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Fair Value | 9 Months Ended
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Sep. 30, 2022
Fair Value [Abstract] |
Fair Value | 5. FAIR VALUE GAAP guidance regarding fair value measurements addresses how companies should measure fair value when they are required to use fair value measures for recognition or disclosure purposes under GAAP and provides a common definition of fair value to be used throughout GAAP. It defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly fashion between market participants at the measurement date. In addition, it establishes a three-level valuation hierarchy for the disclosure of fair value measurements. The valuation hierarchy is based on the transparency of inputs to the valuation of an asset or liability. The level in the hierarchy within which a given fair value measurement falls is determined based on the lowest level input that is significant to the measurement, with Level 1 being the highest priority and Level 3 being the lowest priority. The levels in the hierarchy are defined as follows: Level 1: Inputs to the valuation methodology are observable inputs that reflect unadjusted quoted prices for identical assets or liabilities in an active market; Level 2: Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument; Level 3: Inputs to the valuation methodology are unobservable and significant to the fair value measurement. The Company’s fixed maturity and equity securities are primarily managed by third party investment asset managers. The investment asset managers managing publicly traded securities obtain prices from nationally recognized pricing services. These services seek to utilize market data and observations in their evaluation process. They use pricing applications that vary by asset class and incorporate available market information and when fixed maturity securities do not trade on a daily basis the services will apply available information through processes such as benchmark curves, benchmarking of like securities, sector groupings and matrix pricing. In addition, they use model processes, such as the Option Adjusted Spread model to develop prepayment and interest rate scenarios for securities that have prepayment features. The investment asset managers do not make any changes to prices received from either the pricing services or the investment brokers. In addition, the investment asset managers have procedures in place to review the reasonableness of the prices from the service providers and may request verification of the prices. The Company also continually performs quantitative and qualitative analysis of prices, including but not limited to initial and ongoing review of pricing methodologies, review of prices obtained from pricing services and third party investment asset managers, review of pricing statistics and trends, and comparison of prices for certain securities with a secondary price source for reasonableness. No material variances were noted during these price validation procedures. In limited situations, where financial markets are inactive or illiquid, the Company may use its own assumptions about future cash flows and risk-adjusted discount rates to determine fair value. At September 30, 2022, $ 1.6 billion of fixed maturities were fair valued using unobservable inputs. The majority of these fixed maturities were valued by investment managers’ valuation committees and many of these fair values were substantiated by valuations from independent third parties. The Company has procedures in place to evaluate these independent third party valuations. At December 31, 2021, $ 2.1 billion of fixed maturities were fair valued using unobservable inputs. The Company internally manages a public equity portfolio which had a fair value at September 30, 2022 and December 31, 2021 of $ 1.2 billion and $ 1.3 billion, respectively. During the fourth quarter of 2021, the Company began to internally manage a portfolio of collateralized loan obligations included in asset-backed securities, available for sale, which had a fair value of $ 2.4 billion and $ 2.0 billion at September 30, 2022 and December 31, 2021, respectively. All prices for these securities were obtained from publicly published sources or nationally recognized pricing vendors. Equity securities denominated in U.S. currency with quoted prices in active markets for identical assets are categorized as Level 1 since the quoted prices are directly observable. Equity securities traded on foreign exchanges are categorized as Level 2 due to the added input of a foreign exchange conversion rate to determine fair value. The Company uses foreign currency exchange rates published by nationally recognized sources. Fixed maturity securities listed in the tables have been categorized as Level 2, since a particular security may not have traded but the pricing services are able to use valuation models with observable market inputs such as interest rate yield curves and prices for similar fixed maturity securities in terms of issuer, maturity and seniority. For foreign government securities and foreign corporate securities, the fair values provided by the third party pricing services in local currencies, and where applicable, are converted to U.S. dollars using currency exchange rates from nationally recognized sources. In addition to the valuations from investment managers, some of the fixed maturities with fair values categorized as Level 3 result when prices are not available from the nationally recognized pricing services and are derived using unobservable inputs. The Company will value the securities with unobservable inputs using comparable market information or receive fair values from investment managers. The investment managers may obtain non-binding price quotes for the securities from brokers. The single broker quotes are provided by market makers or broker-dealers who are recognized as market participants in the markets in which they are providing the quotes. The prices received from brokers are reviewed for reasonableness by the third party asset managers and the Company. If the broker quotes are for foreign denominated securities, the quotes are converted to U.S. dollars using currency exchange rates from nationally recognized sources. The composition and valuation inputs for the presented fixed maturities categories Level 1 and Level 2 are as follows: • U.S. Treasury securities and obligations of U.S. government agencies and corporations are primarily comprised of U.S. Treasury bonds and the fair value is based on observable market inputs such as quoted prices, reported trades, quoted prices for similar issuances or benchmark yields; • Obligations of U.S. states and political subdivisions are comprised of state and municipal bond issuances and the fair values are based on observable market inputs such as quoted market prices, quoted prices for similar securities, benchmark yields and credit spreads; • Corporate securities are primarily comprised of U.S. corporate and public utility bond issuances and the fair values are based on observable market inputs such as quoted market prices, quoted prices for similar securities, benchmark yields and credit spreads; • Asset-backed and mortgage-backed securities fair values are based on observable inputs such as quoted prices, reported trades, quoted prices for similar issuances or benchmark yields and cash flow models using observable inputs such as prepayment speeds, collateral performance and default spreads; • Foreign government securities are comprised of global non-U.S. sovereign bond issuances and the fair values are based on observable market inputs such as quoted market prices, quoted prices for similar securities and models with observable inputs such as benchmark yields and credit spreads and then, where applicable, converted to U.S. dollars using an exchange rate from a nationally recognized source; • Foreign corporate securities are comprised of global non-U.S. corporate bond issuances and the fair values are based on observable market inputs such as quoted market prices, quoted prices for similar securities and models with observable inputs such as benchmark yields and credit spreads and then, where applicable, converted to U.S. dollars using an exchange rate from a nationally recognized source. The following tables present the fair value measurement levels for all assets and liabilities, which the Company has recorded at fair value as of the periods indicated: Fair Value Measurement Using: Quoted Prices in Active Significant Markets for Other Significant Identical Observable Unobservable Assets Inputs Inputs (Dollars in millions) September 30, 2022 (Level 1) (Level 2) (Level 3) Assets: Fixed maturities, available for sale U.S. Treasury securities and obligations of U.S. government agencies and corporations $ 1,308 $ - $ 1,308 $ - Obligations of U.S. States and political subdivisions 481 - 481 - Corporate securities 6,397 - 5,678 719 Asset-backed securities 3,772 - 2,880 893 Mortgage-backed securities Commercial 908 - 908 - Agency residential 2,723 - 2,723 - Non-agency residential 5 - 5 - Foreign government securities 1,335 - 1,335 - Foreign corporate securities 4,080 - 4,064 16 Total fixed maturities, available for sale 21,009 - 19,381 1,628 Equity securities, fair value 1,301 1,212 89 - (Some amounts may not reconcile due to rounding.) Fair Value Measurement Using: Quoted Prices in Active Significant Markets for Other Significant Identical Observable Unobservable Assets Inputs Inputs (Dollars in millions) December 31, 2021 (Level 1) (Level 2) (Level 3) Assets: Fixed maturities, available for sale U.S. Treasury securities and obligations of U.S. government agencies and corporations $ 1,421 $ - $ 1,421 $ - Obligations of U.S. States and political subdivisions 587 - 587 - Corporate securities 7,557 - 6,756 801 Asset-backed securities 3,582 - 2,330 1,251 Mortgage-backed securities Commercial 1,064 - 1,064 - Agency residential 2,375 - 2,375 - Non-agency residential 7 - 7 - Foreign government securities 1,438 - 1,438 - Foreign corporate securities 4,279 - 4,262 16 Total fixed maturities, available for sale 22,308 - 20,240 2,068 Equity securities, fair value 1,826 1,742 84 - (Some amounts may not reconcile due to rounding.) In addition, $ 309 million and $ 287 million of investments within other invested assets on the consolidated balance sheets as of September 30, 2022 and December 31, 2021, respectively, are not included within the fair value hierarchy tables as the assets are measured at NAV as a practical expedient to determine fair value. The following table presents the activity under Level 3, fair value measurements using significant unobservable inputs for fixed maturities available for sale, for the periods indicated: Total Fixed Maturities, Available for Sale Three Months Ended September 30, 2022 Nine Months Ended September 30, 2022 Corporate Asset-Backed Foreign Corporate Asset-Backed Foreign (Dollars in millions) Securities Securities CMBS Corporate Total Securities Securities CMBS Corporate Total Beginning balance fixed maturities $ 863 $ 1,255 $ 6 $ 40 $ 2,164 $ 801 $ 1,251 $ - $ 16 $ 2,068 Total gains or (losses) (realized/unrealized) Included in earnings (2) - - - (2) 9 - - - 9 Included in other comprehensive income (loss) (6) 65 - - 59 (13) (11) - (4) (28) Purchases, issuances and settlements 27 159 - - 186 (43) 387 6 8 358 Transfers in/(out) of Level 3 and reclassification of securities in/(out) of investment categories (163) (587) (6) (24) (779) (35) (735) (6) (4) (779) Ending balance $ 719 $ 893 $ - $ 16 $ 1628 $ 719 $ 893 $ - $ 16 $ 1628 The amount of total gains or losses for the period included in earnings (or changes in net assets) attributable to the change in unrealized gains or losses relating to assets still held at the reporting date $ (3) $ - $ - $ - $ (3) $ (8) $ 8 $ - $ - $ - (Some amounts may not reconcile due to rounding.) Total Fixed Maturities, Available for Sale Three Months Ended September 30, 2021 Nine Months Ended September 30, 2021 Corporate Asset-Backed Foreign Corporate Asset-Backed Foreign (Dollars in millions) Securities Securities Corporate Total Securities Securities Corporate Total Beginning balance fixed maturities $ 706 $ 815 $ 5 $ 1,526 $ 701 $ 623 $ 6 $ 1,330 Total gains or (losses) (realized/unrealized) Included in earnings 3 (3) - - (12) (7) - (19) Included in other comprehensive income (loss) (1) - - (2) 6 4 - 10 Purchases, issuances and settlements 87 192 - 279 99 384 (1) 482 Transfers in/(out) of Level 3 and reclassification of securities in/(out) of investment categories - - - - - - - - Ending balance $ 794 $ 1,004 $ 5 $ 1,803 $ 794 $ 1,004 $ 5 $ 1,803 The amount of total gains or losses for the period included in earnings (or changes in net assets) attributable to the change in unrealized gains or losses relating to assets still held at the reporting date $ 1 $ (3) $ - $ (2) $ (16) $ (8) $ - $ (24) (Some amounts may not reconcile due to rounding.) The $ 779 million shown as transfers in/(out) of Level 3 and reclassification of securities in/(out) of investment categories for the three and nine months ended September 30, 2022 relate mainly to previously designated Level 3 securities that the Company has reclassified from “fixed maturities – available for sale” to “fixed maturities – held to maturity” during the third quarter of 2022. As “fixed maturities – held to maturity" are carried at amortized cost, net of credit allowances rather than at fair value as “fixed maturities – available for sale”, these securities are no longer included within the fair value hierarchy table or in the rollforward of Level 3 securities. The fair values of these securities are determined in a similar manner as the Company’s fixed maturity securities available for sale as described above. The fair values of these securities incorporate the use of significant unobservable inputs and therefore are classified as Level 3 within the fair value hierarchy as of September 30, 2022.

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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 https://asc.fasb.org/extlink&oid=126976982&loc=d3e19207-110258 + Details
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