Fair Value (Tables)

9 Months Ended

Sep. 30, 2017

Assets and Liabilities Measured at Fair Value on Recurring Basis

Assets and liabilities measured at fair value on a recurring basis are presented in the following tables:

September 30, 2017

Level 1

Level 2

Level 3

Total

(In millions)

Fixed maturity securities:

Corporate and other bonds

19,465

119

19,584

States, municipalities and political subdivisions

13,955

13,956

Asset-backed:

Residential mortgage-backed

4,829

176

5,005

Commercial mortgage-backed

1,876

1,900

Other asset-backed

915

146

1,061

Total asset-backed

7,620

346

7,966

U.S. Treasury and obligations of government-sponsored enterprises

115

Foreign government

445

Redeemable preferred stock

Fixed maturities available-for-sale

135

41,485

466

42,086

Fixed maturities trading

407

421

Total fixed maturities

144

41,892

471

42,507

Equity securities available-for-sale

110

129

Equity securities trading

479

481

Total equity securities

589

610

Short term investments

4,019

876

4,895

Other invested assets

Payable to brokers

)


December 31, 2016	Level 1			Level 2		Level 3		Total
(In millions)

Fixed maturity securities:
Corporate and other bonds				$	18,828	$	130	$	18,958
States, municipalities and political subdivisions					13,239		1		13,240
Asset-backed:
Residential mortgage-backed					4,944		129		5,073
Commercial mortgage-backed					2,027		13		2,040
Other asset-backed					968		57		1,025
Total asset-backed					7,939		199		8,138
U.S. Treasury and obligations of government-sponsored enterprises	$	93							93
Foreign government					445				445
Redeemable preferred stock		19							19
Fixed maturities available-for-sale		112			40,451		330		40,893
Fixed maturities trading					595		6		601
Total fixed maturities	$	112		$	41,046	$	336	$	41,494


Equity securities available-for-sale	$	91				$	19	$	110
Equity securities trading		438					1		439
Total equity securities	$	529		$	-	$	20	$	549


Short term investments	$	3,833		$	853			$	4,686
Other invested assets		55			5				60
Receivables		1							1
Life settlement contracts						$	58		58
Payable to brokers		(44	)						(44	)

Reconciliations of Assets and Liabilities Measured at Fair Value on Recurring Basis Using Significant Unobservable Inputs

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 nine months ended September 30, 2017 and 2016:


			Net Realized Gains (Losses) and Net Change in Unrealized Gains (Losses)																			Unrealized Gains (Losses) Recognized in Net Income (Loss) on Level 3 Assets and
2017	Balance, July 1		Included in Net Income (Loss)			Included in OCI			Purchases		Sales		Settlements			Transfers into Level 3		Transfers out of Level 3		Balance, September 30		Liabilities Held at September 30
(In millions)

Fixed maturity securities:
Corporate and other bonds	$	100	$	1		$	1		$	13			$	(11	)	$	15			$	119
States, municipalities and political subdivisions		1																			1
Asset-backed:
Residential mortgage-backed		123		1			1							(7	)		58				176
Commercial mortgage-backed		13					(1	)		12				(2	)		2				24
Other asset-backed		82		(1	)		1			27				(4	)		41				146
Total asset-backed		218		-			1			39	$	-		(13	)		101	$	-		346	$	-
Fixed maturities available-for-sale		319		1			2			52				(24	)		116				466
Fixed maturities trading		5																			5
Total fixed maturities	$	324	$	1		$	2		$	52	$	-	$	(24	)	$	116	$	-	$	471	$	-


Equity securities available-for-sale	$	19																		$	19
Equity securities trading		1							$	1											2
Total equity securities	$	20	$	-		$	-		$	1	$	-	$	-		$	-	$	-	$	21	$	-


Life settlement contracts	$	1									$	(1)								$	-


			Net Realized Gains (Losses) and Net Change in Unrealized Gains (Losses)														Transfers		Transfers					Unrealized Gains (Losses) Recognized in Net Income on Level 3 Assets and Liabilities
2016	Balance, July 1		Included in Net Income			Included in OCI			Purchases			Sales		Settlements			into Level 3		out of Level 3			Balance, September 30		Held at September 30
(In millions)

Fixed maturity securities:
Corporate and other bonds	$	242	$	1		$	7		$	16				$	(5	)						$	261
States, municipalities and political subdivisions		2													(1	)							1
Asset-backed:
Residential mortgage-backed		134					(1	)		5					(1	)			$	(58	)		79
Commercial mortgage-backed		11								23					(8	)				(2	)		24
Other asset-backed		45								34										(36	)		43
Total asset-backed		190		-			(1	)		62		$	-		(9	)	$	-		(96	)		146	$	-
Fixed maturities available-for-sale		434		1			6			78					(15	)				(96	)		408
Fixed maturities trading		6																					6		(1	)
Total fixed maturities	$	440	$	1		$	6		$	78		$	-	$	(15	)	$	-	$	(96	)	$	414	$	(1	)


Equity securities available-for-sale	$	19	$	(1	)	$	1															$	19	$	(2	)
Equity securities trading		2							$	(1	)												1		(1	)
Total equity securities	$	21	$	(1	)	$	1		$	(1	)	$	-	$	-		$	-	$	-		$	20	$	(3	)


Life settlement contracts	$	67																				$	67
Derivative financial instruments, net		1	$	(1	)																		-


			Net Realized Gains (Losses) and Net Change in Unrealized Gains (Losses)																				Unrealized Gains (Losses) Recognized in Net Income (Loss) on Level 3 Assets and
2017	Balance, January 1		Included in Net Income (Loss)			Included in OCI			Purchases		Sales		Settlements			Transfers into Level 3		Transfers out of Level 3			Balance, September 30		Liabilities Held at September 30
(In millions)

Fixed maturity securities:
Corporate and other bonds	$	130	$	1		$	2		$	18	$	(1)	$	(36	)	$	15	$	(10	)	$	119
States, municipalities and political subdivisions		1																				1
Asset-backed:
Residential mortgage-backed		129		3			4							(18	)		58					176
Commercial mortgage-backed		13					(1	)		12				(2	)		2					24
Other asset-backed		57		(2	)		1			78				(6	)		93		(75	)		146
Total asset-backed		199		1			4			90		-		(26	)		153		(75	)		346	$	-
Fixed maturities available-for-sale		330		2			6			108		(1)		(62	)		168		(85	)		466
Fixed maturities trading		6		(1	)																	5		(1	)
Total fixed maturities	$	336	$	1		$	6		$	108	$	(1)	$	(62	)	$	168	$	(85	)	$	471	$	(1	)


Equity securities available-for-sale	$	19				$	2		$	1	$	(3)									$	19
Equity securities trading		1								1												2
Total equity securities	$	20	$	-		$	2		$	2	$	(3)	$	-		$	-	$	-		$	21	$	-


Life settlement contracts	$	58	$	6							$	(59)	$	(5	)						$	-
Derivative financial instruments, net		-		1								(1)										-


			Net Realized Gains (Losses) and Net Change in Unrealized Gains (Losses)														Transfers		Transfers					Unrealized Gains (Losses) Recognized in Net Income on Level 3 Assets and Liabilities
2016	Balance, January 1		Included in Net Income			Included in OCI			Purchases		Sales			Settlements			into Level 3		out of Level 3			Balance, September 30		Held at September 30
(In millions)

Fixed maturity securities:
Corporate and other bonds	$	168	$	1		$	14		$	163	$	(36	)	$	(15	)			$	(34	)	$	261
States, municipalities and political subdivisions		2													(1	)							1
Asset-backed:
Residential mortgage-backed		134		2			(2	)		15					(10	)				(60	)		79
Commercial mortgage-backed		22								32					(17	)	$	3		(16	)		24
Other asset-backed		53					2			69		(25	)		(1	)		2		(57	)		43
Total asset-backed		209		2			-			116		(25	)		(28	)		5		(133	)		146	$	-
Fixed maturities available-for-sale		379		3			14			279		(61	)		(44	)		5		(167	)		408
Fixed maturities trading		85		5						2		(86	)										6		3
Total fixed maturities	$	464	$	8		$	14		$	281	$	(147	)	$	(44	)	$	5	$	(167	)	$	414	$	3


Equity securities available-for-sale	$	20	$	(1	)																	$	19	$	(2	)
Equity securities trading		1		1							$	(1	)										1
Total equity securities	$	21	$	-		$	-		$	-	$	(1	)	$	-		$	-	$	-		$	20	$	(2	)


Life settlement contracts	$	74	$	10										$	(17	)						$	67	$	2
Derivative financial instruments, net		3		(4	)						$	(2	)				$	3					-		(3	)

Quantitative Information about Significant Unobservable Inputs Utilized by Company in Fair Value Measurement of Level 3 Assets

The following tables present quantitative information about the significant unobservable inputs utilized by the Company 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 to the Company. The valuation of life settlement contracts was based on the terms of the sale of the contracts to a third party; therefore the contracts are not included in the tables below.


September 30, 2017	Estimated Fair Value	Valuation Techniques	Unobservable Inputs	Range (Weighted Average)
	(In millions)

Fixed maturity securities	$ 139	Discounted cash flow	Credit spread		1% – 12% (3%)

December 31, 2016

Fixed maturity securities	$ 106	Discounted cash flow	Credit spread		2% – 40% (4%)

Carrying Amount, Estimated Fair Value and Level of Fair Value Hierarchy of Company's Financial Assets and Liabilities

The carrying amount, estimated fair value and the level of the fair value hierarchy of the Company’s 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 capital 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
September 30, 2017	Amount		Level 1	Level 2		Level 3		Total
(In millions)

Assets:
Other invested assets, primarily mortgage loans	$	722				$	731	$	731

Liabilities:
Short term debt		191		$	152		41		193
Long term debt		11,222			10,316		1,216		11,532

December 31, 2016

Assets:
Other invested assets, primarily mortgage loans	$	591				$	594	$	594

Liabilities:
Short term debt		107		$	104		3		107
Long term debt		10,655			10,150		646		10,796