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Fair Value of Assets and Liabilities | 3 Months Ended
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Mar. 31, 2021
Fair Value Disclosures [Abstract] |
Fair Value Disclosures | Fair Value of Assets and Liabilities Fair Value Measurement General accounting principles for Fair Value Measurements and Disclosures define fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. These principles also establish a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value and describes three levels of inputs that may be used to measure fair value: Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities. The Company’s Level 1 assets and liabilities are traded in active exchange markets. Level 2 – Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or market standard valuation techniques and assumptions that use significant inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the related assets or liabilities. Prices are determined using valuation methodologies such as discounted cash flow models and other similar techniques that require management’s judgment or estimation in developing inputs that are consistent with those other market participants would use when pricing similar assets and liabilities. Additionally, the Company’s embedded derivatives, all of which are associated with reinsurance treaties, are classified in Level 3 since their values include significant unobservable inputs. For a discussion of the Company’s valuation methodologies for assets and liabilities measured at fair value and the fair value hierarchy, see Note 6 – “Fair Value of Assets and Liabilities” in the Notes to Consolidated Financial Statements included in the Company’s 2020 Annual Report. Assets and Liabilities by Hierarchy Level Assets and liabilities measured at fair value on a recurring basis as of March 31, 2021 and December 31, 2020 are summarized below (dollars in millions):
March 31, 2021: |  |  |  | Fair Value Measurements Using:
|  | Total |  | Level 1 |  | Level 2 |  | Level 3
Assets: |  |  |  |  |  |  |  |
Fixed maturity securities – available-for-sale: |  |  |  |  |  |  |  |
Corporate |  | $ | 35,295 |  |  | $ | — |  |  | $ | 32,194 |  |  | $ | 3,101 |
Canadian government |  | 4,673 |  |  | — |  |  | 4,673 |  |  | — |
RMBS |  | 1,591 |  |  | — |  |  | 1,588 |  |  | 3 |
ABS |  | 3,151 |  |  | — |  |  | 2,822 |  |  | 329 |
CMBS |  | 1,840 |  |  | — |  |  | 1,784 |  |  | 56 |
U.S. government |  | 930 |  |  | 809 |  |  | 108 |  |  | 13 |
State and political subdivisions |  | 1,335 |  |  | — |  |  | 1,326 |  |  | 9 |
Other foreign government |  | 7,611 |  |  | — |  |  | 7,595 |  |  | 16 |
Total fixed maturity securities – available-for-sale |  | 56,426 |  |  | 809 |  |  | 52,090 |  |  | 3,527 |
Equity securities |  | 135 |  |  | 81 |  |  | — |  |  | 54 |
Funds withheld at interest – embedded derivatives & other |  | 176 |  |  | — |  |  | — |  |  | 176 |
Cash equivalents |  | 1,460 |  |  | 1,434 |  |  | 26 |  |  | — |
Short-term investments |  | 123 |  |  | 3 |  |  | 109 |  |  | 11 |
Other invested assets: |  |  |  |  |  |  |  |
Derivatives |  | 125 |  |  | — |  |  | 125 |  |  | — |
FVO contractholder-directed unit-linked investments |  | 276 |  |  | 222 |  |  | 54 |  |  | — |
Total other invested assets (1) |  | 401 |  |  | 222 |  |  | 179 |  |  | — |
Total |  | $ | 58,721 |  |  | $ | 2,549 |  |  | $ | 52,404 |  |  | $ | 3,768 |
Liabilities: |  |  |  |  |  |  |  |
Interest sensitive contract liabilities – embedded derivatives |  | $ | 856 |  |  | $ | — |  |  | $ | — |  |  | $ | 856 |
Other liabilities: |  |  |  |  |  |  |  |
Derivatives |  | 53 |  |  | — |  |  | 53 |  |  | — |
Total |  | $ | 909 |  |  | $ | — |  |  | $ | 53 |  |  | $ | 856 |
(1)Other invested assets included in the fair value hierarchy exclude limited partnership interests that are measured at estimated fair value using the net asset value (“NAV”) per share (or its equivalent) as a practical expedient. As of March 31, 2021, the fair value of such investments was $465 million.
December 31, 2020: |  |  |  | Fair Value Measurements Using:
|  | Total |  | Level 1 |  | Level 2 |  | Level 3
Assets: |  |  |  |  |  |  |  |
Fixed maturity securities – available-for-sale: |  |  |  |  |  |  |  |
Corporate |  | $ | 36,208 |  |  | $ | — |  |  | $ | 33,179 |  |  | $ | 3,029 |
Canadian government |  | 5,140 |  |  | — |  |  | 5,140 |  |  | — |
RMBS |  | 1,817 |  |  | — |  |  | 1,814 |  |  | 3 |
ABS |  | 3,092 |  |  | — |  |  | 2,896 |  |  | 196 |
CMBS |  | 1,868 |  |  | — |  |  | 1,813 |  |  | 55 |
U.S. government |  | 1,437 |  |  | 1,312 |  |  | 111 |  |  | 14 |
State and political subdivisions |  | 1,390 |  |  | — |  |  | 1,381 |  |  | 9 |
Other foreign government |  | 5,783 |  |  | — |  |  | 5,766 |  |  | 17 |
Total fixed maturity securities – available-for-sale |  | 56,735 |  |  | 1,312 |  |  | 52,100 |  |  | 3,323 |
Equity securities |  | 132 |  |  | 79 |  |  | — |  |  | 53 |
Funds withheld at interest – embedded derivatives & other |  | 114 |  |  | — |  |  | — |  |  | 114 |
Cash equivalents |  | 1,478 |  |  | 1,478 |  |  | — |  |  | — |
Short-term investments |  | 197 |  |  | 32 |  |  | 150 |  |  | 15 |
Other invested assets: |  |  |  |  |  |  |  |
Derivatives |  | 140 |  |  | — |  |  | 140 |  |  | — |
FVO contractholder-directed unit-linked investments |  | 289 |  |  | 224 |  |  | 65 |  |  | — |
Total other invested assets |  | 429 |  |  | 224 |  |  | 205 |  |  | — |
Total |  | $ | 59,085 |  |  | $ | 3,125 |  |  | $ | 52,455 |  |  | $ | 3,505 |
Liabilities: |  |  |  |  |  |  |  |
Interest-sensitive contract liabilities – embedded derivatives |  | $ | 907 |  |  | $ | — |  |  | $ | — |  |  | $ | 907 |
Other liabilities: |  |  |  |  |  |  |  |
Derivatives |  | 49 |  |  | — |  |  | 49 |  |  | — |
Total |  | $ | 956 |  |  | $ | — |  |  | $ | 49 |  |  | $ | 907 |
Quantitative Information Regarding Internally Priced Assets and Liabilities The following table presents quantitative information about significant unobservable inputs used in Level 3 fair value measurements that are developed internally by the Company as of March 31, 2021 and December 31, 2020 (dollars in millions):
| Estimated Fair Value |  | Valuation Technique |  | Unobservable Inputs |  | Range (Weighted Average)
March 31, 2021 |  | December 31, 2020 |  |  |  | March 31, 2021 |  | December 31, 2020
Assets: |  |  |  |  |  |  |  |  |  |  |
Corporate | $ | 21 |  |  | $ | 37 |  |  | Market comparable securities |  | Liquidity premium |  | N/A |  | 0-1% (1%)
|  |  |  |  |  |  | EBITDA Multiple |  | 5.2x-7.6x (6.5x) |  | 5.2x-11.2x (7.1x)
ABS | 79 |  |  | 87 |  |  | Market comparable securities |  | Liquidity premium |  | 1-18% (5%) |  | 1-18% (1%)
U.S. government | 13 |  |  | 14 |  |  | Market comparable securities |  | Liquidity premium |  | 0-1% (1%) |  | 0-1% (1%)
Equity securities | 12 |  |  | 10 |  |  | Market comparable securities |  | EBITDA Multiple |  | 6.9x-10.6x (8.1x) |  | 6.9x-10.6x (7.9x)
Funds withheld at interest – embedded derivatives | 109 |  |  | 58 |  |  | Total return swap |  | Mortality |  | 0-100% (3%) |  | 0-100% (3%)
|  |  |  |  |  |  | Lapse |  | 0-35% (14%) |  | 0-35% (13%)
|  |  |  |  |  |  | Withdrawal |  | 0-5% (3%) |  | 0-5% (3%)
|  |  |  |  |  |  | CVA |  | 0-5% (1%) |  | 0-5% (1%)
|  |  |  |  |  |  | Crediting rate |  | 2-4% (2%) |  | 2-4% (2%)
Liabilities: |  |  |  |  |  |  |  |  |  |  |
Interest sensitive contract liabilities – embedded derivatives – indexed annuities | 720 |  |  | 752 |  |  | Discounted cash flow |  | Mortality |  | 0-100% (3%) |  | 0-100% (3%)
|  |  |  |  |  |  | Lapse |  | 0-35% (14%) |  | 0-35% (13%)
|  |  |  |  |  |  | Withdrawal |  | 0-5% (3%) |  | 0-5% (3%)
|  |  |  |  |  |  | Option budget projection |  | 2-4% (2%) |  | 2-4% (2%)
Interest sensitive contract liabilities – embedded derivatives – variable annuities | 136 |  |  | 155 |  |  | Discounted cash flow |  | Mortality |  | 0-100% (2%) |  | 0-100% (2%)
|  |  |  |  |  |  | Lapse |  | 0-25%(4%) |  | 0-25% (4%)
|  |  |  |  |  |  | Withdrawal |  | 0-7% (5%) |  | 0-7% (5%)
|  |  |  |  |  |  | CVA |  | 0-5% (1%) |  | 0-5% (1%)
|  |  |  |  |  |  | Long-term volatility |  | 0-27% (14%) |  | 0-27% (13%)
Changes in Level 3 Assets and Liabilities Assets and liabilities transferred into Level 3 are due to a lack of observable market transactions and price information. Transfers out of Level 3 are primarily the result of the Company obtaining observable pricing information or a third-party pricing quotation that appropriately reflects the fair value of those assets and liabilities. For further information on the Company’s valuation processes, see Note 6 – “Fair Value of Assets and Liabilities” in the Notes to Consolidated Financial Statements included in the Company’s 2020 Annual Report. The reconciliations for all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) are as follows (dollars in millions):
For the three months ended March 31, 2021: |  | Fixed maturity securities – available-for-sale |  |  |  |  |  | Funds withheld at interest –embedded derivatives & other |  |  |  | Interest-sensitive contract liabilities embedded derivatives
|  | Corporate |  | Foreign govt |  | Structured securities |  | U.S. and local govt |  | Equity securities |  | Short-term investments |  |  |
Fair value, beginning of period |  | $ | 3,029 |  |  | $ | 17 |  |  | $ | 254 |  |  | $ | 23 |  |  | $ | 53 |  |  | $ | 15 |  |  | $ | 114 |  |  |  |  | $ | (907) |
Total gains/losses (realized/unrealized) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Included in earnings, net: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Investment income, net of related expenses |  | 1 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (5) |  |  |  |  | — |
Investment related gains (losses), net |  | (1) |  |  | — |  |  | — |  |  | — |  |  | 1 |  |  | — |  |  | 50 |  |  |  |  | 19 |
Interest credited |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  |  |  | 13 |
Included in other comprehensive income |  | (82) |  |  | (1) |  |  | (1) |  |  | — |  |  | — |  |  | — |  |  | 1 |  |  |  |  | — |
Purchases(1) |  | 223 |  |  | — |  |  | 166 |  |  | — |  |  | — |  |  | — |  |  | 16 |  |  |  |  | (3) |
Sales(1) |  | (1) |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  |  |  | — |
Settlements(1) |  | (72) |  |  | — |  |  | (61) |  |  | (1) |  |  | — |  |  | — |  |  | — |  |  |  |  | 22 |
Transfers into Level 3 |  | 4 |  |  | — |  |  | 30 |  |  | — |  |  | — |  |  | — |  |  | — |  |  |  |  | — |
Transfers out of Level 3 |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (4) |  |  | — |  |  |  |  | — |
Fair value, end of period |  | $ | 3,101 |  |  | $ | 16 |  |  | $ | 388 |  |  | $ | 22 |  |  | $ | 54 |  |  | $ | 11 |  |  | $ | 176 |  |  |  |  | $ | (856) |
Total gains/losses (realized/unrealized) recorded for the period relating to those Level 3 assets and liabilities that were still held at the end of the period
Included in earnings, net: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Investment income, net of related expenses |  | $ | 1 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | (5) |  |  |  |  | $ | — |
Investment related gains (losses), net |  | (1) |  |  | — |  |  | — |  |  | — |  |  | 1 |  |  | — |  |  | 50 |  |  |  |  | 16 |
Claims and other policy benefits |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  |  |  | (8) |
Included in other comprehensive income |  | (82) |  |  | (1) |  |  | (1) |  |  | — |  |  | — |  |  | — |  |  | — |  |  |  |  | — |
For the three months ended March 31, 2020: |  | Fixed maturity securities – available-for-sale |  |  |  |  |  | Funds withheld at interest –embedded derivatives |  |  |  | Interest-sensitive contract liabilities embedded derivatives
|  | Corporate |  | Foreign govt |  | Structured securities |  | U.S. and local govt |  | Equity securities |  | Short-term investments |  |  |
Fair value, beginning of period |  | $ | 2,186 |  |  | $ | 720 |  |  | $ | 208 |  |  | $ | 25 |  |  | $ | 77 |  |  | $ | 2 |  |  | $ | 121 |  |  |  |  | $ | (930) |
Total gains/losses (realized/unrealized) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Included in earnings, net: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Investment income, net of related expenses |  | 1 |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  |  |  | — |
Investment related gains (losses), net |  | (11) |  |  | — |  |  | — |  |  | — |  |  | (7) |  |  | — |  |  | (230) |  |  |  |  | (128) |
Interest credited |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  |  |  | 6 |
Included in other comprehensive income |  | (115) |  |  | (1) |  |  | (27) |  |  | 1 |  |  | — |  |  | — |  |  | — |  |  |  |  | — |
Purchases(1) |  | 231 |  |  | — |  |  | 9 |  |  | — |  |  | — |  |  | — |  |  | — |  |  |  |  | (11) |
Sales(1) |  | (44) |  |  | — |  |  | (1) |  |  | — |  |  | — |  |  | — |  |  | — |  |  |  |  | — |
Settlements(1) |  | (52) |  |  | — |  |  | (13) |  |  | (1) |  |  | — |  |  | — |  |  | — |  |  |  |  | 21 |
Transfers into Level 3 |  | 1 |  |  | — |  |  | 21 |  |  | — |  |  | — |  |  | — |  |  | — |  |  |  |  | — |
Transfers out of Level 3 |  | — |  |  | (704) |  |  | (53) |  |  | — |  |  | (14) |  |  | (1) |  |  | — |  |  |  |  | — |
Fair value, end of period |  | $ | 2,197 |  |  | $ | 15 |  |  | $ | 144 |  |  | $ | 25 |  |  | $ | 56 |  |  | $ | 1 |  |  | $ | (109) |  |  |  |  | $ | (1,042) |
Total gains/losses (realized/unrealized) recorded for the period relating to those Level 3 assets and liabilities that were still held at the end of the period
Included in earnings, net: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Investment income, net of related expenses |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  |  |  | $ | — |
Investment related gains (losses), net |  | (11) |  |  | — |  |  | — |  |  | — |  |  | (7) |  |  | — |  |  | (230) |  |  |  |  | (131) |
Claims & other policy benefits |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  |  |  | (15) |
Included in other comprehensive income |  | (140) |  |  | (1) |  |  | (27) |  |  | 1 |  |  | — |  |  | — |  |  | — |  |  |  |  | — |
(1)The amount reported within purchases, sales and settlements is the purchase price (for purchases) and the sales/settlement proceeds (for sales and settlements) based upon the actual date purchased or sold/settled. Items purchased and sold/settled in the same period are excluded from the rollforward. The Company had no issuances during the period. Nonrecurring Fair Value Measurements The Company has certain assets subject to measurement at fair value on a nonrecurring basis, in periods subsequent to their initial recognition if they are determined to be impaired. During the three months ended March 31, 2021 and 2020, the Company did not have any material assets that were measured at fair value due to impairment. Fair Value of Financial Instruments The following table presents the carrying values and estimated fair values of the Company’s financial instruments, which were not measured at fair value on a recurring basis, as of March 31, 2021 and December 31, 2020 (dollars in millions). For additional information regarding the methods and significant assumptions used by the Company to estimate these fair values, see Note 6 – “Fair Value of Assets and Liabilities” in the Notes to Consolidated Financial Statements included in the Company’s 2020 Annual Report. This table excludes any payables or receivables for collateral under repurchase or reverse repurchase agreements and other transactions. The estimated fair value of the excluded amount approximates carrying value as they equal the amount of cash collateral received/paid.
March 31, 2021: |  | Carrying Value (1) |  | Estimated Fair Value |  | Fair Value Measurement Using:
Level 1 |  | Level 2 |  | Level 3 |  | NAV
Assets: |  |  |  |  |  |  |  |  |  |  |  |
Mortgage loans on real estate |  | $ | 6,001 |  |  | $ | 6,231 |  |  | $ | — |  |  | $ | — |  |  | $ | 6,231 |  |  | $ | — |
Policy loans |  | 1,253 |  |  | 1,253 |  |  | — |  |  | 1,253 |  |  | — |  |  | — |
Funds withheld at interest |  | 5,264 |  |  | 5,618 |  |  | — |  |  | — |  |  | 5,618 |  |  | — |
Cash and cash equivalents |  | 1,662 |  |  | 1,662 |  |  | 1,662 |  |  | — |  |  | — |  |  | — |
Short-term investments |  | 34 |  |  | 34 |  |  | 34 |  |  | — |  |  | — |  |  | — |
Other invested assets |  | 1,139 |  |  | 1,115 |  |  | 6 |  |  | 86 |  |  | 1,023 |  |  | — |
Accrued investment income |  | 546 |  |  | 546 |  |  | — |  |  | 546 |  |  | — |  |  | — |
Liabilities: |  |  |  |  |  |  |  |  |  |  |  |
Interest-sensitive contract liabilities |  | $ | 18,031 |  |  | $ | 19,470 |  |  | $ | — |  |  | $ | — |  |  | $ | 19,470 |  |  | $ | — |
Long-term debt |  | 3,573 |  |  | 3,800 |  |  | — |  |  | — |  |  | 3,800 |  |  | — |
Collateral finance and securitization notes |  | 346 |  |  | 311 |  |  | — |  |  | — |  |  | 311 |  |  | — |
December 31, 2020: |  |  |  |  |  |
Assets: |  |  |  |  |  |  |  |  |  |  |  |
Mortgage loans on real estate |  | $ | 5,787 |  |  | $ | 6,167 |  |  | $ | — |  |  | $ | — |  |  | $ | 6,167 |  |  | $ | — |
Policy loans |  | 1,258 |  |  | 1,258 |  |  | — |  |  | 1,258 |  |  | — |  |  | — |
Funds withheld at interest |  | 5,292 |  |  | 5,676 |  |  | — |  |  | — |  |  | 5,676 |  |  | — |
Cash and cash equivalents |  | 1,930 |  |  | 1,930 |  |  | 1,930 |  |  | — |  |  | — |  |  | — |
Short-term investments |  | 30 |  |  | 30 |  |  | 30 |  |  | — |  |  | — |  |  | — |
Other invested assets |  | 1,482 |  |  | 1,601 |  |  | 5 |  |  | 89 |  |  | 1,018 |  |  | 489 |
Accrued investment income |  | 511 |  |  | 511 |  |  | — |  |  | 511 |  |  | — |  |  | — |
Liabilities: |  |  |  |  |  |  |  |  |  |  |  |
Interest-sensitive contract liabilities |  | $ | 18,106 |  |  | $ | 19,683 |  |  | $ | — |  |  | $ | — |  |  | $ | 19,683 |  |  | $ | — |
Long-term debt |  | 3,573 |  |  | 3,901 |  |  | — |  |  | — |  |  | 3,901 |  |  | — |
Collateral finance and securitization notes |  | 388 |  |  | 351 |  |  | — |  |  | — |  |  | 351 |  |  | — |
(1)Carrying values presented herein may differ from those in the Company’s condensed consolidated balance sheets because certain items within the respective financial statement captions may be measured at fair value on a recurring basis.

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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=123874694&loc=d3e19207-110258 + Details
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