XML 27 R10.htm IDEA: XBRL DOCUMENT
v3.8.0.1

Fair Value | 12 Months Ended
--- | ---
Dec. 31, 2017
Fair Value Disclosures [Abstract] |
Fair Value | 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) deep dives, 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 Assets and liabilities measured at fair value on a recurring basis are presented in the following tables. Corporate bonds and other includes obligations of the U.S. Treasury, government-sponsored enterprises and foreign governments and redeemable preferred stock.
December 31, 2017 |  |  |  |  |  |  | Total Assets/Liabilities at Fair Value
(In millions) | Level 1 |  | Level 2 |  | Level 3 |
Assets |  |  |  |  |  |  |
Fixed maturity securities: |  |  |  |  |  |  |
Corporate bonds and other | $ | 128 |  |  | $ | 19,148 |  |  | $ | 98 |  |  | $ | 19,374 |
States, municipalities and political subdivisions | — |  |  | 14,026 |  |  | 1 |  |  | 14,027 |
Asset-backed | — |  |  | 7,751 |  |  | 335 |  |  | 8,086 |
Total fixed maturity securities | 128 |  |  | 40,925 |  |  | 434 |  |  | 41,487 |
Equity securities | 91 |  |  | 584 |  |  | 20 |  |  | 695 |
Short term and other | 396 |  |  | 958 |  |  | — |  |  | 1,354 |
Total assets | $ | 615 |  |  | $ | 42,467 |  |  | $ | 454 |  |  | $ | 43,536 |
Liabilities |  |  |  |  |  |  |  |  |
Other liabilities | $ | — |  |  | $ | 3 |  |  | $ | — |  |  | $ | 3 |
Total liabilities | $ | — |  |  | $ | 3 |  |  | $ | — |  |  | $ | 3 |
December 31, 2016 |  |  |  |  |  |  | Total Assets/Liabilities at Fair Value
(In millions) | Level 1 |  | Level 2 |  | Level 3 |
Assets |  |  |  |  |  |  |
Fixed maturity securities: |  |  |  |  |  |  |
Corporate bonds and other | $ | 112 |  |  | $ | 19,285 |  |  | $ | 130 |  |  | $ | 19,527 |
States, municipalities and political subdivisions | — |  |  | 13,239 |  |  | 1 |  |  | 13,240 |
Asset-backed | — |  |  | 7,939 |  |  | 199 |  |  | 8,138 |
Total fixed maturity securities | 112 |  |  | 40,463 |  |  | 330 |  |  | 40,905 |
Equity securities | 91 |  |  | — |  |  | 19 |  |  | 110 |
Short term and other | 475 |  |  | 858 |  |  | — |  |  | 1,333 |
Life settlement contracts, included in Other assets | — |  |  | — |  |  | 58 |  |  | 58 |
Total assets | $ | 678 |  |  | $ | 41,321 |  |  | $ | 407 |  |  | $ | 42,406 |
Liabilities |  |  |  |  |  |  |  |  |
Other liabilities | $ | — |  |  | $ | (3 | ) |  | $ | — |  |  | $ | (3 | )
Total liabilities | $ | — |  |  | $ | (3 | ) |  | $ | — |  |  | $ | (3 | )
The tables below present a reconciliation for all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3).
Level 3 (In millions) | Corporate bonds and other |  | States, municipalities and political subdivisions |  | Asset-backed |  | Equity securities |  | Derivative financial instruments |  | Life settlement contracts |  | Total
Balance as of January 1, 2017 | $ | 130 |  |  | $ | 1 |  |  | $ | 199 |  |  | $ | 19 |  |  | $ | — |  |  | $ | 58 |  |  | $ | 407 |
Net realized investment gains (losses) and net change in unrealized appreciation (depreciation) included in Net income (loss)* | — |  |  | — |  |  | 2 |  |  | — |  |  | 1 |  |  | 6 |  |  | 9 |
Net change in unrealized appreciation (depreciation) included in Other comprehensive income (loss) | 3 |  |  | — |  |  | 3 |  |  | 3 |  |  | — |  |  | — |  |  | 9 |
Purchases | 18 |  |  | — |  |  | 107 |  |  | 1 |  |  | — |  |  | — |  |  | 126 |
Sales | (5 | ) |  | — |  |  | — |  |  | (3 | ) |  | (1 | ) |  | (59 | ) |  | (68 | )
Settlements | (54 | ) |  | — |  |  | (43 | ) |  | — |  |  | — |  |  | (5 | ) |  | (102 | )
Transfers into Level 3 | 16 |  |  | — |  |  | 153 |  |  | — |  |  | — |  |  | — |  |  | 169 |
Transfers out of Level 3 | (10 | ) |  | — |  |  | (86 | ) |  | — |  |  | — |  |  | — |  |  | (96 | )
Balance as of December 31, 2017 | $ | 98 |  |  | $ | 1 |  |  | $ | 335 |  |  | $ | 20 |  |  | $ | — |  |  | $ | — |  |  | $ | 454 |
Unrealized gains (losses) on Level 3 assets and liabilities held as of December 31, 2017 recognized in Net income (loss)* | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Level 3 (In millions) | Corporate bonds and other |  | States, municipalities and political subdivisions |  | Asset-backed |  | Equity securities |  | Life settlement contracts |  | Total
Balance as of January 1, 2016 | $ | 168 |  |  | $ | 2 |  |  | $ | 209 |  |  | $ | 20 |  |  | $ | 74 |  |  | $ | 473 |
Net realized investment gains (losses) and net change in unrealized appreciation (depreciation) included in Net income (loss)* | 1 |  |  | — |  |  | — |  |  | (1 | ) |  | 5 |  |  | 5 |
Net change in unrealized appreciation (depreciation) included in Other comprehensive income (loss) | 1 |  |  | — |  |  | (5 | ) |  | — |  |  | — |  |  | (4 | )
Purchases | 163 |  |  | — |  |  | 133 |  |  | — |  |  | — |  |  | 296 |
Sales | (36 | ) |  | — |  |  | (25 | ) |  | — |  |  | — |  |  | (61 | )
Settlements | (103 | ) |  | (1 | ) |  | (32 | ) |  | — |  |  | (21 | ) |  | (157 | )
Transfers into Level 3 | — |  |  | — |  |  | 61 |  |  | — |  |  | — |  |  | 61 |
Transfers out of Level 3 | (64 | ) |  | — |  |  | (142 | ) |  | — |  |  | — |  |  | (206 | )
Balance as of December 31, 2016 | $ | 130 |  |  | $ | 1 |  |  | $ | 199 |  |  | $ | 19 |  |  | $ | 58 |  |  | $ | 407 |
Unrealized gains (losses) on Level 3 assets and liabilities held as of December 31, 2016 recognized in Net income (loss)* | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | (2 | ) |  | $ | (3 | ) |  | $ | (5 | )
*Net realized and unrealized gains and losses from Level 3 securities and derivatives are reported in Net income (loss) as follows:
Major Category of Assets and Liabilities |  | Consolidated Statements of Operations Line Items
Fixed maturity securities available-for-sale (1) |  | Net realized investment gains (losses)
Fixed maturity securities trading |  | Net investment income
Equity securities (1) |  | Net realized investment gains (losses)
Other invested assets - Derivative financial instruments held in a trading portfolio |  | Net investment income
Other invested assets - Derivative financial instruments not held in a trading portfolio |  | Net realized investment gains (losses)
Life settlement contracts |  | Other revenues
Other liabilities - Derivative financial instruments |  | Net realized investment gains (losses)
(1) Unrealized gains and losses are reported within AOCI. 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 year ended December 31, 2017 there were $10 million of transfers from Level 1 to Level 2 and no transfers from Level 2 to Level 1. During the year ended December 31, 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. 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 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 on the Consolidated Balance Sheets because certain short term investments, such as time deposits, are not measured at fair value. The fair value of Federal Home Loan Bank of Chicago (FHLBC) stock is equal to par because it can only be redeemed by the FHLBC at par or sold to another member of the FHLBC at par and is classified as Level 2. As of December 31, 2017 and December 31, 2016, there were approximately $39 million and $31 million of overseas deposits within other invested assets, which can be redeemed at net asset value in 90 days or less. Overseas deposits are excluded from the fair value hierarchy because their fair value is recorded using the net asset value per share (or equivalent) practical expedient. Life Settlement Contracts 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 the Company's own assumptions for mortality, premium expense and the rate of return that a buyer would require on the contracts. As discussed in Note A, Summary of Significant Accounting Policies, as of December 31, 2016 the Company reached an agreement on terms to sell the portfolio and the PSA related to the portfolio was executed on March 7, 2017. At December 31, 2016, the valuation of the life settlement contracts was based on the terms of the sale of the contract to a third party. Despite the sale, the contracts were classified as Level 3 as there is not an active market for life settlement contracts. Derivative Financial Investments Level 2 investments primarily include the embedded derivative on the funds withheld liability. The embedded derivative on funds withheld liability is valued using the change in fair value of the assets supporting the funds withheld liability, which are fixed maturity securities valued with observable inputs. Significant Unobservable Inputs The following tables present quantitative information about the significant unobservable inputs utilized by the Company in the fair value measurements 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 these unobservable inputs 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 table below.
December 31, 2017 | Estimated Fair Value (In millions) |  | Valuation Technique(s) |  | Unobservable Input(s) |  | Range (Weighted Average)
Fixed maturity securities | $ | 136 |  |  | Discounted cash flow |  | Credit spread |  | 1% - 12% (3%)
December 31, 2016 | Estimated Fair Value (In millions) |  | Valuation Technique(s) |  | Unobservable Input(s) |  | Range (Weighted Average)
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 and estimated fair value of the Company's financial assets and liabilities which are not measured at fair value on the Consolidated Balance Sheets are presented in the following tables.
December 31, 2017 | Carrying Amount |  | Estimated Fair Value
(In millions) |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
Assets |  |  |  |  |  |  |  |  |
Mortgage loans | $ | 839 |  |  | $ | — |  |  | $ | — |  |  | $ | 844 |  |  | $ | 844 |
Note receivable | 46 |  |  | — |  |  | — |  |  | 46 |  |  | 46 |
Liabilities |  |  |  |  |  |  |  |  |
Short term debt | $ | 150 |  |  | $ | — |  |  | $ | 150 |  |  | $ | — |  |  | $ | 150 |
Long term debt | 2,708 |  |  | — |  |  | 2,896 |  |  | — |  |  | 2,896 |
December 31, 2016 | Carrying Amount |  | Estimated Fair Value
(In millions) |  | Level 1 |  | Level 2 |  | Level 3 |  | Total
Assets |  |  |  |  |  |  |  |  |
Mortgage loans | $ | 591 |  |  | $ | — |  |  | $ | — |  |  | $ | 594 |  |  | $ | 594 |
Liabilities |  |  |  |  |  |  |  |  |
Long term debt | $ | 2,710 |  |  | $ | — |  |  | $ | 2,952 |  |  | $ | — |  |  | $ | 2,952 |
The following methods and assumptions were used to estimate the fair value of these financial assets and liabilities. The fair values of mortgage loans were based on the present value of the expected future cash flows discounted at the current interest rate for origination of similar quality loans, adjusted for specific loan risk. The fair value of the note receivable was based on the present value of the expected future cash flows discounted at the current interest rate for origination of similar notes, adjusted for specific credit risk. The Company's senior notes and debentures were valued based on observable market prices. The fair value for other debt was estimated using discounted cash flows based on current incremental borrowing rates for similar borrowing arrangements. The carrying amounts reported on the Consolidated Balance Sheets for Cash, Short term investments not carried at fair value, Accrued investment income and certain Other assets and Other liabilities approximate fair value due to the short term nature of these items. These assets and liabilities are not listed in the tables above.

X
- References No definition available. + Details
Name: | us-gaap_FairValueDisclosuresAbstract
Namespace Prefix: | us-gaap_
Data Type: | xbrli:stringItemType
Balance Type: | na
Period Type: | duration

X
- 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
Name: | us-gaap_FairValueDisclosuresTextBlock
Namespace Prefix: | us-gaap_
Data Type: | nonnum:textBlockItemType
Balance Type: | na
Period Type: | duration