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Fair Value of Assets and Liabilities

3 Months Ended

Mar. 31, 2022

Fair Value of Assets and Liabilities

Fair Value Measurement

General accounting principles for Fair Value Measurements and Disclosures define fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. These principles also establish a three-level fair value hierarchy that requires an entity to maximize the use of observable inputs and to minimize the use of unobservable inputs when measuring fair value:

Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities. Active markets are defined through various characteristics for the measured asset/liability, such as having many transactions and narrow bid/ask spreads.

Level 2 – Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or market standard valuation techniques and assumptions that use significant inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the related assets or liabilities and include those whose value is determined using market standard valuation techniques described above. Prices are determined using valuation methodologies such as discounted cash flow models and other similar techniques that require management’s judgment or estimation in developing inputs that are consistent with those other market participants would use when pricing similar assets and liabilities.

For a discussion of the Company’s valuation methodologies for assets and liabilities measured at fair value and the fair value hierarchy, see Note 6 – “Fair Value of Assets and Liabilities” in the Notes to Consolidated Financial Statements included in the Company’s 2021 Annual Report.

Assets and Liabilities by Hierarchy Level

Assets and liabilities measured at fair value on a recurring basis as of March 31, 2022 and December 31, 2021 are summarized below (dollars in millions):


March 31, 2022:			Fair Value Measurements Using:
	Total		Level 1		Level 2		Level 3
Assets:
Fixed maturity securities – available-for-sale:
Corporate	$	36,380	$	—	$	32,334	$	4,046
Canadian government	4,407		—		4,407		—
RMBS	966		—		959		7
ABS	3,746		—		2,710		1,036
CMBS	1,786		—		1,708		78
U.S. government	1,525		1,415		100		10
State and political subdivisions	1,209		—		1,175		34
Other foreign government	7,903		—		7,874		29
Total fixed maturity securities – available-for-sale	57,922		1,415		51,267		5,240
Equity securities	139		91		—		48
Funds withheld at interest – embedded derivatives	(16)		—		—		(16)
Funds withheld at interest	75		—		—		75
Cash equivalents	974		974		—		—
Short-term investments	268		177		43		48
Other invested assets:
Derivatives	134		—		134		—

Other	58		—		58		—
Total other invested assets (1)	192		—		192		—

Total	$	59,554	$	2,657	$	51,502	$	5,395
Liabilities:
Interest-sensitive contract liabilities – embedded derivatives	$	793	$	—	$	—	$	793
Other liabilities:
Funds withheld at interest – embedded derivatives	(147)		—		—		(147)
Derivatives	135		—		135		—
Total	$	781	$	—	$	135	$	646

(1)Other invested assets included in the fair value hierarchy exclude limited partnership interests that are measured at estimated fair value using the net asset value (“NAV”) per share (or its equivalent) as a practical expedient. As of March 31, 2022, the fair value of such investments was $609 million.


December 31, 2021:			Fair Value Measurements Using:
	Total		Level 1		Level 2		Level 3
Assets:
Fixed maturity securities – available-for-sale:
Corporate	$	38,103	$	—	$	34,215	$	3,888
Canadian government	4,944		—		4,944		—
RMBS	1,050		—		1,049		1
ABS	4,005		—		2,908		1,097
CMBS	1,849		—		1,768		81
U.S. government	2,105		1,993		100		12
State and political subdivisions	1,323		—		1,290		33
Other foreign government	7,370		—		7,337		33
Total fixed maturity securities – available-for-sale	60,749		1,993		53,611		5,145
Equity securities	151		101		—		50
Funds withheld at interest – embedded derivatives	104		—		—		104
Funds withheld at interest	83		—		—		83
Cash equivalents	1,138		1,138		—		—
Short-term investments	64		—		36		28
Other invested assets:
Derivatives	175		—		175		—
Other	52		—		52		—


Total other invested assets (1)	227		—		227		—
Total	$	62,516	$	3,232	$	53,874	$	5,410
Liabilities:
Interest-sensitive contract liabilities – embedded derivatives	$	855	$	—	$	—	$	855
Other liabilities:
Funds withheld at interest – embedded derivatives	(61)		—		—		(61)
Derivatives	39		—		39		—
Total	$	833	$	—	$	39	$	794

(1)Other invested assets included in the fair value hierarchy exclude limited partnership interests that are measured at estimated fair value using the NAV per share (or its equivalent) as a practical expedient. As of December 31, 2021, the fair value of such investments was $581 million.

Quantitative Information Regarding Internally Priced Assets and Liabilities

The following table presents quantitative information about significant unobservable inputs used in Level 3 fair value measurements that are developed internally by the Company as of March 31, 2022 and December 31, 2021 (dollars in millions):


	Estimated Fair Value				Valuation Technique	Unobservable Inputs	Range (Weighted Average)
	March 31, 2022		December 31, 2021				March 31, 2022	December 31, 2021
Assets:
Corporate	$	42	$	49	Market comparable securities	Liquidity premium	1%	0-1% (1%)
						EBITDA Multiple	6.7x-7.0x (6.8x)	5.2x-7.0x (6.4x)
ABS	183		205		Market comparable securities	Liquidity premium	2-18% (4%)	2-18% (4%)
U.S. government	10		12		Market comparable securities	Liquidity premium	0-1% (1%)	0-1% (1%)


Equity securities	6		5		Market comparable securities	EBITDA Multiple	6.9x-10.6x (8.3x)	6.9x-10.6x (8.0x)
Funds withheld at interest – embedded derivatives	134		182		Total return swap	Mortality	0-100% (3%)	0-100% (3%)
						Lapse	0-35% (12%)	0-35% (18%)
						Withdrawal	0-5% (4%)	0-5% (4%)
						CVA	0-5% (—%)	0-5% (—%)
						Crediting rate	1-4% (2%)	1-4% (2%)


Liabilities:
Interest-sensitive contract liabilities – embedded derivatives – indexed annuities	645		693		Discounted cash flow	Mortality	0-100% (3%)	0-100% (2%)
						Lapse	0-35% (11%)	0-35% (16%)
						Withdrawal	0-5% (3%)	0-5% (3%)
						Option budget projection	1-4% (2%)	1-4% (2%)
Interest-sensitive contract liabilities – embedded derivatives – variable annuities	148		162		Discounted cash flow	Mortality	0-100% (2%)	0-100% (2%)
						Lapse	0-25%(4%)	0-25% (4%)
						Withdrawal	0-7% (5%)	0-7% (5%)
						CVA	0-5% (1%)	0-5% (1%)
						Long-term volatility	0-27% (14%)	0-27% (14%)

Changes in Level 3 Assets and Liabilities

Assets and liabilities transferred into Level 3 are due to a lack of observable market transactions and price information. Transfers out of Level 3 are primarily the result of the Company obtaining observable pricing information or a third-party pricing quotation that appropriately reflects the fair value of those assets and liabilities.

For further information on the Company’s valuation processes, see Note 6 – “Fair Value of Assets and Liabilities” in the Notes to Consolidated Financial Statements included in the Company’s 2021 Annual Report.

The reconciliations for all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) are as follows (dollars in millions):


For the three months ended March 31, 2022:	Fixed maturity securities – available-for-sale												Funds withheld at interest –embedded derivatives, net(1)		Funds withheld at interest		Interest-sensitive contract liabilities embedded derivatives
	Corporate		Foreign govt		Structured securities		U.S. and local govt		Equity securities		Short-term investments
Fair value, beginning of period	$	3,888	$	33	$	1,179	$	45	$	50	$	28	$	165	$	83	$	(855)
Total gains/losses (realized/unrealized)
Included in earnings, net:
Net investment income	1		—		—		—		—		—		—		(5)		—
Investment related gains (losses), net	—		—		(5)		—		(1)		—		(33)		—		14

Interest credited	—		—		—		—		—		—		—		—		36

Included in other comprehensive income (loss)	(144)		(4)		(72)		(1)		—		—		—		(2)		—

Purchases(2)	365		—		95		—		—		20		—		1		(6)
Sales(2)	(16)		—		(51)		—		(1)		—		—		—		—
Settlements(2)	(26)		—		(38)		(2)		—		—		—		(2)		18
Transfers into Level 3	—		—		13		6		—		—		—		—		—
Transfers out of Level 3	(22)		—		—		(4)		—		—		—		—		—
Fair value, end of period	$	4,046	$	29	$	1,121	$	44	$	48	$	48	$	132	$	75	$	(793)
Total gains/losses (realized/unrealized) recorded for the period relating to those Level 3 assets and liabilities that were still held at the end of the period
Included in earnings, net:
Net investment income	$	1	$	—	$	—	$	—	$	—	$	—	$	—	$	(5)	$	—
Investment related gains (losses), net	—		—		(5)		—		(1)		—		(33)		—		12

Claims and other policy benefits	—		—		—		—		—		—		—		—		—
Interest credited	—		—		—		—		—		—		—		—		18
Included in other comprehensive income (loss)	(144)		(4)		(71)		(1)		—		—		—		(2)		—

(1)Funds withheld at interest – embedded derivative assets and liabilities are presented net for purposes of the rollforward.

(2)The amount reported within purchases, sales and settlements is the purchase price (for purchases) and the sales/settlement proceeds (for sales and settlements) based upon the actual date purchased or sold/settled. Items purchased and sold/settled in the same period are excluded from the rollforward. The Company had no issuances during the period.


For the three months ended March 31, 2021:	Fixed maturity securities – available-for-sale												Funds withheld at interest –embedded derivatives		Funds withheld at interest		Interest-sensitive contract liabilities embedded derivatives
	Corporate		Foreign govt		Structured securities		U.S. and local govt		Equity securities		Short-term investments
Fair value, beginning of period	$	3,029	$	17	$	254	$	23	$	53	$	15	$	114	$	56	$	(907)
Total gains/losses (realized/unrealized)
Included in earnings, net:
Net investment income	1		—		—		—		—		—		(5)		(5)		—
Investment related gains (losses), net	(1)		—		—		—		1		—		50		—		19

Interest credited	—		—		—		—		—		—		—		—		13

Included in other comprehensive income (loss)	(82)		(1)		(1)		—		—		—		1		—		—

Purchases(1)	223		—		166		—		—		—		16		16		(3)
Sales(1)	(1)		—		—		—		—		—		—		—		—
Settlements(1)	(72)		—		(61)		(1)		—		—		—		—		22
Transfers into Level 3	4		—		30		—		—		—		—		—		—
Transfers out of Level 3	—		—		—		—		—		(4)		—		—		—
Fair value, end of period	$	3,101	$	16	$	388	$	22	$	54	$	11	$	176	$	67	$	(856)
Total gains/losses (realized/unrealized) recorded for the period relating to those Level 3 assets and liabilities that were still held at the end of the period
Included in earnings, net:
Net investment income	$	1	$	—	$	—	$	—	$	—	$	—	$	(5)	$	(5)	$	—
Investment related gains (losses), net	(1)		—		—		—		1		—		50		—		16

Claims & other policy benefits	—		—		—		—		—		—		—		—		(8)

Included in other comprehensive income (loss)	(82)		(1)		(1)		—		—		—		—		—		—

(1)The amount reported within purchases, sales and settlements is the purchase price (for purchases) and the sales/settlement proceeds (for sales and settlements) based upon the actual date purchased or sold/settled. Items purchased and sold/settled in the same period are excluded from the rollforward. The Company had no issuances during the period.

Nonrecurring Fair Value Measurements

The Company has certain assets subject to measurement at fair value on a nonrecurring basis, in periods subsequent to their initial recognition if they are determined to be impaired. During the three months ended March 31, 2022 and 2021, the Company did not have any material assets that were measured at fair value due to impairment.

Fair Value of Financial Instruments

The following table presents the carrying values and estimated fair values of the Company’s financial instruments, which were not measured at fair value on a recurring basis, as of March 31, 2022 and December 31, 2021 (dollars in millions). For additional information regarding the methods and significant assumptions used by the Company to estimate these fair values, see Note 6 – “Fair Value of Assets and Liabilities” in the Notes to Consolidated Financial Statements included in the Company’s 2021 Annual Report. This table excludes any payables or receivables for collateral under repurchase/reverse repurchase agreements and other transactions. The estimated fair value of the excluded amount approximates carrying value as they equal the amount of cash collateral received/paid.


March 31, 2022:	Carrying Value (1)		Estimated Fair Value		Fair Value Measurement Using:
					Level 1		Level 2		Level 3
Assets:
Mortgage loans on real estate	$	6,535	$	6,382	$	—	$	—	$	6,382
Policy loans	1,221		1,221		—		1,221		—
Funds withheld at interest	6,672		6,795		—		—		6,795
Cash and cash equivalents	1,735		1,735		1,735		—		—
Short-term investments	47		47		47		—		—
Other invested assets	954		900		5		58		837
Accrued investment income	578		578		—		578		—
Liabilities:
Interest-sensitive contract liabilities	$	20,834	$	21,046	$	—	$	—	$	21,046
Other liabilities – funds withheld at interest	1,646		1,556		—		—		1,556
Long-term debt	3,667		3,614		—		—		3,614
Collateral finance and securitization notes	166		141		—		—		141

December 31, 2021:
Assets:
Mortgage loans on real estate	$	6,283	$	6,580	$	—	$	—	$	6,580
Policy loans	1,234		1,234		—		1,234		—
Funds withheld at interest	6,747		7,075		—		—		7,075
Cash and cash equivalents	1,810		1,810		1,810		—		—
Short-term investments	23		23		23		—		—
Other invested assets	910		907		6		70		831
Accrued investment income	533		533		—		533		—
Liabilities:
Interest-sensitive contract liabilities	$	18,625	$	19,540	$	—	$	—	$	19,540
Other liabilities – funds withheld at interest	1,658		1,657		—		—		1,657
Long-term debt	3,667		3,886		—		—		3,886
Collateral finance and securitization notes	180		153		—		—		153

(1)Carrying values presented herein may differ from those in the Company’s condensed consolidated balance sheets because certain items within the respective financial statement captions may be measured at fair value on a recurring basis.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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