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Derivative Instruments
 6 Months Ended
Jun. 30, 2023
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Instruments
See Note 2 – “Significant Accounting Policies and Pronouncements” of the Company’s 2022 Annual Report for a detailed discussion of the accounting treatment for derivative instruments, including embedded derivatives. See Note 13 – “Fair Value of Assets and Liabilities” for additional disclosures related to the fair value hierarchy for derivative instruments, including embedded derivatives.
Commonly used derivative instruments include, but are not necessarily limited to: credit default swaps, equity futures, equity options, foreign currency swaps, foreign currency forwards, interest rate swaps, interest rate options, interest rate futures, total return swaps, synthetic guaranteed investment contracts (“GICs”), consumer price index (“CPI”) swaps, forward bond purchase commitments, other derivatives and embedded derivatives. For detailed information on these derivative instruments and the related strategies, see Note 5 – “Derivative Instruments” of the Company’s 2022 Annual Report.
Summary of Derivative Positions
Derivatives, except for embedded derivatives, are included in other invested assets or other liabilities, at fair value. Embedded derivative assets and liabilities on modco or funds withheld arrangements are included on the condensed consolidated balance sheets with the host contract in funds withheld at interest or other liabilities, at fair value. Embedded derivative liabilities on indexed annuity products are included on the condensed consolidated balance sheets with the host contract in interest-sensitive contract liabilities, at fair value. The following table presents the notional amounts and gross fair value of derivative instruments prior to taking into account the netting effects of master netting agreements as of June 30, 2023 and December 31, 2022 (dollars in millions):
 June 30, 2023December 31, 2022
 Primary Underlying RiskNotionalCarrying Value/Fair ValueNotionalCarrying Value/Fair Value
 AmountAssetsLiabilitiesAmountAssetsLiabilities
Derivatives not designated as hedging instruments:
Interest rate swaps Interest rate$1,683 $6 $4 $1,271 $2 $2 
Interest rate optionsInterest rate6,555 8 — 7,756 34 — 
Total return swapsInterest rate500 25 3 500 18 — 
Interest rate futuresInterest rate96 — — 96 — — 
Equity futuresEquity241 — — 164 — — 
Foreign currency swapsForeign currency150 26 — 150 18 — 
Foreign currency forwardsForeign currency850 — 28 766 50 — 
CPI swapsCPI477 14 2 496 20 3 
Credit default swapsCredit1,515 4 10 1,523 2 21 
Equity optionsEquity306 12 — 358 38 — 
Synthetic GICsInterest rate17,027 — — 17,411 — — 
Embedded derivatives in:
Modco or funds withheld arrangements— 368 359 — 363 371 
Indexed annuity products— — 472 — — 530 
Total non-hedging derivatives29,400 463 878 30,491 545 927 
Derivatives designated as hedging instruments:
Interest rate swaps Foreign currency/Interest rate1,997 5 148 1,310 3 113 
Foreign currency swapsForeign currency104 — 3 114 — — 
Foreign currency forwardsForeign currency1,158 14 9 1,019 38 1 
Forward bond purchase commitmentsInterest rate775 1 84 407 — 96 
Total hedging derivatives4,034 20 244 2,850 41 210 
Total derivatives$33,434 $483 $1,122 $33,341 $586 $1,137 
Fair Value Hedges
The Company designates and reports certain foreign currency swaps to hedge the foreign currency fair value exposure of foreign currency denominated assets as fair value hedges when they meet the requirements of the general accounting principles for Derivatives and Hedging. The gain or loss on the hedged item attributable to a change in foreign currency and the offsetting gain or loss on the related foreign currency swaps as of June 30, 2023 and 2022 were as follows (dollars in millions):
Type of Fair Value HedgeHedged ItemGains (Losses) Recognized for DerivativesGains (Losses) Recognized for Hedged Items
Investment Related Gains (Losses), Net
For the three months ended June 30, 2023:
Foreign currency swapsForeign-denominated fixed maturity securities$— $— 
For the three months ended June 30, 2022:
Foreign currency swapsForeign-denominated fixed maturity securities$(8)$8 
For the six months ended June 30, 2023:
Foreign currency swapsForeign-denominated fixed maturity securities$(3)$2 
For the six months ended June 30, 2022:
Foreign currency swapsForeign-denominated fixed maturity securities$(1)$5 
Cash Flow Hedges
Certain derivative instruments are designated as cash flow hedges when they meet the requirements of the general accounting principles for Derivatives and Hedging. The Company designates and accounts for the following as cash flow hedges: (i) certain interest rate swaps, in which the cash flows of assets and liabilities are variable based on a benchmark rate; (ii) certain interest rate swaps, in which the cash flows of assets are denominated in different currencies, commonly referred to as cross-currency swaps; (iii) certain interest rate swaps, in which floating rate assets are converted to fixed rate assets; and (iv) forward bond purchase commitments.
The following table presents the components of AOCI, before income tax, and the condensed consolidated income statement classification where the gain or loss is recognized related to cash flow hedges for the three and six months ended June 30, 2023 and 2022 (dollars in millions):
 Three months ended June 30,
 20232022
Balance, beginning of period$(198)$(81)
Gains (losses), net deferred in other comprehensive income (loss)(32)(128)
Amounts reclassified to net investment income4 2 
Amounts reclassified to interest expense(2)1 
Balance, end of period$(228)$(206)
 Six months ended June 30,
 20232022
Balance, beginning of period$(205)$(22)
Gains (losses), net deferred in other comprehensive income (loss)(26)(188)
Amounts reclassified to net investment income7 2 
Amounts reclassified to interest expense(4)2 
Balance, end of period$(228)$(206)
As of June 30, 2023, approximately $12 million of before-tax deferred net losses recorded in AOCI are expected to be reclassified to net investment income during the next twelve months. For the same time period, $11 million of before-tax deferred net gains on derivative instruments recorded in AOCI are expected to be reclassified to interest expense during the next twelve months.
The following table presents the effect of derivatives in cash flow hedging relationships on the condensed consolidated statements of income and the condensed consolidated statements of comprehensive income for the three and six months ended June 30, 2023 and 2022 (dollars in millions):
Derivative TypeGains (Losses) Deferred in OCIGains (Losses) Reclassified into Income from AOCI
Net Investment IncomeInterest Expense
For the three months ended June 30, 2023:
Interest rate$(8)$— $2 
Foreign currency/interest rate(24)(4)— 
Total$(32)$(4)$2 
For the three months ended June 30, 2022:
Interest rate$(106)$— $(1)
Foreign currency/interest rate(22)(2)— 
Total$(128)$(2)$(1)
For the six months ended June 30, 2023:
Interest rate$6 $— $4 
Foreign currency/interest rate(32)(7)— 
Total$(26)$(7)$4 
For the six months ended June 30, 2022:
Interest rate$(170)$— $(2)
Foreign currency/interest rate(18)(2)— 
Total$(188)$(2)$(2)
For the three and six months ended June 30, 2023 and 2022, there were no material amounts reclassified into earnings relating to instances in which the Company discontinued cash flow hedge accounting because the forecasted transaction did not occur by the anticipated date or within the additional time period permitted by the authoritative guidance for the accounting for derivatives and hedging.
Hedges of Net Investments in Foreign Operations
The Company uses foreign currency swaps and foreign currency forwards to hedge a portion of its net investment in certain foreign operations against adverse movements in exchange rates. The following table illustrates the Company’s net investments in foreign operations (“NIFO”) hedges and the gains (losses) deferred in OCI for the three and six months ended June 30, 2023 and 2022 (dollars in millions):
 Derivative Gains (Losses) Deferred in OCI   
 Three months ended June 30,Six months ended June 30,
Type of NIFO Hedge2023202220232022
Foreign currency swaps$— $1 $— $1 
Foreign currency forwards(21)38 (21)22
Total$(21)$39 $(21)$23 
The cumulative foreign currency translation gain recorded in AOCI related to these hedges was $189 million and $210 million as of June 30, 2023 and December 31, 2022, respectively. If a hedged foreign operation was sold or substantially liquidated, the amounts in AOCI would be reclassified to the condensed consolidated statements of income. A pro rata portion would be reclassified upon partial sale of a hedged foreign operation. There were no sales or substantial liquidations of net investments in foreign operations that would have required the reclassification of gains or losses from AOCI into investment income during the periods presented.
Non-qualifying Derivatives and Derivatives for Purposes Other Than Hedging
The Company uses various other derivative instruments for risk management purposes that either do not qualify or have not been elected for hedge accounting treatment. The gain or loss related to the change in fair value for these derivative instruments is recognized in investment related gains (losses), net, except where otherwise noted.
A summary of the effect of non-hedging derivatives, including embedded derivatives, on the Company’s condensed consolidated statements of income for the three and six months ended June 30, 2023 and 2022 is as follows (dollars in millions):
  Gains (Losses) for the three months ended     
June 30,
Type of Non-hedging DerivativeIncome Statement Location of Gains (Losses)20232022
Interest rate swapsInvestment related gains (losses), net$(30)$(44)
Interest rate optionsInvestment related gains (losses), net(3)(6)
Total return swapsInvestment related gains (losses), net5 — 
Interest rate futuresInvestment related gains (losses), net2 1 
Equity futuresInvestment related gains (losses), net(10)23 
Foreign currency swapsInvestment related gains (losses), net12 11 
Foreign currency forwardsInvestment related gains (losses), net(74)(76)
CPI swapsInvestment related gains (losses), net6 (11)
Credit default swapsInvestment related gains (losses), net10 (33)
Equity optionsInvestment related gains (losses), net(11)21 
Subtotal(93)(114)
Embedded derivatives in:
Modco or funds withheld arrangementsInvestment related gains (losses), net(20)(56)
Indexed annuity productsInterest credited(5)44 
Total non-hedging derivatives$(118)$(126)
Gains (Losses) for the six months ended     
June 30,
Type of Non-hedging DerivativeIncome Statement Location of Gains (Losses)20232022
Interest rate swapsInvestment related gains (losses), net$(10)$(96)
Interest rate optionsInvestment related gains (losses), net(26)(6)
Total return swapsInvestment related gains (losses), net8 — 
Interest rate futuresInvestment related gains (losses), net2 3 
Equity futuresInvestment related gains (losses), net(19)28 
Foreign currency swapsInvestment related gains (losses), net12 18 
Foreign currency forwardsInvestment related gains (losses), net(93)(99)
CPI swapsInvestment related gains (losses), net7 18 
Credit default swapsInvestment related gains (losses), net21 (91)
Equity optionsInvestment related gains (losses), net(25)21 
Subtotal(123)(204)
Embedded derivatives in:
Modco or funds withheld arrangementsInvestment related gains (losses), net17 (89)
Indexed annuity productsInterest credited11 80 
Total non-hedging derivatives$(95)$(213)
Credit Derivatives
The following table presents the estimated fair value, maximum amount of future payments and weighted average years to maturity of credit default swaps sold by the Company at June 30, 2023 and December 31, 2022 (dollars in millions):
 June 30, 2023December 31, 2022
Rating Agency Designation of Referenced Credit Obligations(1)
Estimated Fair
Value of Credit 
Default Swaps
Maximum
Amount of Future
Payments under
Credit Default
Swaps(2)
Weighted
Average
Years to
Maturity(3)
Estimated Fair
Value of Credit 
Default Swaps
Maximum
Amount of Future
Payments under
Credit Default
Swaps(2)
Weighted
Average
Years to
Maturity(3)  
AAA/AA+/AA/AA-/A+/A/A-
Single name credit default swaps$(9)$420 18.6$(18)$428 18.7
BBB+/BBB/BBB-
Single name credit default swaps3 155 3.11 155 3.3
Credit default swaps referencing indices1 915 4.5— 915 6.2
Subtotal4 1,070 4.31 1,070 5.8
BB+/BB/BB-
Single name credit default swaps(1)25 2.7(2)25 3.2
Total$(6)$1,515 8.2$(19)$1,523 9.4
(1)The rating agency designations are based on ratings from Standard and Poor’s (“S&P”).
(2)Assumes the value of the referenced credit obligations is zero.
(3)The weighted average years to maturity of the credit default swaps is calculated based on weighted average notional amounts.
Netting Arrangements and Credit Risk
Certain of the Company’s derivatives are subject to enforceable master netting arrangements and reported as a net asset or liability in the condensed consolidated balance sheets. The Company nets all derivatives that are subject to such arrangements.
The Company has elected to include all derivatives, except embedded derivatives, in the table below, irrespective of whether they are subject to an enforceable master netting arrangement or a similar agreement. See Note 11 – “Investments” for information regarding the Company’s securities borrowing, lending and repurchase/reverse repurchase agreements.
The following table provides information relating to the netting of the Company’s derivative instruments as of June 30, 2023 and December 31, 2022 (dollars in millions):
Gross Amounts  
Recognized		Gross Amounts
Offset in the
Balance Sheet   		Net Amounts
Presented in the
Balance Sheet   
Financial
Instruments/Collateral (1)
Net Amount   
June 30, 2023:
Derivative assets$115 $(54)$61 $(61)$— 
Derivative liabilities291 (54)237 (237)— 
December 31, 2022:
Derivative assets223 (53)170 (170)— 
Derivative liabilities236 (53)183 (183)— 
(1)Includes initial margin posted to a central clearing partner for financial instruments and excludes the excess of collateral received/pledged from/to the counterparty.
The Company may be exposed to credit-related losses in the event of non-performance by counterparties to derivative financial instruments. Generally, the credit exposure of the Company’s derivative contracts is limited to the fair value and accrued interest of non-collateralized derivative contracts in an asset position at the reporting date. As of June 30, 2023, the Company had credit exposure of $14 million.
Derivatives may be exchange-traded or they may be privately negotiated contracts, which are referred to as over-the-counter (“OTC”) derivatives. Certain of the Company’s OTC derivatives are cleared and settled through central clearing counterparties (“OTC cleared”) and others are bilateral contracts between two counterparties. The Company manages its credit risk related to OTC derivatives by entering into transactions with creditworthy counterparties, maintaining collateral arrangements and through the use of master netting agreements that provide for a single net payment to be made by one counterparty to another at each due date and upon termination. The Company is only exposed to the default of the central clearing counterparties for OTC cleared derivatives, and these transactions require initial and daily variation margin collateral postings. Exchange-traded derivatives are settled on a daily basis, thereby reducing the credit risk exposure in the event of non-performance by counterparties to such financial instruments.