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Investments
 3 Months Ended
Mar. 31, 2023
Text Block [Abstract]  
Investments
Note 7: Investments
Investments, excluding equity instruments, those elected under the fair value option and those classified as trading, consist of debt instruments classified as
available-for-sale
(“AFS”).
 
The following tables present the amortized cost, allowance for credit losses, corresponding gross unrealized gains and losses and fair value for AFS investments in the Company’s consolidated investment portfolio as of March 31, 2023 and December 31, 2022:
 
                                                                                      
    
March 31, 2023
In millions
   
Amortized

Cost
   
Allowance

for Credit

Losses
   
Gross

Unrealized

Gains
   
Gross

Unrealized

Losses
  
Fair

Value
AFS Investments
                                            
Fixed-maturity investments:
                                            
U.S. Treasury and government agency
   
$
562
 
   
$
-
 
   
$
8
 
   
$
(27
) 
  
$
543
 
State and municipal bonds
   
 
136
 
   
 
-
 
   
 
3
 
   
 
(8
) 
  
 
131
 
Foreign governments
   
 
25
 
   
 
-
 
   
 
1
 
   
 
(2
) 
  
 
24
 
Corporate obligations
   
 
1,007
 
   
 
-
 
   
 
3
 
   
 
(129
) 
  
 
881
 
Mortgage-backed securities:
                                            
Residential mortgage-backed agency
   
 
237
 
   
 
-
 
   
 
1
 
   
 
(20
) 
  
 
218
 
Residential mortgage-backed
non-agency
   
 
104
 
   
 
-
 
   
 
2
 
   
 
(10
) 
  
 
96
 
Commercial mortgage-backed
   
 
27
 
   
 
-
 
   
 
-
 
   
 
(1
) 
  
 
26
 
Asset-backed securities:
                                            
Collateralized debt obligations
   
 
114
 
   
 
-
 
   
 
1
 
   
 
(4
) 
  
 
111
 
Other asset-backed
   
 
88
 
   
 
-
 
   
 
1
 
   
 
(3
) 
  
 
86
 
    
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
  
 
 
 
Total AFS investments
   
$
2,300
 
   
$
-
 
   
$
20
 
   
$
(204
) 
  
$
2,116
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
          
          
          
          
          
 
  
December 31, 2022
In millions
  
Amortized
Cost
  
Allowance
for Credit
Losses
  
Gross
Unrealized
Gains
  
Gross
Unrealized
Losses
 
Fair
Value
AFS Investments
                                            
Fixed-maturity investments:
                                            
U.S. Treasury and government agency
   
$
541
 
   
$
-
 
   
$
5
 
   
$
(38
) 
  
$
508
 
State and municipal bonds
   
 
173
 
   
 
-
 
   
 
2
 
   
 
(11
) 
  
 
164
 
Foreign governments
   
 
23
 
   
 
-
 
   
 
-
 
   
 
(3
) 
  
 
20
 
Corporate obligations
   
 
862
 
   
 
-
 
   
 
1
 
   
 
(148
) 
  
 
715
 
Mortgage-backed securities:
                                            
Residential mortgage-backed agency
   
 
217
 
   
 
-
 
   
 
-
 
   
 
(22
) 
  
 
195
 
Residential mortgage-backed
non-agency
   
 
96
 
   
 
-
 
   
 
3
 
   
 
(11
) 
  
 
88
 
Commercial mortgage-backed
   
 
24
 
   
 
-
 
   
 
-
 
   
 
(1
) 
  
 
23
 
Asset-backed securities:
                                            
Collateralized debt obligations
   
 
117
 
   
 
-
 
   
 
-
 
   
 
(5
) 
  
 
112
 
Other asset-backed
   
 
110
 
   
 
-
 
   
 
-
 
   
 
(4
) 
  
 
106
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
 
 
 
 
Total AFS investments
   
$
2,163
 
   
$
-
 
   
$
11
 
   
$
(243
) 
  
$
1,931
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
 
 
 
 
The following table presents the distribution by contractual maturity of AFS fixed-maturity securities at amortized cost, net of allowance for credit losses, and fair value as of March 31, 2023. Contractual maturity may differ from expected maturity as borrowers may have the right to call or prepay obligations.
 
          
          
 
  
AFS Securities
In millions
  
Net
Amortized
Cost
  
Fair
Value
Due in one year or less
   
$
218
 
   
$
218
 
Due after one year through five years
   
 
419
 
   
 
411
 
Due after five years through ten years
   
 
341
 
   
 
302
 
Due after ten years
   
 
752
 
   
 
648
 
Mortgage-backed and asset-backed
   
 
570
 
   
 
537
 
    
 
 
 
   
 
 
 
Total fixed-maturity investments
   
$
2,300
 
   
$
2,116
 
 
 
 
 
 
 
 
 
 
 
Deposited and Pledged Securities
The fair value of securities on deposit with various regulatory authorities as of March 31, 2023 and December 31, 2022 was $
10
 million. These deposits are required to comply with state insurance laws.
Investment agreement obligations require the Company to pledge securities as collateral. Securities pledged in connection with investment agreements may not be repledged by the investment agreement counterparty. As of March 31, 2023 and December 31, 2022, the fair value of securities pledged as collateral for these investment agreements approximated $
228
 million and $
251
 million, respectively. The Company’s collateral as of March 31, 2023 consisted principally of U.S. Treasury and government agency and corporate obligations, and was primarily held with major U.S. banks.
Refer to “Note 8: Derivative Instruments” for information about securities posted to derivative counterparties.
Impaired Investments
The following tables present the non-credit related gross unrealized losses related to AFS investments as of March 31, 2023 and December 31, 2022:
 
                                                                                                       
    
March 31, 2023
    
Less than 12
 
Months
  
12 Months or Longer
  
Total
In millions
   
Fair
Value
   
Unrealized
Losses
  
Fair
Value
   
Unrealized
Losses
  
Fair
Value
   
Unrealized
Losses
AFS Investments
                                                    
Fixed-maturity investments:
                                                    
U.S. Treasury and government agency
   
$
131
 
   
$
(9
) 
  
$
152
 
   
$
(18
) 
  
$
283
 
   
$
(27
) 
State and municipal bonds
   
 
47
 
   
 
(1
) 
  
 
28
 
   
 
(7
) 
  
 
75
 
   
 
(8
) 
Foreign governments
   
 
1
 
   
 
-
 
  
 
9
 
   
 
(2
) 
  
 
10
 
   
 
(2
) 
Corporate obligations
   
 
301
 
   
 
(40
) 
  
 
390
 
   
 
(89
) 
  
 
691
 
   
 
(129
) 
Mortgage-backed securities:
                                                    
Residential mortgage-backed agency
   
 
60
 
   
 
(3
) 
  
 
114
 
   
 
(17
) 
  
 
174
 
   
 
(20
) 
Residential mortgage-backed
non-agency
   
 
51
 
   
 
(5
) 
  
 
23
 
   
 
(5
) 
  
 
74
 
   
 
(10
) 
Commercial mortgage-backed
   
 
19
 
   
 
-
 
  
 
7
 
   
 
(1
) 
  
 
26
 
   
 
(1
) 
Asset-backed securities:
                                                    
Collateralized debt obligations
   
 
25
 
   
 
(1
) 
  
 
85
 
   
 
(3
) 
  
 
110
 
   
 
(4
) 
Other asset-backed
   
 
9
 
   
 
-
 
  
 
37
 
   
 
(3
) 
  
 
46
 
   
 
(3
) 
 
  
 
 
 
  
 
 
 
 
 
 
 
  
 
 
 
 
 
 
 
  
 
 
 
Total AFS investments
   
$
644
 
   
$
(59
) 
  
$
845
 
   
$
(145
) 
  
$
1,489
 
   
$
(204
) 
    
 
 
 
   
 
 
 
  
 
 
 
   
 
 
 
  
 
 
 
   
 
 
 
 
  
December 31, 2022
 
  
Less than 12 Months
 
12 Months or Longer
 
Total
In millions
  
Fair
Value
  
Unrealized
Losses
 
Fair
Value
  
Unrealized
Losses
 
Fair
Value
  
Unrealized
Losses
AFS Investments
                                                    
Fixed-maturity investments:
                                                    
U.S. Treasury and government agency
   
$
266
 
   
$
(34
) 
  
$
29
 
   
$
(4
) 
  
$
295
 
   
$
(38
) 
State and municipal bonds
   
 
92
 
   
 
(10
) 
  
 
1
 
   
 
(1
) 
  
 
93
 
   
 
(11
) 
Foreign governments
   
 
9
 
   
 
(3
) 
  
 
-
 
   
 
-
 
  
 
9
 
   
 
(3
) 
Corporate obligations
   
 
508
 
   
 
(106
) 
  
 
141
 
   
 
(42
) 
  
 
649
 
   
 
(148
) 
Mortgage-backed securities:
                                                    
Residential mortgage-backed agency
   
 
112
 
   
 
(9
) 
  
 
65
 
   
 
(13
) 
  
 
177
 
   
 
(22
) 
Residential mortgage-backed
non-agency
   
 
65
 
   
 
(10
) 
  
 
2
 
   
 
(1
) 
  
 
67
 
   
 
(11
) 
Commercial mortgage-backed
   
 
18
 
   
 
(1
) 
  
 
1
 
   
 
-
 
  
 
19
 
   
 
(1
) 
Asset-backed securities:
                                                    
Collateralized debt obligations
   
 
51
 
   
 
(1
) 
  
 
60
 
   
 
(4
) 
  
 
111
 
   
 
(5
) 
Other asset-backed
   
 
44
 
   
 
(3
) 
  
 
24
 
   
 
(1
) 
  
 
68
 
   
 
(4
) 
    
 
 
 
   
 
 
 
  
 
 
 
   
 
 
 
  
 
 
 
   
 
 
 
Total AFS investments
   
$
1,165
 
   
$
(177
) 
  
$
323
 
   
$
(66
) 
  
$
1,488
 
   
$
(243
) 
    
 
 
 
   
 
 
 
  
 
 
 
   
 
 
 
  
 
 
 
   
 
 
 
Gross unrealized losses on AFS investments decreased as of March 31, 2023 compared with December 31, 2022 primarily due to lower interest rates, partially offset by widening credit spreads.
 
With the weighting applied on the fair value of each security relative to the total fair value, the weighted average contractual maturity of securities in an unrealized loss position as of March 31, 2023 and December 31, 2022 was
14
years. As of March 31, 2023 and December 31, 2022, there were
495
and
210
securities, respectively, that were in an unrealized loss position for a continuous twelve-month period or longer, of which, fair values of
444
and
190
securities, respectively, were below book value by more than
5
%.
The following table presents the distribution of securities in an unrealized loss position for a continuous twelve-month period or longer where fair value was below book value by more than 5% as of March 31, 2023:
 
                                                    
    
AFS Securities
Percentage of Fair Value Below Book Value
   
Number of
Securities
   
Book Value
(in millions)
   
Fair Value
(in millions)
> 5% to 15%
   
 
213
 
   
$
427
 
   
$
384
 
> 15% to 25%
   
 
145
 
   
 
297
 
   
 
241
 
> 25% to 50%
   
 
84
 
   
 
132
 
   
 
91
 
> 50%
   
 
2
 
   
 
-
 
   
 
-
 
    
 
 
 
   
 
 
 
   
 
 
 
Total
   
 
444
 
   
$
856
 
   
$
716
 
    
 
 
 
   
 
 
 
   
 
 
 
As of March 31, 2023, the Company concluded that it does not have the intent to sell securities in an unrealized loss position and it is more likely than not, that it would not have to sell these securities before recovery of their cost basis. In making this conclusion, the Company examined the cash flow projections for its investment portfolios, the potential sources and uses of cash in its businesses, and the cash resources available to its business other than sales of securities. It also considered the existence of any risk management or other plans as of March 31, 2023 that would require the sale of impaired securities.
Credit Losses on Investments
The Company’s fixed-maturity securities for which fair value is less than amortized cost are reviewed quarterly in order to determine whether a credit loss exists. If the Company determines that the declines in the fair value are related to credit loss, the Company will establish an allowance for credit losses and recognize the credit component through earnings. Refer to “Note 8: Investments” in the Notes to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 for a discussion of the Company’s policy for its determination of credit losses. The Company did not purchase any credit-deteriorated assets for the three months ended March 31, 2023.
Allowance for Credit Losses Rollforward for AFS
The following table presents the rollforward of allowance for credit losses on AFS investments for the three months ended March 31, 2022. The additions to the allowance for credit losses for the three months ended March 31, 2022 were related to concerns on an issuer’s credit deterioration as a result of the Ukraine and Russia conflict. The Company did not establish an allowance for credit losses for AFS securities for the three months ended March 31, 2023.
 
          
          
          
          
          
          
          
          
          
 
 
Three Months Ended March 31, 2022
In millions
 
Balance

as of

December 31,
2021
 
Additions
not
previously
recorded
 
Additions
arising
from PCD
Assets
 
Reductions
from
Securities
Sold
 
Reductions-
Intent to
sell or
MLTN
 
Change in
Allowance
Previously
Recorded
 
Write
Offs
 
Recoveries
 
Balance
as of
March 31,
2022
AFS Investments
                                                                                 
Fixed-maturity investments:
                                                                                 
Corporate obligations
   
$
-
 
   
$
3
 
   
$
-
 
   
$
-
 
   
$
-
 
   
$
-
 
   
$
-
 
   
$
-
 
   
$
3
 
    
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
Total Allowance on AFS investments
   
$
-
 
   
$
3
 
   
$
-
 
   
$
-
 
   
$
-
 
   
$
-
 
   
$
-
 
   
$
-
 
   
$
3
 
    
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
   
 
 
 
 

                                                    
In millions
   
Fair
Value
     
Unrealized
Loss
     
Insurance
Loss
Reserve 
(1)
  
Mortgage-backed
   
$
58
 
   
$
(8)
 
   
$
74
 
Corporate obligations
   
 
77
 
   
 
(31)
 
   
 
-
 
    
 
 
     
 
 
     
 
 
  
Total
   
$
135
 
   
$
(39)
 
   
$
74
 
          
          
          
  
 
 
 
  
 
 
 
  
 
 
 
  
  
  

(1) - 
Insurance loss reserve estimates are based on the proportion of par value owned to the total amount of par value insured and are discounted using a discount rate equal to the risk-free rate applicable to the currency and weighted average remaining life of the insurance contract and may differ from the fair value.
Sales of
Available-for-Sale
Investments
Gross realized gains and losses from sales of AFS investments are recorded within “Net realized investment gains (losses)” on the Company’s consolidated statements of operations. The proceeds and the gross realized gains and losses from sales of fixed-maturity securities held as AFS for the three months ended March 31, 2023 and 2022 are as follows:
 
          
          
 
  
Three Months Ended March 31,
In millions
  
2023
 
2022
Proceeds from sales
   
$
98
 
   
$
106
 
Gross realized gains
   
$
1
 
   
$
-
 
Gross realized losses
   
$
(4
 )
 
   
$
(3
 )
 
Equity and Trading Investments
Equity and trading investments are included within “Investments carried at fair value” on the Company’s consolidated balance sheets. Unrealized gains and losses recognized on equity and trading investments held as of the end of each period for the three months ended March 31, 2023 and 2022 are as follows:
 
          
          
 
  
Three Months Ended March 31,
In millions
  
2023
  
2022
Net gains and (losses) recognized during the period on equity and trading securities
   
$
1
 
   
$
(10
) 
Less:
                  
Net gains and (losses) recognized during the period on equity and trading securities sold during the period
   
 
-
 
   
 
1
 
    
 
 
 
   
 
 
 
Unrealized gains and (losses) recognized during the period on equity and trading securities still held at the reporting date
   
$
1
 
   
$
(11
)