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Derivative Instruments | 6 Months Ended
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Jun. 30, 2023
Derivative Instruments and Hedging Activities Disclosure [Abstract] |
Derivative Instruments | 5. Derivative Instruments We use a variety of derivative instruments to manage risks, primarily equity, interest rate, credit, foreign currency and market volatility. See Note 7 – Fair Value for information about the fair value hierarchy for derivatives. The following table presents the notional amount and fair value of derivative instruments:
| June 30, 2023 |  | December 31, 2022
| Notional Amount |  | Fair Value |  | Notional Amount |  | Fair Value
(In millions) |  | Assets |  | Liabilities |  |  | Assets |  | Liabilities
Derivatives designated as hedges |  |  |  |  |  |  |  |  |  |  |
Foreign currency hedges |  |  |  |  |  |  |  |  |  |  |
Swaps | 7,460 |  |  | $ | 659 |  |  | $ | 189 |  |  | 6,677 |  |  | $ | 747 |  |  | $ | 154 |
Forwards | 6,432 |  |  | 331 |  |  | 80 |  |  | 6,283 |  |  | 406 |  |  | 52 |
Interest rate swaps | 4,468 |  |  | — |  |  | 719 |  |  | 4,468 |  |  | — |  |  | 803 |
Forwards on net investments | 227 |  |  | 2 |  |  | — |  |  | 216 |  |  | 2 |  |  | — |
Interest rate swaps | 10,031 |  |  | 25 |  |  | 168 |  |  | 9,332 |  |  | 9 |  |  | 150 |
Total derivatives designated as hedges |  |  | 1,017 |  |  | 1,156 |  |  |  |  | 1,164 |  |  | 1,159 |
Derivatives not designated as hedges |  |  |  |  |  |  |  |  |  |  |
Equity options | 69,779 |  |  | 3,326 |  |  | 97 |  |  | 65,089 |  |  | 1,374 |  |  | 114 |
Futures | 35 |  |  | 87 |  |  | — |  |  | 18 |  |  | 33 |  |  | — |
Foreign currency swaps | 3,981 |  |  | 290 |  |  | 109 |  |  | 3,563 |  |  | 251 |  |  | 112 |
Interest rate swaps | 1,013 |  |  | 90 |  |  | — |  |  | 488 |  |  | 74 |  |  | — |
Other swaps | 231 |  |  | 5 |  |  | 1 |  |  | 89 |  |  | — |  |  | 4 |
Foreign currency forwards | 19,833 |  |  | 299 |  |  | 390 |  |  | 16,376 |  |  | 413 |  |  | 257 |
Embedded derivatives |  |  |  |  |  |  |  |  |  |  |
Funds withheld including related parties |  |  | (5,653) |  |  | (28) |  |  |  |  | (6,272) |  |  | (77) |
Interest sensitive contract liabilities |  |  | — |  |  | 8,198 |  |  |  |  | — |  |  | 5,841 |
Total derivatives not designated as hedges |  |  | (1,556) |  |  | 8,767 |  |  |  |  | (4,127) |  |  | 6,251 |
Total derivatives |  |  | $ | (539) |  |  | $ | 9,923 |  |  |  |  | $ | (2,963) |  |  | $ | 7,410 |
Derivatives Designated as Hedges Cash Flow Hedges – We use interest rate swaps to convert floating-rate interest payments to fixed-rate interest payments to reduce exposure to interest rate changes. The interest rate swaps will expire by July 2027. During the three months ended June 30, 2023 and 2022, interest rate swaps recognized in OCI had losses of $53 million and $0 million, respectively. During the six months ended June 30, 2023 and 2022, interest rate swaps recognized in OCI had losses of $126 million and $0 million, respectively. There were no amounts deemed ineffective during the three and six months ended June 30, 2023 and 2022. As of June 30, 2023, no amounts are expected to be reclassified to income within the next 12 months. Fair Value Hedges – We use foreign currency forward contracts, foreign currency swaps, foreign currency interest rate swaps and interest rate swaps that are designated and accounted for as fair value hedges to hedge certain exposures to foreign currency risk and interest rate risk. The foreign currency forward price is agreed upon at the time of the contract and payment is made at a specified future date. The following represents the carrying amount and the cumulative fair value hedging adjustments included in the hedged assets or liabilities:
| June 30, 2023 |  | December 31, 2022
(In millions) | Carrying amount of the hedged assets or liabilities 1 |  | Cumulative amount of fair value hedging gains (losses) |  | Carrying amount of the hedged assets or liabilities 1 |  | Cumulative amount of fair value hedging gains (losses)
AFS securities |  |  |  |  |  |  |
Foreign currency forwards | $ | 5,500 |  |  | $ | (73) |  |  | $ | 5,259 |  |  | $ | (217) |
Foreign currency swaps | 5,472 |  |  | (240) |  |  | 4,797 |  |  | (398) |
Interest sensitive contract liabilities |  |  |  |  |  |  |
Foreign currency swaps | 1,176 |  |  | 57 |  |  | 1,081 |  |  | 88 |
Foreign currency interest rate swaps | 3,811 |  |  | 552 |  |  | 4,348 |  |  | 632 |
Interest rate swaps | 6,781 |  |  | 323 |  |  | 6,577 |  |  | 323 |
1 The carrying amount disclosed for AFS securities is amortized cost.
The following is a summary of the gains (losses) related to the derivatives and related hedged items in fair value hedge relationships:
|  |  |  |  |  |  | Amount Excluded
(In millions) | Derivatives |  | Hedged Items |  | Net |  | Recognized in income through amortization approach |  | Recognized in income through changes in fair value
Three months ended June 30, 2023 |  |  |  |  |  |  |  |  |
Investment related gains (losses) |  |  |  |  |  |  |  |  |
Foreign currency forwards | $ | (35) |  |  | $ | 37 |  |  | $ | 2 |  |  | $ | (42) |  |  | $ | 3 |
Foreign currency swaps | (43) |  |  | 45 |  |  | 2 |  |  | — |  |  | — |
Foreign currency interest rate swaps | 7 |  |  | (10) |  |  | (3) |  |  | — |  |  | — |
Interest rate swaps | (120) |  |  | 120 |  |  | — |  |  | — |  |  | — |
Interest sensitive contract benefits |  |  |  |  |  |  |  |  |
Foreign currency interest rate swaps | 13 |  |  | (15) |  |  | (2) |  |  | — |  |  | — |
Three months ended June 30, 2022 |  |  |  |  |  |  |  |  |
Investment related gains (losses) |  |  |  |  |  |  |  |  |
Foreign currency forwards | $ | 201 |  |  | $ | (232) |  |  | $ | (31) |  |  | $ | 16 |  |  | $ | — |
Foreign currency swaps | 242 |  |  | (252) |  |  | (10) |  |  | — |  |  | — |
Foreign currency interest rate swaps | (335) |  |  | 298 |  |  | (37) |  |  | — |  |  | — |
Interest rate swaps | (5) |  |  | 18 |  |  | 13 |  |  | — |  |  | — |
Interest sensitive contract benefits |  |  |  |  |  |  |  |  |
Foreign currency interest rate swaps | 15 |  |  | (14) |  |  | 1 |  |  | — |  |  | — |
|  |  |  |  |  |  | Amount Excluded
(In millions) | Derivatives |  | Hedged Items |  | Net |  | Recognized in income through amortization approach |  | Recognized in income through changes in fair value
Six months ended June 30, 2023 |  |  |  |  |  |  |  |  |
Investment related gains (losses) |  |  |  |  |  |  |  |  |
Foreign currency forwards | $ | (105) |  |  | $ | 110 |  |  | $ | 5 |  |  | $ | 45 |  |  | $ | 7 |
Foreign currency swaps | (102) |  |  | 109 |  |  | 7 |  |  | — |  |  | — |
Foreign currency interest rate swaps | 85 |  |  | (80) |  |  | 5 |  |  | — |  |  | — |
Interest rate swaps | (18) |  |  | 16 |  |  | (2) |  |  | — |  |  | — |
Interest sensitive contract benefits |  |  |  |  |  |  |  |  |
Foreign currency interest rate swaps | 28 |  |  | (30) |  |  | (2) |  |  | — |  |  | — |
Six months ended June 30, 2022 |  |  |  |  |  |  |  |  |
Investment related gains (losses) |  |  |  |  |  |  |  |  |
Foreign currency forwards | $ | 328 |  |  | $ | (358) |  |  | $ | (30) |  |  | $ | 30 |  |  | $ | 1 |
Foreign currency swaps | 333 |  |  | (347) |  |  | (14) |  |  | — |  |  | — |
Foreign currency interest rate swaps | (494) |  |  | 495 |  |  | 1 |  |  | — |  |  | — |
Interest rate swaps | (77) |  |  | 93 |  |  | 16 |  |  | — |  |  | — |
Interest sensitive contract benefits |  |  |  |  |  |  |  |  |
Foreign currency interest rate swaps | 25 |  |  | (23) |  |  | 2 |  |  | — |  |  | — |
The following is a summary of the gains (losses) excluded from the assessment of hedge effectiveness that were recognized in OCI:
| Three months ended June 30, |  | Six months ended June 30, |  |  |  |  |
(In millions) | 2023 |  | 2022 |  | 2023 |  | 2022 |  |  |  |  |
Foreign currency forwards | $ | (61) |  |  | $ | 16 |  |  | $ | 2 |  |  | $ | (57) |  |  |  |  |  |
Foreign currency swaps | (57) |  |  | 65 |  |  | 57 |  |  | 9 |  |  |  |  |  |
Net Investment Hedges – We use foreign currency forwards to hedge the foreign currency exchange rate risk of our investments in subsidiaries that have a reporting currency other than the US dollar. We assess hedge effectiveness based on the changes in forward rates. During the three months ended June 30, 2023 and 2022, these derivatives had losses of $4 million and gains of $23 million, respectively. During the six months ended June 30, 2023 and 2022, these derivatives had losses of $8 million and gains of $25 million, respectively. These derivatives are included in foreign currency translation and other adjustments on the condensed consolidated statements of comprehensive income (loss). As of June 30, 2023 and December 31, 2022, the cumulative foreign currency translations recorded in AOCI related to these net investment hedges were gains of $22 million and $30 million, respectively. During the three and six months ended June 30, 2023 and 2022, there were no amounts deemed ineffective. Derivatives Not Designated as Hedges Equity options – We use equity indexed options to economically hedge fixed indexed annuity products that guarantee the return of principal to the policyholder and credit interest based on a percentage of the gain in a specified market index, primarily the S&P 500. To hedge against adverse changes in equity indices, we enter into contracts to buy equity indexed options. The contracts are net settled in cash based on differentials in the indices at the time of exercise and the strike price. Futures – Futures contracts are purchased to hedge the growth in interest credited to the customer as a direct result of increases in the related indices. We enter into exchange-traded futures with regulated futures commission clearing brokers who are members of a trading exchange. Under exchange-traded futures contracts, we agree to purchase a specified number of contracts with other parties and to post variation margin on a daily basis in an amount equal to the difference in the daily fair values of those contracts. Interest rate swaps – We use interest rate swaps to reduce market risks from interest rate changes and to alter interest rate exposure arising from duration mismatches between assets and liabilities. With an interest rate swap, we agree with another party to exchange the difference between fixed-rate and floating-rate interest amounts tied to an agreed-upon notional principal amount at specified intervals. Other swaps – Other swaps include total return swaps and credit default swaps. We purchase total rate of return swaps to gain exposure and benefit from a reference asset or index without ownership. Credit default swaps provide a measure of protection against the default of an issuer or allow us to gain credit exposure to an issuer or traded index. We use credit default swaps coupled with a bond to synthetically create the characteristics of a reference bond. Embedded derivatives – We have embedded derivatives which are required to be separated from their host contracts and reported as derivatives. Host contracts include reinsurance agreements structured on a modco or funds withheld basis and indexed annuity products. The following is a summary of the gains (losses) related to derivatives not designated as hedges:
| Three months ended June 30, |  | Six months ended June 30, |  |  |  |  |
(In millions) | 2023 |  | 2022 |  | 2023 |  | 2022 |  |  |  |  |
Equity options | $ | 991 |  |  | $ | (1,571) |  |  | $ | 1,341 |  |  | $ | (2,279) |  |  |  |  |  |
Futures | 61 |  |  | (86) |  |  | 95 |  |  | (119) |  |  |  |  |  |
Swaps | 29 |  |  | (74) |  |  | 62 |  |  | (11) |  |  |  |  |  |
Foreign currency forwards | (168) |  |  | 362 |  |  | (337) |  |  | 517 |  |  |  |  |  |
Embedded derivatives on funds withheld | (262) |  |  | (2,682) |  |  | 341 |  |  | (5,202) |  |  |  |  |  |
Amounts recognized in investment related gains (losses) | 651 |  |  | (4,051) |  |  | 1,502 |  |  | (7,094) |  |  |  |  |  |
Embedded derivatives in indexed annuity products 1 | (1,055) |  |  | 1,519 |  |  | (1,528) |  |  | 2,553 |  |  |  |  |  |
Total gains (losses) on derivatives not designated as hedges | $ | (404) |  |  | $ | (2,532) |  |  | $ | (26) |  |  | $ | (4,541) |  |  |  |  |  |
1 Included in interest sensitive contract benefits on the condensed consolidated statements of income (loss).
Credit Risk—We may be exposed to credit-related losses in the event of counterparty nonperformance on derivative financial instruments. Generally, the current credit exposure of our derivative contracts is the fair value at the reporting date less any collateral received from the counterparty. We manage credit risk related to over-the-counter derivatives by entering into transactions with creditworthy counterparties. Where possible, we maintain collateral arrangements and use master netting agreements that provide for a single net payment from one counterparty to another at each due date and upon termination. We have also established counterparty exposure limits, where possible, in order to evaluate if there is sufficient collateral to support the net exposure. Collateral arrangements typically require the posting of collateral in connection with its derivative instruments. Collateral agreements often contain posting thresholds, some of which may vary depending on the posting party’s financial strength ratings. Additionally, a decrease in our financial strength rating to a specified level can result in settlement of the derivative position. The estimated fair value of our net derivative and other financial assets and liabilities after the application of master netting agreements and collateral were as follows:
|  |  | Gross amounts not offset on the condensed consolidated balance sheets |  |  |  |  |  |
(In millions) | Gross amount recognized 1 |  | Financial instruments 2 |  | Collateral (received)/pledged |  | Net amount |  | Off-balance sheet securities collateral 3 |  | Net amount after securities collateral
June 30, 2023 |  |  |  |  |  |  |  |  |  |  |
Derivative assets | $ | 5,114 |  |  | $ | (1,584) |  |  | $ | (3,584) |  |  | $ | (54) |  |  | $ | — |  |  | $ | (54) |
Derivative liabilities | (1,753) |  |  | 1,584 |  |  | 644 |  |  | 475 |  |  | — |  |  | 475 |
December 31, 2022 |  |  |  |  |  |  |  |  |  |  |
Derivative assets | $ | 3,309 |  |  | $ | (1,477) |  |  | $ | (1,952) |  |  | $ | (120) |  |  | $ | — |  |  | $ | (120) |
Derivative liabilities | (1,646) |  |  | 1,477 |  |  | 478 |  |  | 309 |  |  | — |  |  | 309 |
1 The gross amounts of recognized derivative assets and derivative liabilities are reported on the condensed consolidated balance sheets. As of June 30, 2023 and December 31, 2022, amounts not subject to master netting or similar agreements were immaterial.
2 Represents amounts offsetting derivative assets and derivative liabilities that are subject to an enforceable master netting agreement or similar agreement that are not netted against the gross derivative assets or gross derivative liabilities for presentation on the condensed consolidated balance sheets.
3 For non-cash collateral received, we do not recognize the collateral on our balance sheet unless the obligor (transferor) has defaulted under the terms of the secured contract and is no longer entitled to redeem the pledged asset. Amounts do not include any excess of collateral pledged or received.

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