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Fair Value
 3 Months Ended
Mar. 31, 2019
Fair Value Disclosures [Abstract]  
Fair Value
3.
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 summarized in the following tables. Corporate bonds and other includes obligations of the U.S. Treasury, government-sponsored enterprises, foreign governments and redeemable preferred stock.
 
March 31, 2019
 
  Level 1  
  
  Level 2  
  
  Level 3  
  
  Total  
 
(In millions)
            
     
Fixed maturity securities:
                
Corporate bonds and other
 
$
203
  
$
20,697
  
$
253
  
$
21,153
 
States, municipalities and political subdivisions
      
10,578
       
10,578
 
Asset-backed
      
8,610
   
184
   
8,794
 
Fixed maturities
available-for-sale
  
203
   
39,885
   
437
   
40,525
 
Fixed maturities trading
      
72
   
5
   
77
 
Total fixed maturities
 
$
203
  
$
39,957
  
$
442
  
$
40,602
 
                 
     
Equity securities
 
$
697
  
$
608
  
$
21
  
$
1,326
 
Short term and other
  
3,199
   
1,204
       
4,403
 
Receivables
      
3
       
3
 
Payable to brokers
  
(14
) 
          
(14
) 
     
December 31, 2018            
Fixed maturity securities:
                
Corporate bonds and other
 $196  $19,392  $222  $19,810 
States, municipalities and political subdivisions
      10,748       10,748 
Asset-backed
      8,787   197   8,984 
Fixed maturities
available-for-sale
  196   38,927   419   39,542 
Fixed maturities trading
      151   6   157 
Total fixed maturities
 $196  $39,078  $425  $39,699 
                 
Equity securities
 $704  $570  $19  $1,293 
Short term and other
  2,647   1,111       3,758 
Receivables
      11       11 
Payable to brokers
  (23)           (23) 
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 months ended March 31, 2019 and 2018:
 
                                
Unrealized
 
                                
Gains
 
                             
Unrealized
  
(Losses)
 
                             
Gains
  
Recognized in
 
                             
(Losses)
  
Other
 
                          
Recognized in
  
Comprehensive
 
     
Net Realized Investment
                    
Net Income
  
Income (Loss)
 
     
Gains (Losses) and Net
                    
(Loss) on Level
  
on Level 3
 
     
Change in Unrealized
                    
3 Assets and
  
Assets and
 
     
  Investment Gains (Losses)  
           
Transfers
  
Transfers
     
Liabilities
  
Liabilities
 
  
Balance,
  
Included in
  
Included in
           
into
  
out of
  
Balance,
  
Held at
  
Held at
 
2019
 
January 1
  
Net Income
  
OCI
  
Purchases
  
Sales
  
Settlements
  
Level 3
  
Level 3
  
March 31
  
March 31
  
March 31
 
(In millions)
                                 
            
Fixed maturity securities:
                                            
Corporate bonds and other
 
$
222
      
$
8
  
$
56
      
$
(2
) 
     
$
(31
) 
 
$
253
      
$
7
 
    Asset-backed
  
197
       
3
   
20
       
(4
) 
 
$
5
   
(37
) 
  
184
       
3
 
Fixed maturities
available-for-sale
  
419
  
$
-
   
11
   
76
  
$
-
   
(6
) 
  
5
   
(68
) 
  
437
  
$
-
   
10
 
Fixed maturities trading
  
6
   
(1
) 
                          
5
   
(1
) 
    
Total fixed maturities
 
$
 425
  
$
(1
) 
 
$
 11
  
$
 76
  
$
 -
  
$
(6
) 
 
$
 5
  
$
(68
) 
 
$
 442
  
$
(1
) 
 
$
 10
 
  
            
Equity securities
 
$
19
  
$
2
                          
$
21
  
$
2
     
 
                             Unrealized 
                             Gains 
                             (Losses) 
                          Recognized in 
     Net Realized Investment                    Net Income 
     Gains (Losses) and Net                    (Loss) on Level 
     Change in Unrealized                    3 Assets and 
     
        Investment Gains (Losses)        
           Transfers  Transfers     Liabilities 
  Balance,  Included in  Included in           into  out of  Balance,  Held at 
2018 January 1  Net Income  OCI  Purchases  Sales  Settlements  Level 3  Level 3  March 31  March 31 
(In millions)                              
           
Fixed maturity securities:
                                        
Corporate bonds and other
 $98  $(1)              $(2)  $5      $100     
States, municipalities and political subdivisions
  1                               1     
Asset-backed
  335   7  $(5)  $30  $(72)   (6)      $(10)   279     
Fixed maturities
available-for-sale
  434   6   (5)   30   (72)   (8)   5   (10)   380  $ - 
Fixed maturities trading
  4   3                           7   3 
Total fixed maturities
 $ 438  $9  $(5)  $ 30  $(72)  $(8)  $ 5  $(10)  $ 387  $ 3 
  
           
Equity securities
 $22  $(2)                          $20  $(2) 
Net investment gains and losses are reported in Net income 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
 
Investment gains (losses) and 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 Operating revenues and other
Life settlement contracts
 
Operating revenues and other
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.
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 securities include publicly traded securities valued using quoted market prices. Level 2 securities are primarily 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 and Other Invested Assets
Securities that are actively traded or have quoted prices are classified as Level 1. These securities include money market funds, treasury bills and exchange traded
open-end
funds valued using quoted market prices. 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.
 
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 weighted average rate is calculated based on fair value.
 
         
Range
 
  
Estimated
  
Valuation
 
Unobservable
 
(Weighted
 
March 31, 2019
 
Fair Value
  
Techniques
 
Inputs
 
Average)
 
  
(In millions)
        
      
Discounted
      
Fixed maturity securities
 
$
293
  
cash flow
 
Credit spread
  
1% – 5% (3%)
 
     
December 31, 2018
            
     
      Discounted      
Fixed maturity securities
 $228  cash flow Credit spread  1% – 12% (3%) 
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
 
March 31, 2019
 
Amount
  
Level 1
  
Level 2
  
Level 3
  
Total
 
(In millions)
               
      
Assets:
                    
Other invested assets, primarily mortgage loans
 
$
863
          
$
 868
  
$
868
 
      
Liabilities:
                    
Short term debt
  
131
      
$
54
   
75
   
129
 
Long term debt
  
11,216
       
10,469
   
531
   
11,000
 
      
December 31, 2018
                    
      
Assets:
                    
Other invested assets, primarily mortgage loans
 $839          $827  $827 
      
Liabilities:
                    
Short term debt
  15      $14       14 
Long term debt
  11,345       10,111   653   10,764 
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.