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Private Loans | 6 Months Ended
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Jun. 30, 2024
Receivables [Abstract] |
Private Loans | 5. Mortgage Loans on Real Estate Our mortgage loan investments consist of the following two portfolio segments: commercial mortgage loans and residential mortgage loans. Our mortgage loan portfolios are summarized in the following table.
| June 30, 2024 |  | December 31, 2023
| (Dollars in millions)
Commercial mortgage loans: |  |  |
Principal outstanding | $ | 9,778 |  |  | $ | 5,870 |
Deferred fees and costs, net | (73) |  |  | (72) |
Unamortized discounts and premiums, net | (530) |  |  | (87) |
Amortized cost | 9,175 |  |  | 5,711 |
Allowance for credit losses | (54) |  |  | (53) |
Commercial mortgage loans, carrying value | 9,121 |  |  | 5,658 |
Residential mortgage loans: |  |  |
Principal outstanding | 3,145 |  |  | 57 |
Deferred fees and costs, net | (132) |  |  | (57) |
Unamortized discounts and premiums, net | (92) |  |  | — |
Amortized cost | 2,921 |  |  | — |
Allowance for credit losses | — |  |  | — |
Residential mortgage loans, carrying value | 2,921 |  |  | — |
Mortgage loans, carrying value | $ | 12,042 |  |  | $ | 5,658 |
Our commercial mortgage loan portfolio consists of loans collateralized by the related properties and diversified as to property type, location and loan size. Our lending policies establish limits on the amount that can be loaned to one borrower and other criteria to attempt to reduce the risk of default. The commercial mortgage loan portfolio is summarized by geographic region and property type as follows:
| June 30, 2024 |  | December 31, 2023
| Amortized Cost |  | Percent |  | Amortized Cost |  | Percent
| (Dollars in millions)
Geographic distribution |  |  |  |  |  |  |
Pacific | $ | 1,804 |  |  | 19.7 | % |  | $ | 905 |  |  | 15.9 | %
Mountain | 1,802 |  |  | 19.6 | % |  | 1,327 |  |  | 23.2 | %
West North Central | 280 |  |  | 3.1 | % |  | 178 |  |  | 3.1 | %
West South Central | 1,436 |  |  | 15.6 | % |  | 1,081 |  |  | 18.9 | %
East North Central | 1,040 |  |  | 11.3 | % |  | 829 |  |  | 14.5 | %
East South Central | 150 |  |  | 1.6 | % |  | 50 |  |  | 0.9 | %
Middle Atlantic | 374 |  |  | 4.1 | % |  | 129 |  |  | 2.3 | %
South Atlantic | 1,982 |  |  | 21.6 | % |  | 1,000 |  |  | 17.5 | %
New England | 106 |  |  | 1.2 | % |  | 12 |  |  | 0.2 | %
Other | 201 |  |  | 2.2 | % |  | 200 |  |  | 3.5 | %
| 9,175 |  |  | 100.0 | % |  | 5,711 |  |  | 100.0 | %
Allowance for credit losses | (54) |  |  |  |  | (53) |  |  |
Total, net of allowance | $ | 9,121 |  |  |  |  | $ | 5,658 |  |  |
Property type distribution |  |  |  |  |  |  |
Apartment | $ | 2,063 |  |  | 22.5 | % |  | $ | 1,091 |  |  | 19.1 | %
Hotel | 1,210 |  |  | 13.2 | % |  | 966 |  |  | 16.9 | %
Industrial | 1,926 |  |  | 21.0 | % |  | 1,052 |  |  | 18.4 | %
Office | 1,222 |  |  | 13.3 | % |  | 999 |  |  | 17.5 | %
Parking | 319 |  |  | 3.5 | % |  | 414 |  |  | 7.2 | %
Retail | 1,479 |  |  | 16.1 | % |  | 781 |  |  | 13.7 | %
Storage | 180 |  |  | 2.0 | % |  | 118 |  |  | 2.1 | %
Other | 776 |  |  | 8.4 | % |  | 290 |  |  | 5.1 | %
| 9,175 |  |  | 100.0 | % |  | 5,711 |  |  | 100.0 | %
Allowance for credit losses | (54) |  |  |  |  | (53) |  |  |
Total, net of allowance | $ | 9,121 |  |  |  |  | $ | 5,658 |  |  |
Our residential mortgage loan portfolio consists of loans with an amortized cost of $2.9 billion and $0 million as of June 30, 2024 and December 31, 2023, respectively. These loans are collateralized by the related properties and diversified as to location within the United States. Mortgage loans on real estate are generally reported at cost adjusted for amortization of premiums and accrual of discounts, computed using the interest method and net of valuation allowances. Interest income is accrued on the principal amount of the loan based on the loan's contractual interest rate. Interest income is included in Net investment income on our Consolidated Statements of Operations. Accrued interest receivable, which was $94 million and $27 million as of June 30, 2024 and December 31, 2023, respectively, is included in Accrued investment income on our Consolidated Statements of Financial Position. Loan Valuation Allowance We establish a valuation allowance to provide for the risk of credit losses inherent in our mortgage loan portfolios. The valuation allowance is maintained at a level believed adequate by management to absorb estimated expected credit losses. The valuation allowance is based on amortized cost, which excludes accrued interest receivable. We do not measure a credit loss allowance on accrued interest receivable as we write off any uncollectible accrued interest receivable balances to net investment income in a timely manner. We charged off $1 million and $1 million of uncollectible accrued interest receivable on our mortgage loan portfolios for the three and six months periods ended June 30, 2024, respectively. We did not charge off any uncollectible accrued interest receivable on our mortgage loan portfolios for the three and six months periods ended June 30, 2023, respectively. The valuation allowances for each of our mortgage loan portfolios are estimated by deriving probability of default and recovery rate assumptions based on the characteristics of the loans in each portfolio, historical economic data and loss information, and current and forecasted economic conditions. Key loan characteristics impacting the estimate for our commercial mortgage loan portfolio include the current state of the borrower’s credit quality, which considers factors such as loan-to-value (“LTV”) and debt service coverage (“DSC”) ratios, loan performance, underlying collateral type, delinquency status, time to maturity, and original credit scores. Key loan characteristics impacting the estimate for our residential mortgage loan portfolios include the current state of the borrowers' credit quality, delinquency status, time to maturity and original credit scores. The following table represents a rollforward of the allowance for credit losses on our mortgage loan portfolios:
| Three Months Ended June 30, 2024
| Commercial |  | Residential |  | Total
| (Dollars in millions)
Beginning allowance balance | $ | (54) |  |  | $ | — |  |  | $ | (54) |
Acquisition from business combination | — |  |  | — |  |  | — |
Provision | — |  |  | — |  |  | — |
Writeoffs charged against the allowance | — |  |  | — |  |  | — |
Recoveries of amounts previously written off | — |  |  | — |  |  | — |
Ending allowance balance | $ | (54) |  |  | $ | — |  |  | $ | (54) |
| Three Months Ended June 30, 2023
| Commercial |  | Residential |  | Total
| (Dollars in millions)
Beginning allowance balance | $ | (49) |  |  | $ | — |  |  | $ | (49) |
Acquisition from business combination | — |  |  | — |  |  | — |
Provision | 6 |  |  | — |  |  | 6 |
Writeoffs charged against the allowance | — |  |  | — |  |  | — |
Recoveries of amounts previously written off | — |  |  | — |  |  | — |
Ending allowance balance | $ | (43) |  |  | $ | — |  |  | $ | (43) |
| Six Months Ended June 30, 2024
| Commercial |  | Residential |  | Total
| (Dollars in millions)
Beginning allowance balance | $ | (53) |  |  | $ | — |  |  | $ | (53) |
Acquisition from business combination | — |  |  | — |  |  | — |
Provision | (1) |  |  | — |  |  | (1) |
Writeoffs charged against the allowance | — |  |  | — |  |  | — |
Recoveries of amounts previously written off | — |  |  | — |  |  | — |
Ending allowance balance | $ | (54) |  |  | $ | — |  |  | $ | (54) |
| Six Months Ended June 30, 2023
| Commercial |  | Residential |  | Total
| (Dollars in millions)
Beginning allowance balance | $ | (38) |  |  | $ | — |  |  | $ | (38) |
Acquisition from business combination | — |  |  | — |  |  | — |
Provision | (5) |  |  | — |  |  | (5) |
Writeoffs charged against the allowance | — |  |  | — |  |  | — |
Recoveries of amounts previously written off | — |  |  | — |  |  | — |
Ending allowance balance | $ | (43) |  |  | $ | — |  |  | $ | (43) |
Charge-offs include allowances that have been established on loans that were satisfied either by taking ownership of the collateral or by some other means such as discounted pay-off or loan sale. When ownership of the property is taken it is recorded at the lower of the loan's carrying value or the property's fair value (based on appraised values) less estimated costs to sell. The real estate owned is recorded as a component of Real estate investments and the loan is recorded as fully paid, with any allowance for credit loss that has been established charged off. Fair value of the real estate is determined by third party appraisal. There were 13 real estate properties totaling $68 million at June 30, 2024 and 3 real estate properties totaling $79 million at December 31, 2023, in which ownership of the property was taken to satisfy an outstanding loan at December 31, 2023. Recoveries are situations where we have received a payment from the borrower in an amount greater than the carrying value of the loan (principal outstanding less specific allowance). We closely monitor loan performance for our commercial and residential mortgage loan portfolios. Aging of financing receivables is summarized in the following table (by year of origination):
| Amortized Cost Basis by Origination Year |  |
| 2024 |  | 2023 |  | 2022 |  | 2021 |  | 2020 |  | Prior |  | Total
As of June 30, 2024: | (Dollars in millions)
Commercial mortgage loans |  |  |  |  |  |  |  |  |  |  |  |  |
Current | $ | 214 |  |  | $ | 415 |  |  | $ | 2,215 |  |  | $ | 1,254 |  |  | $ | 983 |  |  | $ | 3,867 |  |  | $ | 8,948 |
30 - 59 days past due | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 24 |  |  | 24 |
60 - 89 days past due | — |  |  | 2 |  |  | 50 |  |  | — |  |  | — |  |  | 42 |  |  | 94 |
Non-accrual (90 days or more past due) | — |  |  | 3 |  |  | — |  |  | 1 |  |  | — |  |  | 105 |  |  | 109 |
Total commercial mortgage loans | $ | 214 |  |  | $ | 420 |  |  | $ | 2,265 |  |  | $ | 1,255 |  |  | $ | 983 |  |  | $ | 4,038 |  |  | $ | 9,175 |
Residential mortgage loans |  |  |  |  |  |  |  |  |  |  |  |  |
Current | $ | 64 |  |  | $ | 1,030 |  |  | $ | 1,193 |  |  | $ | 251 |  |  | $ | 127 |  |  | $ | 17 |  |  | $ | 2,682 |
30 - 59 days past due | 3 |  |  | 16 |  |  | 41 |  |  | 10 |  |  | 5 |  |  | — |  |  | 75 |
60 - 89 days past due | — |  |  | 14 |  |  | 21 |  |  | 7 |  |  | 4 |  |  | 1 |  |  | 47 |
Non-accrual (90 days or more past due) | — |  |  | 36 |  |  | 50 |  |  | 20 |  |  | 9 |  |  | 2 |  |  | 117 |
Total residential mortgage loans | $ | 67 |  |  | $ | 1,096 |  |  | $ | 1,305 |  |  | $ | 288 |  |  | $ | 145 |  |  | $ | 20 |  |  | $ | 2,921 |
Total mortgage loans | $ | 281 |  |  | $ | 1,516 |  |  | $ | 3,570 |  |  | $ | 1,543 |  |  | $ | 1,128 |  |  | $ | 4,058 |  |  | $ | 12,096 |
Allowance for credit losses |  |  |  |  |  |  |  |  |  |  |  |  | (54) |
Total, net of allowance |  |  |  |  |  |  |  |  |  |  |  |  | $ | 12,042 |
| Amortized Cost Basis by Origination Year |  |
| 2023 |  | 2022 |  | 2021 |  | 2020 |  | 2019 |  | Prior |  | Total
As of December 31, 2023: | (Dollars in millions)
Commercial mortgage loans |  |  |  |  |  |  |  |  |  |  |  |  |
Current | $ | 319 |  |  | $ | 1,486 |  |  | $ | 679 |  |  | $ | 489 |  |  | $ | 488 |  |  | $ | 2,120 |  |  | $ | 5,581 |
30 - 59 days past due | — |  |  | 26 |  |  | — |  |  | — |  |  | 5 |  |  | 21 |  |  | 52 |
60 - 89 days past due | — |  |  | 50 |  |  | — |  |  | — |  |  | — |  |  | 13 |  |  | 63 |
Non-accrual (90 days or more past due) | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | 15 |  |  | 15 |
Total commercial mortgage loans | $ | 319 |  |  | $ | 1,562 |  |  | $ | 679 |  |  | $ | 489 |  |  | $ | 493 |  |  | $ | 2,169 |  |  | $ | 5,711 |
Residential mortgage loans |  |  |  |  |  |  |  |  |  |  |  |  |
Current | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
30 - 59 days past due | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
60 - 89 days past due | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Non-accrual (90 days or more past due) | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |
Total residential mortgage loans | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | — |
Total mortgage loans | $ | 319 |  |  | $ | 1,562 |  |  | $ | 679 |  |  | $ | 489 |  |  | $ | 493 |  |  | $ | 2,169 |  |  | $ | 5,711 |
Allowance for credit losses |  |  |  |  |  |  |  |  |  |  |  |  | (53) |
Total, net of allowance |  |  |  |  |  |  |  |  |  |  |  |  | $ | 5,658 |
Commercial and residential mortgage loans are considered nonperforming when they become 90 days or more past due. When loans become nonperforming, we place them on non-accrual status and discontinue recognizing interest income. If payments are received on a nonperforming loan, interest income is recognized to the extent it would have been recognized if normal principal and interest would have been received timely. If payments are received to bring a nonperforming loan back to less than 90 days past due, we will resume accruing interest income on that loan. There were 206 loans in non-accrual status at June 30, 2024 and 3 loans in non-accrual status at December 31, 2023. During the three and six months ended June 30, 2024 we recognized interest income of $1 million and $1 million on loans which were in non-accrual status at the respective period end. During the three and six months ended June 30, 2023 we recognized no interest income on loans which were in non-accrual status at the respective period end. Loan Modifications Our commercial and residential mortgage loans may be subject to loan modifications. Loan modifications may be granted to borrowers experiencing financial difficulty and could include principal forgiveness, interest rate reduction, an other-than-significant delay or a term extension. We consider the following factors in determining whether or not a borrower is experiencing financial difficulty: •borrower is in default, •borrower has declared bankruptcy, •there is growing concern about the borrower's ability to continue as a going concern, •borrower has insufficient cash flows to service debt, •borrower's inability to obtain funds from other sources, and •there is a breach of financial covenants by the borrower. A loan modification typically does not result in a change in valuation allowance as it is already incorporated into our allowance methodology. However, if we grant a borrower experiencing financial difficulty principal forgiveness, the amount of principal forgiven would be written off, which would reduce the amortized cost of the loan and result in an adjustment to the valuation allowance. There were three and seven significant mortgage loan modifications for the three and six months ended June 30, 2024, respectively, and three and five significant mortgage loan modifications for the three and six months ended June 30, 2023, respectively. 6. Private Loans The following table summarizes the credit ratings for private loans:
|  | June 30, 2024 |  | December 31, 2023
|  | (Dollars in millions)
AAA |  | $ | — |  |  | $ | — |
AA |  | 72 |  |  | — |
A |  | 926 |  |  | — |
BBB |  | 35 |  |  | — |
BB and below |  | 604 |  |  | 194 |
Unrated (1) |  | 87 |  |  | — |
Total |  | $ | 1,724 |  |  | $ | 194 |
(1)Due to the nature of private loans, external agency credit ratings may not be readily available. Where appropriate, the Company obtains non-published credit ratings from one or more third-party rating agencies, which are determined based on an independent evaluation of the transaction. For other loans without published or private credit ratings, the Company assigns internal risk ratings, based on our investment selection and monitoring process and policies. These internal risk ratings are categorized as “Unrated” above. Allowance for Credit Losses The rollforward of the allowance for credit losses for private loans is shown below:
|  | 2024 |  | 2023
|  | (Dollars in millions)
Balance at January 1 |  | $ | (8) |  |  | $ | — |
Acquisition from business combination |  | — |  |  | — |
Provision |  | 1 |  |  | — |
Writeoffs charged against the allowance |  | — |  |  | — |
Recoveries of amounts previously written off |  | — |  |  | — |
Balance at March 31 |  | (7) |  |  | — |
Acquisition from business combination |  | — |  |  | — |
Provision |  | (14) |  |  | — |
Writeoffs charged against the allowance |  | — |  |  | — |
Recoveries of amounts previously written off |  | — |  |  | — |
Balance at June 30 |  | $ | (21) |  |  | $ | — |

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