Fair Value

3 Months Ended

Mar. 31, 2021

Fair Value [Abstract]

Fair Value

4. Fair Value

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 the Company believes market participants 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.

March 31, 2021	Level 1			Level 2			Level 3		Total
(In millions)
Fixed maturity securities:
Corporate bonds and other	$	152		$	23,410		$	767	$	24,329
States, municipalities and political subdivisions					11,556			44		11,600
Asset-backed					7,301			315		7,616
Fixed maturities available-for-sale		152			42,267			1,126		43,545
Fixed maturities trading					34			5		39
Total fixed maturities	$	152		$	42,301		$	1,131	$	43,584
Equity securities	$	824		$	711		$	45	$	1,580
Short term and other (a)		4,140			36					4,176
Payable to brokers (a)		(71	)		(2	)				(73	)

(a) As of March 31, 2021, Short term and other and Payable to brokers exclude amounts classified as held for sale. See Note 2 for further discussion.

December 31, 2020	Level 1			Level 2			Level 3		Total
(In millions)
Fixed maturity securities:
Corporate bonds and other	$	355		$	24,082		$	770	$	25,207
States, municipalities and political subdivisions					11,546			46		11,592
Asset-backed					7,497			308		7,805
Fixed maturities available-for-sale		355			43,125			1,124		44,604
Fixed maturities trading					34			8		42
Total fixed maturities	$	355		$	43,159		$	1,132	$	44,646
Equity securities	$	796		$	722		$	43	$	1,561
Short term and other		4,538			39					4,577
Payable to brokers		(14	)		(29	)				(43	)

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 three months ended March 31, 2021 and 2020:

			Net Realized Investment Gains (Losses) and Net Change in Unrealized Investment Gains (Losses)													Transfers		Transfers					Unrealized Gains (Losses) Recognized in Net Income (Loss) on Level 3 Assets and Liabilities			Unrealized Gains (Losses) Recognized in Other Comprehensive Income (Loss) on Level 3 Assets and Liabilities
2021	Balance, January 1		Included in Net Income			Included in OCI			Purchases		Sales		Settlements			into Level 3		out of Level 3			Balance, March 31		Held at March 31			Held at March 31
(In millions)
Fixed maturity securities:
Corporate bonds and other	$	770	$	(13	)	$	(40	)	$	42			$	(2	)	$	10				$	767				$	(40	)
States, municipalities and political Subdivisions		46					(2	)														44					(2	)
Asset-backed		308		2			(9	)		30				(17	)		9	$	(8	)		315					(9	)
Fixed maturities available-for-sale		1,124		(11	)		(51	)		72	$	-		(19	)		19		(8	)		1,126	$	-			(51	)
Fixed maturities trading		8		(3	)																	5		(3	)
Total fixed maturities	$	1,132	$	(14	)	$	(51	)	$	72	$	-	$	(19	)	$	19	$	(8	)	$	1,131	$	(3	)	$	(51	)
Equity securities	$	43	$	2																	$	45	$	2

			Net Realized Investment Gains (Losses) and Net Change in Unrealized Investment Gains (Losses)													Transfers		Transfers					Unrealized Gains (Losses) Recognized in Net Income (Loss) on Level 3 Assets and Liabilities			Unrealized Gains (Losses) Recognized in Other Comprehensive Income (Loss) on Level 3 Assets and Liabilities
2020	Balance, January 1		Included in Net Income			Included in OCI			Purchases		Sales		Settlements			into Level 3		out of Level 3			Balance, March 31		Held at March 31			Held at March 31
(In millions)
Fixed maturity securities:
Corporate bonds and other	$	468				$	(37	)	$	67			$	(2	)						$	496				$	(35	)
Asset-backed		165					(9	)		45				(3	)			$	(1	)		197					(9	)
Fixed maturities available-for-sale		633	$	-			(46	)		112	$	-		(5	)	$	-		(1	)		693	$	-			(44	)
Fixed maturities  trading		4		(1	)																	3		(1	)
Total fixed maturities	$	637	$	(1	)	$	(46	)	$	112	$	-	$	(5	)	$	-	$	(1	)	$	696	$	(1	)	$	(44	)
Equity securities	$	19	$	(3	)																$	16	$	(3	)

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

Major Category of Assets and Liabilities	Consolidated Condensed 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 commercial paper, 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 in the Consolidated Condensed 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.

March 31, 2021	Estimated Fair Value		Valuation Techniques	Unobservable Inputs	Range (Weighted Average)
	(In millions)
Fixed maturity securities	$	936	Discounted cash flow	Credit spread	1% – 8% (2%)
December 31, 2020
Fixed maturity securities	$	966	Discounted cash flow	Credit spread	1% – 8% (3%)

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 Condensed 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 Condensed 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		Estimated Fair Value
March 31, 2021	Amount		Level 1		Level 2		Level 3		Total
(In millions)				-
Assets:
Other invested assets, primarily mortgage loans	$	1,043					$	1,107	$	1,107
Liabilities:
Short term debt (a)		140						144		144
Long term debt (a)		8,990			$	9,204		622		9,826
December 31, 2020
Assets:
Other invested assets, primarily mortgage loans	$	1,068					$	1,151	$	1,151
Liabilities:
Short term debt		35			$	19		17		36
Long term debt		10,042				10,482		765		11,247

(a) As of March 31, 2021, Short and Long term debt exclude amounts classified as held for sale. See Note 2 for further discussion.