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Fair Value of Financial Instruments

6 Months Ended

Jun. 30, 2023

Fair Value of Financial Instruments [Abstract]

13. 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, 2023						As of December 31, 2022
	Carrying			Fair			Carrying			Fair
	Value			Value			Value			Value
Assets
Fixed maturity AFS securities	$	100,890		$	100,890		$	99,736		$	99,736
Trading securities		2,943			2,943			3,498			3,498
Equity securities		403			403			427			427
Mortgage loans on real estate		18,460			16,810			18,301			16,553
Derivative investments		5,155			5,155			3,594			3,594
Other investments		4,193			4,193			3,739			3,739
Cash and invested cash		3,768			3,768			3,343			3,343
MRB assets		3,906			3,906			2,807			2,807
Other assets:
Ceded MRBs		2			2			12			12
Reinsurance-related embedded derivatives		368			368			416			416
Indexed annuity ceded embedded derivatives		603			603			525			525
Separate account assets		153,246			153,246			143,536			143,536

Liabilities
Policyholder account balances:
Account balances of certain investment contracts		(43,457	)		(32,106	)		(43,578	)		(34,274	)
Indexed annuity and IUL contracts embedded derivatives		(7,510	)		(7,510	)		(4,783	)		(4,783	)
MRB liabilities		(1,548	)		(1,548	)		(2,078	)		(2,078	)
Short-term debt		(500	)		(497	)		(500	)		(496	)
Long-term debt		(5,954	)		(4,830	)		(5,955	)		(5,005	)
Other liabilities:
Ceded MRBs		(293	)		(293	)		(205	)		(205	)
Derivative liabilities		(372	)		(372	)		(210	)		(210	)
Remaining guaranteed interest and similar contracts		(482	)		(482	)		(574	)		(574	)

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 the 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, excluding 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, excluding mortgage loans accounted for using the fair value option, are classified as Level 2 within the fair value hierarchy.

Other Investments

The carrying value of our assets classified as other investments, excluding short-term 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 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 2 within the fair value hierarchy.

Separate Account Assets

Separate account assets are primarily carried at fair value. A portion of our separate account assets includes LPs, which are accounted for using the equity method of accounting. The carrying value is based on our proportional share of the net assets of the LPs and approximates fair value. The inputs used to measure the fair value of the separate account asset LPs are classified as Level 3 within the fair value hierarchy.

Policyholder Account Balances

Policyholder account balances include account balances of certain investment contracts. The fair value of the account balances 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 these policyholder account balances are classified as Level 3 within the fair value hierarchy.

Other Liabilities

Other liabilities include remaining guaranteed interest and similar 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, 2023, and December 31, 2022, the remaining guaranteed interest and similar contracts carrying value approximated fair value. The inputs used to measure the fair value of these other liabilities 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.

Fair Value Option

Mortgage loans on real estate, net of allowance for credit losses, as reported on the Consolidated Balance Sheets, includes mortgage loans on real estate for which the fair value option was elected. The fair value option allows us to elect fair value as an alternative measurement for mortgage loans not otherwise reported at fair value. We have made these elections for certain mortgage loans associated with modified coinsurance agreements to help mitigate the inconsistency in earnings that would otherwise result from the use of embedded derivatives included with these loans. Changes in fair value are reflected in realized gain (loss) on the Consolidated Statement of Comprehensive Income (Loss). Changes in fair value due to instrument-specific credit risk are estimated using changes in credit spreads and quality ratings for the period reported. Mortgage loans on real estate for which the fair value option was elected are valued using third-party pricing services. We have procedures in place to review the valuations each quarter to ensure they are reasonable, including

utilizing a separate third party to reperform the valuation for a selection of mortgage loans on an annual basis. Due to lack of observable inputs, mortgage loans electing the fair value option are classified as Level 3 within the fair value hierarchy.

The fair value and aggregate contractual principal for mortgage loans on real estate where the fair value option was elected (in millions) were as follows:


	As of		As of
	June 30,		December 31,
	2023		2022
Fair value	$	404	$	487
Aggregate contractual principal		432		514

As of June 30, 2023, and December 31, 2022, no loans for which the fair value option was elected were in non-accrual status, and none were more than 90 days past due and still accruing interest.

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, 2023, or December 31, 2022.

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, 2023
		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		$	-		$	76,941			$	2,366		$	79,307
U.S. government bonds			349			22				-			371
State and municipal bonds			-			5,038				36			5,074
Foreign government bonds			-			281				-			281
RMBS			-			2,009				6			2,015
CMBS			-			1,684				-			1,684
ABS			-			10,585				1,208			11,793
Hybrid and redeemable preferred securities			45			260				60			365
Trading securities			-			2,592				351			2,943
Equity securities			1			277				125			403
Mortgage loans on real estate			-			-				404			404
Derivative investments ⁽¹⁾			-			9,489				591			10,080
Other investments – short-term investments			-			139				-			139
Cash and invested cash			-			3,768				-			3,768
MRB assets			-			-				3,906			3,906
Other assets:
Ceded MRBs			-			-				2			2
Reinsurance-related embedded derivatives			-			368				-			368
Indexed annuity ceded embedded derivatives			-			-				603			603
Separate account assets			417			152,829				-			153,246
Total assets		$	812		$	266,282			$	9,658		$	276,752

Liabilities
Policyholder account balances – indexed annuity
and IUL contracts embedded derivatives		$	-		$	-			$	(7,510	)	$	(7,510	)
MRB liabilities			-			-				(1,548	)		(1,548	)
Other liabilities:
Ceded MRBs			-			-				(293	)		(293	)
Derivative liabilities⁽¹⁾			-			(4,737	)			(560	)		(5,297	)
Total liabilities		$	-		$	(4,737	)		$	(9,911	)	$	(14,648	)

‎



		As of December 31, 2022
		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		$	-		$	76,728			$	2,295		$	79,023
U.S. government bonds			359			20				-			379
State and municipal bonds			-			5,035				35			5,070
Foreign government bonds			-			318				-			318
RMBS			-			2,008				1			2,009
CMBS			-			1,674				-			1,674
ABS			-			9,787				1,117			10,904
Hybrid and redeemable preferred securities			41			269				49			359
Trading securities			-			2,917				581			3,498
Equity securities			-			274				153			427
Mortgage loans on real estate			-			-				487			487
Derivative investments ⁽¹⁾			-			6,048				605			6,653
Other investments – short-term investments			-			75				-			75
Cash and invested cash			-			3,343				-			3,343
MRB assets			-			-				2,807			2,807
Other assets:
Ceded MRBs			-			-				12			12
Reinsurance-related embedded derivatives			-			416				-			416
Indexed annuity ceded embedded derivatives			-			-				525			525
Separate account assets			412			143,124				-			143,536
Total assets		$	812		$	252,036			$	8,667		$	261,515

Liabilities
Policyholder account balances – indexed annuity
and IUL contracts embedded derivatives		$	-		$	-			$	(4,783	)	$	(4,783	)
MRB liabilities			-			-				(2,078	)		(2,078	)
Other liabilities:
Ceded MRBs			-			-				(205	)		(205	)
Derivative liabilities⁽¹⁾			-			(2,666	)			(603	)		(3,269	)
Total liabilities		$	-		$	(2,666	)		$	(7,669	)	$	(10,335	)

⁽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. 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 summary schedule excludes changes to MRB assets and MRB liabilities as these balances are rolled forward in Note 9.



	For the Three Months Ended June 30, 2023
							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			Value
Investments: ⁽²⁾
Fixed maturity AFS securities:
Corporate bonds	$	2,355		$	4		$	(12	)	$	(5	)	$	24		$	2,366
State and municipal bonds		36			-			1			(1	)		-			36
RMBS		1			-			-			5			-			6
CMBS		-			-			-			(4	)		4			-
ABS		1,100			-			(6	)		152			(38	)		1,208
Hybrid and redeemable preferred
securities		59			-			(3	)		-			4			60
Trading securities		458			(2	)		-			(105	)		-			351
Equity securities		137			(13	)		-			1			-			125
Mortgage loans on real estate		490			(4	)		2			(84	)		-			404
Derivative investments		1			(1	)		-			-			31			31
Other assets:
Ceded MRBs ⁽³⁾		6			(4	)		-			-			-			2
Indexed annuity ceded embedded
derivatives ⁽⁴⁾		565			4			-			34			-			603
Policyholder account balances – indexed
annuity and IUL contracts embedded
derivatives ⁽⁴⁾		(5,796	)		(1,558	)		-			(156	)		-			(7,510	)
Other liabilities – ceded MRBs ⁽³⁾		(252	)		(41	)		-			-			-			(293	)
Total, net	$	(840	)	$	(1,615	)	$	(18	)	$	(163	)	$	25		$	(2,611	)

‎



	For the Three Months Ended June 30, 2022
							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			Value
Investments: ⁽²⁾
Fixed maturity AFS securities:
Corporate bonds	$	5,860		$	-		$	(657	)	$	293		$	(20	)	$	5,476
Foreign government bonds		40			-			(3	)		-			-			37
RMBS		13			-			-			-			(12	)		1
CMBS		17			-			-			-			(17	)		-
ABS		988			-			(33	)		266			(68	)		1,153
Hybrid and redeemable preferred
securities		98			-			6			-			-			104
Trading securities		797			(29	)		-			(148	)		-			620
Equity securities		104			15			-			26			-			145
Mortgage loans on real estate		537			(12	)		(5	)		8			-			528
Derivative investments		3			-			-			-			-			3
Other assets:
Ceded MRBs ⁽³⁾		21			2			-			-			-			23
Indexed annuity ceded embedded
derivatives ⁽⁴⁾		493			(113	)		-			60			-			440
Policyholder account balances – indexed
annuity and IUL contracts embedded
derivatives ⁽⁴⁾		(5,574	)		2,290			-			(82	)		-			(3,366	)
Other liabilities – ceded MRBs ⁽³⁾		(51	)		(64	)		-			-			-			(115	)
Total, net	$	3,346		$	2,089		$	(692	)	$	423		$	(117	)	$	5,049

‎


	For the Six Months Ended June 30, 2023
							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			Value
Investments: ⁽²⁾
Fixed maturity AFS securities:
Corporate bonds	$	2,295		$	5		$	1		$	25		$	40		$	2,366
State and municipal bonds		35			-			2			(1	)		-			36
RMBS		1			-			-			5			-			6
CMBS		-			-			-			(4	)		4			-
ABS		1,117			-			2			320			(231	)		1,208
Hybrid and redeemable preferred
securities		49			-			(3	)		(2	)		16			60
Trading securities		581			2			-			(232	)		-			351
Equity securities		153			(29	)		-			1			-			125
Mortgage loans on real estate		487			(2	)		5			(86	)		-			404
Derivative investments		2			(2	)		-			-			31			31
Other assets:
Ceded MRBs ⁽³⁾		12			(10	)		-			-			-			2
Indexed annuity ceded embedded
derivatives ⁽⁴⁾		525			11			-			67			-			603
Policyholder account balances – indexed
annuity and IUL contracts embedded
derivatives ⁽⁴⁾		(4,783	)		(2,277	)		-			(450	)		-			(7,510	)
Other liabilities – ceded MRBs ⁽³⁾		(205	)		(88	)		-			-			-			(293	)
Total, net	$	269		$	(2,390	)	$	7		$	(357	)	$	(140	)	$	(2,611	)

‎


	For the Six Months Ended June 30, 2022
							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			Value
Investments: ⁽²⁾
Fixed maturity AFS securities:
Corporate bonds	$	5,720		$	1		$	(1,010	)	$	651		$	114		$	5,476
Foreign government bonds		41			-			(4	)		-			-			37
RMBS		4			-			-			12			(15	)		1
CMBS		-			-			-			17			(17	)		-
ABS		870			-			(60	)		453			(110	)		1,153
Hybrid and redeemable preferred
securities		93			-			11			-			-			104
Trading securities		828			(58	)		-			(146	)		(4	)		620
Equity securities		95			32			-			18			-			145
Mortgage loans on real estate		739			(15	)		(6	)		(190	)		-			528
Derivative investments		21			3			(6	)		-			(15	)		3
Other assets:
Ceded MRBs ⁽³⁾		95			(72	)		-			-			-			23
Indexed annuity ceded embedded
derivatives ⁽⁴⁾		528			(166	)		-			78			-			440
Policyholder account balances – indexed
annuity and IUL contracts embedded
derivatives ⁽⁴⁾		(6,131	)		2,849			-			(84	)		-			(3,366	)
Other liabilities – ceded MRBs ⁽³⁾		(17	)		(98	)		-			-			-			(115	)
Total, net	$	2,886		$	2,476		$	(1,075	)	$	809		$	(47	)	$	5,049

⁽¹⁾The changes in fair value of the interest rate swaps are offset by an adjustment to derivative investments (see Note 6).

⁽²⁾Amortization and accretion of premiums and discounts are included in net investment income on the 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 the Consolidated Statements of Comprehensive Income (Loss).

⁽³⁾Gains (losses) from the changes in fair value are included in market risk benefit gain (loss) on the Consolidated Statements of Comprehensive Income (Loss).

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

‎

The following provides the components of the items included in issuances, sales, maturities, settlements and calls, net, (in millions) as reported above:



	For the Three Months Ended June 30, 2023
	Issuances			Sales			Maturities		Settlements				Calls			Total
Investments:
Fixed maturity AFS securities:
Corporate bonds	$	268		$	(2	)	$	(26	)	$	(234	)	$	(11	)	$	(5	)
State and municipal bonds		-			(1	)		-			-			-			(1	)
RMBS		5			-			-			-			-			5
CMBS		-			-			-			(4	)		-			(4	)
ABS		216			-			-			(64	)		-			152
Trading securities		-			(102	)		-			(3	)		-			(105	)
Equity securities		1			-			-			-			-			1
Mortgage loans on real estate		3			-			-			(87	)		-			(84	)
Other assets – indexed annuity ceded
embedded derivatives		34			-			-			-			-			34
Policyholder account balances – indexed
annuity and IUL contracts embedded
derivatives		(316	)		-			-			160			-			(156	)
Total, net	$	211		$	(105	)	$	(26	)	$	(232	)	$	(11	)	$	(163	)



	For the Three Months Ended June 30, 2022
	Issuances			Sales			Maturities		Settlements				Calls			Total
Investments:
Fixed maturity AFS securities:
Corporate bonds	$	426		$	-		$	(4	)	$	(86	)	$	(43	)	$	293
ABS		305			-			-			(39	)		-			266
Trading securities		92			(88	)		-			(152	)		-			(148	)
Equity securities		26			-			-			-			-			26
Mortgage loans on real estate		9			-			-			(1	)		-			8
Other assets – indexed annuity ceded
embedded derivatives		20			-			-			40			-			60
Policyholder account balances – indexed
annuity and IUL contracts embedded
derivatives		(100	)		-			-			18			-			(82	)
Total, net	$	778		$	(88	)	$	(4	)	$	(220	)	$	(43	)	$	423

‎



	For the Six Months Ended June 30, 2023
	Issuances			Sales			Maturities		Settlements				Calls			Total
Investments:
Fixed maturity AFS securities:
Corporate bonds	$	409		$	(37	)	$	(34	)	$	(302	)	$	(11	)	$	25
State and municipal bonds		-			(1	)		-			-			-			(1	)
RMBS		5			-			-			-			-			5
CMBS		-			-			-			(4	)		-			(4	)
ABS		457			(2	)		-			(135	)		-			320
Hybrid and redeemable preferred
securities		-			-			-			-			(2	)		(2	)
Trading securities		-			(155	)		-			(77	)		-			(232	)
Equity securities		1			-			-			-			-			1
Mortgage loans on real estate		4			-			-			(90	)		-			(86	)
Other assets – indexed annuity ceded
embedded derivatives		84			-			-			(17	)		-			67
Policyholder account balances – indexed
annuity and IUL contracts embedded
derivatives		(615	)		-			-			165			-			(450	)
Total, net	$	345		$	(195	)	$	(34	)	$	(460	)	$	(13	)	$	(357	)


	For the Six Months Ended June 30, 2022
	Issuances			Sales			Maturities		Settlements				Calls			Total
Investments:
Fixed maturity AFS securities:
Corporate bonds	$	853		$	-		$	(25	)	$	(129	)	$	(48	)	$	651
RMBS		12			-			-			-			-			12
CMBS		17			-			-			-			-			17
ABS		555			-			-			(95	)		(7	)		453
Trading securities		271			(220	)		-			(197	)		-			(146	)
Equity securities		26			(8	)		-			-			-			18
Mortgage loans on real estate		12			-			-			(202	)		-			(190	)
Other assets – indexed annuity ceded
embedded derivatives		38			-			-			40			-			78
Policyholder account balances – indexed
annuity and IUL contracts embedded
derivatives		(228	)		-			-			144			-			(84	)
Total, net	$	1,556		$	(228	)	$	(25	)	$	(439	)	$	(55	)	$	809

‎

The following summarizes changes in unrealized gains (losses) included in net income 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,
	2023			2022			2023			2022
Trading securities ⁽¹⁾	$	(5	)	$	(28	)	$	1		$	(58	)
Equity securities ⁽¹⁾		(13	)		16			(29	)		34
Mortgage loans on real estate ⁽¹⁾		(5	)		(12	)		(3	)		(15	)
Derivative investments⁽¹⁾		-			1			(2	)		3
MRBs ⁽²⁾		2,007			(492	)		1,369			859
Embedded derivatives – indexed annuity
and IUL contracts ⁽¹⁾		(55	)		(26	)		(208	)		58
Total, net	$	1,929		$	(541	)	$	1,128		$	881

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

⁽²⁾Included in market risk benefit gain (loss) on the Consolidated Statements of Comprehensive Income (Loss).

The following summarizes changes in unrealized gains (losses) included in OCI, net of tax, 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,
	2023			2022			2023			2022
Fixed maturity AFS securities:
Corporate bonds	$	(15	)	$	(658	)	$	(2	)	$	(1,012	)
State and municipal bonds		1			-			1			-
Foreign government bonds		-			(3	)		-			(5	)
ABS		(7	)		(34	)		1			(62	)
Hybrid and redeemable preferred
securities		(2	)		6			(2	)		11
Mortgage loans on real estate		2			(5	)		4			(6	)
Total, net	$	(21	)	$	(694	)	$	2		$	(1,074	)

‎

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, 2023								June 30, 2022
	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	$	100	$	(76	)	$	24		$	32	$	(52	)	$	(20	)
RMBS		-		-			-			-		(12	)		(12	)
CMBS		4		-			4			-		(17	)		(17	)
ABS		2		(40	)		(38	)		1		(69	)		(68	)
Hybrid and redeemable preferred
securities		4		-			4			-		-			-
Derivative investments		31		-			31			-		-			-
Total, net	$	141	$	(116	)	$	25		$	33	$	(150	)	$	(117	)



	For the Six								For the Six
	Months Ended								Months Ended
	June 30, 2023								June 30, 2022
	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	$	159	$	(119	)	$	40		$	228	$	(114	)	$	114
RMBS		-		-			-			-		(15	)		(15	)
CMBS		4		-			4			-		(17	)		(17	)
ABS		2		(233	)		(231	)		1		(111	)		(110	)
Hybrid and redeemable preferred
securities		16		-			16					-			-
Trading securities		-		-			-			-		(4	)		(4	)
Derivative investments		31		-			31			-		(15	)		(15	)
Total, net	$	212	$	(352	)	$	(140	)	$	229	$	(276	)	$	(47	)

Transfers into and out of Level 3 are generally the result of observable market information on financial instruments no longer being available or becoming available to our pricing vendors. For the three and six months ended June 30, 2023 and 2022, transfers in and out of Level 3 were attributable primarily to the financial instruments’ observable market information no longer being available or becoming available.
‎

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, 2023:



											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	$	233		Discounted cash flow	Liquidity/duration adjustment ⁽²⁾	(0.2)	%	-	3.7	%	2.1	%
State and municipal
bonds		36		Discounted cash flow	Liquidity/duration adjustment ⁽²⁾	0.5	%	-	1.9	%	1.9	%
ABS		13		Discounted cash flow	Liquidity/duration adjustment ⁽²⁾	1.9	%	-	1.9	%	1.9	%
Hybrid and redeemable
preferred securities		7		Discounted cash flow	Liquidity/duration adjustment ⁽²⁾	1.3	%	-	1.5	%	1.4	%
Equity securities		4		Discounted cash flow	Liquidity/duration adjustment ⁽²⁾	4.5	%	-	4.5	%	4.5	%

MRB assets		3,906
Other assets – ceded MRBs		2		Discounted cash flow	Lapse ⁽³⁾	1	%	-	30	%	⁽¹⁰⁾
					Utilization of GLB withdrawals⁽⁴⁾	85	%	-	100	%	94	%
					Claims utilization factor ⁽⁵⁾	60	%	-	100	%	⁽¹⁰⁾
					Premiums utilization factor ⁽⁵⁾	80	%	-	115	%	⁽¹⁰⁾
					Non-performance risk ⁽⁶⁾	0.69	%	-	2.82	%	2.27	%
					Mortality ⁽⁷⁾				⁽⁹⁾		⁽¹⁰⁾
					Volatility ⁽⁸⁾	1	%	-	28	%	14.82	%
Other assets – indexed
annuity ceded embedded
derivatives		603		Discounted cash flow	Lapse ⁽³⁾	0	%	-	9	%	⁽¹⁰⁾
					Mortality ⁽⁷⁾				⁽⁹⁾		⁽¹⁰⁾
Liabilities
Policyholder account
balances – indexed annuity
contracts embedded
derivatives	$	(7,451	)	Discounted cash flow	Lapse ⁽³⁾	0	%	-	9	%	⁽¹⁰⁾
					Mortality ⁽⁷⁾				⁽⁹⁾		⁽¹⁰⁾

MRB liabilities		(1,548	)
Other liabilities – ceded
MRBs		(293	)	Discounted cash flow	Lapse ⁽³⁾	1	%	-	30	%	⁽¹⁰⁾
					Utilization of GLB withdrawals⁽⁴⁾	85	%	-	100	%	94	%
					Claims utilization factor ⁽⁵⁾	60	%	-	100	%	⁽¹⁰⁾
					Premiums utilization factor ⁽⁵⁾	80	%	-	115	%	⁽¹⁰⁾
					Non-performance risk ⁽⁶⁾	0.69	%	-	2.82	%	2.27	%
					Mortality ⁽⁷⁾				⁽⁹⁾		⁽¹⁰⁾
					Volatility ⁽⁸⁾	1	%	-	28	%	14.82	%

The following summarizes the fair value (in millions), valuation techniques and significant unobservable inputs of the Level 3 fair value measurements as of December 31, 2022:



											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	$	204		Discounted cash flow	Liquidity/duration adjustment ⁽²⁾	(0.2)	%	-	4.2	%	2.1	%
State and municipal
bonds		35		Discounted cash flow	Liquidity/duration adjustment ⁽²⁾	1.2	%	-	2.4	%	2.3	%
ABS		15		Discounted cash flow	Liquidity/duration adjustment ⁽²⁾	1.4	%	-	1.4	%	1.4	%
Hybrid and redeemable
preferred securities		3		Discounted cash flow	Liquidity/duration adjustment ⁽²⁾	1.5	%	-	1.5	%	1.5	%
Equity securities		4		Discounted cash flow	Liquidity/duration adjustment ⁽²⁾	4.5	%	-	4.5	%	4.5	%

MRB assets		2,807
Other assets – ceded MRBs		12		Discounted cash flow	Lapse ⁽³⁾	1	%	-	30	%	⁽¹⁰⁾
					Utilization of GLB withdrawals ⁽⁴⁾	85	%	-	100	%	94	%
					Claims utilization factor ⁽⁵⁾	60	%	-	100	%	⁽¹⁰⁾
					Premiums utilization factor ⁽⁵⁾	80	%	-	115	%	⁽¹⁰⁾
					Non-performance risk ⁽⁶⁾	0.35	%	-	2.41	%	1.73	%
					Mortality ⁽⁷⁾				⁽⁹⁾		⁽¹⁰⁾
					Volatility ⁽⁸⁾	1	%	-	28	%	14.47	%

Other assets – indexed
annuity ceded embedded
derivatives		525		Discounted cash flow	Lapse ⁽³⁾	0	%	-	9	%	⁽¹⁰⁾
					Mortality ⁽⁷⁾				⁽⁹⁾		⁽¹⁰⁾
Liabilities
Policyholder account
balances – indexed annuity
contracts embedded
derivatives	$	(4,845	)	Discounted cash flow	Lapse ⁽³⁾	0	%	-	9	%	⁽¹⁰⁾
					Mortality ⁽⁷⁾				⁽⁹⁾		⁽¹⁰⁾

MRB liabilities		(2,078	)
Other liabilities – ceded
MRBs		(205	)	Discounted cash flow	Lapse ⁽³⁾	1	%	-	30	%	⁽¹⁰⁾
					Utilization of GLB withdrawals ⁽⁴⁾	85	%	-	100	%	94	%
					Claims utilization factor ⁽⁵⁾	60	%	-	100	%	⁽¹⁰⁾
					Premiums utilization factor ⁽⁵⁾	80	%	-	115	%	⁽¹⁰⁾
					Non-performance risk ⁽⁶⁾	0.35	%	-	2.41	%	1.73	%
					Mortality ⁽⁷⁾				⁽⁹⁾		⁽¹⁰⁾
					Volatility ⁽⁸⁾	1	%	-	28	%	14.47	%

⁽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 input represents the estimated probability of a contract surrendering during a year, and thereby forgoing any future benefits. The range for indexed annuity contracts represents the lapses during the surrender charge period.

⁽⁴⁾The utilization of GLB withdrawals input represents the estimated percentage of policyholders that utilize the GLB withdrawal riders.

⁽⁵⁾The utilization factors are applied to the present value of claims or premiums, as appropriate, in the MRB calculation to estimate the impact of inefficient GLB withdrawal behavior, including taking less than or more than the maximum GLB withdrawal.

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

⁽⁷⁾The mortality 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. 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 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, utilization factors or mortality.

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

MRBs – Assuming our market risk benefits are in a liability position: an increase in our lapse, non-performance risk or mortality inputs would have resulted in a decrease in the fair value measurement except for policies with GDB riders only, an increase in mortality 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. As part of our ongoing valuation process, we assess the reasonableness of our valuation techniques or models and make adjustments as necessary.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

+ References + Details