Fair Value

6 Months Ended

Jun. 30, 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 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.

June 30, 2021	Level 1			Level 2			Level 3		Total
(In millions)
Fixed maturity securities:
Corporate bonds and other	$	158		$	24,017		$	883	$	25,058
States, municipalities and political subdivisions					11,809			57		11,866
Asset-backed					7,566			410		7,976
Fixed maturities available-for-sale		158			43,392			1,350		44,900
Fixed maturities trading					10					10
Total fixed maturities	$	158		$	43,402		$	1,350	$	44,910
Equity securities	$	884		$	743		$	36	$	1,663
Short term and other		4,661			37					4,698
Payable to brokers		(94	)		(2	)				(96	)

December 31, 2020
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 and six months ended June 30, 2021 and 2020:

																									Unrealized
																									Gains
																							Unrealized		(Losses)
																							Gains		Recognized in
			Net Realized																				(Losses)		Other
			Investment Gains																				Recognized in		Comprehensive
			(Losses) and Net Change																				Net Income		Income (Loss)
			in Unrealized Investment																				(Loss) on Level		on Level 3
			Gains (Losses)																				3 Assets and		Assets and
			Included in													Transfers		Transfers					Liabilities		Liabilities
	Balance,		Net Income			Included in										into		out of			Balance,		Held at		Held at
2021	April 1		(Loss)			OCI		Purchases		Sales			Settlements			Level 3		Level 3			June 30		June 30		June 30
(In millions)
Fixed maturity securities:
Corporate bonds and other	$	767	$	3		$	16	$	122	$	(3	)	$	(22	)						$	883			$	16
States, municipalities and political subdivisions		44					2		12					(1	)							57				2
Asset-backed		315		1			4		84					(10	)	$	21	$	(5	)		410				4
Fixed maturities available-for-sale		1,126		4			22		218		(3	)		(33	)		21		(5	)		1,350	$	-		22
Fixed maturities trading		5		(3	)									(2	)
Total fixed maturities	$	1,131	$	1		$	22	$	218	$	(3	)	$	(35	)	$	21	$	(5	)	$	1,350	$	-	$	22
Equity securities	$	45	$	(15	)			$	10	$	(4	)									$	36

																										Unrealized
																										Gains
																							Unrealized			(Losses)
																							Gains			Recognized in
			Net Realized																				(Losses)			Other
			Investment Gains																				Recognized in			Comprehensive
			(Losses) and Net Change																				Net Income			Income (Loss)
			in Unrealized Investment																				(Loss) on Level			on Level 3
			Gains (Losses)																				3 Assets and			Assets and
			Included in													Transfers		Transfers					Liabilities			Liabilities
	Balance,		Net Income			Included in										into		out of			Balance,		Held at			Held at
2020	April 1		(Loss)			OCI		Purchases		Sales			Settlements			Level 3		Level 3			June 30		June 30			June 30
(In millions)
Fixed maturity securities:
Corporate bonds and other	$	496				$	59	$	4				$	(4	)						$	555				$	58
Asset-backed		197					18		35	$	(9	)		(5	)			$	(14	)		222					18
Fixed maturities available-for-sale		693	$	-			77		39		(9	)		(9	)	$	-		(14	)		777	$	-			76
Fixed maturities  trading		3		1																		4		1
Total fixed maturities	$	696	$	1		$	77	$	39	$	(9	)	$	(9	)	$	-	$	(14	)	$	781	$	1		$	76
Equity securities	$	16	$	(4	)											$	15				$	27	$	(4	)

																										Unrealized
																										Gains
																								Unrealized		(Losses)
																								Gains		Recognized in
			Net Realized																					(Losses)		Other
			Investment Gains																					Recognized in		Comprehensive
			(Losses) and Net Change																					Net Income		Income (Loss)
			in Unrealized Investment																					(Loss) on Level		on Level 3
			Gains (Losses)																					3 Assets and		Assets and
			Included in														Transfers		Transfers					Liabilities		Liabilities
	Balance,		Net Income			Included in											into		out of			Balance,		Held at		Held at
2021	January 1		(Loss)			OCI			Purchases		Sales			Settlements			Level 3		Level 3			June 30		June 30		June 30
(In millions)
Fixed maturity securities:
Corporate bonds and other	$	770	$	(10	)	$	(24	)	$	164	$	(3	)	$	(24	)	$	10				$	883			$	(24	)
States, municipalities and political subdivisions		46								12					(1	)							57
Asset-backed		308		3			(5	)		114					(27	)		30	$	(13	)		410				(5	)
Fixed maturities available-for-sale		1,124		(7	)		(29	)		290		(3	)		(52	)		40		(13	)		1,350	$	-		(29	)
Fixed maturities trading		8		(6	)										(2	)
Total fixed maturities	$	1,132	$	(13	)	$	(29	)	$	290	$	(3	)	$	(54	)	$	40	$	(13	)	$	1,350	$	-	$	(29	)
Equity securities	$	43	$	(13	)				$	10	$	(4	)									$	36	$	2

																										Unrealized
																										Gains
																							Unrealized			(Losses)
																							Gains			Recognized in
			Net Realized																				(Losses)			Other
			Investment Gains																				Recognized in			Comprehensive
			(Losses) and Net Change																				Net Income			Income (Loss)
			in Unrealized Investment																				(Loss) on Level			on Level 3
			Gains (Losses)																				3 Assets and			Assets and
			Included in													Transfers		Transfers					Liabilities			Liabilities
	Balance,		Net Income			Included in										into		out of			Balance,		Held at			Held at
2020	January 1		(Loss)			OCI		Purchases		Sales			Settlements			Level 3		Level 3			June 30		June 30			June 30
(In millions)
Fixed maturity securities:
Corporate bonds and other	$	468				$	22	$	71				$	(6	)						$	555				$	24
Asset-backed		165					10		80	$	(9	)		(9	)			$	(15	)		222					10
Fixed maturities available-for-sale		633	$	-			32		151		(9	)		(15	)	$	-		(15	)		777	$	-			34
Fixed maturities  trading		4																				4
Total fixed maturities	$	637	$	-		$	32	$	151	$	(9	)	$	(15	)	$	-	$	(15	)	$	781	$	-		$	34
Equity securities	$	19	$	(7	)											$	15				$	27	$	(7	)

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.

June 30, 2021	Estimated Fair Value		Valuation Techniques	Unobservable Inputs	Range (Weighted Average)
	(In millions)
Fixed maturity securities	$	1,067	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
June 30, 2021	Amount		Level 1	Level 2		Level 3		Total
(In millions)
Assets:
Other invested assets, primarily mortgage loans	$	1,006				$	1,079	$	1,079
Liabilities:
Short term debt		121					125		125
Long term debt		8,982		$	9,397		621		10,018
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