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DERIVATIVES
 3 Months Ended
Mar. 31, 2024
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
DERIVATIVES DERIVATIVES
The Company uses derivatives as part of its overall asset/liability risk management primarily to reduce exposures to equity market and interest rate risks. Derivative hedging strategies are designed to reduce these risks from an economic perspective and are all executed within the framework of a “Derivative Use Plan” approved by applicable states’ insurance law. The Company does not designate any derivatives as hedge accounting. Operation of these hedging programs is based on models involving numerous estimates and assumptions, including, among others, mortality, lapse, surrender and withdrawal rates, election rates, fund performance, market volatility and interest rates. A wide range of derivative contracts can be used in these hedging programs, including exchange traded equity and interest rate futures contracts as well as equity options. The derivative contracts are collectively managed in an effort to reduce the economic impact of unfavorable changes in guaranteed benefits’ exposures attributable to movements in capital markets.
Derivatives Utilized to Hedge Exposure to Variable Annuities with Guarantee Features
The Company has issued and continues to offer variable annuity products with GMxB features which are accounted for as market risk benefits. The risk associated with the GMDB feature is that under-performance of the financial markets could result in GMDB benefits, in the event of death, being higher than what accumulated policyholders’ account balances would support. The risk associated with the GMIB feature is that under-performance of the financial markets could result in the present value of GMIB, in the event of annuitization, being higher than what accumulated policyholders’ account balances would support, taking into account the relationship between current annuity purchase rates and the GMIB guaranteed annuity purchase rates. The risk associated with products that have a GMxB feature and are accounted for as market risk benefits is that under-performance of the financial markets could result in the GMxB features benefits being higher than what accumulated policyholders’ account balances would support.
For GMxB features, the Company retains certain risks including basis, credit spread and some volatility risk and risk associated with actual experience versus expected actuarial assumptions for mortality, lapse and surrender, withdrawal and policyholder election rates, among other things. The derivative contracts are managed to correlate with changes in the value of the GMxB features that result from financial markets movements.
Derivatives Utilized to Hedge Crediting Rate Exposure on SCS, SIO, MSO and IUL Products/Investment Options
The Company hedges crediting rates in the SCS variable annuity, SIO in the EQUI-VEST variable annuity series, MSO in the variable life insurance products and IUL insurance products. These products permit the contract owner to participate in the performance of an index, ETF or commodity price movement up to a cap for a set period of time. They also contain a protection feature, in which the Company will absorb, up to a certain percentage, the loss of value in an index, ETF or commodity price, which varies by product segment.
In order to support the returns associated with these features, the Company enters into derivative contracts whose payouts, in combination with fixed income investments, emulate those of the index, ETF or commodity price, subject to caps and buffers, thereby substantially reducing any exposure to market-related earnings volatility.
The tables below present quantitative disclosures about the Company’s derivative instruments, including those embedded in other contracts required to be accounted for as derivative instruments:
The following table presents the gross notional amount and fair value of the Company’s derivatives:
Derivative Instruments by Category
March 31, 2024December 31, 2023
Fair ValueFair Value
Notional
Amount		Derivative AssetsDerivative
Liabilities
Net Derivatives
Notional
Amount		Derivative AssetsDerivative
Liabilities
Net Derivatives
(in millions)
Derivatives: (1)
Equity contracts:
Futures$2,470 $— $— $— $2,277 $— $— $— 
Options6,957 2,096 538 1,558 4,930 1,370 402 968 
Interest rate contracts:
Futures719 — — — 522 — — — 
Other contracts:
Margin— 138 — 138 — 133 — 133 
Collateral— — 1,551 (1,551)— — 956 (956)
Total: 10,146 2,234 2,089 145 7,729 1,503 1,358 145 
Embedded derivatives:
SCS, SIO, MSO and IUL indexed features (2)— — 11,222 (11,222)— — 8,804 (8,804)
Funds withheld receivable (3)— (29)— (29)— 100 — 100 
Modco receivable (2)— — (292)292 — — (411)411 
Total embedded derivatives— (29)10,930 (10,959)— 100 8,393 (8,293)
Total derivative instruments$10,146 $2,205 $13,019 $(10,814)$7,729 $1,603 $9,751 $(8,148)
______________
(1)Reported in other invested assets in the consolidated balance sheets.
(2)Reported in policyholders’ account balances in the consolidated balance sheets.
(3)Reported in funds withheld receivable in the consolidated balance sheets.
The following table presents the effects of derivative instruments on the consolidated statements of income (loss) and comprehensive income (loss):
Three Months Ended March 31,
20242023
Net Derivatives Gains (Losses)
(in millions)
Derivatives:
Equity contracts:
Futures$157 $16 
Options394 6 
Interest rate contracts:
Futures(24)20 
Total: 527 42 
Three Months Ended March 31,
20242023
Net Derivatives Gains (Losses)
(in millions)
Embedded Derivatives:
SCS, SIO, MSO and IUL indexed features(2,537)(36)
Funds withheld receivable (1,017)— 
Modco receivable 1,972 — 
Total Embedded Derivatives(1,582)(36)
Total Derivatives instruments (1)$(1,055)$6 
______________
(1)Reported in net derivative gains (losses) in the consolidated statements of income (loss).
Equity-Based and Treasury Futures Contracts Margin
All outstanding equity-based futures contracts as of March 31, 2024 and December 31, 2023 are exchange-traded and net settled daily in cash. As of March 31, 2024 and December 31, 2023, respectively, the Company had open exchange-traded futures positions on: (i) the S&P 500, Nasdaq, Russell 2000 and Emerging Market indices, having initial margin requirements of $113 million and $113 million and (ii) the 2-year, 5-year and 10-year U.S. Treasury Notes on U.S. Treasury bonds and ultra-long bonds, having initial margin requirements of $26 million and $20 million.
Collateral Arrangements
The Company generally has executed a CSA under the ISDA Master Agreement it maintains with each of its OTC derivative counterparties that requires both posting and accepting collateral either in the form of cash or high-quality securities, such as U.S. Treasury securities, U.S. government and government agency securities and investment grade corporate bonds. The Company nets the fair value of all derivative financial instruments with counterparties for which an ISDA Master Agreement and related CSA have been executed. As of March 31, 2024 and December 31, 2023, respectively, the Company held $1,551 million and $956 million in cash and securities collateral delivered by trade counterparties, representing the fair value of the related derivative agreements. The unrestricted cash collateral is reported in other invested assets. The Company posted collateral of $0 million and $0 million as of March 31, 2024 and December 31, 2023, respectively, in the normal operation of its collateral arrangements. The Company is exposed to losses in the event of non-performance by counterparties to financial derivative transactions with a positive fair value. The Company manages credit risk by: (i) entering into derivative transactions with highly rated major international financial institutions and other creditworthy counterparties governed by master netting agreements, as applicable; (ii) trading through central clearing and OTC parties; (iii) obtaining collateral, such as cash and securities, when appropriate; and (iv) setting limits on single party credit exposures which are subject to periodic management review.
Substantially all of the Company’s derivative agreements have zero thresholds which require daily full collateralization by the party in a liability position. In addition, certain of the Company’s derivative agreements contain credit-risk related contingent features; if the credit rating of one of the parties to the derivative agreement is to fall below a certain level, the party with positive fair value could request termination at the then fair value or demand immediate full collateralization from the party whose credit rating fell and is in a net liability position.
As of March 31, 2024 and December 31, 2023, there were no net liability derivative positions with counterparties with credit risk-related contingent features whose credit rating has fallen. All derivatives have been appropriately collateralized by the Company or the counterparty in accordance with the terms of the derivative agreements.
The following tables present information about the Company’s offsetting of financial assets and liabilities and derivative instruments:
Offsetting of Financial Assets and Liabilities and Derivative Instruments
As of March 31, 2024
Gross Amount Recognized
Gross Amount Offset in the Balance Sheets
Net Amount Presented in the Balance Sheets
Gross Amount not Offset in the Balance Sheets (1)
Net Amount
(in millions)
Assets:
Derivative assets$2,235 $2,089 $146 $— $146 
Secured lending
21 — 21 — 21 
Other financial assets7 — 7 — 7 
Other invested assets$2,263 $2,089 $174 $— $174 
Liabilities:
Derivative liabilities$2,089 $2,089 $— $— $— 
Secured lending
21 — 21 — 21 
Other financial liabilities2,207 — 2,207 — 2,207 
Other liabilities$4,317 $2,089 $2,228 $— $2,228 
______________
(1)Financial instruments sent (held).
As of December 31, 2023
Gross Amount Recognized
Gross Amount Offset in the Balance Sheets
Net Amount Presented in the Balance Sheets
Gross Amount not Offset in the Balance Sheets (1)
Net Amount
(in millions)
Assets:
Derivative assets$1,503 $1,177 $326 $(178)$148 
Secured lending
6 — 6 — 6 
Other financial assets19 — 19 — 19 
Other invested assets$1,528 $1,177 $351 $(178)$173 
Liabilities:
Derivative liabilities$1,180 $1,177 $3 $— $3 
Secured lending
6 — 6 — 6 
Other financial liabilities2,160 — 2,160 — 2,160 
Other liabilities$3,346 $1,177 $2,169 $— $2,169 
______________
(1)Financial instruments sent (held).