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Derivative Instruments | 6 Months Ended
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Jun. 30, 2024
Derivative Instruments | (5) Derivative Instruments Our business activities routinely deal with fluctuations in interest rates, equity prices, currency exchange rates and other asset and liability prices. We use derivative instruments to mitigate or reduce some of these risks. We have established policies for managing each of these risks, including prohibitions on derivatives market-making and other speculative derivatives activities. These policies require the use of derivative instruments in concert with other techniques to reduce or mitigate these risks. While we use derivatives to mitigate or reduce risks, certain derivatives do not meet the accounting requirements to be designated as hedging instruments and are denoted as “derivatives not designated as hedges” in the following disclosures. For derivatives that meet the accounting requirements to be designated as hedges, the following disclosures for these derivatives are denoted as “derivatives designated as hedges,” which include cash flow hedges. The following table sets forth our positions in derivative instruments as of the dates indicated:
|  | Derivative assets |  |  | Derivative liabilities |
|  |  |  | Fair value |  |  |  |  | Fair value |
(Amounts in millions) |  | Balance sheet classification |  | June 30, 2024 |  |  | December 31, 2023 |  |  | Balance sheet classification |  | June 30, 2024 |  |  | December 31, 2023 |
Derivatives designated as hedges |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash flow hedges: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate swaps |  | Other invested assets |  | $ | 26 |  |  | $ | 55 |  |  | Other liabilities |  | $ | 636 |  |  | $ | 490 |
Foreign currency swaps |  | Other invested assets |  |  | 12 |  |  |  | 10 |  |  | Other liabilities |  |  | 1 |  |  |  | 2 |
Forward bond purchase commitments |  | Other invested assets |  |  | 21 |  |  |  | 51 |  |  | Other liabilities |  |  | 13 |  |  |  | — |
Total cash flow hedges |  |  |  |  | 59 |  |  |  | 116 |  |  |  |  |  | 650 |  |  |  | 492 |
Total derivatives designated as hedges |  |  |  |  | 59 |  |  |  | 116 |  |  |  |  |  | 650 |  |  |  | 492 |
Derivatives not designated as hedges |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Equity index options |  | Other invested assets |  |  | 21 |  |  |  | 15 |  |  | Other liabilities |  |  | — |  |  |  | — |
Financial futures (1) |  | Other invested assets |  |  | — |  |  |  | — |  |  | Other liabilities |  |  | — |  |  |  | — |
Forward bond purchase commitments |  | Other invested assets |  |  | — |  |  |  | — |  |  | Other liabilities |  |  | 20 |  |  |  | 9 |
Fixed indexed annuity embedded derivatives |  | Other assets |  |  | — |  |  |  | — |  |  | Policyholder account balances (2) |  |  | 160 |  |  |  | 165 |
Indexed universal life embedded derivatives |  | Reinsurance recoverable |  |  | — |  |  |  | — |  |  | Policyholder account balances (3) |  |  | 16 |  |  |  | 15 |
Total derivatives not designated as hedges |  |  |  |  | 21 |  |  |  | 15 |  |  |  |  |  | 196 |  |  |  | 189 |
Total derivatives |  |  |  | $ | 80 |  |  | $ | 131 |  |  |  |  | $ | 846 |  |  | $ | 681 |
(1) | The period end valuations of financial futures were zero as a result of settling the margins on these contracts on a daily basis.
(2) | Represents the embedded derivatives associated with our fixed indexed annuity liabilities.
(3) | Represents the embedded derivatives associated with our indexed universal life liabilities.
The fair value of derivative positions presented above was not offset by the respective collateral amounts received or provided under these agreements. The activity associated with derivative instruments can generally be measured by the change in notional value over the periods presented. However, for fixed indexed annuity embedded derivatives and indexed universal life embedded derivatives, the change between periods is best illustrated by the number of policies. The following tables represent activity associated with derivative instruments as of the dates indicated:
|  |  |  | December 31, |  |  |  |  |  | Maturities/ |  |  | June 30, |
(Notional in millions) |  | Measurement |  | 2023 |  |  | Additions |  |  | terminations |  |  | 2024 |
Derivatives designated as hedges |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash flow hedges: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate swaps |  | Notional |  | $ | 8,975 |  |  | $ | 231 |  |  | $ | (399 | ) |  | $ | 8,807 |
Foreign currency swaps |  | Notional |  |  | 131 |  |  |  | 13 |  |  |  | — |  |  |  | 144 |
Forward bond purchase commitments |  | Notional |  |  | 1,075 |  |  |  | 1,528 |  |  |  | — |  |  |  | 2,603 |
Total cash flow hedges |  |  |  |  | 10,181 |  |  |  | 1,772 |  |  |  | (399 | ) |  |  | 11,554 |
Total derivatives designated as hedges |  |  |  |  | 10,181 |  |  |  | 1,772 |  |  |  | (399 | ) |  |  | 11,554 |
Derivatives not designated as hedges |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Equity index options |  | Notional |  |  | 702 |  |  |  | 308 |  |  |  | (357 | ) |  |  | 653 |
Financial futures |  | Notional |  |  | 1,251 |  |  |  | 2,363 |  |  |  | (2,455 | ) |  |  | 1,159 |
Forward bond purchase commitments |  | Notional |  |  | 500 |  |  |  | — |  |  |  | — |  |  |  | 500 |
Total derivatives not designated as hedges |  |  |  |  | 2,453 |  |  |  | 2,671 |  |  |  | (2,812 | ) |  |  | 2,312 |
Total derivatives |  |  |  | $ | 12,634 |  |  | $ | 4,443 |  |  | $ | (3,211 | ) |  | $ | 13,866 |
|  |  |  | December 31, |  |  |  |  |  | Maturities/ |  |  | June 30, |
(Number of policies) |  | Measurement |  | 2023 |  |  | Additions |  |  | terminations |  |  | 2024 |
Derivatives not designated as hedges |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Fixed indexed annuity embedded derivatives |  | Policies |  |  | 5,826 |  |  |  | — |  |  |  | (530 | ) |  |  | 5,296 |
Indexed universal life embedded derivatives |  | Policies |  |  | 749 |  |  |  | — |  |  |  | (17 | ) |  |  | 732 |
Cash Flow Hedges Certain derivative instruments are designated as cash flow hedges. The changes in fair value of these instruments are recorded as a component of other comprehensive income (loss) (“OCI”). We designate and account for the following as cash flow hedges when they have met the effectiveness requirements: (i) various types of interest rate swaps to convert floating rate investments to fixed rate investments; (ii) various types of interest rate swaps to convert floating rate liabilities into fixed rate liabilities; (iii) receive U.S. dollar fixed on foreign currency swaps to hedge the foreign currency cash flow exposure of foreign currency denominated investments; (iv) forward starting interest rate swaps to hedge against changes in interest rates associated with future fixed rate bond purchases and/or interest income; (v) forward bond purchase commitments to hedge against the variability in the anticipated cash flows required to purchase future fixed rate bonds; and (vi) other instruments to hedge the cash flows of various forecasted transactions. The following table provides information about the pre-tax income effects of cash flow hedges for the three months ended June 30, 2024:
(Amounts in millions) |  | Gain (loss) recognized in OCI |  |  | Gain (loss) reclassified into net income from OCI |  |  | Classification of gain (loss) reclassified into net income |  | Gain (loss) recognized in net income |  |  | Classification of gain (loss) recognized in net income
Interest rate swaps hedging assets |  | $ | (77 | ) |  | $ | 52 |  |  | Net investment income |  | $ | — |  |  | Net investment gains (losses)
Interest rate swaps hedging assets |  |  | — |  |  |  | 1 |  |  | Net investment gains (losses) |  |  | — |  |  | Net investment gains (losses)
Interest rate swaps hedging liabilities |  |  | — |  |  |  | (1 | ) |  | Interest expense |  |  | — |  |  | Net investment gains (losses)
Foreign currency swaps |  |  | 2 |  |  |  | — |  |  | Net investment income |  |  | — |  |  | Net investment gains (losses)
Forward bond purchase commitments |  |  | (33 | ) |  |  | — |  |  | Net investment gains (losses) |  |  | — |  |  | Net investment gains (losses)
Total |  | $ | (108 | ) |  | $ | 52 |  |  |  |  | $ | — |  |  |
The following table provides information about the pre-tax income effects of cash flow hedges for the three months ended June 30, 2023:
(Amounts in millions) |  | Gain (loss) recognized in OCI |  |  | Gain (loss) reclassified into net income from OCI |  |  | Classification of gain (loss) reclassified into net income |  | Gain (loss) recognized in net income |  |  | Classification of gain (loss) recognized in net income
Interest rate swaps hedging assets |  | $ | (104 | ) |  | $ | 55 |  |  | Net investment income |  | $ | — |  |  | Net investment gains (losses)
Interest rate swaps hedging assets |  |  | — |  |  |  | 3 |  |  | Net investment gains (losses) |  |  | — |  |  | Net investment gains (losses)
Foreign currency swaps |  |  | (2 | ) |  |  | — |  |  | Net investment income |  |  | — |  |  | Net investment gains (losses)
Total |  | $ | (106 | ) |  | $ | 58 |  |  |  |  | $ | — |  |  |
The following table provides information about the pre-tax income effects of cash flow hedges for the six months ended June 30, 2024:
(Amounts in millions) |  | Gain (loss) recognized in OCI |  |  | Gain (loss) reclassified into net income from OCI |  |  | Classification of gain (loss) reclassified into net income |  | Gain (loss) recognized in net income |  |  | Classification of gain (loss) recognized in net income
Interest rate swaps hedging assets |  | $ | (225 | ) |  | $ | 105 |  |  | Net investment income |  | $ | — |  |  | Net investment gains (losses)
Interest rate swaps hedging assets |  |  | — |  |  |  | 5 |  |  | Net investment gains (losses) |  |  | — |  |  | Net investment gains (losses)
Interest rate swaps hedging liabilities |  |  | — |  |  |  | (2 | ) |  | Interest expense |  |  | — |  |  | Net investment gains (losses)
Foreign currency swaps |  |  | 3 |  |  |  | — |  |  | Net investment income |  |  | — |  |  | Net investment gains (losses)
Forward bond purchase commitments |  |  | (44 | ) |  |  | — |  |  | Net investment gains (losses) |  |  | — |  |  | Net investment gains (losses)
Total |  | $ | (266 | ) |  | $ | 108 |  |  |  |  | $ | — |  |  |
The following table provides information about the pre-tax income effects of cash flow hedges for the six months ended June 30, 2023:
(Amounts in millions) |  | Gain (loss) recognized in OCI |  |  | Gain (loss) reclassified into net income from OCI |  |  | Classification of gain (loss) reclassified into net income |  | Gain (loss) recognized in net income |  |  | Classification of gain (loss) recognized in net income
Interest rate swaps hedging assets |  | $ | 42 |  |  | $ | 109 |  |  | Net investment income |  | $ | — |  |  | Net investment gains (losses)
Interest rate swaps hedging assets |  |  | — |  |  |  | 8 |  |  | Net investment gains (losses) |  |  | — |  |  | Net investment gains (losses)
Interest rate swaps hedging liabilities |  |  | — |  |  |  | (1 | ) |  | Interest expense |  |  | — |  |  | Net investment gains (losses)
Interest rate swaps hedging liabilities |  |  | — |  |  |  | 1 |  |  | Net investment gains (losses) |  |  | — |  |  | Net investment gains (losses)
Foreign currency swaps |  |  | (3 | ) |  |  | — |  |  | Net investment income |  |  | — |  |  | Net investment gains (losses)
Foreign currency swaps |  |  | — |  |  |  | 2 |  |  | Net investment gains (losses) |  |  | — |  |  | Net investment gains (losses)
Total |  | $ | 39 |  |  | $ | 119 |  |  |  |  | $ | — |  |  |
The following table provides a reconciliation of current period changes, net of applicable income taxes, for these designated derivatives presented in the separate component of stockholders’ equity labeled “derivatives qualifying as hedges,” as of and for the periods indicated:
|  | Three months ended June 30, |  |  | Six months ended June 30, |
(Amounts in millions) |  | 2024 |  |  | 2023 |  |  | 2024 |  |  | 2023 |
Beginning balance |  | $ | 849 |  |  | $ | 1,274 |  |  | $ | 1,010 |  |  | $ | 1,200 |
Current period increases (decreases) in fair value, net of deferred taxes of $23, $23, $56 and $(8) |  |  | (85 | ) |  |  | (83 | ) |  |  | (210 | ) |  |  | 31 |
Reclassification to net (income), net of deferred taxes of $18, $21, $38 and $42 |  |  | (34 | ) |  |  | (37 | ) |  |  | (70 | ) |  |  | (77 | )
Ending balance |  | $ | 730 |  |  | $ | 1,154 |  |  | $ | 730 |  |  | $ | 1,154 |
The total of derivatives designated as cash flow hedges of $ 730 million, net of taxes, recorded in stockholders’ equity as of June 30, 2024 is expected to be reclassified to net income (loss) in the future, concurrently with and primarily offsetting changes in interest expense and interest income on floating rate instruments and interest income on future fixed rate bond purchases. Of this amount, $ 129 million, net of taxes, is expected to be reclassified to net income (loss) in the next 12 months. Actual amounts may vary from this amount as a result of market conditions. All forecasted transactions associated with qualifying cash flow hedges are expected to occur by 2057 . During the six months ended June 30, 2024 and 2023, we reclassified $ 3 million and $ 7 million, respectively, to net income in connection with forecasted transactions that were no longer considered reasonably possible of occurring. Derivatives Not Designated As Hedges We enter into certain non-qualifying derivative instruments such as equity index options and financial futures to mitigate the risks associated with liabilities that have guaranteed minimum benefits, fixed indexed annuities and indexed universal life. Our fixed indexed annuity and indexed universal life insurance products with certain features are required to be bifurcated as embedded derivatives. Additionally, we have forward bond purchase commitments to hedge against the variability in the anticipated cash flows required to purchase future fixed rate bonds. The following table provides the pre-tax gain (loss) recognized in net income for the effects of derivatives not designated as hedges for the periods indicated:
|  | Three months ended June 30, |  |  | Six months ended June 30, |  |  | Classification of gain (loss) recognized in net income
(Amounts in millions) |  | 2024 |  |  | 2023 |  |  | 2024 |  |  | 2023 |
Equity index options |  | $ | 1 |  |  | $ | 5 |  |  | $ | 6 |  |  | $ | 6 |  |  | Net investment gains (losses)
Financial futures |  |  | (15 | ) |  |  | (65 | ) |  |  | (79 | ) |  |  | (67 | ) |  | Changes in fair value of market risk benefits and associated hedges
Forward bond purchase commitments |  |  | (7 | ) |  |  | (3 | ) |  |  | (11 | ) |  |  | (3 | ) |  | Net investment gains (losses)
Fixed indexed annuity embedded derivatives |  |  | (5 | ) |  |  | (8 | ) |  |  | (13 | ) |  |  | (10 | ) |  | Net investment gains (losses)
Indexed universal life embedded derivatives |  |  | 2 |  |  |  | 2 |  |  |  | 6 |  |  |  | 7 |  |  | Net investment gains (losses)
Total derivatives not designated as hedges |  | $ | (24 | ) |  | $ | (69 | ) |  | $ | (91 | ) |  | $ | (67 | ) |  |
Derivative Counterparty Credit Risk Most of our derivative arrangements with counterparties require the posting of collateral upon meeting certain net exposure thresholds. The following table presents additional information about derivative assets and liabilities subject to an enforceable master netting arrangement as of the dates indicated:
|  | June 30, 2024 |  |  | December 31, 2023 |
(Amounts in millions) |  | Derivative assets (1) |  |  | Derivative liabilities (1) |  |  | Net derivatives |  |  | Derivative assets (1) |  |  | Derivative liabilities (1) |  |  | Net derivatives |
Amounts presented in the balance sheet: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Gross amounts recognized |  | $ | 80 |  |  | $ | 670 |  |  | $ | (590 | ) |  | $ | 131 |  |  | $ | 501 |  |  | $ | (370 | )
Gross amounts offset in the balance sheet |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Net amounts presented in the balance sheet |  |  | 80 |  |  |  | 670 |  |  |  | (590 | ) |  |  | 131 |  |  |  | 501 |  |  |  | (370 | )
Gross amounts not offset in the balance sheet: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Financial instruments (2) |  |  | (38 | ) |  |  | (38 | ) |  |  | — |  |  |  | (59 | ) |  |  | (59 | ) |  |  | — |
Collateral received |  |  | (17 | ) |  |  | — |  |  |  | (17 | ) |  |  | (19 | ) |  |  | — |  |  |  | (19 | )
Collateral pledged |  |  | — |  |  |  | (1,288 | ) |  |  | 1,288 |  |  |  | — |  |  |  | (1,100 | ) |  |  | 1,100 |
Over collateralization |  |  | 2 |  |  |  | 656 |  |  |  | (654 | ) |  |  | — |  |  |  | 658 |  |  |  | (658 | )
Net amount |  | $ | 27 |  |  | $ | — |  |  | $ | 27 |  |  | $ | 53 |  |  | $ | — |  |  | $ | 53 |
(1) | Does not include amounts related to embedded derivatives as of June 30, 2024 and December 31, 2023.
(2) | Amounts represent derivative assets and/or liabilities that are presented gross within the balance sheet but are held with the same counterparty where we have a master netting arrangement. This adjustment results in presenting the net asset and net liability position for each counterparty.

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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/disclosureRef -Topic 815 -SubTopic 40 -Name Accounting Standards Codification -Section 50 -Paragraph 5 -Subparagraph (f) -Publisher FASB -URI https://asc.fasb.org//1943274/2147480237/815-40-50-5 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Topic 815 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 5C -Subparagraph (b) -Publisher FASB -URI https://asc.fasb.org//1943274/2147480434/815-10-50-5C Reference 3: http://fasb.org/us-gaap/role/ref/legacyRef -Topic 815 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org//815/tableOfContent + Details
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