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Investments | 6 Months Ended
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Jun. 30, 2020
Investments [Abstract] |
Investments | 6. INVESTMENTS
Net Realized Capital Gains (Losses)
| Three Months Ended June 30, |  | Six Months Ended June 30,
(Before tax) | 2020 | 2019 |  | 2020 | 2019
Gross gains on sales | $ | 96 |  | $ | 69 |  |  | $ | 174 |  | $ | 113 |
Gross losses on sales | (22 | ) | (19 | ) |  | (30 | ) | (40 | )
Equity securities [1] | 75 |  | 30 |  |  | (311 | ) | 162 |
Change in ACL on fixed maturities, AFS [2] | (20 | ) |  |  | (32 | ) |
Change in ACL on mortgage loans [2] | (22 | ) |  |  | (24 | ) |
Intent-to-sell impairments | — |  | — |  |  | (5 | ) | — |
Net OTTI losses recognized in earnings |  | — |  |  |  | (2 | )
Valuation allowances on mortgage loans |  | 1 |  |  |  | 1 |
Other, net [3] | 2 |  | (1 | ) |  | 106 |  | 9 |
Net realized capital gains (losses) | $ | 109 |  | $ | 80 |  |  | $ | (122 | ) | $ | 243 |
[1] | The net unrealized gains (losses) on equity securities included in net realized capital gains (losses) related to equity securities still held as of June 30, 2020, were $67 and $(34) for the three and six months ended June 30, 2020, respectively. The net unrealized gains (losses) on equity securities included in net realized capital gains (losses) related to equity securities still held as of June 30, 2019, were $29 and $74 for the three and six months ended June 30, 2019, respectively.
[2] | Represents the change in ACL recorded during the period following the adoption of accounting guidance for credit losses on January 1, 2020. For further information refer to Note 1 - Basis of Presentation and Significant Accounting Policies.
[3] | Includes gains (losses) from transactional foreign currency revaluation of $0 and $10 for the three and six months ended June 30, 2020 , respectively. For the same periods, also includes gains (losses) on non-qualifying derivatives of $7 and $99, respectively. For the three and six months ended June 30, 2019, includes gains (losses) on non-qualifying derivatives of $(7) and $8, respectively.
Proceeds from the sales of fixed maturities, AFS totaled $4.1 billion and $7.2 billion for the three and six months ended June 30, 2020, respectively, and $4.6 billion and $8.9 billion for the three and six months ended June 30, 2018, respectively. Accrued Interest Receivable on Fixed Maturities, AFS and Mortgage Loans As of June 30, 2020 and December 31, 2019, the Company reported accrued interest receivable related to fixed maturities, AFS of $323 and $334, respectively, and accrued interest receivable related to mortgage loans of $14 and $14, respectively. These amounts are recorded in other assets on the Condensed Consolidated Balance Sheets and are not included in the amortized cost or fair value of the fixed maturities or mortgage loans. The Company does not include the current accrued interest receivable balance when estimating the ACL. The Company has a policy to write-off accrued interest receivable balances that are more than 90 days past due. Write-offs of accrued interest receivable are recorded as a credit loss component of realized capital gains and losses. Interest income on fixed maturities and mortgage loans is accrued unless it is past due over 90 days or management deems the interest uncollectible. Recognition and Presentation of Intent-to-Sell Impairments and ACL on Fixed Maturities, AFS The Company will record an "intent-to-sell impairment" as a reduction to the amortized cost of fixed maturities, AFS in an unrealized loss position if the Company intends to sell or it is more likely than not that the Company will be required to sell the fixed maturity before a recovery in value. A corresponding charge is recorded in net realized capital losses equal to the difference between the fair value on the impairment date and the amortized cost basis of the fixed maturity before recognizing the impairment. When fixed maturities are in an unrealized loss position and the Company does not record an intent-to-sell impairment, the Company will record an ACL for the portion of the unrealized loss due to a credit loss. Any remaining unrealized loss on a fixed maturity after recording an ACL is the non-credit amount and is recorded in OCI. The ACL is the excess of the amortized cost over the greater of the Company's best estimate of the present value of expected future cash flows or the security's fair value. Cash flows are discounted at the effective yield that is used to record interest income. The ACL cannot exceed the unrealized loss and, therefore, it may fluctuate with changes in the fair value of the fixed maturity if the fair value is greater than the Company's best estimate of the present value of expected future cash flows. The initial ACL and any subsequent changes are recorded in net realized capital gains and losses. The ACL is written off against the amortized cost in the period in which all or a portion of the related fixed maturity investment is determined to be uncollectible. Developing the Company’s best estimate of expected future cash flows is a quantitative and qualitative process that incorporates information received from third-party sources along with certain internal assumptions regarding the future performance. The Company's considerations include, but are not limited to, (a) changes in the financial condition of the issuer and/or the underlying collateral, (b) whether the issuer is current on contractually obligated interest and principal payments, (c) credit ratings, (d) payment structure of the security and (e) the extent to which the fair value has been less than the amortized cost of the security. For non-structured securities, assumptions include, but are not limited to, economic and industry-specific trends and fundamentals, instrument-specific developments including changes in credit ratings, industry earnings multiples and the issuer’s ability to restructure and execute asset sales. For structured securities, assumptions include, but are not limited to, various performance indicators such as historical and projected default and recovery rates, credit ratings, current and projected delinquency rates, loan-to-value ratios ("LTVs"), average cumulative collateral loss rates that vary by vintage year, prepayment speeds, and property value declines. These assumptions require the use of significant management judgment and include the probability of issuer default and estimates regarding timing and amount of expected recoveries which may include estimating the underlying collateral value.
ACL on Fixed Maturities, AFS by Type
| Three Months Ended June 30, 2020 |  | Six Months Ended June 30, 2020
(Before tax) | Corporate | Total |  | Corporate | Total
Balance as of beginning of period | $ | (12 | ) | $ | (12 | ) |  | $ | — |  | $ | — |
Credit losses on fixed maturities where credit losses were not previously recorded | (23 | ) | (23 | ) |  | (35 | ) | (35 | )
Reduction due to sales | 2 |  | 2 |  |  | 2 |  | 2 |
Net increases (decreases) in allowance on fixed maturities that had an allowance in a previous period | 1 |  | 1 |  |  | 1 |  | 1 |
Balance as of end of period | $ | (32 | ) | $ | (32 | ) |  | $ | (32 | ) | $ | (32 | )
Cumulative Credit Impairments on Fixed Maturities, AFS
| Three Months Ended June 30, |  | Six Months Ended June 30,
(Before tax) | 2019 |  | 2019
Balance as of beginning of period | $ | (18 | ) |  | $ | (19 | )
Additions for credit impairments recognized on [1]: |  |  |
Fixed maturities not previously impaired | — |  |  | (2 | )
Reductions for credit impairments previously recognized on: |  |  |
Fixed maturities that matured or were sold during the period | — |  |  | 3 |
Balance as of end of period | $ | (18 | ) |  | $ | (18 | )
[1] | These additions are included in the net OTTI losses recognized in earnings in the Condensed Consolidated Statements of Operations.
Fixed Maturities, AFS
Fixed Maturities, AFS, by Type
| June 30, 2020 |  | December 31, 2019
| Amortized Cost | ACL [1] | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value |  | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | Non-Credit OTTI [2]
ABS | $ | 1,387 |  | $ | — |  | $ | 30 |  | $ | (1 | ) | $ | 1,416 |  |  | $ | 1,461 |  | $ | 18 |  | $ | (3 | ) | $ | 1,476 |  | $ | — |
CLOs | 2,246 |  | — |  | — |  | (59 | ) | 2,187 |  |  | 2,186 |  | 5 |  | (8 | ) | 2,183 |  | — |
CMBS | 4,067 |  | — |  | 208 |  | (64 | ) | 4,211 |  |  | 4,210 |  | 141 |  | (13 | ) | 4,338 |  | (4 | )
Corporate | 17,283 |  | (32 | ) | 1,441 |  | (129 | ) | 18,563 |  |  | 16,435 |  | 986 |  | (25 | ) | 17,396 |  | — |
Foreign govt./govt. agencies | 906 |  | — |  | 70 |  | (4 | ) | 972 |  |  | 1,057 |  | 66 |  | — |  | 1,123 |  | — |
Municipal | 8,604 |  | — |  | 804 |  | (14 | ) | 9,394 |  |  | 8,763 |  | 737 |  | (2 | ) | 9,498 |  | — |
RMBS | 3,750 |  | — |  | 149 |  | (4 | ) | 3,895 |  |  | 4,775 |  | 97 |  | (3 | ) | 4,869 |  | — |
U.S. Treasuries | 1,397 |  | — |  | 165 |  | — |  | 1,562 |  |  | 1,191 |  | 75 |  | (1 | ) | 1,265 |  | — |
Total fixed maturities, AFS | $ | 39,640 |  | $ | (32 | ) | $ | 2,867 |  | $ | (275 | ) | $ | 42,200 |  |  | $ | 40,078 |  | $ | 2,125 |  | $ | (55 | ) | $ | 42,148 |  | $ | (4 | )
[1] | Represents the ACL recorded following the adoption of accounting guidance for credit losses on January 1, 2020. For further information refer to Note 1 - Basis of Presentation and Significant Accounting Policies.
[2] | Represents the amount of cumulative non-credit impairment losses recognized in OCI on fixed maturities that also had credit impairments. These losses are included in gross unrealized losses as of December 31, 2019.
Fixed Maturities, AFS, by Contractual Maturity Year
| June 30, 2020 |  | December 31, 2019
| Amortized Cost | Fair Value |  | Amortized Cost | Fair Value
One year or less | $ | 1,312 |  | $ | 1,324 |  |  | $ | 1,082 |  | $ | 1,090 |
Over one year through five years | 7,274 |  | 7,556 |  |  | 7,200 |  | 7,401 |
Over five years through ten years | 7,601 |  | 8,129 |  |  | 7,395 |  | 7,803 |
Over ten years | 12,003 |  | 13,482 |  |  | 11,769 |  | 12,988 |
Subtotal | 28,190 |  | 30,491 |  |  | 27,446 |  | 29,282 |
Mortgage-backed and asset-backed securities | 11,450 |  | 11,709 |  |  | 12,632 |  | 12,866 |
Total fixed maturities, AFS | $ | 39,640 |  | $ | 42,200 |  |  | $ | 40,078 |  | $ | 42,148 |
Estimated maturities may differ from contractual maturities due to call or prepayment provisions. Due to the potential for variability in payment speeds (i.e. prepayments or extensions), mortgage-backed and asset-backed securities are not categorized by contractual maturity. Concentration of Credit Risk The Company aims to maintain a diversified investment portfolio including issuer, sector and geographic stratification, where applicable, and has established certain exposure limits, diversification standards and review procedures to mitigate credit risk. The Company had no investment exposure to any credit concentration risk of a single issuer greater than 10% of the Company's stockholders' equity as of June 30, 2020 or December 31, 2019 other than U.S. government securities and certain U.S. government agencies. Unrealized Losses on Fixed Maturities, AFS
Unrealized Loss Aging for Fixed Maturities, AFS by Type and Length of Time as of June 30, 2020
| Less Than 12 Months |  | 12 Months or More |  | Total
| Fair Value | Unrealized Losses |  | Fair Value | Unrealized Losses |  | Fair Value | Unrealized Losses
ABS | $ | 127 |  | $ | (1 | ) |  | $ | — |  | $ | — |  |  | $ | 127 |  | $ | (1 | )
CLOs | 1,435 |  | (34 | ) |  | 723 |  | (25 | ) |  | 2,158 |  | (59 | )
CMBS | 734 |  | (59 | ) |  | 17 |  | (5 | ) |  | 751 |  | (64 | )
Corporate | 1,646 |  | (99 | ) |  | 179 |  | (30 | ) |  | 1,825 |  | (129 | )
Foreign govt./govt. agencies | 136 |  | (4 | ) |  | 1 |  | — |  |  | 137 |  | (4 | )
Municipal | 319 |  | (14 | ) |  | — |  | — |  |  | 319 |  | (14 | )
RMBS | 195 |  | (3 | ) |  | 35 |  | (1 | ) |  | 230 |  | (4 | )
U.S. Treasuries | 236 |  | — |  |  | — |  | — |  |  | 236 |  | — |
Total fixed maturities, AFS in an unrealized loss position | $ | 4,828 |  | $ | (214 | ) |  | $ | 955 |  | $ | (61 | ) |  | $ | 5,783 |  | $ | (275 | )
Unrealized Loss Aging for Fixed Maturities, AFS by Type and Length of Time as of December 31, 2019
| Less Than 12 Months |  | 12 Months or More |  | Total
| Fair Value | Unrealized Losses |  | Fair Value | Unrealized Losses |  | Fair Value | Unrealized Losses
ABS | $ | 398 |  | $ | (3 | ) |  | $ | 9 |  | $ | — |  |  | $ | 407 |  | $ | (3 | )
CLOs | 679 |  | (2 | ) |  | 923 |  | (6 | ) |  | 1,602 |  | (8 | )
CMBS | 538 |  | (7 | ) |  | 20 |  | (6 | ) |  | 558 |  | (13 | )
Corporate | 789 |  | (9 | ) |  | 328 |  | (16 | ) |  | 1,117 |  | (25 | )
Foreign govt./govt. agencies | 101 |  | — |  |  | 29 |  | — |  |  | 130 |  | — |
Municipal | 222 |  | (2 | ) |  | — |  | — |  |  | 222 |  | (2 | )
RMBS | 614 |  | (3 | ) |  | 68 |  | — |  |  | 682 |  | (3 | )
U.S. Treasuries | 88 |  | — |  |  | 34 |  | (1 | ) |  | 122 |  | (1 | )
Total fixed maturities, AFS in an unrealized loss position | $ | 3,429 |  | $ | (26 | ) |  | $ | 1,411 |  | $ | (29 | ) |  | $ | 4,840 |  | $ | (55 | )
As of June 30, 2020, fixed maturities, AFS in an unrealized loss position consisted of 1,149 fixed maturities, primarily in the corporate sectors, most notably energy issuers, as well as issuers in the financial services sector and issuers within the travel, leisure, and gaming industry, and CMBS and CLO sectors, which were depressed largely due to widening of credit spreads since the fixed maturities were purchased. As of June 30, 2020, 96% of these fixed maturities were depressed less than 20% of cost or amortized cost. The increase in unrealized losses during the six months ended June 30, 2020 was primarily attributable to wider credit spreads, partially offset by lower interest rates. Most of the fixed maturities depressed for twelve months or more relate to the corporate and CLO sectors. Corporate fixed maturities and CLO securities were primarily depressed because current market spreads are wider than at the respective purchase dates. Certain other corporate fixed maturities were depressed because of their variable-rate coupons and long-dated maturities, and current credit spreads are wider than at their purchase dates. The Company neither has an intention to sell nor does it expect to be required to sell the fixed maturities outlined in the preceding discussion. The decision to record credit impairments on fixed maturities, AFS in the form of an ACL requires us to make qualitative and quantitative estimates of expected future cash flows. Given the uncertainty about the ultimate impact of the COVID-19 pandemic on issuers of these securities, actual cash flows could ultimately deviate significantly from our expectations resulting in realized losses in future periods. Mortgage Loans ACL on Mortgage Loans The Company reviews mortgage loans on a quarterly basis to estimate the ACL with changes in the ACL recorded in net realized capital gains and losses. Apart from an ACL recorded on individual mortgage loans where the borrower is experiencing financial difficulties, the Company records an ACL on the pool of mortgage loans based on lifetime expected credit losses. The Company utilizes a third-party forecasting model to estimate lifetime expected credit losses at a loan level under multiple economic scenarios. The scenarios use macroeconomic data provided by an internationally recognized economics firm that generates forecasts of varying economic factors such as GDP growth, unemployment and interest rates. The economic scenarios are projected over 10 years. The first two to four years of the 10-year period assume a specific modeled economic scenario (including moderate upside, moderate recession and severe recession scenarios) and then revert to historical long-term assumptions over the remaining period. Using these economic scenarios, the forecasting model projects property-specific operating income and capitalization rates used to estimate the value of a future operating income stream. The operating income and the property valuations derived from capitalization rates are compared to loan payment and principal amounts to create debt service coverage ratios ("DSCRs") and LTVs over the forecast period. The model overlays historical data about mortgage loan performance based on DSCRs and LTVs and projects the probability of default, amount of loss given a default and resulting expected loss through maturity for each loan under each economic scenario. Economic scenarios are probability-weighted based on a statistical analysis of the forecasted economic factors and qualitative analysis. The Company records the change in the ACL on mortgage loans based on the weighted-average expected credit losses across the selected economic scenarios. In response to significant economic stress experienced as a result of the COVID-19 pandemic, during the first six months of 2020, the Company increased the weight of both a moderate and severe recession in our estimate of the ACL. The ultimate impact to the Company’s financial statements could vary significantly from our estimates depending on, among other things, the duration and severity of the pandemic, the duration and severity of the economic downturn and the degree to which federal, state and local government actions to mitigate the economic impact of COVID-19 are effective. The impact on our commercial mortgage loan portfolio will also be impacted by borrower behavior in response to the economic stress. Borrowers with lower LTVs have an incentive to continue to make payments of principal and/or interest in order to preserve the equity they have in the underlying commercial real estate properties. As property values decline, borrowers have less incentive to continue to make payments. When a borrower is experiencing financial difficulty, including when foreclosure is probable, the Company measures an ACL on individual mortgage loans. The ACL is established for any shortfall between the amortized cost of the loan and the fair value of the collateral less costs to sell. As of June 30, 2020, the Company did no t have any mortgage loans for which an ACL was established on an individual basis. Estimates of collectibility from an individual borrower require the use of significant management judgment and include the probability and timing of borrower default and loss severity estimates. In addition, cash flow projections may change based upon new information about the borrower's ability to pay and/or the value of underlying collateral such as changes in projected property value estimates. There were no mortgage loans held-for-sale as of June 30, 2020 or December 31, 2019. For the three and six months ended June 30, 2020 and 2019, respectively, the Company did no t have any modifications that were accounted for as troubled debt restructurings.
ACL on Mortgage Loans
| Three Months Ended June 30, |  | Six Months Ended June 30,
| 2020 | 2019 |  | 2020 | 2019
ACL as of beginning of period | $ | (21 | ) | $ | (1 | ) |  | $ | — |  | $ | (1 | )
Cumulative effect of accounting changes [1] |  |  |  | (19 | ) |
Adjusted beginning ACL | (21 | ) | (1 | ) |  | (19 | ) | (1 | )
Current period provision | (22 | ) | 1 |  |  | (24 | ) | 1 |
ACL as of June 30, | $ | (43 | ) | $ | — |  |  | $ | (43 | ) | $ | — |
[1] | Represents the adjustment to the ACL recorded on adoption of accounting guidance for credit losses on January 1, 2020. For further information refer to Note 1 - Basis of Presentation and Significant Accounting Policies.
The increase in the allowance for the three and six months ended June 30, 2020, is the result of giving increased weight to recession scenarios in response to the COVID-19 pandemic as well as lower estimated property values and operating income to better reflect current economic conditions. In addition, for the six months ended June 30, 2020, the increase in the allowance includes the recognition of an ACL in connection with the adoption of accounting guidance for credit losses on January 1, 2020. For further information refer to Note 1 - Basis of Presentation and Significant Accounting Policies of these Notes to Condensed Consolidated Financial Statements. The weighted-average LTV ratio of the Company’s mortgage loan portfolio was 56% as of June 30, 2020, while the weighted-average LTV ratio at origination of these loans was 61%. LTV ratios compare the loan amount to the value of the underlying property collateralizing the loan with property values based on appraisals updated no less than annually. Factors considered in estimating property values include, among other things, actual and expected property cash flows, geographic market data and the ratio of the property's net operating income to its value. DSCR compares a property’s net operating income to the borrower’s principal and interest payments and are updated no less than annually through reviews of underlying properties.
Mortgage Loans LTV & DSCR by Origination Year as of June 30, 2020
| 2020 | 2019 | 2018 | 2017 | 2016 | 2015 & Prior | Total
Loan-to-value | Amortized Cost | Avg. DSCR | Amortized Cost | Avg. DSCR | Amortized Cost | Avg. DSCR | Amortized Cost | Avg. DSCR | Amortized Cost | Avg. DSCR | Amortized Cost | Avg. DSCR | Amortized Cost [1] | Avg. DSCR
65% - 80% | $ | 8 |  | 2.59x | $ | 266 |  | 1.85x | $ | 248 |  | 2.07x | $ | 80 |  | 1.63x | $ | 80 |  | 1.85x | $ | 131 |  | 1.74x | $ | 813 |  | 1.89x
Less than 65% | 393 |  | 2.58x | 705 |  | 2.68x | 450 |  | 2.02x | 428 |  | 1.88x | 207 |  | 2.98x | 1,446 |  | 2.89x | 3,629 |  | 2.59x
Total mortgage loans | $ | 401 |  | 2.58x | $ | 971 |  | 2.45x | $ | 698 |  | 2.04x | $ | 508 |  | 1.84x | $ | 287 |  | 2.66x | $ | 1,577 |  | 2.79x | $ | 4,442 |  | 2.46x
[1] Amortized cost of mortgage loans excludes ACL of $43.
Mortgage Loans LTV & DSCR
| December 31, 2019
Loan-to-value | Amortized Cost | Avg. DSCR
65% - 80% | $ | 376 |  | 1.53x
Less than 65% | 3,839 |  | 2.56x
Total mortgage loans | $ | 4,215 |  | 2.46x
Mortgage Loans by Region
| June 30, 2020 |  | December 31, 2019
| Amortized Cost [1] | Percent of Total |  | Amortized Cost | Percent of Total
East North Central | $ | 284 |  | 6.4 | % |  | $ | 270 |  | 6.4 | %
Middle Atlantic | 338 |  | 7.6 | % |  | 319 |  | 7.5 | %
Mountain | 185 |  | 4.2 | % |  | 109 |  | 2.6 | %
New England | 398 |  | 9.0 | % |  | 344 |  | 8.2 | %
Pacific | 931 |  | 20.9 | % |  | 906 |  | 21.5 | %
South Atlantic | 955 |  | 21.5 | % |  | 944 |  | 22.4 | %
West North Central | 44 |  | 1.0 | % |  | 46 |  | 1.1 | %
West South Central | 475 |  | 10.7 | % |  | 439 |  | 10.4 | %
Other [2] | 832 |  | 18.7 | % |  | 838 |  | 19.9 | %
Total mortgage loans | $ | 4,442 |  | 100.0 | % |  | $ | 4,215 |  | 100.0 | %
[1] | Amortized cost of mortgage loans excludes ACL of $43.
[2] | Primarily represents loans collateralized by multiple properties in various regions.
Mortgage Loans by Property Type
| June 30, 2020 |  | December 31, 2019
| Amortized Cost [1] | Percent of Total |  | Amortized Cost | Percent of Total
Commercial |  |  |  |  |
Industrial | $ | 1,298 |  | 29.2 | % |  | $ | 1,167 |  | 27.7 | %
Multifamily | 1,427 |  | 32.1 | % |  | 1,313 |  | 31.2 | %
Office | 757 |  | 17.1 | % |  | 723 |  | 17.2 | %
Retail | 785 |  | 17.7 | % |  | 735 |  | 17.4 | %
Single Family | 135 |  | 3.0 | % |  | 137 |  | 3.2 | %
Other | 40 |  | 0.9 | % |  | 140 |  | 3.3 | %
Total mortgage loans | $ | 4,442 |  | 100.0 | % |  | $ | 4,215 |  | 100.0 | %
[1] Amortized cost of mortgage loans excludes ACL of $43. Past-Due Mortgage Loans Mortgage loans are considered past due if a payment of principal or interest is not received according to the contractual terms of the loan agreement, which typically includes a grace period. As of June 30, 2020 and December 31, 2019, the Company held no mortgage loans considered past due. Mortgage Servicing The Company originates, sells and services commercial mortgage loans on behalf of third parties and recognizes servicing fee income over the period that services are performed. As of June 30, 2020, under this program, the Company serviced mortgage loans with a total outstanding principal of $6.6 billion, of which $3.5 billion was serviced on behalf of third parties and $3.1 billion was retained and reported in total investments on the Company's Condensed Consolidated Balance Sheets. As of December 31, 2019, the Company serviced mortgage loans with a total outstanding principal balance of $6.4 billion, of which $3.5 billion was serviced on behalf of third parties and $2.9 billion was retained and reported in total investments on the Company's Condensed Consolidated Balance Sheets. Servicing rights are carried at the lower of cost or fair value and were $0 as of June 30, 2020 and December 31, 2019, because servicing fees were market-level fees at origination and remain adequate to compensate the Company for servicing the loans. Purchased Financial Assets with Credit Deterioration Purchased financial assets with credit deterioration ("PCD") are purchased financial assets with a “more-than-insignificant” amount of credit deterioration since origination. PCD assets are assessed only at initial acquisition date and for any investments identified, the Company records an allowance at acquisition with a corresponding increase to the amortized cost basis. As of June 30, 2020, the Company held no PCD fixed maturities, AFS or mortgage loans. Variable Interest Entities The Company is engaged with various special purpose entities and other entities that are deemed to be VIEs primarily as an investor through normal investment activities but also as an investment manager. A VIE is an entity that either has investors that lack certain essential characteristics of a controlling financial interest, such as simple majority kick-out rights, or lacks sufficient funds to finance its own activities without financial support provided by other entities. The Company performs ongoing qualitative assessments of its VIEs to determine whether the Company has a controlling financial interest in the VIE and therefore is the primary beneficiary. The Company is deemed to have a controlling financial interest when it has both the ability to direct the activities that most significantly impact the economic performance of the VIE and the obligation to absorb losses or right to receive benefits from the VIE that could potentially be significant to the VIE. Based on the Company’s assessment, if it determines it is the primary beneficiary, the Company consolidates the VIE in the Company’s Condensed Consolidated Financial Statements. Consolidated VIEs As of June 30, 2020 and December 31, 2019, the Company did not hold any securities for which it is the primary beneficiary. Non-consolidated VIEs The Company, through normal investment activities, makes passive investments in limited partnerships and other alternative investments. For these non-consolidated VIEs, the Company has determined it is not the primary beneficiary as it has no ability to direct activities that could significantly affect the economic performance of the investments. The Company’s maximum exposure to loss as of June 30, 2020 and December 31, 2019 was limited to the total carrying value of $1.2 billion and $1.1 billion, respectively, which are included in limited partnerships and other alternative investments in the Company's Condensed Consolidated Balance Sheets. As of June 30, 2020 and December 31, 2019, the Company has outstanding commitments totaling $746 and $851, respectively, whereby the Company is committed to fund these investments and may be called by the partnership during the commitment period to fund the purchase of new investments and partnership expenses. These investments are generally of a passive nature in that the Company does not take an active role in management. For further discussion of these investments, see Equity Method Investments within Note 6 - Investments of Notes to Consolidated Financial Statements included in the Company’s 2019 Form 10-K Annual Report. In addition, the Company makes passive investments in structured securities issued by VIEs for which the Company is not the manager. These investments are included in ABS, CLOs, CMBS and RMBS and are reported in fixed maturities, AFS, and fixed maturities, FVO, in the Company’s Condensed Consolidated Balance Sheets. The Company has not provided financial or other support with respect to these investments other than its original investment. For these investments, the Company determined it is not the primary beneficiary due to the relative size of the Company’s investment in comparison to the principal amount of the structured securities issued by the VIEs, the level of credit subordination which reduces the Company’s obligation to absorb losses or right to receive benefits and the Company’s inability to direct the activities that most significantly impact the economic performance of the VIEs. The Company’s maximum exposure to loss on these investments is limited to the amount of the Company’s investment. Securities Lending, Repurchase Agreements, and Other Collateral Transactions and Restricted Investments The Company enters into securities financing transactions as a way to earn additional income or manage liquidity, primarily through securities lending and repurchase agreements.
Securities Lending and Repurchase Agreements
| June 30, 2020 | December 31, 2019
| Fair Value | Fair Value |
Securities Lending Transactions: |  |
Gross amount of securities on loan | $ | 165 |  | $ | 606 |
Gross amount of associated liability for collateral received [1] | $ | 169 |  | $ | 621 |
Repurchase agreements: |  |
Gross amount of recognized receivables for reverse repurchase agreements | $ | 14 |  | $ | 15 |
[1] | Cash collateral received is reinvested in fixed maturities, AFS and short-term investments which are included in the Condensed Consolidated Balance Sheets. Amount includes additional securities collateral received of $0 and $34 which are excluded from the Company's Condensed Consolidated Balance Sheets as of June 30, 2020 and December 31, 2019, respectively.
Securities Lending Under a securities lending program, the Company lends certain fixed maturities within the corporate, foreign government/government agencies, and municipal sectors as well as equity securities to qualifying third-party borrowers in return for collateral in the form of cash or securities. For domestic and non-domestic loaned securities, respectively, borrowers provide collateral of 102% and 105% of the fair value of the securities lent at the time of the loan. Borrowers will return the securities to the Company for cash or securities collateral at maturity dates generally of 90 days or less. Security collateral on deposit from counterparties in connection with securities lending transactions may not be sold or re-pledged, except in the event of default by the counterparty, and is not reflected on the Company’s Condensed Consolidated Balance Sheets. Additional collateral is obtained if the fair value of the collateral falls below 100% of the fair value of the loaned securities. The agreements are continuous and do not have stated maturity dates and provide the counterparty the right to sell or re-pledge the securities loaned. If cash, rather than securities, is received as collateral, the cash is typically invested in short-term investments or fixed maturities and is reported as an asset on the Company's Condensed Consolidated Balance Sheets. Income associated with securities lending transactions is reported as a component of net investment income in the Company’s Condensed Consolidated Statements of Operations. Repurchase Agreements From time to time, the Company enters into repurchase agreements to manage liquidity or to earn incremental income. A repurchase agreement is a transaction in which one party (transferor) agrees to sell securities to another party (transferee) in return for cash (or securities), with a simultaneous agreement to repurchase the same securities at a specified price at a later date. The maturity of these transactions is generally ninety days or less. Repurchase agreements include master netting provisions that provide both parties the right to offset claims and apply securities held by them with respect to their obligations in the event of a default. Although the Company has the contractual right to offset claims, the Company's current positions do not meet the specific conditions for net presentation. Under repurchase agreements, the Company transfers collateral of U.S. government and government agency securities and receives cash. For repurchase agreements, the Company obtains cash in an amount equal to at least 95% of the fair value of the securities transferred. The agreements require additional collateral to be transferred under specified conditions and provide the counterparty the right to sell or re-pledge the securities transferred. The cash received from the repurchase program is typically invested in short-term investments or fixed maturities and is reported as an asset on the Company's Condensed Consolidated Balance Sheets. The Company accounts for the repurchase agreements as collateralized borrowings. The securities transferred under repurchase agreements are included in fixed maturities, AFS with the obligation to repurchase those securities recorded in other liabilities on the Company's Condensed Consolidated Balance Sheets. From time to time, the Company enters into reverse repurchase agreements where the Company purchases securities and simultaneously agrees to resell the same or substantially the same securities. The maturity of these transactions is generally within one year. The agreements require additional collateral to be transferred to the Company under specified conditions and the Company has the right to sell or re-pledge the securities received. The Company accounts for reverse repurchase agreements as collateralized financing. The receivable for reverse repurchase agreements is included within short-term investments in the Company's Condensed Consolidated Balance Sheets. Other Collateral Transactions As of June 30, 2020 and December 31, 2019, the Company pledged collateral of $34 and $37, respectively, of U.S. government securities and municipal securities or cash primarily related to certain bank loan participations committed to through a limited partnership agreement. These amounts also include collateral related to letters of credit. For disclosure of collateral in support of derivative transactions, refer to the Derivative Collateral Arrangements section in Note 7 - Derivatives of Notes to Condensed Consolidated Financial Statements. Other Restricted Investments The Company is required by law to deposit securities with government agencies in certain states in which it conducts business. As of June 30, 2020 and December 31, 2019, the fair value of securities on deposit was $2.5 billion and $2.3 billion, respectively. In addition, as of June 30, 2020, the Company held fixed maturities and short-term investments of $604 and $24, respectively, in trust for the benefit of syndicate policyholders, deposited fixed maturities of $64 into a Lloyd's of London ("Lloyd's") trust account to provide a portion of the required capital, and maintained other investments of $48 primarily consisting of overseas deposits in various countries with Lloyd's to support underwriting activities in those countries. As of December 31, 2019, the Company held fixed maturities and short-term investments of $447 and $189, respectively, in trust and other investments of $38 primarily consisting of overseas deposits in various countries with Lloyd's. Lloyd's is an insurance market-place operating worldwide. Lloyd's does not underwrite risks. The Company accepts risks as the sole member of Lloyd's Syndicate 1221 ("Lloyd's Syndicate").

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