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Derivatives and Hedge Accounting | 12 Months Ended
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Dec. 31, 2024
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Derivatives and Hedge Accounting | 11. Derivatives and Hedge Accounting We use derivatives and other financial instruments as part of our financial risk management programs and as part of our investment operations. Interest rate derivatives (such as interest rate swaps) are used to manage interest rate risk associated with embedded derivatives contained in insurance contract liabilities, fixed maturity securities, outstanding medium- and long-term notes as well as other interest rate sensitive assets and liabilities. Foreign exchange derivatives (principally foreign exchange forwards and swaps) are used to economically mitigate risk associated with non-U.S. dollar denominated debt, net capital exposures, foreign currency transactions, and foreign denominated investments. Equity derivatives are used to economically mitigate financial risk associated with embedded derivatives. We use credit derivatives to manage our credit exposures. The derivatives are effective economic hedges of the exposures that they are meant to offset. In addition to hedging activities, we also enter into derivative contracts with respect to investment operations, which may include, among other things, CDSs, total return swaps and purchases of investments with embedded derivatives, such as equity-linked notes and convertible bonds. Interest rate, currency, equity swaps, credit contracts, swaptions, options and forward transactions are accounted for as derivatives, recorded on a trade-date basis and carried at fair value. Unrealized gains and losses are reflected in income, when appropriate. Aggregate asset or liability positions are netted on the Consolidated Balance Sheets only to the extent permitted by qualifying master netting arrangements in place with each respective counterparty. Cash collateral posted with counterparties in conjunction with transactions supported by qualifying master netting arrangements is reported as a reduction of the corresponding net derivative liability, while cash collateral received in conjunction with transactions supported by qualifying master netting arrangements is reported as a reduction of the corresponding net derivative asset. Derivatives, with the exception of embedded derivatives, are reported at fair value in the Consolidated Balance Sheets in Other assets and Other liabilities. Embedded derivatives are generally presented with the host contract in the Consolidated Balance Sheets. A bifurcated embedded derivative is measured at fair value and accounted for in the same manner as a free standing derivative contract. The corresponding host contract is accounted for according to the accounting guidance applicable for that instrument. For additional information on embedded derivatives, see Notes 5 and 13. The following table presents the notional amounts of our derivatives and the fair value of derivative assets and liabilities in the Consolidated Balance Sheets:
| December 31, 2024 |  | December 31, 2023
| Gross Derivative Assets |  | Gross Derivative Liabilities |  | Gross Derivative Assets |  | Gross Derivative Liabilities
(in millions) |  | Notional Amount |  | Fair Value |  |  | Notional Amount |  | Fair Value |  |  | Notional Amount |  | Fair Value |  |  | Notional Amount |  | Fair Value
Derivatives designated as hedging instruments:(a) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Foreign exchange contracts | $ | 879 |  | $ | 66 |  |  | $ | 906 |  | $ | 109 |  |  | $ | 933 |  | $ | 58 |  |  | $ | 1,296 |  | $ | 164 |
Derivatives not designated as hedging instruments:(a) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate contracts |  | 841 |  |  | 277 |  |  |  | 913 |  |  | 304 |  |  |  | 14,657 |  |  | 741 |  |  |  | 1,165 |  |  | 352 |
Foreign exchange contracts |  | 3,095 |  |  | 230 |  |  |  | 1,707 |  |  | 158 |  |  |  | 4,019 |  |  | 393 |  |  |  | 8,008 |  |  | 400 |
Equity contracts |  | 29 |  |  | 20 |  |  |  | 29 |  |  | 20 |  |  |  | 36,045 |  |  | 66 |  |  |  | — |  |  | — |
Credit contracts(b) |  | 52 |  |  | 31 |  |  |  | 147 |  |  | 31 |  |  |  | 1,804 |  |  | 33 |  |  |  | 504 |  |  | 36 |
Other contracts(c) |  | — |  |  | — |  |  |  | — |  |  | — |  |  |  | 2,131 |  |  | 1 |  |  |  | — |  |  | — |
Total derivatives, gross | $ | 4,896 |  | $ | 624 |  |  | $ | 3,702 |  | $ | 622 |  |  | $ | 59,589 |  | $ | 1,292 |  |  | $ | 10,973 |  | $ | 952 |
Counterparty netting(d) |  |  |  | (270) |  |  |  |  |  | (270) |  |  |  |  |  | (450) |  |  |  |  |  | (450) |
Cash collateral(e) |  |  |  | (304) |  |  |  |  |  | (201) |  |  |  |  |  | (711) |  |  |  |  |  | (249) |
Total derivatives on Consolidated Balance Sheets(f) |  |  | $ | 50 |  |  |  |  | $ | 151 |  |  |  |  | $ | 131 |  |  |  |  | $ | 253 |
(a)Fair value amounts are shown before the effects of counterparty netting adjustments and offsetting cash collateral. (b)As of December 31, 2024 and 2023, included CDSs on super senior multi-sector CLO with a net notional amount of $48 million and $50 million (fair value liability of $30 million and $32 million, respectively). The net notional amount represents the maximum exposure to loss on the portfolio. (c)Consists primarily of stable value wraps and contracts with multiple underlying exposures. (d)Represents netting of derivative exposures covered by a qualifying master netting agreement. (e)Represents cash collateral posted and received that is eligible for netting. (f)Freestanding derivatives only, excludes embedded derivative s. Derivative instrument assets and liabilities are recorded in Other assets and Other liabilities, respectively. Fair value of assets related to bifurcated embedded derivatives was $3.2 billion at December 31, 2024 and $3.4 billion at December 31, 2023. Fair value of liabilities related to bifurcated embedded derivatives was zero at both December 31, 2024 and 2023. A bifurcated embedded derivative is generally presented with the host contract in the Consolidated Balance Sheets. Embedded derivatives are primarily related to the funds withheld arrangement with Fortitude Re. For additional information, see Note 8. COLLATERAL We engage in derivative transactions that are not subject to a clearing requirement directly with unaffiliated third parties, in most cases, under International Swaps and Derivatives Association, Inc. (ISDA) Master Agreements. Many of the ISDA Master Agreements also include Credit Support Annex provisions, which provide for collateral postings that may vary at various ratings and threshold levels. We attempt to reduce our risk with certain counterparties by entering into agreements that enable collateral to be obtained from a counterparty on an upfront or contingent basis. We minimize the risk that counterparties might be unable to fulfill their contractual obligations by monitoring counterparty credit exposure and collateral value and generally requiring additional collateral to be posted upon the occurrence of certain events or circumstances. In addition, certain derivative transactions have provisions that require collateral to be posted by us upon a downgrade of our long-term debt ratings or give the counterparty the right to terminate the transaction. In the case of some of the derivative transactions, upon a downgrade of our long-term debt ratings, as an alternative to posting collateral and subject to certain conditions, we may assign the transaction to an obligor with higher debt ratings or arrange for a substitute guarantee of our obligations by an obligor with higher debt ratings or take other similar action. The actual amount of collateral required to be posted to counterparties in the event of such downgrades, or the aggregate amount of payments that we could be required to make, depends on market conditions, the fair value of outstanding affected transactions and other factors prevailing at and after the time of the downgrade. Collateral posted by us to third parties for derivative transactions was $601 million and $593 million at December 31, 2024 and 2023, respectively. In the case of collateral posted under derivative transactions that are not subject to clearing, this collateral can generally be repledged or resold by the counterparties. Collateral provided to us from third parties for derivative transactions was $595 million and $856 million at December 31, 2024 and 2023, respectively. In the case of collateral provided to us under derivative transactions that are not subject to clearing, we generally can repledge or resell collateral. OFFSETTING We have elected to present all derivative receivables and derivative payables, and the related cash collateral received and paid, on a net basis on our Consolidated Balance Sheets when a legally enforceable ISDA Master Agreement exists between us and our derivative counterparty. An ISDA Master Agreement is an agreement governing multiple derivative transactions between two counterparties. The ISDA Master Agreement generally provides for the net settlement of all, or a specified group, of these derivative transactions, as well as transferred collateral, through a single payment, and in a single currency, as applicable. The net settlement provisions apply in the event of a default on, or affecting any, one derivative transaction or a termination event affecting all, or a specified group of, derivative transactions governed by the ISDA Master Agreement. HEDGE ACCOUNTING We designated certain derivatives entered into with third parties as fair value hedges of available for sale investment securities held by our insurance subsidiaries. The fair value hedges include foreign currency forwards and cross currency swaps designated as hedges of the change in fair value of foreign currency denominated available for sale securities attributable to changes in foreign exchange rates. We use foreign currency denominated debt and cross-currency swaps as hedging instruments in net investment hedge relationships to mitigate the foreign exchange risk associated with our non-U.S. dollar functional currency foreign subsidiaries. For net investment hedge relationships where issued debt is used as a hedging instrument, we assess the hedge effectiveness and measure the amount of ineffectiveness based on changes in spot rates. For net investment hedge relationships that use derivatives as hedging instruments, we assess hedge effectiveness and measure hedge ineffectiveness using changes in forward rates. For the years ended December 31, 2024, 2023 and 2022, we recognized gains (losses) of $86 million, $(42) million and $305 million, respectively, included in Change in foreign currency translation adjustments in OCI related to the net investment hedge relationships. A qualitative methodology is utilized to assess hedge effectiveness. The following table presents the gain (loss) recognized in income on our derivative instruments in fair value hedging relationships in the Consolidated Statements of Income (Loss):
|  | Gains/(Losses) Recognized in Income for: |  |
(in millions) |  | Hedging Derivatives(a) |  | Excluded Components(b) |  | Hedged Items |  | Net Impact
Year Ended December 31, 2024 |  |  |  |  |  |  |  |
Foreign exchange contracts: |  |  |  |  |  |  |  |
Net realized gains/(losses) |  | $ | (85) |  |  | $ | (19) |  |  | $ | 85 |  |  | $ | (19) |
Year Ended December 31, 2023 |  |  |  |  |  |  |  |
Foreign exchange contracts: |  |  |  |  |  |  |  |
Net realized gains/(losses) |  | $ | (177) |  |  | $ | (25) |  |  | $ | 177 |  |  | $ | (25) |
Year Ended December 31, 2022 |  |  |  |  |  |  |  |
Foreign exchange contracts: |  |  |  |  |  |  |  |
Net realized gains/(losses) |  | (78) |  |  | 73 |  |  | 78 |  |  | 73 |
(a)Gains and losses on derivative instruments designated and qualifying in fair value hedges that are included in the assessment of hedge effectiveness. (b)Gains and losses on derivative instruments designated and qualifying in fair value hedges that are excluded from the assessment of hedge effectiveness and recognized in income on a mark-to-market basis. DERIVATIVES NOT DESIGNATED AS HEDGING INSTRUMENTS The following table presents the effect of derivative instruments not designated as hedging instruments in the Consolidated Statements of Income (Loss):
Years Ended December 31, |  |  |  |  |  |  | Gains (Losses) Recognized in Income
(in millions) |  |  |  |  |  |  | 2024 |  | 2023 |  | 2022
By Derivative Type: |  |  |  |  |  |  |  |  |  |  |
Interest rate contracts |  |  |  |  |  |  | $ | (6) |  |  | $ | (12) |  |  | $ | 37 |
Foreign exchange contracts |  |  |  |  |  |  | (52) |  |  | (175) |  |  | 143 |
Equity contracts |  |  |  |  |  |  | — |  |  | 1 |  |  | (9) |
Commodity contracts |  |  |  |  |  |  | — |  |  | 8 |  |  | (12) |
Credit contracts |  |  |  |  |  |  | 3 |  |  | (2) |  |  | (3) |
Other contracts |  |  |  |  |  |  | — |  |  | — |  |  | (1) |
Embedded derivatives |  |  |  |  |  |  | (75) |  |  | (273) |  |  | 1,134 |
Total |  |  |  |  |  |  | $ | (130) |  |  | $ | (453) |  |  | $ | 1,289 |
By Classification: |  |  |  |  |  |  |  |  |  |  |
Net investment income - excluding Fortitude Re funds withheld assets |  |  |  |  |  |  | $ | — |  |  | $ | — |  |  | $ | 4 |
Net investment income - Fortitude Re funds withheld assets |  |  |  |  |  |  | 1 |  |  | — |  |  | (1) |
Net realized gains (losses) - excluding Fortitude Re funds withheld assets |  |  |  |  |  |  | (63) |  |  | (172) |  |  | 156 |
Net realized gains (losses) on Fortitude Re funds withheld assets* |  |  |  |  |  |  | (68) |  |  | (281) |  |  | 1,130 |
Total |  |  |  |  |  |  | $ | (130) |  |  | $ | (453) |  |  | $ | 1,289 |
*Includes over-the-counter derivatives supporting the funds withheld arrangements with Fortitude Re and the embedded derivative contained within the funds withheld payable with Fortitude Re. CREDIT RISK-RELATED CONTINGENT FEATURES We estimate that at December 31, 2024, based on our outstanding financial derivative transactions, a downgrade of our long-term senior debt ratings to BBB or BBB– by Standard & Poor’s Financial Services LLC, a subsidiary of S&P Global Inc., and/or a downgrade to Baa2 or Baa3 by Moody’s Investors’ Service, Inc. would permit counterparties to make additional collateral calls and permit certain counterparties to elect early termination of contracts, resulting in corresponding collateral postings and termination payments in the total amount of up to approximately $5 million. The aggregate fair value of our derivatives that were in a net liability position and that contain such credit risk-related contingencies which can be triggered below our long-term senior debt ratings of BBB+ or Baa1 was approximately $30 million and $32 million at December 31, 2024 and 2023, respectively. The aggregate fair value of assets posted as collateral under these contracts at December 31, 2024 and 2023, was approximately $30 million and $34 million, respectively.

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