XML 33 R23.htm IDEA: XBRL DOCUMENT
v3.21.2

Derivatives and Hedging Activities | 9 Months Ended
--- | ---
Sep. 30, 2021
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Derivatives and Hedging Activities | Derivative instruments enable the Company to manage its exposure to various market risks. The value of such instruments is derived from an underlying variable or multiple variables, including equity, foreign exchange and interest rate indices or prices. The Company primarily enters into derivative agreements for risk management purposes related to the Company’s products and operations. Certain of the Company’s freestanding derivative instruments are subject to master netting arrangements. The Company’s policy on the recognition of derivatives on the Consolidated Balance Sheets is to not offset fair value amounts recognized for derivatives and collateral arrangements executed with the same counterparty under the same master netting arrangement. See Note 13 for additional information regarding the estimated fair value of the Company’s freestanding derivatives after considering the effect of master netting arrangements and collateral. Generally, the Company uses derivatives as economic hedges and accounting hedges. The following table presents the notional value and gross fair value of derivative instruments, including embedded derivatives:
| September 30, 2021 |  | December 31, 2020
Notional | Gross Fair Value | Notional | Gross Fair Value
Assets (1) | Liabilities (2)(3) | Assets (1) | Liabilities (2)(3)
(in millions)
Derivatives designated as hedging instruments |  |  |  |  |  |  |
Foreign exchange contracts – net investment hedges | $ | 58 |  | $ | 1 |  | $ | — |  |  | $ | 32 |  | $ | — |  | $ | 2 |
Total qualifying hedges | 58 |  | 1 |  | — |  |  | 32 |  | — |  | 2 |
Derivatives not designated as hedging instruments |  |  |  |  |  |  |
Interest rate contracts | 79,350 |  | 1,185 |  | 476 |  |  | 77,951 |  | 1,755 |  | 734 |
Equity contracts | 59,856 |  | 4,465 |  | 3,619 |  |  | 57,254 |  | 4,090 |  | 3,571 |
Credit contracts | 1,758 |  | 18 |  | — |  |  | 2,297 |  | 2 |  | 1 |
Foreign exchange contracts | 3,234 |  | 18 |  | 19 |  |  | 3,423 |  | 23 |  | 4 |
Total non-designated hedges | 144,198 |  | 5,686 |  | 4,114 |  |  | 140,925 |  | 5,870 |  | 4,310 |
Embedded derivatives |  |  |  |  |  |  |
GMWB and GMAB (4) | N/A | — |  | 1,436 |  |  | N/A | — |  | 2,316 |
IUL | N/A | — |  | 917 |  |  | N/A | — |  | 935 |
Fixed deferred indexed annuities and deposit receivables | N/A | 56 |  | 58 |  |  | N/A | — |  | 52 |
Structured variable annuities | N/A | — |  | 217 |  |  | N/A | — |  | 70 |
SMC | N/A | — |  | 5 |  |  | N/A | — |  | 8 |
Total embedded derivatives | N/A | 56 |  | 2,633 |  |  | N/A | — |  | 3,381 |
Total derivatives | $ | 144,256 |  | $ | 5,743 |  | $ | 6,747 |  |  | $ | 140,957 |  | $ | 5,870 |  | $ | 7,693 |
N/A Not applicable. (1) The fair value of freestanding derivative assets is included in Other assets and the fair value of ceded embedded derivative assets related to deposit receivables is included in Receivables on the Consolidated Balance Sheets. (2) The fair value of freestanding derivative liabilities is included in Other liabilities on the Consolidated Balance Sheets. The fair value of GMWB and GMAB, IUL, fixed deferred indexed annuity and structured variable annuity embedded derivatives is included in Policyholder account balances, future policy benefits and claims on the Consolidated Balance Sheets. The fair value of the SMC embedded derivative liability is included in Customer deposits on the Consolidated Balance Sheets. (3) The fair value of the Company’s derivative liabilities after considering the effects of master netting arrangements, cash collateral held by the same counterparty and the fair value of net embedded derivatives was $2.9 billion and $3.7 billion as of September 30, 2021 and December 31, 2020, respectively. See Note 13 for additional information related to master netting arrangements and cash collateral. (4) The fair value of the GMWB and GMAB embedded derivatives as of September 30, 2021 included $1.6 billion of individual contracts in a liability position and $142 million of individual contracts in an asset position. The fair value of the GMWB and GMAB embedded derivatives as of December 31, 2020 included $2.4 billion of individual contracts in a liability position and $67 million of individual contracts in an asset position. See Note 12 for additional information regarding the Company’s fair value measurement of derivative instruments. As of September 30, 2021 and December 31, 2020, investment securities with a fair value of $448 million and $325 million, respectively, were received as collateral to meet contractual obligations under derivative contracts, of which $448 million and $325 million, respectively, may be sold, pledged or rehypothecated by the Company. As of both September 30, 2021 and December 31, 2020, the Company had sold, pledged or rehypothecated none of these securities. In addition, as of both September 30, 2021 and December 31, 2020, non-cash collateral accepted was held in separate custodial accounts and was not included in the Company’s Consolidated Balance Sheets. Derivatives Not Designated as Hedges The following tables present a summary of the impact of derivatives not designated as hedging instruments, including embedded derivatives, on the Consolidated Statements of Operations:
| Net Investment Income | Banking and Deposit Interest Expense | Distribution Expenses | Interest Credited to Fixed Accounts | Benefits, Claims, Losses and Settlement Expenses | General and Administrative Expense
| (in millions)
Three Months Ended September 30, 2021 |  |  |  |  |  |
Interest rate contracts | $ | — |  | $ | — |  | $ | — |  | $ | — |  | $ | (171) |  | $ | — |
Equity contracts | — |  | — |  | (13) |  | — |  | 1 |  | (1) |
Credit contracts | — |  | — |  | — |  | — |  | 2 |  | — |
Foreign exchange contracts | (23) |  | — |  | — |  | — |  | — |  | — |
GMWB and GMAB embedded derivatives | — |  | — |  | — |  | — |  | (64) |  | — |
IUL embedded derivatives | — |  | — |  | — |  | 11 |  | — |  | — |
Fixed deferred indexed annuity and deposit receivables embedded derivatives | — |  | — |  | — |  | 1 |  | — |  | — |
Structured variable annuity embedded derivatives | — |  | — |  | — |  | — |  | (17) |  | — |
SMC embedded derivatives | — |  | — |  | — |  | — |  | — |  | — |
Total gain (loss) | $ | (23) |  | $ | — |  | $ | (13) |  | $ | 12 |  | $ | (249) |  | $ | (1) |
Nine Months Ended September 30, 2021 |  |  |  |  |  |
Interest rate contracts | $ | (23) |  | $ | — |  | $ | (1) |  | $ | — |  | $ | (1,125) |  | $ | — |
Equity contracts | — |  | 1 |  | 67 |  | 55 |  | (613) |  | 11 |
Credit contracts | — |  | — |  | 1 |  | — |  | 41 |  | — |
Foreign exchange contracts | (17) |  | — |  | — |  | — |  | 6 |  | (2) |
GMWB and GMAB embedded derivatives | — |  | — |  | — |  | — |  | 879 |  | — |
IUL embedded derivatives | — |  | — |  | — |  | 22 |  | — |  | — |
Fixed deferred indexed annuity and deposit receivables embedded derivatives | — |  | — |  | — |  | (7) |  | — |  | — |
Structured variable annuity embedded derivatives | — |  | — |  | — |  | — |  | (192) |  | — |
SMC embedded derivatives | — |  | (1) |  | — |  | — |  | — |  | — |
Total gain (loss) | $ | (40) |  | $ | — |  | $ | 67 |  | $ | 70 |  | $ | (1,004) |  | $ | 9 |
| Net Investment Income | Banking and Deposit Interest Expense | Distribution Expenses | Interest Credited to Fixed Accounts | Benefits, Claims, Losses and Settlement Expenses | General and Administrative Expense
| (in millions)
Three Months Ended September 30, 2020 |  |  |  |  |  |
Interest rate contracts | $ | — |  | $ | — |  | $ | — |  | $ | — |  | $ | (371) |  | $ | — |
Equity contracts | — |  | 2 |  | 41 |  | 42 |  | (468) |  | 6 |
Credit contracts | — |  | — |  | — |  | — |  | (12) |  | — |
Foreign exchange contracts | — |  | — |  | — |  | — |  | (23) |  | 5 |
GMWB and GMAB embedded derivatives | — |  | — |  | — |  | — |  | 186 |  | — |
IUL embedded derivatives | — |  | — |  | — |  | (29) |  | — |  | — |
Fixed deferred indexed annuity embedded derivatives | — |  | — |  | — |  | (3) |  | — |  | — |
Structured variable annuity embedded derivatives | — |  | — |  | — |  | — |  | (3) |  | — |
SMC embedded derivatives | — |  | (2) |  | — |  | — |  | — |  | — |
Total gain (loss) | $ | — |  | $ | — |  | $ | 41 |  | $ | 10 |  | $ | (691) |  | $ | 11 |
Nine Months Ended September 30, 2020 |  |  |  |  |  |
Interest rate contracts | $ | (1) |  | $ | — |  | $ | 2 |  | $ | — |  | $ | 2,204 |  | $ | — |
Equity contracts | (1) |  | — |  | 12 |  | (7) |  | 58 |  | 3 |
Credit contracts | — |  | — |  | — |  | — |  | (91) |  | — |
Foreign exchange contracts | — |  | — |  | — |  | — |  | 26 |  | 3 |
GMWB and GMAB embedded derivatives | — |  | — |  | — |  | — |  | (2,180) |  | — |
IUL embedded derivatives | — |  | — |  | — |  | 8 |  | — |  | — |
Fixed deferred indexed annuity embedded derivatives | — |  | — |  | — |  | 2 |  | — |  | — |
Structured variable annuity embedded derivatives | — |  | — |  | — |  | — |  | (16) |  | — |
SMC embedded derivatives | — |  | — |  | — |  | — |  | — |  | — |
Total gain (loss) | $ | (2) |  | $ | — |  | $ | 14 |  | $ | 3 |  | $ | 1 |  | $ | 6 |
The Company holds derivative instruments that either do not qualify or are not designated for hedge accounting treatment. These derivative instruments are used as economic hedges of equity, interest rate, credit and foreign currency exchange rate risk related to various products and transactions of the Company. Certain annuity contracts contain GMWB or GMAB provisions, which guarantee the right to make limited partial withdrawals each contract year regardless of the volatility inherent in the underlying investments or guarantee a minimum accumulation value of consideration received at the beginning of the contract period, after a specified holding period, respectively. The indexed portion of structured variable annuities and the GMAB and non-life contingent GMWB provisions are considered embedded derivatives, which are bifurcated from their host contracts for valuation purposes and reported on the Consolidated Balance Sheets at fair value with changes in fair value reported in earnings. The Company economically hedges the aggregate exposure related to the indexed portion of structured variable annuities and the GMAB and non-life contingent GMWB provisions using options, swaptions, swaps and futures. The deferred premium associated with certain of the above options and swaptions is paid or received semi-annually over the life of the contract or at maturity. The following is a summary of the payments the Company is scheduled to make and receive for these options and swaptions as of September 30, 2021:
| Premiums Payable |  | Premiums Receivable
(in millions)
2021 (1) | $ | 60 |  |  | $ | 45 |
2022 | 204 |  |  | 205 |
2023 | 51 |  |  | 43 |
2024 | 138 |  |  | 25 |
2025 | 125 |  |  | 22 |
2026 - 2028 | 262 |  |  | 88 |
Total | $ | 840 |  |  | $ | 428 |
(1) 2021 amounts represent the amounts payable and receivable for the period from October 1, 2021 to December 31, 2021. Actual timing and payment amounts may differ due to future settlements, modifications or exercises of the contracts prior to the full premium being paid or received. The Company has a macro hedge program to provide protection against the statutory tail scenario risk arising from variable annuity reserves on its statutory surplus and to cover some of the residual risks not covered by other hedging activities. As a means of economically hedging these risks, the Company may use a combination of futures, options, swaps and swaptions. Certain of the macro hedge derivatives may contain settlement provisions linked to both equity returns and interest rates. The Company’s macro hedge derivatives that contain settlement provisions linked to both equity returns and interest rates, if any, are shown in other contracts in the tables above. Structured variable annuity, IUL and stock market certificate products have returns tied to the performance of equity markets. As a result of fluctuations in equity markets, the obligation incurred by the Company related to structured variable annuity, IUL and stock market certificate products will positively or negatively impact earnings over the life of these products. The equity component of structured variable annuity, IUL and stock market certificate product obligations are considered embedded derivatives, which are bifurcated from their host contracts for valuation purposes and reported on the Consolidated Balance Sheets at fair value with changes in fair value reported in earnings. As a means of economically hedging its obligations under the provisions of these products, the Company enters into index options and futures contracts. The Company enters into futures, credit default swaps and commodity swaps to manage its exposure to price risk arising from seed money investments in proprietary investment products. The Company enters into foreign currency forward contracts to economically hedge its exposure to certain foreign transactions. The Company enters into futures contracts and total return swaps to economically hedge its exposure related to compensation plans. The Company enters into interest rate swaps to offset interest rate changes on unrealized gains or losses for certain investments. Cash Flow Hedges The Company has designated derivative instruments as a cash flow hedge of interest rate exposure on forecasted debt interest payments. For derivative instruments that qualify as cash flow hedges, the gain or loss on the derivative instruments is reported in AOCI and reclassified into earnings when the hedged item or transaction impacts earnings. The amount that is reclassified into earnings is presented within the same line item as the earnings impact of the hedged item in interest and debt expense. For the three months and nine months ended September 30, 2021 and 2020, the amounts reclassified from AOCI to earnings related to cash flow hedges were immaterial. The estimated net amount recorded in AOCI as of September 30, 2021 that the Company expects to reclassify to earnings as a reduction to interest and debt expense within the next twelve months is $0.5 million. Currently, the longest period of time over which the Company is hedging exposure to the variability in future cash flows is 15 years and relates to forecasted debt interest payments. See Note 15 for a rollforward of net unrealized derivative gains (losses) included in AOCI related to cash flow hedges. Fair Value Hedges The Company entered into and designated as a fair value hedge an interest rate swap to convert senior notes due 2020 from fixed rate debt to floating rate debt. The interest rate swap related to the senior notes due March 2020 was settled during the first quarter of 2020 when the debt was repaid. The swap had identical terms as the underlying debt being hedged. The Company recognized gains and losses on the derivatives and the related hedged items within interest and debt expense. The Company has not had any fair value hedges since March 2020. The following table is a summary of the impact of derivatives designated as hedges on the Consolidated Statements of Operations:
| Three Months Ended September 30, 2020 |  | Nine Months Ended September 30, 2020
(in millions)
Total interest and debt expense per Consolidated Statements of Operations | $ | 37 |  |  | $ | 124 |
Gain (loss) on interest rate contracts designated as fair value hedges: |  |  |
Hedged items | $ | — |  |  | $ | 1 |
Derivatives designated as fair value hedges | — |  |  | (1) |
Gain (loss) on interest rate contracts designated as cash flow hedges: |  |  |
Amount of gain (loss) reclassified from AOCI into income | $ | 1 |  |  | $ | 1 |
Net Investment Hedges The Company entered into, and designated as net investment hedges in foreign operations, forward contracts to hedge a portion of the Company’s foreign currency exchange rate risk associated with its investment in Threadneedle. As the Company determined that the forward contracts are effective, the change in fair value of the derivatives is recognized in AOCI as part of the foreign currency translation adjustment. For the three months ended September 30, 2021 and 2020, the Company recognized a gain of $0.7 million and a loss of $2.5 million, respectively, in OCI. For the nine months ended September 30, 2021 and 2020, the Company recognized a loss of $0.2 million and a gain of $3 million, respectively, in OCI. Credit Risk Credit risk associated with the Company’s derivatives is the risk that a derivative counterparty will not perform in accordance with the terms of the applicable derivative contract. To mitigate such risk, the Company has established guidelines and oversight of credit risk through a comprehensive enterprise risk management program that includes members of senior management. Key components of this program are to require preapproval of counterparties and the use of master netting and collateral arrangements whenever practical. See Note 13 for additional information on the Company’s credit exposure related to derivative assets. Certain of the Company’s derivative contracts contain provisions that adjust the level of collateral the Company is required to post based on the Company’s debt rating (or based on the financial strength of the Company’s life insurance subsidiaries for contracts in which those subsidiaries are the counterparty). Additionally, certain of the Company’s derivative contracts contain provisions that allow the counterparty to terminate the contract if the Company’s debt does not maintain a specific credit rating (generally an investment grade rating) or the Company’s life insurance subsidiary does not maintain a specific financial strength rating. If these termination provisions were to be triggered, the Company’s counterparty could require immediate settlement of any net liability position. As of September 30, 2021 and December 31, 2020, the aggregate fair value of derivative contracts in a net liability position containing such credit contingent provisions was $382 million and $326 million, respectively. The aggregate fair value of assets posted as collateral for such instruments as of September 30, 2021 and December 31, 2020 was $378 million and $324 million, respectively. If the credit contingent provisions of derivative contracts in a net liability position as of September 30, 2021 and December 31, 2020 were triggered, the aggregate fair value of additional assets that would be required to be posted as collateral or needed to settle the instruments immediately would have been $4 million and $2 million, respectively.

X
- References No definition available. + Details
Name: | us-gaap_DerivativeInstrumentsAndHedgingActivitiesDisclosureAbstract
Namespace Prefix: | us-gaap_
Data Type: | xbrli:stringItemType
Balance Type: | na
Period Type: | duration

X
- Definition The entire disclosure for derivative instruments and hedging activities including, but not limited to, risk management strategies, non-hedging derivative instruments, assets, liabilities, revenue and expenses, and methodologies and assumptions used in determining the amounts. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -URI http://asc.fasb.org/topic&trid=2229140 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -SubTopic 40 -Section 50 -Paragraph 5 -Subparagraph (f) -URI http://asc.fasb.org/extlink&oid=123477628&loc=d3e90205-114008 + Details
Name: | us-gaap_DerivativeInstrumentsAndHedgingActivitiesDisclosureTextBlock
Namespace Prefix: | us-gaap_
Data Type: | dtr-types:textBlockItemType
Balance Type: | na
Period Type: | duration