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Fair Value of Assets and Liabilities | 9 Months Ended
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Sep. 30, 2020
Fair Value Disclosures [Abstract] |
Fair Value of Assets and Liabilities |
Note 6 | Fair Value of Assets and Liabilities
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The hierarchy for inputs used in determining fair value maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that observable inputs be used when available. Assets and liabilities recorded on the Condensed Consolidated Statements of Financial Position at fair value are categorized in the fair value hierarchy based on the observability of inputs to the valuation techniques as follows: Level 1: Assets and liabilities whose values are based on unadjusted quoted prices for identical assets or liabilities in an active market that the Company can access. Level 2: Assets and liabilities whose values are based on the following:
(a) | Quoted prices for similar assets or liabilities in active markets;
(b) | Quoted prices for identical or similar assets or liabilities in markets that are not active; or
(c) | Valuation models whose inputs are observable, directly or indirectly, for substantially the full term of the asset or liability.
Level 3: Assets and liabilities whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. Unobservable inputs reflect the Company’s estimates of the assumptions that market participants would use in valuing the assets and liabilities. The availability of observable inputs varies by instrument. In situations where fair value is based on internally developed pricing models or inputs that are unobservable in the market, the determination of fair value requires more judgment. The degree of judgment exercised by the Company in determining fair value is typically greatest for instruments categorized in Level 3. In many instances, valuation inputs used to measure fair value fall into different levels of the fair value hierarchy. The category level in the fair value hierarchy is determined based on the lowest level input that is significant to the fair value measurement in its entirety. The Company uses prices and inputs that are current as of the measurement date, including during periods of market disruption. In periods of market disruption, the ability to observe prices and inputs may be reduced for many instruments. The Company is responsible for the determination of fair value and the supporting assumptions and methodologies. The Company gains assurance that assets and liabilities are appropriately valued through the execution of various processes and controls designed to ensure the overall reasonableness and consistent application of valuation methodologies, including inputs and assumptions, and compliance with accounting standards. For fair values received from third parties or internally estimated, the Company’s processes and controls are designed to ensure that the valuation methodologies are appropriate and consistently applied, the inputs and assumptions are reasonable and consistent with the objective of determining fair value, and the fair values are accurately recorded. For example, on a continuing basis, the Company assesses the reasonableness of individual fair values that have stale security prices or that exceed certain thresholds as compared to previous fair values received from valuation service providers or brokers or derived from internal models. The Company performs procedures to understand and assess the methodologies, processes and controls of valuation service providers. In addition, the Company may validate the reasonableness of fair values by comparing information obtained from valuation service providers or brokers to other third-party valuation sources for selected securities. The Company performs ongoing price validation procedures such as back-testing of actual sales, which corroborate the various inputs used in internal models to market observable data. When fair value determinations are expected to be more variable, the Company validates them through reviews by members of management who have relevant expertise and who are independent of those charged with executing investment transactions. The Company has two types of situations where investments are classified as Level 3 in the fair value hierarchy:
(1) | Specific inputs significant to the fair value estimation models are not market observable. This primarily occurs in the Company’s use of broker quotes to value certain securities where the inputs have not been corroborated to be market observable, and the use of valuation models that use significant non-market observable inputs.
(2) | Quotes continue to be received from independent third-party valuation service providers and all significant inputs are market observable; however, there has been a significant decrease in the volume and level of activity for the asset when compared to normal market activity such that the degree of market observability has declined to a point where categorization as a Level 3 measurement is considered appropriate. The indicators considered in determining whether a significant decrease in the volume and level of activity for a specific asset has occurred include the level of new issuances in the primary market, trading volume in the secondary market, the level of credit spreads over historical levels, applicable bid-ask spreads, and price consensus among market participants and other pricing sources.
Certain assets are not carried at fair value on a recurring basis, including mortgage loans, bank loans, agent loans and policy loans and are only included in the fair value hierarchy disclosure when the individual investment is reported at fair value. In determining fair value, the Company principally uses the market approach which generally utilizes market transaction data for the same or similar instruments. To a lesser extent, the Company uses the income approach which involves determining fair values from discounted cash flow methodologies. For the majority of Level 2 and Level 3 valuations, a combination of the market and income approaches is used. Summary of significant inputs and valuation techniques for Level 2 and Level 3 assets and liabilities measured at fair value on a recurring basis Level 2 measurements
• | Fixed income securities:
U.S. government and agencies, municipal, corporate - public and foreign government: The primary inputs to the valuation include quoted prices for identical or similar assets in markets that are not active, contractual cash flows, benchmark yields and credit spreads. Corporate - privately placed: Privately placed are valued using a discounted cash flow model that is widely accepted in the financial services industry and uses market observable inputs and inputs derived principally from, or corroborated by, observable market data. The primary inputs to the discounted cash flow model include an interest rate yield curve, as well as published credit spreads for similar assets in markets that are not active that incorporate the credit quality and industry sector of the issuer. Corporate - privately placed also includes redeemable preferred stock that are valued using quoted prices for identical or similar assets in markets that are not active, contractual cash flows, benchmark yields, underlying stock prices and credit spreads. ABS and MBS: The primary inputs to the valuation include quoted prices for identical or similar assets in markets that are not active, contractual cash flows, benchmark yields, collateral performance and credit spreads. Certain ABS are valued based on non-binding broker quotes whose inputs have been corroborated to be market observable. Residential MBS include prepayment speeds as a primary input for valuation.
• | Equity securities: The primary inputs to the valuation include quoted prices or quoted net asset values for identical or similar assets in markets that are not active.
• | Short-term: The primary inputs to the valuation include quoted prices for identical or similar assets in markets that are not active, contractual cash flows, benchmark yields and credit spreads.
• | Other investments: Free-standing exchange listed derivatives that are not actively traded are valued based on quoted prices for identical instruments in markets that are not active.
Over-the-counter (“OTC”) derivatives, including interest rate swaps, foreign currency swaps, total return swaps, foreign exchange forward contracts, certain options and certain credit default swaps, are valued using models that rely on inputs such as interest rate yield curves, implied volatilities, index price levels, currency rates, and credit spreads that are observable for substantially the full term of the contract. The valuation techniques underlying the models are widely accepted in the financial services industry and do not involve significant judgment. Level 3 measurements
• | Fixed income securities:
Municipal: Comprise municipal bonds that are not rated by third-party credit rating agencies. The primary inputs to the valuation of these municipal bonds include quoted prices for identical or similar assets in markets that exhibit less liquidity relative to those markets supporting Level 2 fair value measurements, contractual cash flows, benchmark yields and credit spreads. Also included are municipal bonds valued based on non-binding broker quotes where the inputs have not been corroborated to be market observable and municipal bonds in default valued based on the present value of expected cash flows. Corporate - public and privately placed, ABS and MBS: Primarily valued based on non-binding broker quotes where the inputs have not been corroborated to be market observable. Other inputs for corporate fixed income securities include an interest rate yield curve, as well as published credit spreads for similar assets that incorporate the credit quality and industry sector of the issuer.
• | Equity securities: The primary inputs to the valuation include quoted prices or quoted net asset values for identical or similar assets in markets that exhibit less liquidity relative to those markets supporting Level 2 fair value measurements.
• | Short-term: For certain short-term investments, amortized cost is used as the best estimate of fair value.
• | Other investments: Certain OTC derivatives, such as interest rate caps, certain credit default swaps and certain options (including swaptions), are valued using models that are widely accepted in the financial services industry. These are categorized as Level 3 as a result of the significance of non-market observable inputs such as volatility. Other primary inputs include interest rate yield curves and credit spreads.
• | Contractholder funds: Derivatives embedded in certain life and annuity contracts are valued internally using models widely accepted in the financial services industry that determine a single best estimate of fair value for the embedded derivatives within a block of contractholder liabilities. The models primarily use stochastically determined cash flows based on the contractual elements of embedded derivatives, projected option cost and applicable market data, such as interest rate yield curves and equity index volatility assumptions. These are categorized as Level 3 as a result of the significance of non-market observable inputs.
Investments excluded from the fair value hierarchy Limited partnerships carried at fair value, which do not have readily determinable fair values, use NAV provided by the investees and are excluded from the fair value hierarchy. These investments are generally not redeemable by the investees and generally cannot be sold without approval of the general partner. The Company receives distributions of income and proceeds from the liquidation of the underlying assets of the investees, which usually takes place in years 4-9 of the typical contractual life of 10-12 years. As of September 30, 2020, the Company has commitments to invest $388 million in these limited partnership interests.
Assets and liabilities measured at fair value
|  | September 30, 2020
($ 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 |  | Total
Assets |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Fixed income securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. government and agencies |  | $ | 2,480 |  |  | $ | 370 |  |  | $ | — |  |  |  |  |  | $ | 2,850 |
Municipal |  | — |  |  | 9,640 |  |  | 69 |  |  |  |  |  | 9,709 |
Corporate - public |  | — |  |  | 37,118 |  |  | 136 |  |  |  |  |  | 37,254 |
Corporate - privately placed |  | — |  |  | 14,304 |  |  | 119 |  |  |  |  | 14,423 |
Foreign government |  | — |  |  | 1,017 |  |  | — |  |  |  |  |  | 1,017 |
ABS |  | — |  |  | 1,124 |  |  | 82 |  |  |  |  | 1,206 |
MBS |  | — |  |  | 61 |  |  | 31 |  |  |  |  | 92 |
Total fixed income securities |  | 2,480 |  |  | 63,634 |  |  | 437 |  |  |  |  |  | 66,551 |
Equity securities |  | 3,647 |  |  | 360 |  |  | 388 |  |  |  |  |  | 4,395 |
Short-term investments |  | 4,207 |  |  | 322 |  |  | 30 |  |  |  |  |  | 4,559 |
Other investments: Free-standing derivatives |  | — |  |  | 157 |  |  | — |  |  | $ | (25 | ) |  | 132 |
Separate account assets |  | 3,064 |  |  | — |  |  | — |  |  |  |  |  | 3,064 |
Other assets |  | 1 |  |  | — |  |  | — |  |  |  |  |  | 1 |
Total recurring basis assets |  | 13,399 |  |  | 64,473 |  |  | 855 |  |  | (25 | ) |  | 78,702 |
Total assets at fair value |  | $ | 13,399 |  |  | $ | 64,473 |  |  | $ | 855 |  |  | $ | (25 | ) |  | $ | 78,702 |
% of total assets at fair value |  | 17.0 | % |  | 81.9 | % |  | 1.1 | % |  | — | % |  | 100.0 | %
Investments reported at NAV |  |  |  |  |  |  |  |  |  | 1,768 |
Total |  |  |  |  |  |  |  |  |  | $ | 80,470 |
Liabilities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Contractholder funds: Derivatives embedded in life and annuity contracts |  | $ | — |  |  | $ | — |  |  | $ | (497 | ) |  |  |  |  | $ | (497 | )
Other liabilities: Free-standing derivatives |  | — |  |  | (72 | ) |  | — |  |  | $ | 10 |  |  | (62 | )
Total recurring basis liabilities |  | $ | — |  |  | $ | (72 | ) |  | $ | (497 | ) |  | $ | 10 |  |  | $ | (559 | )
% of total liabilities at fair value |  | — | % |  | 12.9 | % |  | 88.9 | % |  | (1.8 | )% |  | 100.0 | %
Assets and liabilities measured at fair value
|  | December 31, 2019
($ 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 |  | Total
Assets |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Fixed income securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. government and agencies |  | $ | 4,689 |  |  | $ | 397 |  |  | $ | — |  |  |  |  |  | $ | 5,086 |
Municipal |  | — |  |  | 8,558 |  |  | 62 |  |  |  |  |  | 8,620 |
Corporate - public |  | — |  |  | 30,819 |  |  | 61 |  |  |  |  |  | 30,880 |
Corporate - privately placed |  | — |  |  | 12,084 |  |  | 114 |  |  |  |  | 12,198 |
Foreign government |  | — |  |  | 979 |  |  | — |  |  |  |  |  | 979 |
ABS |  | — |  |  | 797 |  |  | 65 |  |  |  |  | 862 |
MBS |  | — |  |  | 379 |  |  | 40 |  |  |  |  | 419 |
Total fixed income securities |  | 4,689 |  |  | 54,013 |  |  | 342 |  |  |  |  |  | 59,044 |
Equity securities |  | 7,407 |  |  | 384 |  |  | 371 |  |  |  |  |  | 8,162 |
Short-term investments |  | 1,940 |  |  | 2,291 |  |  | 25 |  |  |  |  |  | 4,256 |
Other investments: Free-standing derivatives |  | — |  |  | 180 |  |  | — |  |  | $ | (40 | ) |  | 140 |
Separate account assets |  | 3,044 |  |  | — |  |  | — |  |  |  |  |  | 3,044 |
Other assets |  | 1 |  |  | — |  |  | — |  |  |  |  |  | 1 |
Total recurring basis assets |  | 17,081 |  |  | 56,868 |  |  | 738 |  |  | (40 | ) |  | 74,647 |
Total assets at fair value |  | $ | 17,081 |  |  | $ | 56,868 |  |  | $ | 738 |  |  | $ | (40 | ) |  | $ | 74,647 |
% of total assets at fair value |  | 22.9 | % |  | 76.2 | % |  | 1.0 | % |  | (0.1 | )% |  | 100.0 | %
Investments reported at NAV |  |  |  |  |  |  |  |  |  | 1,814 |
Total |  |  |  |  |  |  |  |  |  | $ | 76,461 |
Liabilities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Contractholder funds: Derivatives embedded in life and annuity contracts |  | $ | — |  |  | $ | — |  |  | $ | (462 | ) |  |  |  |  | $ | (462 | )
Other liabilities: Free-standing derivatives |  | — |  |  | (84 | ) |  | — |  |  | $ | 12 |  |  | (72 | )
Total recurring basis liabilities |  | $ | — |  |  | $ | (84 | ) |  | $ | (462 | ) |  | $ | 12 |  |  | $ | (534 | )
% of total liabilities at fair value |  | — | % |  | 15.7 | % |  | 86.5 | % |  | (2.2 | )% |  | 100.0 | %
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, 2020 |  |  |  |  |  |  |  |  |  |  |
Derivatives embedded in life and annuity contracts – Equity-indexed and forward starting options |  | $ | (459 | ) |  | Stochastic cash flow model |  | Projected option cost |  | 1.0 - 4.2% |  | 2.76%
December 31, 2019 |  |  |  |  |  |  |  |  |  |  |
Derivatives embedded in life and annuity contracts – Equity-indexed and forward starting options |  | $ | (430 | ) |  | Stochastic cash flow model |  | Projected option cost |  | 1.0 - 4.2% |  | 2.67%
The embedded derivatives are equity-indexed and forward starting options in certain life and annuity products that provide customers with interest crediting rates based on the performance of the S&P 500. If the projected option cost increased (decreased), it would result in a higher (lower) liability fair value. As of September 30, 2020 and December 31, 2019, Level 3 fair value measurements of fixed income securities total $437 million and $342 million, respectively, and include $126 million and $50 million, respectively, of securities valued based on non-binding broker quotes where the inputs have not been corroborated to be market observable and $34 million and $36 million, respectively, of municipal fixed income securities that are not rated by third-party credit rating agencies. As the Company does not develop the Level 3 fair value unobservable inputs for these fixed income securities, they are not included in the table above. However, an increase (decrease) in credit spreads for fixed income securities valued based on non-binding broker quotes would result in a lower (higher) fair value, and an increase (decrease) in the credit rating of municipal bonds that are not rated by third-party credit rating agencies would result in a higher (lower) fair value.
Rollforward of Level 3 assets and liabilities held at fair value during the three month period ended September 30, 2020
|  | Balance as of June 30, 2020 |  | Total gains (losses) included in: |  | Transfers |  |  |  |  |  |  |  |  |  | Balance as of September 30, 2020
($ in millions) |  |  | Net income |  | OCI |  | Into Level 3 |  | Out of Level 3 |  | Purchases |  | Sales |  | Issues |  | Settlements |
Assets |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Fixed income securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Municipal |  | $ | 83 |  |  | $ | — |  |  | $ | — |  |  | $ | 20 |  |  | $ | (32 | ) |  | $ | — |  |  | $ | (2 | ) |  | $ | — |  |  | $ | — |  |  | $ | 69 |
Corporate - public |  | 67 |  |  | — |  |  | 9 |  |  | — |  |  | — |  |  | 70 |  |  | (10 | ) |  | — |  |  | — |  |  | 136 |
Corporate - privately placed |  | 126 |  |  | — |  |  | — |  |  | — |  |  | (39 | ) |  | 35 |  |  | (2 | ) |  | — |  |  | (1 | ) |  | 119 |
ABS |  | 50 |  |  | — |  |  | 1 |  |  | — |  |  | (3 | ) |  | 58 |  |  | (24 | ) |  | — |  |  | — |  |  | 82 |
MBS |  | 45 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (14 | ) |  | 31 |
Total fixed income securities |  | 371 |  |  | — |  |  | 10 |  |  | 20 |  |  | (74 | ) |  | 163 |  |  | (38 | ) |  | — |  |  | (15 | ) |  | 437 |
Equity securities |  | 393 |  |  | 2 |  |  | — |  |  | — |  |  | (1 | ) |  | 3 |  |  | (9 | ) |  | — |  |  | — |  |  | 388 |
Short-term investments |  | 10 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 20 |  |  | — |  |  | — |  |  | — |  |  | 30 |
Total recurring Level 3 assets |  | 774 |  |  | 2 |  |  | 10 |  |  | 20 |  |  | (75 | ) |  | 186 |  |  | (47 | ) |  | — |  |  | (15 | ) |  | 855 |
Liabilities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Contractholder funds: Derivatives embedded in life and annuity contracts |  | (488 | ) |  | (6 | ) |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (10 | ) |  | 7 |  |  | (497 | )
Total recurring Level 3 liabilities |  | $ | (488 | ) |  | $ | (6 | ) |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | (10 | ) |  | $ | 7 |  |  | $ | (497 | )
Total Level 3 gains (losses) included in net income for the three months ended September 30, 2020
|  | Net investment income |  | Realized capital gains (losses) |  | Life contract benefits |  | Interest credited to contractholder funds |  | Total
Components of net income |  | $ | (2 | ) |  | $ | 4 |  |  | $ | 8 |  |  | $ | (14 | ) |  | $ | (4 | )
Rollforward of Level 3 assets and liabilities held at fair value during the nine month period ended September 30, 2020
|  | Balance as of December 31, 2019 |  | Total gains (losses) included in: |  | Transfers |  |  |  |  |  |  |  |  |  | Balance as of September 30, 2020
($ in millions) |  |  | Net income |  | OCI |  | Into Level 3 |  | Out of Level 3 |  | Purchases |  | Sales |  | Issues |  | Settlements |
Assets |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Fixed income securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Municipal |  | $ | 62 |  |  | $ | 1 |  |  | $ | 2 |  |  | $ | 20 |  |  | $ | (10 | ) |  | $ | — |  |  | $ | (4 | ) |  | $ | — |  |  | $ | (2 | ) |  | $ | 69 |
Corporate - public |  | 61 |  |  | (2 | ) |  | 1 |  |  | 1 |  |  | — |  |  | 76 |  |  | — |  |  | — |  |  | (1 | ) |  | 136 |
Corporate - privately placed |  | 114 |  |  | 2 |  |  | (6 | ) |  | 11 |  |  | (32 | ) |  | 37 |  |  | (6 | ) |  | — |  |  | (1 | ) |  | 119 |
ABS |  | 65 |  |  | (1 | ) |  | (1 | ) |  | 51 |  |  | (49 | ) |  | 72 |  |  | (28 | ) |  | — |  |  | (27 | ) |  | 82 |
MBS |  | 40 |  |  | 1 |  |  | (1 | ) |  | — |  |  | — |  |  | 10 |  |  | (4 | ) |  | — |  |  | (15 | ) |  | 31 |
Total fixed income securities |  | 342 |  |  | 1 |  |  | (5 | ) |  | 83 |  |  | (91 | ) |  | 195 |  |  | (42 | ) |  | — |  |  | (46 | ) |  | 437 |
Equity securities |  | 371 |  |  | (15 | ) |  | — |  |  | — |  |  | — |  |  | 42 |  |  | (10 | ) |  | — |  |  | — |  |  | 388 |
Short-term investments |  | 25 |  |  | — |  |  | — |  |  | — |  |  | (25 | ) |  | 30 |  |  | — |  |  | — |  |  | — |  |  | 30 |
Total recurring Level 3 assets |  | 738 |  |  | (14 | ) |  | (5 | ) |  | 83 |  |  | (116 | ) |  | 267 |  |  | (52 | ) |  | — |  |  | (46 | ) |  | 855 |
Liabilities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Contractholder funds: Derivatives embedded in life and annuity contracts |  | (462 | ) |  | (27 | ) |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (25 | ) |  | 17 |  |  | (497 | )
Total recurring Level 3 liabilities |  | $ | (462 | ) |  | $ | (27 | ) |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | (25 | ) |  | $ | 17 |  |  | $ | (497 | )
Total Level 3 gains (losses) included in net income for the nine months ended September 30, 2020
|  | Net investment income |  | Realized capital gains (losses) |  | Life contract benefits |  | Interest credited to contractholder funds |  | Total
Components of net income |  | $ | (24 | ) |  | $ | 10 |  |  | $ | (6 | ) |  | $ | (21 | ) |  | $ | (41 | )
Rollforward of Level 3 assets and liabilities held at fair value during the three month period ended September 30, 2019
|  | Balance as of June 30, 2019 |  | Total gains (losses) included in: |  | Transfers |  |  |  |  |  |  |  |  |  | Balance as of September 30, 2019
($ in millions) |  |  | Net income |  | OCI |  | Into Level 3 |  | Out of Level 3 |  | Purchases |  | Sales |  | Issues |  | Settlements |
Assets |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Fixed income securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Municipal |  | $ | 63 |  |  | $ | — |  |  | $ | 2 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | (1 | ) |  | $ | — |  |  | $ | — |  |  | $ | 64 |
Corporate - public |  | 46 |  |  | — |  |  | 1 |  |  | — |  |  | (7 | ) |  | 66 |  |  | (2 | ) |  | — |  |  | — |  |  | 104 |
Corporate - privately placed |  | 89 |  |  | — |  |  | (1 | ) |  | — |  |  | — |  |  | 1 |  |  | — |  |  | — |  |  | (2 | ) |  | 87 |
ABS |  | 53 |  |  | 1 |  |  | — |  |  | 50 |  |  | (35 | ) |  | 11 |  |  | — |  |  | — |  |  | (2 | ) |  | 78 |
MBS |  | 35 |  |  | — |  |  | (1 | ) |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 34 |
Total fixed income securities |  | 286 |  |  | 1 |  |  | 1 |  |  | 50 |  |  | (42 | ) |  | 78 |  |  | (3 | ) |  | — |  |  | (4 | ) |  | 367 |
Equity securities |  | 319 |  |  | 11 |  |  | — |  |  | — |  |  | — |  |  | 55 |  |  | — |  |  | — |  |  | — |  |  | 385 |
Short-term investments |  | 5 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 10 |  |  | — |  |  | — |  |  | — |  |  | 15 |
Free-standing derivatives, net |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Total recurring Level 3 assets |  | 610 |  |  | 12 |  |  | 1 |  |  | 50 |  |  | (42 | ) |  | 143 |  |  | (3 | ) |  | — |  |  | (4 | ) |  | 767 |
Liabilities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Contractholder funds: Derivatives embedded in life and annuity contracts |  | (437 | ) |  | (14 | ) |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (9 | ) |  | 6 |  |  | (454 | )
Total recurring Level 3 liabilities |  | $ | (437 | ) |  | $ | (14 | ) |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | (9 | ) |  | $ | 6 |  |  | $ | (454 | )
Total Level 3 gains (losses) included in net income for the three months ended September 30, 2019
|  | Net investment income |  | Realized capital gains (losses) |  | Life contract benefits |  | Interest credited to contractholder funds |  | Total
Components of net income |  | $ | 5 |  |  | $ | 7 |  |  | $ | (1 | ) |  | $ | (13 | ) |  | $ | (2 | )
Rollforward of Level 3 assets and liabilities held at fair value during the nine months period ended September 30, 2019
|  | Balance as of December 31, 2018 |  | Total gains (losses) included in: |  | Transfers |  |  |  |  |  |  |  |  |  | Balance as of September 30, 2019
($ in millions) |  |  | Net income |  | OCI |  | Into Level 3 |  | Out of Level 3 |  | Purchases |  | Sales |  | Issues |  | Settlements |
Assets |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Fixed income securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Municipal |  | $ | 70 |  |  | $ | — |  |  | $ | 4 |  |  | $ | — |  |  | $ | (5 | ) |  | $ | — |  |  | $ | (4 | ) |  | $ | — |  |  | $ | (1 | ) |  | $ | 64 |
Corporate - public |  | 70 |  |  | — |  |  | 3 |  |  | — |  |  | (47 | ) |  | 86 |  |  | (7 | ) |  | — |  |  | (1 | ) |  | 104 |
Corporate - privately placed |  | 90 |  |  | (1 | ) |  | 1 |  |  | 15 |  |  | (2 | ) |  | 2 |  |  | (13 | ) |  | — |  |  | (5 | ) |  | 87 |
ABS |  | 69 |  |  | 1 |  |  | — |  |  | 51 |  |  | (150 | ) |  | 135 |  |  | (22 | ) |  | — |  |  | (6 | ) |  | 78 |
MBS |  | 26 |  |  | — |  |  | (1 | ) |  | 4 |  |  | — |  |  | 6 |  |  | — |  |  | — |  |  | (1 | ) |  | 34 |
Total fixed income securities |  | 325 |  |  | — |  |  | 7 |  |  | 70 |  |  | (204 | ) |  | 229 |  |  | (46 | ) |  | — |  |  | (14 | ) |  | 367 |
Equity securities |  | 341 |  |  | 49 |  |  | — |  |  | — |  |  | — |  |  | 77 |  |  | (82 | ) |  | — |  |  | — |  |  | 385 |
Short-term investments |  | 30 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 25 |  |  | (40 | ) |  | — |  |  | — |  |  | 15 |
Free-standing derivatives, net |  | 1 |  |  | (1 | ) |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Total recurring Level 3 assets |  | 697 |  |  | 48 |  |  | 7 |  |  | 70 |  |  | (204 | ) |  | 331 |  |  | (168 | ) |  | — |  |  | (14 | ) |  | 767 |
Liabilities |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Contractholder funds: Derivatives embedded in life and annuity contracts |  | (224 | ) |  | (54 | ) |  | — |  |  | (175 | ) |  | — |  |  | — |  |  | — |  |  | (9 | ) |  | 8 |  |  | (454 | )
Total recurring Level 3 liabilities |  | $ | (224 | ) |  | $ | (54 | ) |  | $ | — |  |  | $ | (175 | ) |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | (9 | ) |  | $ | 8 |  |  | $ | (454 | )
Total Level 3 gains (losses) included in net income for the nine months ended September 30, 2019
|  | Net investment income |  | Realized capital gains (losses) |  | Life contract benefits |  | Interest credited to contractholder funds |  | Total
Components of net income |  | $ | 10 |  |  | $ | 38 |  |  | $ | 2 |  |  | $ | (56 | ) |  | $ | (6 | )
Transfers into Level 3 during the three and nine months ended September 30, 2020 and 2019 included situations where a quote was not provided by the Company’s independent third-party valuation service provider and as a result the price was stale or had been replaced with a broker quote where the inputs had not been corroborated to be market observable resulting in the security being classified as Level 3. Transfers into Level 3 during 2019 also included derivatives embedded in equity-indexed universal life contracts due to refinements in the valuation modeling resulting in an increase in significance of non-market observable inputs. Transfers out of Level 3 during the three and nine months ended September 30, 2020 and 2019 included situations where a broker quote was used in the prior period and a quote became available from the Company’s independent third-party valuation service provider in the current period. A quote utilizing the new pricing source was not available as of the prior period, and any gains or losses related to the change in valuation source for individual securities were not significant.
Valuation changes included in net income and OCI for Level 3 assets and liabilities held as of September 30,
($ in millions) |  | Three months ended September 30, |  | Nine months ended September 30,
| 2020 |  | 2019 |  | 2020 |  | 2019
Assets |  |  |  |  |  |  |  |  |  |  |  |
Fixed income securities: |  |  |  |  |  |  |  |  |  |  |  |
Municipal |  | $ | — |  |  | $ | — |  |  | $ | 1 |  |  | $ | — |
Corporate |  | 1 |  |  | — |  |  | — |  |  | — |
Total fixed income securities |  | 1 |  |  | — |  |  | 1 |  |  | — |
Equity securities |  | $ | 2 |  |  | $ | 11 |  |  | $ | (16 | ) |  | $ | 25 |
Free-standing derivatives, net |  | — |  |  | — |  |  | — |  |  | (1 | )
Total recurring Level 3 assets |  | $ | 3 |  |  | $ | 11 |  |  | $ | (15 | ) |  | $ | 24 |
Liabilities |  |  |  |  |  |  |  |  |  |  |  |
Contractholder funds: Derivatives embedded in life and annuity contracts |  | $ | (6 | ) |  | $ | (14 | ) |  | $ | (27 | ) |  | $ | (54 | )
Total recurring Level 3 liabilities |  | (6 | ) |  | (14 | ) |  | (27 | ) |  | (54 | )
Total included in net income |  | $ | (3 | ) |  | $ | (3 | ) |  | $ | (42 | ) |  | $ | (30 | )
Components of net income |  |  |  |  |  |  |  |
Net investment income |  | $ | (1 | ) |  | $ | 5 |  |  | $ | (24 | ) |  | $ | 10 |
Realized capital gains (losses) |  | 4 |  |  | 6 |  |  | 9 |  |  | 14 |
Life contract benefits |  | 8 |  |  | (1 | ) |  | (6 | ) |  | 2 |
Interest credited to contractholder funds |  | (14 | ) |  | (13 | ) |  | (21 | ) |  | (56 | )
Total included in net income |  | $ | (3 | ) |  | $ | (3 | ) |  | $ | (42 | ) |  | $ | (30 | )
Assets |  |  |  |  |  |  |  |
Municipal |  | $ | — |  |  |  |  | $ | 2 |  |  |
Corporate - public |  | — |  |  |  |  | 1 |  |  |
Corporate - privately placed |  | 1 |  |  |  |  | (4 | ) |  |
ABS |  | 1 |  |  |  |  | (1 | ) |  |
Changes in unrealized net capital gains and losses reported in OCI (1) |  | $ | 2 |  |  |  |  | $ | (2 | ) |  |
(1) | Effective January 1, 2020, the Company adopted the fair value accounting standard that prospectively requires the disclosure of valuation changes reported in OCI.
Financial instruments not carried at fair value
($ in millions) |  |  |  | September 30, 2020 |  | December 31, 2019
Financial assets |  | Fair value level |  | Amortized cost, net |  | Fair value |  | Amortized cost, net |  | Fair value
Mortgage loans |  | Level 3 |  | $ | 4,655 |  |  | $ | 4,966 |  |  | $ | 4,817 |  |  | $ | 5,012 |
Bank loans |  | Level 3 |  | 1,040 |  |  | 1,053 |  |  | 1,204 |  |  | 1,185 |
Agent loans |  | Level 3 |  | 643 |  |  | 643 |  |  | 666 |  |  | 664 |
Financial liabilities |  | Fair value level |  | Carrying value (1) |  | Fair value |  | Carrying value (1) |  | Fair value
Contractholder funds on investment contracts |  | Level 3 |  | $ | 7,940 |  |  | $ | 9,213 |  |  | $ | 8,438 |  |  | $ | 9,158 |
Long-term debt |  | Level 2 |  | 6,635 |  |  | 8,094 |  |  | 6,631 |  |  | 7,738 |
Liability for collateral |  | Level 2 |  | 1,521 |  |  | 1,521 |  |  | 1,829 |  |  | 1,829 |
(1) Represents the amounts reported on the Condensed Consolidated Statements of Financial Position.

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- 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. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=117815213&loc=d3e19207-110258 + Details
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