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Derivative Instruments | 9 Months Ended
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Sep. 30, 2017
Derivative Instruments [Abstract] |
Derivative Instruments | 5. Derivative Instruments We maintain an overall risk management strategy that incorporates the use of derivative instruments to minimize significant unplanned fluctuations in earnings that are caused by interest rate risk, foreign currency exchange risk, equity market risk, default risk, basis risk and credit risk. See Note 1 in our 2016 Form 10-K for a detailed discussion of the accounting treatment for derivative instruments. See Note 6 in our 2016 Form 10-K for a detailed discussion of our derivative instruments and use of them in our overall risk management strategy, which information is incorporated herein by reference. See Note 12 for additional disclosures related to the fair value of our derivative instruments. ﻿ ﻿ ﻿ We have derivati ve instruments with off-balance-sheet risks whose notional or contract amounts exceed the related credit exposure. Outstanding derivati ve instruments with off-balance-sheet risks (in millions) were as follows: ﻿
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﻿ |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
﻿ | As of September 30, 2017 |  | As of December 31, 2016 |
﻿ | Notional |  | Fair Value |  | Notional |  | Fair Value |
﻿ | Amounts |  | Asset |  | Liability |  | Amounts |  | Asset |  | Liability |
﻿Qualifying Hedges |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
﻿Cash flow hedges: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
﻿Interest rate contracts (1) | $ | 3,524 |  | $ | 37 |  | $ | 97 |  | $ | 3,552 |  | $ | 68 |  | $ | 122 |
﻿Foreign currency contracts (1) |  | 1,579 |  |  | 99 |  |  | 46 |  |  | 1,177 |  |  | 153 |  |  | 10 |
﻿Total cash flow hedges |  | 5,103 |  |  | 136 |  |  | 143 |  |  | 4,729 |  |  | 221 |  |  | 132 |
﻿Fair value hedges: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
﻿Interest rate contracts (1) |  | 1,449 |  |  | 261 |  |  | 180 |  |  | 1,512 |  |  | 258 |  |  | 182 |
﻿Non-Qualifying Hedges |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
﻿Interest rate contracts (1) |  | 72,319 |  |  | 752 |  |  | 142 |  |  | 70,290 |  |  | 985 |  |  | 701 |
﻿Foreign currency contracts (1) |  | 25 |  |  | - |  |  | - |  |  | 14 |  |  | - |  |  | - |
﻿Equity market contracts (1) |  | 29,959 |  |  | 534 |  |  | 471 |  |  | 28,315 |  |  | 541 |  |  | 616 |
﻿Credit contracts (1) |  | - |  |  | - |  |  | - |  |  | 66 |  |  | - |  |  | - |
﻿Embedded derivatives: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
﻿Guaranteed living benefit ("GLB") |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
﻿direct (2) (3) |  | - |  |  | 570 |  |  | - |  |  | - |  |  | - |  |  | 371 |
﻿GLB ceded (2) (3) |  | - |  |  | 53 |  |  | 7 |  |  | - |  |  | - |  |  | - |
﻿Reinsurance related (4) |  | - |  |  | - |  |  | 63 |  |  | - |  |  | - |  |  | 53 |
﻿Indexed annuity and IUL contracts (2) (5) |  | - |  |  | 3 |  |  | 1,318 |  |  | - |  |  | - |  |  | 1,139 |
﻿Total derivative instruments | $ | 108,855 |  | $ | 2,309 |  | $ | 2,324 |  | $ | 104,926 |  | $ | 2,005 |  | $ | 3,194 |
﻿
| (1) |  | Reported in derivative investments and other liabilities on our Consolidated Balance Sheets.
| (2) |  | Reported in other assets on our Consolidated Balance Sheets.
| (3) |  | Reported in other liabilities on our Consolidated Balance Sheets.
| (4) |  | Reported in reinsurance related embedded derivatives on our Consolidated Balance Sheets.
| (5) |  | Reported in future contract benefits on our Consolidated Balance Sheets.
﻿ Beginning in the first quarter 2017, consistent with changes enacted by the Chicago Mercantile Exchange (“CME”), the Company offset the variation margin payments with the derivative balances that are cleared through CME. ﻿ The maturity of the notional amounts of derivative instruments (in millions) was as follows: ﻿
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﻿ |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
﻿ | Remaining Life as of September 30, 2017 |
﻿ | Less Than |  | 1 - 5 |  | 6 - 10 |  | 11 - 30 |  | Over 30 |  |  |
﻿ | 1 Year |  | Years |  | Years |  | Years |  | Years |  | Total |
﻿Interest rate contracts (1) | $ | 8,901 |  | $ | 20,768 |  | $ | 30,938 |  | $ | 15,472 |  | $ | 1,213 |  | $ | 77,292 |
﻿Foreign currency contracts (2) |  | 36 |  |  | 212 |  |  | 391 |  |  | 954 |  |  | 11 |  |  | 1,604 |
﻿Equity market contracts |  | 17,652 |  |  | 10,037 |  |  | 819 |  |  | 15 |  |  | 1,436 |  |  | 29,959 |
﻿Credit contracts |  | - |  |  | - |  |  | - |  |  | - |  |  | - |  |  | - |
﻿Total derivative instruments |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
﻿with notional amounts | $ | 26,589 |  | $ | 31,017 |  | $ | 32,148 |  | $ | 16,441 |  | $ | 2,660 |  | $ | 108,855 |
﻿
| (1) |  | As of September 30, 2017, the latest maturity date for which we were hedging our exposure to the variability in future cash flows for these instruments was April 2067.
| (2) |  | As of S e ptember 30, 2017, the latest maturity date for which we were hedging our exposure to the variability in future cash flows for these instruments was September 2049.
﻿ The change in our unrealized gain (loss) on derivative instruments in accumulated OCI (“AOCI”) (in millions) was as follows: ﻿
﻿ |  |  |  |  |  |
﻿ |  |  |  |  |  |
﻿ | For the Nine |
﻿ | Months Ended |
﻿ | September 30, |
﻿ | 2017 |  | 2016 |
﻿Unrealized Gain (Loss) on Derivative Instruments |  |  |  |  |  |
﻿Balance as of beginning-of-year | $ | 49 |  | $ | 132 |
﻿Other comprehensive income (loss): |  |  |  |  |  |
﻿Unrealized holding gains (losses) arising during the period: |  |  |  |  |  |
﻿Cash flow hedges: |  |  |  |  |  |
﻿Interest rate contracts |  | (15 | ) |  | (319 | )
﻿Foreign currency contracts |  | 46 |  |  | 22 |
﻿Change in foreign currency exchange rate adjustment |  | (119 | ) |  | 42 |
﻿Change in DAC, VOBA, DSI and DFEL |  | (3 | ) |  | - |
﻿Income tax benefit (expense) |  | 32 |  |  | 89 |
﻿Less: |  |  |  |  |  |
﻿Reclassification adjustment for gains (losses) |  |  |  |  |  |
﻿included in net income (loss): |  |  |  |  |  |
﻿Cash flow hedges: |  |  |  |  |  |
﻿Interest rate contracts (1) |  | 3 |  |  | 4 |
﻿Interest rate contracts (2) |  | (13 | ) |  | (6 | )
﻿Interest rate contracts (3) |  | - |  |  | 1 |
﻿Foreign currency contracts (1) |  | 12 |  |  | 7 |
﻿Foreign currency contracts (3) |  | 5 |  |  | 6 |
﻿Associated amortization of DAC, VOBA, DSI and DFEL |  | (1 | ) |  | (1 | )
﻿Income tax benefit (expense) |  | (2 | ) |  | (4 | )
﻿Balance as of end-of-period | $ | (14 | ) | $ | (41 | )
﻿
| (1) |  | The OCI offset is reported within net investment income on our Consolidated Statements of Comprehensive Income (Loss).
| (2) |  | The OCI offset is reported within interest and debt expense on our Consolidated Statements of Comprehensive Income (Loss).
| (3) |  | The OCI offset is reported within realized gain (loss) on our Consolidated Statements of Comprehensive Income (Loss).
﻿ ﻿ The gains (losses) on derivative instruments (in millions) recorded within income (loss) from continuing operations on our Consolidated Statements of Comprehensive Income (Loss) were as follows: ﻿
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﻿ |  |  |  |  |  |  |  |  |  |  |  |  |
﻿ | For the Three |  | For the Nine |  |
﻿ | Months Ended |  | Months Ended |  |
﻿ | September 30, |  | September 30, |  |
﻿ | 2017 |  | 2016 |  | 2017 |  | 2016 |  |
﻿Qualifying Hedges |  |  |  |  |  |  |  |  |  |  |  |  |
﻿Cash flow hedges: |  |  |  |  |  |  |  |  |  |  |  |  |
﻿Interest rate contracts (1) | $ | 2 |  | $ | 1 |  | $ | 3 |  | $ | 4 |  |
﻿Interest rate contracts (2) |  | (5 | ) |  | (4 | ) |  | (13 | ) |  | (6 | ) |
﻿Interest rate contracts (3) |  | - |  |  | 1 |  |  | - |  |  | 1 |  |
﻿Foreign currency contracts (1) |  | 4 |  |  | 4 |  |  | 12 |  |  | 7 |  |
﻿Foreign currency contracts (3) |  | - |  |  | 3 |  |  | 5 |  |  | 6 |  |
﻿Total cash flow hedges |  | 1 |  |  | 5 |  |  | 7 |  |  | 12 |  |
﻿Fair value hedges: |  |  |  |  |  |  |  |  |  |  |  |  |
﻿Interest rate contracts (1) |  | (5 | ) |  | (8 | ) |  | (18 | ) |  | (22 | ) |
﻿Interest rate contracts (2) |  | 6 |  |  | 8 |  |  | 21 |  |  | 24 |  |
﻿Interest rate contracts (3) |  | 2 |  |  | 5 |  |  | 2 |  |  | (81 | ) |
﻿Total fair value hedges |  | 3 |  |  | 5 |  |  | 5 |  |  | (79 | ) |
﻿Non-Qualifying Hedges |  |  |  |  |  |  |  |  |  |  |  |  |
﻿Interest rate contracts (3) |  | 18 |  |  | 19 |  |  | 161 |  |  | 1,609 |  |
﻿Foreign currency contracts (3) |  | 1 |  |  | (2 | ) |  | 1 |  |  | (5 | ) |
﻿Equity market contracts (3) |  | (347 | ) |  | (519 | ) |  | (1,163 | ) |  | (1,100 | ) |
﻿Equity market contracts (4) |  | 6 |  |  | 7 |  |  | 21 |  |  | 9 |  |
﻿Credit contracts (3) |  | - |  |  | 1 |  |  | - |  |  | (6 | ) |
﻿Embedded derivatives: |  |  |  |  |  |  |  |  |  |  |  |  |
﻿GLB (3) |  | 233 |  |  | 581 |  |  | 784 |  |  | (924 | ) |
﻿Reinsurance related (3) |  | 3 |  |  | (3 | ) |  | 3 |  |  | (50 | ) |
﻿Indexed annuity and IUL contracts (3) |  | (46 | ) |  | (64 | ) |  | (230 | ) |  | (76 | ) |
﻿Total derivative instruments | $ | (128 | ) | $ | 30 |  | $ | (411 | ) | $ | (610 | ) |
﻿
| (1) |  | Reported in net investment income on our Consolidated Statements of Comprehensive Income (Loss).
| (2) |  | Reported in interest and debt expense on our Consolidated Statements of Comprehensive Income (Loss).
| (3) |  | Reported in realized gain (loss) on our Consolidated Statements of Comprehensive Income (Loss).
| (4) |  | Reported in commissions and other expenses on our Consolidated Statements of Comprehensive Income (Loss).
﻿ Gains (losses) recognized as a component of OCI (in millions) on derivative instruments designated and qualifying as cash flow hedges were as follows: ﻿
﻿ |  |  |  |  |  |  |  |  |  |  |  |  |
﻿ |  |  |  |  |  |  |  |  |  |  |  |  |
﻿ | For the Three |  | For the Nine |  |
﻿ | Months Ended |  | Months Ended |  |
﻿ | September 30, |  | September 30, |  |
﻿ | 2017 |  | 2016 |  | 2017 |  | 2016 |  |
﻿Offset to net investment income | $ | 6 |  | $ | 5 |  | $ | 15 |  | $ | 11 |  |
﻿Offset to realized gain (loss) |  | - |  |  | 4 |  |  | 5 |  |  | 7 |  |
﻿Offset to interest and debt expense |  | (5 | ) |  | (4 | ) |  | (13 | ) |  | (6 | ) |
﻿ |  |  |  |  |  |  |  |  |  |  |  |  |
As of September 30, 2017, $8 million of the deferred net gains (losses) on derivative instruments in A OCI were expected to be reclassified to earnings during the next 12 months. This reclassification would be due primarily to interest rate variances related to our interest rate swap agreements. ﻿ For the nine months ended September 30, 2017 and 2016, there were no material reclassifications to earnings due to hedged firm commitments no longer deemed probable or due to hedged forecasted transactions that had not occurred by the end of the originally specified time period. ﻿ ﻿ ﻿ Information related to our credit default swap s for which we are the seller (dollars in millions) was as follows: ﻿ As of September 30, 2017, we did not have any exposure related to these instruments. ﻿ ﻿
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﻿As of December 31, 2016
﻿ |  |  |  |  |  |  |  | Credit |  |  |  |  |  |  |  |
﻿ |  |  |  | Reason |  | Nature |  | Rating of |  | Number |  |  |  |  | Maximum
﻿ |  |  |  | for |  | of | Underlying | of |  | Fair |  | Potential
﻿Credit Contract Type |  | Maturity |  | Entering |  | Recourse | Obligation (1) | Instruments |  | Value (2) |  | Payout
﻿Single name credit default swaps |  | 3/20/2017 (3) |  | (4) |  | (5) |  | BBB+ |  | 2 |  | $ | - |  | $ | 40
﻿ |  |  |  |  |  |  |  |  |  | 2 |  | $ | - |  | $ | 40
﻿
| (1) |  | Represents average credit ratings based on the midpoint of the applicable ratings among Moody’s, S&P and Fitch Ratings, as scaled to the corresponding S&P ratings.
| (2) |  | Broker quotes are used to determine the market value of our credit default swaps.
| (3) |  | These credit default swaps were sold to a counterparty of the consolidated VIEs discussed in Note 4 in our 2016 Form 10-K.
| (4) |  | Credit default swaps were entered into in order to generate income by providing default protection in return for a quarterly payment.
| (5) |  | Sellers do not have the right to demand indemnification or compensation from third parties in case of a loss (payment) on the contract.
﻿ Details underlying the associated collateral of our credit default sw aps for which we are the seller if credit risk-related contingent features were triggered (in millions) were as follows: ﻿
﻿ |  |  |  |  |  |  |  |  |
﻿ |  |  |  |  |  |  |  |  |
﻿ |  | As of |  |  | As of |  |
﻿ | September 30, | December 31, |
﻿ |  | 2017 |  |  | 2016 |  |
﻿Maximum potential payout |  | $ | - |  |  | $ | 40 |  |
﻿Less: Counterparty thresholds |  |  | - |  |  |  | - |  |
﻿Maximum collateral potentially required to post |  | $ | - |  |  | $ | 40 |  |
﻿ Certain of our credit default swap agreements contain contractual provisions that allow for the netting of collateral with our counterparties related to all of our collateralized financing transactions that we have outstanding. If these netting agreements were not in place, we would have been required to post collateral if the market value was less than zero. ﻿ Credit Risk ﻿ We are exposed to credit losses in the event of non-performance by our counterparties on various derivative contracts and reflect assumptions regarding the credit or non-performance risk (“NPR”). The NPR is based upon assumptions for each counterparty’s credit spread over the estimated weighted average life of the counterparty exposure less collateral held. As of September 30, 2017, the NPR adjustment was less than $1 million. The credit risk associated with such agreements is minimized by entering into agreements with financial institutions with long-standing, superior performance records. Additionally, we maintain a policy of requiring derivative contracts to be governed by an International Swaps and Derivatives Association (“ISDA”) Master Agreement. We are required to maintain minimum ratings as a matter of routine practice in negotiating ISDA agreements. Under some ISDA agreements, our insurance subsidiaries have agreed to maintain certain financial strength or claims-paying ratings. A downgrade below these levels could result in termination of derivative contracts, at which time any amounts payable by us would be dependent on the market value of the underlying derivative contracts. In certain transactions, we and the counterparty have entered into a credit support annex requiring either party to post collateral when net exposures exceed pre-determined thresholds. These thresholds vary by counterparty and credit rating. The amount of such exposure is essentially the net replacement cost or market value less collateral held for such agreements with each counterparty if the net market value is in our favor. As of September 30, 2017, and December 31, 2016, our exposure was $4 million and $5 million, respectively. The amounts recognized (in mi llions) by S&P credit rating of counterparty, for which we had the right to reclaim cash collateral or were obligated to return cash collateral, were as follows: ﻿
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﻿ |  |  |  |  |  |  |  |  |  |  |  |  |
﻿ |  | As of September 30, 2017 |  | As of December 31, 2016 |
﻿ |  | Collateral |  | Collateral |  | Collateral |  | Collateral |
﻿ |  | Posted by |  | Posted by |  | Posted by |  | Posted by |
﻿S&P |  | Counter- |  | LNC |  | Counter- |  | LNC |
﻿Credit |  | Party |  | (Held by |  | Party |  | (Held by |
﻿Rating of |  | (Held by |  | Counter- |  | (Held by |  | Counter- |
﻿Counterparty |  | LNC) |  | Party) |  | LNC) |  | Party) |
﻿AA- |  | $ | 103 |  | $ | - |  | $ | 53 |  | $ | (32 | )
﻿A+ |  |  | 28 |  |  | (258 | ) |  | 10 |  |  | (217 | )
﻿A |  |  | 500 |  |  | (309 | ) |  | 466 |  |  | (381 | )
﻿A- |  |  | 52 |  |  | - |  |  | 67 |  |  | - |
﻿BBB+ |  |  | 252 |  |  | (3 | ) |  | 298 |  |  | - |
﻿ |  | $ | 935 |  | $ | (570 | ) | $ | 894 |  | $ | (630 | )
﻿ Balance Sheet Offsetting ﻿ Information related to the effects of offsetting on our Consolidated Balance Sheets (in millions) was as follows: ﻿ ﻿
﻿ |  |  |  |  |  |  |  |  |  |  |  |
﻿ |  |  |  |  |  |  |  |  |  |  |  |
﻿ |  | As of September 30, 2017 |
﻿ |  |  |  |  | Embedded |  |  |  |
﻿ | Derivative | Derivative |  |  |  |
﻿ | Instruments | Instruments |  | Total |
﻿ |  |  |  |  |  |  |  |  |  |  |  |
﻿Financial Assets |  |  |  |  |  |  |  |  |  |  |  |
﻿Gross amount of recognized assets |  | $ | 1,560 |  |  | $ | 626 |  |  | $ | 2,186 |
﻿Gross amounts offset |  |  | (600 | ) |  |  | - |  |  |  | (600 | )
﻿Net amount of assets |  |  | 960 |  |  |  | 626 |  |  |  | 1,586 |
﻿Gross amounts not offset: |  |  |  |  |  |  |  |  |  |  |  |
﻿Cash collateral |  |  | (935 | ) |  |  | - |  |  |  | (935 | )
﻿Net amount |  | $ | 25 |  |  | $ | 626 |  |  | $ | 651 |
﻿ |  |  |  |  |  |  |  |  |  |  |  |
﻿Financial Liabilities |  |  |  |  |  |  |  |  |  |  |  |
﻿Gross amount of recognized liabilities |  | $ | 658 |  |  | $ | 1,388 |  |  | $ | 2,046 |
﻿Gross amounts offset |  |  | (124 | ) |  |  | - |  |  |  | (124 | )
﻿Net amount of liabilities |  |  | 534 |  |  |  | 1,388 |  |  |  | 1,922 |
﻿Gross amounts not offset: |  |  |  |  |  |  |  |  |  |  |  |
﻿Cash collateral |  |  | (570 | ) |  |  | - |  |  |  | (570 | )
﻿Net amount |  | $ | (36 | ) |  | $ | 1,388 |  |  | $ | 1,352 |
﻿
﻿ |  | As of December 31, 2016 |
﻿ |  |  |  |  | Embedded |  |  |  |
﻿ | Derivative | Derivative |  |  |  |
﻿ | Instruments | Instruments |  | Total |
﻿ |  |  |  |  |  |  |  |  |  |  |  |
﻿Financial Assets |  |  |  |  |  |  |  |  |  |  |  |
﻿Gross amount of recognized assets |  | $ | 1,470 |  |  | $ | - |  |  | $ | 1,470 |
﻿Gross amounts offset |  |  | (543 | ) |  |  | - |  |  |  | (543 | )
﻿Net amount of assets |  |  | 927 |  |  |  | - |  |  |  | 927 |
﻿Gross amounts not offset: |  |  |  |  |  |  |  |  |  |  |  |
﻿Cash collateral |  |  | (894 | ) |  |  | - |  |  |  | (894 | )
﻿Net amount |  | $ | 33 |  |  | $ | - |  |  | $ | 33 |
﻿ |  |  |  |  |  |  |  |  |  |  |  |
﻿Financial Liabilities |  |  |  |  |  |  |  |  |  |  |  |
﻿Gross amount of recognized liabilities |  | $ | 1,089 |  |  | $ | 1,563 |  |  | $ | 2,652 |
﻿Gross amounts offset |  |  | (536 | ) |  |  | - |  |  |  | (536 | )
﻿Net amount of liabilities |  |  | 553 |  |  |  | 1,563 |  |  |  | 2,116 |
﻿Gross amounts not offset: |  |  |  |  |  |  |  |  |  |  |  |
﻿Cash collateral |  |  | (630 | ) |  |  | - |  |  |  | (630 | )
﻿Net amount |  | $ | (77 | ) |  | $ | 1,563 |  |  | $ | 1,486 |
﻿

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- Definition The entire disclosure for derivative instruments and hedging activities including, but not limited to, risk management strategies, non-hedging derivative instruments, assets, liabilities, revenue and expenses, and methodologies and assumptions used in determining the amounts. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 815 -URI http://asc.fasb.org/topic&trid=2229140 + Details
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