Fair Value of Assets and Liabilities (Tables)

3 Months Ended

Mar. 31, 2015

Schedule of assets and liabilities that are measured at fair value on a recurring and non-recurring basis

The following table summarizes the Company’s assets and liabilities measured at fair value on a recurring and non-recurring basis as of March 31, 2015.



($ in millions)	Quoted prices in active markets for identical assets (Level 1)			Significant other observable inputs (Level 2)			Significant unobservable inputs (Level 3)			Counterparty and cash collateral netting			Balance as of March 31, 2015
Assets
Fixed income securities:
U.S. government and agencies	$	3,219		$	882		$	5					$	4,106
Municipal	—			8,475			238						8,713
Corporate	—			41,497			878						42,375
Foreign government	—			1,375			—						1,375
ABS	—			2,918			137						3,055
RMBS	—			1,153			1						1,154
CMBS	—			572			28						600
Redeemable preferred stock	—			25			—						25
Total fixed income securities	3,219			56,897			1,287						61,403
Equity securities	3,843			230			93						4,166
Short-term investments	632			1,855			10						2,497
Other investments: Free-standing derivatives	—			85			2			$	(8	)	79
Separate account assets	4,304			—			—						4,304
Other assets	1			—			1						2
Total recurring basis assets	11,999			59,067			1,393			(8		)	72,451
Non-recurring basis ⁽¹⁾	—			—			18						18
Total assets at fair value	$	11,999		$	59,067		$	1,411		$	(8	)	$	72,469
% of total assets at fair value	16.6		%	81.5		%	1.9		%	—		%	100		%

Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	—		$	—		$	(326	)				$	(326	)
Other liabilities: Free-standing derivatives	(1		)	(51		)	(9		)	$	28		(33		)
Total liabilities at fair value	$	(1	)	$	(51	)	$	(335	)	$	28		$	(359	)
% of total liabilities at fair value	0.3		%	14.2		%	93.3		%	(7.8		)%	100		%

_______________


⁽¹⁾	Includes $18 million of limited partnership interests written-down to fair value in connection with recognizing other-than-temporary impairments.

The following table summarizes the Company’s assets and liabilities measured at fair value on a recurring and non-recurring basis as of December 31, 2014.



($ in millions)	Quoted prices in active markets for identical assets (Level 1)			Significant other observable inputs (Level 2)			Significant unobservable inputs (Level 3)			Counterparty and cash collateral netting			Balance as of December 31, 2014
Assets
Fixed income securities:
U.S. government and agencies	$	3,240		$	1,082		$	6					$	4,328
Municipal	—			8,227			270						8,497
Corporate	—			41,253			891						42,144
Foreign government	—			1,645			—						1,645
ABS	—			3,782			196						3,978
RMBS	—			1,206			1						1,207
CMBS	—			592			23						615
Redeemable preferred stock	—			26			—						26
Total fixed income securities	3,240			57,813			1,387						62,440
Equity securities	3,787			234			83						4,104
Short-term investments	692			1,843			5						2,540
Other investments: Free-standing derivatives	—			95			2			$	(5	)	92
Separate account assets	4,396			—			—						4,396
Other assets	2			—			1						3
Total recurring basis assets	12,117			59,985			1,478			(5		)	73,575
Non-recurring basis ⁽¹⁾	—			—			9						9
Total assets at fair value	$	12,117		$	59,985		$	1,487		$	(5	)	$	73,584
% of total assets at fair value	16.5		%	81.5		%	2.0		%	—		%	100		%

Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	—		$	—		$	(323	)				$	(323	)
Other liabilities: Free-standing derivatives	(1		)	(50		)	(9		)	$	22		(38		)
Total liabilities at fair value	$	(1	)	$	(50	)	$	(332	)	$	22		$	(361	)
% of total liabilities at fair value	0.3		%	13.8		%	92.0		%	(6.1		)%	100		%

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⁽¹⁾	Includes $6 million of mortgage loans and $3 million of limited partnership interests written-down to fair value in connection with recognizing other-than-temporary impairments.

Summary of quantitative information about the significant unobservable inputs

The following table summarizes quantitative information about the significant unobservable inputs used in Level 3 fair value measurements.



($ in millions)	Fair value			Valuation technique	Unobservable input	Range	Weighted average
March 31, 2015
Derivatives embedded in life and annuity contracts – Equity-indexed and forward starting options	$	(281	)	Stochastic cash flow model	Projected option cost	1.0 - 2.2%	1.76%

December 31, 2014
Derivatives embedded in life and annuity contracts – Equity-indexed and forward starting options	$	(278	)	Stochastic cash flow model	Projected option cost	1.0 - 2.0%	1.76%

Schedule of the rollforward of Level 3 assets and liabilities held at fair value on a recurring basis

The following table presents the rollforward of Level 3 assets and liabilities held at fair value on a recurring basis during the three months ended March 31, 2015.



($ in millions)				Total gains (losses) included in:
	Balance as of December 31, 2014			Net income ⁽¹⁾			OCI			Transfers into Level 3			Transfers out of Level 3
Assets
Fixed income securities:
U.S. government and agencies	$	6		$	—		$	—		$	—		$	—
Municipal	270			—			2			—			—
Corporate	891			(3		)	(8		)	5			—
ABS	196			(1		)	—			12			(73		)
RMBS	1			—			—			—			—
CMBS	23			—			—			—			—
Total fixed income securities	1,387			(4		)	(6		)	17			(73		)
Equity securities	83			—			2			—			—
Short-term investments	5			—			—			—			—
Free-standing derivatives, net	(7		)	—			—			—			—
Other assets	1			—			—			—			—
Total recurring Level 3 assets	$	1,469		$	(4	)	$	(4	)	$	17		$	(73	)

Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	(323	)	$	(4	)	$	—		$	—		$	—
Total recurring Level 3 liabilities	$	(323	)	$	(4	)	$	—		$	—		$	—

	Purchases			Sales			Issues			Settlements			Balance as of March 31, 2015
Assets
Fixed income securities:
U.S. government and agencies	$	—		$	—		$	—		$	(1	)	$	5
Municipal	—			(33		)	—			(1		)	238
Corporate	60			(46		)	—			(21		)	878
ABS	10			—			—			(7		)	137
RMBS	—			—			—			—			1
CMBS	5			—			—			—			28
Total fixed income securities	75			(79		)	—			(30		)	1,287
Equity securities	8			—			—			—			93
Short-term investments	5			—			—			—			10
Free-standing derivatives, net	—			—			—			—			(7		)	⁽²⁾
Other assets	—			—			—			—			1
Total recurring Level 3 assets	$	88		$	(79	)	$	—		$	(30	)	$	1,384

Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	—		$	—		$	(1	)	$	2		$	(326	)
Total recurring Level 3 liabilities	$	—		$	—		$	(1	)	$	2		$	(326	)

_____________


⁽¹⁾	The effect to net income totals $(8) million and is reported in the Condensed Consolidated Statements of Operations as follows: $(6) million in realized capital gains and losses, $2 million in net investment income and $(4) million in interest credited to contractholder funds.


⁽²⁾	Comprises $2 million of assets and $9 million of liabilities.

The following table presents the rollforward of Level 3 assets and liabilities held at fair value on a recurring basis during the three months ended March 31, 2014.



($ in millions)				Total gains (losses) included in:
	Balance as of December 31, 2013			Net income ⁽¹⁾			OCI			Transfers into Level 3			Transfers out of Level 3
Assets
Fixed income securities:
U.S. government and agencies	$	7		$	—		$	—		$	—		$	—
Municipal	343			(4		)	5			—			—
Corporate	1,109			5			1			—			(25		)
ABS	192			—			(1		)	—			(57		)
RMBS	2			—			—			—			—
CMBS	43			—			—			5			—
Redeemable preferred stock	1			—			—			—			—
Total fixed income securities	1,697			1			5			5			(82		)
Equity securities	132			20			(15		)	—			—
Short-term investments	—			—			—			—			—
Free-standing derivatives, net	(5		)	(2		)	—			—			—
Other assets	—			—			—			—			—
Assets held for sale	362			(1		)	2			4			(2		)
Total recurring Level 3 assets	$	2,186		$	18		$	(8	)	$	9		$	(84	)

Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	(307	)	$	(2	)	$	—		$	—		$	—
Liabilities held for sale	(246		)	17			—			—			—
Total recurring Level 3 liabilities	$	(553	)	$	15		$	—		$	—		$	—

	Transfer from held for sale			Purchases/ Issues ⁽²⁾			Sales			Settlements			Balance as of March 31, 2014
Assets
Fixed income securities:
U.S. government and agencies	$	—		$	—		$	—		$	(1	)	$	6
Municipal	—			1			(9		)	(1		)	335
Corporate	—			16			(87		)	(20		)	999
ABS	—			44			—			(4		)	174
RMBS	—			—			—			—			2
CMBS	4			4			(1		)	(1		)	54
Redeemable preferred stock	—			—			(1		)	—			—
Total fixed income securities	4			65			(98		)	(27		)	1,570
Equity securities	—			1			(121		)	—			17
Short-term investments	—			30			—			—			30
Free-standing derivatives, net	—			2			—			(2		)	(7		)	⁽³⁾
Other assets	—			—			—			—			—
Assets held for sale	(4		)	—			(8		)	(6		)	347
Total recurring Level 3 assets	$	—		$	98		$	(227	)	$	(35	)	$	1,957

Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	—		$	(11	)	$	—		$	1		$	(319	)
Liabilities held for sale	—			(4		)	—			3			(230		)
Total recurring Level 3 liabilities	$	—		$	(15	)	$	—		$	4		$	(549	)

_____________________


⁽¹⁾	The effect to net income totals $33 million and is reported in the Condensed Consolidated Statements of Operations as follows: $20 million in realized capital gains and losses, $2 million in net investment income, $10 million in interest credited to contractholder funds, $5 million in life and annuity contract benefits and $(4) million in loss on disposition of operations.


⁽²⁾	Represents purchases for assets and issues for liabilities.


⁽³⁾	Comprises $5 million of assets and $12 million of liabilities.

Schedule of gains and losses included in net income for Level 3 assets and liabilities still held at the balance sheet date

The following table provides the change in unrealized gains and losses included in net income for Level 3 assets and liabilities held as of March 31.



($ in millions)	Three months ended March 31,
	2015			2014
Assets
Fixed income securities:
Municipal	$	—		$	(4	)
Corporate	1			3
ABS	(1		)	—
Total fixed income securities	—			(1		)
Assets held for sale	—			(1		)
Total recurring Level 3 assets	$	—		$	(2	)
Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	(4	)	$	(2	)
Liabilities held for sale	—			17
Total recurring Level 3 liabilities	$	(4	)	$	15

Schedule of carrying values and fair value estimates of financial instruments not carried at fair value



($ in millions)	March 31, 2015				December 31, 2014
	Carrying value		Fair value		Carrying value		Fair value
Contractholder funds on investment contracts	$	13,444	$	14,134	$	13,734	$	14,390
Long-term debt	5,194		6,025		5,194		5,835
Liability for collateral	755		755		782		782

Presented below are the carrying values and fair value estimates of financial instruments not carried at fair value.

Financial assets



($ in millions)	March 31, 2015				December 31, 2014
	Carrying value		Fair value		Carrying value		Fair value
Mortgage loans	$	4,276	$	4,546	$	4,188	$	4,446
Cost method limited partnerships	1,137		1,494		1,122		1,488
Bank loans	1,722		1,718		1,663		1,638
Agent loans	386		379		368		361

- Definition

Tabular disclosure of financial instruments measured at fair value, including those classified in shareholders' equity measured on a recurring or nonrecurring basis. Disclosures include, but are not limited to, fair value measurements recorded and the reasons for the measurements, level within the fair value hierarchy in which the fair value measurements are categorized and transfers between levels 1 and 2. Nonrecurring fair value measurements are those that are required or permitted in the statement of financial position in particular circumstances.

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- Definition

Tabular disclosure of the fair value of financial instruments, including financial assets and financial liabilities, and the measurements of those instruments, assets, and liabilities.

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