See Note 2 – “Significant Accounting Policies and Pronouncements” of the Company’s 2020 Annual Report for a detailed discussion of the accounting treatment for derivative instruments, including embedded derivatives. See Note 6 – “Fair Value of Assets and Liabilities” for additional disclosures related to the fair value hierarchy for derivative instruments, including embedded derivatives.

Commonly used derivative instruments include, but are not necessarily limited to: credit default swaps, financial futures, equity options, foreign currency swaps, foreign currency forwards, interest rate swaps, synthetic guaranteed investment contracts (“GICs”), consumer price index (“CPI”) swaps, other derivatives, and embedded derivatives.

Derivatives, except for embedded derivatives, are included in other invested assets or other liabilities, at fair value. Embedded derivative assets and liabilities on modco or funds withheld arrangements are included on the condensed consolidated balance sheets with the host contract in funds withheld at interest, at fair value. Embedded derivative liabilities on indexed annuity and variable annuity products are included on the condensed consolidated balance sheets with the host contract in interest-sensitive contract liabilities, at fair value. The following table presents the notional amounts and gross fair value of derivative instruments prior to taking into account the netting effects of master netting agreements as of March 31, 2021 and December 31, 2020 (dollars in millions):


		March 31, 2021						December 31, 2020
	Primary Underlying Risk	Notional		Carrying Value/Fair Value				Notional		Carrying Value/Fair Value
		Amount		Assets		Liabilities		Amount		Assets		Liabilities
Derivatives not designated as hedging instruments:
Interest rate swaps	Interest rate	$	1,107	$	67	$	3	$	1,084	$	93	$	1
Financial futures	Equity	285		—		—		258		—		—
Foreign currency swaps	Foreign currency	150		—		9		150		—		18
Foreign currency forwards	Foreign currency	475		2		10		347		4		2
CPI swaps	CPI	627		19		12		612		11		19
Credit default swaps	Credit	1,720		32		3		1,517		13		—
Equity options	Equity	443		26		—		395		29		—


Synthetic GICs	Interest rate	16,423		—		—		16,644		—		—
Embedded derivatives in:
Modco or funds withheld arrangements		—		109		—		—		58		—
Indexed annuity products		—		—		720		—		—		752
Variable annuity products		—		—		136		—		—		155
Total non-hedging derivatives		21,230		255		893		21,007		208		947
Derivatives designated as hedging instruments:
Interest rate swaps	Foreign currency/Interest rate	878		2		24		802		3		24
Foreign currency swaps	Foreign currency	214		6		1		234		8		1
Foreign currency forwards	Foreign currency	1,141		5		18		1,255		10		15
Other derivatives	Interest rate	114		—		7		—		—		—
Total hedging derivatives		2,347		13		50		2,291		21		40
Total derivatives		$	23,577	$	268	$	943	$	23,298	$	229	$	987

The Company designates and reports certain foreign currency swaps to hedge the foreign currency fair value exposure of foreign currency denominated assets as fair value hedges when they meet the requirements of the general accounting principles for Derivatives and Hedging. The gain or loss on the hedged item attributable to a change in foreign currency and the offsetting gain or loss on the related foreign currency swaps as of March 31, 2021 and 2020 were (dollars in millions):


Type of Fair Value Hedge	Hedged Item	Gains (Losses) Recognized for Derivatives		Gains (Losses) Recognized for Hedged Items
		Investment Related Gains (Losses)
For the three months ended March 31, 2021:
Foreign currency swaps	Foreign-denominated fixed maturity securities	$	—	$	1
For the three months ended March 31, 2020:
Foreign currency swaps	Foreign-denominated fixed maturity securities	$	(22)	$	14

Certain derivative instruments are designated as cash flow hedges when they meet the requirements of the general accounting principles for Derivatives and Hedging. The Company designates and accounts for the following as cash flow hedges: (i) certain interest rate swaps, in which the cash flows of assets and liabilities are variable based on a benchmark rate; (ii) certain interest rate swaps, in which the cash flows of assets are denominated in different currencies, commonly referred to as cross-currency swaps; and (iii) forward bond purchase commitments.

The following table presents the components of AOCI, before income tax, and the condensed consolidated income statement classification where the gain or loss is recognized related to cash flow hedges for the three months ended March 31, 2021 and 2020 (dollars in millions):










	Three months ended March 31,
	2021		2020
Balance, beginning of period	$	(49)	$	(26)
Gains (losses) deferred in other comprehensive income (loss)	(24)		(61)
Amounts reclassified to investment income	—		—
Amounts reclassified to interest expense	2		—
Balance, end of period	$	(71)	$	(87)

As of March 31, 2021, approximately $6 million of before-tax deferred net losses on derivative instruments recorded in AOCI are expected to be reclassified to interest expense during the next twelve months. For the same time period, there was an immaterial amount of before-tax deferred net gains expected to be reclassified to investment income during the next twelve months.

The following table presents the effect of derivatives in cash flow hedging relationships on the condensed consolidated statements of income and the condensed consolidated statements of comprehensive income for the three months ended March 31, 2021 and 2020 (dollars in millions):


Derivative Type	Gain (Loss) Deferred in OCI		Gain (Loss) Reclassified into Income from OCI
			Investment Income		Interest Expense
For the three months ended March 31, 2021:
Interest rate	$	(23)	$	—	$	(2)
Foreign currency/interest rate	(1)		—		—
Total	$	(24)	$	—	$	(2)
For the three months ended March 31, 2020:
Interest rate	$	(36)	$	—	$	—
Foreign currency/interest rate	(25)		—		—
Total	$	(61)	$	—	$	—

For the three months ended March 31, 2021 and 2020, there were no material amounts reclassified into earnings relating to instances in which the Company discontinued cash flow hedge accounting because the forecasted transaction did not occur by the anticipated date or within the additional time period permitted by the authoritative guidance for the accounting for derivatives and hedging.

The Company uses foreign currency swaps and foreign currency forwards to hedge a portion of its net investment in certain foreign operations against adverse movements in exchange rates. The following table illustrates the Company’s net investments in foreign operations (“NIFO”) hedges and the gains (losses) deferred in AOCI for the three months ended March 31, 2021 and 2020 (dollars in millions):

The cumulative foreign currency translation gain recorded in AOCI related to these hedges was $124 million and $139 million as of March 31, 2021 and December 31, 2020, respectively. If a hedged foreign operation was sold or substantially liquidated, the amounts in AOCI would be reclassified to the condensed consolidated statements of income. A pro rata portion would be reclassified upon partial sale of a hedged foreign operation. There were no sales or substantial liquidations of net investments in foreign operations that would have required the reclassification of gains or losses from accumulated other comprehensive income (loss) into investment income during the periods presented.

The Company uses various other derivative instruments for risk management purposes that either do not qualify or have not been qualified for hedge accounting treatment. The gain or loss related to the change in fair value for these derivative instruments is recognized in investment related gains (losses), net in the condensed consolidated statements of income, except where otherwise noted.


		Gain (loss) for the three months ended March 31,
Type of Non-hedging Derivative	Income Statement Location of Gain (Loss)	2021		2020
Interest rate swaps	Investment related gains (losses), net	$	(70)	$	106
Financial futures	Investment related gains (losses), net	(10)		44
Foreign currency swaps	Investment related gains (losses), net	9		(13)
Foreign currency forwards	Investment related gains (losses), net	(8)		(3)
CPI swaps	Investment related gains (losses), net	18		(40)
Credit default swaps	Investment related gains (losses), net	20		(24)
Equity options	Investment related gains (losses), net	(10)		53


Subtotal		(51)		123
Embedded derivatives in:
Modco or funds withheld arrangements	Investment related gains (losses), net	50		(230)

Indexed annuity products	Interest credited	14		6
Variable annuity products	Investment related gains (losses), net	19		(128)
Total non-hedging derivatives		$	32	$	(229)


	March 31, 2021					December 31, 2020
Rating Agency Designation of Referenced Credit Obligations(1)	Estimated Fair Value of Credit Default Swaps		Maximum Amount of Future Payments under Credit Default Swaps(2)		Weighted Average Years to Maturity(3)	Estimated Fair Value of Credit Default Swaps		Maximum Amount of Future Payments under Credit Default Swaps(2)		Weighted Average Years to Maturity(3)
AAA/AA+/AA/AA-/A+/A/A-
Single name credit default swaps	$	26	$	492	17.8	$	11	$	287	15.0
Subtotal	26		492		17.8	11		287		15.0
BBB+/BBB/BBB-
Single name credit default swaps	2		230		1.7	2		232		1.6
Credit default swaps referencing indices	1		988		3.7	—		988		3.9
Subtotal	3		1,218		3.3	2		1,220		3.5
BB+/BB/BB-
Single name credit default swaps	—		10		0.5	—		10		0.7
Subtotal	—		10		0.5	—		10		0.7
Total	$	29	$	1,720	7.4	$	13	$	1,517	5.6

The Company has elected to include all derivatives, except embedded derivatives, in the tables below, irrespective of whether they are subject to an enforceable master netting arrangement or a similar agreement. See Note 4 – “Investments” for information regarding the Company’s securities borrowing, lending, and repurchase/reverse repurchase programs.


							Gross Amounts Not Offset in the Balance Sheet
	Gross Amounts Recognized		Gross Amounts Offset in the Balance Sheet		Net Amounts Presented in the Balance Sheet		Financial Instruments (1)		Cash Collateral Pledged/ Received		Net Amount
March 31, 2021:
Derivative assets	$	159	$	(34)	$	125	$	(33)	$	(81)	$	11
Derivative liabilities	87		(34)		53		(118)		(43)		(108)
December 31, 2020:
Derivative assets	$	171	$	(31)	$	140	$	(30)	$	(98)	$	12
Derivative liabilities	80		(31)		49		(146)		(47)		(144)

The Company may be exposed to credit-related losses in the event of non-performance by counterparties to derivative financial instruments. Generally, the credit exposure of the Company’s derivative contracts is limited to the fair value and accrued interest of non-collateralized derivative contracts in an asset position at the reporting date. As of March 31, 2021, the Company had credit exposure of $18 million.

Derivatives may be exchange-traded or they may be privately negotiated contracts, which are referred to as over-the-counter (“OTC”) derivatives. Certain of the Company’s OTC derivatives are cleared and settled through central clearing counterparties (“OTC cleared”) and others are bilateral contracts between two counterparties. The Company manages its credit risk related to OTC derivatives by entering into transactions with creditworthy counterparties, maintaining collateral arrangements and through the use of master netting agreements that provide for a single net payment to be made by one counterparty to another at each due date and upon termination. The Company is only exposed to the default of the central clearing counterparties for OTC