Leases

3 Months Ended

Mar. 31, 2020

LEASES

The Company enters into lease agreements for real estate that is primarily used for office space in the ordinary course of business. These leases are accounted for as operating leases, whereby lease expense is recognized on a straight-line basis over the term of the lease, and a right-of-use asset and lease liability is recognized as part of other assets and other liabilities, respectively, in the consolidated balance sheet.

Most leases include an option to extend or renew the lease term. The exercise of the renewal option is at the Company's discretion. The operating lease liability includes lease payments related to options to extend or renew the lease term if the Company is reasonably certain of exercising those options. The Company, in determining the present value of lease payments, utilizes either the rate implicit in the lease if that rate is readily determinable or the Company’s incremental secured borrowing rate commensurate with the term of the underlying lease.

Lease expense is included in general and administrative expenses in the consolidated statement of income. Additional information regarding the Company’s real estate operating leases is as follows:



	Three Months Ended March 31,
(in millions)	2020			2019

Lease cost
Operating leases	$	24		$	22
Short-term leases ⁽¹⁾	—			4
Lease expense	24			26
Less: sublease income ⁽²⁾	—			—
Net lease cost	$	24		$	26

Other information on operating leases
Cash payments to settle a lease liability reported in cash flows	$	27		$	24
Right-of-use assets obtained in exchange for new lease liabilities	$	14		$	8
Weighted average discount rate	2.97		%	3.07		%
Weighted average remaining lease term	5.0 years			5.2 years

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(1) Leases with an initial term of twelve months or less are not recorded on the balance sheet.

(2) Sublease income consists of rent from third parties of office space and is recognized as part of other revenues in the consolidated statement of income.

The following table presents the contractual maturities of the Company's lease liabilities:



(in millions)	Real Estate Lease Liability

Remainder of 2020	$	81
2021	94
2022	73
2023	54
2024	37
Thereafter	57
Total undiscounted lease payments	396
Less: present value adjustment	30
Operating lease liability	$	366