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Derivatives | 3 Months Ended
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Mar. 31, 2024
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Derivatives | 8. Derivatives Accounting for Derivatives See Notes 1 and 8 of the Notes to the Consolidated Financial Statements included in the 2023 Annual Report for a description of the Company’s accounting policies for derivatives and the fair value hierarchy for derivatives. Types of Derivative Instruments and Derivative Strategies The Company maintains an overall risk management strategy that incorporates the use of derivative instruments to minimize its exposure to various market risks. Commonly used derivative instruments include, but are not necessarily limited to: •Interest rate derivatives: swaps, floors, caps, swaptions and forwards; •Foreign currency exchange rate derivatives: forwards and swaps; •Equity market derivatives: options, total return swaps and hybrid options; and •Credit derivatives: single and index reference credit default swaps and swaptions. For detailed information on these contracts and the related strategies, see Note 7 of the Notes to the Consolidated Financial Statements included in the 2023 Annual Report. In the first quarter of 2024, the Company entered into interest rate swaps to manage the interest rate risk in funding agreement liabilities. These interest rate swaps are qualifying hedges. Primary Risks Managed by Derivatives The primary underlying risk exposure, gross notional amount and estimated fair value of derivatives, excluding embedded derivatives, held were as follows at:
|  |  | March 31, 2024 |  | December 31, 2023
| Primary Underlying Risk Exposure |  | Gross Notional Amount |  | Estimated Fair Value |  | Gross Notional Amount |  | Estimated Fair Value
| Assets |  | Liabilities |  | Assets |  | Liabilities
|  |  | (In millions)
Derivatives Designated as Hedging Instruments: |  |  |  |  |  |  |  |  |  |  |  |
Cash flow hedges: |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate swaps | Interest rate |  | $ | 500 |  |  | $ | 9 |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Foreign currency swaps | Foreign currency exchange rate |  | 3,923 |  |  | 377 |  |  | 31 |  |  | 3,939 |  |  | 348 |  |  | 45 |
Total qualifying hedges |  |  | 4,423 |  |  | 386 |  |  | 31 |  |  | 3,939 |  |  | 348 |  |  | 45 |
Derivatives Not Designated or Not Qualifying as Hedging Instruments: |  |  |  |  |  |  |  |  |  |  |  |
Interest rate swaps | Interest rate |  | 31,565 |  |  | 115 |  |  | 144 |  |  | 31,252 |  |  | 140 |  |  | 103 |
Interest rate floors | Interest rate |  | 3,500 |  |  | 3 |  |  | — |  |  | 3,500 |  |  | 7 |  |  | 1 |
Interest rate caps | Interest rate |  | 7,050 |  |  | 20 |  |  | — |  |  | 7,050 |  |  | 19 |  |  | 1 |
Interest rate options | Interest rate |  | 23,580 |  |  | 20 |  |  | 269 |  |  | 33,680 |  |  | 47 |  |  | 167 |
Interest rate forwards | Interest rate |  | 19,649 |  |  | 92 |  |  | 2,325 |  |  | 17,017 |  |  | 32 |  |  | 1,937 |
Foreign currency swaps | Foreign currency exchange rate |  | 737 |  |  | 105 |  |  | — |  |  | 747 |  |  | 101 |  |  | 1 |
Foreign currency forwards | Foreign currency exchange rate |  | 479 |  |  | 2 |  |  | — |  |  | 535 |  |  | — |  |  | 9 |
Credit default swaps — written | Credit |  | 1,405 |  |  | 29 |  |  | — |  |  | 1,405 |  |  | 27 |  |  | — |
Credit default swaptions | Credit |  | 300 |  |  | — |  |  | 1 |  |  | — |  |  | — |  |  | — |
Equity index options | Equity market |  | 23,490 |  |  | 1,132 |  |  | 884 |  |  | 20,099 |  |  | 757 |  |  | 687 |
Equity total return swaps | Equity market |  | 65,287 |  |  | 1,940 |  |  | 1,719 |  |  | 53,742 |  |  | 2,236 |  |  | 2,137 |
Hybrid options | Equity market |  | 300 |  |  | 1 |  |  | — |  |  | 270 |  |  | — |  |  | — |
Total non-designated or non-qualifying derivatives |  |  | 177,342 |  |  | 3,459 |  |  | 5,342 |  |  | 169,297 |  |  | 3,366 |  |  | 5,043 |
Total |  |  | $ | 181,765 |  |  | $ | 3,845 |  |  | $ | 5,373 |  |  | $ | 173,236 |  |  | $ | 3,714 |  |  | $ | 5,088 |
Based on gross notional amounts, a substantial portion of the Company’s derivatives was not designated or did not qualify as part of a hedging relationship at both March 31, 2024 and December 31, 2023. The Company’s use of derivatives includes (i) derivatives that serve as hedges of the Company’s exposure to various risks and generally do not qualify for hedge accounting because they do not meet the criteria required under portfolio hedging rules; (ii) derivatives that economically hedge insurance liabilities and generally do not qualify for hedge accounting because they do not meet the criteria of being “highly effective” as outlined in Accounting Standards Codification 815 — Derivatives and Hedging; (iii) derivatives that economically hedge MRBs that do not qualify for hedge accounting because the changes in estimated fair value of the MRBs are already recorded in net income; and (iv) written credit default swaps that are used to create synthetic credit investments and that do not qualify for hedge accounting because they do not involve a hedging relationship. The amount and location of gains (losses), including earned income, recognized for derivatives and gains (losses) pertaining to hedged items reported in net derivative gains (losses) were as follows:
| Net Derivative Gains (Losses) Recognized for Derivatives |  | Net Derivative Gains (Losses) Recognized for Hedged Items |  | Net Investment Income |  | Policyholder Benefits and Claims |  | Amount of Gains (Losses) Deferred in AOCI
| (In millions)
Three Months Ended March 31, 2024 |  |  |  |  |  |  |  |  |
Derivatives Designated as Hedging Instruments: |  |  |  |  |  |  |  |  |
Cash flow hedges: |  |  |  |  |  |  |  |  |
Interest rate | $ | 3 |  |  | $ | — |  |  | $ | — |  |  | $ | 2 |  |  | $ | 9 |
Foreign currency exchange rate | — |  |  | (1) |  |  | 13 |  |  | — |  |  | 44 |
Total cash flow hedges | 3 |  |  | (1) |  |  | 13 |  |  | 2 |  |  | 53 |
Derivatives Not Designated or Not Qualifying as Hedging Instruments: |  |  |  |  |  |  |  |  |
Interest rate | (782) |  |  | — |  |  | — |  |  | — |  |  | — |
Foreign currency exchange rate | 31 |  |  | (3) |  |  | — |  |  | — |  |  | — |
Credit | 6 |  |  | — |  |  | — |  |  | — |  |  | — |
Equity market | 711 |  |  | — |  |  | — |  |  | — |  |  | — |
Embedded | (1,886) |  |  | — |  |  | — |  |  | — |  |  | — |
Total non-qualifying hedges | (1,920) |  |  | (3) |  |  | — |  |  | — |  |  | — |
Total | $ | (1,917) |  |  | $ | (4) |  |  | $ | 13 |  |  | $ | 2 |  |  | $ | 53 |
Three Months Ended March 31, 2023 |  |  |  |  |  |  |  |  |
Derivatives Designated as Hedging Instruments: |  |  |  |  |  |  |  |  |
Cash flow hedges: |  |  |  |  |  |  |  |  |
Interest rate | $ | — |  |  | $ | — |  |  | $ | 1 |  |  | $ | — |  |  | $ | 2 |
Foreign currency exchange rate | (1) |  |  | — |  |  | 14 |  |  | — |  |  | (42) |
Total cash flow hedges | (1) |  |  | — |  |  | 15 |  |  | — |  |  | (40) |
Derivatives Not Designated or Not Qualifying as Hedging Instruments: |  |  |  |  |  |  |  |  |
Interest rate | 610 |  |  | — |  |  | — |  |  | — |  |  | — |
Foreign currency exchange rate | (5) |  |  | 10 |  |  | — |  |  | — |  |  | — |
Credit | 10 |  |  | — |  |  | — |  |  | — |  |  | — |
Equity market | (109) |  |  | — |  |  | — |  |  | — |  |  | — |
Embedded | (1,090) |  |  | — |  |  | — |  |  | — |  |  | — |
Total non-qualifying hedges | (584) |  |  | 10 |  |  | — |  |  | — |  |  | — |
Total | $ | (585) |  |  | $ | 10 |  |  | $ | 15 |  |  | $ | — |  |  | $ | (40) |
Credit Derivatives In connection with synthetically created credit investment transactions, the Company writes credit default swaps for which it receives a premium to insure credit risk. If a credit event occurs, as defined by the contract, the contract may be cash settled or it may be settled gross by the Company paying the counterparty the specified swap notional amount in exchange for the delivery of par quantities of the referenced credit obligation. The estimated fair value, maximum amount of future payments and weighted average years to maturity of written credit default swaps were as follows at:
|  | March 31, 2024 |  | December 31, 2023
Rating Agency Designation of Referenced Credit Obligations (1) |  | Estimated Fair Value of Credit Default Swaps |  | Maximum Amount of Future Payments under Credit Default Swaps |  | Weighted Average Years to Maturity (2) |  | Estimated Fair Value of Credit Default Swaps |  | Maximum Amount of Future Payments under Credit Default Swaps |  | Weighted Average Years to Maturity (2)
|  | (Dollars in millions)
Aaa/Aa/A |  | $ | 5 |  |  | $ | 425 |  |  | 1.4 |  | $ | 6 |  |  | $ | 419 |  |  | 1.6
Baa |  | 22 |  |  | 952 |  |  | 4.9 |  | 19 |  |  | 958 |  |  | 4.9
Ba |  | 2 |  |  | 24 |  |  | 2.7 |  | 2 |  |  | 24 |  |  | 3.0
Caa and Lower |  | — |  |  | 4 |  |  | 1.7 |  | — |  |  | 4 |  |  | 2.0
Total |  | $ | 29 |  |  | $ | 1,405 |  |  | 3.8 |  | $ | 27 |  |  | $ | 1,405 |  |  | 3.9
_______________ (1)The Company has written credit protection on both single name and index references. The rating agency designations are based on availability and the midpoint of the applicable ratings among Moody’s, S&P and Fitch. If no rating is available from a rating agency, then an internally developed rating is used. (2)The weighted average years to maturity of the credit default swaps is calculated based on weighted average gross notional amounts. Counterparty Credit Risk The Company may be exposed to credit-related losses in the event of counterparty nonperformance on derivative instruments. Generally, the credit exposure is the fair value at the reporting date less any collateral received from the counterparty. The Company manages its credit risk by: (i) entering into derivative transactions with creditworthy counterparties governed by master netting agreements; (ii) trading through regulated exchanges and central clearing counterparties; (iii) obtaining collateral, such as cash and securities, when appropriate; and (iv) setting limits on single party credit exposures which are subject to periodic management review. See Note 9 for a description of the impact of credit risk on the valuation of derivatives. The estimated fair values of net derivative assets and net derivative liabilities after the application of master netting agreements and collateral were as follows at:
|  |  |  | Gross Amounts Not Offset on the Consolidated Balance Sheets |  |  |  |  |  |
|  | Gross Amount Recognized |  | Financial Instruments (1) |  | Collateral Received/Pledged (2) |  | Net Amount |  | Securities Collateral Received/Pledged (3) |  | Net Amount After Securities Collateral
|  | (In millions)
March 31, 2024 |  |  |  |  |  |  |  |  |  |  |  |
Derivative assets |  | $ | 3,605 |  |  | $ | (3,308) |  |  | $ | (275) |  |  | $ | 22 |  |  | $ | (16) |  |  | $ | 6 |
Derivative liabilities |  | $ | 5,181 |  |  | $ | (3,308) |  |  | $ | — |  |  | $ | 1,873 |  |  | $ | (1,873) |  |  | $ | — |
December 31, 2023 |  |  |  |  |  |  |  |  |  |  |  |
Derivative assets |  | $ | 3,506 |  |  | $ | (3,112) |  |  | $ | (164) |  |  | $ | 230 |  |  | $ | (194) |  |  | $ | 36 |
Derivative liabilities |  | $ | 4,925 |  |  | $ | (3,112) |  |  | $ | (8) |  |  | $ | 1,805 |  |  | $ | (1,805) |  |  | $ | — |
_______________ (1)Represents amounts subject to an enforceable master netting agreement or similar agreement. (2)The amount of cash collateral offset in the table above is limited to the net estimated fair value of derivatives after application of netting agreement. (3)Securities collateral received from counterparties is not reported on the consolidated balance sheets and may not be sold or re-pledged unless the counterparty is in default. Amounts do not include excess of collateral pledged or received. The Company’s collateral arrangements generally require the counterparty in a net liability position, after considering the effect of netting agreements, to pledge collateral when the amount owed by that counterparty reaches a minimum transfer amount. Certain of these arrangements also include credit-contingent provisions which permit the party with positive fair value to terminate the derivative at the current fair value or demand immediate full collateralization from the party in a net liability position, in the event that the financial strength or credit rating of the party in a net liability position falls below a certain level. The aggregate estimated fair values of derivatives in a net liability position containing such credit-contingent provisions and the aggregate estimated fair value of assets posted as collateral for such instruments were as follows at:
|  | March 31, 2024 |  | December 31, 2023
|  | (In millions)
Estimated fair value of derivatives in a net liability position (1) |  | $ | 1,873 |  |  | $ | 1,813 |
Estimated fair value of collateral provided (2): |  |  |  |
Fixed maturity securities |  | $ | 4,801 |  |  | $ | 4,811 |
_______________ (1)After taking into consideration the existence of netting agreements. (2)Substantially all of the Company’s collateral arrangements provide for daily posting of collateral for the full value of the derivative contract. As a result, if the credit-contingent provisions of derivative contracts in a net liability position were triggered, minimal additional assets would be required to be posted as collateral or needed to settle the instruments immediately. Additionally, the Company is required to pledge initial margin for certain new over-the-counter (“OTC”) bilateral contracts between two counterparties (“OTC-bilateral”) derivative transactions to third-party custodians.

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