Fair Value of Assets and Liabilities

3 Months Ended

Mar. 31, 2023

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 2022 Annual Report.

See Note 8 – “Market Risk Benefits” for information about fair value measurement of market risk benefits.

Assets and Liabilities by Hierarchy Level

Assets and liabilities measured at fair value on a recurring basis as of March 31, 2023 and December 31, 2022 are summarized below (dollars in millions):


March 31, 2023:			Fair Value Measurements Using:
	Total		Level 1		Level 2		Level 3
Assets: (1)
Fixed maturity securities available-for-sale:
Corporate	$	35,477	$	—	$	30,864	$	4,613
Canadian government	3,755		—		3,755		—
Japanese government	3,443		—		3,443		—
ABS	4,103		—		2,699		1,404
CMBS	1,670		—		1,614		56
RMBS	1,024		—		1,023		1
U.S. government	1,745		1,649		88		8
State and political subdivisions	1,138		—		1,118		20
Other foreign government	3,730		—		3,693		37
Total fixed maturity securities available-for-sale	56,085		1,649		48,297		6,139
Equity securities	138		70		—		68
Funds withheld at interest – embedded derivatives	(322)		—		—		(322)
Funds withheld at interest	53		—		—		53
Cash equivalents	1,654		1,653		—		1
Short-term investments	203		118		78		7
Other invested assets:
Derivatives	100		—		100		—

Other	24		—		24		—
Total other invested assets	124		—		124		—

Total	$	57,935	$	3,490	$	48,499	$	5,946
Liabilities:
Interest-sensitive contract liabilities – embedded derivatives	$	495	$	—	$	—	$	495
Other liabilities:
Funds withheld at interest – embedded derivatives	(351)		—		—		(351)
Derivatives	189		—		189		—
Total	$	333	$	—	$	189	$	144

(1)Excludes limited partnerships that are measured at estimated fair value using the NAV per share (or its equivalent) as a practical expedient. As of March 31, 2023, the fair value of such investments was $726 million.


December 31, 2022:			Fair Value Measurements Using:
	Total		Level 1		Level 2		Level 3
Assets: (1)
Fixed maturity securities available-for-sale:
Corporate	$	33,969	$	—	$	29,670	$	4,299
Canadian government	3,626		—		3,626		—
Japanese government	2,559		—		2,559		—
ABS	3,878		—		2,603		1,275
CMBS	1,623		—		1,555		68
RMBS	941		—		931		10
U.S. government	1,482		1,388		85		9
State and political subdivisions	1,119		—		1,093		26
Other foreign government	3,704		—		3,669		35
Total fixed maturity securities available-for-sale	52,901		1,388		45,791		5,722
Equity securities	134		68		—		66
Funds withheld at interest – embedded derivatives	(371)		—		—		(371)
Funds withheld at interest	54		—		—		54
Cash equivalents	1,535		1,535		—		—
Short-term investments	121		54		54		13
Other invested assets:
Derivatives	170		—		170		—
Other	23		—		23		—


Total other invested assets	193		—		193		—
Total	$	54,567	$	3,045	$	46,038	$	5,484
Liabilities:
Interest-sensitive contract liabilities – embedded derivatives	$	530	$	—	$	—	$	530
Other liabilities:
Funds withheld at interest – embedded derivatives	(363)		—		—		(363)
Derivatives	183		—		183		—
Total	$	350	$	—	$	183	$	167

(1)Excludes limited partnerships that are measured at estimated fair value using the NAV per share (or its equivalent) as a practical expedient. As of December 31, 2022, the fair value of such investments was $683 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, 2023 and December 31, 2022 (dollars in millions):


	Estimated Fair Value				Valuation Technique	Unobservable Inputs	Range (Weighted Average)
	March 31, 2023		December 31, 2022				March 31, 2023	December 31, 2022
Assets:
Corporate	$	25	$	25	Market comparable securities	Liquidity premium	1%	1%
						EBITDA Multiple	5.3x	5.3x
ABS	272		274		Market comparable securities	Liquidity premium	0-18% (2%)	0-18% (2%)
U.S. government	8		9		Market comparable securities	Liquidity premium	0-1% (1%)	0-1% (1%)


Equity securities	9		9		Market comparable securities	EBITDA Multiple	8.4x-11.2x (9.7x)	8.4x-11.2x (9.6x)
Funds withheld at interest – embedded derivatives	4		(34)		Total return swap	Mortality	0-100% (3%)	0-100% (3%)
						Lapse	0-35% (15%)	0-35% (17%)
						Withdrawal	0-5% (4%)	0-5% (4%)
						CVA	0-5% (0%)	0-5% (0%)
						Crediting rate	1-4% (2%)	1-4% (2%)


Liabilities:
Interest-sensitive contract liabilities – embedded derivatives – indexed annuities	495		530		Discounted cash flow	Mortality	0-100% (3%)	0-100% (3%)
						Lapse	0-35% (14%)	0-35% (16%)
						Withdrawal	0-5% (4%)	0-5% (3%)
						Option budget projection	1-4% (2%)	1-4% (2%)

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 2022 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, 2023:	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		Cash equivalents		Short-term investments
Fair value, beginning of period	$	4,299	$	35	$	1,353	$	35	$	66	$	—	$	13	$	(8)	$	54	$	(530)
Total gains/losses (realized/unrealized)
Included in earnings, net:
Net investment income	1		—		1		—		—		—		—		—		(2)		—
Investment related gains (losses), net	(1)		—		1		—		—		—		(1)		37		—		—



Interest credited	—		—		—		—		—		—		—		—		—		16
Included in other comprehensive income (loss)	55		2		33		(1)		—		—		—		—		1		—

Purchases (2)	318		—		98		—		2		1		1		—		—		2
Sales (2)	—		—		—		—		—		—		—		—		—		—
Settlements (2)	(59)		—		(62)		(1)		—		—		—		—		—		17
Transfers into Level 3	—		—		64		—		—		—		—		—		—		—
Transfers out of Level 3	—		—		(27)		(5)		—		—		(6)		—		—		—
Fair value, end of period	$	4,613	$	37	$	1,461	$	28	$	68	$	1	$	7	$	29	$	53	$	(495)
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	$	—	$	1	$	—	$	—	$	—	$	—	$	—	$	(2)	$	—
Investment related gains (losses), net	(2)		—		—		—		—		—		(1)		37		—		—


Interest credited	—		—		—		—		—		—		—		—		—		(1)
Included in other comprehensive income (loss)	52		2		33		(1)		—		—		—		—		1		—

(1)Funds withheld at interest – embedded derivatives 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, 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		Cash equivalents		Short-term investments
Fair value, beginning of period	$	3,888	$	33	$	1,179	$	45	$	50	$	—	$	28	$	165	$	83	$	(693)
Total gains/losses (realized/unrealized)
Included in earnings, net:
Net investment income	1		—		—		—		—		—		—		—		(5)		—
Investment related gains (losses), net	—		—		(5)		—		(1)		—		—		(33)		—		—

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	$	(645)
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)		—		—

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 derivatives assets and liabilities are presented net for purposes of the rollforward.

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, 2023 and 2022, the Company did not have any material assets that were measured at fair value due to impairment.

Fair Value of Financial Instruments Carried at Other Than Fair Value

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, 2023 and December 31, 2022 (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 2022 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, 2023:	Carrying Value (1)		Estimated Fair Value		Fair Value Measurement Using:
					Level 1		Level 2		Level 3
Assets:
Mortgage loans	$	6,833	$	6,367	$	—	$	—	$	6,367
Policy loans	1,221		1,221		—		1,221		—
Funds withheld at interest	6,245		5,821		—		—		5,821
Limited partnerships – cost method	54		57		—		—		57
Cash and cash equivalents	1,640		1,640		1,640		—		—
Short-term investments	43		43		43		—		—
Other invested assets	974		780		5		64		711
Accrued investment income	672		672		—		672		—
Liabilities:
Interest-sensitive contract liabilities	$	23,515	$	23,213	$	—	$	—	$	23,213
Other liabilities – funds withheld at interest	1,593		1,316		—		—		1,316
Long-term debt	4,455		4,260		—		—		4,260


December 31, 2022:
Assets:
Mortgage loans	$	6,590	$	6,109	$	—	$	—	$	6,109
Policy loans	1,231		1,231		—		1,231		—
Funds withheld at interest	6,319		5,884		—		—		5,884
Limited partnerships – cost method	49		52		—		—		52
Cash and cash equivalents	1,392		1,392		1,392		—		—
Short-term investments	33		33		33		—		—
Other invested assets	947		758		4		65		689
Accrued investment income	630		630		—		630		—
Liabilities:
Interest-sensitive contract liabilities	$	23,493	$	23,065	$	—	$	—	$	23,065
Other liabilities – funds withheld at interest	1,596		1,321		—		—		1,321
Long-term debt	3,961		3,670		—		—		3,670

(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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