


	For the Six Months Ended June 30, 2020
							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	$	4,281		$	-		$	(180	)	$	151		$	92		$	4,344
U.S. government bonds		5			-			-			-			-			5
Foreign government bonds		90			-			(4	)		-			-			86
RMBS		11			-			-			-			(9	)		2
CMBS		1			-			-			-			-			1
ABS		268			-			1			258			(103	)		424
Hybrid and redeemable
preferred securities		78			-			(2	)		(4	)		18			90
Trading securities		666			(4	)		-			(20	)		31			673
Equity securities		30			(1	)		-			-			-			29
Derivative investments		868			(405	)		267			(135	)		-			595
Other assets: ⁽⁴⁾
GLB direct embedded derivatives		450			(450	)		-			-			-			-
GLB ceded embedded derivatives		60			511			-			-			-			571
Indexed annuity ceded embedded derivatives		927			189			-			(452	)		-			664
Future contract benefits – indexed annuity
and IUL contracts embedded derivatives ⁽⁴⁾		(2,585	)		312			-			1			-			(2,272	)
Other liabilities: ⁽⁴⁾
GLB direct embedded derivatives		-			(3,086	)		-			-			-			(3,086	)
GLB ceded embedded derivatives		(9	)		9			-			-			-			-
Total, net	$	5,141		$	(2,925	)	$	82		$	(201	)	$	29		$	2,126

‎


	For the Six Months Ended June 30, 2019
							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	$	3,269		$	-		$	94		$	371		$	(86	)	$	3,648
Foreign government bonds		109			-			4			-			-			113
RMBS		7			-			-			-			(7	)		-
CMBS		2			-			-			-			-			2
ABS		134			-			1			408			(223	)		320
Hybrid and redeemable
preferred securities		75			-			3			-			-			78
Trading securities		67			2			-			577			(123	)		523
Equity securities		25			-			-			43			-			68
Derivative investments		534			(312	)		115			129			-			466
Other assets: ⁽⁴⁾
GLB direct embedded derivatives		123			(123	)		-			-			-			-
GLB ceded embedded derivatives		72			39			-			-			-			111
Indexed annuity ceded embedded derivatives		902			121			-			(120	)		-			903
Future contract benefits – indexed annuity
and IUL contracts embedded derivatives ⁽⁴⁾		(1,305	)		(470	)		-			(198	)		-			(1,973	)
Other liabilities – GLB ceded embedded
derivatives ⁽⁴⁾		-			(1	)		-			-			-			(1	)
Total, net	$	4,014		$	(744	)	$	217		$	1,210		$	(439	)	$	4,258

⁽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 fixed maturity AFS and trading securities are reported at amortized cost as of the beginning-of-year. For fixed maturity 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 credit loss expense are included in realized gain (loss) on our Consolidated Statements of Comprehensive Income (Loss).

⁽⁴⁾Gains (losses) from the changes in fair value are included in realized gain (loss) on our Consolidated Statements of Comprehensive Income (Loss).

‎

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, 2020
	Issuances			Sales			Maturities		Settlements				Calls			Total
Investments:
Fixed maturity AFS securities:
Corporate bonds	$	193		$	(99	)	$	(36	)	$	(43	)	$	(29	)	$	(14	)
ABS		242			-			-			(6	)		-			236
Hybrid and redeemable preferred
securities		-			(4	)		-			-			-			(4	)
Trading securities		1			-			-			(15	)		-			(14	)
Equity securities		1			(1	)		-			-			-			-
Derivative investments		131			(94	)		(55	)		-			-			(18	)
Other assets – indexed annuity ceded
embedded derivatives		8			-			-			(447	)		-			(439	)
Future contract benefits – indexed annuity
and IUL contracts embedded derivatives		(92	)		-			-			31			-			(61	)
Total, net	$	484		$	(198	)	$	(91	)	$	(480	)	$	(29	)	$	(314	)



	For the Three Months Ended June 30, 2019
	Issuances			Sales			Maturities		Settlements				Calls		Total
Investments:
Fixed maturity AFS securities:
Corporate bonds	$	268		$	(16	)	$	(47	)	$	(34	)	$	-	$	171
ABS		261			-			-			(2	)		-		259
Trading securities		371			-			-			-			-		371
Equity securities		43			-			-			-			-		43
Derivative investments		141			4			(86	)		-			-		59
Other assets – indexed annuity ceded
embedded derivatives		21			-			-			(34	)		-		(13	)
Future contract benefits – indexed annuity
and IUL contracts embedded derivatives		(149	)		-			-			60			-		(89	)
Total, net	$	956		$	(12	)	$	(133	)	$	(10	)	$	-	$	801



	For the Six Months Ended June 30, 2020
	Issuances			Sales			Maturities		Settlements				Calls			Total
Investments:
Fixed maturity AFS securities:
Corporate bonds	$	529		$	(172	)	$	(34	)	$	(94	)	$	(78	)	$	151
ABS		279			-			-			(21	)		-			258
Hybrid and redeemable preferred
securities		-			(4	)		-			-			-			(4	)
Trading securities		38			(25	)		-			(33	)		-			(20	)
Equity securities		1			(1	)		-			-			-			-
Derivative investments		249			(218	)		(166	)		-			-			(135	)
Other assets – indexed annuity ceded
embedded derivatives		17			-			-			(469	)		-			(452	)
Future contract benefits – indexed annuity								-
and IUL contracts embedded derivatives		(81	)		-			-			82			-			1
Total, net	$	1,032		$	(420	)	$	(200	)	$	(535	)	$	(78	)	$	(201	)


	For the Six Months Ended June 30, 2019
	Issuances			Sales			Maturities		Settlements				Calls			Total
Investments:
Fixed maturity AFS securities:
Corporate bonds	$	535		$	(18	)	$	(54	)	$	(85	)	$	(7	)	$	371
ABS		410			-			-			(2	)		-			408
Trading securities		578			-			-			(1	)		-			577
Equity securities		43			-			-			-			-			43
Derivative investments		272			(11	)		(132	)		-			-			129
Other assets – indexed annuity ceded
embedded derivatives		40			-			-			(160	)		-			(120	)
Future contract benefits – indexed annuity
and IUL contracts embedded derivatives		(296	)		-			-			98			-			(198	)
Total, net	$	1,582		$	(29	)	$	(186	)	$	(150	)	$	(7	)	$	1,210

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,
	2020			2019			2020			2019
GLB	$	1,662		$	(267	)	$	(3,205	)	$	213
Derivative investments		(1,361	)		18			(466	)		(269	)
Embedded derivatives:
Indexed annuity and IUL contracts		230			(44	)		308			(76	)
Total, net⁽¹⁾	$	531		$	(293	)	$	(3,363	)	$	(132	)

⁽¹⁾Included in realized gain (loss) on our Consolidated Statements of Comprehensive Income (Loss).

The following summarizes changes in unrealized gains (losses) included in OCI, net of tax, 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,
		2020				2020
Fixed maturity AFS securities:
Corporate bonds		$	174			$	(194	)
Foreign government bonds			(1	)			(4	)
ABS			6				2
Hybrid and redeemable preferred securities			4				(2	)
Total, net		$	183			$	(198	)

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, 2020								June 30, 2019
	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	$	135	$	(85	)	$	50		$	2	$	(71	)	$	(69	)
RMBS		1		-			1			-		-			-
ABS		15		(28	)		(13	)		-		(118	)		(118	)
Hybrid and redeemable preferred
securities		18		-			18			-		-			-
Trading securities		10		(2	)		8			5		(91	)		(86	)
Total, net	$	179	$	(115	)	$	64		$	7	$	(280	)	$	(273	)



	For the Six								For the Six
	Months Ended								Months Ended
	June 30, 2020								June 30, 2019
	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	$	254	$	(162	)	$	92		$	85	$	(171	)	$	(86	)
RMBS		1		(10	)		(9	)		-		(7	)		(7	)
ABS		20		(123	)		(103	)		-		(223	)		(223	)
Hybrid and redeemable preferred
securities		18		-			18			-		-			-
Trading securities		33		(2	)		31			5		(128	)		(123	)
Total, net	$	326	$	(297	)	$	29		$	90	$	(529	)	$	(439	)

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 three and six months ended June 30, 2020 and 2019, transfers in and out of Level 3 were attributable primarily to the securities’ observable market information no longer being available or becoming available.
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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, 2020:



											Weighted
											Average
	Fair			Valuation	Significant	Assumption or					Input
	Value			Technique	Unobservable Inputs	Input Ranges					Range ⁽¹⁾
Assets
Investments:
Fixed maturity AFS and
trading securities:
Corporate bonds	$	2,933		Discounted cash flow	Liquidity/duration adjustment ⁽²⁾	0.1	%	-	79.9	%	2.8	%
Foreign government
bonds		47		Discounted cash flow	Liquidity/duration adjustment ⁽²⁾	6.2	%	-	9.0	%	7.8	%
ABS		21		Discounted cash flow	Liquidity/duration adjustment ⁽²⁾	4.7	%	-	4.7	%	4.7	%
Equity securities		22		Discounted cash flow	Liquidity/duration adjustment ⁽²⁾	4.5	%	-	6.4	%	6.0	%
Other assets – GLB ceded
embedded derivatives		571		Discounted cash flow	Long-term lapse rate ⁽³⁾	1	%	-	30	%	⁽¹⁰⁾
					Utilization of guaranteed withdrawals⁽⁴⁾	85	%	-	100	%	94	%
					Claims utilization factor ⁽⁵⁾	60	%	-	100	%	⁽¹⁰⁾
					Premiums utilization factor ⁽⁵⁾	80	%	-	115	%	⁽¹⁰⁾
					NPR ⁽⁶⁾	0.02	%	-	0.28	%	0.20	%
					Mortality rate ⁽⁷⁾				⁽⁹⁾		⁽¹⁰⁾
					Volatility ⁽⁸⁾	1	%	-	28	%	14.53	%

Indexed annuity ceded
embedded derivatives		664		Discounted cash flow	Lapse rate ⁽³⁾	1	%	-	9	%	⁽¹⁰⁾
					Mortality rate ⁽⁷⁾				⁽⁹⁾		⁽¹⁰⁾
Liabilities
Future contract benefits –
indexed annuity and IUL
contracts embedded
derivatives	$	(2,272	)	Discounted cash flow	Lapse rate ⁽³⁾	1	%	-	9	%	⁽¹⁰⁾
					Mortality rate ⁽⁷⁾				⁽⁹⁾		⁽¹⁰⁾
Other liabilities –
GLB direct embedded
derivatives		(3,086	)	Discounted cash flow	Long-term lapse rate ⁽³⁾	1	%	-	30	%	⁽¹⁰⁾
					Utilization of guaranteed withdrawals ⁽⁴⁾	85	%	-	100	%	94	%
					Claims utilization factor ⁽⁵⁾	60	%	-	100	%	⁽¹⁰⁾
					Premiums utilization factor ⁽⁵⁾	80	%	-	115	%	⁽¹⁰⁾
					NPR ⁽⁶⁾	0.02	%	-	0.28	%	0.20	%
					Mortality rate ⁽⁷⁾				⁽⁹⁾		⁽¹⁰⁾
					Volatility ⁽⁸⁾	1	%	-	28	%	14.53	%

⁽¹⁾Unobservable inputs were weighted by the relative fair value of the instruments, unless otherwise noted.

⁽²⁾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.

⁽³⁾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.

⁽⁴⁾The utilization of guaranteed withdrawals input represents the estimated percentage of contract holders that utilize the guaranteed withdrawal feature.

⁽⁵⁾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.

⁽⁶⁾The NPR input represents the estimated additional credit spread that market participants would apply to the market observable discount rate when pricing a contract. The NPR input was weighted by the absolute value of the sensitivity of the reserve to the NPR assumption.

⁽⁷⁾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.

⁽⁸⁾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. Volatility assumptions vary by fund due to the benchmarking of different indices. The volatility input was weighted by the relative account value assigned to each index.

⁽⁹⁾The mortality rate is based on a combination of company and industry experience, adjusted for improvement factors.

⁽¹⁰⁾A weighted average input range is not a meaningful measurement for lapse rate, utilization factors or mortality rate.

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 would have resulted 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 have resulted in a decrease in the fair value measurement.

Indexed annuity and IUL contracts embedded derivatives – For direct embedded derivatives, an increase in the lapse rate or mortality rate inputs would have resulted in a decrease in the fair value measurement.

GLB embedded derivatives – Assuming our GLB direct embedded derivatives are in a liability position: an increase in our lapse rate, NPR or mortality rate inputs would have resulted in a decrease in the fair value measurement; and an increase in the utilization of guaranteed withdrawal or volatility inputs would have resulted in an increase in the fair value measurement.

For each category discussed above, the unobservable inputs are not inter-related; therefore, a directional change in one input would not have affected the other inputs.