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Fair Value

12 Months Ended

Dec. 31, 2022

Fair value is the price that would be received upon sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The following fair value hierarchy is used in selecting inputs, with the highest priority given to Level 1, as these are the most transparent or reliable:

•Level 1 – Quoted prices for identical instruments in active markets.

•Level 2 – Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs are observable in active markets.

•Level 3 – Valuations derived from valuation techniques in which one or more significant inputs are not observable.

Prices may fall within Level 1, 2 or 3 depending upon the methodology and inputs used to estimate fair value for each specific security. In general, securities are priced using third party pricing services. Securities not priced by pricing services are submitted to independent brokers for valuation and, if those are not available, internally developed pricing models are used to value assets using a methodology and inputs that market participants presumably would use to value the assets. Prices obtained from third-party pricing services or brokers are not adjusted.

Control procedures are performed over information obtained from pricing services and brokers to ensure prices received represent a reasonable estimate of fair value and to confirm representations regarding whether inputs are observable or unobservable. Procedures may include: (i) the review of pricing service methodologies or broker pricing qualifications, (ii) back-testing, where past fair value estimates are compared to actual transactions executed in the market on similar dates, (iii) exception reporting, where period-over-period changes in price are reviewed and challenged with the pricing service or broker based on exception criteria and (iv) detailed analysis, where an independent analysis of the inputs and assumptions used to price individual securities is performed.

Assets and liabilities measured at fair value on a recurring basis are summarized in the following tables. Corporate bonds and other includes obligations of the U.S. Treasury, government-sponsored enterprises, foreign governments and redeemable preferred stock.


December 31, 2022	Level 1		Level 2		Level 3		Total
(In millions)

Fixed maturity securities:
Corporate bonds and other	$	120	$	21,187	$	810	$	22,117
States, municipalities and political subdivisions			8,274		43		8,317
Asset-backed			6,405		788		7,193
Fixed maturities available-for-sale	120		35,866		1,641		37,627
Fixed maturities trading	1		69				70
Total fixed maturities	$	121	$	35,935	$	1,641	$	37,697

Equity securities	$	669	$	435	$	35	$	1,139
Short term and other	4,539		167				4,706
Receivables			19				19

Payable to brokers	(82)						(82)

December 31, 2021

Fixed maturity securities:
Corporate bonds and other	$	140	$	23,768	$	937	$	24,845
States, municipalities and political subdivisions			11,887		56		11,943
Asset-backed			7,029		556		7,585
Fixed maturities available-for-sale	140		42,684		1,549		44,373
Fixed maturities trading			7				7
Total fixed maturities	$	140	$	42,691	$	1,549	$	44,380

Equity securities	$	924	$	721	$	29	$	1,674
Short term and other	4,696		74				4,770

Payable to brokers	(70)						(70)

The following tables present reconciliations for all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the years ended December 31, 2022 and 2021:


			Net Realized Investment Gains (Losses) and Net Change in Unrealized Investment Gains (Losses)																Unrealized Gains (Losses) Recognized in Net Income (Loss) on Level 3 Assets and Liabilities Held at December 31		Unrealized Gains (Losses) Recognized in Other Comprehensive Income (Loss)on Level 3 Assets and Liabilities Held at December 31
2022	Balance, January 1		Included in Net Income		Included in OCI		Purchases		Sales		Settlements		Transfers into Level 3		Transfers out of Level 3		Balance, December 31
(In millions)

Fixed maturity securities:
Corporate bonds and other	$	937	$	(1)	$	(184)	$	137	$	(5)	$	(84)	$	10			$	810			$	(183)
States, municipalities and political subdivisions	56				(13)												43				(13)
Asset-backed	556		25		(126)		424		(2)		(70)		75		$	(94)	788				(125)
Fixed maturities available-for-sale	1,549		24		(323)		561		(7)		(154)		85		(94)		1,641		$	—	(321)
Fixed maturities trading	—																—
Total fixed maturities	$	1,549	$	24	$	(323)	$	561	$	(7)	$	(154)	$	85	$	(94)	$	1,641	$	—	$	(321)

Equity securities	$	29	$	(9)			$	19	$	(3)	$	9			$	(10)	$	35	$	(4)


			Net Realized Investment Gains (Losses) and Net Change in Unrealized Investment Gains (Losses)																Unrealized Gains (Losses) Recognized in Net Income (Loss) on Level 3 Assets and Liabilities Held at December 31		Unrealized Gains (Losses) Recognized in Other Comprehensive Income (Loss)on Level 3 Assets and Liabilities Held at December 31
2021	Balance, January 1		Included in Net Income		Included in OCI		Purchases		Sales		Settlements		Transfers into Level 3		Transfers out of Level 3		Balance, December 31
(In millions)

Fixed maturity securities:
Corporate bonds and other	$	770	$	(10)	$	(32)	$	312	$	(3)	$	(68)	$	20	$	(52)	$	937			$	(32)
States, municipalities and political subdivisions	46				(1)		12				(1)						56				(1)
Asset-backed	308		7		(10)		287		(9)		(61)		109		(75)		556				(11)
Fixed maturities available-for-sale	1,124		(3)		(43)		611		(12)		(130)		129		(127)		1,549		$	—	(44)
Fixed maturities trading	8		(6)								(2)						—
Total fixed maturities	$	1,132	$	(9)	$	(43)	$	611	$	(12)	$	(132)	$	129	$	(127)	$	1,549	$	—	$	(44)

Equity securities	$	43	$	(15)			$	11	$	(21)			$	21	$	(10)	$	29	$	(2)

Net investment gains and losses are reported in Net income as follows:


Major Category of Assets and Liabilities			Consolidated Statements of Operations Line Items

Fixed maturity securities available-for-sale			Investment gains (losses)
Fixed maturity securities trading			Net investment income
Equity securities			Investment gains (losses) and Net investment income
Other invested assets			Investment gains (losses) and Net investment income
Derivative financial instruments held in a trading portfolio			Net investment income
Derivative financial instruments, other			Investment gains (losses) and Operating revenues and other

Securities may be transferred in or out of levels within the fair value hierarchy based on the availability of observable market information and quoted prices used to determine the fair value of the security. The availability of observable market information and quoted prices varies based on market conditions and trading volume.

Valuation Methodologies and Inputs

The following section describes the valuation methodologies and relevant inputs used to measure different financial instruments at fair value, including an indication of the level in the fair value hierarchy in which the instruments are generally classified.

Fixed Maturity Securities

Level 1 securities include highly liquid government securities and exchange traded bonds valued using quoted market prices. Level 2 securities include most other fixed maturity securities as the significant inputs are observable in the marketplace. All classes of Level 2 fixed maturity securities are valued using a methodology based on information generated by market transactions involving identical or comparable assets, a discounted cash flow methodology or a combination of both when necessary. Common inputs for all classes of fixed maturity securities include prices from recently executed transactions of similar securities, marketplace quotes, benchmark yields, spreads off benchmark yields, interest rates and U.S. Treasury or swap curves. Specifically for asset-backed securities, key inputs include prepayment and default projections based on past performance of the underlying collateral and current market data. Fixed maturity securities are primarily assigned to Level 3 in cases where broker/dealer quotes are significant inputs to the valuation, and there is a lack of transparency as to whether these quotes are based on information that is observable in the marketplace. Level 3 securities also include private placement debt securities whose fair value is determined using internal models with some inputs that are not market observable.

Equity Securities

Level 1 securities include publicly traded securities valued using quoted market prices. Level 2 securities are primarily valued using pricing for similar securities, recently executed transactions and other pricing models utilizing market observable inputs. Level 3 securities are primarily priced using broker/dealer quotes and internal models with some inputs that are not market observable.

Derivative Financial Instruments

Equity options are valued using quoted market prices and are classified within Level 1 of the fair value hierarchy. Over-the-counter derivatives, principally interest rate swaps, currency forwards, total return swaps, commodity swaps, equity warrants and options, are valued using inputs including broker/dealer quotes and are classified within Level 2 or Level 3 of the valuation hierarchy, depending on the amount of transparency as to whether these quotes are based on information that is observable in the marketplace.

Short Term and Other Invested Assets

Securities that are actively traded or have quoted prices are classified as Level 1. These securities include money market funds, treasury bills and exchange traded open-end funds valued using quoted market prices. Level 2 primarily includes non-U.S. government securities for which all inputs are market observable. Fixed maturity securities purchased within one year of maturity are classified consistent with fixed maturity securities discussed above. Short term investments as presented in the tables above differ from the amounts presented on the Consolidated Balance Sheets because certain short term investments, such as time deposits, are not measured at fair value.

Significant Unobservable Inputs

The following tables present quantitative information about the significant unobservable inputs utilized in the fair value measurement of Level 3 assets. Valuations for assets and liabilities not presented in the tables below are primarily based on broker/dealer quotes for which there is a lack of transparency as to inputs used to develop the valuations. The quantitative detail of unobservable inputs from these broker quotes is neither provided nor reasonably available. The weighted average rate is calculated based on fair value.


December 31, 2022	Estimated Fair Value		Valuation Techniques	Unobservable Inputs	Range (Weighted Average)
	(In millions)

Fixed maturity securities	$	1,177	Discounted cash flow	Credit spread	1%	—	8%	(2%)

December 31, 2021

Fixed maturity securities	$	1,225	Discounted cash flow	Credit spread	1%	—	7%	(2%)

For fixed maturity securities, an increase to the credit spread assumptions would result in a lower fair value measurement.

Financial Assets and Liabilities Not Measured at Fair Value

The carrying amount, estimated fair value and the level of the fair value hierarchy of the financial assets and liabilities which are not measured at fair value on the Consolidated Balance Sheets are presented in the following tables. The carrying amounts and estimated fair values of short term debt and long term debt exclude finance lease obligations. The carrying amounts reported on the Consolidated Balance Sheets for cash and short term investments not carried at fair value and certain other assets and liabilities approximate fair value due to the short term nature of these items.


	Carrying Amount		Estimated Fair Value
December 31, 2022			Level 1	Level 2		Level 3		Total
(In millions)

Assets:
Other invested assets, primarily mortgage loans	$	1,040				$	973	$	973

Liabilities:
Short term debt	853			$	744	111		855
Long term debt	8,160			7,035		586		7,621

December 31, 2021

Assets:
Other invested assets, primarily mortgage loans	$	973				$	1,018	$	1,018

Liabilities:
Short term debt	93					93		93
Long term debt	8,981			$	9,170	611		9,781

The fair values of debt were based on observable market prices when available. When observable market prices were not available, the fair values of debt were based on observable market prices of comparable instruments adjusted for differences between the observed instruments and the instruments being valued or is estimated using discounted cash flow analyses, based on current incremental borrowing rates for similar types of borrowing arrangements.

- Definition

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

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