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Fair Value Measurements | 9 Months Ended
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Sep. 30, 2020
Fair Value Disclosures [Abstract] |
Fair Value Measurements | 5. FAIR VALUE MEASUREMENTS The Company carries certain financial assets and liabilities at estimated fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market in an orderly transaction between market participants. Our fair value framework includes a hierarchy that gives the highest priority to the use of quoted prices in active markets, followed by the use of market observable inputs, followed by the use of unobservable inputs. The fair value hierarchy levels are as follows: Level 1 Fair values based primarily on unadjusted quoted prices for identical assets or liabilities, in active markets that the Company has the ability to access at the measurement date. Level 2 Fair values primarily based on observable inputs, other than quoted prices included in Level 1, or based on prices for similar assets and liabilities. Level 3 Fair values derived when one or more of the significant inputs are unobservable (including assumptions about risk). With little or no observable market, the determination of fair values uses considerable judgment and represents the Company’s best estimate of an amount that could be realized in a market exchange for the asset or liability. Also included are securities that are traded within illiquid markets and/or priced by independent brokers. The Company will classify the financial asset or liability by level based upon the lowest level input that is significant to the determination of the fair value. In most cases, both observable inputs (e.g., changes in interest rates) and unobservable inputs (e.g., changes in risk assumptions) are used to determine fair values that the Company has classified within Level 3.
Assets and (Liabilities) Carried at Fair Value by Hierarchy Level as of September 30, 2020
| Total | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3)
Assets accounted for at fair value on a recurring basis |  |  |  |
Fixed maturities, AFS |  |  |  |
Asset-backed-securities ("ABS") | $ | 1,490 |  | $ | — |  | $ | 1,490 |  | $ | — |
Collateralized loan obligations ("CLOs") | 2,449 |  | — |  | 2,308 |  | 141 |
Commercial mortgage-backed securities ("CMBS") | 4,444 |  | — |  | 4,352 |  | 92 |
Corporate | 19,416 |  | — |  | 18,420 |  | 996 |
Foreign government/government agencies | 984 |  | — |  | 984 |  | — |
Municipal | 9,310 |  | — |  | 9,304 |  | 6 |
Residential mortgage-backed securities ("RMBS") | 4,548 |  | — |  | 4,097 |  | 451 |
U.S. Treasuries | 1,403 |  | 381 |  | 1,022 |  | — |
Total fixed maturities | 44,044 |  | 381 |  | 41,977 |  | 1,686 |
Equity securities, at fair value | 819 |  | 352 |  | 398 |  | 69 |
Derivative assets |  |  |  |
Credit derivatives | 11 |  | — |  | 11 |  | — |
Interest rate derivatives | 1 |  | — |  | 1 |  | — |
Total derivative assets [1] | 12 |  | — |  | 12 |  | — |
Short-term investments | 3,399 |  | 3,176 |  | 209 |  | 14 |
Total assets accounted for at fair value on a recurring basis | $ | 48,274 |  | $ | 3,909 |  | $ | 42,596 |  | $ | 1,769 |
Liabilities accounted for at fair value on a recurring basis |  |  |  |
Derivative liabilities |  |  |  |
Credit derivatives | $ | 1 |  | $ | — |  | $ | 1 |  | $ | — |
Foreign exchange derivatives | $ | 6 |  | $ | — |  | $ | 6 |  | $ | — |
Interest rate derivatives | (79) |  | — |  | (79) |  | — |
Total derivative liabilities [2] | (72) |  | — |  | (72) |  | — |
Total liabilities accounted for at fair value on a recurring basis | $ | (72) |  | $ | — |  | $ | (72) |  | $ | — |
Assets and (Liabilities) Carried at Fair Value by Hierarchy Level as of December 31, 2019
| Total | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3)
Assets accounted for at fair value on a recurring basis |  |  |  |
Fixed maturities, AFS |  |  |  |
ABS | $ | 1,476 |  | $ | — |  | $ | 1,461 |  | $ | 15 |
CLOs | 2,183 |  | — |  | 2,088 |  | 95 |
CMBS | 4,338 |  | — |  | 4,329 |  | 9 |
Corporate | 17,396 |  | — |  | 16,664 |  | 732 |
Foreign government/government agencies | 1,123 |  | — |  | 1,120 |  | 3 |
Municipal | 9,498 |  | — |  | 9,498 |  | — |
RMBS | 4,869 |  | — |  | 4,309 |  | 560 |
U.S. Treasuries | 1,265 |  | 330 |  | 935 |  | — |
Total fixed maturities | 42,148 |  | 330 |  | 40,404 |  | 1,414 |
Fixed maturities, FVO | 11 |  | — |  | 11 |  | — |
Equity securities, at fair value | 1,657 |  | 1,401 |  | 183 |  | 73 |
Derivative assets |  |  |  |
Credit derivatives | 11 |  | — |  | 11 |  | — |
Interest rate derivatives | 1 |  | — |  | 1 |  | — |
Total derivative assets [1] | 12 |  | — |  | 12 |  | — |
Short-term investments | 2,921 |  | 1,028 |  | 1,878 |  | 15 |
Total assets accounted for at fair value on a recurring basis | $ | 46,749 |  | $ | 2,759 |  | $ | 42,488 |  | $ | 1,502 |
Liabilities accounted for at fair value on a recurring basis |  |  |  |
Derivative liabilities |  |  |  |
Credit derivatives | $ | (1) |  | $ | — |  | $ | (1) |  | $ | — |
Equity derivatives | (15) |  | — |  | — |  | (15) |
Foreign exchange derivatives | (2) |  | — |  | (2) |  | — |
Interest rate derivatives | (60) |  | — |  | (60) |  | — |
Total derivative liabilities [2] | (78) |  | — |  | (63) |  | (15) |
Contingent consideration [3] | (22) |  | — |  | — |  | (22) |
Total liabilities accounted for at fair value on a recurring basis | $ | (100) |  | $ | — |  | $ | (63) |  | $ | (37) |
[1]Includes derivative instruments in a net positive fair value position after consideration of the accrued interest and impact of collateral posting requirements which may be imposed by agreements and applicable law. [2]Includes derivative instruments in a net negative fair value position (derivative liability) after consideration of the accrued interest and impact of collateral posting requirements which may be imposed by agreements and applicable law. [3]For additional information see the Contingent Consideration section below. In connection with the acquisition of Navigators Group, the Company has overseas deposits in Other Invested Assets of $53 and $38 as of September 30, 2020 and December 31, 2019, respectively, which are measured at fair value using the net asset value as a practical expedient. Fixed Maturities, Equity Securities, Short-term Investments, and Derivatives Valuation Techniques The Company generally determines fair values using valuation techniques that use prices, rates, and other relevant information evident from market transactions involving identical or similar instruments. Valuation techniques also include, where appropriate, estimates of future cash flows that are converted into a single discounted amount using current market expectations. The Company uses a "waterfall" approach comprised of the following pricing sources and techniques, which are listed in priority order: •Quoted prices, unadjusted, for identical assets or liabilities in active markets, which are classified as Level 1. •Prices from third-party pricing services, which primarily utilize a combination of techniques. These services utilize recently reported trades of identical, similar, or benchmark securities making adjustments for market observable inputs available through the reporting date. If there are no recently reported trades, they may use a discounted cash flow technique to develop a price using expected cash flows based upon the anticipated future performance of the underlying collateral discounted at an estimated market rate. Both techniques develop prices that consider the time value of future cash flows and provide a margin for risk, including liquidity and credit risk. Most prices provided by third-party pricing services are classified as Level 2 because the inputs used in pricing the securities are observable. However, some securities that are less liquid or trade less actively are classified as Level 3. Additionally, certain long-dated securities, such as municipal securities and bank loans, include benchmark interest rate or credit spread assumptions that are not observable in the marketplace and are thus classified as Level 3. •Internal matrix pricing, which is a valuation process internally developed for private placement securities for which the Company is unable to obtain a price from a third-party pricing service. Internal pricing matrices determine credit spreads that, when combined with risk-free rates, are applied to contractual cash flows to develop a price. The Company develops credit spreads using market based data for public securities adjusted for credit spread differentials between public and private securities, which are obtained from a survey of multiple private placement brokers. The market-based reference credit spread considers the issuer’s financial strength and term to maturity, using an independent public security index and trade information, while the credit spread differential considers the non-public nature of the security. Securities priced using internal matrix pricing are classified as Level 2 because the inputs are observable or can be corroborated with observable data. •Independent broker quotes, which are typically non-binding, use inputs that can be difficult to corroborate with observable market based data. Brokers may use present value techniques using assumptions specific to the security types, or they may use recent transactions of similar securities. Due to the lack of transparency in the process that brokers use to develop prices, valuations that are based on independent broker quotes are classified as Level 3. The fair value of derivative instruments is determined primarily using a discounted cash flow model or option model technique and incorporates counterparty credit risk. In some cases, quoted market prices for exchange-traded and over-the-counter ("OTC") cleared derivatives may be used and in other cases independent broker quotes may be used. The pricing valuation models primarily use inputs that are observable in the market or can be corroborated by observable market data. The valuation of certain derivatives may include significant inputs that are unobservable, such as volatility levels, and reflect the Company’s view of what other market participants would use when pricing such instruments. Valuation Controls The process for determining the fair value of investments is monitored by the Valuation Committee, which is a cross-functional group of senior management within the Company. The purpose of the Valuation Committee is to provide oversight of the pricing policy, procedures and controls, including approval of valuation methodologies and pricing sources. The Valuation Committee reviews market data trends, pricing statistics and trading statistics to ensure that prices are reasonable and consistent with our fair value framework. Controls and procedures used to assess third-party pricing services are reviewed by the Valuation Committee, including the results of annual due-diligence reviews. Controls include, but are not limited to, reviewing daily and monthly price changes, stale prices, and missing prices and comparing new trade prices to third-party pricing services, weekly price changes to published bond prices of a corporate bond index, and daily OTC derivative market valuations to counterparty valuations. The Company has a dedicated pricing unit that works with trading and investment professionals to challenge the price received by a third party pricing source if the Company believes that the valuation received does not accurately reflect the fair value. New valuation models and changes to current models require approval by the Valuation Committee. In addition, the Company’s enterprise-wide Operational Risk Management function provides an independent review of the suitability and reliability of model inputs, as well as an analysis of significant changes to current models. Valuation Inputs Quoted prices for identical assets in active markets are considered Level 1 and consist of on-the-run U.S. Treasuries, money market funds, exchange-traded equity securities, open-ended mutual funds, certain short-term investments, and exchange traded futures and option contracts.
Valuation Inputs Used in Levels 2 and 3 Measurements for Securities and Derivatives
Level 2 Primary Observable Inputs | Level 3 Primary Unobservable Inputs
Fixed Maturity Investments
Structured securities (includes ABS, CLOs, CMBS and RMBS)
| • Benchmark yields and spreads • Monthly payment information • Collateral performance, which varies by vintage year and includes delinquency rates, loss severity rates and refinancing assumptions • Credit default swap indices Other inputs for ABS, CLOs and RMBS: • Estimate of future principal prepayments, derived from the characteristics of the underlying structure • Prepayment speeds previously experienced at the interest rate levels projected for the collateral |  | • Independent broker quotes • Credit spreads beyond observable curve • Interest rates beyond observable curve Other inputs for less liquid securities or those that trade less actively, including subprime RMBS: • Estimated cash flows • Credit spreads, which include illiquidity premium • Constant prepayment rates • Constant default rates • Loss severity
Corporates
| • Benchmark yields and spreads • Reported trades, bids, offers of the same or similar securities • Issuer spreads and credit default swap curves Other inputs for investment grade privately placed securities that utilize internal matrix pricing: • Credit spreads for public securities of similar quality, maturity, and sector, adjusted for non-public nature |  | • Independent broker quotes • Credit spreads beyond observable curve • Interest rates beyond observable curve Other inputs for below investment grade privately placed securities and private bank loans: • Independent broker quotes • Credit spreads for public securities of similar quality, maturity, and sector, adjusted for non-public nature
U.S. Treasuries, Municipals, and Foreign government/government agencies
| • Benchmark yields and spreads • Issuer credit default swap curves • Political events in emerging market economies • Municipal Securities Rulemaking Board reported trades and material event notices • Issuer financial statements |  | • Credit spreads beyond observable curve • Interest rates beyond observable curve
Equity Securities
| • Quoted prices in markets that are not active |  | • For privately traded equity securities, internal discounted cash flow models utilizing earnings multiples or other cash flow assumptions that are not observable
Short-term Investments
| • Benchmark yields and spreads • Reported trades, bids, offers • Issuer spreads and credit default swap curves • Material event notices and new issue money market rates |  | • Independent broker quotes
Derivatives
Credit derivatives
| • Swap yield curve • Credit default swap curves |  | Not applicable
Equity derivatives
| • Equity index levels • Swap yield curve |  | • Independent broker quotes • Equity volatility
Foreign exchange derivatives
| • Swap yield curve • Currency spot and forward rates • Cross currency basis curves |  | Not applicable
Interest rate derivatives
| • Swap yield curve |  | • Independent broker quotes • Interest rate volatility
Significant Unobservable Inputs for Level 3 - Securities
Assets accounted for at fair value on a recurring basis | Fair Value | Predominant Valuation Technique | Significant Unobservable Input | Minimum | Maximum | Weighted Average [1] | Impact of Increase in Input on Fair Value [2]
As of September 30, 2020
CLOs [3] | $ | 78 |  | Discounted cash flows | Spread | 414 bps | 414 bps | 414 bps | Decrease
CMBS [3] | $ | 13 |  | Discounted cash flows | Spread (encompasses prepayment, default risk and loss severity) | 275 bps | 1,235 bps | 1,188 bps | Decrease
Corporate [4] | $ | 866 |  | Discounted cash flows | Spread | 129 bps | 972 bps | 311 bps | Decrease
RMBS [3] | $ | 411 |  | Discounted cash flows | Spread [6] | 30 bps | 590 bps | 128 bps | Decrease
|  |  | Constant prepayment rate [6] | —% | 11% | 6% | Decrease [5]
|  |  | Constant default rate [6] | 2% | 6% | 3% | Decrease
|  |  | Loss severity [6] | —% | 100% | 82% | Decrease
As of December 31, 2019
CLOs [3] | $ | 95 |  | Discounted cash flows | Spread | 246 bps | 246 bps | 246 bps | Decrease
CMBS [3] | $ | 1 |  | Discounted cash flows | Spread (encompasses prepayment, default risk and loss severity) | 9 bps | 1,832 bps | 161 bps | Decrease
Corporate [4] | $ | 633 |  | Discounted cash flows | Spread | 93 bps | 788 bps | 236 bps | Decrease
RMBS [3] | $ | 560 |  | Discounted cash flows | Spread [6] | 5 bps | 233 bps | 79 bps | Decrease
|  |  | Constant prepayment rate [6] | —% | 11% | 6% | Decrease [5]
|  |  | Constant default rate [6] | 1% | 6% | 3% | Decrease
|  |  | Loss severity [6] | —% | 100% | 70% | Decrease
[1]The weighted average is determined based on the fair value of the securities. [2]Conversely, the impact of a decrease in input would have the opposite impact to the fair value as that presented in the table. [3]Excludes securities for which the Company bases fair value on broker quotations. [4]Excludes securities for which the Company bases fair value on broker quotations; however, included are broker priced lower-rated private placement securities for which the Company receives spread and yield information to corroborate the fair value. [5]Decrease for above market rate coupons and increase for below market rate coupons. [6]Generally, a change in the assumption used for the constant default rate would have been accompanied by a directionally similar change in the assumption used for the loss severity and a directionally opposite change in the assumption used for constant prepayment rate and would have resulted in wider spreads.
Significant Unobservable Inputs for Level 3 - Derivatives [1]
| Fair Value | Predominant Valuation Technique | Significant Unobservable Input | Minimum | Maximum | Weighted Average [2] | Impact of Increase in Input Value [3]
As of December 31, 2019
Equity options | $ | (15) |  | Option model | Equity volatility | 13 | % | 28 | % | 17 | % | Increase
[1] As of September 30, 2020, the fair values of the Company's level 3 derivatives were less than $1 and are excluded from the table. [2]The weighted average is determined based on the fair value of the derivatives. [3]Conversely, the impact of a decrease in input would have the opposite impact to the fair value as that presented in the table. Changes are based on long positions, unless otherwise noted. Changes in fair value will be inversely impacted for short positions. The tables above exclude certain securities for which fair values are predominately based on independent broker quotes. While the Company does not have access to the significant unobservable inputs that independent brokers may use in their pricing process, the Company believes brokers likely use inputs similar to those used by the Company and third-party pricing services to price similar instruments. As such, in their pricing models, brokers likely use estimated loss severity rates, prepayment rates, constant default rates and credit spreads. Therefore, similar to non-broker priced securities, increases in these inputs would generally cause fair values to decrease. As of September 30, 2020, no significant adjustments were made by the Company to broker prices received. Contingent Consideration The acquisition of Lattice Strategies LLC ("Lattice") on July 29, 2016 required the Company to make payments to former owners of Lattice of up to $60 contingent upon growth in exchange-traded products ("ETP") assets under management ("AUM") over a period of four years beginning on the date of acquisition. The contingent consideration was measured at fair value on a quarterly basis by projecting future eligible ETP AUM over the contingency period to estimate the amount of expected payout. The future expected payout had been discounted back to the valuation date using a risk-adjusted discount rate of 10.0%. The risk-adjusted discount rate is an internally generated and significant unobservable input to fair value. In January 2020, we made a third payment of $10 after Lattice AUM reached $3.0 billion. Given the dramatic market declines and outflow in March, 2020, the Lattice AUM declined to $2.3 billion as of March 30, 2020 and the Company reduced the remaining contingent consideration liability to zero, recognizing an $11.9 before tax reduction in expense in first quarter 2020. The earn out period ended on July 29, 2020 with no additional consideration payable. Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis Using Significant Unobservable Inputs The Company uses derivative instruments to manage the risk associated with certain assets and liabilities. However, the derivative instrument may not be classified with the same fair value hierarchy level as the associated asset or liability. Therefore, the realized and unrealized gains and losses on derivatives reported in the Level 3 rollforward may be offset by realized and unrealized gains and losses of the associated assets and liabilities in other line items of the financial statements.
Fair Value Rollforwards for Financial Instruments Classified as Level 3 for the Three Months Ended September 30, 2020
| Total realized/unrealized gains (losses) |  |  |  |  |  |
|  | Fair value as of June 30, 2020 | Included in net income [1] | Included in OCI [2] | Purchases | Settlements | Sales | Transfers into Level 3 [3] | Transfers out of Level 3 [3] | Fair value as of September 30, 2020
Assets |  |  |  |  |  |  |  |  |
Fixed Maturities, AFS |  |  |  |  |  |  |  |  |
| ABS | $ | 23 |  | $ | — |  | $ | — |  | $ | — |  | $ | — |  | $ | — |  | $ | — |  | $ | (23) |  | $ | — |
| CLOs | 99 |  | — |  | 1 |  | 63 |  | (3) |  | — |  | — |  | (19) |  | 141 |
| CMBS | 20 |  | — |  | 2 |  | 66 |  | (1) |  | — |  | 5 |  | — |  | 92 |
| Corporate | 1,109 |  | 1 |  | 19 |  | 45 |  | (62) |  | — |  | 22 |  | (138) |  | 996 |
| Municipal | — |  | (3) |  | 2 |  | — |  | — |  | — |  | 7 |  | — |  | 6 |
| RMBS | 479 |  | — |  | 2 |  | 40 |  | (48) |  | — |  | — |  | (22) |  | 451 |
Total Fixed Maturities, AFS | 1,730 |  | (2) |  | 26 |  | 214 |  | (114) |  | — |  | 34 |  | (202) |  | 1,686 |
Equity Securities, at fair value | 66 |  | — |  | — |  | 3 |  | — |  | — |  | — |  | — |  | 69 |
Short-term investments | 14 |  | — |  | — |  | — |  | — |  | — |  | — |  | — |  | 14 |
Total Assets | $ | 1,810 |  | $ | (2) |  | $ | 26 |  | $ | 217 |  | $ | (114) |  | $ | — |  | $ | 34 |  | $ | (202) |  | $ | 1,769 |
Liabilities |  |  |  |  |  |  |  |
Total Liabilities | $ | — |  | $ | — |  | $ | — |  | $ | — |  | $ | — |  | $ | — |  | $ | — |  | $ | — |  | $ | — |
Fair Value Rollforwards for Financial Instruments Classified as Level 3 for the Nine Months Ended September 30, 2020
| Total realized/unrealized gains (losses) |  |  |  |  |  |
|  | Fair value as of January 1, 2020 | Included in net income [1] | Included in OCI [2] | Purchases | Settlements | Sales | Transfers into Level 3 [3] | Transfers out of Level 3 [3] | Fair value as of September 30, 2020
Assets |  |  |  |  |  |  |  |  |
Fixed Maturities, AFS |  |  |  |  |  |  |  |  |
| ABS | $ | 15 |  | $ | — |  | $ | (1) |  | $ | 43 |  | $ | — |  | $ | — |  | $ | — |  | $ | (57) |  | $ | — |
| CLOs | 95 |  | — |  | (1) |  | 82 |  | (16) |  | — |  | — |  | (19) |  | 141 |
| CMBS | 9 |  | — |  | 2 |  | 79 |  | (3) |  | — |  | 5 |  | — |  | 92 |
| Corporate | 732 |  | (31) |  | — |  | 161 |  | (126) |  | (27) |  | 481 |  | (194) |  | 996 |
| Foreign Govt./Govt. Agencies | 3 |  | — |  | — |  | — |  | — |  | — |  | — |  | (3) |  | — |
| Municipal | — |  | (3) |  | 2 |  | — |  | — |  | — |  | 7 |  | — |  | 6 |
| RMBS | 560 |  | — |  | (10) |  | 66 |  | (136) |  | (7) |  | — |  | (22) |  | 451 |
Total Fixed Maturities, AFS | 1,414 |  | (34) |  | (8) |  | 431 |  | (281) |  | (34) |  | 493 |  | (295) |  | 1,686 |
Equity Securities, at fair value | 73 |  | (10) |  | — |  | 6 |  | — |  | — |  | — |  | — |  | 69 |
Short-term investments | 15 |  | — |  | — |  | — |  | (1) |  | — |  | — |  | — |  | 14 |
Total Assets | $ | 1,502 |  | $ | (44) |  | $ | (8) |  | $ | 437 |  | $ | (282) |  | $ | (34) |  | $ | 493 |  | $ | (295) |  | $ | 1,769 |
Liabilities |  |  |  |  |  |  |  |  |
Contingent Consideration | (22) |  | 12 |  | — |  | — |  | 10 |  | — |  | — |  | — |  | — |
Derivatives, net [4] |  |  |  |  |  |  |  |  |
Equity | Equity | (15) |  | 36 |  | — |  | — |  | — |  | (21) |  | — |  | — |  | — |
Total Derivatives, net [4] | (15) |  | 36 |  | — |  | — |  | — |  | (21) |  | — |  | — |  | — |
Total Liabilities | $ | (37) |  | $ | 48 |  | $ | — |  | $ | — |  | $ | 10 |  | $ | (21) |  | $ | — |  | $ | — |  | $ | — |
Fair Value Rollforwards for Financial Instruments Classified as Level 3 for the Three Months Ended September 30, 2019
| Total realized/unrealized gains (losses) |  |  |  |  |  |
|  | Fair value as of June 30, 2019 | Included in net income [1] | Included in OCI [2] | Purchases | Settlements | Sales | Transfers into Level 3 [3] | Transfers out of Level 3 [3] | Fair value as of September 30, 2019
Assets |  |  |  |  |  |  |  |  |
Fixed Maturities, AFS |  |  |  |  |  |  |  |  |
| ABS | $ | 5 |  | $ | — |  | $ | — |  | $ | — |  | $ | — |  | $ | — |  | $ | — |  | $ | (5) |  | $ | — |
| CLOs | 286 |  | — |  | — |  | 92 |  | (8) |  | — |  | — |  | (74) |  | 296 |
| CMBS | 35 |  | — |  | — |  | 10 |  | (1) |  | — |  | — |  | (24) |  | 20 |
| Corporate | 568 |  | (3) |  | — |  | 166 |  | (7) |  | (4) |  | 15 |  | (12) |  | 723 |
| Foreign Govt./Govt. Agencies | 3 |  | — |  | — |  | — |  | — |  | — |  | — |  | — |  | 3 |
| RMBS | 758 |  | — |  | (3) |  | — |  | (51) |  | — |  | — |  | (90) |  | 614 |
Total Fixed Maturities, AFS | 1,655 |  | (3) |  | (3) |  | 268 |  | (67) |  | (4) |  | 15 |  | (205) |  | 1,656 |
Equity Securities, at fair value | 72 |  | (2) |  | — |  | — |  | — |  | — |  | — |  | — |  | 70 |
Total Assets | $ | 1,727 |  | $ | (5) |  | $ | (3) |  | $ | 268 |  | $ | (67) |  | $ | (4) |  | $ | 15 |  | $ | (205) |  | $ | 1,726 |
Liabilities |  |  |  |  |  |  |  |  |
Contingent Consideration | (21) |  | — |  | — |  | — |  | — |  | — |  | — |  | — |  | (21) |
Derivatives, net [4] |  |  |  |  |  |  |  |  |
| Equity | (3) |  | (2) |  | — |  | — |  | — |  | — |  | — |  | — |  | (5) |
Total Derivatives, net [4] | (3) |  | (2) |  | — |  | — |  | — |  | — |  | — |  | — |  | (5) |
Total Liabilities | $ | (24) |  | $ | (2) |  | $ | — |  | $ | — |  | $ | — |  | $ | — |  | $ | — |  | $ | — |  | $ | (26) |
Fair Value Rollforwards for Financial Instruments Classified as Level 3 for the Nine Months Ended September 30, 2019
| Total realized/unrealized gains (losses) |  |  |  |  |  |
|  | Fair value as of January 1, 2019 | Included in net income [1] | Included in OCI [2] | Purchases | Settlements | Sales | Transfers into Level 3 [3] | Transfers out of Level 3 [3] | Fair value as of September 30, 2019
Assets |  |  |  |  |  |  |  |  |
Fixed Maturities, AFS |  |  |  |  |  |  |  |  |
| ABS | $ | 10 |  | $ | — |  | $ | — |  | $ | 5 |  | $ | (1) |  | $ | — |  | $ | — |  | $ | (14) |  | $ | — |
| CLOs | 100 |  | — |  | — |  | 329 |  | (18) |  | (6) |  | — |  | (109) |  | 296 |
| CMBS | 12 |  | — |  | 1 |  | 34 |  | (3) |  | — |  | — |  | (24) |  | 20 |
| Corporate | 520 |  | (4) |  | 9 |  | 261 |  | (13) |  | (68) |  | 61 |  | (43) |  | 723 |
| Foreign Govt./Govt. Agencies | 3 |  | — |  | — |  | — |  | — |  | — |  | — |  | — |  | 3 |
| RMBS | 920 |  | 1 |  | (5) |  | 134 |  | (163) |  | (35) |  | — |  | (238) |  | 614 |
Total Fixed Maturities, AFS | 1,565 |  | (3) |  | 5 |  | 763 |  | (198) |  | (109) |  | 61 |  | (428) |  | 1,656 |
Equity Securities, at fair value | 77 |  | (3) |  | — |  | 9 |  | — |  | (13) |  | — |  | — |  | 70 |
Derivatives, net [4] |  |  |  |  |  |  |  |  |
| Interest rate | 1 |  | (1) |  | — |  | — |  | — |  | — |  | — |  | — |  | — |
Total Derivatives, net [4] | 1 |  | (1) |  | — |  | — |  | — |  | — |  | — |  | — |  | — |
Total Assets | $ | 1,643 |  | $ | (7) |  | $ | 5 |  | $ | 772 |  | $ | (198) |  | $ | (122) |  | $ | 61 |  | $ | (428) |  | $ | 1,726 |
Liabilities |  |  |  |  |  |  |  |  |
Contingent Consideration | (35) |  | (6) |  | — |  | — |  | 20 |  | — |  | — |  | — |  | (21) |
Derivatives, net [4] |  |  |  |  |  |  |  |  |
| Equity | 3 |  | (8) |  | — |  | — |  | — |  | — |  | — |  | — |  | (5) |
Total Derivatives, net [4] | 3 |  | (8) |  | — |  | — |  | — |  | — |  | — |  | — |  | (5) |
Total Liabilities | $ | (32) |  | $ | (14) |  | $ | — |  | $ | — |  | $ | 20 |  | $ | — |  | $ | — |  | $ | — |  | $ | (26) |
[1]Amounts in these columns are generally reported in net realized capital gains (losses). All amounts are before income taxes. [2]All amounts are before income taxes. [3]Transfers in and/or (out) of Level 3 are primarily attributable to the availability of market observable information and the re-evaluation of the observability of pricing inputs. Transfers into Level 3 for the nine months ended September 30, 2020, were primarily related to private securities that were priced using internal matrix pricing in the prior period, but changed to broker pricing in the current period. [4]Derivative instruments are reported in this table on a net basis for asset (liability) positions and reported in the Condensed Consolidated Balance Sheets in other investments and other liabilities.
Changes in Unrealized Gains (Losses) for Financial Instruments Classified as Level 3 Still Held at End of Period
|  | Three Months Ended September 30, |  | Nine Months Ended September 30,
|  | 2020 | 2019 | 2020 | 2019 |  | 2020 | 2019 | 2020 | 2019
|  | Changes in Unrealized Gain/(Loss) included in Net Income [1] [2] | Changes in Unrealized Gain/(Loss) included in OCI [3] |  | Changes in Unrealized Gain/(Loss) included in Net Income [1] [2] | Changes in Unrealized Gain/(Loss) included in OCI [3]
Assets |  |  |  |  |  |  |  |  |
Fixed Maturities, AFS |  |  |  |  |  |  |  |  |
| CLOs | — |  | — |  | 1 |  | — |  |  | — |  | — |  | (1) |  | 1 |
| CMBS | — |  | — |  | 2 |  | — |  |  | — |  | — |  | 2 |  | — |
| Corporate | (1) |  | (2) |  | 17 |  | — |  |  | (21) |  | (3) |  | 1 |  | 8 |
| Foreign Govt./Govt. Agencies | — |  | — |  | — |  | — |  |  | — |  | — |  | — |  | 1 |
| Municipal | (3) |  | — |  | 2 |  | — |  |  | (3) |  | — |  | 2 |  | — |
| RMBS | — |  | — |  | 2 |  | (3) |  |  | — |  | — |  | (9) |  | (4) |
Total Fixed Maturities, AFS | (4) |  | (2) |  | 24 |  | (3) |  |  | (24) |  | (3) |  | (5) |  | 6 |
Equity Securities, at fair value | — |  | (2) |  | — |  | — |  |  | (9) |  | (2) |  | — |  | — |
Derivatives, net |  |  |  |  |  |  |  |  |
| Equity | — |  | — |  | — |  | — |  |  | — |  | — |  | — |  | — |
| Interest rate | — |  | — |  | — |  | — |  |  | — |  | (1) |  | — |  | — |
Total Derivatives, net | — |  | — |  | — |  | — |  |  | — |  | (1) |  | — |  | — |
Short-term investments | — |  | — |  | — |  | — |  |  |  |  |  |
Total Assets | $ | (4) |  | $ | (4) |  | $ | 24 |  | $ | (3) |  |  | $ | (33) |  | $ | (6) |  | $ | (5) |  | $ | 6 |
Liabilities |  |  |  |  |  |  |  |  |
Contingent Consideration | — |  | — |  | — |  | — |  |  | 12 |  | (6) |  | — |  | — |
Derivatives, net |  |  |  |  |  |  |  |  |
| Equity | — |  | (2) |  | — |  | — |  |  | — |  | (8) |  | — |  | — |
Total Derivatives, net | — |  | (2) |  | — |  | — |  |  | — |  | (8) |  | — |  | — |
Total Liabilities | $ | — |  | $ | (2) |  | $ | — |  | $ | — |  |  | $ | 12 |  | $ | (14) |  | $ | — |  | $ | — |
[1]All amounts in these rows are reported in net realized capital gains (losses). All amounts are before income taxes. [2]Amounts presented are for Level 3 only and therefore may not agree to other disclosures included herein. [3]Changes in unrealized gain (loss) on fixed maturities, AFS are reported in changes in net unrealized gain on securities in the Condensed Consolidated Statements of Comprehensive Income. Changes in interest rate derivatives are reported in changes in net gain on cash flow hedging instruments in the Condensed Consolidated Statements of Comprehensive Income. Fair Value Option The Company has elected the fair value option for certain RMBS that contain embedded credit derivatives with underlying credit risk. These securities are included within Fixed Maturities, FVO on the Condensed Consolidated Balance Sheets and changes in the fair value of these securities are reported in net realized capital gains and losses. As of September 30, 2020 and December 31, 2019, the fair value of assets using the fair value option was $0 and $11, respectively, with assets as of December 31, 2019 within the residential real estate sector. For the three and nine months ended September 30, 2020 and 2019 there were no realized capital gains (losses) related to the fair value of assets using the fair value option. Financial Instruments Not Carried at Fair Value
Financial Assets and Liabilities Not Carried at Fair Value
| September 30, 2020 |  | December 31, 2019
| Fair Value Hierarchy Level | Carrying Amount [1] | Fair Value |  | Fair Value Hierarchy Level | Carrying Amount | Fair Value
Assets |  |  |  |  |  |  |
Mortgage loans | Level 3 | $ | 4,461 |  | $ | 4,720 |  |  | Level 3 | $ | 4,215 |  | $ | 4,350 |
Liabilities |  |  |  |  |  |  |
Other policyholder funds and benefits payable | Level 3 | 711 |  | $ | 712 |  |  | Level 3 | $ | 763 |  | $ | 765 |
Senior notes [2] | Level 2 | $ | 3,261 |  | $ | 4,172 |  |  | Level 2 | $ | 3,759 |  | $ | 4,456 |
Junior subordinated debentures [2] | Level 2 | $ | 1,090 |  | $ | 1,093 |  |  | Level 2 | $ | 1,089 |  | $ | 1,153 |
[1]As of September 30, 2020, carrying amount of mortgage loans is net of ACL of $38. [2]Included in long-term debt in the Condensed Consolidated Balance Sheets, except for current maturities, which are included in short-term debt.

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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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