Notes to Condensed Consolidated Financial Statements
(Unaudited)
NOTE 1 BUSINESS AND BASIS OF PRESENTATION
Business
Reinsurance Group of America, Incorporated (“RGA”) is an insurance holding company that was formed on December 31, 1992. RGA and its subsidiaries (collectively, the “Company”) is engaged in providing traditional reinsurance, which includes individual and group life and health, disability and critical illness reinsurance. The Company also provides financial solutions, which includes longevity reinsurance, asset-intensive products (primarily annuities), financial reinsurance, capital solutions and stable value products.
Basis of Presentation
The unaudited condensed consolidated financial statements of the Company have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission (“SEC”). Accordingly, these condensed consolidated financial statements do not include all of the information and footnotes required by GAAP for complete financial statements and should be read in conjunction with the Company’s 2022 Annual Report on Form 10-K filed with the SEC on February 24, 2023 (the “2022 Annual Report”).
In the opinion of management, all adjustments, including normal recurring adjustments necessary for a fair presentation have been included. Interim results are not necessarily indicative of the results that may be expected for the year ending December 31, 2023.
Consolidation
These unaudited condensed consolidated financial statements include the accounts of RGA and its subsidiaries and all intercompany accounts and transactions have been eliminated. Entities in which the Company has significant influence over the operating and financing decisions but are not required to be consolidated are reported under the equity method of accounting.
Standards Issued and Implemented
In the first quarter of 2023, the Company adopted Accounting Standards Update (“ASU”): ASU 2018-12, Financial Services – Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts (“ASU 2018-12”). ASU 2018-12 updates certain requirements for the accounting for long-duration insurance contracts.
•Cash flow assumptions and measuring liability for future policy benefits – ASU 2018-12 requires the Company to review its cash flow assumptions at least annually and update, if necessary, with the impact recognized in net income in the period of the change. The liability for future policy benefits includes required adjustments at the cohort level to cap the net premium ratio at 100% and eliminate negative reserves.
Upon adoption, an adjustment was recorded to retained earnings as a result of capping the net premium ratio at 100% and eliminating negative reserves on certain issue year cohorts.
•Discount rate – The discount rate assumption is prescribed by ASU 2018-12 as an upper-medium (low credit risk) fixed-income yield and is required to be updated every quarter. The change in the liability as a result of updating the discount rate assumption is recognized in other comprehensive income (loss) (“OCI”).
Upon adoption, an adjustment was recorded to accumulated other comprehensive income (loss) (“AOCI”) as a result of remeasuring in force contract liabilities using the current upper-medium grade fixed income instrument yields as of the date of transition. The adjustment reflects the difference between discount rates locked-in at contract inception versus current discount rates at transition.
•Deferred policy acquisition costs and similar balances – Deferred policy acquisition costs (“DAC”) and other capitalized costs such as unearned revenue should be amortized on a constant level or straight-line basis over the expected term of the contracts.
Upon adoption, an adjustment was recorded to AOCI for the removal of cumulative adjustments to DAC associated with unrealized investment gains and losses previously recorded in accumulated other comprehensive income (loss).
•Market risk benefits – Market risk benefits, which are contracts or contract features that provide protection to the policyholder from capital market risk and expose the Company to other-than-nominal capital market risk, are
measured at fair value. The periodic change in fair value is recognized in net income with the exception of the periodic change in fair value related to the liability’s instrument-specific credit risk, which is recognized in OCI.
Upon adoption, an adjustment was recorded to retained earnings for the difference between the fair value and carrying value of the contracts at the transition date, excluding changes in the instrument-specific credit risks, and an adjustment to AOCI for the cumulative effect of changes in the instrument-specific credit risk between contract issue date and transition date.
Change in Certain Segment Allocations
Investment income for each segment has been adjusted to reflect the impacts of adopting ASU 2018-12 and due to an update to the Company’s internally developed economic capital model. Internal excess capital charges, included in each segment’s policy acquisition costs and other insurance expenses, were also updated as a result of adopting ASU 2018-12 and updates to the Company’s internally developed economic capital model. These changes did not impact the recognition or presentation of investment income or policy acquisition costs and other insurance expenses in the condensed consolidated financial statements.
Significant Accounting Polices – Update
The Company’s significant accounting policies are discussed in Note 2 – “Significant Accounting Policies and Pronouncements” of the 2022 Annual Report. The significant accounting policies discussed below have been updated to reflect the impact of adopting ASU 2018-12.
Liability for Future Policy Benefits
Utilizing the net premium model, a liability for future policy benefits for life and long-term health business is established to meet the estimated future benefits to be paid on assumed life and health reinsurance in force less the present value of estimated future new premiums to be collected. The liability is estimated using the Company’s mortality, morbidity, and persistency assumptions that reflect the Company’s historical experience, industry data, cedant specific experience, and discount rates based on the current yields of upper-medium grade fixed income instruments. These assumptions vary with the characteristics of the reinsurance contract, the year the risk was assumed, age of the insured and other appropriate factors.
Liabilities for future benefits for annuities in the payout phase have been established in an amount adequate to meet the estimated future obligations on policies in force using expected mortality, discount rates and other assumptions. These assumptions vary with the characteristics of the plan of insurance, year of issue, age of insured, and other appropriate factors. The mortality assumptions are based on the Company’s historical experience, industry data and cedant specific experience.
A deferred profit liability is established when the insurance benefit extends beyond the period in which premiums are collected, and the gross premium exceeds the net premium. The deferred profit liability is amortized in proportion to insurance in force for traditional life insurance and expected future benefits for annuity contracts. The deferred profit liability is included in the liabilities for future policy benefits, and the amortization of the deferred profit liability is recognized as a reduction in claims and other policy benefits.
For the purpose of calculating the liability for future policy benefits, the Company’s reinsurance contracts for its Traditional business are grouped into annual cohorts based on the effective date of the reinsurance contract. The annual groupings are further disaggregated based on:
•How the reinsurance contracts are priced and managed;
•Geographical locations;
•Underlying currency of the contract;
•Ceding company and other factors.
Given the unique risks and highly customized nature of the Company’s financial solutions business, reinsurance contracts for the Financial Solutions business are not aggregated with other contracts for the purpose of calculating the liability for future policy benefits.
Each quarter, the Company updates its estimate of cash flows expected over the entire life of a group of contracts using actual historical experience and current future cash flow assumptions. These updated cash flows, discounted using the original contract issuance discount rates, are used to calculate the revised net premium ratio, as of the beginning of the current reporting period. The present value of these updated cash flows is compared to the carrying amount of the liability as of that same date, before updating cash flow assumptions, to determine the current period change in the liability’s estimate. This current period change in the liability is a component of the liability remeasurement gain or loss. In subsequent periods, the revised net premium ratio is used to measure the liability for future policy benefits, subject to future revisions. The Company also reviews actual and anticipated experience compared to the assumptions used to establish the liability for future policy benefits on a quarterly basis. If evidence suggests that the assumptions should be revised, the cumulative effect of the change is reflected in
future policy benefits remeasurement (gains) losses in the current period. The Company has elected to lock-in claims expense assumptions at contract inception and those assumptions are not subsequently reviewed or updated.
The discount rates used to measure the liability are based on upper-medium grade fixed-income instruments (A rated credit) with similar tenor to the expected liability cash flows. The discount rate assumption is updated quarterly and used to remeasure the liability at the reporting date, with the resulting change reflected in other comprehensive income (loss). For unobservable discount rates, the Company uses estimates consistent with fair value guidance, maximizing the use of relevant, observable market prices and minimizing the use of unobservable inputs.
The Company utilizes the discount rate curve at contract inception for purposes of interest accretion and updating the net premium ratio. Interest accretion is recognized in claims and other policy benefits on the condensed consolidated statements of income. The locked-in discount curve at contract inception for contracts entered into after the adoption of ASU 2018-12 (i.e., January 1, 2021 and after) is based on the average upper-medium grade fixed-income instrument yields during the first calendar year of the reinsurance contract. The locked-in discount rates at contract inception for contracts that were effective prior to the adoption of ASU 2018-12 (i.e., prior to January 1, 2021) are the discount rate assumptions used prior to the adoption of ASU 2018-12, which were based on estimates of expected investment yields.
Included in the liability for future policy benefits are unpaid claims related to long-duration contracts and an accrual for incurred but not reported losses (“IBNR”). The Company’s IBNR accrual related to long-duration contracts is determined using case-basis estimates and lag studies of past experience. The time lag from the date of the claim or death to when the ceding company reports the claim to the Company can vary significantly by ceding company, business segment and product type, but generally averages around 3 months. Incurred but not reported claims are estimates on an undiscounted basis, using actuarial estimates of historical claims expense, adjusted for current trends and conditions. These estimates are continually reviewed and the ultimate liability may vary significantly from the amount recognized. Claims payable for incurred but not reported losses for long-duration contracts are included in the liability for future policy benefits on the condensed consolidated balance sheets. Prior to the adoption of ASU 2018-12, unpaid claims and IBNR related to long-duration contracts were included in other policy claims and benefits. Upon adoption of ASU 2018-12, the Company revised prior period amounts to conform to the current period’s presentation. See Note 2 – “Impact of New Accounting Standard” for additional information.
Interest-Sensitive Contract Liabilities and Policyholder Account Balances
Liabilities for future benefits on interest-sensitive life and investment-type contract liabilities are carried at the accumulated contract holder values without reduction for potential surrender or withdrawal charges. The Company reinsures asset-intensive products, including annuities and corporate-owned life insurance. The investment portfolios for these products are segregated for management purposes within the general account of the respective legal entity. The liabilities under asset-intensive insurance contracts or reinsurance contracts reinsured on a coinsurance basis are included in interest-sensitive contract liabilities on the condensed consolidated balance sheets. Asset-intensive contracts principally include individual fixed annuities in the accumulation phase, single premium immediate annuities, with no significant life contingency, equity-indexed annuities, individual variable annuities, corporate-owned life and interest-sensitive whole life insurance contracts. Interest-sensitive contract liabilities are equal to (i) policy account values, which consist of an accumulation of gross premium payments; (ii) credited interest less expenses, mortality charges, and withdrawals; and (iii) fair value adjustments relating to business combinations. Liabilities for immediate annuities are calculated as the present value of the expected cash flows, with the locked-in discount rate determined such that there is no gain or loss at inception.
Equity-indexed annuity contracts reinsured by the Company allow the contract holder to elect an interest rate return or an equity market component where interest credited is based on the performance of common stock market indices, such as the S&P 500 Index®, the Dow Jones Industrial Average, or the NASDAQ. The equity market option is considered an embedded derivative, similar to a call option, which is reflected at fair value on the condensed consolidated balance sheets in interest-sensitive contract liabilities. The fair value of embedded derivatives is computed based on a projection of future equity option costs using a budget methodology, discounted back to the balance sheet date using current market indicators of volatility and interest rates. Changes in the fair value of the embedded derivatives are included as a component of interest credited on the condensed consolidated statements of income (loss).
The Company reviews its estimates of actuarial liabilities for interest-sensitive contract liabilities and compares them with its actual experience. Differences between actual experience and the assumptions used in pricing these guarantees and benefits and in the establishment of the related liabilities result in variances in profit and could result in losses. The effects of changes in such estimated liabilities are included in the results of operations in the period in which the changes occur.
Market Risk Benefits
Market risk benefits are contracts or contract features that both provide protection to the contract holder from other-than-nominal capital market risk and expose the Company to other-than-nominal capital market risk. Market risk benefits are measured at fair value using an option-based valuation model based on current net amounts at risk, market data, Company
experience, and other factors. Changes in fair value are recognized in net income each period with the exception of the portion of the change in fair value due to a change in the liability’s instrument-specific credit risk, which is recognized in other comprehensive income.
Market risk benefits include the following contract features on certain annuity products that provide minimum guarantees to policyholders:
•Guaranteed minimum income benefits (“GMIB”) provide the contract holder, after a specified period of time determined at the time of issuance of the variable annuity contract, with a minimum level of income (annuity) payments. Under the reinsurance treaty, the Company makes a payment to the ceding company equal to the GMIB net amount-at-risk at the time of annuitization.
•Guaranteed minimum withdrawal benefits (“GMWB”) guarantee the contract holder a return of their purchase payment via partial withdrawals, even if the account value is reduced to zero, provided that the contract holder’s cumulative withdrawals in a contract year do not exceed a certain limit. The initial guaranteed withdrawal amount is equal to the initial benefit base as defined in the contract (typically, the initial purchase payments plus applicable bonus amounts).
•Guaranteed minimum accumulation benefits (“GMAB”) provide the contract holder, after a specified period of time determined at the time of issuance of the variable annuity contract, with a minimum accumulation of their purchase payments even if the account value is reduced to zero. The initial guaranteed accumulation amount is equal to the initial benefit base as defined in the contract (typically, the initial purchase payments plus applicable bonus amounts).
•Guaranteed minimum death benefits (“GMDB”) provides the beneficiary a guaranteed minimum amount upon the death of the contract holder, regardless of the account balance.
The fair values of the GMIB, GMWB, GMDB and GMAB contract features are reflected in market risk benefits and are calculated based on actuarial and capital market assumptions related to the projected cash flows, including benefits and related contract charges over the lives of the contracts. These projected cash flows incorporate expectations concerning policyholder behavior, such as lapses, withdrawals and benefit selections, and capital market assumptions such as interest rates and equity market volatilities. In measuring the fair value of GMIBs, GMWBs, GMABs and GMDBs, the Company attributes a portion of the fees collected from the policyholder equal to the present value of expected future guaranteed minimum income, withdrawal and accumulation and death benefits (at inception). The changes in fair value are reported in market risk benefits remeasurement (gains) losses. Any additional fees represent “excess” fees and are reported in other revenues. These variable annuity guaranteed living and death benefits may be more costly than expected in volatile or declining equity markets or falling interest rate markets, causing an increase in market risk benefit liabilities.
Deferred Policy Acquisition Costs
Costs of acquiring new business, which vary with and are directly related to the production of new business, have been deferred to the extent that such costs are deemed recoverable from future premiums or gross profits. Such costs include commissions and allowances as well as certain costs of policy issuance and underwriting. Non-commission costs related to the acquisition of new and renewal insurance contracts may be deferred only if they meet the following criteria:
•Incremental direct costs of a successful contract acquisition
•Portions of employees’ salaries and benefits directly related to time spent performing specified acquisition activities for a contract that has been acquired or renewed
•Other costs directly related to the specified acquisition or renewal activities that would not have been incurred had that acquisition contract transaction not occurred
DAC related to traditional life and interest-sensitive contracts are grouped by contract type and issue year into cohorts for consistency with the groupings used in estimating the associated liability. DAC is amortized on a constant level basis for the grouped contracts over the expected term of the related contracts to approximate straight-line amortization. The constant level basis used is based on the number of policies or policy face amount of the risk assumed in the reinsurance contract. The constant level bases used for amortization are projected using mortality and actuarial assumptions for policyholder behavior that are based on the Company’s experience, industry data and other factors and are consistent with those used for the liability for future policy benefits. Changes in assumptions are reflected in DAC amortization prospectively, and actual experience relating to number of policies reinsured will likely differ from the experience previously estimated.
Amortization of DAC is included in policy acquisition costs and other insurance expenses.
Reinsurance Ceded Receivables
The Company generally reports retrocession activity on a gross basis. Amounts paid or deemed to have been paid for reinsurance are reflected in reinsurance ceded receivables and other. Reinsurance ceded receivables related to long-duration contracts are estimated using mortality, morbidity, and persistency assumptions that are similar to the liability for future policy benefits ceded. The discount rate used to measure the ceded receivable is based on the current yields of an upper-medium grade fixed income instrument. Similar to the liability for future policy benefits, ceded receivables are grouped into annual cohorts based on the effective date of the reinsurance contract.
NOTE 2 IMPACT OF NEW ACCOUNTING STANDARD
As discussed in Note 1, the Company adopted ASU 2018-12 during the first quarter of 2023. The updated guidance materially changed how the Company accounts for its long-duration insurance contracts. Below is a summary of the impact of adopting ASU 2018-12:
•For the liability for future policy benefits, the net transition adjustment recorded in accumulated other comprehensive income (loss) is related to the difference in the discount rate used prior to the adoption of ASU 2018-12 and the discount rate at January 1, 2021, and the removal of shadow adjustments previously recorded in accumulated other comprehensive income (loss) for the impact of unrealized gains and losses that were included in the expected gross profits amortization calculation as of the transition date of $8,593 million, pretax.
•At transition, the Company identified certain cohorts in its Traditional segments where the present value of future expected benefits and expenses exceeded the sum of existing benefit reserve and the present value of future gross premiums, resulting in a decrease to retained earnings, net of reinsurance (and a corresponding increase in the liabilities for future policy benefits and reinsurance recoverable) of approximately $1,462 million, pretax. See “Impact of Adoption by Segment” for the transition impact by reportable segment.
•At transition, the Company identified certain cohorts, primarily longevity swaps, where the present value of future premiums exceeded the present value of future benefits resulting in a negative liability. The elimination of the negative liability at transition resulted in a decrease to retained earnings (and a corresponding increase in the liabilities for future policy benefits) of $284 million, pretax. See “Impact of Adoption by Segment” for the transition impact by reportable segment.
•For DAC, the Company removed shadow adjustments previously recorded in AOCI in the amount of $114 million, pretax, for the impact of unrealized gains and losses that were included in the pre-ASU 2018-12 expected gross profits amortization calculation as of the transition date. See “Impact of Adoption by Segment” for the transition impact by reportable segment.
•For market risk benefits, the transition adjustment of $45 million, pretax, recognized in AOCI relates to the cumulative effect of changes in the instrument-specific credit risk between contract issue date and transition date. The remaining difference of $(72) million, pretax between the fair value and carrying value of the market risk benefits at transition, excluding the amounts recorded in AOCI, was recorded as an adjustment to retained earnings as of the transition date. See “Impact of Adoption by Segment” for the transition impact by reportable segment.
Impact on Shareholders’ Equity
The following table provides the after-tax transition impact on January 1, 2021, to the reinsurance ceded receivables, liability for future policy benefits, market risk benefits, deferred policy acquisition costs and deferred tax asset and liability for the Company's adoption of ASU 2018-12 (dollars in millions):
| | | | | | | | | | | | | | |
| | January 1, 2021 |
| | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) |
| | | | |
Reinsurance ceded receivables and other | | $ | 254 | | | $ | 388 | |
Future policy benefits | | (1,746) | | | (8,593) | |
Market risk benefits | | (72) | | | 45 | |
Deferred policy acquisition costs | | — | | | 114 | |
Deferred tax asset (included in other assets) | | 8 | | | — | |
Deferred tax liability (included in deferred income taxes) | | 311 | | | 1,778 | |
Total | | $ | (1,245) | | | $ | (6,268) | |
Impact of Adoption by Segment
Traditional Business
The following table provides the pre-tax transition impact to the liability for future policy benefits for the Company's adoption of Financial Services – Insurance on January 1, 2021, for its Traditional business (dollars in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | U.S. and Latin America – Traditional | | Canada – Traditional | | Europe, Middle East and Africa – Traditional | | Asia Pacific – Traditional |
Future policy benefits | | | | | | | | |
Balance, January 1, 2021 pre-adoption | | $ | 10,444 | | | $ | 3,477 | | | $ | 1,379 | | | $ | 3,568 | |
Adjustment to retained earnings (1) | | 896 | | | 33 | | | 70 | | | 463 | |
Effect of changes in discount rate assumptions | | 4,542 | | | 2,651 | | | 320 | | | (772) | |
Reclassification of claims and benefits payable (2) | | 1,750 | | | 203 | | | 901 | | | 1,160 | |
Balance, January 1, 2021 post-adoption | | $ | 17,632 | | | $ | 6,364 | | | $ | 2,670 | | | $ | 4,419 | |
Less: reinsurance recoverable | | (1,123) | | | (386) | | | (85) | | | (212) | |
Balance, January 1, 2021 post-adoption, after reinsurance | | $ | 16,509 | | | $ | 5,978 | | | $ | 2,585 | | | $ | 4,207 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
(1)Includes adjustments for capping the net premium ratio at 100% and eliminating negative reserves on certain issue year cohorts.
(2)Amount includes certain reclassifications to conform with the revised presentation upon adoption of ASU 2018-12, such as reclassifying claims and benefits payable on long-duration contracts to liability for future policy benefits.
Financial Solutions Business
The following table provides the pre-tax transition impact to the liability for future policy benefits, market risk benefits and deferred policy acquisitions costs for the Company's adoption of Financial Services – Insurance on January 1, 2021, for its Financial Solutions business (dollars in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | U.S. and Latin America – Financial Solutions | | Canada – Financial Solutions | | Europe, Middle East and Africa – Financial Solutions | | Asia Pacific – Financial Solutions |
Future policy benefits | | | | | | | | |
Balance, January 1, 2021 pre-adoption | | $ | 5,037 | | | $ | 16 | | | $ | 5,657 | | | $ | 1,874 | |
Adjustment to retained earnings (1) | | — | | | 20 | | | 256 | | | 8 | |
Effect of changes in discount rate assumptions | | 857 | | | 9 | | | 1,011 | | | 3 | |
Amounts previously recorded in AOCI (2) | | (28) | | | — | | | — | | | — | |
Reclassification of claims and benefits payable (3) | | 17 | | | 4 | | | 67 | | | 2 | |
Balance, January 1, 2021 post-adoption | | $ | 5,883 | | | $ | 49 | | | $ | 6,991 | | | $ | 1,887 | |
Less: reinsurance recoverable | | — | | | — | | | — | | | — | |
Balance, January 1, 2021 post-adoption, after reinsurance | | $ | 5,883 | | | $ | 49 | | | $ | 6,991 | | | $ | 1,887 | |
| | | | | | | | |
Market risk benefits | | | | | | | | |
Balance, January 1, 2021 pre-adoption | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
Cumulative effect of change in credit risk in AOCI | | (45) | | | — | | | — | | | — | |
Cumulative effect to retained earnings | | 72 | | | — | | | — | | | — | |
Reclassification from interest-sensitive contract liabilities | | 239 | | | — | | | — | | | — | |
Balance, January 1, 2021 post-adoption | | $ | 266 | | | $ | — | | | $ | — | | | $ | — | |
Less: reinsurance recoverable | | — | | | — | | | — | | | — | |
Balance, January 1, 2021 post-adoption, after reinsurance | | $ | 266 | | | $ | — | | | $ | — | | | $ | — | |
| | | | | | | | |
Deferred policy acquisition costs | | | | | | | | |
Balance, January 1, 2021 pre-adoption | | $ | 254 | | | $ | — | | | $ | — | | | $ | 41 | |
Amounts previously recorded in AOCI (2) | | 114 | | | — | | | — | | | — | |
Balance, January 1, 2021 post-adoption | | $ | 368 | | | $ | — | | | $ | — | | | $ | 41 | |
(1)Includes adjustments for capping the net premium ratio at 100% and eliminating negative reserves on certain issue year cohorts.
(2)Adjustment to remove amounts associated with unrealized gains and losses previously recorded in AOCI (i.e., “shadow adjustments”).
(3)Amount includes certain reclassifications to conform with the revised presentation upon adoption of ASU 2018-12, such as reclassifying claims and benefits payable on long-duration contracts to liability for future policy benefits.
Impact to Previously Reported Amounts
The adoption of ASU 2018-12 impacted the Company’s previously reported consolidated balance sheets as of December 31, 2021 and 2022, and related statements of income, comprehensive income and equity for the each of the two years in the period ended December 31, 2022 as follows (dollars in millions). The adoption of ASU 2018-12 did not materially impact the Company’s previously reported consolidated statements of cash flows for the two years in the period ended December 31, 2022.
| | | | | | | | | | | | | | | | | | | | |
| | As Previously Reported | | Adoption of ASU 2018-12 | | As Adjusted |
Consolidated Balance Sheets | | | | | | |
December 31, 2022 | | | | | | |
Assets | | | | | | |
Fixed maturity securities available-for-sale, at fair value | | $ | 52,901 | | | $ | — | | | $ | 52,901 | |
Equity securities, at fair value | | 134 | | | — | | | 134 | |
Mortgage loans | | 6,590 | | | — | | | 6,590 | |
Policy loans | | 1,231 | | | — | | | 1,231 | |
Funds withheld at interest | | 6,003 | | | — | | | 6,003 | |
Limited partnerships and real estate joint ventures | | 2,327 | | | — | | | 2,327 | |
Short-term investments | | 154 | | | — | | | 154 | |
Other invested assets | | 1,140 | | | — | | | 1,140 | |
Total investments | | 70,480 | | | — | | | 70,480 | |
Cash and cash equivalents | | 2,927 | | | — | | | 2,927 | |
Accrued investment income | | 630 | | | — | | | 630 | |
Premiums receivable and other reinsurance balances | | 3,013 | | | — | | | 3,013 | |
Reinsurance ceded receivables and other | | 2,462 | | | 209 | | | 2,671 | |
Deferred policy acquisition costs | | 3,974 | | | 154 | | | 4,128 | |
Other assets | | 1,220 | | | (165) | | | 1,055 | |
Total assets | | $ | 84,706 | | | $ | 198 | | | $ | 84,904 | |
Liabilities and equity | | | | | | |
Future policy benefits | | 35,220 | | | 469 | | | 35,689 | |
Interest-sensitive contract liabilities | | 30,572 | | | (230) | | | 30,342 | |
Market risk benefits, at fair value | | — | | | 247 | | | 247 | |
Other policy claims and benefits | | 6,571 | | | (4,091) | | | 2,480 | |
Other reinsurance balances | | 756 | | | (31) | | | 725 | |
Deferred income taxes | | 736 | | | 647 | | | 1,383 | |
Other liabilities | | 2,655 | | | 251 | | | 2,906 | |
Long-term debt | | 3,961 | | | — | | | 3,961 | |
| | | | | | |
Total liabilities | | 80,471 | | | (2,738) | | | 77,733 | |
Equity | | | | | | |
Preferred stock | | — | | | — | | | — | |
Common stock | | 1 | | | — | | | 1 | |
Additional paid-in-capital | | 2,502 | | | — | | | 2,502 | |
Retained earnings | | 8,967 | | | (798) | | | 8,169 | |
Treasury stock, at cost | | (1,720) | | | — | | | (1,720) | |
Accumulated other comprehensive income (loss) | | (5,605) | | | 3,734 | | | (1,871) | |
Total RGA, Inc. stockholders’ equity | | 4,145 | | | 2,936 | | | 7,081 | |
Noncontrolling interest | | 90 | | | — | | | 90 | |
Total equity | | 4,235 | | | 2,936 | | | 7,171 | |
Total liabilities and stockholders’ equity | | $ | 84,706 | | | $ | 198 | | | $ | 84,904 | |
| | | | | | | | | | | | | | | | | | | | |
| | As Previously Reported | | Adoption of ASU 2018-12 | | As Adjusted |
December 31, 2021 | | | | | | |
Assets | | | | | | |
Fixed maturity securities available-for-sale, at fair value | | $ | 60,749 | | | $ | — | | | $ | 60,749 | |
Equity securities, at fair value | | 151 | | | — | | | 151 | |
Mortgage loans | | 6,283 | | | — | | | 6,283 | |
Policy loans | | 1,234 | | | — | | | 1,234 | |
Funds withheld at interest | | 6,954 | | | — | | | 6,954 | |
Limited partnerships and real estate joint ventures | | 1,996 | | | — | | | 1,996 | |
Short-term investments | | 87 | | | — | | | 87 | |
Other invested assets | | 1,074 | | | — | | | 1,074 | |
Total investments | | 78,528 | | | — | | | 78,528 | |
Cash and cash equivalents | | 2,948 | | | — | | | 2,948 | |
Accrued investment income | | 533 | | | — | | | 533 | |
Premiums receivable and other reinsurance balances | | 2,888 | | | — | | | 2,888 | |
Reinsurance ceded receivables and other | | 2,580 | | | 585 | | | 3,165 | |
Deferred policy acquisition costs | | 3,690 | | | 170 | | | 3,860 | |
Other assets | | 1,008 | | | 11 | | | 1,019 | |
Total assets | | $ | 92,175 | | | $ | 766 | | | $ | 92,941 | |
Liabilities and equity | | | | | | |
Future policy benefits | | 35,782 | | | 11,667 | | | 47,449 | |
Interest-sensitive contract liabilities | | 26,377 | | | (258) | | | 26,119 | |
Market risk benefits, at fair value | | — | | | 262 | | | 262 | |
Other policy claims and benefits | | 6,993 | | | (4,883) | | | 2,110 | |
Other reinsurance balances | | 613 | | | (56) | | | 557 | |
Deferred income taxes | | 2,886 | | | (1,387) | | | 1,499 | |
Other liabilities | | 2,663 | | | 255 | | | 2,918 | |
Long-term debt | | 3,667 | | | — | | | 3,667 | |
Collateral finance and securitization notes | | 180 | | | — | | | 180 | |
Total liabilities | | 79,161 | | | 5,600 | | | 84,761 | |
Equity | | | | | | |
Preferred stock | | — | | | — | | | — | |
Common stock | | 1 | | | — | | | 1 | |
Additional paid-in-capital | | 2,461 | | | — | | | 2,461 | |
Retained earnings | | 8,563 | | | (692) | | | 7,871 | |
Treasury stock, at cost | | (1,653) | | | — | | | (1,653) | |
Accumulated other comprehensive income (loss) | | 3,642 | | | (4,142) | | | (500) | |
Total RGA, Inc. stockholders’ equity | | 13,014 | | | (4,834) | | | 8,180 | |
Noncontrolling interest | | — | | | — | | | — | |
Total equity | | 13,014 | | | (4,834) | | | 8,180 | |
Total liabilities and stockholders’ equity | | $ | 92,175 | | | $ | 766 | | | $ | 92,941 | |
| | | | | | | | | | | | | | | | | | | | |
| | As Previously Reported | | Adoption of ASU 2018-12 | | As Adjusted |
Consolidated Statements of Income | | | | | | |
Year ended December 31, 2022 | | | | | | |
Revenues | | | | | | |
Net premiums | | $ | 13,078 | | | $ | — | | | $ | 13,078 | |
Net investment income | | 3,161 | | | — | | | 3,161 | |
Investment related gains (losses), net | | (506) | | | (33) | | | (539) | |
Other revenues | | 525 | | | 2 | | | 527 | |
Total revenues | | 16,258 | | | (31) | | | 16,227 | |
Benefits and expenses | | | | | | |
Claims and other policy benefits | | 12,046 | | | (64) | | | 11,982 | |
Future policy benefits remeasurement (gains) losses | | — | | | 291 | | | 291 | |
Market risk benefits remeasurement (gains) losses | | — | | | 10 | | | 10 | |
Interest credited | | 682 | | | — | | | 682 | |
Policy acquisition costs and other insurance expenses | | 1,499 | | | (155) | | | 1,344 | |
Other operating expenses | | 1,009 | | | — | | | 1,009 | |
Interest expense | | 184 | | | — | | | 184 | |
Collateral finance and securitization expense | | 7 | | | — | | | 7 | |
Total benefits and expenses | | 15,427 | | | 82 | | | 15,509 | |
Income before income taxes | | 831 | | | (113) | | | 718 | |
Provision for income taxes | | 204 | | | (7) | | | 197 | |
Net income | | $ | 627 | | | $ | (106) | | | $ | 521 | |
Net income attributable to noncontrolling interest | | 4 | | | — | | | 4 | |
Net income available to RGA, Inc. shareholders | | $ | 623 | | | $ | (106) | | | $ | 517 | |
| | | | | | | | | | | | | | | | | | | | |
| | As Previously Reported | | Adoption of ASU 2018-12 | | As Adjusted |
Year ended December 31, 2021 | | | | | | |
Revenues | | | | | | |
Net premiums | | $ | 12,513 | | | $ | — | | | $ | 12,513 | |
Net investment income | | 3,138 | | | — | | | 3,138 | |
Investment related gains (losses), net | | 560 | | | 7 | | | 567 | |
Other revenues | | 447 | | | 2 | | | 449 | |
Total revenues | | 16,658 | | | 9 | | | 16,667 | |
Benefits and expenses | | | | | | |
Claims and other policy benefits | | 12,776 | | | (1,103) | | | 11,673 | |
Future policy benefits remeasurement (gains) losses | | — | | | 567 | | | 567 | |
Market risk benefits remeasurement (gains) losses | | — | | | (58) | | | (58) | |
Interest credited | | 700 | | | — | | | 700 | |
Policy acquisition costs and other insurance expenses | | 1,416 | | | (91) | | | 1,325 | |
Other operating expenses | | 936 | | | — | | | 936 | |
Interest expense | | 127 | | | — | | | 127 | |
Collateral finance and securitization expense | | 12 | | | — | | | 12 | |
Total benefits and expenses | | 15,967 | | | (685) | | | 15,282 | |
Income before income taxes | | 691 | | | 694 | | | 1,385 | |
Provision for income taxes | | 74 | | | 141 | | | 215 | |
Net income | | $ | 617 | | | $ | 553 | | | $ | 1,170 | |
Net income attributable to noncontrolling interest | | — | | | — | | | — | |
Net income available to RGA, Inc. shareholders | | $ | 617 | | | $ | 553 | | | $ | 1,170 | |
| | | | | | | | | | | | | | | | | | | | |
| | As Previously Reported | | Adoption of ASU 2018-12 | | As Adjusted |
Consolidated Statements of Comprehensive Income | | | | | | |
Year ended December 31, 2022 | | | | | | |
Net income | | $ | 627 | | | $ | (106) | | | $ | 521 | |
Other comprehensive income (loss), net of tax | | | | | | |
Foreign currency translation adjustments | | (162) | | | 60 | | | (102) | |
Net unrealized investment gains (losses) | | (9,108) | | | (168) | | | (9,276) | |
Effect of updating discount rates on future policy benefits | | — | | | 7,964 | | | 7,964 | |
Change in instrument-specific credit risk for market risk benefits | | — | | | 20 | | | 20 | |
Defined benefit pension and postretirement plan adjustments | | 23 | | | — | | | 23 | |
Total other comprehensive income (loss), net of tax | | (9,247) | | | 7,876 | | | (1,371) | |
Total comprehensive income (loss) | | (8,620) | | | 7,770 | | | (850) | |
Comprehensive income (loss) attributable to noncontrolling interest | | 4 | | | — | | | 4 | |
Total comprehensive income (loss) available to RGA, Inc. | | $ | (8,624) | | | $ | 7,770 | | | $ | (854) | |
| | | | | | |
Year ended December 31, 2021 | | | | | | |
Net income | | $ | 617 | | | $ | 553 | | | $ | 1,170 | |
Other comprehensive income (loss), net of tax | | | | | | |
Foreign currency translation adjustments | | 60 | | | (4) | | | 56 | |
Net unrealized investment gains (losses) | | (1,799) | | | (34) | | | (1,833) | |
Effect of updating discount rates on future policy benefits | | — | | | 2,207 | | | 2,207 | |
Change in instrument-specific credit risk for market risk benefits | | — | | | (43) | | | (43) | |
Defined benefit pension and postretirement plan adjustments | | 22 | | | — | | | 22 | |
Total other comprehensive income (loss), net of tax | | (1,717) | | | 2,126 | | | 409 | |
Total comprehensive income (loss) | | (1,100) | | | 2,679 | | | 1,579 | |
Comprehensive income (loss) attributable to noncontrolling interest | | — | | | — | | | — | |
Total comprehensive income (loss) available to RGA, Inc. | | $ | (1,100) | | | $ | 2,679 | | | $ | 1,579 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| RGA, Inc. Stockholders’ Equity | | | | |
| Common Stock | | | | Additional Paid In Capital | | Retained Earnings | | Treasury Stock | | Accumulated Other Comprehensive Income (Loss) | | Total RGA, Inc. Stockholders’ Equity | | Noncontrolling Interest | | Total Equity |
Balance, December 31, 2020 as previously reported | $ | 1 | | | | | $ | 2,406 | | | $ | 8,148 | | | $ | (1,562) | | | $ | 5,359 | | | $ | 14,352 | | | $ | — | | | $ | 14,352 | |
Cumulative effect of modified retrospective adoption of Financial Services – Insurance on long-duration contracts | | | | | | | (1,187) | | | | | (6,304) | | | (7,491) | | | | | (7,491) | |
Cumulative effect of full retrospective adoption of Financial Services – Insurance on market risk benefits | | | | | | | (58) | | | | | 36 | | | (22) | | | | | (22) | |
Adjusted balance, January 1, 2021 | 1 | | | | | 2,406 | | | 6,903 | | | (1,562) | | | (909) | | | 6,839 | | | — | | | 6,839 | |
Net income | | | | | | | 1,170 | | | | | | | 1,170 | | | | | 1,170 | |
Total other comprehensive income (loss) | | | | | | | | | | | 409 | | | 409 | | | | | 409 | |
Dividends to stockholders, $2.86 per share | | | | | | | (194) | | | | | | | (194) | | | | | (194) | |
Purchase of treasury stock | | | | | | | | | (99) | | | | | (99) | | | | | (99) | |
Reissuance of treasury stock | | | | | 55 | | | (8) | | | 8 | | | | | 55 | | | | | 55 | |
Balance, December, 31, 2021 | 1 | | | | | 2,461 | | | 7,871 | | | (1,653) | | | (500) | | | 8,180 | | | — | | | 8,180 | |
Issuance of preferred interests by subsidiary | | | | | | | | | | | | | | | 90 | | | 90 | |
Change in equity of noncontrolling interest | | | | | | | | | | | | | | | (4) | | | (4) | |
Net income | | | | | | | 517 | | | | | | | 517 | | | 4 | | | 521 | |
Total other comprehensive income (loss) | | | | | | | | | | | (1,371) | | | (1,371) | | | | | (1,371) | |
Dividends to stockholders, $3.06 per share | | | | | | | (205) | | | | | | | (205) | | | | | (205) | |
Purchase of treasury stock | | | | | | | | | (81) | | | | | (81) | | | | | (81) | |
Reissuance of treasury stock | | | | | 41 | | | (14) | | | 14 | | | | | 41 | | | | | 41 | |
Balance, December 31, 2022 | $ | 1 | | | | | $ | 2,502 | | | $ | 8,169 | | | $ | (1,720) | | | $ | (1,871) | | | $ | 7,081 | | | $ | 90 | | | $ | 7,171 | |
Additional Transition and Other Disclosures
ASU 2018-12 expanded the disclosure requirements for long-duration contracts in the annual and interim financial statements. The following tables provide additional information regarding the transition adjustments and disaggregated rollforwards of beginning to ending balances of the liability for future policy benefits, policyholder account balances, market risk benefits and deferred policy acquisition costs for the years ended December 31, 2022 and 2021 (dollars in millions).
Liability for Future Policy Benefits
| | | | | | | | | | | | | | | | | | | | | | | | | | |
For the year ended December 31, 2022: | | U.S. and Latin America – Traditional | | Canada – Traditional | | Europe, Middle East and Africa – Traditional | | Asia Pacific – Traditional |
Present Value of Expected Net Premiums | | | | | | | | |
Beginning of year balance at original discount rate | | $ | 73,447 | | | $ | 21,989 | | | $ | 14,440 | | | $ | 37,943 | |
Effect of changes in cash flow assumptions | | (805) | | | 189 | | | 123 | | | 1,604 | |
Effect of actual variances from expected experience | | (4) | | | 212 | | | 835 | | | 197 | |
Adjusted balance, beginning of year | | 72,638 | | | 22,390 | | | 15,398 | | | 39,744 | |
Issuances (1) | | 3,329 | | | 635 | | | 1,083 | | | 3,663 | |
Interest accrual (2) | | 3,423 | | | 748 | | | 500 | | | 1,032 | |
Net premiums collected (3) | | (5,182) | | | (950) | | | (1,324) | | | (1,989) | |
Derecognition (4) | | — | | | — | | | — | | | — | |
Foreign currency translation | | (1) | | | (1,493) | | | (1,413) | | | (1,944) | |
Ending balance at original discount rate | | 74,207 | | | 21,330 | | | 14,244 | | | 40,506 | |
Effect of changes in discount rate assumptions | | (6,303) | | | (4,899) | | | (2,639) | | | (10,927) | |
Balance, end of period | | $ | 67,904 | | | $ | 16,431 | | | $ | 11,605 | | | $ | 29,579 | |
| | | | | | | | |
Present Value of Expected Future Policy Benefits | | | | | | | | |
Beginning of year balance at original discount rate | | $ | 84,075 | | | $ | 25,440 | | | $ | 15,664 | | | $ | 41,971 | |
Effect of changes in cash flow assumptions | | (675) | | | 191 | | | 136 | | | 1,681 | |
Effect of actual variances from expected experience | | 85 | | | 212 | | | 813 | | | 234 | |
Adjusted balance, beginning of year | | 83,485 | | | 25,843 | | | 16,613 | | | 43,886 | |
Issuances (1) | | 3,333 | | | 635 | | | 1,083 | | | 3,667 | |
Interest accrual (2) | | 3,940 | | | 958 | | | 530 | | | 1,171 | |
Benefit payments (5) | | (5,472) | | | (1,051) | | | (1,260) | | | (1,832) | |
Derecognition (4) | | — | | | — | | | — | | | — | |
Foreign currency translation | | (1) | | | (1,730) | | | (1,512) | | | (2,107) | |
Ending balance at original discount rate | | 85,285 | | | 24,655 | | | 15,454 | | | 44,785 | |
Effect of changes in discount rate assumptions | | (7,907) | | | (4,273) | | | (2,808) | | | (12,858) | |
Balance, end of period | | $ | 77,378 | | | $ | 20,382 | | | $ | 12,646 | | | $ | 31,927 | |
| | | | | | | | |
Liability for future policy benefits | | $ | 9,474 | | | $ | 3,951 | | | $ | 1,041 | | | $ | 2,348 | |
Less: reinsurance recoverable | | (421) | | | (265) | | | (31) | | | (100) | |
Net liability for future policy benefits | | $ | 9,053 | | | $ | 3,686 | | | $ | 1,010 | | | $ | 2,248 | |
(1)Issuances: The present value, using the original discount rate, of the expected net premiums or the expected future policy benefits related to new reinsurance contracts that became effective during the current period and new policies assumed on existing contracts.
(2)Interest accrual: The interest earned on the beginning present value of either the expected net premiums or the expected future policy benefits using the original interest rate.
(3)Net premiums collected: The portion of gross premiums collected from the ceding company that is used to fund expected benefit payments.
(4)Derecognition: Includes the effects of treaty recaptures and treaty amendments that resulted in the termination of an existing treaty and the issuance of a new treaty under the internal replacement model.
(5)Benefit payments: The release of the present value, using the original discount rate, of the expected future policy benefits due to death, lapse/withdrawal, and other benefit payments based on current assumptions.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
For the year ended December 31, 2021: | | U.S. and Latin America – Traditional | | Canada – Traditional | | Europe, Middle East and Africa – Traditional | | Asia Pacific – Traditional |
Present Value of Expected Net Premiums | | | | | | | | |
Balance, beginning of year | | $ | 70,319 | | $ | 21,332 | | $ | 14,033 | | $ | 34,167 |
Effect of adoption of Financial Services – Insurance | | 20,758 | | 1,785 | | 2,599 | | (3,385) |
Adjusted balance, beginning of year | | $ | 91,077 | | $ | 23,117 | | $ | 16,632 | | $ | 30,782 |
| | | | | | | | |
Beginning of year balance at original discount rate | | $ | 70,317 | | $ | 21,299 | | $ | 13,999 | | $ | 34,133 |
Effect of changes in cash flow assumptions | | 984 | | (45) | | 48 | | 600 |
Effect of actual variances from expected experience | | 254 | | (24) | | 379 | | 402 |
Adjusted balance, beginning of year | | 71,555 | | 21,230 | | 14,426 | | 35,135 |
Issuances (1) | | 3,522 | | 761 | | 2,417 | | 4,575 |
Interest accrual (2) | | 3,400 | | 775 | | 553 | | 970 |
Net premiums collected (3) | | (5,025) | | (947) | | (1,488) | | (2,038) |
Derecognition (4) | | — | | — | | (1,167) | | — |
Foreign currency translation | | (5) | | 170 | | (301) | | (699) |
Ending balance at original discount rate | | 73,447 | | 21,989 | | 14,440 | | 37,943 |
Effect of changes in discount rate assumptions | | 15,771 | | (199) | | 1,280 | | (5,458) |
Balance, end of period | | $ | 89,218 | | $ | 21,790 | | $ | 15,720 | | $ | 32,485 |
| | | | | | | | |
Present Value of Expected Future Policy Benefits | | | | | | | | |
Balance, beginning of year | | $ | 80,275 | | $ | 24,587 | | $ | 15,246 | | $ | 37,335 |
Effect of adoption of Financial Services – Insurance | | 26,196 | | 4,469 | | 2,989 | | (3,694) |
Adjusted balance, beginning of year | | 106,471 | | 29,056 | | 18,235 | | 33,641 |
| | | | | | | | |
Beginning of year balance at original discount rate | | $ | 81,172 | | $ | 24,587 | | $ | 15,281 | | $ | 37,765 |
Effect of changes in cash flow assumptions | | 1,021 | | (45) | | 42 | | 699 |
Effect of actual variances from expected experience | | 517 | | (24) | | 422 | | 559 |
Adjusted balance, beginning of year | | 82,710 | | 24,518 | | 15,745 | | 39,023 |
Issuances (1) | | 3,537 | | 761 | | 2,436 | | 4,585 |
Interest accrual (2) | | 3,916 | | 992 | | 598 | | 1,107 |
Benefit payments (5) | | (6,083) | | (1,025) | | (1,609) | | (1,971) |
Derecognition (4) | | — | | — | | (1,176) | | — |
Foreign currency translation | | (5) | | 194 | | (330) | | (773) |
Ending balance at original discount rate | | 84,075 | | 25,440 | | 15,664 | | 41,971 |
Effect of changes in discount rate assumptions | | 19,185 | | 1,905 | | 1,445 | | (6,475) |
Balance, end of period | | $ | 103,260 | | $ | 27,345 | | $ | 17,109 | | $ | 35,496 |
| | | | | | | | |
Liability for future policy benefits | | $ | 14,042 | | $ | 5,555 | | $ | 1,389 | | $ | 3,011 |
Less: reinsurance recoverable | | (697) | | (367) | | (34) | | (116) |
Net liability for future policy benefits | | $ | 13,345 | | $ | 5,188 | | $ | 1,355 | | $ | 2,895 |
(1)Issuances: The present value, using the original discount rate, of the expected net premiums or the expected future policy benefits related to new reinsurance contracts that became effective during the current period and new policies assumed on existing contracts.
(2)Interest accrual: The interest earned on the beginning present value of either the expected net premiums or the expected future policy benefits using the original interest rate.
(3)Net premiums collected: The portion of gross premiums collected from the ceding company that is used to fund expected benefit payments.
(4)Derecognition: Includes the effects of treaty recaptures and treaty amendments that resulted in the termination of an existing treaty and the issuance of a new treaty under the internal replacement model.
(5)Benefit payments: The release of the present value, using the original discount rate, of the expected future policy benefits due to death, lapse/withdrawal, and other benefit payments based on the revised assumptions.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
For the year ended December 31, 2022: | | U.S. and Latin America – Financial Solutions | | Canada – Financial Solutions | | Europe, Middle East and Africa – Financial Solutions | | Asia Pacific – Financial Solutions |
Present Value of Expected Net Premiums | | | | | | | | |
Beginning of year balance at original discount rate | | $ | 228 | | | $ | 3,329 | | | $ | 31,973 | | | $ | 1,051 | |
Effect of changes in cash flow assumptions | | (31) | | | — | | | (126) | | | 3 | |
Effect of actual variances from expected experience | | (22) | | | (12) | | | 573 | | | 29 | |
Adjusted balance, beginning of year | | 175 | | | 3,317 | | | 32,420 | | | 1,083 | |
Issuances (1) | | 1,580 | | | 574 | | | 12,594 | | | 1,465 | |
Interest accrual (2) | | 41 | | | 112 | | | 698 | | | 24 | |
Net premiums collected (3) | | (125) | | | (354) | | | (3,169) | | | (764) | |
Derecognition (4) | | — | | | — | | | — | | | — | |
Foreign currency translation | | — | | | (255) | | | (3,761) | | | (203) | |
Ending balance at original discount rate | | 1,671 | | | 3,394 | | | 38,782 | | | 1,605 | |
Effect of changes in discount rate assumptions | | (284) | | | (433) | | | (8,805) | | | 25 | |
Balance, end of period | | $ | 1,387 | | | $ | 2,961 | | | $ | 29,977 | | | $ | 1,630 | |
| | | | | | | | |
Present Value of Expected Future Policy Benefits | | | | | | | | |
Beginning of year balance at original discount rate | | $ | 4,628 | | | $ | 3,393 | | | $ | 38,196 | | | $ | 6,062 | |
Effect of changes in cash flow assumptions | | (34) | | | — | | | (140) | | | 3 | |
Effect of actual variances from expected experience | | (46) | | | (24) | | | 566 | | | 36 | |
Adjusted balance, beginning of year | | 4,548 | | | 3,369 | | | 38,622 | | | 6,101 | |
Issuances (1) | | 1,580 | | | 574 | | | 12,594 | | | 1,465 | |
Interest accrual (2) | | 220 | | | 115 | | | 856 | | | 70 | |
Benefit payments (5) | | (525) | | | (351) | | | (3,355) | | | (227) | |
Derecognition (4) | | — | | | — | | | — | | | — | |
Foreign currency translation | | — | | | (260) | | | (4,387) | | | (848) | |
Ending balance at original discount rate | | 5,823 | | | 3,447 | | | 44,330 | | | 6,561 | |
Effect of changes in discount rate assumptions | | (617) | | | (432) | | | (9,719) | | | (435) | |
Balance, end of period | | $ | 5,206 | | | $ | 3,015 | | | $ | 34,611 | | | $ | 6,126 | |
| | | | | | | | |
Liability for future policy benefits | | $ | 3,819 | | | $ | 54 | | | $ | 4,634 | | | $ | 4,496 | |
Less: reinsurance recoverable | | — | | | — | | | — | | | — | |
Net liability for future policy benefits | | $ | 3,819 | | | $ | 54 | | | $ | 4,634 | | | $ | 4,496 | |
(1)Issuances: The present value, using the original discount rate, of the expected net premiums or the expected future policy benefits related to new reinsurance contracts that became effective during the current period and new policies assumed on existing contracts.
(2)Interest accrual: The interest earned on the beginning present value of either the expected net premiums or the expected future policy benefits using the original interest rate.
(3)Net premiums collected: The portion of gross premiums collected from the ceding company that is used to fund expected benefit payments.
(4)Derecognition: Includes the effects of treaty recaptures and treaty amendments that resulted in the termination of an existing treaty and the issuance of a new treaty under the internal replacement model.
(5)Benefit payments: The release of the present value, using the original discount rate, of the expected future policy benefits due to death, lapse/withdrawal, and other benefit payments based on current assumptions.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
For the year ended December 31, 2021: | | U.S. and Latin America – Financial Solutions | | Canada – Financial Solutions | | Europe, Middle East and Africa – Financial Solutions | | Asia Pacific – Financial Solutions |
Present Value of Expected Net Premiums | | | | | | | | |
Balance, beginning of year | | $ | 285 | | | $ | 3,568 | | | $ | 28,055 | | | $ | 781 | |
Effect of adoption of Financial Services – Insurance | | 102 | | | 343 | | | 3,634 | | | 114 | |
Adjusted balance, beginning of year | | 387 | | | 3,911 | | | 31,689 | | | 895 | |
| | | | | | | | |
Beginning of year balance at original discount rate | | $ | 314 | | | $ | 3,556 | | | $ | 27,799 | | | $ | 781 | |
Effect of changes in cash flow assumptions | | (33) | | | (30) | | | (76) | | | — | |
Effect of actual variances from expected experience | | (29) | | | 17 | | | 997 | | | 777 | |
Adjusted balance, beginning of year | | 252 | | | 3,543 | | | 28,720 | | | 1,558 | |
Issuances (1) | | — | | | — | | | 8,357 | | | 3,156 | |
Interest accrual (2) | | 3 | | | 109 | | | 714 | | | 28 | |
Net premiums collected (3) | | (27) | | | (349) | | | (3,590) | | | (3,621) | |
Derecognition (4) | | — | | | — | | | (1,669) | | | — | |
Foreign currency translation | | — | | | 26 | | | (559) | | | (70) | |
Ending balance at original discount rate | | 228 | | | 3,329 | | | 31,973 | | | 1,051 | |
Effect of changes in discount rate assumptions | | 28 | | | 97 | | | 668 | | | 247 | |
Balance, end of period | | $ | 256 | | | $ | 3,426 | | | $ | 32,641 | | | $ | 1,298 | |
| | | | | | | | |
Present Value of Expected Future Policy Benefits | | | | | | | | |
Balance, beginning of year | | $ | 4,951 | | | $ | 3,584 | | | $ | 33,410 | | | $ | 2,645 | |
Effect of adoption of Financial Services – Insurance | | 931 | | | 372 | | | 4,901 | | | 125 | |
Adjusted balance, beginning of year | | 5,882 | | | 3,956 | | | 38,311 | | | 2,770 | |
| | | | | | | | |
Beginning of year balance at original discount rate | | $ | 4,951 | | | $ | 3,592 | | | $ | 33,410 | | | $ | 2,653 | |
Effect of changes in cash flow assumptions | | (33) | | | 6 | | | (76) | | | — | |
Effect of actual variances from expected experience | | (37) | | | 6 | | | 1,000 | | | 777 | |
Adjusted balance, beginning of year | | 4,881 | | | 3,604 | | | 34,334 | | | 3,430 | |
Issuances (1) | | — | | | — | | | 8,357 | | | 3,156 | |
Interest accrual (2) | | 193 | | | 112 | | | 890 | | | 63 | |
Benefit payments (5) | | (446) | | | (350) | | | (3,064) | | | (162) | |
Derecognition (4) | | — | | | — | | | (1,682) | | | — | |
Foreign currency translation | | — | | | 27 | | | (639) | | | (425) | |
Ending balance at original discount rate | | 4,628 | | | 3,393 | | | 38,196 | | | 6,062 | |
Effect of changes in discount rate assumptions | | 575 | | | 114 | | | 1,174 | | | 250 | |
Balance, end of period | | $ | 5,203 | | | $ | 3,507 | | | $ | 39,370 | | | $ | 6,312 | |
| | | | | | | | |
Liability for future policy benefits | | $ | 4,947 | | | $ | 81 | | | $ | 6,729 | | | $ | 5,014 | |
Less: reinsurance recoverable | | — | | | — | | | — | | | — | |
Net liability for future policy benefits | | $ | 4,947 | | | $ | 81 | | | $ | 6,729 | | | $ | 5,014 | |
(1)Issuances: The present value, using the original discount rate, of the expected net premiums or the expected future policy benefits related to new reinsurance contracts that became effective during the current period and new policies assumed on existing contracts.
(2)Interest accrual: The interest earned on the beginning present value of either the expected net premiums or the expected future policy benefits using the original interest rate.
(3)Net premiums collected: The portion of gross premiums collected from the ceding company that is used to fund expected benefit payments.
(4)Derecognition: Includes the effects of treaty recaptures and treaty amendments that resulted in the termination of an existing treaty and the issuance of a new treaty under the internal replacement model.
(5)Benefit payments: The release of the present value, using the original discount rate, of the expected future policy benefits due to death, lapse/withdrawal, and other benefit payments based on current assumptions.
Policyholder Account Balances
The following tables provide the balances and changes in the Company’s policyholder account balances as of and for the years ending December 31, 2022 and 2021 (dollars in millions):
| | | | | | | | | | | | | | | | | | | | |
For the year ended December 31, 2022: | | U.S. and Latin America – Traditional | | U.S. and Latin America – Financial Solutions | | Asia Pacific – Financial Solutions |
Balance, beginning of year | | $ | 1,719 | | | $ | 18,758 | | | $ | 1,621 | |
Deposits | | 24 | | | 1,289 | | | 2,521 | |
Policy charges | | (32) | | | (33) | | | (134) | |
Surrenders and withdrawals | | (17) | | | (1,258) | | | (639) | |
Benefit payments | | (76) | | | (448) | | | (46) | |
Interest credited | | 65 | | | 598 | | | 51 | |
Foreign currency translation | | — | | | — | | | (23) | |
Balance, end of period | | $ | 1,683 | | | $ | 18,906 | | | $ | 3,351 | |
Less: reinsurance recoverable | | — | | | (1,543) | | | — | |
Balance, end of period, after reinsurance | | $ | 1,683 | | | $ | 17,363 | | | $ | 3,351 | |
| | | | | | | | | | | | | | | | | | | | |
For the year ended December 31, 2021: | | U.S. and Latin America – Traditional | | U.S. and Latin America – Financial Solutions | | Asia Pacific – Financial Solutions |
Balance, beginning of year | | $ | 1,752 | | | $ | 16,273 | | | $ | 809 | |
Deposits | | 25 | | | 3,290 | | | 868 | |
Policy charges | | (32) | | | (31) | | | (1) | |
Surrenders and withdrawals | | (13) | | | (1,015) | | | (36) | |
Benefit payments | | (79) | | | (404) | | | (24) | |
Interest credited | | 66 | | | 645 | | | 19 | |
Foreign currency translation | | — | | | — | | | (14) | |
Balance, end of period | | $ | 1,719 | | | $ | 18,758 | | | $ | 1,621 | |
Less: reinsurance recoverable | | — | | | (1,561) | | | — | |
Balance, end of period, after reinsurance | | $ | 1,719 | | | $ | 17,197 | | | $ | 1,621 | |
Market Risk Benefits
The following tables provide the balances and changes in the Company’s liabilities for market risk benefits as of and for the years ending December 31, 2022 and 2021 (dollars in millions):
| | | | | | | | |
For the year ended December 31, 2022: | | U.S. and Latin America – Financial Solutions |
Balance, beginning of year | | $ | 262 | |
| | |
Balance, beginning of year, before effect of changes in the instrument-specific credit risk | | 254 | |
Interest accrual | | 54 | |
Attributed fees collected | | 28 | |
Benefit payments | | (9) | |
Effect of changes in future assumptions | | 18 | |
Effect of changes in interest rates | | (175) | |
Effect of changes in equity markets | | 48 | |
Effect of changes in volatility | | 19 | |
Other market impacts | | 7 | |
Actual policyholder behavior different from expected behavior | | 19 | |
Balance, end of period, before effect of changes in the instrument-specific credit risk | | 263 | |
Effect of changes in the instrument-specific credit risk | | (16) | |
Balance, end of period | | 247 | |
Less: reinsurance recoverable | | — | |
Balance, end of period, after reinsurance | | $ | 247 | |
| | | | | | | | |
For the year ended December 31, 2021: | | U.S. and Latin America – Financial Solutions |
Balance, beginning of year | | $ | — | |
Effect of adoption of Financial Services – Insurance | | 266 | |
Adjusted balance, beginning of year | | 266 | |
Balance, beginning of year, before effect of changes in the instrument-specific credit risk | | 311 | |
Interest accrual | | 3 | |
Attributed fees collected | | 12 | |
Benefit payments | | (14) | |
Effect of changes in future assumptions | | 25 | |
Effect of changes in interest rates | | (51) | |
Effect of changes in equity markets | | (49) | |
Effect of changes in volatility | | (2) | |
Other market impacts | | 5 | |
Actual policyholder behavior different from expected behavior | | 14 | |
Balance, end of period, before effect of changes in the instrument-specific credit risk | | 254 | |
Effect of changes in the instrument-specific credit risk | | 8 | |
Balance, end of period | | 262 | |
Less: reinsurance recoverable | | — | |
Balance, end of period, after reinsurance | | $ | 262 | |
Deferred Policy Acquisition Costs
The following tables provide the balances and changes in the Company’s deferred policy acquisition costs as of and for the years ending December 31, 2022 and 2021 (dollars in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
For the year ended December 31, 2022: | | U.S. and Latin America – Traditional | | Canada – Traditional | | Europe, Middle East and Africa – Traditional | | Asia Pacific – Traditional |
Balance, beginning of year | | $ | 1,947 | | | $ | 191 | | | $ | 270 | | | $ | 1,056 | |
Capitalization | | 284 | | | 10 | | | 83 | | | 86 | |
Amortization expense | | (144) | | | (17) | | | (38) | | | (67) | |
Foreign currency translation | | — | | | (13) | | | (21) | | | (32) | |
Balance, end of period | | $ | 2,087 | | | $ | 171 | | | $ | 294 | | | $ | 1,043 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
For the year ended December 31, 2022: | | U.S. and Latin America – Financial Solutions | | Canada – Financial Solutions | | Europe, Middle East and Africa – Financial Solutions | | Asia Pacific – Financial Solutions |
Balance, beginning of year | | $ | 312 | | | $ | — | | | $ | — | | | $ | 81 | |
Capitalization | | 87 | | | — | | | — | | | 121 | |
Amortization expense | | (58) | | | — | | | — | | | (13) | |
Foreign currency translation | | — | | | — | | | — | | | (1) | |
Balance, end of period | | $ | 341 | | | $ | — | | | $ | — | | | $ | 188 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
For the year ended December 31, 2021: | | U.S. and Latin America – Traditional | | Canada – Traditional | | Europe, Middle East and Africa – Traditional | | Asia Pacific – Traditional |
Balance, beginning of year | | $ | 1,816 | | | $ | 195 | | | $ | 264 | | | $ | 1,046 | |
Effect of adoption of Financial Services – Insurance | | — | | | — | | | — | | | — | |
Adjusted balance, beginning of year | | 1,816 | | | 195 | | | 264 | | | 1,046 | |
Capitalization | | 254 | | | 8 | | | 42 | | | 83 | |
Amortization expense | | (123) | | | (13) | | | (24) | | | (55) | |
Foreign currency translation | | — | | | 1 | | | (12) | | | (18) | |
Balance, end of period | | $ | 1,947 | | | $ | 191 | | | $ | 270 | | | $ | 1,056 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
For the year ended December 31, 2021: | | U.S. and Latin America – Financial Solutions | | Canada – Financial Solutions | | Europe, Middle East and Africa – Financial Solutions | | Asia Pacific – Financial Solutions |
Balance, beginning of year | | $ | 254 | | | $ | — | | | $ | — | | | $ | 41 | |
Effect of adoption of Financial Services – Insurance | | 114 | | | — | | | — | | | — | |
Adjusted balance, beginning of year | | 368 | | | — | | | — | | | 41 | |
Capitalization | | 8 | | | — | | | — | | | 49 | |
Amortization expense | | (64) | | | — | | | — | | | (8) | |
Foreign currency translation | | — | | | — | | | — | | | (1) | |
Balance, end of period | | $ | 312 | | | $ | — | | | $ | — | | | $ | 81 | |
NOTE 3 EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per share on net income (in millions, except per share information):
| | | | | | | | | | | | | | | | |
| | | | Three months ended March 31, |
| | | | | | 2023 | | 2022 |
Earnings: | | | | | | | | |
Net income | | | | | | $ | 253 | | | $ | 197 | |
Less: Net income attributable to noncontrolling interest | | | | | | 1 | | | — | |
Net income available to RGA, Inc. shareholders | | | | | | $ | 252 | | | $ | 197 | |
Shares: | | | | | | | | |
Weighted average outstanding shares | | | | | | 67 | | | 67 | |
Equivalent shares from outstanding stock awards | | | | | | 1 | | | 1 | |
Denominator for diluted calculation | | | | | | 68 | | | 68 | |
Earnings per share: | | | | | | | | |
Basic | | | | | | $ | 3.77 | | | $ | 2.93 | |
Diluted | | | | | | $ | 3.72 | | | $ | 2.91 | |
The calculation of common equivalent shares does not include the impact of stock awards with a conversion price that exceeds the average stock price for the earnings period as the result would be antidilutive. The calculation of common equivalent shares also excludes the impact of outstanding performance contingent awards as the conditions necessary for their issuance have not been satisfied as of the end of the reporting period.
NOTE 4 EQUITY
Common stock
The changes in number of common stock shares issued, held in treasury and outstanding are as follows for the periods indicated:
| | | | | | | | | | | | | | | | | | | | |
| | Issued | | Held In Treasury | | Outstanding |
Balance, December 31, 2022 | | 85,310,598 | | | 18,634,390 | | | 66,676,208 | |
| | | | | | |
Common stock acquired | | — | | | 371,343 | | | (371,343) | |
Stock-based compensation (1) | | — | | | (235,601) | | | 235,601 | |
Balance, March 31, 2023 | | 85,310,598 | | | 18,770,132 | | | 66,540,466 | |
| | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | Issued | | Held In Treasury | | Outstanding |
Balance, December 31, 2021 | | 85,310,598 | | | 18,139,868 | | | 67,170,730 | |
Common Stock acquired | | — | | | 219,116 | | | (219,116) | |
Stock-based compensation (1) | | — | | | (36,639) | | | 36,639 | |
Balance, March 31, 2022 | | 85,310,598 | | | 18,322,345 | | | 66,988,253 | |
| | | | | | |
(1)Represents net shares issued from treasury pursuant to the Company’s equity-based compensation programs.
Common Stock Held in Treasury
Common stock held in treasury is accounted for at average cost. Gains resulting from the reissuance of common stock held in treasury are credited to additional paid-in capital. Losses resulting from the reissuance of common stock held in treasury are charged first to additional paid-in capital to the extent the Company has previously recorded gains on treasury share transactions, then to retained earnings.
On February 25, 2022, RGA’s board of directors authorized a share repurchase program for up to $400 million of RGA’s outstanding common stock. The authorization was effective immediately and does not have an expiration date. During the three months ended March 31, 2023, RGA repurchased 371,343 shares of common stock under this program.
Noncontrolling Interest
In 2022, Papara Financing LLC (“Papara”), a subsidiary of RGA Reinsurance Company, issued nonconvertible preferred interests to an unaffiliated third party. The membership interests in Papara consist of (1) common interests, which are held by RGA Reinsurance Company and (2) preferred interests. The preferred interests total $90 million. The preferred interests are included in noncontrolling interest, and net income attributable to noncontrolling interest was $1 million for the three months ended March 31, 2023.
Accumulated Other Comprehensive Income (Loss)
The balance of and changes in each component of accumulated other comprehensive income (loss) (“AOCI”) for the three months ended March 31, 2023 and 2022 are as follows (dollars in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Accumulated Other Comprehensive Income (Loss), Net of Income Tax |
| | Foreign Currency Translation Adjustments | | Net Unrealized Investment Gains (Losses)(1) | | Pension and Postretirement Benefits | | Effect of Updating Discount Rates on Future Policy Benefits | | Instrument-Specific Credit Risk for Market Risk Benefits | | Total |
Balance, December 31, 2022 | | $ | (116) | | | $ | (5,496) | | | $ | (27) | | | $ | 3,755 | | | $ | 13 | | | $ | (1,871) | |
Other comprehensive income (loss) before reclassifications | | 28 | | | 1,316 | | | 5 | | | (927) | | | 2 | | | 424 | |
Amounts reclassified to (from) AOCI | | | | 88 | | | 1 | | | — | | | — | | | 89 | |
Deferred income tax benefit (expense) | | (6) | | | (301) | | | (1) | | | 206 | | | (1) | | | (103) | |
Balance, March 31, 2023 | | $ | (94) | | | $ | (4,393) | | | $ | (22) | | | $ | 3,034 | | | $ | 14 | | | $ | (1,461) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Accumulated Other Comprehensive Income (Loss), Net of Income Tax |
| | Foreign Currency Translation Adjustments | | Net Unrealized Investment Gains (Losses)(1) | | Pension and Postretirement Benefits | | Effect of Updating Discount Rates on Future Policy Benefits | | Instrument-Specific Credit Risk for Market Risk Benefits | | Total |
Balance, December 31, 2021 | | $ | (13) | | | $ | 3,779 | | | $ | (50) | | | $ | (4,209) | | | $ | (7) | | | $ | (500) | |
Other comprehensive income (loss) before reclassifications | | 27 | | | (4,886) | | | (1) | | | 4,375 | | | (5) | | | (490) | |
Amounts reclassified to (from) AOCI | | — | | | 36 | | | 1 | | | — | | | — | | | 37 | |
Deferred income tax benefit (expense) | | (6) | | | 1,061 | | | — | | | (961) | | | 1 | | | 95 | |
Balance, March 31, 2022 | | $ | 8 | | | $ | (10) | | | $ | (50) | | | $ | (795) | | | $ | (11) | | | $ | (858) | |
(1)Includes cash flow hedges of $(198) and $(205) as of March 31, 2023 and December 31, 2022, respectively, and $(81) and $(22) as of March 31, 2022 and December 31, 2021, respectively. See Note 12 – “Derivative Instruments” for additional information on cash flow hedges.
The following table presents the amounts of AOCI reclassifications for the three months ended March 31, 2023 and 2022 (dollars in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | Amount Reclassified from AOCI | | |
| | | | | | Three months ended March 31, | | Affected Line Item in Statements of Income |
Details about AOCI Components | | | | | | | | 2023 | | 2022 | |
Net unrealized investment gains (losses): | | | | | | | | | | | | |
Net unrealized gains (losses) on available-for-sale securities | | | | | | | | $ | (87) | | | $ | (35) | | | Investment related gains (losses), net |
Cash flow hedges – Interest rate | | | | | | | | 2 | | | — | | | (1) |
Cash flow hedges – Currency/Interest rate | | | | | | | | (3) | | | (1) | | | (1) |
| | | | | | | | | | | | |
Total | | | | | | | | (88) | | | (36) | | | |
Provision for income taxes | | | | | | | | 18 | | | 7 | | | |
Net unrealized gains (losses), net of tax | | | | | | | | $ | (70) | | | $ | (29) | | | |
Amortization of defined benefit plan items: | | | | | | | | | | | | |
Prior service cost (credit) | | | | | | | | $ | — | | | $ | — | | | (2) |
Actuarial gains (losses) | | | | | | | | (1) | | | (1) | | | (2) |
Total | | | | | | | | (1) | | | (1) | | | |
Provision for income taxes | | | | | | | | — | | | — | | | |
Amortization of defined benefit plans, net of tax | | | | | | | | $ | (1) | | | $ | (1) | | | |
| | | | | | | | | | | | |
Total reclassifications for the period | | | | | | | | $ | (71) | | | $ | (30) | | | |
(1)See Note 12 – “Derivative Instruments” for additional information on cash flow hedges.
(2)This AOCI component is included in the computation of the net periodic pension cost. See Note 15 – “Employee Benefit Plans” for additional details.
Equity Based Compensation
Equity compensation expense was $4 million for the three months ended March 31, 2023 and 2022. In the first quarter of 2023, the Company granted 129,146 stock appreciation rights at $138.34 weighted average exercise price per share, 185,311 performance contingent shares and 105,122 restricted stock units to employees. As of March 31, 2023, 1,737,943 share awards at a weighted average strike price per share of $113.12 were vested and exercisable with a remaining weighted average exercise period of 4.5 years. As of March 31, 2023, the total compensation cost of non-vested awards not yet recognized in the financial statements was $31 million. It is estimated that these costs will vest over a weighted average period of 1.2 years.
NOTE 5 FUTURE POLICY BENEFITS
Liability for Future Policy Benefits – Traditional Business
The following tables provide the balances of and changes in the Company’s liability for future policy benefits for long-duration reinsurance contracts for its Traditional business, which primarily consists of individual life, group life and critical illness reinsurance for the three months ended March 31, 2023 and 2022 (dollars in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Three months ended March 31, 2023: | | U.S. and Latin America – Traditional | | Canada – Traditional | | Europe, Middle East and Africa – Traditional | | Asia Pacific – Traditional |
Present Value of Expected Net Premiums | | | | | | | | |
Beginning of year balance at original discount rate | | $ | 74,207 | | | $ | 21,330 | | | $ | 14,244 | | | $ | 40,506 | |
Effect of changes in cash flow assumptions | | — | | | — | | | — | | | (8) | |
Effect of actual variances from expected experience | | (103) | | | 97 | | | (256) | | | 128 | |
Adjusted balance, beginning of year | | 74,104 | | | 21,427 | | | 13,988 | | | 40,626 | |
Issuances (1) | | 1,016 | | | 110 | | | 382 | | | 619 | |
Interest accrual (2) | | 851 | | | 182 | | | 119 | | | 256 | |
Net premiums collected (3) | | (1,229) | | | (231) | | | (344) | | | (490) | |
Derecognition (4) | | (35) | | | — | | | — | | | — | |
Foreign currency translation | | — | | | 46 | | | 184 | | | (113) | |
Ending balance at original discount rate | | 74,707 | | | 21,534 | | | 14,329 | | | 40,898 | |
Effect of changes in discount rate assumptions | | (4,074) | | | (4,376) | | | (2,515) | | | (11,029) | |
Balance, end of period | | $ | 70,633 | | | $ | 17,158 | | | $ | 11,814 | | | $ | 29,869 | |
| | | | | | | | |
Present Value of Expected Future Policy Benefits | | | | | | | | |
Beginning of year balance at original discount rate | | $ | 85,285 | | | $ | 24,655 | | | $ | 15,454 | | | $ | 44,785 | |
Effect of changes in cash flow assumptions | | — | | | — | | | — | | | (8) | |
Effect of actual variances from expected experience | | (79) | | | 98 | | | (258) | | | 121 | |
Adjusted balance, beginning of year | | 85,206 | | | 24,753 | | | 15,196 | | | 44,898 | |
Issuances (1) | | 1,018 | | | 110 | | | 382 | | | 619 | |
Interest accrual (2) | | 981 | | | 233 | | | 127 | | | 293 | |
Benefit payments (5) | | (1,486) | | | (256) | | | (331) | | | (458) | |
Derecognition (4) | | (54) | | | — | | | — | | | — | |
Foreign currency translation | | 1 | | | 56 | | | 201 | | | (125) | |
Ending balance at original discount rate | | 85,666 | | | 24,896 | | | 15,575 | | | 45,227 | |
Effect of changes in discount rate assumptions | | (5,188) | | | (3,607) | | | (2,686) | | | (12,914) | |
Balance, end of period | | $ | 80,478 | | | $ | 21,289 | | | $ | 12,889 | | | $ | 32,313 | |
| | | | | | | | |
Liability for future policy benefits | | $ | 9,845 | | | $ | 4,131 | | | $ | 1,075 | | | $ | 2,444 | |
Less: reinsurance recoverable | | (417) | | | (277) | | | (37) | | | (99) | |
Net liability for future policy benefits | | $ | 9,428 | | | $ | 3,854 | | | $ | 1,038 | | | $ | 2,345 | |
| | | | | | | | |
Weighted-average duration of the liability (in years) | | 12 | | 15 | | 8 | | 16 |
Weighted-average interest accretion rate | | 4.7 | % | | 3.6 | % | | 3.4 | % | | 2.6 | % |
Weighted-average current discount rate | | 4.9 | % | | 4.7 | % | | 5.4 | % | | 4.3 | % |
(1)Issuances: The present value, using the original discount rate, of the expected net premiums or the expected future policy benefits related to new reinsurance contracts that became effective during the current period and new policies assumed on existing contracts.
(2)Interest accrual: The interest earned on the beginning present value of either the expected net premiums or the expected future policy benefits using the original interest rate.
(3)Net premiums collected: The portion of gross premiums collected from the ceding company that is used to fund expected benefit payments.
(4)Derecognition: Includes the effects of treaty recaptures and treaty amendments that resulted in the termination of an existing treaty and the issuance of a new treaty under the internal replacement model.
(5)Benefit payments: The release of the present value, using the original discount rate, of the expected future policy benefits due to death, lapse/withdrawal, and other benefit payments based on current assumptions.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Three months ended March 31, 2022: | | U.S. and Latin America – Traditional | | Canada – Traditional | | Europe, Middle East and Africa – Traditional | | Asia Pacific – Traditional |
Present Value of Expected Net Premiums | | | | | | | | |
Beginning of year balance at original discount rate | | $ | 73,447 | | $ | 21,989 | | $ | 14,440 | | $ | 37,943 |
Effect of changes in cash flow assumptions | | — | | — | | — | | — |
Effect of actual variances from expected experience | | (33) | | 166 | | 90 | | (1,504) |
Adjusted balance, beginning of year | | 73,414 | | 22,155 | | 14,530 | | 36,439 |
Issuances (1) | | 832 | | 206 | | 297 | | 2,217 |
Interest accrual (2) | | 845 | | 194 | | 127 | | 239 |
Net premiums collected (3) | | (1,207) | | (248) | | (337) | | (502) |
Derecognition (4) | | — | | — | | — | | — |
Foreign currency translation | | 3 | | 235 | | (234) | | (549) |
Ending balance at original discount rate | | 73,887 | | 22,542 | | 14,383 | | 37,844 |
Effect of changes in discount rate assumptions | | 6,120 | | (2,933) | | (234) | | (7,976) |
Balance, end of period | | $ | 80,007 | | $ | 19,609 | | $ | 14,149 | | $ | 29,868 |
| | | | | | | | |
Present Value of Expected Future Policy Benefits | | | | | | | | |
Beginning of year balance at original discount rate | | $ | 84,075 | | $ | 25,440 | | $ | 15,664 | | $ | 41,971 |
Effect of changes in cash flow assumptions | | — | | — | | — | | — |
Effect of actual variances from expected experience | | 72 | | 174 | | 88 | | (1,501) |
Adjusted balance, beginning of year | | 84,147 | | 25,614 | | 15,752 | | 40,470 |
Issuances (1) | | 833 | | 206 | | 297 | | 2,162 |
Interest accrual (2) | | 970 | | 250 | | 135 | | 272 |
Benefit payments (5) | | (1,628) | | (299) | | (346) | | (506) |
Derecognition (4) | | — | | — | | — | | — |
Foreign currency translation | | 4 | | 271 | | (264) | | (563) |
Ending balance at original discount rate | | 84,326 | | 26,042 | | 15,574 | | 41,835 |
Effect of changes in discount rate assumptions | | 7,446 | | (1,621) | | (197) | | (9,362) |
Balance, end of period | | $ | 91,772 | | $ | 24,421 | | $ | 15,377 | | $ | 32,473 |
| | | | | | | | |
Liability for future policy benefits | | $ | 11,765 | | $ | 4,812 | | $ | 1,228 | | $ | 2,605 |
Less: reinsurance recoverable | | (572) | | (322) | | (36) | | (115) |
Net liability for future policy benefits | | $ | 11,193 | | $ | 4,490 | | $ | 1,192 | | $ | 2,490 |
| | | | | | | | |
Weighted-average duration of the liability (in years) | | 13 | | 16 | | 10 | | 16 |
Weighted-average interest accretion rate | | 4.7 | % | | 3.7 | % | | 3.5 | % | | 2.6 | % |
Weighted-average current discount rate | | 3.9 | % | | 4.1 | % | | 3.7 | % | | 3.9 | % |
(1)Issuances: The present value, using the original discount rate, of the expected net premiums or the expected future policy benefits related to new reinsurance contracts that became effective during the current period and new policies assumed on existing contracts.
(2)Interest accrual: The interest earned on the beginning present value of either the expected net premiums or the expected future policy benefits using the original interest rate.
(3)Net premiums collected: The portion of gross premiums collected from the ceding company that is used to fund expected benefit payments.
(4)Derecognition: Includes the effects of treaty recaptures and treaty amendments that resulted in the termination of an existing treaty and the issuance of a new treaty under the internal replacement model.
(5)Benefit payments: The release of the present value, using the original discount rate, of the expected future policy benefits due to death, lapse/withdrawal, and other benefit payments based on current assumptions.
Significant assumptions used to compute the liability for future policy benefits for the Traditional business include mortality, morbidity, lapse rates and discount rates (both accretion and current). The Company updated the underlying market data used to determine the current discount rate resulting in changes to the discount rate assumption used to measure the net liability for future policy benefits each period. The Company’s Traditional business actual-to-expected variances and the effects of changes in discount rate assumption for the three months ending March 31, 2023 and 2022 are summarized in the tables below:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Three months ended March 31, 2023: |
Segment | | Net liability for future policy benefits at original discount rate | | Actual-to-expected variance | | Impact of updating discount rate recognized in OCI | | Commentary |
U.S. and Latin America – Traditional | | $11.0 billion | | $24 million | | $490 million | | During the first quarter of 2023, the Company reviewed the significant assumptions used to measure the liability for future policy benefits and did not make any changes to the segment’s mortality, morbidity, and lapse assumptions as actual experience was consistent with the underlying assumptions. |
| 1.1% decrease | | 0.2% increase | | 4.4% increase | |
Canada – Traditional | | $3.4 billion | | $1 million | | $143 million | | During the first quarter of 2023, the Company reviewed the significant assumptions used to measure the liability for future policy benefits and did not make any changes to the segment’s mortality, morbidity, and lapse assumptions as actual experience was consistent with the underlying assumptions. |
| 1.1% increase | | 0.0% increase | | 4.3% increase | |
Europe, Middle East and Africa – Traditional | | $1.2 billion | | $(2) million | | $(2) million | | During the first quarter of 2023, the Company reviewed the significant assumptions used to measure the liability for future policy benefits and did not make any material changes to the segment’s mortality, morbidity, and lapse assumptions as actual experience was consistent with the underlying assumptions. |
| 3.0% increase | | 0.2% decrease | | 0.2% decrease | |
Asia Pacific – Traditional | | $4.3 billion | | $(7) million | | $46 million | | During the first quarter of 2023, the Company reviewed the significant assumptions used to measure the liability for future policy benefits and did not make any material changes to the segment’s mortality, morbidity, and lapse assumptions as actual experience was consistent with the underlying assumptions. |
| 1.2% increase | | 0.2% decrease | | 1.1% increase | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Three months ended March 31, 2022: |
Segment | | Net liability for future policy benefits at original discount rate | | Actual-to-expected variance | | Impact of updating discount rate recognized in OCI | | Commentary |
U.S. and Latin America – Traditional | | $10.4 billion | | $105 million | | $(2,088) million | | During the first quarter of 2022, the Company reviewed the significant assumptions used to measure the liability for future policy benefits and did not make any changes to the segment’s mortality, morbidity, and lapse assumptions as actual experience was consistent with the underlying assumptions. The actual-to-expected variance was predominately related to COVID-19. |
| 1.8% decrease | | 1.0% increase | | 19.6% decrease | |
Canada – Traditional | | $3.5 billion | | $8 million | | $(792) million | | During the first quarter of 2022, the Company reviewed the significant assumptions used to measure the liability for future policy benefits and did not make any changes to the segment’s mortality, morbidity, and lapse assumptions as actual experience was consistent with the underlying assumptions. |
| 1.4% increase | | 0.2% increase | | 22.9% decrease | |
Europe, Middle East and Africa – Traditional | | $1.2 billion | | $(2) million | | $(128) million | | During the first quarter of 2022, the Company reviewed the significant assumptions used to measure the liability for future policy benefits and did not make any changes to the segment’s mortality, morbidity, and lapse assumptions as actual experience was consistent with the underlying assumptions. |
| 2.7% decrease | | 0.2% decrease | | 10.5% decrease | |
Asia Pacific – Traditional | | $4.0 billion | | $3 million | | $(369) million | | During the first quarter of 2022, the Company reviewed the significant assumptions used to measure the liability for future policy benefits and did not make any changes to the segment’s mortality, morbidity, and lapse assumptions as actual experience was consistent with the underlying assumptions. |
| 0.9% decrease | | 0.1% increase | | 9.2% decrease | |
Liability for Future Policy Benefits – Financial Solutions Business
The deferred profit liability related to the longevity business is presented together with the liability for future policy benefits. The following tables provide the balances of and changes in the Company’s liability for future policy benefits for its Financial Solutions business, which primarily consists of longevity reinsurance, asset-intensive products, primarily annuities and financial reinsurance for the three months ending March 31, 2023 and 2022 (dollars in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Three months ended March 31, 2023: | | U.S. and Latin America – Financial Solutions | | Canada – Financial Solutions | | Europe, Middle East and Africa – Financial Solutions | | Asia Pacific – Financial Solutions |
Present Value of Expected Net Premiums | | | | | | | | |
Beginning of year balance at original discount rate | | $ | 1,671 | | | $ | 3,394 | | | $ | 38,782 | | | $ | 1,605 | |
Effect of changes in cash flow assumptions | | — | | | — | | | — | | | — | |
Effect of actual variances from expected experience | | (7) | | | (2) | | | 42 | | | — | |
Adjusted balance, beginning of year | | 1,664 | | | 3,392 | | | 38,824 | | | 1,605 | |
Issuances (1) | | 146 | | | — | | | 3,681 | | | 1,244 | |
Interest accrual (2) | | 13 | | | 27 | | | 185 | | | 6 | |
Net premiums collected (3) | | (186) | | | (84) | | | (764) | | | (1,260) | |
Derecognition (4) | | — | | | — | | | — | | | — | |
Foreign currency translation | | — | | | 9 | | | 742 | | | (21) | |
Ending balance at original discount rate | | 1,637 | | | 3,344 | | | 42,668 | | | 1,574 | |
Effect of changes in discount rate assumptions | | (223) | | | (336) | | | (8,323) | | | 74 | |
Balance, end of period | | $ | 1,414 | | | $ | 3,008 | | | $ | 34,345 | | | $ | 1,648 | |
| | | | | | | | |
Present Value of Expected Future Policy Benefits | | | | | | | | |
Beginning of year balance at original discount rate | | $ | 5,823 | | | $ | 3,447 | | | $ | 44,330 | | | $ | 6,561 | |
Effect of changes in cash flow assumptions | | — | | | — | | | — | | | — | |
Effect of actual variances from expected experience | | (11) | | | (6) | | | 31 | | | (1) | |
Adjusted balance, beginning of year | | 5,812 | | | 3,441 | | | 44,361 | | | 6,560 | |
Issuances (1) | | 154 | | | — | | | 3,681 | | | 1,289 | |
Interest accrual (2) | | 56 | | | 28 | | | 225 | | | 18 | |
Benefit payments (5) | | (138) | | | (83) | | | (858) | | | (68) | |
Derecognition (4) | | — | | | — | | | — | | | — | |
Foreign currency translation | | (16) | | | 8 | | | 852 | | | (77) | |
Ending balance at original discount rate | | 5,868 | | | 3,394 | | | 48,261 | | | 7,722 | |
Effect of changes in discount rate assumptions | | (460) | | | (332) | | | (9,191) | | | (250) | |
Balance, end of period | | $ | 5,408 | | | $ | 3,062 | | | $ | 39,070 | | | $ | 7,472 | |
| | | | | | | | |
Liability for future policy benefits | | $ | 3,994 | | | $ | 54 | | | $ | 4,725 | | | $ | 5,824 | |
Less: reinsurance recoverable | | — | | | — | | | — | | | — | |
Net liability for future policy benefits | | $ | 3,994 | | | $ | 54 | | | $ | 4,725 | | | $ | 5,824 | |
| | | | | | | | |
Weighted-average duration of the liability (in years) | | 8 | | 7 | | 9 | | 15 |
Weighted-average interest accretion rate | | 3.5 | % | | 3.3 | % | | 1.9 | % | | 1.3 | % |
Weighted-average current discount rate | | 5.0 | % | | 4.7 | % | | 4.7 | % | | 1.5 | % |
(1)Issuances: The present value, using the original discount rate, of the expected net premiums or the expected future policy benefits related to new reinsurance contracts that became effective during the current period and new policies assumed on existing contracts.
(2)Interest accrual: The interest earned on the beginning present value of either the expected net premiums or the expected future policy benefits using the original interest rate.
(3)Net premiums collected: The portion of gross premiums collected from the ceding company that is used to fund expected benefit payments.
(4)Derecognition: Includes the effects of treaty recaptures and treaty amendments that resulted in the termination of an existing treaty and the issuance of a new treaty under the internal replacement model.
(5)Benefit payments: The release of the present value, using the original discount rate, of the expected future policy benefits due to death, lapse/withdrawal, and other benefit payments based on current assumptions.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Three months ended March 31, 2022: | | U.S. and Latin America – Financial Solutions | | Canada – Financial Solutions | | Europe, Middle East and Africa – Financial Solutions | | Asia Pacific – Financial Solutions |
Present Value of Expected Net Premiums | | | | | | | | |
Beginning of year balance at original discount rate | | $ | 228 | | | $ | 3,329 | | | $ | 31,973 | | | $ | 1,051 | |
Effect of changes in cash flow assumptions | | — | | | — | | | — | | | — | |
Effect of actual variances from expected experience | | (3) | | | (7) | | | 111 | | | 47 | |
Adjusted balance, beginning of year | | 225 | | | 3,322 | | | 32,084 | | | 1,098 | |
Issuances (1) | | — | | | 581 | | | 10,932 | | | 1,325 | |
Interest accrual (2) | | 1 | | | 26 | | | 185 | | | 6 | |
Net premiums collected (3) | | (7) | | | (88) | | | (799) | | | (613) | |
Derecognition (4) | | — | | | — | | | — | | | — | |
Foreign currency translation | | — | | | 41 | | | (1,175) | | | (77) | |
Ending balance at original discount rate | | 219 | | | 3,882 | | | 41,227 | | | 1,739 | |
Effect of changes in discount rate assumptions | | (36) | | | (193) | | | (3,365) | | | 187 | |
Balance, end of period | | $ | 183 | | | $ | 3,689 | | | $ | 37,862 | | | $ | 1,926 | |
| | | | | | | | |
Present Value of Expected Future Policy Benefits | | | | | | | | |
Beginning of year balance at original discount rate | | $ | 4,628 | | | $ | 3,393 | | | $ | 38,196 | | | $ | 6,062 | |
Effect of changes in cash flow assumptions | | — | | | — | | | — | | | — | |
Effect of actual variances from expected experience | | (23) | | | (12) | | | 103 | | | 48 | |
Adjusted balance, beginning of year | | 4,605 | | | 3,381 | | | 38,299 | | | 6,110 | |
Issuances (1) | | — | | | 581 | | | 10,932 | | | 1,325 | |
Interest accrual (2) | | 47 | | | 27 | | | 228 | | | 17 | |
Benefit payments (5) | | (111) | | | (87) | | | (895) | | | (50) | |
Derecognition (4) | | — | | | — | | | — | | | — | |
Foreign currency translation | | — | | | 42 | | | (1,354) | | | (346) | |
Ending balance at original discount rate | | 4,541 | | | 3,944 | | | 47,210 | | | 7,056 | |
Effect of changes in discount rate assumptions | | 107 | | | (184) | | | (3,472) | | | 51 | |
Balance, end of period | | $ | 4,648 | | | $ | 3,760 | | | $ | 43,738 | | | $ | 7,107 | |
| | | | | | | | |
Liability for future policy benefits | | $ | 4,465 | | | $ | 71 | | | $ | 5,876 | | | $ | 5,181 | |
Less: reinsurance recoverable | | — | | | — | | | — | | | — | |
Net liability for future policy benefits | | $ | 4,465 | | | $ | 71 | | | $ | 5,876 | | | $ | 5,181 | |
| | | | | | | | |
Weighted-average duration of the liability (in years) | | 10 | | 8 | | 10 | | 16 |
Weighted-average interest accretion rate | | 3.0 | % | | 2.9 | % | | 2.1 | % | | 1.4 | % |
Weighted-average current discount rate | | 3.9 | % | | 3.9 | % | | 2.8 | % | | 1.3 | % |
(1)Issuances: The present value, using the original discount rate, of the expected net premiums or the expected future policy benefits related to new reinsurance contracts that became effective during the current period and new policies assumed on existing contracts.
(2)Interest accrual: The interest earned on the beginning present value of either the expected net premiums or the expected future policy benefits using the original interest rate.
(3)Net premiums collected: The portion of gross premiums collected from the ceding company that is used to fund expected benefit payments.
(4)Derecognition: Includes the effects of treaty recaptures and treaty amendments that resulted in the termination of an existing treaty and the issuance of a new treaty under the internal replacement model.
(5)Benefit payments: The release of the present value, using the original discount rate, of the expected future policy benefits due to death, lapse/withdrawal, and other benefit payments based on current assumptions.
Significant assumptions used to compute the liability for future policy benefits for the Financial Solutions business include mortality, morbidity, lapse rates and discount rates (both accretion and current). The Company updated the underlying market data used to determine the current discount rate resulting in changes to the discount rate assumption used to measure the net liability for future policy benefits. The Company’s Financial Solutions business actual-to-expected variances and the effects of changes in discount rate assumption for the three months ending March 31, 2023 and 2022 are summarized in the tables below:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Three months ended March 31, 2023: |
Segment | | Net liability for future policy benefits at original discount rate | | Actual-to-expected variance | | Impact of updating discount rate recognized in OCI | | Commentary |
U.S. and Latin America – Financial Solutions | | $4.2 billion | | $(4) million | | $96 million | | During the first quarter of 2023, the Company reviewed the significant assumptions used to measure the liability for future policy benefits and did not make any changes to the segment’s mortality, morbidity, and lapse assumptions as actual experience was consistent with the underlying assumptions. |
| 1.9% increase | | 0.1% decrease | | 2.3% increase | |
Canada – Financial Solutions | | $0.1 billion | | $(4) million | | $3 million | | During the first quarter of 2023, the Company reviewed the significant assumptions used to measure the liability for future policy benefits and did not make any changes to the segment’s mortality, morbidity, and lapse assumptions as actual experience was consistent with the underlying assumptions. |
| 5.7% decrease | | 7.5% decrease | | 5.7% increase | |
Europe, Middle East and Africa – Financial Solutions | | $5.6 billion | | $(11) million | | $46 million | | During the first quarter of 2023, the Company reviewed the significant assumptions used to measure the liability for future policy benefits and did not make any changes to the segment’s mortality, morbidity, and lapse assumptions as actual experience was consistent with the underlying assumptions. |
| 0.8% increase | | 0.2% decrease | | 0.8% increase | |
Asia Pacific – Financial Solutions | | $6.1 billion | | $(1) million | | $136 million | | During the first quarter of 2023, the Company reviewed the significant assumptions used to measure the liability for future policy benefits and did not make any changes to the segment’s mortality, morbidity, and lapse assumptions as actual experience was consistent with the underlying assumptions. |
| 24.1% increase | | 0.0% decrease | | 2.7% increase | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
For the three months ended March 31, 2022: |
Segment | | Net liability for future policy benefits at original discount rate | | Actual-to-expected variance | | Impact of updating discount rate recognized in OCI | | Commentary |
U.S. and Latin America – Financial Solutions | | $4.3 billion | | $(20) million | | $(404) million | | During the first quarter of 2022, the Company reviewed the significant assumptions used to measure the liability for future policy benefits and did not make any changes to the segment’s mortality, morbidity, and lapse assumptions as actual experience was consistent with the underlying assumptions. |
| 1.8% decrease | | 0.5% decrease | | 9.2% decrease | |
Canada – Financial Solutions | | $0.1 billion | | $(5) million | | $(8) million | | During the first quarter of 2022, the Company reviewed the significant assumptions used to measure the liability for future policy benefits and did not make any changes to the segment’s mortality, morbidity, and lapse assumptions as actual experience was consistent with the underlying assumptions. |
| 3.1% decrease | | 7.8% decrease | | 12.5% decrease | |
Europe, Middle East and Africa – Financial Solutions | | $6.0 billion | | $(8) million | | $(613) million | | During the first quarter of 2022, the Company reviewed the significant assumptions used to measure the liability for future policy benefits and did not make any changes to the segment’s mortality, morbidity, and lapse assumptions as actual experience was consistent with the underlying assumptions. |
| 3.9% decrease | | 0.1% decrease | | 9.9% decrease | |
Asia Pacific – Financial Solutions | | $5.3 billion | | $1 million | | $(139) million | | During the first quarter of 2022, the Company reviewed the significant assumptions used to measure the liability for future policy benefits and did not make any changes to the segment’s mortality, morbidity, and lapse assumptions as actual experience was consistent with the underlying assumptions. |
| 6.1% increase | | 0.0% increase | | 2.8% decrease | |
Reconciliation and Other Disclosures
The reconciliation of the rollforward of the liability for future policy benefits to the condensed consolidated balance sheets as of March 31, 2023 and 2022 is as follows (dollars in millions):
| | | | | | | | | | | | | | |
| | March 31, |
| | 2023 | | 2022 |
Liability for future policy benefits included in the rollforwards: | | | | |
Traditional: | | | | |
U.S. and Latin America | | $ | 9,845 | | $ | 11,765 |
Canada | | 4,131 | | 4,812 |
Europe, Middle East and Africa | | 1,075 | | 1,228 |
Asia Pacific | | 2,444 | | 2,605 |
Financial Solutions: | | | | |
U.S. and Latin America | | 3,994 | | | 4,465 | |
Canada | | 54 | | | 71 | |
Europe, Middle East and Africa | | 4,725 | | | 5,876 | |
Asia Pacific | | 5,824 | | | 5,181 | |
Other long-duration contracts | | 181 | | | 177 | |
Claims liability and incurred but not reported claims | | 5,417 | | | 5,659 | |
Unearned revenue liability | | 532 | | | 567 | |
Total liability for future policy benefits | | $ | 38,222 | | | $ | 42,406 | |
The amount of undiscounted and discounted expected future gross premiums and expected future benefit payments for the liability for future policy benefits included in the rollforwards as of March 31, 2023 and 2022 is as follows (dollars in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, |
| | 2023 | | 2022 |
| | Undiscounted | | Discounted | | Undiscounted | | Discounted |
Expected future gross premiums | | | | | | | | |
Traditional: | | | | | | | | |
U.S. and Latin America | | $ | 172,081 | | | $ | 82,288 | | | $ | 172,097 | | | $ | 93,268 | |
Canada | | 53,244 | | | 21,317 | | | 56,648 | | | 24,355 | |
Europe, Middle East and Africa | | 24,591 | | | 13,611 | | | 25,517 | | | 16,254 | |
Asia Pacific | | 92,305 | | | 37,986 | | | 84,355 | | | 38,094 | |
Financial Solutions: | | | | | | | | |
U.S. and Latin America | | 3,112 | | | 1,975 | | | 972 | | | 686 | |
Canada | | 4,738 | | | 3,149 | | | 5,506 | | | 3,843 | |
Europe, Middle East and Africa | | 64,424 | | | 37,636 | | | 56,874 | | | 41,655 | |
Asia Pacific | | 2,977 | | | 2,478 | | | 3,280 | | | 2,840 | |
| | | | | | | | |
Expected future benefit payments | | | | | | | | |
Traditional: | | | | | | | | |
U.S. and Latin America | | $ | 181,123 | | | $ | 80,478 | | | $ | 181,789 | | | $ | 91,772 | |
Canada | | 56,223 | | | 21,289 | | | 60,162 | | | 24,421 | |
Europe, Middle East and Africa | | 24,150 | | | 12,889 | | | 24,939 | | | 15,377 | |
Asia Pacific | | 88,496 | | | 32,313 | | | 82,052 | | | 32,473 | |
Financial Solutions: | | | | | | | | |
U.S. and Latin America | | 9,214 | | | 5,408 | | | 7,360 | | | 4,648 | |
Canada | | 4,602 | | | 3,062 | | | 5,387 | | | 3,760 | |
Europe, Middle East and Africa | | 66,775 | | | 39,070 | | | 59,907 | | | 43,738 | |
Asia Pacific | | 10,144 | | | 7,472 | | | 9,175 | | | 7,107 | |
The amount of gross premiums and interest expense recognized in the consolidated statements of income for the liability for future policy benefits included in the rollforwards for the three months ended March 31, 2023 and 2022 is as follows (dollars in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Gross Premiums | | Interest Expense |
| | March 31, | | March 31, |
| | 2023 | | 2022 | | 2023 | | 2022 |
Traditional: | | | | | | | | |
U.S. and Latin America | | $ | 1,422 | | | $ | 1,397 | | | $ | 130 | | | $ | 125 | |
Canada | | 262 | | | 272 | | | 51 | | | 56 | |
Europe, Middle East and Africa | | 355 | | | 361 | | | 8 | | | 8 | |
Asia Pacific | | 620 | | | 629 | | | 37 | | | 33 | |
Financial Solutions: | | | | | | | | |
U.S. and Latin America | | 156 | | | 8 | | | 43 | | | 46 | |
Canada | | 23 | | | 23 | | | 1 | | | 1 | |
Europe, Middle East and Africa | | 161 | | | 163 | | | 40 | | | 43 | |
Asia Pacific | | 63 | | | 43 | | | 12 | | | 11 | |
Total | | $ | 3,062 | | | $ | 2,896 | | | $ | 322 | | | $ | 323 | |
There were no material charges incurred for the three months ended March 31, 2023 and 2022, resulting from net premiums exceeding gross premiums.
NOTE 6 POLICYHOLDER ACCOUNT BALANCES
Policyholder Account Balances
The following tables provide the balances of and changes in the Company’s liability for its policyholder account balances for the three months ended March 31, 2023 and 2022 (dollars in millions):
| | | | | | | | | | | | | | | | | | | | |
Three months ended March 31, 2023: | | U.S. and Latin America – Traditional | | U.S. and Latin America – Financial Solutions | | Asia Pacific – Financial Solutions |
Balance, beginning of year | | $ | 1,683 | | | $ | 18,906 | | | $ | 3,351 | |
Deposits | | 3 | | | 41 | | | 431 | |
Policy charges | | (8) | | | (8) | | | — | |
Surrenders and withdrawals | | (5) | | | (528) | | | (19) | |
Benefit payments | | (43) | | | (116) | | | (22) | |
Interest credited | | 16 | | | 142 | | | 32 | |
Foreign currency translation | | — | | | — | | | (15) | |
Balance, end of period | | $ | 1,646 | | | $ | 18,437 | | | $ | 3,758 | |
Less: reinsurance recoverable | | — | | | (1,532) | | | — | |
Balance, end of period, after reinsurance | | $ | 1,646 | | | $ | 16,905 | | | $ | 3,758 | |
| | | | | | |
Weighted-average crediting rate | | 4.0 | % | | 3.3 | % | | 2.9 | % |
Net amount at risk | | $ | 697 | | | $ | 2,468 | | | $ | — | |
Cash surrender value | | $ | 1,635 | | | $ | 18,398 | | | $ | 3,340 | |
| | | | | | | | | | | | | | | | | | | | |
Three months ended March 31, 2022: | | U.S. and Latin America – Traditional | | U.S. and Latin America – Financial Solutions | | Asia Pacific – Financial Solutions |
Balance, beginning of year | | $ | 1,719 | | | $ | 18,758 | | | $ | 1,621 | |
Deposits | | 3 | | | 152 | | | 246 | |
Policy charges | | (8) | | | (8) | | | (1) | |
Surrenders and withdrawals | | (4) | | | (296) | | | (15) | |
Benefit payments | | (27) | | | (115) | | | (6) | |
Interest credited | | 16 | | | 153 | | | 6 | |
Foreign currency translation | | — | | | — | | | 13 | |
Balance, end of period | | $ | 1,699 | | | $ | 18,644 | | | $ | 1,864 | |
Less: reinsurance recoverable | | — | | | (1,552) | | | — | |
Balance, end of period, after reinsurance | | $ | 1,699 | | | $ | 17,092 | | | $ | 1,864 | |
| | | | | | |
Weighted-average crediting rate | | 4.0 | % | | 3.2 | % | | 1.4 | % |
Net amount at risk | | $ | 728 | | | $ | 2,561 | | | $ | — | |
Cash surrender value | | $ | 1,688 | | | $ | 18,552 | | | $ | 1,636 | |
Information regarding the Company’s policyholder account balances as of March 31, 2023 and 2022 is as follows (dollars in millions):
| | | | | | | | | | | | | | |
| | March 31, |
| | 2023 | | 2022 |
Policyholder account balances included in the rollforwards: | | | | |
Traditional: | | | | |
U.S. and Latin America | | $ | 1,646 | | | $ | 1,699 | |
Financial Solutions: | | | | |
U.S. and Latin America | | 18,437 | | | 18,644 | |
Asia Pacific | | 3,758 | | | 1,864 | |
Other policyholder account balances | | | | |
U.S. and Latin America – Financial Solutions | | 70 | | | 49 | |
Total policyholder account balances | | $ | 23,911 | | | $ | 22,256 | |
The balance of account values by range of guaranteed minimum crediting rates and the related range of difference, in basis points, between rates being credited to policyholders and the respective guaranteed minimums as of March 31, 2023 and 2022 is as follows (dollars in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2023 |
| | Range of Guaranteed Minimum Crediting Rate | | At Guaranteed Minimum | | 1 Basis Point – 50 Basis Points Above | | 51 Basis Points – 150 Basis Points Above | | Greater Than 150 Basis Points Above | | Total |
| | | | | | | | | | | | |
U.S. and Latin America – Traditional | | Less than 1.00% | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| | 1.00 – 1.99% | | — | | | — | | | — | | | — | | | — | |
| | 2.00 – 2.99% | | — | | | — | | | — | | | — | | | — | |
| | 3.00 – 3.99% | | — | | | — | | | — | | | — | | | — | |
| | 4.00% and Greater | | 1,646 | | | — | | | — | | | — | | | 1,646 | |
| | Total | | $ | 1,646 | | | $ | — | | | $ | — | | | $ | — | | | $ | 1,646 | |
| | | | | | | | | | | | |
U.S. and Latin America – Financial Solutions | | Less than 1.00% | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| | 1.00 – 1.99% | | 1,844 | | | 14 | | | 97 | | | 40 | | | 1,995 | |
| | 2.00 – 2.99% | | 1,831 | | | 9 | | | 727 | | | 14 | | | 2,581 | |
| | 3.00 – 3.99% | | 4,718 | | | 240 | | | 79 | | | 1 | | | 5,038 | |
| | 4.00% and Greater | | 8,773 | | | 50 | | | — | | | — | | | 8,823 | |
| | Total | | $ | 17,166 | | | $ | 313 | | | $ | 903 | | | $ | 55 | | | $ | 18,437 | |
| | | | | | | | | | | | |
Asia Pacific – Financial Solutions | | Less than 1.00% | | $ | 291 | | | $ | — | | | $ | — | | | $ | — | | | $ | 291 | |
| | 1.00 – 1.99% | | 717 | | | — | | | — | | | — | | | 717 | |
| | 2.00 – 2.99% | | 804 | | | — | | | — | | | — | | | 804 | |
| | 3.00 – 3.99% | | 1,225 | | | — | | | — | | | — | | | 1,225 | |
| | 4.00% and Greater | | 721 | | | — | | | — | | | — | | | 721 | |
| | Total | | $ | 3,758 | | | $ | — | | | $ | — | | | $ | — | | | $ | 3,758 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2022 |
| | Range of Guaranteed Minimum Crediting Rate | | At Guaranteed Minimum | | 1 Basis Point – 50 Basis Points Above | | 51 Basis Points – 150 Basis Points Above | | Greater Than 150 Basis Points Above | | Total |
| | | | | | | | | | | | |
U.S. and Latin America – Traditional | | Less than 1.00% | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| | 1.00 – 1.99% | | — | | | — | | | — | | | — | | | — | |
| | 2.00 – 2.99% | | — | | | — | | | — | | | — | | | — | |
| | 3.00 – 3.99% | | — | | | — | | | — | | | — | | | — | |
| | 4.00% and Greater | | 1,699 | | | — | | | — | | | — | | | 1,699 | |
| | Total | | $ | 1,699 | | | $ | — | | | $ | — | | | $ | — | | | $ | 1,699 | |
| | | | | | | | | | | | |
U.S. and Latin America – Financial Solutions | | Less than 1.00% | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| | 1.00 – 1.99% | | 1,995 | | | 16 | | | 85 | | | 57 | | | 2,153 | |
| | 2.00 – 2.99% | | 2,140 | | | 6 | | | 788 | | | — | | | 2,934 | |
| | 3.00 – 3.99% | | 4,782 | | | 258 | | | 60 | | | — | | | 5,100 | |
| | 4.00% and Greater | | 8,403 | | | 54 | | | — | | | — | | | 8,457 | |
| | Total | | $ | 17,320 | | | $ | 334 | | | $ | 933 | | | $ | 57 | | | $ | 18,644 | |
| | | | | | | | | | | | |
Asia Pacific – Financial Solutions | | Less than 1.00% | | $ | 651 | | | $ | — | | | $ | — | | | $ | — | | | $ | 651 | |
| | 1.00 – 1.99% | | 954 | | | — | | | — | | | — | | | 954 | |
| | 2.00 – 2.99% | | 10 | | | — | | | — | | | — | | | 10 | |
| | 3.00 – 3.99% | | 240 | | | — | | | — | | | — | | | 240 | |
| | 4.00% and Greater | | 9 | | | — | | | — | | | — | | | 9 | |
| | Total | | $ | 1,864 | | | $ | — | | | $ | — | | | $ | — | | | $ | 1,864 | |
NOTE 7 UNPAID CLAIMS AND CLAIM EXPENSE – SHORT-DURATION CONTRACTS
Rollforward of Claims and Claim Adjustment Expenses
The liability for unpaid claims for short-duration contracts is reported in other policy claims and benefits on the Company’s condensed consolidated balance sheets. Activity associated with unpaid claims is summarized below (dollars in millions):
| | | | | | | | | | | | | | |
| | Three months ended March 31, |
| | 2023 | | 2022 |
Balance, beginning of year | | $ | 2,480 | | | $ | 2,110 | |
Less: reinsurance recoverable | | (57) | | | (81) | |
Net balance, beginning of year | | 2,423 | | | 2,029 | |
Incurred: | | | | |
Current year | | 363 | | | 726 | |
Prior years | | (25) | | | (51) | |
Total incurred | | 338 | | | 675 | |
Payments: | | | | |
Current year | | (23) | | | (25) | |
Prior years | | (249) | | | (260) | |
Total payments | | (272) | | | (285) | |
Other changes: | | | | |
Interest accretion | | 8 | | | 8 | |
Foreign exchange adjustments | | (6) | | | 36 | |
Total other changes | | 2 | | | 44 | |
| | | | |
Net balance, end of period | | 2,491 | | | 2,463 | |
Plus: reinsurance recoverable | | 67 | | | 94 | |
Balance, end of period | | $ | 2,558 | | | $ | 2,557 | |
Incurred claims associated with prior periods are primarily due to the development of short-duration business claims for prior years being different than were anticipated when the liabilities for unpaid claims were originally estimated. These trends have been considered in establishing the current year liability for unpaid claims.
NOTE 8 MARKET RISK BENEFITS
The following table provides the balances of and changes in the Company’s market risk benefits for the three months ended March 31, 2023 and 2022 (dollars in millions):
| | | | | | | | | | | | | | |
| | U.S. and Latin America – Financial Solutions |
| | Three months ended March 31, |
| | 2023 | | 2022 |
Balance, beginning of year | | $ | 247 | | | $ | 262 | |
Balance, beginning of year, before effect of changes in the instrument-specific credit risk | | 263 | | | 254 | |
Interest accrual | | 4 | | | — | |
Attributed fees collected | | 6 | | | 7 | |
Benefit payments | | — | | | (5) | |
| | | | |
Effect of changes in interest rates | | 21 | | | (61) | |
Effect of changes in equity markets | | (17) | | | 13 | |
Effect of changes in volatility | | (5) | | | 3 | |
Other market impacts | | — | | | 2 | |
Actual policyholder behavior different from expected behavior | | 5 | | | 6 | |
Balance, end of period, before effect of changes in the instrument-specific credit risk | | 277 | | | 219 | |
Effect of changes in the instrument-specific credit risk | | (18) | | | 14 | |
Balance, end of period | | 259 | | | 233 | |
Less: reinsurance recoverable | | — | | | — | |
Balance, end of period, after reinsurance | | $ | 259 | | | $ | 233 | |
| | | | |
Net amount at risk | | $ | 1,428 | | | $ | 1,220 | |
Weighted-average attained age of contract holders (in years) | | 71 | | 68 |
The reconciliation of the rollforward for market risk benefits to the condensed consolidated balance sheets as of March 31, 2023 and 2022 is as follows (dollars in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, | | March 31, |
| | 2023 | | 2022 |
| | Asset (1) | | Liability | | Net | | Asset (1) | | Liability | | Net |
U.S. and Latin America – Financial Solutions | | $ | 2 | | | $ | 261 | | | $ | (259) | | | $ | — | | | $ | 233 | | | $ | (233) | |
Total market risk benefits | | $ | 2 | | | $ | 261 | | | $ | (259) | | | $ | — | | | $ | 233 | | | $ | (233) | |
(1)Included in Other assets
Fair Value Measurement
See Note 13 – “Fair Value of Assets and Liabilities” for information about fair value measurement of assets and liabilities, except for market risk benefits.
Market risk benefits are classified within Level 3 on the fair value hierarchy. The fair value of market risk benefits is monitored through the use of attribution reports to quantify the effect of underlying sources of fair value change, including capital market inputs based on policyholder account values, interest rates and short-term and long-term implied volatilities from period to period.
During the three months ended March 31, 2023 and 2022, there were no material changes made to the inputs in the market risk benefit calculations, and nonfinancial assumptions were unchanged.
NOTE 9 DEFERRED POLICY ACQUISITION COSTS
The following tables provide the balances of and changes in deferred policy acquisition costs for the Company’s Traditional business for the three months ended March 31, 2023 and 2022 (dollars in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Three months ended March 31, 2023: | | U.S. and Latin America – Traditional | | Canada – Traditional | | Europe, Middle East and Africa – Traditional | | Asia Pacific – Traditional |
Balance, beginning of year | | $ | 2,087 | | | $ | 171 | | | $ | 294 | | | $ | 1,043 | |
Capitalization | | 57 | | | 3 | | | 25 | | | 19 | |
Amortization expense | | (35) | | | (3) | | | (10) | | | (15) | |
Foreign currency translation | | — | | | — | | | — | | | (3) | |
Balance, end of period | | $ | 2,109 | | | $ | 171 | | | $ | 309 | | | $ | 1,044 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Three months ended March 31, 2022: | | U.S. and Latin America – Traditional | | Canada – Traditional | | Europe, Middle East and Africa – Traditional | | Asia Pacific – Traditional |
Balance, beginning of year | | $ | 1,947 | | | $ | 191 | | | $ | 270 | | | $ | 1,056 | |
Capitalization | | 70 | | | 2 | | | 15 | | | 34 | |
Amortization expense | | (36) | | | (3) | | | (11) | | | (23) | |
Foreign currency translation | | — | | | 2 | | | 4 | | | (6) | |
Balance, end of period | | $ | 1,981 | | | $ | 192 | | | $ | 278 | | | $ | 1,061 | |
The following tables provide the balances of and changes in deferred policy acquisition costs for the Company’s Financial Solutions business for the three months ended March 31, 2023 and 2022 (dollars in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Three months ended March 31, 2023: | | U.S. and Latin America – Financial Solutions | | Canada – Financial Solutions | | Europe, Middle East and Africa – Financial Solutions | | Asia Pacific – Financial Solutions |
Balance, beginning of year | | $ | 341 | | | $ | — | | | $ | — | | | $ | 188 | |
Capitalization | | — | | | — | | | — | | | 108 | |
Amortization expense | | (11) | | | — | | | — | | | (6) | |
Foreign currency translation | | — | | | — | | | — | | | (1) | |
Balance, end of period | | $ | 330 | | | $ | — | | | $ | — | | | $ | 289 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Three months ended March 31, 2022: | | U.S. and Latin America – Financial Solutions | | Canada – Financial Solutions | | Europe, Middle East and Africa – Financial Solutions | | Asia Pacific – Financial Solutions |
Balance, beginning of year | | $ | 312 | | | $ | — | | | $ | — | | | $ | 81 | |
Capitalization | | 6 | | | — | | | — | | | 13 | |
Amortization expense | | (20) | | | — | | | — | | | (3) | |
Foreign currency translation | | — | | | — | | | — | | | — | |
Balance, end of period | | $ | 298 | | | $ | — | | | $ | — | | | $ | 91 | |
The reconciliation of deferred policy acquisition costs to the condensed consolidated balance sheets as of March 31, 2023 and 2022 is as follows (dollars in millions):
| | | | | | | | | | | | | | |
| | March 31, |
| | 2023 | | 2022 |
Deferred policy acquisition costs included in the rollforwards: | | | | |
Traditional: | | | | |
U.S. and Latin America | | $ | 2,109 | | | $ | 1,981 | |
Canada | | 171 | | | 192 | |
Europe, Middle East and Africa | | 309 | | | 278 | |
Asia Pacific | | 1,044 | | | 1,061 | |
Financial Solutions: | | | | |
U.S. and Latin America | | 330 | | | 298 | |
Canada | | — | | | — | |
Europe, Middle East and Africa | | — | | | — | |
Asia Pacific | | 289 | | | 91 | |
Other long-duration business: | | | | |
Corporate and Other | | 5 | | | 5 | |
Total deferred policy acquisition costs | | $ | 4,257 | | | $ | 3,906 | |
NOTE 10 REINSURANCE CEDED RECEIVABLES AND OTHER
Retrocession reinsurance treaties do not relieve the Company from its obligations to direct writing companies. Failure of retrocessionaires to honor their obligations could result in losses to the Company. Consequently, allowances would be established for amounts deemed uncollectible. The Company regularly evaluates the financial condition of the insurance companies from which it assumes and to which it cedes reinsurance. At March 31, 2023 and December 31, 2022, no allowances were deemed necessary.
Two major reinsurance companies account for approximately 76% of reinsurance ceded receivables and other as of March 31, 2023. Retrocessions are arranged through the Company’s retrocession pools for amounts in excess of the Company’s retention limit. As of March 31, 2023, all rated retrocession pool participants followed by the A.M. Best Company were rated “A- (excellent)” or better. The Company verifies retrocession pool participants’ ratings on a quarterly basis. For a majority of the retrocessionaires that were not rated, security in the form of letters of credit or trust assets have been posted. In addition, the Company performs annual financial reviews of its retrocessionaires to evaluate financial stability and performance.
Included in the total reinsurance ceded receivables and other balance are $183 million and $183 million of claims recoverable, of which $17 million and $16 million were in excess of 90 days past due, as of March 31, 2023 and December 31, 2022, respectively. Also included in the total reinsurance ceded receivable and other is a deposit asset on reinsurance of $1.6 billion and $1.6 billion as of March 31, 2023 and December 31, 2022, respectively.
NOTE 11 INVESTMENTS
Fixed Maturity Securities Available-for-Sale
The Company holds various types of fixed maturity securities available-for-sale and classifies them as corporate securities (“Corporate”), Canadian and Canadian provincial government securities (“Canadian government”), Japanese government and agencies (“Japanese government”), asset-backed securities (“ABS”), commercial mortgage-backed securities (“CMBS”), residential mortgage-backed securities (“RMBS”), U.S. government and agencies (“U.S. government”), state and political subdivisions, and other foreign government, supranational and foreign government-sponsored enterprises (“Other foreign government”). ABS, CMBS and RMBS are collectively “structured securities.”
The following tables provide information relating to investments in fixed maturity securities by type as of March 31, 2023 and December 31, 2022 (dollars in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
March 31, 2023: | | Amortized | | Allowance for | | Unrealized | | Unrealized | | Estimated Fair | | % of | | |
| | Cost | | Credit Losses | | Gains | | Losses | | Value | | Total | | |
Available-for-sale: | | | | | | | | | | | | | | |
Corporate | | $ | 39,621 | | | $ | 69 | | | $ | 255 | | | $ | 4,330 | | | $ | 35,477 | | | 63.3 | % | | |
Canadian government | | 3,345 | | | — | | | 455 | | | 45 | | | 3,755 | | | 6.7 | | | |
Japanese government | | 3,749 | | | — | | | 9 | | | 315 | | | 3,443 | | | 6.1 | | | |
ABS | | 4,470 | | | 10 | | | 8 | | | 365 | | | 4,103 | | | 7.3 | | | |
CMBS | | 1,882 | | | — | | | — | | | 212 | | | 1,670 | | | 3.0 | | | |
RMBS | | 1,120 | | | — | | | 2 | | | 98 | | | 1,024 | | | 1.8 | | | |
U.S. government | | 1,923 | | | — | | | 6 | | | 184 | | | 1,745 | | | 3.1 | | | |
State and political subdivisions | | 1,261 | | | — | | | 9 | | | 132 | | | 1,138 | | | 2.0 | | | |
Other foreign government | | 4,123 | | | — | | | 31 | | | 424 | | | 3,730 | | | 6.7 | | | |
Total fixed maturity securities | | $ | 61,494 | | | $ | 79 | | | $ | 775 | | | $ | 6,105 | | | $ | 56,085 | | | 100.0 | % | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
December 31, 2022: | | Amortized | | Allowance for | | Unrealized | | Unrealized | | Estimated Fair | | % of |
| | Cost | | Credit Losses | | Gains | | Losses | | Value | | Total |
Available-for-sale: | | | | | | | | | | | | |
Corporate | | $ | 38,963 | | | $ | 27 | | | $ | 168 | | | $ | 5,135 | | | $ | 33,969 | | | 64.2 | % |
Canadian government | | 3,311 | | | — | | | 381 | | | 66 | | | 3,626 | | | 6.9 | |
Japanese government | | 3,033 | | | — | | | 4 | | | 478 | | | 2,559 | | | 4.8 | |
ABS | | 4,324 | | | 10 | | | 4 | | | 440 | | | 3,878 | | | 7.3 | |
CMBS | | 1,835 | | | — | | | — | | | 212 | | | 1,623 | | | 3.1 | |
RMBS | | 1,054 | | | — | | | 1 | | | 114 | | | 941 | | | 1.8 | |
U.S. government | | 1,690 | | | — | | | 4 | | | 212 | | | 1,482 | | | 2.8 | |
State and political subdivisions | | 1,282 | | | — | | | 10 | | | 173 | | | 1,119 | | | 2.1 | |
Other foreign government | | 4,171 | | | — | | | 22 | | | 489 | | | 3,704 | | | 7.0 | |
Total fixed maturity securities | | $ | 59,663 | | | $ | 37 | | | $ | 594 | | | $ | 7,319 | | | $ | 52,901 | | | 100.0 | % |
The Company enters into various collateral arrangements with counterparties that require both the pledging and acceptance of fixed maturity securities as collateral. Pledged fixed maturity securities are included in fixed maturity securities available-for-sale in the condensed consolidated balance sheets. Fixed maturity securities received as collateral are held in separate custodial accounts and are not recorded on the Company’s condensed consolidated balance sheets. Subject to certain constraints, the Company is permitted by contract to sell or repledge collateral it receives; however, as of March 31, 2023 and December 31, 2022, none of the collateral received had been sold or repledged. The Company also holds assets in trust to satisfy collateral requirements under derivative transactions and certain third-party reinsurance treaties. The following table includes fixed maturity securities pledged and received as collateral and assets in trust held to satisfy collateral requirements under derivative transactions and certain third-party reinsurance treaties as of March 31, 2023 and December 31, 2022 (dollars in millions):
| | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2023 | | December 31, 2022 |
| Amortized Cost | | Estimated Fair Value | | Amortized Cost | | Estimated Fair Value |
Fixed maturity securities pledged as collateral | $ | 414 | | | $ | 366 | | | $ | 355 | | | $ | 292 | |
Fixed maturity securities received as collateral | n/a | | 1,506 | | | n/a | | 1,428 | |
Assets in trust held to satisfy collateral requirements | 31,586 | | | 28,622 | | | 31,510 | | | 27,817 | |
The Company monitors its concentrations of financial instruments on an ongoing basis and mitigates credit risk by maintaining a diversified investment portfolio that limits exposure to any one issuer. The Company’s exposure to concentrations of credit risk from single issuers greater than 10% of the Company’s equity included securities of the U.S. government and its agencies and the Japanese government and its agencies, as well as the securities disclosed below, as of March 31, 2023 and December 31, 2022 (dollars in millions).
| | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2023 | | December 31, 2022 |
| Amortized Cost | | Estimated Fair Value | | Amortized Cost | | Estimated Fair Value |
Fixed maturity securities guaranteed or issued by: | | | | | | | |
| | | | | | | |
Canadian province of Quebec | $ | 1,388 | | | $ | 1,642 | | | $ | 1,436 | | | $ | 1,649 | |
Canadian province of Ontario | 1,033 | | | 1,146 | | | 982 | | | 1,068 | |
The amortized cost and estimated fair value of fixed maturity securities classified as available-for-sale as of March 31, 2023, are shown by contractual maturity in the table below (dollars in millions). Actual maturities can differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Structured securities are shown separately in the table below, as they are not due at a single maturity date.
| | | | | | | | | | | | | | |
| | Amortized Cost | | Estimated Fair Value |
Available-for-sale: | | | | |
Due in one year or less | | $ | 1,899 | | | $ | 1,849 | |
Due after one year through five years | | 10,092 | | | 9,879 | |
Due after five years through ten years | | 11,375 | | | 10,513 | |
Due after ten years | | 30,656 | | | 27,047 | |
Structured securities | | 7,472 | | | 6,797 | |
Total | | $ | 61,494 | | | $ | 56,085 | |
Corporate Fixed Maturity Securities
The tables below show the major sectors of the Company’s corporate fixed maturity holdings as of March 31, 2023 and December 31, 2022 (dollars in millions):
| | | | | | | | | | | | | | | | | | | | |
March 31, 2023: | | | | Estimated | | |
| | Amortized Cost | | Fair Value | | % of Total |
Finance | | $ | 14,732 | | | $ | 13,043 | | | 36.8 | % |
Industrial | | 19,945 | | | 18,108 | | | 51.0 | |
Utility | | 4,944 | | | 4,326 | | | 12.2 | |
| | | | | | |
Total | | $ | 39,621 | | | $ | 35,477 | | | 100.0 | % |
| | | | | | |
December 31, 2022: | | | | Estimated | | |
| | Amortized Cost | | Fair Value | | % of Total |
Finance | | $ | 14,551 | | | $ | 12,680 | | | 37.3 | % |
Industrial | | 19,624 | | | 17,257 | | | 50.8 | |
Utility | | 4,788 | | | 4,032 | | | 11.9 | |
Total | | $ | 38,963 | | | $ | 33,969 | | | 100.0 | % |
Allowance for Credit Losses and Impairments – Fixed Maturity Securities Available-for-Sale
As discussed in Note 2 – “Significant Accounting Policies and Pronouncements” of the Company’s 2022 Annual Report, allowances for credit losses on fixed maturity securities are recognized in investment related gains (losses), net. The amount recognized represents the difference between the amortized cost of the security and the net present value of its projected future cash flows discounted at the effective interest rate implicit in the fixed maturity security prior to the allowance for credit losses. Any remaining difference between the fair value and amortized cost is recognized in OCI.
The following tables present the rollforward of the allowance for credit losses in fixed maturity securities by type for the three months ended March 31, 2023 and 2022 (dollars in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
For the three months ended March 31, 2023: | |
| Corporate | | ABS | | CMBS | | Other Foreign Government | | | | Total |
Balance, beginning of year | $ | 27 | | | $ | 10 | | | $ | — | | | $ | — | | | | | $ | 37 | |
Credit losses recognized on securities for which credit losses were not previously recorded | 43 | | | — | | | — | | | — | | | | | 43 | |
Reductions for securities sold during the period | (3) | | | — | | | — | | | — | | | | | (3) | |
Additional increases or decreases for credit losses on securities that had an allowance recorded in a previous period | 2 | | | — | | | — | | | — | | | | | 2 | |
Balance, end of period | $ | 69 | | | $ | 10 | | | $ | — | | | $ | — | | | | | $ | 79 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
For the three months ended March 31, 2022: | |
| Corporate | | ABS | | CMBS | | Other Foreign Government | | Total |
Balance, beginning of year | $ | 26 | | | $ | — | | | $ | 1 | | | $ | 4 | | | $ | 31 | |
Credit losses recognized on securities for which credit losses were not previously recorded | 6 | | | 5 | | | — | | | — | | | 11 | |
| | | | | | | | | |
Reductions for securities sold during the period | (1) | | | — | | | — | | | (1) | | | (2) | |
| | | | | | | | | |
Additional increases or decreases for credit losses on securities that had an allowance recorded in a previous period | 2 | | | — | | | — | | | — | | | 2 | |
| | | | | | | | | |
| | | | | | | | | |
Balance, end of period | $ | 33 | | | $ | 5 | | | $ | 1 | | | $ | 3 | | | $ | 42 | |
Unrealized Losses for Fixed Maturity Securities Available-for-Sale
The Company’s determination of whether a decline in value necessitates the recording of an allowance for credit losses includes an analysis of whether the issuer is current on its contractual payments, evaluating whether it is probable that the Company will be able to collect all amounts due according to the contractual terms of the security and analyzing the overall ability of the Company to recover the amortized cost of the investment.
The following tables present the estimated fair values and gross unrealized losses for the 6,228 and 6,441 fixed maturity securities for which an allowance for credit loss has not been recorded as of March 31, 2023 and December 31, 2022, and the estimated fair value had declined and remained below amortized cost (dollars in millions). These investments are presented by class and grade of security, as well as the length of time the related fair value has continuously remained below amortized cost.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Less than 12 months | | 12 months or greater | | Total |
| | | | Gross | | | | Gross | | | | Gross |
March 31, 2023: | | Estimated | | Unrealized | | Estimated | | Unrealized | | Estimated | | Unrealized |
| | Fair Value | | Losses | | Fair Value | | Losses | | Fair Value | | Losses |
Investment grade securities: | | | | | | | | | | | | |
Corporate | | $ | 9,861 | | | $ | 486 | | | $ | 18,130 | | | $ | 3,705 | | | $ | 27,991 | | | $ | 4,191 | |
Canadian government | | 395 | | | 15 | | | 165 | | | 30 | | | 560 | | | 45 | |
Japanese government | | 379 | | | 4 | | | 2,291 | | | 311 | | | 2,670 | | | 315 | |
ABS | | 811 | | | 38 | | | 2,777 | | | 311 | | | 3,588 | | | 349 | |
CMBS | | 341 | | | 20 | | | 1,271 | | | 188 | | | 1,612 | | | 208 | |
RMBS | | 332 | | | 16 | | | 513 | | | 82 | | | 845 | | | 98 | |
U.S. government | | 909 | | | 5 | | | 606 | | | 179 | | | 1,515 | | | 184 | |
State and political subdivisions | | 350 | | | 10 | | | 635 | | | 122 | | | 985 | | | 132 | |
Other foreign government | | 1,073 | | | 38 | | | 1,763 | | | 325 | | | 2,836 | | | 363 | |
Total investment grade securities | | 14,451 | | | 632 | | | 28,151 | | | 5,253 | | | 42,602 | | | 5,885 | |
Below investment grade securities: | | | | | | | | | | | | |
Corporate | | 550 | | | 58 | | | 546 | | | 79 | | | 1,096 | | | $ | 137 | |
| | | | | | | | | | | | |
ABS | | 45 | | | 3 | | | 46 | | | 10 | | | 91 | | | 13 | |
| | | | | | | | | | | | |
Other foreign government | | — | | | — | | | 187 | | | 61 | | | 187 | | | 61 | |
Total below investment grade securities | | 595 | | | 61 | | | 779 | | | 150 | | | 1,374 | | | 211 | |
Total fixed maturity securities | | $ | 15,046 | | | $ | 693 | | | $ | 28,930 | | | $ | 5,403 | | | $ | 43,976 | | | $ | 6,096 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Less than 12 months | | 12 months or greater | | Total |
| | | | Gross | | | | Gross | | | | Gross |
December 31, 2022: | | Estimated | | Unrealized | | Estimated | | Unrealized | | Estimated | | Unrealized |
| | Fair Value | | Losses | | Fair Value | | Losses | | Fair Value | | Losses |
Investment grade securities: | | | | | | | | | | | | |
Corporate | | $ | 21,867 | | | $ | 2,756 | | | $ | 6,840 | | | $ | 2,225 | | | $ | 28,707 | | | $ | 4,981 | |
Canadian government | | 554 | | | 42 | | | 71 | | | 23 | | | 625 | | | 65 | |
Japanese government | | 815 | | | 86 | | | 1,694 | | | 392 | | | 2,509 | | | 478 | |
ABS | | 1,596 | | | 153 | | | 1,931 | | | 269 | | | 3,527 | | | 422 | |
CMBS | | 1,314 | | | 144 | | | 281 | | | 65 | | | 1,595 | | | 209 | |
RMBS | | 664 | | | 62 | | | 181 | | | 53 | | | 845 | | | 115 | |
U.S. government | | 1,202 | | | 64 | | | 253 | | | 148 | | | 1,455 | | | 212 | |
State and political subdivisions | | 819 | | | 124 | | | 131 | | | 50 | | | 950 | | | 174 | |
Other foreign government | | 1,942 | | | 167 | | | 1,026 | | | 260 | | | 2,968 | | | 427 | |
Total investment grade securities | | 30,773 | | | 3,598 | | | 12,408 | | | 3,485 | | | 43,181 | | | 7,083 | |
Below investment grade securities: | | | | | | | | | | | | |
Corporate | | 767 | | | 87 | | | 305 | | | 61 | | | 1,072 | | | 148 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
ABS | | 52 | | | 6 | | | 38 | | | 9 | | | 90 | | | 15 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Other foreign government | | 39 | | | 2 | | | 164 | | | 60 | | | 203 | | | 62 | |
Total below investment grade securities | | 858 | | | 95 | | | 507 | | | 130 | | | 1,365 | | | 225 | |
Total fixed maturity securities | | $ | 31,631 | | | $ | 3,693 | | | $ | 12,915 | | | $ | 3,615 | | | $ | 44,546 | | | $ | 7,308 | |
The Company has no intention to sell, nor does it expect to be required to sell, the securities outlined in the tables above, as of the dates indicated. However, unforeseen facts and circumstances may cause the Company to sell fixed maturity securities in the ordinary course of managing its portfolio to meet certain diversification, credit quality and liquidity guidelines. Changes in unrealized losses are primarily driven by changes in risk-free interest rates and credit spreads.
Net Investment Income
Major categories of net investment income consist of the following (dollars in millions):
| | | | | | | | | | | | | | | | |
| | | | Three months ended March 31, |
| | | | | | 2023 | | 2022 |
Fixed maturity securities available-for-sale | | | | | | $ | 645 | | | $ | 533 | |
Equity securities | | | | | | 2 | | | 2 | |
Mortgage loans | | | | | | 74 | | | 73 | |
Policy loans | | | | | | 13 | | | 13 | |
Funds withheld at interest | | | | | | 72 | | | 51 | |
Limited partnerships and real estate joint ventures | | | | | | 54 | | | 161 | |
Short-term investments and cash and cash equivalents | | | | | | 21 | | | 2 | |
| | | | | | | | |
Other invested assets | | | | | | 9 | | | 2 | |
Investment income | | | | | | 890 | | | 837 | |
Investment expense | | | | | | (34) | | | (27) | |
Net investment income | | | | | | $ | 856 | | | $ | 810 | |
Investment Related Gains (Losses), Net
Investment related gains (losses), net consist of the following (dollars in millions):
| | | | | | | | | | | | | | | |
| | | Three months ended March 31, |
| | | | | 2023 | | 2022 |
Fixed maturity securities available-for-sale: | | | | | | | |
Change in allowance for credit losses | | | | | $ | (42) | | | $ | (11) | |
Impairments on fixed maturities | | | | | (1) | | | (1) | |
Realized gains on investment activity | | | | | 31 | | | 11 | |
Realized losses on investment activity | | | | | (75) | | | (36) | |
Net gains (losses) on equity securities | | | | | 2 | | | (8) | |
Change in mortgage loan allowance for credit losses | | | | | 3 | | | (2) | |
Change in fair value of certain limited partnership investments | | | | | (3) | | | 19 | |
Other, net | | | | | 2 | | | 8 | |
Net gains (losses) on derivatives | | | | | 6 | | | (119) | |
Total investment related gains (losses), net | | | | | $ | (77) | | | $ | (139) | |
Securities Borrowing, Lending and Repurchase/Reverse Repurchase Agreements
The following table provides information relating to securities borrowing, lending and repurchase/reverse repurchase agreements as of March 31, 2023 and December 31, 2022 (dollars in millions):
| | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2023 | | December 31, 2022 |
| Amortized Cost | | Estimated Fair Value | | Amortized Cost | | Estimated Fair Value |
Securities borrowing agreements: | | | | | | | |
Securities borrowed (1) | n/a | | $ | 930 | | | n/a | | $ | 852 | |
Securities pledged as collateral (2) | 922 | | | 804 | | | 859 | | | 693 | |
Securities lending agreements: | | | | | | | |
Securities loaned (2) | 60 | | | 56 | | | 59 | | | 55 | |
Securities received as collateral (3) | n/a | | 66 | | | n/a | | 66 | |
Repurchase/reverse repurchase agreements: | | | | | | | |
Securities sold (2) | 1,071 | | | 964 | | | 898 | | | 779 | |
| | | | | | | |
Securities purchased (3) | n/a | | 629 | | | n/a | | 619 | |
Cash received (4) | 248 | | | 248 | | | 149 | | | 149 | |
(1)Securities borrowed are not reflected on the condensed consolidated balance sheets. Collateral associated with certain borrowed securities is not included within this table as the collateral pledged to the counterparty is the right to reinsurance treaty cash flows.
(2)Securities loaned, pledged or sold to counterparties are included within fixed maturity securities.
(3)Securities received as collateral or purchased from counterparties are not reflected on the condensed consolidated financial statements.
(4)A payable for the cash received by the Company is included within other liabilities.
The following tables present information on the remaining contractual maturity of the Company’s securities lending and repurchase agreements as of March 31, 2023 and December 31, 2022 (dollars in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2023 |
| Remaining Contractual Maturity of the Agreements |
| Overnight and Continuous | | Up to 30 Days | | 30 – 90 Days | | Greater than 90 Days | | Total |
Securities lending agreements: | | | | | | | | | |
Corporate | $ | — | | | $ | — | | | $ | — | | | $ | 40 | | | $ | 40 | |
Canadian government | — | | | — | | | — | | | 5 | | | 5 | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
State and political subdivisions | — | | | — | | | — | | | 6 | | | 6 | |
Other foreign government | — | | | — | | | — | | | 5 | | | 5 | |
Total | — | | | — | | | — | | | 56 | | | 56 | |
Repurchase agreements: | | | | | | | | | |
Corporate | — | | | — | | | — | | | 342 | | | 342 | |
| | | | | | | | | |
Japanese government | — | | | — | | | — | | | 290 | | | 290 | |
ABS | — | | | — | | | — | | | 57 | | | 57 | |
CMBS | — | | | — | | | — | | | 111 | | | 111 | |
RMBS | — | | | — | | | — | | | 53 | | | 53 | |
U.S. government | — | | | — | | | — | | | 13 | | | 13 | |
| | | | | | | | | |
Other foreign government | — | | | — | | | — | | | 98 | | | 98 | |
Total | — | | | — | | | — | | | 964 | | | 964 | |
Total agreements | $ | — | | | $ | — | | | $ | — | | | $ | 1,020 | | | $ | 1,020 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2022 |
| Remaining Contractual Maturity of the Agreements |
| Overnight and Continuous | | Up to 30 Days | | 30 – 90 Days | | Greater than 90 Days | | Total |
Securities lending agreements: | | | | | | | | | |
Corporate | $ | — | | | $ | — | | | $ | — | | | $ | 42 | | | $ | 42 | |
Canadian government | — | | | — | | | — | | | 5 | | | 5 | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
State and political subdivisions | — | | | — | | | — | | | 3 | | | 3 | |
Other foreign government | — | | | — | | | — | | | 5 | | | 5 | |
Total | — | | | — | | | — | | | 55 | | | 55 | |
Repurchase agreements: | | | | | | | | | |
Corporate | — | | | — | | | — | | | 279 | | | 279 | |
| | | | | | | | | |
Japanese government | — | | | — | | | — | | | 278 | | | 278 | |
ABS | — | | | — | | | — | | | 54 | | | 54 | |
CMBS | — | | | — | | | — | | | 63 | | | 63 | |
RMBS | — | | | — | | | — | | | 10 | | | 10 | |
U.S. government | — | | | — | | | — | | | — | | | — | |
| | | | | | | | | |
Other foreign government | — | | | — | | | — | | | 95 | | | 95 | |
Total | — | | | — | | | — | | | 779 | | | 779 | |
Total agreements | $ | — | | | $ | — | | | $ | — | | | $ | 834 | | | $ | 834 | |
Mortgage Loans
As of March 31, 2023, mortgage loans were geographically dispersed throughout the U.S. with the largest concentrations in California (12.8%), Texas (12.0%) and Washington (8.0%), in addition to loans secured by properties in Canada (3.5%) and the United Kingdom (2.3%). The recorded investment in mortgage loans presented below is gross of unamortized deferred loan origination fees and expenses and allowance for credit losses.
The following table presents the distribution of the Company’s recorded investment in mortgage loans by property type as of March 31, 2023 and December 31, 2022 (dollars in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2023 | | December 31, 2022 |
Property type: | | Carrying Value | | % of Total | | Carrying Value | | % of Total |
Office | | $ | 1,710 | | | 24.8 | % | | $ | 1,706 | | | 25.6 | % |
Retail | | 2,319 | | | 33.6 | | | 2,290 | | | 34.4 | |
Industrial | | 1,602 | | | 23.3 | | | 1,518 | | | 22.8 | |
Apartment | | 835 | | | 12.1 | | | 763 | | | 11.5 | |
Other commercial | | 429 | | | 6.2 | | | 376 | | | 5.7 | |
Recorded investment | | 6,895 | | | 100.0 | % | | 6,653 | | | 100.0 | % |
Unamortized balance of loan origination fees and expenses | | (14) | | | | | (12) | | | |
Allowance for credit losses | | (48) | | | | | (51) | | | |
Total mortgage loans | | $ | 6,833 | | | | | $ | 6,590 | | | |
The following table presents the maturities of the Company’s recorded investment in mortgage loans as of March 31, 2023 and December 31, 2022 (dollars in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2023 | | December 31, 2022 |
| | Recorded Investment | | % of Total | | Recorded Investment | | % of Total |
Due within five years | | $ | 2,827 | | | 41.0 | % | | $ | 2,652 | | | 39.9 | % |
Due after five years through ten years | | 3,101 | | | 45.0 | | | 2,930 | | | 44.0 | |
Due after ten years | | 967 | | | 14.0 | | | 1,071 | | | 16.1 | |
Total | | $ | 6,895 | | | 100.0 | % | | $ | 6,653 | | | 100.0 | % |
The following tables set forth certain key credit quality indicators of the Company’s recorded investment in mortgage loans as of March 31, 2023 and December 31, 2022 (dollars in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Recorded Investment |
| Debt Service Ratios | | Construction loans | | | | |
| >1.20x | | 1.00x – 1.20x | | <1.00x | | | Total | | % of Total |
March 31, 2023: | | | | | | | | | | | |
Loan-to-Value Ratio | | | | | | | | | | | |
0% – 59.99% | $ | 3,740 | | | $ | 210 | | | $ | 82 | | | $ | 30 | | | $ | 4,062 | | | 58.9 | % |
60% – 69.99% | 1,811 | | | 140 | | | 70 | | | — | | | 2,021 | | | 29.3 | |
70% – 79.99% | 529 | | | 41 | | | 21 | | | — | | | 591 | | | 8.6 | |
80% or greater | 59 | | | 30 | | | 132 | | | — | | | 221 | | | 3.2 | |
Total | $ | 6,139 | | | $ | 421 | | | $ | 305 | | | $ | 30 | | | $ | 6,895 | | | 100.0 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Recorded Investment |
| Debt Service Ratios | | Construction loans | | | | |
| >1.20x | | 1.00x – 1.20x | | <1.00x | | | Total | | % of Total |
December 31, 2022: | | | | | | | | | | | |
Loan-to-Value Ratio | | | | | | | | | | | |
0% – 59.99% | $ | 3,466 | | | $ | 215 | | | $ | 56 | | | $ | 18 | | | $ | 3,755 | | | 56.4 | % |
60% – 69.99% | 1,894 | | | 119 | | | 71 | | | — | | | 2,084 | | | 31.3 | |
70% – 79.99% | 475 | | | 49 | | | 91 | | | — | | | 615 | | | 9.3 | |
80% or greater | 81 | | | — | | | 118 | | | — | | | 199 | | | 3.0 | |
Total | $ | 5,916 | | | $ | 383 | | | $ | 336 | | | $ | 18 | | | $ | 6,653 | | | 100.0 | % |
The following table sets forth credit quality grades by year of origination of the Company’s recorded investment in mortgage loans as of March 31, 2023 and December 31, 2022 (dollars in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Recorded Investment |
| Year of Origination | | |
| 2023 | | 2022 | | 2021 | | 2020 | | 2019 | | Prior | | Total |
March 31, 2023: | | | | | | | | | | | | | |
Internal credit quality grade: | | | | | | | | | | | | | |
High investment grade | $ | 66 | | | $ | 694 | | | $ | 676 | | | $ | 335 | | | $ | 531 | | | $ | 1,944 | | | $ | 4,246 | |
Investment grade | 245 | | | 599 | | | 283 | | | 238 | | | 306 | | | 754 | | | 2,425 | |
Average | — | | | — | | | 6 | | | — | | | 39 | | | 160 | | | 205 | |
Watch list | — | | | — | | | — | | | — | | | — | | | — | | | — | |
In or near default | — | | | — | | | — | | | — | | | — | | | 19 | | | 19 | |
Total | $ | 311 | | | $ | 1,293 | | | $ | 965 | | | $ | 573 | | | $ | 876 | | | $ | 2,877 | | | $ | 6,895 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Recorded Investment |
| Year of Origination | | |
| 2022 | | 2021 | | 2020 | | 2019 | | 2018 | | Prior | | Total |
December 31, 2022: | | | | | | | | | | | | | |
Internal credit quality grade: | | | | | | | | | | | | | |
High investment grade | $ | 698 | | | $ | 684 | | | $ | 327 | | | $ | 561 | | | $ | 422 | | | $ | 1,565 | | | $ | 4,257 | |
Investment grade | 586 | | | 284 | | | 248 | | | 279 | | | 252 | | | 531 | | | 2,180 | |
Average | — | | | 6 | | | — | | | 39 | | | 52 | | | 83 | | | 180 | |
Watch list | — | | | — | | | — | | | — | | | — | | | — | | | — | |
In or near default | — | | | — | | | — | | | — | | | — | | | 36 | | | 36 | |
Total | $ | 1,284 | | | $ | 974 | | | $ | 575 | | | $ | 879 | | | $ | 726 | | | $ | 2,215 | | | $ | 6,653 | |
The following table presents the current and past due composition of the Company’s recorded investment in mortgage loans as of March 31, 2023 and December 31, 2022.
| | | | | | | | | | | | | | |
| | March 31, 2023 | | December 31, 2022 |
Current | | $ | 6,869 | | | $ | 6,617 | |
31 – 60 days past due | | 7 | | | — | |
| | | | |
Greater than 90 days past due | | 19 | | | 36 | |
Total | | $ | 6,895 | | | $ | 6,653 | |
The following table presents information regarding the Company’s allowance for credit losses for mortgage loans for the three months ended March 31, 2023 and 2022 (dollars in millions):
| | | | | | | | | | | | | | | | |
| | | | Three months ended March 31, |
| | | | | | 2023 | | 2022 |
Balance, beginning of period | | | | | | $ | 51 | | | $ | 35 | |
Change in allowance for credit losses | | | | | | (3) | | | 2 | |
| | | | | | | | |
Balance, end of period | | | | | | $ | 48 | | | $ | 37 | |
During the three months ended March 31, 2023, the Company converted one mortgage loan in the amount of $17 million to an owned property through a deed in lieu of foreclosure. During the three months ended March 31, 2022, the Company restructured three mortgage loans to interest only payments as a result of lower occupancy levels, one of which was paid in full as of December 31, 2022. The total recorded investment before allowance for credit losses for mortgage loans that were modified or met the criteria of Troubled Debt Restructuring (“TDR”) is $77 million as of March 31, 2022. The Company had one mortgage loan in the amount of $19 million that was on a nonaccrual status as of March 31, 2023. The Company had no mortgage loans that were on a nonaccrual status as of March 31, 2022. The Company did not acquire any impaired mortgage loans during the three months ended March 31, 2023 and 2022.
Policy Loans
The majority of policy loans are associated with one client. These policy loans present no credit risk as the amount of the loan cannot exceed the obligation due to the ceding company upon the death of the insured or surrender of the underlying policy. The provisions of the treaties in force and the underlying policies determine the policy loan interest rates. The Company earns a spread between the interest rate earned on policy loans and the interest rate credited to corresponding liabilities.
Funds Withheld at Interest
As of March 31, 2023, $3.7 billion of the funds withheld at interest balance is primarily associated with two clients. For reinsurance agreements written on a modco basis and certain agreements written on a coinsurance funds withheld basis, assets equal to the net statutory reserves are withheld and legally owned and managed by the ceding company and are reflected as funds withheld at interest. In the event of a ceding company’s insolvency, the Company would need to assert a claim on the assets supporting its reserve liabilities. However, the risk of loss to the Company is mitigated by its ability to offset amounts it owes the ceding company for claims or allowances against amounts owed to the Company from the ceding company.
Limited Partnerships and Real Estate Joint Ventures
The carrying values of limited partnerships and real estate joint ventures as of March 31, 2023 and December 31, 2022 are as follows (dollars in millions):
| | | | | | | | | | | | | | |
| | March 31, 2023 | | December 31, 2022 |
Limited partnerships – equity method | | $ | 970 | | | $ | 934 | |
Limited partnerships – fair value | | 726 | | | 683 | |
Limited partnerships – cost method | | 54 | | | 49 | |
Real estate joint ventures | | 655 | | 661 | |
Total limited partnerships and real estate joint ventures | | $ | 2,405 | | | $ | 2,327 | |
Other Invested Assets
Other invested assets include lifetime mortgages and derivative contracts. Other invested assets also includes FHLB common stock, unit-linked investments, and real estate held for investment, which are included in “Other” in the table below. As of March 31, 2023 and December 31, 2022, the allowance for credit losses for lifetime mortgages was not material. The carrying values of other invested assets as of March 31, 2023 and December 31, 2022 are as follows (dollars in millions):
| | | | | | | | | | | | | | |
| | March 31, 2023 | | December 31, 2022 |
| | | | |
Lifetime mortgages | | $ | 897 | | | $ | 868 | |
Derivatives | | 100 | | | 170 | |
Other | | 114 | | | 102 | |
Total other invested assets | | $ | 1,111 | | | $ | 1,140 | |
NOTE 12 DERIVATIVE INSTRUMENTS
See Note 2 – “Significant Accounting Policies and Pronouncements” of the Company’s 2022 Annual Report for a detailed discussion of the accounting treatment for derivative instruments, including embedded derivatives. See Note 13 – “Fair Value of Assets and Liabilities” for additional disclosures related to the fair value hierarchy for derivative instruments, including embedded derivatives.
Commonly used derivative instruments include, but are not necessarily limited to: credit default swaps, equity futures, equity options, foreign currency swaps, foreign currency forwards, interest rate swaps, interest rate options, interest rate futures, total return swaps, synthetic guaranteed investment contracts (“GICs”), consumer price index (“CPI”) swaps, forward bond purchase commitments, other derivatives and embedded derivatives. For detailed information on these derivative instruments and the related strategies, see Note 12 – “Derivative Instruments” of the Company’s 2022 Annual Report.
Summary of Derivative Positions
Derivatives, except for embedded derivatives, are included in other invested assets or other liabilities, at fair value. Embedded derivative assets and liabilities on modco or funds withheld arrangements are included on the condensed consolidated balance sheets with the host contract in funds withheld at interest or other liabilities, at fair value. Embedded derivative liabilities on indexed annuity products are included on the condensed consolidated balance sheets with the host contract in interest-sensitive contract liabilities, at fair value. The following table presents the notional amounts and gross fair value of derivative instruments prior to taking into account the netting effects of master netting agreements as of March 31, 2023 and December 31, 2022 (dollars in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | March 31, 2023 | | December 31, 2022 |
| | Primary Underlying Risk | | Notional | | Carrying Value/Fair Value | | Notional | | Carrying Value/Fair Value |
| | | Amount | | Assets | | Liabilities | | Amount | | Assets | | Liabilities |
Derivatives not designated as hedging instruments: | | | | | | | | | | | | | | |
Interest rate swaps | | Interest rate | | $ | 1,578 | | | $ | 13 | | | $ | 1 | | | $ | 1,271 | | | $ | 2 | | | $ | 2 | |
Interest rate options | | Interest rate | | 7,957 | | | 11 | | | — | | | 7,756 | | | 34 | | | — | |
Total return swaps | | Interest rate | | 500 | | | 19 | | | — | | | 500 | | | 18 | | | — | |
Interest rate futures | | Interest rate | | 97 | | | — | | | — | | | 96 | | | — | | | — | |
Equity futures | | Equity | | 186 | | | — | | | — | | | 164 | | | — | | | — | |
Foreign currency swaps | | Foreign currency | | 150 | | | 16 | | | — | | | 150 | | | 18 | | | — | |
Foreign currency forwards | | Foreign currency | | 1,006 | | | 4 | | | 8 | | | 766 | | | 50 | | | — | |
CPI swaps | | CPI | | 478 | | | 19 | | | 5 | | | 496 | | | 20 | | | 3 | |
Credit default swaps | | Credit | | 1,528 | | | 2 | | | 14 | | | 1,523 | | | 2 | | | 21 | |
Equity options | | Equity | | 336 | | | 24 | | | — | | | 358 | | | 38 | | | — | |
Synthetic GICs | | Interest rate | | 17,280 | | | — | | | — | | | 17,411 | | | — | | | — | |
Embedded derivatives in: | | | | | | | | | | | | | | |
Modco or funds withheld arrangements | | | | — | | | 362 | | | 333 | | | — | | | 363 | | | 371 | |
Indexed annuity products | | | | — | | | — | | | 495 | | | — | | | — | | | 530 | |
Total non-hedging derivatives | | | | 31,096 | | | 470 | | | 856 | | | 30,491 | | | 545 | | | 927 | |
Derivatives designated as hedging instruments: | | | | | | | | | | | | | | |
Interest rate swaps | | Foreign currency/Interest rate | | 1,701 | | | 5 | | | 112 | | | 1,310 | | | 3 | | | 113 | |
Foreign currency swaps | | Foreign currency | | 114 | | | — | | | 3 | | | 114 | | | — | | | — | |
Foreign currency forwards | | Foreign currency | | 1,161 | | | 29 | | | 2 | | | 1,019 | | | 38 | | | 1 | |
Forward bond purchase commitments | | Interest rate | | 407 | | | — | | | 86 | | | 407 | | | — | | | 96 | |
Total hedging derivatives | | | | 3,383 | | | 34 | | | 203 | | | 2,850 | | | 41 | | | 210 | |
Total derivatives | | | | $ | 34,479 | | | $ | 504 | | | $ | 1,059 | | | $ | 33,341 | | | $ | 586 | | | $ | 1,137 | |
Fair Value Hedges
The Company designates and reports certain foreign currency swaps to hedge the foreign currency fair value exposure of foreign currency denominated assets as fair value hedges when they meet the requirements of the general accounting principles for Derivatives and Hedging. The gain or loss on the hedged item attributable to a change in foreign currency and the offsetting gain or loss on the related foreign currency swaps as of March 31, 2023 and 2022 were as follows (dollars in millions):
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Type of Fair Value Hedge | | Hedged Item | | Gains (Losses) Recognized for Derivatives | | Gains (Losses) Recognized for Hedged Items |
| | | | Investment Related Gains (Losses), Net |
For the three months ended March 31, 2023: | | | | |
Foreign currency swaps | | Foreign-denominated fixed maturity securities | | $ | (3) | | | $ | 2 | |
For the three months ended March 31, 2022: |
Foreign currency swaps | | Foreign-denominated fixed maturity securities | | $ | 7 | | | $ | (3) | |
Cash Flow Hedges
Certain derivative instruments are designated as cash flow hedges when they meet the requirements of the general accounting principles for Derivatives and Hedging. The Company designates and accounts for the following as cash flow hedges: (i) certain interest rate swaps, in which the cash flows of assets and liabilities are variable based on a benchmark rate; (ii) certain interest rate swaps, in which the cash flows of assets are denominated in different currencies, commonly referred to as cross-currency swaps; (iii) certain interest rate swaps, in which floating rate assets are converted to fixed rate assets; and (iv) forward bond purchase commitments.
The following table presents the components of AOCI, before income tax, and the condensed consolidated income statement classification where the gain or loss is recognized related to cash flow hedges for the three months ended March 31, 2023 and 2022 (dollars in millions):
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| | 2023 | | 2022 |
Balance, beginning of period | | $ | (205) | | | $ | (22) | |
Gains (losses), net deferred in other comprehensive income (loss) | | 6 | | | (60) | |
Amounts reclassified to net investment income | | 3 | | | — | |
Amounts reclassified to interest expense | | (2) | | | 1 | |
Balance, end of period | | $ | (198) | | | $ | (81) | |
As of March 31, 2023, approximately $1 million of before-tax deferred net losses recorded in AOCI are expected to be reclassified to investment income during the next twelve months. For the same time period, $10 million of before-tax deferred net gains on derivative instruments recorded in AOCI are expected to be reclassified to interest expense during the next twelve months.
The following table presents the effect of derivatives in cash flow hedging relationships on the condensed consolidated statements of income and the condensed consolidated statements of comprehensive income for the three months ended March 31, 2023 and 2022 (dollars in millions):
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Derivative Type | | Gains (Losses) Deferred in OCI | | Gains (Losses) Reclassified into Income from AOCI |
| | | | Net Investment Income | | Interest Expense |
For the three months ended March 31, 2023: | | | | | | |
Interest rate | | $ | 14 | | | $ | — | | | $ | 2 | |
Foreign currency/interest rate | | (8) | | | (3) | | | — | |
Total | | $ | 6 | | | $ | (3) | | | $ | 2 | |
For the three months ended March 31, 2022: | | | | | | |
Interest rate | | $ | (64) | | | $ | — | | | $ | (1) | |
Foreign currency/interest rate | | 4 | | | — | | | — | |
Total | | $ | (60) | | | $ | — | | | $ | (1) | |
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For the three months ended March 31, 2023 and 2022, there were no material amounts reclassified into earnings relating to instances in which the Company discontinued cash flow hedge accounting because the forecasted transaction did not occur by
the anticipated date or within the additional time period permitted by the authoritative guidance for the accounting for derivatives and hedging.
Hedges of Net Investments in Foreign Operations
The Company uses foreign currency swaps and foreign currency forwards to hedge a portion of its net investment in certain foreign operations against adverse movements in exchange rates. The following table illustrates the Company’s net investments in foreign operations (“NIFO”) hedges and the gains (losses) deferred in OCI for the three months ended March 31, 2023 and 2022 (dollars in millions):
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| | Derivative Gains (Losses) Deferred in OCI |
| | For the three months ended March 31, | | |
Type of NIFO Hedge | | 2023 | | 2022 | | | | |
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Foreign currency forwards | | $ | — | | | $ | (16) | | | | | |
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The cumulative foreign currency translation gain recorded in AOCI related to these hedges was $210 million as of March 31, 2023 and December 31, 2022. If a hedged foreign operation was sold or substantially liquidated, the amounts in AOCI would be reclassified to the condensed consolidated statements of income. A pro rata portion would be reclassified upon partial sale of a hedged foreign operation. There were no sales or substantial liquidations of net investments in foreign operations that would have required the reclassification of gains or losses from AOCI into investment income during the periods presented.
Non-qualifying Derivatives and Derivatives for Purposes Other Than Hedging
The Company uses various other derivative instruments for risk management purposes that either do not qualify or have not been elected for hedge accounting treatment. The gain or loss related to the change in fair value for these derivative instruments is recognized in investment related gains (losses), net, except where otherwise noted.
A summary of the effect of non-hedging derivatives, including embedded derivatives, on the Company’s condensed consolidated statements of income for the three months ended March 31, 2023 and 2022 is as follows (dollars in millions):
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| | | | Gains (Losses) for the three months ended March 31, |
Type of Non-hedging Derivative | | Income Statement Location of Gains (Losses) | | 2023 | | 2022 |
Interest rate swaps | | Investment related gains (losses), net | | $ | 20 | | | $ | (52) | |
Interest rate options | | Investment related gains (losses), net | | (23) | | | — | |
Total return swaps | | Investment related gains (losses), net | | 3 | | | — | |
Interest rate futures | | Investment related gains (losses), net | | — | | | 2 | |
Equity futures | | Investment related gains (losses), net | | (9) | | | 5 | |
Foreign currency swaps | | Investment related gains (losses), net | | — | | | 7 | |
Foreign currency forwards | | Investment related gains (losses), net | | (19) | | | (23) | |
CPI swaps | | Investment related gains (losses), net | | 1 | | | 29 | |
Credit default swaps | | Investment related gains (losses), net | | 11 | | | (58) | |
Equity options | | Investment related gains (losses), net | | (14) | | | — | |
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Subtotal | | | | (30) | | | (90) | |
Embedded derivatives in: | | | | | | |
Modco or funds withheld arrangements | | Investment related gains (losses), net | | 37 | | | (33) | |
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Indexed annuity products | | Interest credited | | 16 | | | 36 | |
Total non-hedging derivatives | | | | $ | 23 | | | $ | (87) | |
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Credit Derivatives
The following table presents the estimated fair value, maximum amount of future payments and weighted average years to maturity of credit default swaps sold by the Company at March 31, 2023 and December 31, 2022 (dollars in millions):
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| | March 31, 2023 | | December 31, 2022 |
Rating Agency Designation of Referenced Credit Obligations(1) | | Estimated Fair Value of Credit Default Swaps | | Maximum Amount of Future Payments under Credit Default Swaps(2) | | Weighted Average Years to Maturity(3) | | Estimated Fair Value of Credit Default Swaps | | Maximum Amount of Future Payments under Credit Default Swaps(2) | | Weighted Average Years to Maturity(3) |
AAA/AA+/AA/AA-/A+/A/A- | | | | | | | | | | | | |
Single name credit default swaps | | $ | (13) | | | $ | 428 | | | 18.5 | | $ | (18) | | | $ | 428 | | | 18.7 |
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BBB+/BBB/BBB- | | | | | | | | | | | | |
Single name credit default swaps | | 2 | | | 160 | | | 3 | | 1 | | | 155 | | | 3.3 |
Credit default swaps referencing indices | | — | | | 915 | | | 5.8 | | — | | | 915 | | | 6.2 |
Subtotal | | 2 | | | 1,075 | | | 5.4 | | 1 | | | 1,070 | | | 5.8 |
BB+/BB/BB- | | | | | | | | | | | | |
Single name credit default swaps | | (1) | | | 25 | | | 2.9 | | (2) | | | 25 | | | 3.2 |
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Total | | $ | (12) | | | $ | 1,528 | | | 9 | | $ | (19) | | | $ | 1,523 | | | 9.4 |
(1)The rating agency designations are based on ratings from Standard and Poor’s (“S&P”).
(2)Assumes the value of the referenced credit obligations is zero.
(3)The weighted average years to maturity of the credit default swaps is calculated based on weighted average notional amounts.
Netting Arrangements and Credit Risk
Certain of the Company’s derivatives are subject to enforceable master netting arrangements and reported as a net asset or liability in the condensed consolidated balance sheets. The Company nets all derivatives that are subject to such arrangements.
The Company has elected to include all derivatives, except embedded derivatives, in the table below, irrespective of whether they are subject to an enforceable master netting arrangement or a similar agreement. See Note 11 – “Investments” for information regarding the Company’s securities borrowing, lending and repurchase/reverse repurchase agreements.
The following table provides information relating to the netting of the Company’s derivative instruments as of March 31, 2023 and December 31, 2022 (dollars in millions):
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| | Gross Amounts Recognized | | Gross Amounts Offset in the Balance Sheet | | Net Amounts Presented in the Balance Sheet | | Financial Instruments/Collateral (1) | | Net Amount |
March 31, 2023: | | | | | | | | | | |
Derivative assets | | $ | 142 | | | $ | (42) | | | $ | 100 | | | $ | (100) | | | $ | — | |
Derivative liabilities | | 231 | | | (42) | | | 189 | | | (189) | | | — | |
December 31, 2022: | | | | | | | | | | |
Derivative assets | | 223 | | | (53) | | | 170 | | | (170) | | | — | |
Derivative liabilities | | 236 | | | (53) | | | 183 | | | (183) | | | — | |
(1)Includes initial margin posted to a central clearing partner for financial instruments and excludes the excess of collateral received/pledged from/to the counterparty.
The Company may be exposed to credit-related losses in the event of non-performance by counterparties to derivative financial instruments. Generally, the credit exposure of the Company’s derivative contracts is limited to the fair value and accrued interest of non-collateralized derivative contracts in an asset position at the reporting date. As of March 31, 2023, the Company had credit exposure of $15 million.
Derivatives may be exchange-traded or they may be privately negotiated contracts, which are referred to as over-the-counter (“OTC”) derivatives. Certain of the Company’s OTC derivatives are cleared and settled through central clearing counterparties (“OTC cleared”) and others are bilateral contracts between two counterparties. The Company manages its credit risk related to OTC derivatives by entering into transactions with creditworthy counterparties, maintaining collateral arrangements and through the use of master netting agreements that provide for a single net payment to be made by one counterparty to another at each due date and upon termination. The Company is only exposed to the default of the central clearing counterparties for OTC cleared derivatives, and these transactions require initial and daily variation margin collateral postings. Exchange-traded derivatives are settled on a daily basis, thereby reducing the credit risk exposure in the event of non-performance by counterparties to such financial instruments.
NOTE 13 FAIR VALUE OF ASSETS AND LIABILITIES
Fair Value Measurement
General accounting principles for Fair Value Measurements and Disclosures define fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. These principles also establish a three-level fair value hierarchy that requires an entity to maximize the use of observable inputs and to minimize the use of unobservable inputs when measuring fair value:
Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities. Active markets are defined through various characteristics for the measured asset/liability, such as having many transactions and narrow bid/ask spreads.
Level 2 – Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or market standard valuation techniques and assumptions that use significant inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the related assets or liabilities and include those whose value is determined using market standard valuation techniques described above. Prices are determined using valuation methodologies such as discounted cash flow models and other similar techniques that require management’s judgment or estimation in developing inputs that are consistent with those other market participants would use when pricing similar assets and liabilities.
For a discussion of the Company’s valuation methodologies for assets and liabilities measured at fair value and the fair value hierarchy, see Note 6 – “Fair Value of Assets and Liabilities” in the Notes to Consolidated Financial Statements included in the Company’s 2022 Annual Report.
See Note 8 – “Market Risk Benefits” for information about fair value measurement of market risk benefits.
Assets and Liabilities by Hierarchy Level
Assets and liabilities measured at fair value on a recurring basis as of March 31, 2023 and December 31, 2022 are summarized below (dollars in millions):
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March 31, 2023: | | | | Fair Value Measurements Using: |
| | Total | | Level 1 | | Level 2 | | Level 3 |
Assets: (1) | | | | | | | | |
Fixed maturity securities available-for-sale: | | | | | | | | |
Corporate | | $ | 35,477 | | | $ | — | | | $ | 30,864 | | | $ | 4,613 | |
Canadian government | | 3,755 | | | — | | | 3,755 | | | — | |
Japanese government | | 3,443 | | | — | | | 3,443 | | | — | |
ABS | | 4,103 | | | — | | | 2,699 | | | 1,404 | |
CMBS | | 1,670 | | | — | | | 1,614 | | | 56 | |
RMBS | | 1,024 | | | — | | | 1,023 | | | 1 | |
U.S. government | | 1,745 | | | 1,649 | | | 88 | | | 8 | |
State and political subdivisions | | 1,138 | | | — | | | 1,118 | | | 20 | |
Other foreign government | | 3,730 | | | — | | | 3,693 | | | 37 | |
Total fixed maturity securities available-for-sale | | 56,085 | | | 1,649 | | | 48,297 | | | 6,139 | |
Equity securities | | 138 | | | 70 | | | — | | | 68 | |
Funds withheld at interest – embedded derivatives | | (322) | | | — | | | — | | | (322) | |
Funds withheld at interest | | 53 | | | — | | | — | | | 53 | |
Cash equivalents | | 1,654 | | | 1,653 | | | — | | | 1 | |
Short-term investments | | 203 | | | 118 | | | 78 | | | 7 | |
Other invested assets: | | | | | | | | |
Derivatives | | 100 | | | — | | | 100 | | | — | |
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Other | | 24 | | | — | | | 24 | | | — | |
Total other invested assets | | 124 | | | — | | | 124 | | | — | |
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Total | | $ | 57,935 | | | $ | 3,490 | | | $ | 48,499 | | | $ | 5,946 | |
Liabilities: | | | | | | | | |
Interest-sensitive contract liabilities – embedded derivatives | | $ | 495 | | | $ | — | | | $ | — | | | $ | 495 | |
Other liabilities: | | | | | | | | |
Funds withheld at interest – embedded derivatives | | (351) | | | — | | | — | | | (351) | |
Derivatives | | 189 | | | — | | | 189 | | | — | |
Total | | $ | 333 | | | $ | — | | | $ | 189 | | | $ | 144 | |
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(1)Excludes limited partnerships that are measured at estimated fair value using the NAV per share (or its equivalent) as a practical expedient. As of March 31, 2023, the fair value of such investments was $726 million.
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December 31, 2022: | | | | Fair Value Measurements Using: |
| | Total | | Level 1 | | Level 2 | | Level 3 |
Assets: (1) | | | | | | | | |
Fixed maturity securities available-for-sale: | | | | | | | | |
Corporate | | $ | 33,969 | | | $ | — | | | $ | 29,670 | | | $ | 4,299 | |
Canadian government | | 3,626 | | | — | | | 3,626 | | | — | |
Japanese government | | 2,559 | | | — | | | 2,559 | | | — | |
ABS | | 3,878 | | | — | | | 2,603 | | | 1,275 | |
CMBS | | 1,623 | | | — | | | 1,555 | | | 68 | |
RMBS | | 941 | | | — | | | 931 | | | 10 | |
U.S. government | | 1,482 | | | 1,388 | | | 85 | | | 9 | |
State and political subdivisions | | 1,119 | | | — | | | 1,093 | | | 26 | |
Other foreign government | | 3,704 | | | — | | | 3,669 | | | 35 | |
Total fixed maturity securities available-for-sale | | 52,901 | | | 1,388 | | | 45,791 | | | 5,722 | |
Equity securities | | 134 | | | 68 | | | — | | | 66 | |
Funds withheld at interest – embedded derivatives | | (371) | | | — | | | — | | | (371) | |
Funds withheld at interest | | 54 | | | — | | | — | | | 54 | |
Cash equivalents | | 1,535 | | | 1,535 | | | — | | | — | |
Short-term investments | | 121 | | | 54 | | | 54 | | | 13 | |
Other invested assets: | | | | | | | | |
Derivatives | | 170 | | | — | | | 170 | | | — | |
Other | | 23 | | | — | | | 23 | | | — | |
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Total other invested assets | | 193 | | | — | | | 193 | | | — | |
Total | | $ | 54,567 | | | $ | 3,045 | | | $ | 46,038 | | | $ | 5,484 | |
Liabilities: | | | | | | | | |
Interest-sensitive contract liabilities – embedded derivatives | | $ | 530 | | | $ | — | | | $ | — | | | $ | 530 | |
Other liabilities: | | | | | | | | |
Funds withheld at interest – embedded derivatives | | (363) | | | — | | | — | | | (363) | |
Derivatives | | 183 | | | — | | | 183 | | | — | |
Total | | $ | 350 | | | $ | — | | | $ | 183 | | | $ | 167 | |
(1)Excludes limited partnerships that are measured at estimated fair value using the NAV per share (or its equivalent) as a practical expedient. As of December 31, 2022, the fair value of such investments was $683 million.
Quantitative Information Regarding Internally Priced Assets and Liabilities
The following table presents quantitative information about significant unobservable inputs used in Level 3 fair value measurements that are developed internally by the Company as of March 31, 2023 and December 31, 2022 (dollars in millions):
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| Estimated Fair Value | | Valuation Technique | | Unobservable Inputs | | Range (Weighted Average) | | |
March 31, 2023 | | December 31, 2022 | | | | March 31, 2023 | | December 31, 2022 | | |
Assets: | | | | | | | | | | | | | |
Corporate | $ | 25 | | | $ | 25 | | | Market comparable securities | | Liquidity premium | | 1% | | 1% | | |
| | | | | | | EBITDA Multiple | | 5.3x | | 5.3x | | |
ABS | 272 | | | 274 | | | Market comparable securities | | Liquidity premium | | 0-18% (2%) | | 0-18% (2%) | | |
U.S. government | 8 | | | 9 | | | Market comparable securities | | Liquidity premium | | 0-1% (1%) | | 0-1% (1%) | | |
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Equity securities | 9 | | | 9 | | | Market comparable securities | | EBITDA Multiple | | 8.4x-11.2x (9.7x) | | 8.4x-11.2x (9.6x) | | |
Funds withheld at interest – embedded derivatives | 4 | | | (34) | | | Total return swap | | Mortality | | 0-100% (3%) | | 0-100% (3%) | | |
| | | | | | | Lapse | | 0-35% (15%) | | 0-35% (17%) | | |
| | | | | | | Withdrawal | | 0-5% (4%) | | 0-5% (4%) | | |
| | | | | | | CVA | | 0-5% (0%) | | 0-5% (0%) | | |
| | | | | | | Crediting rate | | 1-4% (2%) | | 1-4% (2%) | | |
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Liabilities: | | | | | | | | | | | | | |
Interest-sensitive contract liabilities – embedded derivatives – indexed annuities | 495 | | | 530 | | | Discounted cash flow | | Mortality | | 0-100% (3%) | | 0-100% (3%) | | |
| | | | | | | Lapse | | 0-35% (14%) | | 0-35% (16%) | | |
| | | | | | | Withdrawal | | 0-5% (4%) | | 0-5% (3%) | | |
| | | | | | | Option budget projection | | 1-4% (2%) | | 1-4% (2%) | | |
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Changes in Level 3 Assets and Liabilities
Assets and liabilities transferred into Level 3 are due to a lack of observable market transactions and price information. Transfers out of Level 3 are primarily the result of the Company obtaining observable pricing information or a third-party pricing quotation that appropriately reflects the fair value of those assets and liabilities.
For further information on the Company’s valuation processes, see Note 6 – “Fair Value of Assets and Liabilities” in the Notes to Consolidated Financial Statements included in the Company’s 2022 Annual Report.
The reconciliations for all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) are as follows (dollars in millions):
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For the three months ended March 31, 2023: | | Fixed maturity securities available-for-sale | | | | | | | | Funds withheld at interest –embedded derivatives, net (1) | | Funds withheld at interest | | | | Interest-sensitive contract liabilities – embedded derivatives |
| | Corporate | | Foreign govt | | Structured securities | | U.S. and local govt | | Equity securities | | Cash equivalents | | Short-term investments | | | | |
Fair value, beginning of period | | $ | 4,299 | | | $ | 35 | | | $ | 1,353 | | | $ | 35 | | | $ | 66 | | | $ | — | | | $ | 13 | | | $ | (8) | | | $ | 54 | | | | | $ | (530) | |
Total gains/losses (realized/unrealized) | | | | | | | | | | | | | | | | | | | | | | |
Included in earnings, net: | | | | | | | | | | | | | | | | | | | | | | |
Net investment income | | 1 | | | — | | | 1 | | | — | | | — | | | — | | | — | | | — | | | (2) | | | | | — | |
Investment related gains (losses), net | | (1) | | | — | | | 1 | | | — | | | — | | | — | | | (1) | | | 37 | | | — | | | | | — | |
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Interest credited | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | | | 16 | |
Included in other comprehensive income (loss) | | 55 | | | 2 | | | 33 | | | (1) | | | — | | | — | | | — | | | — | | | 1 | | | | | — | |
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Purchases (2) | | 318 | | | — | | | 98 | | | — | | | 2 | | | 1 | | | 1 | | | — | | | — | | | | | 2 | |
Sales (2) | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | | | — | |
Settlements (2) | | (59) | | | — | | | (62) | | | (1) | | | — | | | — | | | — | | | — | | | — | | | | | 17 | |
Transfers into Level 3 | | — | | | — | | | 64 | | | — | | | — | | | — | | | — | | | — | | | — | | | | | — | |
Transfers out of Level 3 | | — | | | — | | | (27) | | | (5) | | | — | | | — | | | (6) | | | — | | | — | | | | | — | |
Fair value, end of period | | $ | 4,613 | | | $ | 37 | | | $ | 1,461 | | | $ | 28 | | | $ | 68 | | | $ | 1 | | | $ | 7 | | | $ | 29 | | | $ | 53 | | | | | $ | (495) | |
Total gains/losses (realized/unrealized) recorded for the period relating to those Level 3 assets and liabilities that were still held at the end of the period |
Included in earnings, net: | | | | | | | | | | | | | | | | | | | | | | |
Net investment income | | $ | 1 | | | $ | — | | | $ | 1 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | (2) | | | | | $ | — | |
Investment related gains (losses), net | | (2) | | | — | | | — | | | — | | | — | | | — | | | (1) | | | 37 | | | — | | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
Interest credited | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | | | (1) | |
Included in other comprehensive income (loss) | | 52 | | | 2 | | | 33 | | | (1) | | | — | | | — | | | — | | | — | | | 1 | | | | | — | |
(1)Funds withheld at interest – embedded derivatives assets and liabilities are presented net for purposes of the rollforward.
(2)The amount reported within purchases, sales and settlements is the purchase price (for purchases) and the sales/settlement proceeds (for sales and settlements) based upon the actual date purchased or sold/settled. Items purchased and sold/settled in the same period are excluded from the rollforward. The Company had no issuances during the period.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
For the three months ended March 31, 2022: | | Fixed maturity securities available-for-sale | | | | | | | | Funds withheld at interest –embedded derivatives, net (1) | | Funds withheld at interest | | | | Interest-sensitive contract liabilities – embedded derivatives |
| | Corporate | | Foreign govt | | Structured securities | | U.S. and local govt | | Equity securities | | Cash equivalents | | Short-term investments | | | | |
Fair value, beginning of period | | $ | 3,888 | | | $ | 33 | | | $ | 1,179 | | | $ | 45 | | | $ | 50 | | | $ | — | | | $ | 28 | | | $ | 165 | | | $ | 83 | | | | | $ | (693) | |
Total gains/losses (realized/unrealized) | | | | | | | | | | | | | | | | | | | | | | |
Included in earnings, net: | | | | | | | | | | | | | | | | | | | | | | |
Net investment income | | 1 | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | (5) | | | | | — | |
Investment related gains (losses), net | | — | | | — | | | (5) | | | — | | | (1) | | | — | | | — | | | (33) | | | — | | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | |
Interest credited | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | | | 36 | |
| | | | | | | | | | | | | | | | | | | | | | |
Included in other comprehensive income (loss) | | (144) | | | (4) | | | (72) | | | (1) | | | — | | | — | | | — | | | — | | | (2) | | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | |
Purchases (2) | | 365 | | | — | | | 95 | | | — | | | — | | | — | | | 20 | | | — | | | 1 | | | | | (6) | |
Sales (2) | | (16) | | | — | | | (51) | | | — | | | (1) | | | — | | | — | | | — | | | — | | | | | — | |
Settlements (2) | | (26) | | | — | | | (38) | | | (2) | | | — | | | — | | | — | | | — | | | (2) | | | | | 18 | |
Transfers into Level 3 | | — | | | — | | | 13 | | | 6 | | | — | | | — | | | — | | | — | | | — | | | | | — | |
Transfers out of Level 3 | | (22) | | | — | | | — | | | (4) | | | — | | | — | | | — | | | — | | | — | | | | | — | |
Fair value, end of period | | $ | 4,046 | | | $ | 29 | | | $ | 1,121 | | | $ | 44 | | | $ | 48 | | | $ | — | | | $ | 48 | | | $ | 132 | | | $ | 75 | | | | | $ | (645) | |
Total gains/losses (realized/unrealized) recorded for the period relating to those Level 3 assets and liabilities that were still held at the end of the period |
Included in earnings, net: | | | | | | | | | | | | | | | | | | | | | | |
Net investment income | | $ | 1 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | (5) | | | | | $ | — | |
Investment related gains (losses), net | | — | | | — | | | (5) | | | — | | | (1) | | | — | | | — | | | (33) | | | — | | | | | — | |
| | | | | | | | | | | | | | | | | | | | | | |
Claims and other policy benefits | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | | | — | |
Interest credited | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | | | 18 | |
Included in other comprehensive income (loss) | | (144) | | | (4) | | | (71) | | | (1) | | | — | | | — | | | — | | | — | | | (2) | | | | | — | |
(1)Funds withheld at interest – embedded derivatives assets and liabilities are presented net for purposes of the rollforward.
(2)The amount reported within purchases, sales and settlements is the purchase price (for purchases) and the sales/settlement proceeds (for sales and settlements) based upon the actual date purchased or sold/settled. Items purchased and sold/settled in the same period are excluded from the rollforward. The Company had no issuances during the period.
Nonrecurring Fair Value Measurements
The Company has certain assets subject to measurement at fair value on a nonrecurring basis, in periods subsequent to their initial recognition if they are determined to be impaired. During the three months ended March 31, 2023 and 2022, the Company did not have any material assets that were measured at fair value due to impairment.
Fair Value of Financial Instruments Carried at Other Than Fair Value
The following table presents the carrying values and estimated fair values of the Company’s financial instruments, which were not measured at fair value on a recurring basis, as of March 31, 2023 and December 31, 2022 (dollars in millions). For additional information regarding the methods and significant assumptions used by the Company to estimate these fair values, see Note 6 – “Fair Value of Assets and Liabilities” in the Notes to Consolidated Financial Statements included in the Company’s 2022 Annual Report. This table excludes any payables or receivables for collateral under repurchase/reverse repurchase agreements and other transactions. The estimated fair value of the excluded amount approximates carrying value as they equal the amount of cash collateral received/paid.
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March 31, 2023: | | Carrying Value (1) | | Estimated Fair Value | | Fair Value Measurement Using: |
Level 1 | | Level 2 | | Level 3 | | |
Assets: | | | | | | | | | | | | |
Mortgage loans | | $ | 6,833 | | | $ | 6,367 | | | $ | — | | | $ | — | | | $ | 6,367 | | | |
Policy loans | | 1,221 | | | 1,221 | | | — | | | 1,221 | | | — | | | |
Funds withheld at interest | | 6,245 | | | 5,821 | | | — | | | — | | | 5,821 | | | |
Limited partnerships – cost method | | 54 | | | 57 | | | — | | | — | | | 57 | | | |
Cash and cash equivalents | | 1,640 | | | 1,640 | | | 1,640 | | | — | | | — | | | |
Short-term investments | | 43 | | | 43 | | | 43 | | | — | | | — | | | |
Other invested assets | | 974 | | | 780 | | | 5 | | | 64 | | | 711 | | | |
Accrued investment income | | 672 | | | 672 | | | — | | | 672 | | | — | | | |
Liabilities: | | | | | | | | | | | | |
Interest-sensitive contract liabilities | | $ | 23,515 | | | $ | 23,213 | | | $ | — | | | $ | — | | | $ | 23,213 | | | |
Other liabilities – funds withheld at interest | | 1,593 | | | 1,316 | | | — | | | — | | | 1,316 | | | |
Long-term debt | | 4,455 | | | 4,260 | | | — | | | — | | | 4,260 | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
December 31, 2022: | | | | | | |
Assets: | | | | | | | | | | | | |
Mortgage loans | | $ | 6,590 | | | $ | 6,109 | | | $ | — | | | $ | — | | | $ | 6,109 | | | |
Policy loans | | 1,231 | | | 1,231 | | | — | | | 1,231 | | | — | | | |
Funds withheld at interest | | 6,319 | | | 5,884 | | | — | | | — | | | 5,884 | | | |
Limited partnerships – cost method | | 49 | | | 52 | | | — | | | — | | | 52 | | | |
Cash and cash equivalents | | 1,392 | | | 1,392 | | | 1,392 | | | — | | | — | | | |
Short-term investments | | 33 | | | 33 | | | 33 | | | — | | | — | | | |
Other invested assets | | 947 | | | 758 | | | 4 | | | 65 | | | 689 | | | |
Accrued investment income | | 630 | | | 630 | | | — | | | 630 | | | — | | | |
Liabilities: | | | | | | | | | | | | |
Interest-sensitive contract liabilities | | $ | 23,493 | | | $ | 23,065 | | | $ | — | | | $ | — | | | $ | 23,065 | | | |
Other liabilities – funds withheld at interest | | 1,596 | | | 1,321 | | | — | | | — | | | 1,321 | | | |
Long-term debt | | 3,961 | | | 3,670 | | | — | | | — | | | 3,670 | | | |
| | | | | | | | | | | | |
(1)Carrying values presented herein may differ from those in the Company’s condensed consolidated balance sheets because certain items within the respective financial statement captions may be measured at fair value on a recurring basis.
NOTE 14 INCOME TAX
On August 16, 2022, the Inflation Reduction Act of 2022 (“the Act”) was enacted in the U.S. The Act includes law changes relating to tax, climate change, energy and health care. In particular, for tax years ending after December 31, 2022, the Act imposes a 15% minimum tax on adjusted financial statement income for applicable corporations with average financial statement income over $1 billion for the previous 3-year period ending in 2022 or after. Based on the current guidance, the Company is not an applicable corporation for 2023. The Act also imposes a 1% excise tax on stock buybacks of a publicly traded corporation. The Act is not expected to have a material impact to the Company’s tax expense.
The effective tax rate for the three months ending March 31, 2023, was 28.0% on pre-tax income. The tax rate was higher than the U.S. statutory rate primarily due to income earned in jurisdiction with tax rates greater than the U.S. statutory tax rate, Global Intangible Low-Taxed income (“GILTI”), Subpart F income and adjustments to the valuation allowance. The effective tax rate for the three months ending March 31, 2022, was 26.3%. The tax rate was higher than the U.S. statutory rate primarily as a result of income in jurisdictions with tax rates higher than the U.S. and basis adjustments in foreign jurisdictions. These increases were partially offset with benefits received from tax credits generated during the year.
NOTE 15 EMPLOYEE BENEFIT PLANS
The components of net periodic benefit cost, included in other operating expenses on the Company’s condensed consolidated statements of income, for the three months ended March 31, 2023 and 2022 were as follows (dollars in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Pension Benefits | | Other Benefits |
| | Three months ended March 31, | | Three months ended March 31, |
| | 2023 | | 2022 | | 2023 | | 2022 |
Service cost | | $ | 3 | | | $ | 4 | | | $ | — | | | $ | 1 | |
Interest cost | | 2 | | | 1 | | | 1 | | | — | |
Expected return on plan assets | | (3) | | | (3) | | | — | | | — | |
Amortization of prior service cost (credit) | | — | | | — | | | — | | | — | |
Amortization of prior actuarial losses | | 1 | | | 1 | | | — | | | — | |
| | | | | | | | |
Net periodic benefit cost | | $ | 3 | | | $ | 3 | | | $ | 1 | | | $ | 1 | |
NOTE 16 COMMITMENTS, CONTINGENCIES AND GUARANTEES
Commitments
Funding of Investments
The Company’s commitments to fund investments as of March 31, 2023 and December 31, 2022, are presented in the following table (dollars in millions):
| | | | | | | | | | | |
| March 31, 2023 | | December 31, 2022 |
Limited partnerships and real estate joint ventures | $ | 955 | | | $ | 937 | |
Mortgage loans | 189 | | | 137 | |
Bank loans and private placements | 644 | | | 682 | |
Lifetime mortgages | 33 | | | 59 | |
The Company anticipates that the majority of its current commitments will be invested over the next five years; however, these commitments could become due any time at the request of the counterparties. Bank loans and private placements are included in fixed maturity securities available-for-sale.
The Company has an immaterial liability, included in other liabilities, for expected credit losses associated with unfunded commitments as of March 31, 2023 and December 31, 2022.
Funding Agreements
Federal Home Loan Bank of Des Moines
The Company is a member of the FHLB and, through membership, has issued funding agreements to the FHLB in exchange for cash advances. As of March 31, 2023 and December 31, 2022, the Company had $1.3 billion of FHLB funding agreements outstanding. The Company is required to provide collateral in excess of the funding agreement amounts outstanding, considering any discounts to the securities posted and prepayment penalties.
Funding Agreement Backed Notes
The Company’s Funding Agreement Backed Notes (“FABN”) program allows RGA Global Funding, a special-purpose, unaffiliated statutory trust, to offer its senior secured medium-term notes to investors. RGA Global Funding uses the net proceeds from each sale to purchase one or more funding agreements from the Company. As of both March 31, 2023 and December 31, 2022, the Company had $900 million of FABN agreements outstanding and are included within interest-sensitive contract liabilities.
Contingencies
Litigation
The Company is subject to litigation and regulatory investigations or actions from time to time. Based on current knowledge, management does not believe that loss contingencies arising from pending legal, regulatory and governmental matters will have a material adverse effect on the financial condition, results of operations or cash flows of the Company. However, in light of the inherent uncertainties involved in future or pending legal, regulatory and governmental matters, some of which are beyond the Company’s control, and indeterminate or potentially substantial amount of damages sought in any such matters, an adverse outcome could be material to the Company’s financial condition, results of operations or cash flows for any particular reporting period. A legal reserve is established when the Company is notified of an arbitration demand, litigation or regulatory action or is notified that an arbitration demand, litigation or regulatory action is imminent, it is probable that the Company will incur a loss as a result and the amount of the probable loss is reasonably capable of being estimated.
Other Contingencies
The Company indemnifies its directors and officers as provided in its charters and by-laws. Since this indemnity generally is not subject to limitation with respect to duration or amount, the Company does not believe that it is possible to determine the maximum potential amount due under this indemnity in the future.
Guarantees
Statutory Reserve Support
Certain RGA subsidiaries have committed to provide statutory reserve support to third parties, in exchange for a fee, by funding loans if certain defined events occur. Such statutory reserves are required under the U.S. Valuation of Life Policies Model Regulation (commonly referred to as Regulation XXX for term life insurance policies and Regulation A-XXX for universal life secondary guarantees). In addition, certain subsidiaries have also committed to provide capital support to a third party, in exchange for a fee, by agreeing to assume real estate leases in the event of a severe and prolonged decline in the commercial
lease market. Upon assumption of a lease, the Company would recognize a right to use asset and lease obligation. As of March 31, 2023, the Company does not believe that it will be required to provide any funding under these commitments as the occurrence of the defined events is considered remote. The following table presents the maximum potential obligation for these commitments as of March 31, 2023 (dollars in millions):
| | | | | |
Commitment Period | Maximum Potential Obligation |
2034 | $ | 1,243 | |
2035 | 2,630 | |
2036 | 3,599 | |
2037 | 6,850 | |
2038 | 800 | |
2039 | 8,751 | |
2046 | 3,000 | |
NOTE 17 SEGMENT INFORMATION
The accounting policies of the segments are the same as those described in Note 2 – “Significant Accounting Policies and Pronouncements” in the Notes to Consolidated Financial Statements included in the Company’s 2022 Annual Report. The Company measures segment performance primarily based on profit or loss from operations before income taxes. There are no intersegment reinsurance transactions and the Company does not have any material long-lived assets.
The Company allocates capital to its segments based on an internally developed economic capital model, the purpose of which is to measure the risk in the business and to provide a basis upon which capital is deployed. The economic capital model considers the unique and specific nature of the risks inherent in the Company’s businesses. As a result of the economic capital allocation process, a portion of investment income is attributed to the segments based on the level of allocated capital. In addition, the segments are charged for excess capital utilized above the allocated economic capital basis. This charge is included in policy acquisition costs and other insurance expenses.
The Company has geographic-based and business-based operational segments. Geographic-based operations are further segmented into Traditional and Financial Solutions businesses. Information related to revenues, income (loss) before income taxes and total assets of the Company for each reportable segment are summarized below (dollars in millions):
| | | | | | | | | | | | | | | | |
| | | | Three months ended March 31, |
Revenues: | | | | | | 2023 | | 2022 |
U.S. and Latin America: | | | | | | | | |
Traditional | | | | | | $ | 1,812 | | | $ | 1,851 | |
Financial Solutions | | | | | | 515 | | | 233 | |
Total | | | | | | 2,327 | | | 2,084 | |
Canada: | | | | | | | | |
Traditional | | | | | | 359 | | | 365 | |
Financial Solutions | | | | | | 27 | | | 26 | |
Total | | | | | | 386 | | | 391 | |
Europe, Middle East and Africa: | | | | | | | | |
Traditional | | | | | | 460 | | | 473 | |
Financial Solutions | | | | | | 169 | | | 183 | |
Total | | | | | | 629 | | | 656 | |
Asia Pacific: | | | | | | | | |
Traditional | | | | | | 729 | | | 703 | |
Financial Solutions | | | | | | 131 | | | 20 | |
Total | | | | | | 860 | | | 723 | |
Corporate and Other | | | | | | 49 | | | 63 | |
Total | | | | | | $ | 4,251 | | | $ | 3,917 | |
| | | | | | | | | | | | | | | | | | |
| | | | Three months ended March 31, |
Income (loss) before income taxes: | | | | | | 2023 | | 2022 |
U.S. and Latin America: | | | | | | | | |
Traditional | | | | | | $ | 121 | | | $ | 60 | |
Financial Solutions | | | | | | 114 | | | 57 | |
Total | | | | | | 235 | | | 117 | |
Canada: | | | | | | | | |
Traditional | | | | | | 29 | | | 15 | |
Financial Solutions | | | | | | 10 | | | 9 | |
Total | | | | | | 39 | | | 24 | |
Europe, Middle East and Africa: | | | | | | | | |
Traditional | | | | | | 27 | | | 34 | |
Financial Solutions | | | | | | 59 | | | 67 | |
Total | | | | | | 86 | | | 101 | |
Asia Pacific: | | | | | | | | |
Traditional | | | | | | 79 | | | 108 | |
Financial Solutions | | | | | | (13) | | | (56) | |
Total | | | | | | 66 | | | 52 | |
Corporate and Other | | | | | | (75) | | | (27) | |
Total | | | | | | $ | 351 | | | $ | 267 | |
| | | | | | | | | | | | | | |
Assets: | | March 31, 2023 | | December 31, 2022 |
U.S. and Latin America: | | | | |
Traditional | | $ | 22,671 | | | $ | 22,612 | |
Financial Solutions | | 25,111 | | | 25,203 | |
Total | | 47,782 | | | 47,815 | |
Canada: | | | | |
Traditional | | 4,898 | | | 4,826 | |
Financial Solutions | | 196 | | | 177 | |
Total | | 5,094 | | | 5,003 | |
Europe, Middle East and Africa: | | | | |
Traditional | | 4,011 | | | 3,652 | |
Financial Solutions | | 5,561 | | | 5,215 | |
Total | | 9,572 | | | 8,867 | |
Asia Pacific: | | | | |
Traditional | | 9,615 | | | 9,254 | |
Financial Solutions | | 14,693 | | | 12,023 | |
Total | | 24,308 | | | 21,277 | |
Corporate and Other | | 2,364 | | | 1,942 | |
Total | | $ | 89,120 | | | $ | 84,904 | |
NOTE 18 FINANCING ACTIVITIES
On March 23, 2023, Chesterfield Reinsurance Company, a subsidiary of RGA, issued 7.125% Surplus Notes due 2043, with a face amount of $500 million. Capitalized issue costs were approximately $6 million.
On March 13, 2023, the Company entered into a new syndicated revolving credit facility with a five year term and an overall capacity of $850 million, replacing its existing $850 million syndicated revolving credit facility, which was scheduled to mature in August 2023. The Company may borrow cash and may obtain letters of credit in multiple currencies under this facility.
NOTE 19 NEW ACCOUNTING STANDARDS NOT YET ADOPTED
Changes to the general accounting principles are established by the Financial Accounting Standards Board (“FASB”) in the form of accounting standards updates to the FASB Accounting Standards Codification™. There are no accounting standards not yet adopted that are applicable or are expected to have more than a minimal impact on the Company’s condensed consolidated financial statements.