Derivative Instruments

6 Months Ended

Jun. 30, 2023

Derivative Instruments and Hedging Activities Disclosure [Abstract]

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 liabilities1		Cumulative amount of fair value hedging gains (losses)		Carrying amount of the hedged assets or liabilities1		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 products1	(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 recognized1		Financial instruments2		Collateral (received)/pledged		Net amount		Off-balance sheet securities collateral3		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.