Fair Value of Assets and Liabilities (Tables)

9 Months Ended

Sep. 30, 2016

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 September 30, 2016.



($ 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 September 30, 2016
Assets
Fixed income securities:
U.S. government and agencies	$	3,440		$	864		$	—					$	4,304
Municipal	—			7,742			160						7,902
Corporate - public	—			31,789			98						31,887
Corporate - privately placed	—			12,271			316						12,587
Foreign government	—			1,119			—						1,119
ABS - CDO	—			636			74						710
ABS - consumer and other	—			601			79						680
RMBS	—			777			1						778
CMBS	—			292			23						315
Redeemable preferred stock	—			24			—						24
Total fixed income securities	3,440			56,115			751						60,306
Equity securities	4,941			187			160						5,288
Short-term investments	343			1,520			—						1,863
Other investments: Free-standing derivatives	—			92			1			$	(8	)	85
Separate account assets	3,469			—			—						3,469
Other assets	1			—			1						2
Total recurring basis assets	12,194			57,914			913			(8		)	71,013
Non-recurring basis⁽¹⁾	—			—			25						25
Total assets at fair value	$	12,194		$	57,914		$	938		$	(8	)	$	71,038
% of total assets at fair value	17.2		%	81.5		%	1.3		%	—		%	100		%

Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	—		$	—		$	(307	)				$	(307	)
Other liabilities: Free-standing derivatives	(1		)	(66		)	(4		)	$	22		(49		)
Total liabilities at fair value	$	(1	)	$	(66	)	$	(311	)	$	22		$	(356	)
% of total liabilities at fair value	0.3		%	18.5		%	87.4		%	(6.2		)%	100		%

_______________


⁽¹⁾	Includes $16 million of limited partnership interests and $9 million of other investments 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, 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 December 31, 2015
Assets
Fixed income securities:
U.S. government and agencies	$	3,056		$	861		$	5					$	3,922
Municipal	—			7,240			161						7,401
Corporate - public	—			30,356			46						30,402
Corporate - privately placed	—			10,923			502						11,425
Foreign government	—			1,033			—						1,033
ABS - CDO	—			716			61						777
ABS - consumer and other	—			1,500			50						1,550
RMBS	—			946			1						947
CMBS	—			446			20						466
Redeemable preferred stock	—			25			—						25
Total fixed income securities	3,056			54,046			846						57,948
Equity securities	4,786			163			133						5,082
Short-term investments	615			1,507			—						2,122
Other investments: Free-standing derivatives	—			65			1			$	(13	)	53
Separate account assets	3,658			—			—						3,658
Other assets	2			—			1						3
Total recurring basis assets	12,117			55,781			981			(13		)	68,866
Non-recurring basis ⁽¹⁾	—			—			55						55
Total assets at fair value	$	12,117		$	55,781		$	1,036		$	(13	)	$	68,921
% of total assets at fair value	17.6		%	80.9		%	1.5		%	—		%	100		%
Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	—		$	—		$	(299	)				$	(299	)
Other liabilities: Free-standing derivatives	(1		)	(23		)	(8		)	$	7		(25		)
Total liabilities at fair value	$	(1	)	$	(23	)	$	(307	)	$	7		$	(324	)
% of total liabilities at fair value	0.3		%	7.1		%	94.8		%	(2.2		)%	100		%

_______________


⁽¹⁾	Includes $42 million of limited partnership interests and $13 million of other investments 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
September 30, 2016
Derivatives embedded in life and annuity contracts – Equity-indexed and forward starting options	$	(256	)	Stochastic cash flow model	Projected option cost	1.0 - 2.2%	1.75%
December 31, 2015
Derivatives embedded in life and annuity contracts – Equity-indexed and forward starting options	$	(247	)	Stochastic cash flow model	Projected option cost	1.0 - 2.2%	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 September 30, 2016.



($ in millions)				Total gains (losses) included in:
	Balance as of June 30, 2016			Net income ⁽¹⁾			OCI			Transfers into Level 3			Transfers out of Level 3
Assets
Fixed income securities:
Municipal	$	149		$	1		$	(1	)	$	—		$	—
Corporate - public	74			—			—			—			(6		)
Corporate - privately placed	585			—			2			—			(280		)
ABS - CDO	33			—			3			—			—
ABS - consumer and other	45			—			—			—			—
RMBS	1			—			—			—			—
CMBS	20			—			—			—			—
Total fixed income securities	907			1			4			—			(286		)
Equity securities	118			(1		)	—			—			—
Free-standing derivatives, net	(7		)	4			—			—			—
Other assets	1			—			—			—			—
Total recurring Level 3 assets	$	1,019		$	4		$	4		$	—		$	(286	)
Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	(304	)	$	(3	)	$	—		$	—		$	—
Total recurring Level 3 liabilities	$	(304	)	$	(3	)	$	—		$	—		$	—

	Purchases			Sales			Issues			Settlements			Balance as of September 30, 2016
Assets
Fixed income securities:
Municipal	$	22		$	(11	)	$	—		$	—		$	160
Corporate - public	40			(10		)	—			—			98
Corporate - privately placed	38			—			—			(29		)	316
ABS - CDO	40			—			—			(2		)	74
ABS - consumer and other	35			—			—			(1		)	79
RMBS	—			—			—			—			1
CMBS	3			—			—			—			23
Total fixed income securities	178			(21		)	—			(32		)	751
Equity securities	43			—			—			—			160
Free-standing derivatives, net	—			—			—			—			(3		)	⁽²⁾
Other assets	—			—			—			—			1
Total recurring Level 3 assets	$	221		$	(21	)	$	—		$	(32	)	$	909
Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	—		$	—		$	(1	)	$	1		$	(307	)
Total recurring Level 3 liabilities	$	—		$	—		$	(1	)	$	1		$	(307	)

_____________


⁽¹⁾	The effect to net income totals $1 million and is reported in the Condensed Consolidated Statements of Operations as follows: $1 million in realized capital gains and losses, $3 million in net investment income, $(6) million in interest credited to contractholder funds and $3 million in life and annuity contract benefits.


⁽²⁾	Comprises $1 million of assets and $4 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 nine months ended September 30, 2016.



($ in millions)				Total gains (losses) included in:
	Balance as of December 31, 2015			Net income ⁽¹⁾			OCI			Transfers into Level 3			Transfers out of Level 3
Assets
Fixed income securities:
U.S. government and agencies	$	5		$	—		$	—		$	—		$	(4	)
Municipal	161			11			(6		)	6			—
Corporate - public	46			—			1			25			(13		)
Corporate - privately placed	502			4			15			16			(363		)
ABS - CDO	61			—			5			10			(3		)
ABS - consumer and other	50			—			(2		)	3			—
RMBS	1			—			—			—			—
CMBS	20			—			—			—			—
Total fixed income securities	846			15			13			60			(383		)
Equity securities	133			(33		)	8			—			—
Free-standing derivatives, net	(7		)	4			—			—			—
Other assets	1			—			—			—			—
Total recurring Level 3 assets	$	973		$	(14	)	$	21		$	60		$	(383	)
Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	(299	)	$	(11	)	$	—		$	—		$	—
Total recurring Level 3 liabilities	$	(299	)	$	(11	)	$	—		$	—		$	—

	Purchases			Sales			Issues			Settlements			Balance as of September 30, 2016
Assets
Fixed income securities:
U.S. government and agencies	$	—		$	—		$	—		$	(1	)	$	—
Municipal	22			(33		)	—			(1		)	160
Corporate - public	47			(6		)	—			(2		)	98
Corporate - privately placed	181			—			—			(39		)	316
ABS - CDO	40			(2		)	—			(37		)	74
ABS - consumer and other	35			(5		)	—			(2		)	79
RMBS	—			—			—			—			1
CMBS	5			—			—			(2		)	23
Total fixed income securities	330			(46		)	—			(84		)	751
Equity securities	52			—			—			—			160
Free-standing derivatives, net	—			—			—			—			(3		)	⁽²⁾
Other assets	—			—			—			—			1
Total recurring Level 3 assets	$	382		$	(46	)	$	—		$	(84	)	$	909
Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	—		$	—		$	(2	)	$	5		$	(307	)
Total recurring Level 3 liabilities	$	—		$	—		$	(2	)	$	5		$	(307	)

_____________


⁽¹⁾	The effect to net income totals $(25) million and is reported in the Condensed Consolidated Statements of Operations as follows: $(24) million in realized capital gains and losses, $10 million in net investment income, $(12) million in interest credited to contractholder funds and $1 million in life and annuity contract benefits.


⁽²⁾	Comprises $1 million of assets and $4 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 September 30, 2015.



($ in millions)				Total gains (losses) included in:
	Balance as of June 30, 2015			Net income ⁽¹⁾			OCI			Transfers into Level 3			Transfers out of Level 3
Assets
Fixed income securities:
U.S. government and agencies	$	5		$	—		$	—		$	—		$	—
Municipal	215			3			—			3			—
Corporate	626			11			(10		)	—			(24		)
ABS	120			—			(1		)	31			—
RMBS	1			—			—			—			—
CMBS	28			—			—			—			—
Total fixed income securities	995			14			(11		)	34			(24		)
Equity securities	108			(2		)	(3		)	—			—
Short-term investments	35			—			—			—			—
Free-standing derivatives, net	(7		)	(1		)	—			—			—
Other assets	1			—			—			—			—
Total recurring Level 3 assets	$	1,132		$	11		$	(14	)	$	34		$	(24	)
Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	(315	)	$	19		$	—		$	—		$	—
Total recurring Level 3 liabilities	$	(315	)	$	19		$	—		$	—		$	—

	Purchases			Sales			Issues			Settlements			Balance as of September 30, 2015
Assets
Fixed income securities:
U.S. government and agencies	$	—		$	—		$	—		$	—		$	5
Municipal	—			(32		)	—			—			189
Corporate	10			(11		)	—			(2		)	600
ABS	60			—			—			(28		)	182
RMBS	—			—			—			—			1
CMBS	4			—			—			(13		)	19
Total fixed income securities	74			(43		)	—			(43		)	996
Equity securities	38			—			—			—			141
Short-term investments	5			—			—			—			40
Free-standing derivatives, net	—			—			—			—			(8		)	⁽²⁾
Other assets	—			—			—			—			1
Total recurring Level 3 assets	$	117		$	(43	)	$	—		$	(43	)	$	1,170
Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	—		$	—		$	—		$	1		$	(295	)
Total recurring Level 3 liabilities	$	—		$	—		$	—		$	1		$	(295	)

_____________________


⁽¹⁾	The effect to net income totals $30 million and is reported in the Condensed Consolidated Statements of Operations as follows: $8 million in realized capital gains and losses, $3 million in net investment income, $27 million in interest credited to contractholder funds and $(8) million in life and annuity contract benefits.


⁽²⁾	Comprises $1 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 nine months ended September 30, 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			5			(4		)	3			(2		)
Corporate	891			11			(16		)	5			(232		)
ABS	196			(2		)	1			43			(84		)
RMBS	1			—			—			—			—
CMBS	23			—			—			—			—
Total fixed income securities	1,387			14			(19		)	51			(318		)
Equity securities	83			(1		)	1			—			—
Short-term investments	5			—			—			—			—
Free-standing derivatives, net	(7		)	—			—			—			—
Other assets	1			—			—			—			—
Total recurring Level 3 assets	$	1,469		$	13		$	(18	)	$	51		$	(318	)
Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	(323	)	$	24		$	—		$	—		$	—
Total recurring Level 3 liabilities	$	(323	)	$	24		$	—		$	—		$	—

	Purchases			Sales			Issues			Settlements			Balance as of September 30, 2015
Assets
Fixed income securities:
U.S. government and agencies	$	—		$	—		$	—		$	(1	)	$	5
Municipal	—			(81		)	—			(2		)	189
Corporate	70			(57		)	—			(72		)	600
ABS	70			(5		)	—			(37		)	182
RMBS	—			—			—			—			1
CMBS	9			—			—			(13		)	19
Total fixed income securities	149			(143		)	—			(125		)	996
Equity securities	58			—			—			—			141
Short-term investments	35			—			—			—			40
Free-standing derivatives, net	—			—			—			(1		)	(8		)	⁽²⁾
Other assets	—			—			—			—			1
Total recurring Level 3 assets	$	242		$	(143	)	$	—		$	(126	)	$	1,170
Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	—		$	—		$	(1	)	$	5		$	(295	)
Total recurring Level 3 liabilities	$	—		$	—		$	(1	)	$	5		$	(295	)

_____________________


⁽¹⁾	The effect to net income totals $37 million and is reported in the Condensed Consolidated Statements of Operations as follows: $4 million in realized capital gains and losses, $9 million in net investment income, $32 million in interest credited to contractholder funds and $(8) million in life and annuity contract benefits.


⁽²⁾	Comprises $1 million of assets and $9 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 September 30.



($ in millions)	Three months ended September 30,						Nine months ended September 30,
	2016			2015			2016			2015
Assets
Fixed income securities:
Municipal	$	1		$	—		$	2		$	(1	)
Corporate	—			3			1			7
ABS	—			(1		)	—			3
Total fixed income securities	1			2			3			9
Equity securities	(1		)	(2		)	(33		)	(2		)
Free-standing derivatives, net	4			(1		)	4			—
Total recurring Level 3 assets	$	4		$	(1	)	$	(26	)	$	7
Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	(3	)	$	19		$	(11	)	$	24
Total recurring Level 3 liabilities	$	(3	)	$	19		$	(11	)	$	24

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

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

Financial assets



($ in millions)	September 30, 2016				December 31, 2015
	Carrying value		Fair value		Carrying value		Fair value
Mortgage loans	$	4,396	$	4,573	$	4,338	$	4,489
Cost method limited partnerships	1,375		1,600		1,154		1,450
Bank loans	1,660		1,665		1,565		1,527
Agent loans	463		452		422		408

Financial liabilities



($ in millions)	September 30, 2016				December 31, 2015
	Carrying value		Fair value		Carrying value		Fair value
Contractholder funds on investment contracts	$	11,644	$	12,345	$	12,424	$	12,874
Long-term debt	5,110		5,992		5,124		5,648
Liability for collateral	1,095		1,095		840		840

- 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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