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Investments
 9 Months Ended
Sep. 30, 2021
Investments [Abstract]  
Investments
3. Investments


Net investment income is as follows:

  Three Months Ended   Nine Months Ended  
September 30,
  
September 30,
  
 
2021
  
2020
  
2021
  
2020
  
(In millions)
                
                 
Fixed maturity securities
  
$
425
    
$
432
    
$
1,278
    
$
1,300
  
Limited partnership investments
    
89
      
71
      
285
      
26
  
Short term investments
     1      
2
       1      
11
  
Equity securities
    
4
      
18
      
53
      
24
  
Income (loss) from trading portfolio (a)
    
(30
)
    
22
      
46
          
Other
    
12
      
14
      
42
      
44
  
Total investment income
    
501
      
559
      
1,705
      
1,405
  
Investment expenses
    
(18
)
    
(19
)
    
(56
)
    
(58
)
Net investment income
  
$
483
    
$
540
    
$
1,649
    
$
1,347
  

(a)
Net investment income recognized due to the change in fair value on securities still held as of September 30, 2021 and 2020 was $(55) and $11 for the three months ended September 30, 2021 and 2020 and $(9) and $13 for the nine months ended September 30, 2021 and 2020.


Investment gains (losses) are as follows:

    Three Months Ended     Nine Months Ended  
 
September 30,
    
September 30,
  
   
2021
    
2020
    
2021
    
2020
  
(In millions)
                        
                         
Fixed maturity securities:
                    

 
Gross gains
   $ 50     $ 44     $ 159     $ 175  
Gross losses
     (28 )     (18 )     (68 )     (207 )
Investment gains (losses) on fixed maturity securities
     22       26       91       (32 )
Equity securities
    
(2
)
    
25
      
17
      
(45
)
Derivative instruments
    
2
      
(2
)
    
7
      
(7
)
Short term investments and other
            
(3
)
    
2
      
(17
)
Altium Packaging (see Note 2)
                    
555
          
Diamond Offshore (see Note 2)
                    
(15
)
    
(1,211
)
Investment gains (losses) (a)
  
$
22
    
$
46
    
$
657
    
$
(1,312
)

(a)
During the three and nine months ended September 30, 2021, $2 of investment losses and $15 of investment gains were recognized due to the change in fair value of non-redeemable preferred stock still held as of September 30, 2021. During the three and nine months ended September 30, 2020, $25 of investment gains and $44 of investment losses were recognized due to the change in fair value of non-redeemable preferred stock still held as of September 30, 2020.


The following tables present the activity related to the allowance on available-for-sale securities with credit impairments and purchased credit-deteriorated (“PCD”) assets. Accrued interest receivables on available-for-sale fixed maturity securities totaled $387 million, $371 million and $390 million as of September 30, 2021, December 31, 2020 and September 30, 2020 and are excluded from the estimate of expected credit losses and the amortized cost basis in the tables within this Note.

    Corporate and     Asset-        
Three months ended September 30, 2021
  
Other Bonds
    
backed
    
Total
  
(In millions)
                  
                   
Allowance for credit losses:
                  
Balance as of July 1, 2021
  
$
24
    
$
21
    
$
45
  
Additions to the allowance for credit losses:
                        
Securities for which credit losses were not previously recorded
                        
Available-for-sale securities accounted for as PCD assets
     2      

     
2
  
                         
Reductions to the allowance for credit losses:
                        
Securities sold during the period (realized)
                        
Write-offs charged against the allowance
     16               16  
                         
Additional increases or (decreases) to the allowance for credit losses on securities that had an allowance recorded in a previous period
    
   
     
Total allowance for credit losses
  
$
10
    
$
21
    
$
31
  

Three months ended September 30, 2020
                  
                   
Allowance for credit losses:
                  
Balance as of July 1, 2020
  
$
39
    
$
12
    
$
51
  
Additions to the allowance for credit losses:
                        
Securities for which credit losses were not previously recorded
    
4
      
     
4
  
Available-for-sale securities accounted for as PCD assets
    
1
              
1
  
                         
Reductions to the allowance for credit losses:
                        
Securities sold during the period (realized)
    
9
              
9
  
Write-offs charged against the allowance
                        
                         
Additional increases or (decreases) to the allowance for credit losses on securities that had an allowance recorded in a previous period
    
(1
)
     1      
Total allowance for credit losses
  
$
34
    
$
13
    
$
47
  

    Corporate and
     Asset-
        
Nine months ended September 30, 2021
  
Other Bonds
    
backed
    
Total
  
(In millions)
                  
                   
Allowance for credit losses:
                  
Balance as of January 1, 2021
  
$
23
    
$
17
    
$
40
  
Additions to the allowance for credit losses:
                        
Securities for which credit losses were not previously recorded
    
14
              
14
  
Available-for-sale securities accounted for as PCD assets
    
4
      
4
      
8
  
                         
Reductions to the allowance for credit losses:
                        
Securities sold during the period (realized)
    
6
              
6
  
Intent to sell or more likely than not will be required to sell the security before recovery of its amortized cost basis
                        
Write-offs charged against the allowance
     16               16  
                         
Additional increases or (decrease) to the allowance for credit losses on securities that had an allowance recorded in a previous period
    
(9
)
            
(9
)
Total allowance for credit losses
  
$
10
    
$
21
    
$
31
  

Nine months ended September 30, 2020
                  
                   
Allowance for credit losses:
                  
Balance as of January 1, 2020
  
$
-
    
$
-
    
$
-
  
Additions to the allowance for credit losses:
                        
Impact of adopting ASC 326
    
6
              
6
  
Securities for which credit losses were not previously recorded
    
62
      
12
      
74
  
Available-for-sale securities accounted for as PCD assets
    
3
              
3
  
                         
Reductions to the allowance for credit losses:
                        
Securities sold during the period (realized)
    
15
              
15
  
Intent to sell or more likely than not will be required to sell the security before recovery of its amortized cost basis
    
1
              
1
  
Write-offs charged against the allowance
                        
                         
Additional increases or (decrease) to the allowance for credit losses on securities that had an allowance recorded in a previous period
    
(21
)
     1      
(20
)
Total allowance for credit losses
  
$
34
    
$
13
    
$
47
  


The components of available-for-sale impairment losses recognized in earnings by asset type are presented in the following table. The table includes losses on securities with an intention to sell and changes in the allowance for credit losses on securities since acquisition date:

    Three Months Ended     Nine Months Ended  
  September 30,     September 30,  
   
2021
    
2020
    
2021
    
2020
  
(In millions)
                        
                         
Fixed maturity securities available-for-sale:
                        
Corporate and other bonds
  


 
$
4
 
$
5
    
$
94
  
Asset-backed
   $
11
      
1
       11      
14
  
Impairment losses recognized in earnings
  
$
11
 
$
5
    
$
16
    
$
108
  


There were $3 million and $16 million of losses on mortgage loans recognized during the three and nine months ended September 30, 2020 primarily due to changes in expected credit losses. There were no losses recognized on mortgage loans during the three and nine months ended September 30, 2021.


The amortized cost and fair values of fixed maturity securities are as follows:

    Cost or

Gross

Gross

Allowance


 
     Amortized      Unrealized      Unrealized      for Credit
      Estimated  
September 30, 2021
  
Cost
    
Gains
    
Losses
    
Losses
    
Fair Value
  
(In millions)
                              
                               
Fixed maturity securities:
                              
Corporate and other bonds
  
$
21,608
    
$
2,967
    
$
42
    
$
10
    
$
24,523
  
States, municipalities and political subdivisions
    
10,384
      
1,610
      
15
              
11,979
  
Asset-backed:
                                        
Residential mortgage-backed
    
3,176
      
89
      
6
              
3,259
  
Commercial mortgage-backed
    
2,064
      
85
      
16
      
17
      
2,116
  
Other asset-backed
    
2,429
      
76
      
4
      
4
      
2,497
  
Total asset-backed
    
7,669
      
250
      
26
      
21
      
7,872
  
U.S. Treasury and obligations of government-sponsored enterprises
    
139
       1      
4
              
136
  
Foreign government
    
521
      
19
      
2
              
538
  
Redeemable preferred stock
     12                               12  
Fixed maturities available-for-sale
    
40,333
      
4,847
      
89
      
31
      
45,060
  
Fixed maturities trading
    
9
                              
9
  
Total fixed maturity securities
  
$
40,342
    
$
4,847
    
$
89
    
$
31
    
$
45,069
  

December 31, 2020
                              
                               
Fixed maturity securities:
                              
Corporate and other bonds
  
$
20,792
    
$
3,578
    
$
22
    
$
23
    
$
24,325
  
States, municipalities and political subdivisions
    
9,729
      
1,863
                      
11,592
  
Asset-backed:
                                        
Residential mortgage-backed
    
3,442
      
146
      
1
              
3,587
  
Commercial mortgage-backed
    
1,933
      
93
      
42
      
17
      
1,967
  
Other asset-backed
    
2,179
      
81
      
9
              
2,251
  
Total asset-backed
    
7,554
      
320
      
52
      
17
      
7,805
  
U.S. Treasury and obligations of government-sponsored enterprises
    
339
      
2
      
3
              
338
  
Foreign government
    
512
      
32
                      
544
  
Fixed maturities available-for-sale
    
38,926
      
5,795
      
77
      
40
      
44,604
  
Fixed maturities trading
    
37
      
5
                      
42
  
Total fixed maturity securities
  
$
38,963
    
$
5,800
    
$
77
    
$
40
    
$
44,646
  


The net unrealized gains on available-for-sale investments included in the tables above are recorded as a component of Accumulated other comprehensive income (loss) (“AOCI”). When presented in AOCI, these amounts are net of tax and noncontrolling interests and any required Shadow Adjustments. To the extent that unrealized gains on fixed income securities supporting long term care products and structured settlements not funded by annuities would result in a premium deficiency if those gains were realized, a related increase in Insurance reserves is recorded, net of tax and noncontrolling interests, as a reduction of net unrealized gains through Other comprehensive income (loss) (“Shadow Adjustments”). As of September 30, 2021 and December 31, 2020, the net unrealized gains on investments included in AOCI were correspondingly reduced by Shadow Adjustments of $2.2 billion and $2.5 billion (after tax and noncontrolling interests).


The available-for-sale securities in a gross unrealized loss position for which an allowance for credit losses has not been recorded are as follows:

     Less than
      12 Months
        
 
12 Months
    
or Longer
    
Total
  
           Gross           Gross
          Gross
 
     Estimated      Unrealized     Estimated
     Unrealized     Estimated
     Unrealized  
September 30, 2021
  
Fair Value
    
Losses
    
Fair Value
    
Losses
    
Fair Value
    
Losses
  
(In millions)
                                    
                                     
Fixed maturity securities:
                                    
Corporate and other bonds
  
$
1,853
    
$
37
    
$
88
    
$
5
    
$
1,941
    
$
42
  
States, municipalities and political subdivisions
    
885
      
15
                      
885
      
15
  
Asset-backed:
                                                
Residential mortgage-backed
    
1,295
      
6
      
             
1,295
      
6
  
Commercial mortgage-backed
    
317
      
4
      
194
      
12
      
511
      
16
  
Other asset-backed
    
439
      
3
      
58
      
1
      
497
      
4
  
Total asset-backed
    
2,051
      
13
      
252
      
13
      
2,303
      
26
  
U.S. Treasury and obligations of government-sponsored enterprises
    
65
      
4
       1              
66
      
4
  
Foreign government
    
73
      
2
                      
73
      
2
  
Total fixed maturity securities
  
$
4,927
    
$
71
    
$
341
    
$
18
    
$
5,268
    
$
89
  
                                                 
December 31, 2020
                                                
                                                 
Fixed maturity securities:
                                                
Corporate and other bonds
  
$
609
    
$
21
    
$
12
    
$
1
    
$
621
    
$
22
  
States, municipalities and political subdivisions
    
33
                              
33
          
Asset-backed:
                                                
Residential mortgage-backed
    
71
      
1
      
11
              
82
      
1
  
Commercial mortgage-backed
    
533
      
40
      
28
      
2
      
561
      
42
  
Other asset-backed
    
344
      
9
      
13
              
357
      
9
  
Total asset-backed
    
948
      
50
      
52
      
2
      
1,000
      
52
  
U.S. Treasury and obligations of government-sponsored enterprises
    
63
      
3
                      
63
      
3
  
Foreign government
    
13
                              
13
          
Total fixed maturity securities
  
$
1,666
    
$
74
    
$
64
    
$
3
    
$
1,730
    
$
77
  


Based on current facts and circumstances, the Company believes the unrealized losses presented in the September 30, 2021 securities in a gross unrealized loss position table above are not indicative of the ultimate collectability of the current amortized cost of the securities, but rather are attributable to changes in interest rates, credit spreads and other factors. There is no current intent to sell securities with unrealized losses, nor is it more likely than not that sale will be required prior to recovery of amortized cost; accordingly, it was determined that there are no additional impairment losses to be recorded at September 30, 2021.

Contractual Maturity


The following table presents available-for-sale fixed maturity securities by contractual maturity.

  
September 30, 2021
    
December 31, 2020
  
    Cost or

Estimated

Cost or

Estimated
  
    Amortized

Fair

Amortized

Fair
  
   
Cost
    
Value
    
Cost
    
Value
  
(In millions)
                        
                         
Due in one year or less
  
$
1,648
    
$
1,656
    
$
1,456
    
$
1,458
  
Due after one year through five years
    
10,776
      
11,517
      
12,304
      
13,098
  
Due after five years through ten years
    
13,628
      
14,794
      
12,319
      
13,878
  
Due after ten years
    
14,281
      
17,093
      
12,847
      
16,170
  
Total
  
$
40,333
    
$
45,060
    
$
38,926
    
$
44,604
  


Actual maturities may differ from contractual maturities because certain securities may be called or prepaid. Securities not due at a single date are allocated based on weighted average life.

Mortgage Loans


The following table presents the amortized cost basis of mortgage loans for each credit quality indicator by year of origination. The primary credit quality indicators utilized are debt service coverage ratios (“DSCR”) and loan-to-value (“LTV”) ratios.

  
Mortgage Loans Amortized Cost Basis by Origination Year (a)
  
As of September 30, 2021
  
2021
    
2020
    
2019
    
2018
    
2017
    
Prior
    
Total
  
(In millions)
                                          
                                           
DSCR ≥1.6x
                                          
LTV less than 55%
   $
  8     $
75
     $
16
     $
37
     $
116
     $
203
     $
455
  
LTV 55% to 65%
             38      
15
       18      
     
1
      
72
  
LTV greater than 65%
  

17
              
14
       7              
23
      
61
  
DSCR 1.2x - 1.6x
                                                        
LTV less than 55%
     13       15      
95
              
5
      
58
      
186
  
LTV 55% to 65%
    
25
      
     
     
24
      
10
       4      
63
  
LTV greater than 65%
            
24
      
9
              
8
      
     
41
  
DSCR ≤1.2x
                                                        
LTV less than 55%
                    
35
              
30
      
     
65
  
LTV 55% to 65%
                    
42
                              
42
  
LTV greater than 65%
             9      
56
                      
7
      
72
  
Total
  
$
63
    
$
161
    
$
282
    
$
86
    
$
169
    
$
296
    
$
1,057
  

(a)
The values in the table above reflect DSCR on a standardized amortization period and LTV ratios based on the most recent appraised values trended forward using changes in a commercial real estate price index.

Derivative Financial Instruments


A summary of the aggregate contractual or notional amounts and gross estimated fair values related to derivative financial instruments follows. The contractual or notional amounts for derivatives are used to calculate the exchange of contractual payments under related agreements and may not be representative of the potential for gain or loss on these instruments. Gross estimated fair values of derivative positions are currently presented in Equity securities, Receivables and Payable to brokers on the Consolidated Condensed Balance Sheets.

  
September 30, 2021
    
December 31, 2020
  
    Contractual/                 Contractual/              
   
Notional
    
Estimated Fair Value
    
Notional
    
Estimated Fair Value
  
   
Amount
    
Asset
    
(Liability)
    
Amount
    
Asset
    
(Liability)
  
(In millions)
                                    
                                     
With hedge designation:
                                    
Interest rate swaps
  

   

   

   
$
675
    

   
$
(26
)
                                                 
Without hedge designation:
                                                
Equity markets:
                                                
Options – purchased
  
$
1
                      
135
    
$
3
          
Interest rate swaps
    
100
            
$
(1
)
    
100
              
(3
)
Embedded derivative on funds withheld liability
    
272
              
(11
)
    
190
              
(19
)

Investment Commitments


As part of the overall investment strategy, investments are made in various assets which require future purchase, sale or funding commitments. These investments are recorded once funded, and the related commitments may include future capital calls from various third-party limited partnerships, signed and accepted mortgage loan applications and obligations related to private placement securities. As of September 30, 2021, commitments to purchase or fund were approximately $1.3 billion and to sell were approximately $55 million under the terms of these investments.