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Fair Value | 9 Months Ended
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Sep. 30, 2017
Fair Value Disclosures [Abstract] |
Fair Value | 4. Fair Value Fair value is the price that would be received upon sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The following fair value hierarchy is used in selecting inputs, with the highest priority given to Level 1, as these are the most transparent or reliable:
| • |  | Level 1 – Quoted prices for identical instruments in active markets.
| • |  | Level 2 – Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs are observable in active markets.
| • |  | Level 3 – Valuations derived from valuation techniques in which one or more significant inputs are not observable.
Prices may fall within Level 1, 2 or 3 depending upon the methodology and inputs used to estimate fair value for each specific security. In general, the Company seeks to price securities using third party pricing services. Securities not priced by pricing services are submitted to independent brokers for valuation and, if those are not available, internally developed pricing models are used to value assets using a methodology and inputs the Company believes market participants would use to value the assets. Prices obtained from third-party pricing services or brokers are not adjusted by the Company. The Company performs control procedures over information obtained from pricing services and brokers to ensure prices received represent a reasonable estimate of fair value and to confirm representations regarding whether inputs are observable or unobservable. Procedures may include: (i) the review of pricing service methodologies or broker pricing qualifications, (ii) back-testing, where past fair value estimates are compared to actual transactions executed in the market on similar dates, (iii) exception reporting, where period-over-period changes in price are reviewed and challenged with the pricing service or broker based on exception criteria, (iv) detailed analysis, where the Company performs an independent analysis of the inputs and assumptions used to price individual securities and (v) pricing validation, where prices received are compared to prices independently estimated by the Company. Assets and liabilities measured at fair value on a recurring basis are presented in the following tables:
September 30, 2017 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
(In millions) |  |  |  |  |  |  |  |
Fixed maturity securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Corporate and other bonds |  |  |  |  |  | $ | 19,465 |  |  | $ | 119 |  |  | $ | 19,584 |
States, municipalities and political subdivisions |  |  |  |  |  |  | 13,955 |  |  |  | 1 |  |  |  | 13,956 |
Asset-backed: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Residential mortgage-backed |  |  |  |  |  |  | 4,829 |  |  |  | 176 |  |  |  | 5,005 |
Commercial mortgage-backed |  |  |  |  |  |  | 1,876 |  |  |  | 24 |  |  |  | 1,900 |
Other asset-backed |  |  |  |  |  |  | 915 |  |  |  | 146 |  |  |  | 1,061 |
Total asset-backed |  |  |  |  |  |  | 7,620 |  |  |  | 346 |  |  |  | 7,966 |
U.S. Treasury and obligations of government-sponsored enterprises |  | $ | 115 |  |  |  |  |  |  |  |  |  |  |  | 115 |
Foreign government |  |  |  |  |  |  | 445 |  |  |  |  |  |  |  | 445 |
Redeemable preferred stock |  |  | 20 |  |  |  |  |  |  |  |  |  |  |  | 20 |
Fixed maturities available-for-sale |  |  | 135 |  |  |  | 41,485 |  |  |  | 466 |  |  |  | 42,086 |
Fixed maturities trading |  |  | 9 |  |  |  | 407 |  |  |  | 5 |  |  |  | 421 |
Total fixed maturities |  | $ | 144 |  |  | $ | 41,892 |  |  | $ | 471 |  |  | $ | 42,507 |
Equity securities available-for-sale |  | $ | 110 |  |  |  |  |  |  | $ | 19 |  |  | $ | 129 |
Equity securities trading |  |  | 479 |  |  |  |  |  |  |  | 2 |  |  |  | 481 |
Total equity securities |  | $ | 589 |  |  | $ | - |  |  | $ | 21 |  |  | $ | 610 |
Short term investments |  | $ | 4,019 |  |  | $ | 876 |  |  |  |  |  |  | $ | 4,895 |
Other invested assets |  |  | 61 |  |  |  | 5 |  |  |  |  |  |  |  | 66 |
Payable to brokers |  |  | (9 | ) |  |  |  |  |  |  |  |  |  |  | (9 | )
December 31, 2016 |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
(In millions) |  |  |  |  |  |  |  |
Fixed maturity securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Corporate and other bonds |  |  |  |  |  | $ | 18,828 |  |  | $ | 130 |  |  | $ | 18,958 |
States, municipalities and political subdivisions |  |  |  |  |  |  | 13,239 |  |  |  | 1 |  |  |  | 13,240 |
Asset-backed: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Residential mortgage-backed |  |  |  |  |  |  | 4,944 |  |  |  | 129 |  |  |  | 5,073 |
Commercial mortgage-backed |  |  |  |  |  |  | 2,027 |  |  |  | 13 |  |  |  | 2,040 |
Other asset-backed |  |  |  |  |  |  | 968 |  |  |  | 57 |  |  |  | 1,025 |
Total asset-backed |  |  |  |  |  |  | 7,939 |  |  |  | 199 |  |  |  | 8,138 |
U.S. Treasury and obligations of government-sponsored enterprises |  | $ | 93 |  |  |  |  |  |  |  |  |  |  |  | 93 |
Foreign government |  |  |  |  |  |  | 445 |  |  |  |  |  |  |  | 445 |
Redeemable preferred stock |  |  | 19 |  |  |  |  |  |  |  |  |  |  |  | 19 |
Fixed maturities available-for-sale |  |  | 112 |  |  |  | 40,451 |  |  |  | 330 |  |  |  | 40,893 |
Fixed maturities trading |  |  |  |  |  |  | 595 |  |  |  | 6 |  |  |  | 601 |
Total fixed maturities |  | $ | 112 |  |  | $ | 41,046 |  |  | $ | 336 |  |  | $ | 41,494 |
Equity securities available-for-sale |  | $ | 91 |  |  |  |  |  |  | $ | 19 |  |  | $ | 110 |
Equity securities trading |  |  | 438 |  |  |  |  |  |  |  | 1 |  |  |  | 439 |
Total equity securities |  | $ | 529 |  |  | $ | - |  |  | $ | 20 |  |  | $ | 549 |
Short term investments |  | $ | 3,833 |  |  | $ | 853 |  |  |  |  |  |  | $ | 4,686 |
Other invested assets |  |  | 55 |  |  |  | 5 |  |  |  |  |  |  |  | 60 |
Receivables |  |  | 1 |  |  |  |  |  |  |  |  |  |  |  | 1 |
Life settlement contracts |  |  |  |  |  |  |  |  |  | $ | 58 |  |  |  | 58 |
Payable to brokers |  |  | (44 | ) |  |  |  |  |  |  |  |  |  |  | (44 | )
The following tables present reconciliations for all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three and nine months ended September 30, 2017 and 2016:
|  |  |  | Net Realized Gains (Losses) and Net Change in Unrealized Gains (Losses) |  |  |  |  |  |  |  |  |  |  |  |  |  | Unrealized Gains (Losses) Recognized in Net Income (Loss) on Level 3 Assets and
2017 |  | Balance, July 1 |  | Included in Net Income (Loss) |  | Included in OCI |  | Purchases |  | Sales |  | Settlements |  | Transfers into Level 3 |  | Transfers out of Level 3 |  | Balance, September 30 |  | Liabilities Held at September 30
(In millions) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Fixed maturity securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Corporate and other bonds |  | $ | 100 |  |  | $ | 1 |  |  | $ | 1 |  |  | $ | 13 |  |  |  |  |  |  | $ | (11 | ) |  | $ | 15 |  |  |  |  |  |  | $ | 119 |  |  |  |  |
States, municipalities and political subdivisions |  |  | 1 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 1 |  |  |  |  |
Asset-backed: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Residential mortgage-backed |  |  | 123 |  |  |  | 1 |  |  |  | 1 |  |  |  |  |  |  |  |  |  |  |  | (7 | ) |  |  | 58 |  |  |  |  |  |  |  | 176 |  |  |  |  |
Commercial mortgage-backed |  |  | 13 |  |  |  |  |  |  |  | (1 | ) |  |  | 12 |  |  |  |  |  |  |  | (2 | ) |  |  | 2 |  |  |  |  |  |  |  | 24 |  |  |  |  |
Other asset-backed |  |  | 82 |  |  |  | (1 | ) |  |  | 1 |  |  |  | 27 |  |  |  |  |  |  |  | (4 | ) |  |  | 41 |  |  |  |  |  |  |  | 146 |  |  |  |  |
Total asset-backed |  |  | 218 |  |  |  | - |  |  |  | 1 |  |  |  | 39 |  |  | $ | - |  |  |  | (13 | ) |  |  | 101 |  |  | $ | - |  |  |  | 346 |  |  | $ | - |
Fixed maturities available-for-sale |  |  | 319 |  |  |  | 1 |  |  |  | 2 |  |  |  | 52 |  |  |  |  |  |  |  | (24 | ) |  |  | 116 |  |  |  |  |  |  |  | 466 |  |  |  |  |
Fixed maturities trading |  |  | 5 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 5 |  |  |  |  |
Total fixed maturities |  | $ | 324 |  |  | $ | 1 |  |  | $ | 2 |  |  | $ | 52 |  |  | $ | - |  |  | $ | (24 | ) |  | $ | 116 |  |  | $ | - |  |  | $ | 471 |  |  | $ | - |
Equity securities available-for-sale |  | $ | 19 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | $ | 19 |  |  |  |  |
Equity securities trading |  |  | 1 |  |  |  |  |  |  |  |  |  |  | $ | 1 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 2 |  |  |  |  |
Total equity securities |  | $ | 20 |  |  | $ | - |  |  | $ | - |  |  | $ | 1 |  |  | $ | - |  |  | $ | - |  |  | $ | - |  |  | $ | - |  |  | $ | 21 |  |  | $ | - |
Life settlement contracts |  | $ | 1 |  |  |  |  |  |  |  |  |  |  |  |  |  |  | $ | (1) |  |  |  |  |  |  |  |  |  |  |  |  |  |  | $ | - |  |  |  |  |
|  |  |  | Net Realized Gains (Losses) and Net Change in Unrealized Gains (Losses) |  |  |  |  |  |  |  | Transfers |  | Transfers |  |  |  | Unrealized Gains (Losses) Recognized in Net Income on Level 3 Assets and Liabilities
2016 |  | Balance, July 1 |  | Included in Net Income |  | Included in OCI |  | Purchases |  | Sales |  | Settlements |  | into Level 3 |  | out of Level 3 |  | Balance, September 30 |  | Held at September 30
(In millions) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Fixed maturity securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Corporate and other bonds |  | $ | 242 |  |  | $ | 1 |  |  | $ | 7 |  |  | $ | 16 |  |  |  |  |  |  | $ | (5 | ) |  |  |  |  |  |  |  |  |  | $ | 261 |  |  |  |  |
States, municipalities and political subdivisions |  |  | 2 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | (1 | ) |  |  |  |  |  |  |  |  |  |  | 1 |  |  |  |  |
Asset-backed: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Residential mortgage-backed |  |  | 134 |  |  |  |  |  |  |  | (1 | ) |  |  | 5 |  |  |  |  |  |  |  | (1 | ) |  |  |  |  |  | $ | (58 | ) |  |  | 79 |  |  |  |  |
Commercial mortgage-backed |  |  | 11 |  |  |  |  |  |  |  |  |  |  |  | 23 |  |  |  |  |  |  |  | (8 | ) |  |  |  |  |  |  | (2 | ) |  |  | 24 |  |  |  |  |
Other asset-backed |  |  | 45 |  |  |  |  |  |  |  |  |  |  |  | 34 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | (36 | ) |  |  | 43 |  |  |  |  |
Total asset-backed |  |  | 190 |  |  |  | - |  |  |  | (1 | ) |  |  | 62 |  |  | $ | - |  |  |  | (9 | ) |  | $ | - |  |  |  | (96 | ) |  |  | 146 |  |  | $ | - |
Fixed maturities available-for-sale |  |  | 434 |  |  |  | 1 |  |  |  | 6 |  |  |  | 78 |  |  |  |  |  |  |  | (15 | ) |  |  |  |  |  |  | (96 | ) |  |  | 408 |  |  |  |  |
Fixed maturities trading |  |  | 6 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 6 |  |  |  | (1 | )
Total fixed maturities |  | $ | 440 |  |  | $ | 1 |  |  | $ | 6 |  |  | $ | 78 |  |  | $ | - |  |  | $ | (15 | ) |  | $ | - |  |  | $ | (96 | ) |  | $ | 414 |  |  | $ | (1 | )
Equity securities available-for-sale |  | $ | 19 |  |  | $ | (1 | ) |  | $ | 1 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | $ | 19 |  |  | $ | (2 | )
Equity securities trading |  |  | 2 |  |  |  |  |  |  |  |  |  |  | $ | (1 | ) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 1 |  |  |  | (1 | )
Total equity securities |  | $ | 21 |  |  | $ | (1 | ) |  | $ | 1 |  |  | $ | (1 | ) |  | $ | - |  |  | $ | - |  |  | $ | - |  |  | $ | - |  |  | $ | 20 |  |  | $ | (3 | )
Life settlement contracts |  | $ | 67 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | $ | 67 |  |  |  |  |
Derivative financial instruments, net |  |  | 1 |  |  | $ | (1 | ) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | - |  |  |  |  |
|  |  |  | Net Realized Gains (Losses) and Net Change in Unrealized Gains (Losses) |  |  |  |  |  |  |  |  |  |  |  |  |  | Unrealized Gains (Losses) Recognized in Net Income (Loss) on Level 3 Assets and
2017 |  | Balance, January 1 |  | Included in Net Income (Loss) |  | Included in OCI |  | Purchases |  | Sales |  | Settlements |  | Transfers into Level 3 |  | Transfers out of Level 3 |  | Balance, September 30 |  | Liabilities Held at September 30
(In millions) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Fixed maturity securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Corporate and other bonds |  | $ | 130 |  |  | $ | 1 |  |  | $ | 2 |  |  | $ | 18 |  |  | $ | (1) |  |  | $ | (36 | ) |  | $ | 15 |  |  | $ | (10 | ) |  | $ | 119 |  |  |  |  |
States, municipalities and political subdivisions |  |  | 1 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 1 |  |  |  |  |
Asset-backed: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Residential mortgage-backed |  |  | 129 |  |  |  | 3 |  |  |  | 4 |  |  |  |  |  |  |  |  |  |  |  | (18 | ) |  |  | 58 |  |  |  |  |  |  |  | 176 |  |  |  |  |
Commercial mortgage-backed |  |  | 13 |  |  |  |  |  |  |  | (1 | ) |  |  | 12 |  |  |  |  |  |  |  | (2 | ) |  |  | 2 |  |  |  |  |  |  |  | 24 |  |  |  |  |
Other asset-backed |  |  | 57 |  |  |  | (2 | ) |  |  | 1 |  |  |  | 78 |  |  |  |  |  |  |  | (6 | ) |  |  | 93 |  |  |  | (75 | ) |  |  | 146 |  |  |  |  |
Total asset-backed |  |  | 199 |  |  |  | 1 |  |  |  | 4 |  |  |  | 90 |  |  |  | - |  |  |  | (26 | ) |  |  | 153 |  |  |  | (75 | ) |  |  | 346 |  |  | $ | - |
Fixed maturities available-for-sale |  |  | 330 |  |  |  | 2 |  |  |  | 6 |  |  |  | 108 |  |  |  | (1) |  |  |  | (62 | ) |  |  | 168 |  |  |  | (85 | ) |  |  | 466 |  |  |  |  |
Fixed maturities trading |  |  | 6 |  |  |  | (1 | ) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 5 |  |  |  | (1 | )
Total fixed maturities |  | $ | 336 |  |  | $ | 1 |  |  | $ | 6 |  |  | $ | 108 |  |  | $ | (1) |  |  | $ | (62 | ) |  | $ | 168 |  |  | $ | (85 | ) |  | $ | 471 |  |  | $ | (1 | )
Equity securities available-for-sale |  | $ | 19 |  |  |  |  |  |  | $ | 2 |  |  | $ | 1 |  |  | $ | (3) |  |  |  |  |  |  |  |  |  |  |  |  |  |  | $ | 19 |  |  |  |  |
Equity securities trading |  |  | 1 |  |  |  |  |  |  |  |  |  |  |  | 1 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 2 |  |  |  |  |
Total equity securities |  | $ | 20 |  |  | $ | - |  |  | $ | 2 |  |  | $ | 2 |  |  | $ | (3) |  |  | $ | - |  |  | $ | - |  |  | $ | - |  |  | $ | 21 |  |  | $ | - |
Life settlement contracts |  | $ | 58 |  |  | $ | 6 |  |  |  |  |  |  |  |  |  |  | $ | (59) |  |  | $ | (5 | ) |  |  |  |  |  |  |  |  |  | $ | - |  |  |  |  |
Derivative financial instruments, net |  |  | - |  |  |  | 1 |  |  |  |  |  |  |  |  |  |  |  | (1) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | - |  |  |  |  |
|  |  |  | Net Realized Gains (Losses) and Net Change in Unrealized Gains (Losses) |  |  |  |  |  |  |  | Transfers |  | Transfers |  |  |  | Unrealized Gains (Losses) Recognized in Net Income on Level 3 Assets and Liabilities
2016 |  | Balance, January 1 |  | Included in Net Income |  | Included in OCI |  | Purchases |  | Sales |  | Settlements |  | into Level 3 |  | out of Level 3 |  | Balance, September 30 |  | Held at September 30
(In millions) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Fixed maturity securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Corporate and other bonds |  | $ | 168 |  |  | $ | 1 |  |  | $ | 14 |  |  | $ | 163 |  |  | $ | (36 | ) |  | $ | (15 | ) |  |  |  |  |  | $ | (34 | ) |  | $ | 261 |  |  |  |  |
States, municipalities and political subdivisions |  |  | 2 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | (1 | ) |  |  |  |  |  |  |  |  |  |  | 1 |  |  |  |  |
Asset-backed: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Residential mortgage-backed |  |  | 134 |  |  |  | 2 |  |  |  | (2 | ) |  |  | 15 |  |  |  |  |  |  |  | (10 | ) |  |  |  |  |  |  | (60 | ) |  |  | 79 |  |  |  |  |
Commercial mortgage-backed |  |  | 22 |  |  |  |  |  |  |  |  |  |  |  | 32 |  |  |  |  |  |  |  | (17 | ) |  | $ | 3 |  |  |  | (16 | ) |  |  | 24 |  |  |  |  |
Other asset-backed |  |  | 53 |  |  |  |  |  |  |  | 2 |  |  |  | 69 |  |  |  | (25 | ) |  |  | (1 | ) |  |  | 2 |  |  |  | (57 | ) |  |  | 43 |  |  |  |  |
Total asset-backed |  |  | 209 |  |  |  | 2 |  |  |  | - |  |  |  | 116 |  |  |  | (25 | ) |  |  | (28 | ) |  |  | 5 |  |  |  | (133 | ) |  |  | 146 |  |  | $ | - |
Fixed maturities available-for-sale |  |  | 379 |  |  |  | 3 |  |  |  | 14 |  |  |  | 279 |  |  |  | (61 | ) |  |  | (44 | ) |  |  | 5 |  |  |  | (167 | ) |  |  | 408 |  |  |  |  |
Fixed maturities trading |  |  | 85 |  |  |  | 5 |  |  |  |  |  |  |  | 2 |  |  |  | (86 | ) |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 6 |  |  |  | 3 |
Total fixed maturities |  | $ | 464 |  |  | $ | 8 |  |  | $ | 14 |  |  | $ | 281 |  |  | $ | (147 | ) |  | $ | (44 | ) |  | $ | 5 |  |  | $ | (167 | ) |  | $ | 414 |  |  | $ | 3 |
Equity securities available-for-sale |  | $ | 20 |  |  | $ | (1 | ) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | $ | 19 |  |  | $ | (2 | )
Equity securities trading |  |  | 1 |  |  |  | 1 |  |  |  |  |  |  |  |  |  |  | $ | (1 | ) |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 1 |  |  |  |  |
Total equity securities |  | $ | 21 |  |  | $ | - |  |  | $ | - |  |  | $ | - |  |  | $ | (1 | ) |  | $ | - |  |  | $ | - |  |  | $ | - |  |  | $ | 20 |  |  | $ | (2 | )
Life settlement contracts |  | $ | 74 |  |  | $ | 10 |  |  |  |  |  |  |  |  |  |  |  |  |  |  | $ | (17 | ) |  |  |  |  |  |  |  |  |  | $ | 67 |  |  | $ | 2 |
Derivative financial instruments, net |  |  | 3 |  |  |  | (4 | ) |  |  |  |  |  |  |  |  |  | $ | (2 | ) |  |  |  |  |  | $ | 3 |  |  |  |  |  |  |  | - |  |  |  | (3 | )
Net realized and unrealized gains and losses are reported in Net income (loss) as follows:
Major Category of Assets and Liabilities |  | Consolidated Condensed Statements of Income Line Items
Fixed maturity securities available-for-sale |  | Investment gains (losses)
Fixed maturity securities trading |  | Net investment income
Equity securities available-for-sale |  | Investment gains (losses)
Equity securities trading |  | Net investment income
Other invested assets |  | Investment gains (losses) and Net investment income
Derivative financial instruments held in a trading portfolio |  | Net investment income
Derivative financial instruments, other |  | Investment gains (losses) and Other revenues
Life settlement contracts |  | Other revenues
Securities may be transferred in or out of levels within the fair value hierarchy based on the availability of observable market information and quoted prices used to determine the fair value of the security. The availability of observable market information and quoted prices varies based on market conditions and trading volume. During the three and nine months ended September 30, 2017 and 2016 there were no transfers between Level 1 and Level 2. The Company’s policy is to recognize transfers between levels at the beginning of quarterly reporting periods. Valuation Methodologies and Inputs The following section describes the valuation methodologies and relevant inputs used to measure different financial instruments at fair value, including an indication of the level in the fair value hierarchy in which the instruments are generally classified. Fixed Maturity Securities Level 1 securities include highly liquid and exchange traded bonds and redeemable preferred stock, valued using quoted market prices. Level 2 securities include most other fixed maturity securities as the significant inputs are observable in the marketplace. All classes of Level 2 fixed maturity securities are valued using a methodology based on information generated by market transactions involving identical or comparable assets, a discounted cash flow methodology or a combination of both when necessary. Common inputs for all classes of fixed maturity securities include prices from recently executed transactions of similar securities, marketplace quotes, benchmark yields, spreads off benchmark yields, interest rates and U.S. Treasury or swap curves. Specifically for asset-backed securities, key inputs include prepayment and default projections based on past performance of the underlying collateral and current market data. Fixed maturity securities are primarily assigned to Level 3 in cases where broker/dealer quotes are significant inputs to the valuation, and there is a lack of transparency as to whether these quotes are based on information that is observable in the marketplace. Level 3 securities also include private placement debt securities whose fair value is determined using internal models with inputs that are not market observable. Equity Securities Level 1 equity securities include publicly traded securities valued using quoted market prices. Level 2 securities are primarily non-redeemable preferred stocks and common stocks valued using pricing for similar securities, recently executed transactions and other pricing models utilizing market observable inputs. Level 3 securities are primarily priced using broker/dealer quotes and internal models with inputs that are not market observable. Derivative Financial Instruments Exchange traded derivatives are valued using quoted market prices and are classified within Level 1 of the fair value hierarchy. Level 2 derivatives primarily include currency forwards valued using observable market forward rates. Over-the-counter derivatives, principally interest rate swaps, total return swaps, commodity swaps, equity warrants and options, are valued using inputs including broker/dealer quotes and are classified within Level 2 or Level 3 of the valuation hierarchy, depending on the amount of transparency as to whether these quotes are based on information that is observable in the marketplace. Short Term Investments Securities that are actively traded or have quoted prices are classified as Level 1. These securities include money market funds and treasury bills. Level 2 primarily includes commercial paper, for which all inputs are market observable. Fixed maturity securities purchased within one year of maturity are classified consistent with fixed maturity securities discussed above. Short term investments as presented in the tables above differ from the amounts presented in the Consolidated Condensed Balance Sheets because certain short term investments, such as time deposits, are not measured at fair value. Other Invested Assets Level 1 securities include exchange traded open-end funds valued using quoted market prices. Life Settlement Contracts CNA accounts for its investment in life settlement contracts using the fair value method. Historically, the fair value of life settlement contracts was determined as the present value of the anticipated death benefits less anticipated premium payments based on contract terms that are distinct for each insured, as well as CNA’s own assumptions for mortality, premium expense and the rate of return that a buyer would require on the contracts. The entire portfolio of life settlement contracts was determined to be held for sale as of December 31, 2016 as CNA reached an agreement on terms to sell the portfolio. As such, CNA adjusted the fair value to the estimated sales proceeds less cost to sell. The definitive Purchase and Sale Agreement (“PSA”) related to the portfolio was executed on March 7, 2017 (“sale date”). In connection therewith, the life settlement contracts and related sale proceeds were placed in escrow until the buyer was recognized as the owner and beneficiary of each individual life settlement contract by the life insurance company that issued the policy. All of the contracts have been released from escrow as of September 30, 2017. CNA derecognized the released contracts and recorded the consideration, including a note receivable, which is payable over three years and is carried at amortized cost less any valuation allowance. The note receivable of $45 million is included within Other assets on the September 30, 2017 Consolidated Condensed Balance Sheet and interest income is accreted to the principal balance of the note. The fair value of CNA’s investments in life settlement contracts were $0 million and $58 million as of September 30, 2017 and December 31, 2016, and are included in Other assets on the Consolidated Condensed Balance Sheets. Despite the sale, the contracts were classified as Level 3 as there is not an active market for life settlement contracts. The cash receipts and payments related to the life settlement contracts prior to the sale date are included in operating activities on the Consolidated Condensed Statements of Cash Flows. Cash receipts related to the sale of the life settlement contracts as well as principal payments on the note receivable are included in investing activities. Significant Unobservable Inputs The following tables present quantitative information about the significant unobservable inputs utilized by the Company in the fair value measurement of Level 3 assets. Valuations for assets and liabilities not presented in the tables below are primarily based on broker/dealer quotes for which there is a lack of transparency as to inputs used to develop the valuations. The quantitative detail of unobservable inputs from these broker quotes is neither provided nor reasonably available to the Company. The valuation of life settlement contracts was based on the terms of the sale of the contracts to a third party; therefore the contracts are not included in the tables below.
September 30, 2017 |  | Estimated Fair Value |  | Valuation Techniques |  | Unobservable Inputs |  | Range (Weighted Average) |
|  | (In millions) |  |  |  |  |  |  |
Fixed maturity securities |  | $ 139 |  | Discounted cash flow |  | Credit spread |  |  | 1% – 12% (3%) |
December 31, 2016 |  |  |  |  |  |  |  |  |  |
Fixed maturity securities |  | $ 106 |  | Discounted cash flow |  | Credit spread |  |  | 2% – 40% (4%) |
For fixed maturity securities, an increase to the credit spread assumptions would result in a lower fair value measurement. Financial Assets and Liabilities Not Measured at Fair Value The carrying amount, estimated fair value and the level of the fair value hierarchy of the Company’s financial assets and liabilities which are not measured at fair value on the Consolidated Condensed Balance Sheets are presented in the following tables. The carrying amounts and estimated fair values of short term debt and long term debt exclude capital lease obligations. The carrying amounts reported on the Consolidated Condensed Balance Sheets for cash and short term investments not carried at fair value and certain other assets and liabilities approximate fair value due to the short term nature of these items.
|  | Carrying |  |  | Estimated Fair Value |
September 30, 2017 |  | Amount |  |  | Level 1 |  |  | Level 2 |  |  | Level 3 |  |  | Total |
(In millions) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Other invested assets, primarily mortgage loans |  | $ | 722 |  |  |  |  |  |  |  |  |  |  | $ | 731 |  |  | $ | 731 |
Liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Short term debt |  |  | 191 |  |  |  |  |  |  | $ | 152 |  |  |  | 41 |  |  |  | 193 |
Long term debt |  |  | 11,222 |  |  |  |  |  |  |  | 10,316 |  |  |  | 1,216 |  |  |  | 11,532 |
December 31, 2016 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Assets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Other invested assets, primarily mortgage loans |  | $ | 591 |  |  |  |  |  |  |  |  |  |  | $ | 594 |  |  | $ | 594 |
Liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Short term debt |  |  | 107 |  |  |  |  |  |  | $ | 104 |  |  |  | 3 |  |  |  | 107 |
Long term debt |  |  | 10,655 |  |  |  |  |  |  |  | 10,150 |  |  |  | 646 |  |  |  | 10,796 |
The following methods and assumptions were used in estimating the fair value of these financial assets and liabilities. The fair values of mortgage loans, included in Other invested assets, were based on the present value of the expected future cash flows discounted at the current interest rate for similar financial instruments, adjusted for specific loan risk. Fair value of debt was based on observable market prices when available. When observable market prices were not available, the fair value of debt was based on observable market prices of comparable instruments adjusted for differences between the observed instruments and the instruments being valued or is estimated using discounted cash flow analyses, based on current incremental borrowing rates for similar types of borrowing arrangements.

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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/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 820 -URI http://asc.fasb.org/topic&trid=2155941 + Details
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