Portfolio monitoring and credit losses

Fixed income securities The Company has a comprehensive portfolio monitoring process to identify and evaluate each fixed income security that may require a credit loss allowance.

For each fixed income security in an unrealized loss position, the Company assesses whether management with the appropriate authority has made the decision to sell or whether it is more likely than not the Company will be required to sell the security before recovery of the amortized cost basis for reasons such as liquidity, contractual or regulatory purposes. If a security meets either of these criteria, any existing credit loss allowance would be written-off against the amortized cost basis of the asset along with any remaining unrealized losses, with incremental losses recorded in earnings.

If the Company has not made the decision to sell the fixed income security and it is not more likely than not the Company will be required to sell the fixed income security before recovery of its amortized cost basis, the Company evaluates whether it expects to receive cash flows sufficient to recover the entire amortized cost basis of the security. The Company calculates the estimated recovery value based on the best estimate of future cash flows considering past events, current conditions and reasonable and supportable forecasts. The estimated future cash flows are discounted at the security’s current effective rate and is compared to the amortized cost of the security.

The determination of cash flow estimates is inherently subjective, and methodologies may vary depending on facts and circumstances specific to the security. All reasonably available information relevant to the collectability of the security is considered when developing the estimate of cash flows expected to be collected. That information generally includes, but is not limited to, the remaining payment terms of the security, prepayment speeds, the financial condition and future earnings potential of the issue or issuer, expected defaults, expected recoveries, the value of underlying collateral, origination vintage year, geographic concentration of underlying collateral, available reserves or escrows, current subordination levels, third-party guarantees and other credit

enhancements. Other information, such as industry analyst reports and forecasts, credit ratings, financial condition of the bond insurer for insured fixed income securities, and other market data relevant to the realizability of contractual cash flows, may also be considered. The estimated fair value of collateral will be used to estimate recovery value if the Company determines that the security is dependent on the liquidation of collateral for ultimate settlement.

If the Company does not expect to receive cash flows sufficient to recover the entire amortized cost basis of the fixed income security, a credit loss allowance is recorded in earnings for the shortfall in expected cash flows; however, the amortized cost, net of the credit loss allowance, may not be lower than the fair value of the security. The portion of the unrealized loss related to factors other than credit remains classified in AOCI. If the Company determines that the fixed income security does not have sufficient cash flow or other information to estimate a recovery value for the security, the Company may conclude that the entire decline in fair value is deemed to be credit related and the loss is recorded in earnings.

When a security is sold or otherwise disposed or when the security is deemed uncollectible and written off, the Company removes amounts previously recognized in the credit loss allowance. Recoveries after write-offs are recognized when received. Accrued interest excluded from the amortized cost of fixed income securities totaled $305 million and $311 million as of March 31, 2022 and December 31, 2021 and is reported within the accrued investment income line of the Condensed Consolidated Statements of Financial Position. The Company monitors accrued interest and writes off amounts when they are not expected to be received.

The Company’s portfolio monitoring process includes a quarterly review of all securities to identify instances where the fair value of a security compared to its amortized cost is below internally established thresholds. The process also includes the monitoring of other credit loss indicators such as ratings, ratings downgrades and payment defaults. The securities identified, in addition to other securities for which the Company may have a concern, are evaluated for potential credit losses using all reasonably available information relevant to the collectability or recovery of the security. Inherent in the Company’s evaluation of credit losses for these securities are assumptions and estimates about the financial condition and future

earnings potential of the issue or issuer. Some of the factors that may be considered in evaluating whether a decline in fair value requires a credit loss allowance are: 1) the financial condition, near-term and long-term prospects of the issue or issuer, including relevant industry specific market conditions and trends, geographic location and implications of rating agency actions and offering prices; 2) the specific reasons that a security is in an unrealized loss position, including overall market conditions which could affect liquidity; and 3) the extent to which the fair value has been less than amortized cost.


Rollforward of credit loss allowance for fixed income securities
	Three months ended March 31,
($ in millions)		2022		2021
Beginning balance		$	(6)	$	(3)
Credit losses on securities for which credit losses not previously reported		—		—
Net (increases) decreases related to credit losses previously reported		—		2
Reduction of allowance related to sales		—		—
Write-offs		—		—



Ending balance (1)		$	(6)	$	(1)

(1)Allowance for fixed income securities as of March 31, 2022 comprised $6 million of corporate bonds. Allowance for fixed income securities as of March 31, 2021 comprised $1 million of ABS that were classified as held for sale.


Gross unrealized losses and fair value by type and length of time held in a continuous unrealized loss position
($ in millions)	Less than 12 months					12 months or more					Total unrealized losses
	Number of issues	Fair value		Unrealized losses		Number of issues	Fair value		Unrealized losses
March 31, 2022
Fixed income securities
U.S. government and agencies	140	$	5,954	$	(119)	18	$	247	$	(12)	$	(131)
Municipal	2,523	3,145		(155)		49	68		(6)		(161)
Corporate	2,177	18,250		(988)		281	1,170		(130)		(1,118)
Foreign government	87	922		(29)		34	116		(11)		(40)
ABS	175	1,917		(21)		56	11		—		(21)
Total fixed income securities	5,102	$	30,188	$	(1,312)	438	$	1,612	$	(159)	$	(1,471)
Investment grade fixed income securities	4,498	$	25,027	$	(1,014)	421	$	1,554	$	(148)	$	(1,162)
Below investment grade fixed income securities	604	5,161		(298)		17	58		(11)		(309)
Total fixed income securities	5,102	$	30,188	$	(1,312)	438	$	1,612	$	(159)	$	(1,471)

December 31, 2021
Fixed income securities
U.S. government and agencies	112	$	5,451	$	(24)	4	$	72	$	(2)	$	(26)
Municipal	767	1,213		(15)		2	14		(1)		(16)
Corporate	1,197	9,725		(176)		22	130		(16)		(192)
Foreign government	51	415		(6)		4	3		—		(6)
ABS	80	500		(2)		53	8		—		(2)
Total fixed income securities	2,207	$	17,304	$	(223)	85	$	227	$	(19)	$	(242)
Investment grade fixed income securities	1,993	$	15,391	$	(188)	71	$	183	$	(8)	$	(196)
Below investment grade fixed income securities	214	1,913		(35)		14	44		(11)		(46)
Total fixed income securities	2,207	$	17,304	$	(223)	85	$	227	$	(19)	$	(242)


Gross unrealized losses by unrealized loss position and credit quality as of March 31, 2022
($ in millions)	Investment grade		Below investment grade		Total
Fixed income securities with unrealized loss position less than 20% of amortized cost, net (1) (2)	$	(1,156)	$	(292)	$	(1,448)
Fixed income securities with unrealized loss position greater than or equal to 20% of amortized cost, net (3) (4)	(6)		(17)		(23)
Total unrealized losses	$	(1,162)	$	(309)	$	(1,471)

(1)Below investment grade fixed income securities include $286 million that have been in an unrealized loss position for less than twelve months.

(2)Related to securities with an unrealized loss position less than 20% of amortized cost, net, the degree of which suggests that these securities do not pose a high risk of having credit losses.

(3)No below investment grade fixed income securities have been in an unrealized loss position for a period of twelve or more consecutive months.

(4)Evaluated based on factors such as discounted cash flows and the financial condition and near-term and long-term prospects of the issue or issuer and were determined to have adequate resources to fulfill contractual obligations.

Investment grade is defined as a security having a rating of Aaa, Aa, A or Baa from Moody’s, a rating of AAA, AA, A or BBB from S&P Global Ratings (“S&P”), a comparable rating from another nationally recognized rating agency, or a comparable internal rating if an externally provided rating is not available. Market prices for certain securities may have credit spreads which imply higher or lower credit quality than the current third-party rating. Unrealized losses on investment grade securities are principally related to an increase in market yields which may include increased risk-free interest rates or wider credit spreads since the time of initial purchase. The unrealized losses are expected to reverse as the securities approach maturity.

ABS in an unrealized loss position were evaluated based on actual and projected collateral losses relative to the securities’ positions in the respective securitization trusts, security specific expectations of cash flows, and credit ratings. This evaluation also takes into consideration credit enhancement, measured in terms of (i) subordination from other classes of securities in the trust that are contractually obligated to absorb losses before the class of security the Company owns, and (ii) the expected impact of other structural features embedded in the securitization trust beneficial to the class of securities the Company owns, such as overcollateralization and excess spread. Municipal bonds in an unrealized loss position were evaluated based on the underlying credit quality of the primary obligor, obligation type and quality of the underlying assets.

As of March 31, 2022, the Company has not made the decision to sell and it is not more likely than not the Company will be required to sell fixed income securities with unrealized losses before recovery of the amortized cost basis.

Loans The Company establishes a credit loss allowance for mortgage loans and bank loans when they are originated or purchased, and for unfunded commitments unless they are unconditionally cancellable by the Company. The Company uses a probability of default and loss given default model for mortgage loans and bank loans to estimate current expected credit losses that considers all relevant

information available including past events, current conditions, and reasonable and supportable forecasts over the life of an asset. The Company also considers such factors as historical losses, expected prepayments and various economic factors. For mortgage loans the Company considers origination vintage year and property level information such as debt service coverage, property type, property location and collateral value. For bank loans the Company considers the credit rating of the borrower, credit spreads and type of loan. After the reasonable and supportable forecast period, the Company’s model reverts to historical loss trends.

Loans are evaluated on a pooled basis when they share similar risk characteristics. The Company monitors loans through a quarterly credit monitoring process to determine when they no longer share similar risk characteristics and are to be evaluated individually when estimating credit losses.

Loans are written off against their corresponding allowances when there is no reasonable expectation of recovery. If a loan recovers after a write-off, the estimate of expected credit losses includes the expected recovery.

Accrual of income is suspended for loans that are in default or when full and timely collection of principal and interest payments is not probable. Accrued income receivable is monitored for recoverability and when not expected to be collected is written off through net investment income. Cash receipts on loans on non-accrual status are generally recorded as a reduction of amortized cost.

Accrued interest is excluded from the amortized cost of loans and is reported within the accrued investment income line of the Condensed Consolidated Statements of Financial Position.


Accrued interest
($ in millions)	March 31,		December 31,
	2022		2021
Mortgage loans	$	3	$	2
Bank Loans	7		4

Mortgage loans When it is determined a mortgage loan shall be evaluated individually, the Company uses various methods to estimate credit losses on individual loans such as using collateral value less estimated costs to sell where applicable, including when foreclosure is probable or when repayment is expected to be provided substantially through the operation or sale of the collateral and the borrower is experiencing financial difficulty. When collateral value is used, the mortgage loans may not have a credit loss allowance when the fair value of the collateral exceeds the loan’s amortized cost. An alternative approach may be utilized to estimate credit losses using the present value of the loan’s expected future repayment cash flows discounted at the loan’s current effective interest rate.

Individual loan credit loss allowances are adjusted for subsequent changes in the fair value of the collateral less costs to sell, when applicable, or present value of the loan’s expected future repayment cash flows.

Debt service coverage ratio is considered a key credit quality indicator when mortgage loan credit loss allowances are estimated. Debt service coverage ratio represents the amount of estimated cash flow from the property available to the borrower to meet principal and interest payment obligations. Debt service coverage ratio estimates are updated annually or more frequently if conditions are warranted based on the Company’s credit monitoring process.


Mortgage loans amortized cost by debt service coverage ratio distribution and year of origination
	March 31, 2022														December 31, 2021
($ in millions)	2017 and prior		2018		2019		2020		2021		Current		Total		Total
Below 1.0	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
1.0 - 1.25	36		—		25		10		—		—		71		46
1.26 - 1.50	18		—		105		—		12		7		142		160
Above 1.50	103		106		140		67		203		30		649		621
Amortized cost before allowance	$	157	$	106	$	270	$	77	$	215	$	37	$	862	$	827
Allowance													(7)		(6)
Amortized cost, net													$	855	$	821

Mortgage loans with a debt service coverage ratio below 1.0 that are not considered impaired primarily relate to situations where the borrower has the financial capacity to fund the revenue shortfalls from the properties for the foreseeable term, the decrease in cash flows from the properties is considered

temporary, or there are other risk mitigating factors such as additional collateral, escrow balances or borrower guarantees. Payments on all mortgage loans were current as of March 31, 2022 and December 31, 2021.


Rollforward of credit loss allowance for mortgage loans
	Three months ended March 31,
($ in millions)		2022		2021
Beginning balance		$	(6)	$	(67)

Net (increases) decreases related to credit losses		(1)		22
Write-offs		—		—

Ending balance (1)		$	(7)	$	(45)

(1)Includes $31 million of credit loss allowance for mortgage loans that were classified as held for sale as of March 31, 2021.

Bank loans When it is determined a bank loan shall be evaluated individually, the Company uses various methods to estimate credit losses on individual loans such as the present value of the loan’s expected future repayment cash flows discounted at the loan’s current effective interest rate.

Credit ratings of the borrower are considered a key credit quality indicator when bank loan credit loss allowances are estimated. The ratings are updated quarterly and are either received from a nationally recognized rating agency or a comparable internal rating is derived if an externally provided rating is not available. The year of origination is determined to be the year in which the asset is acquired.


Bank loans amortized cost by credit rating and year of origination
	March 31, 2022														December 31, 2021
($ in millions)	2017 and prior		2018		2019		2020		2021		Current		Total		Total
BBB	$	—	$	1	$	13	$	8	$	53	$	—	$	75	$	86
BB	20		5		15		16		455		13		524		656
B	11		35		30		57		690		40		863		768
CCC and below	24		17		44		16		23		2		126		125




Amortized cost before allowance	$	55	$	58	$	102	$	97	$	1,221	$	55	$	1,588	$	1,635
Allowance													(68)		(61)
Amortized cost, net													$	1,520	$	1,574


Rollforward of credit loss allowance for bank loans
($ in millions)	Three months ended March 31,
		2022		2021
Beginning balance		$	(61)	$	(67)

Net increases related to credit losses		(10)		(2)
Reduction of allowance related to sales		3		9
Write-offs		—		—

Ending balance (1)		$	(68)	$	(60)

(1)Includes $11 million of credit loss allowance for bank loans that were classified as held for sale as of March 31, 2021.