| Investments | 1.25 1.00 - 1.25 <1.00 September 30, 2022 LTV Ratios: Less than 50% $ 492 $ 5 $ 11 $ 508 22 % $ 475 24 % 50% to 60% 669 — — 669 29 % 582 29 % 60% to 75% 1,155 — — 1,155 48 % 954 46 % 75% to 85% $ — $ — $ 9 $ 9 1 % 6 1 % Commercial mortgage loans $ 2,316 $ 5 $ 20 $ 2,341 100 % $ 2,017 100 % December 31, 2021 LTV Ratios: Less than 50% $ 626 $ 33 $ 9 $ 668 31 % $ 745 33 % 50% to 60% 470 — — 470 22 % 481 21 % 60% to 75% 1,036 — — 1,036 47 % 1,039 46 % Commercial mortgage loans $ 2,132 $ 33 $ 9 $ 2,174 100 % $ 2,265 100 % We recognize a mortgage loan as delinquent when payments on the loan are greater than 30 days past due. At September 30, 2022 we had one CML that was delinquent in principal or interest payments as shown in the risk rating exposure table below. At December 31, 2021 we had no CMLs that were delinquent in principal or interest payments. Residential Mortgage Loans Residential mortgage loans ("RMLs") represented approximately 5% of our total investments as of September 30, 2022. Our residential mortgage loans are closed end, amortizing loans and 100% of the properties are located in the United States. We diversify our RML portfolio by state to attempt to reduce concentration risk. The distribution of RMLs by state with highest-to-lowest concentration are reflected in the following tables (dollars in millions): September 30, 2022 U.S. State: Amortized Cost % of Total Florida $ 331 15 % Texas 232 10 % New Jersey 175 8 % Pennsylvania 155 7 % California 145 7 % New York 140 6 % Georgia 126 6 % All Other States (1) 926 41 % Total residential mortgage loans $ 2,230 100 % (1) The individual concentration of each state is equal to or less than 5% as of September 30, 2022. December 31, 2021 U.S. State: Amortized Cost % of Total Florida $ 231 15 % Texas 167 10 % New Jersey 150 10 % All other states (1) 1,027 65 % Total residential mortgage loans $ 1,575 100 % (1) The individual concentration of each state is less than 9% as of December 31, 2021. Residential mortgage loans have a primary credit quality indicator of either a performing or nonperforming loan. We define non-performing residential mortgage loans as those that are 90 or more days past due or in nonaccrual status, which is assessed monthly. The credit quality of RML's as of September 30, 2022 and December 31, 2021, was as follows (dollars in millions): September 30, 2022 December 31, 2021 Performance indicators: Carrying Value % of Total Carrying Value % of Total Performing $ 2,165 97 % $ 1,533 95 % Non-performing 65 3 % 73 5 % Total residential mortgage loans, gross of valuation allowance $ 2,230 100 % $ 1,606 100 % Allowance for expected loan loss (30) — % (25) — % Total residential mortgage loans $ 2,200 100 % $ 1,581 100 % Loans segregated by risk rating exposure as of September 30, 2022 and December 31, 2021, were as follows (in millions): September 30, 2022 Amortized Cost by Origination Year 2022 2021 2020 2019 2018 Prior Total Residential mortgages Current (less than 30 days past due) $ 762 $ 898 $ 229 $ 199 $ 25 $ 35 $ 2,148 30-89 days past due 3 8 2 4 — — 17 90 days or over past due — 7 16 41 1 — 65 Total residential mortgages $ 765 $ 913 $ 247 $ 244 $ 26 $ 35 $ 2,230 Commercial mortgages Current (less than 30 days past due) $ 250 $ 1,301 $ 510 $ — $ — $ 271 $ 2,332 30-89 days past due — — — — — — — 90 days or over past due — — — — — 9 9 Total commercial mortgages $ 250 $ 1,301 $ 510 $ — $ — $ 280 $ 2,341 December 31, 2021 Amortized Cost by Origination Year 2021 2020 2019 2018 2017 Prior Total Residential mortgages Current (less than 30 days past due) $ 795 $ 293 $ 323 $ 50 $ 36 $ 21 $ 1,518 30-89 days past due 5 4 6 1 — — 16 90 days or over past due 1 23 46 2 — — 72 Total residential mortgages $ 801 $ 320 $ 375 $ 53 $ 36 $ 21 $ 1,606 Commercial mortgages Current (less than 30 days past due) $ 1,301 $ 543 $ — $ 6 $ — $ 324 $ 2,174 30-89 days past due — — — — — — — 90 days or over past due — — — — — — — Total commercial mortgage $ 1,301 $ 543 $ — $ 6 $ — $ 324 $ 2,174 September 30, 2022 Amortized Cost by Origination Year 2022 2021 2020 2019 2018 Prior Total Commercial mortgages LTV Less than 50% $ 35 $ 120 $ 230 $ — $ — $ 123 $ 508 50% to 60% 105 267 158 — — 139 669 60% to 75% 110 914 122 — — 9 1,155 75% to 85% — — — — — 9 9 Total commercial mortgages $ 250 $ 1,301 $ 510 $ — $ — $ 280 $ 2,341 Commercial mortgages DSCR Greater than 1.25x $ 250 $ 1,301 $ 510 $ — $ — $ 255 $ 2,316 1.00x - 1.25x — — — — — 5 5 Less than 1.00x — — — — — 20 20 Total commercial mortgages $ 250 $ 1,301 $ 510 $ — $ — $ 280 $ 2,341 December 31, 2021 Amortized Cost by Origination Year 2021 2020 2019 2018 2017 Prior Total Commercial mortgages LTV Less than 50% $ 120 $ 229 $ — $ 6 $ — $ 313 $ 668 50% to 60% 267 192 — — — 11 470 60% to 75% 914 122 — — — — 1,036 Total commercial mortgages $ 1,301 $ 543 $ — $ 6 $ — $ 324 $ 2,174 Commercial mortgages DSCR Greater than 1.25x $ 1,301 $ 543 $ — $ 4 $ — $ 284 $ 2,132 1.00x - 1.25x — — — 2 — 31 33 Less than 1.00x — — — — — 9 9 Total commercial mortgages $ 1,301 $ 543 $ — $ 6 $ — $ 324 $ 2,174 Non-accrual loans by amortized cost as of September 30, 2022 and December 31, 2021, were as follows (in millions): Amortized cost of loans on non-accrual September 30, 2022 December 31, 2021 Residential mortgage: $ 64 $ 72 Commercial mortgage: 9 — Total non-accrual loans $ 73 $ 72 Immaterial interest income was recognized on non-accrual financing receivables for the three and nine months ended September 30, 2022. It is our policy to cease to accrue interest on loans that are over 90 days delinquent. For loans less than 90 days delinquent, interest is accrued unless it is determined that the accrued interest is not collectible. If a loan becomes over 90 days delinquent, it is our general policy to initiate foreclosure proceedings unless a workout arrangement to bring the loan current is in place. As of September 30, 2022 and December 31, 2021, we had $64 million and $72 million, respectively, of residential mortgage loans that were over 90 days past due, of which $33 million and $39 million were in the process of foreclosure as of September 30, 2022 and December 31, 2021, respectively. Allowance for Expected Credit Loss We estimate expected credit losses for our commercial and residential mortgage loan portfolios using a probability of default/loss given default model. Significant inputs to this model include, where applicable, the loans' current performance, underlying collateral type, location, contractual life, LTV, DSC and Debt to Income or FICO. The model projects losses using a two year reasonable and supportable forecast and then reverts over a three year period to market-wide historical loss experience. Changes in our allowance for expected credit losses on mortgage loans are recognized in Recognized gains and losses, net in the accompanying unaudited Condensed Consolidated Statements of Earnings. The allowances for our mortgage loan portfolio is summarized as follows (in millions): Three months ended September 30, 2022 Nine months ended September 30, 2022 Residential Mortgage Commercial Mortgage Total Residential Mortgage Commercial Mortgage Total Beginning Balance $ 29 $ 6 $ 35 $ 25 $ 6 $ 31 Provision for loan losses 1 2 3 5 2 7 Ending Balance $ 30 $ 8 $ 38 $ 30 $ 8 $ 38 Three months ended September 30, 2021 Nine months ended September 30, 2021 Residential Mortgage Commercial Mortgage Total Residential Mortgage Commercial Mortgage Total Beginning Balance $ 28 $ 6 $ 34 $ 37 $ 2 $ 39 Provision for loan losses (1) — (1) (10) 4 (6) Ending Balance $ 27 $ 6 $ 33 $ 27 $ 6 $ 33 An allowance for expected credit loss is not measured on accrued interest income for commercial mortgage loans as we have a process to write-off interest on loans that enter into non-accrual status (over 90 days past due). Allowances for expected credit losses are measured on accrued interest income for residential mortgage loans and were immaterial as of September 30, 2022 and December 31, 2021. Interest and Investment Income The major sources of Interest and investment income reported on the accompanying unaudited Condensed Consolidated Statements of Earnings were as follows (in millions): Three months ended Nine months ended September 30, 2022 September 30, 2021 September 30, 2022 September 30, 2021 Fixed maturity securities, available-for-sale $ 379 $ 313 $ 1,062 $ 944 Equity securities 7 6 23 16 Preferred securities 15 13 48 45 Mortgage loans 48 34 136 90 Invested cash and short-term investments 19 4 36 5 Limited partnerships (55) 168 116 412 Tax deferred property exchange income 35 4 49 13 Other investments 13 9 27 24 Gross investment income 461 551 1,497 1,549 Investment expense (50) (43) (145) (125) Interest and investment income $ 411 $ 508 $ 1,352 $ 1,424 Recognized Gains and Losses, net Details underlying Recognized gains and losses, net reported on the accompanying unaudited Condensed Consolidated Statements of Earnings were as follows (in millions): Three months ended Nine months ended September 30, 2022 September 30, 2021 September 30, 2022 September 30, 2021 Net realized (losses) gains on fixed maturity available-for-sale securities $ (57) $ 22 $ (153) $ 75 Net realized/unrealized losses on equity securities (1) (51) (193) (423) (281) Net realized/unrealized (losses) gains on preferred securities (2) (8) (4) (216) 2 Realized (losses) gains on other invested assets (54) — (64) 8 Change in allowance for expected credit losses (8) 1 (20) 7 Derivatives and embedded derivatives: Realized (losses) gains on certain derivative instruments (74) 138 (59) 318 Unrealized losses on certain derivative instruments (70) (141) (787) (34) Change in fair value of reinsurance related embedded derivatives (3) 94 23 357 23 Change in fair value of other derivatives and embedded derivatives (2) — (10) 3 Realized (losses) gains on derivatives and embedded derivatives (52) 20 (499) 310 Recognized gains and losses, net $ (230) $ (154) $ (1,375) $ 121 (1) Includes net valuation losses of $52 million and $194 million for the three months ended September 30, 2022 and 2021, respectively, and net valuation losses of $440 million and $285 million for the nine months ended September 30, 2022 and 2021, respectively. (2) Includes net valuation losses of $6 million and $1 million for the three months ended September 30, 2022 and 2021, respectively, and net valuation (losses) gains of $(213) million and $4 million for the nine months ended September 30, 2022 and 2021, respectively. (3) Change in fair value of reinsurance related embedded derivatives is due to activity related to the reinsurance treaties with Kubera (novated from Kubera to Sommerset effective October 31, 2021) and Aspida Re. The proceeds from the sale of fixed-maturity securities and the gross gains and losses associated with those transactions were as follows (in millions): Three months ended Nine months ended September 30, 2022 September 30, 2021 September 30, 2022 September 30, 2021 Proceeds $ 731 $ 1,816 $ 2,566 $ 2,685 Gross gains 3 30 8 98 Gross losses (58) (8) (157) (24) Unconsolidated Variable Interest Entities We own investments in VIEs that are not consolidated within our financial statements. A VIE is an entity that does not have sufficient equity to finance its own activities without additional financial support, where investors lack certain characteristics of a controlling financial interest, or where the entity is structured with non-substantive voting rights. VIEs are consolidated by their ‘primary beneficiary’, a designation given to an entity that receives both the benefits from the VIE as well as the substantive power to make its key economic decisions. While we participate in the benefits from VIEs in which we invest, but do not consolidate, the substantive power to make the key economic decisions for each respective VIE resides with entities not under our common control. It is for this reason that we are not considered the primary beneficiary for the VIE investments that are not consolidated. We invest in various limited partnerships and limited liability companies primarily as a passive investor. These investments are primarily in credit funds with a bias towards current income, real assets, or private equity. Limited partnership and limited liability company interests are accounted for under the equity method and are included in Investments in unconsolidated affiliates on our unaudited Condensed Consolidated Balance Sheets. In addition, we invest in structured investments, which may be VIEs, but for which we are not the primary beneficiary. These structured investments typically invest in fixed income investments and are managed by third parties and include asset-backed securities, commercial mortgage-backed securities and residential mortgage-backed securities included in fixed maturity securities available for sale on our unaudited Condensed Consolidated Balance Sheets. Our maximum exposure to loss with respect to these VIEs is limited to the investment carrying amounts reported in our unaudited Condensed Consolidated Balance Sheets for limited partnerships and the amortized costs of our fixed maturity securities, in addition to any required unfunded commitments (also refer to Note F Commitments and Contingencies ). The following table summarizes the carrying value and the maximum loss exposure of our unconsolidated VIEs as of September 30, 2022 and December 31, 2021 (in millions). September 30, 2022 December 31, 2021 Carrying Value Maximum Loss Exposure Carrying Value Maximum Loss Exposure Investment in limited partnerships $ 2,789 $ 4,403 $ 2,350 $ 3,496 Fixed maturity securities 14,524 16,177 12,382 12,802 Total unconsolidated VIE investments $ 17,313 $ 20,580 $ 14,732 $ 16,298 Concentrations Our underlying investment concentrations that exceed 10% of shareholders equity are as follows (in millions): September 30, 2022 Blackstone Wave Asset Holdco (1) $ 902 (1) Represents a special purpose vehicle that holds investments in numerous limited partnership investments whose underlying investments are further diversified by holding interest in multiple individual investments and industries. Investment in Cannae Holdings, Inc. ("Cannae") Included in equity securities as of December 31, 2021 were 5,775,598 shares of Cannae common stock (NYSE: CNNE). The fair value of this investment based on quoted market prices as of December 31, 2021 was $203 million. During the nine months ended September 30, 2022, we sold all 5,775,598 shares of CNNE common stock back to Cannae for approximately $109 million in the aggregate. As of September 30, 2022, we held no shares of CNNE common stock." id="sjs-B4">Investments Our fixed maturity securities investments have been designated as available-for-sale ("AFS"), and are carried at fair value, net of allowance for expected credit losses, with unrealized gains and losses included in AOCI, net of associated adjustments for VOBA, DAC, DSI, unearned revenue ("UREV"), SOP 03-1 reserves, and deferred income taxes. Our preferred and equity securities investments are carried at fair value with unrealized gains and losses included in net earnings. The Company’s consolidated investments at September 30, 2022 and December 31, 2021 are summarized as follows (in millions): September 30, 2022 Amortized Cost Allowance for Expected Credit Losses Gross Unrealized Gains Gross Unrealized Losses Fair Value Available-for-sale securities Asset-backed securities $ 11,604 $ (8) $ 29 $ (781) $ 10,844 Commercial mortgage-backed securities 3,223 (1) 38 (223) 3,037 Corporates 17,116 (6) 11 (3,462) 13,659 Hybrids 809 — 7 (82) 734 Municipals 1,606 — — (286) 1,320 Residential mortgage-backed securities 1,122 (7) 1 (104) 1,012 U.S. Government 518 — — (28) 490 Foreign Governments 279 — — (54) 225 Total available-for-sale securities $ 36,277 $ (22) $ 86 $ (5,020) $ 31,321 December 31, 2021 Amortized Cost Allowance for Expected Credit Losses Gross Unrealized Gains Gross Unrealized Losses Fair Value Available-for-sale securities Asset-backed securities $ 8,516 $ (3) $ 220 $ (38) $ 8,695 Commercial mortgage-backed/asset-backed securities 2,684 (2) 308 (11) 2,979 Corporates 15,822 — 830 (158) 16,494 Hybrids 838 — 74 — 912 Municipals 1,445 — 67 (11) 1,501 Residential mortgage-backed securities 731 (3) 7 (4) 731 U.S. Government 393 — 3 (2) 394 Foreign Governments 276 — 9 (1) 284 Total available-for-sale securities $ 30,705 $ (8) $ 1,518 $ (225) $ 31,990 Securities held on deposit with various state regulatory authorities had a fair value of $16,517 million and $22,343 million at September 30, 2022 and December 31, 2021, respectively. As of September 30, 2022 and December 31, 2021, the Company held no material investments that were non-income producing for a period greater than twelve months. As of September 30, 2022 and December 31, 2021, the Company's accrued interest receivable balance was $330 million and $253 million, respectively. Accrued interest receivable is classified within Prepaid expenses and other assets within the unaudited Condensed Consolidated Balance Sheets. In accordance with our FHLB agreements, the investments supporting the funding agreement liabilities are pledged as collateral to secure the FHLB funding agreement liabilities and are not available to us for general purposes. The collateral investments had a fair value of $3,125 million and $2,469 million as of September 30, 2022 and December 31, 2021, respectively. The amortized cost and fair value of fixed maturity securities by contractual maturities, as applicable, are shown below. Actual maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations. September 30, 2022 December 31, 2021 (in millions) (in millions) Amortized Cost Fair Value Amortized Cost Fair Value Corporates, Non-structured Hybrids, Municipal and Government securities: Due in one year or less $ 496 $ 491 $ 426 $ 431 Due after one year through five years 3,394 3,159 2,998 3,051 Due after five years through ten years 2,209 1,934 2,389 2,458 Due after ten years 14,203 10,820 12,930 13,608 Subtotal 20,302 16,404 18,743 19,548 Other securities, which provide for periodic payments: Asset-backed securities 11,604 10,844 8,516 8,695 Commercial mortgage-backed securities 3,223 3,037 2,684 2,979 Structured hybrids 26 24 31 37 Residential mortgage-backed securities 1,122 1,012 731 731 Subtotal 15,975 14,917 11,962 12,442 Total fixed maturity available-for-sale securities $ 36,277 $ 31,321 $ 30,705 $ 31,990 Allowance for Expected Credit Loss We regularly review AFS securities for declines in fair value that we determine to be credit related. For our fixed maturity securities, we generally consider the following in determining whether our unrealized losses are credit related, and if so, the magnitude of the credit loss: • The extent to which the fair value is less than the amortized cost basis; • The reasons for the decline in value (credit event, currency or interest-rate related, including general credit spread widening); • The financial condition of and near-term prospects of the issuer (including issuer's current credit rating and the probability of full recovery of principal based upon the issuer's financial strength); • Current delinquencies and nonperforming assets of underlying collateral; • Expected future default rates; • Collateral value by vintage, geographic region, industry concentration or property type; • Subordination levels or other credit enhancements as of the balance sheet date as compared to origination; and • Contractual and regulatory cash obligations and the issuer's plans to meet such obligations. We recognize an allowance for current expected credit losses on fixed maturity securities in an unrealized loss position when it is determined, using the factors discussed above, a component of the unrealized loss is related to credit. We measure the credit loss using a discounted cash flow model that utilizes the single best estimate cash flow and the recognized credit loss is limited to the total unrealized loss on the security (i.e. the fair value floor). Cash flows are discounted using the implicit yield of bonds at their time of purchase and the current book yield for asset and mortgage backed securities as well as variable rate securities. We recognize the expected credit losses in Recognized gains and losses, net in the Consolidated Statements of Earnings, with an offset for the amount of non-credit impairments recognized in AOCI. We do not measure a credit loss allowance on accrued investment income because we write-off accrued interest through Interest and investment income when collectability concerns arise. We consider the following in determining whether write-offs of a security’s amortized cost is necessary: • We believe amounts related to securities have become uncollectible; • We intend to sell a security; or • It is more likely than not that we will be required to sell a security prior to recovery. If we intend to sell a fixed maturity security or it is more likely than not that we will be required to sell the security before recovery of its amortized cost basis and the fair value of the security is below amortized cost, we will write down the security to current fair value, with a corresponding charge, net of any amount previously recognized as an allowance for expected credit loss, to Recognized gains and losses, net in the accompanying Consolidated Statements of Earnings. If we do not intend to sell a fixed maturity security or it is more likely than not that we will not be required to sell a fixed maturity security before recovery of its amortized cost basis but believe amounts related to a security are uncollectible (generally based on proximity to expected credit loss), an impairment is deemed to have occurred and the amortized cost is written down to the estimated recovery value with a corresponding charge, net of any amount previously recognized as an allowance for expected credit loss, to Recognized gains and losses, net in the accompanying Consolidated Statements of Earnings. The remainder of unrealized loss is held in AOCI. As of September 30, 2022 and December 31, 2021, our allowance for expected credit losses for AFS securities was $22 million and $8 million, respectively. Purchased credit deteriorated ("PCD") financial assets are AFS securities purchased at a discount, where part of that discount is attributable to credit. Credit loss allowances are calculated for these securities as of the date of their acquisition, with the initial allowance serving to increase amortized cost. There were no purchases of PCD AFS securities during the three and nine months ended September 30, 2022 or 2021. The fair value and gross unrealized losses of AFS securities, excluding securities in an unrealized loss position with an allowance for expected credit loss, aggregated by investment category and duration of fair value below amortized cost as of September 30, 2022 and December 31, 2021 were as follows (dollars in millions): September 30, 2022 Less than 12 months 12 months or longer Total Fair Value Gross Unrealized Fair Value Gross Unrealized Fair Value Gross Unrealized Available-for-sale securities Asset-backed securities $ 8,253 $ (643) $ 1,114 $ (138) $ 9,367 $ (781) Commercial mortgage-backed securities 1,978 (176) 193 (48) 2,171 (224) Corporates 11,211 (2,552) 2,075 (910) 13,286 (3,462) Hybrids 640 (82) 2 — 642 (82) Municipals 1,180 (248) 133 (38) 1,313 (286) Residential mortgage-backed securities 833 (57) 34 (8) 867 (65) U.S. Government 379 (21) 110 (6) 489 (27) Foreign Government 137 (42) 19 (12) 156 (54) Total available-for-sale securities $ 24,611 $ (3,821) $ 3,680 $ (1,160) $ 28,291 $ (4,981) Total number of available-for-sale securities in an unrealized loss position less than twelve months 3,567 Total number of available-for-sale securities in an unrealized loss position twelve months or longer 522 Total number of available-for-sale securities in an unrealized loss position 4,089 December 31, 2021 Less than 12 months 12 months or longer Total Fair Value Gross Unrealized Fair Value Gross Unrealized Fair Value Gross Unrealized Available-for-sale securities Asset-backed securities $ 4,410 $ (31) $ 146 $ (7) $ 4,556 $ (38) Commercial mortgage-backed securities 603 (11) 1 — 604 (11) Corporates 5,391 (132) 394 (26) 5,785 (158) Hybrids 3 — — — 3 — Municipals 410 (5) 85 (6) 495 (11) Residential mortgage-backed securities 325 (3) 11 (1) 336 (4) U.S. Government 219 (2) 4 — 223 (2) Foreign Government 82 (1) 5 — 87 (1) Total available-for-sale securities $ 11,443 $ (185) $ 646 $ (40) $ 12,089 $ (225) Total number of available-for-sale securities in an unrealized loss position less than twelve months 2,056 Total number of available-for-sale securities in an unrealized loss position twelve months or longer 68 Total number of available-for-sale securities in an unrealized loss position 2,124 We determined the increase in unrealized losses as of September 30, 2022 was caused by higher treasury rates as well as wider spreads. This is in part due to the Federal Reserve's action to increase rates in efforts to combat inflation. Inflation in the first three quarters of 2022 has been compounded by supply chain issues stemming from additional COVID-19 restrictions in China, as well as higher energy prices as a result of the Russian-Ukrainian conflict. For securities in an unrealized loss position as of September 30, 2022, our allowance for expected credit loss was $22 million. We believe that unrealized loss position for which we have not recorded an allowance for expected credit loss as of September 30, 2022 was primarily attributable to interest rate increases, near-term illiquidity, and uncertainty caused by Russia's invasion of Ukraine as opposed to issuer specific credit concerns. Mortgage Loans Our mortgage loans are collateralized by commercial and residential properties. Commercial Mortgage Loans Commercial mortgage loans ("CMLs") represented approximately 5% of our total investments as of September 30, 2022. We primarily invest in mortgage loans on income producing properties including industrial properties, retail buildings, multifamily properties and office buildings. We diversify our CML portfolio by geographic region and property type to attempt to reduce concentration risk. We continuously evaluate CMLs based on relevant current information to ensure properties are performing at a consistent and acceptable level to secure the related debt. The distribution of CMLs, gross of valuation allowances, by property type and geographic region is reflected in the following tables (dollars in millions): September 30, 2022 December 31, 2021 Gross Carrying Value % of Total Gross Carrying Value % of Total Property Type: Hotel $ 18 1 % $ 19 1 % Industrial 486 20 % 497 23 % Mixed Use 12 1 % 13 1 % Multifamily 1,014 42 % 894 41 % Office 331 14 % 343 16 % Retail 106 5 % 121 6 % Student Housing 83 4 % 83 4 % Other 291 13 % 204 8 % Total commercial mortgage loans, gross of valuation allowance $ 2,341 100 % $ 2,174 100 % Allowance for expected credit loss (8) (6) Total commercial mortgage loans $ 2,333 $ 2,168 U.S. Region: East North Central $ 133 6 % $ 137 6 % East South Central 76 3 % 79 4 % Middle Atlantic 292 12 % 293 13 % Mountain 355 15 % 236 11 % New England 157 7 % 149 7 % Pacific 707 30 % 649 30 % South Atlantic 499 21 % 459 21 % West North Central 4 1 % 12 1 % West South Central 118 5 % 160 7 % Total commercial mortgage loans, gross of valuation allowance $ 2,341 100 % $ 2,174 100 % Allowance for expected credit loss (8) (6) Total commercial mortgage loans $ 2,333 $ 2,168 Loan-to-value ("LTV") and debt service coverage ("DSC") ratios are measures commonly used to assess the risk and quality of mortgage loans. The LTV ratio is expressed as a percentage of the amount of the loan relative to the value of the underlying property. A LTV ratio in excess of 100% indicates the unpaid loan amount exceeds the underlying collateral. The DSC ratio, based upon the most recently received financial statements, is expressed as a percentage of the amount of a property’s net income to its debt service payments. A DSC ratio of less than 1.00 indicates that a property’s operations do not generate sufficient income to cover debt payments. The following tables present the recorded investment in CMLs by LTV and DSC ratio categories and estimated fair value by the indicated loan-to-value ratios at September 30, 2022 and December 31, 2021 presented at gross carrying value (dollars in millions) : Debt-Service Coverage Ratios Total Amount % of Total Estimated Fair Value % of Total >1.25 1.00 - 1.25 <1.00 September 30, 2022 LTV Ratios: Less than 50% $ 492 $ 5 $ 11 $ 508 22 % $ 475 24 % 50% to 60% 669 — — 669 29 % 582 29 % 60% to 75% 1,155 — — 1,155 48 % 954 46 % 75% to 85% $ — $ — $ 9 $ 9 1 % 6 1 % Commercial mortgage loans $ 2,316 $ 5 $ 20 $ 2,341 100 % $ 2,017 100 % December 31, 2021 LTV Ratios: Less than 50% $ 626 $ 33 $ 9 $ 668 31 % $ 745 33 % 50% to 60% 470 — — 470 22 % 481 21 % 60% to 75% 1,036 — — 1,036 47 % 1,039 46 % Commercial mortgage loans $ 2,132 $ 33 $ 9 $ 2,174 100 % $ 2,265 100 % We recognize a mortgage loan as delinquent when payments on the loan are greater than 30 days past due. At September 30, 2022 we had one CML that was delinquent in principal or interest payments as shown in the risk rating exposure table below. At December 31, 2021 we had no CMLs that were delinquent in principal or interest payments. Residential Mortgage Loans Residential mortgage loans ("RMLs") represented approximately 5% of our total investments as of September 30, 2022. Our residential mortgage loans are closed end, amortizing loans and 100% of the properties are located in the United States. We diversify our RML portfolio by state to attempt to reduce concentration risk. The distribution of RMLs by state with highest-to-lowest concentration are reflected in the following tables (dollars in millions): September 30, 2022 U.S. State: Amortized Cost % of Total Florida $ 331 15 % Texas 232 10 % New Jersey 175 8 % Pennsylvania 155 7 % California 145 7 % New York 140 6 % Georgia 126 6 % All Other States (1) 926 41 % Total residential mortgage loans $ 2,230 100 % (1) The individual concentration of each state is equal to or less than 5% as of September 30, 2022. December 31, 2021 U.S. State: Amortized Cost % of Total Florida $ 231 15 % Texas 167 10 % New Jersey 150 10 % All other states (1) 1,027 65 % Total residential mortgage loans $ 1,575 100 % (1) The individual concentration of each state is less than 9% as of December 31, 2021. Residential mortgage loans have a primary credit quality indicator of either a performing or nonperforming loan. We define non-performing residential mortgage loans as those that are 90 or more days past due or in nonaccrual status, which is assessed monthly. The credit quality of RML's as of September 30, 2022 and December 31, 2021, was as follows (dollars in millions): September 30, 2022 December 31, 2021 Performance indicators: Carrying Value % of Total Carrying Value % of Total Performing $ 2,165 97 % $ 1,533 95 % Non-performing 65 3 % 73 5 % Total residential mortgage loans, gross of valuation allowance $ 2,230 100 % $ 1,606 100 % Allowance for expected loan loss (30) — % (25) — % Total residential mortgage loans $ 2,200 100 % $ 1,581 100 % Loans segregated by risk rating exposure as of September 30, 2022 and December 31, 2021, were as follows (in millions): September 30, 2022 Amortized Cost by Origination Year 2022 2021 2020 2019 2018 Prior Total Residential mortgages Current (less than 30 days past due) $ 762 $ 898 $ 229 $ 199 $ 25 $ 35 $ 2,148 30-89 days past due 3 8 2 4 — — 17 90 days or over past due — 7 16 41 1 — 65 Total residential mortgages $ 765 $ 913 $ 247 $ 244 $ 26 $ 35 $ 2,230 Commercial mortgages Current (less than 30 days past due) $ 250 $ 1,301 $ 510 $ — $ — $ 271 $ 2,332 30-89 days past due — — — — — — — 90 days or over past due — — — — — 9 9 Total commercial mortgages $ 250 $ 1,301 $ 510 $ — $ — $ 280 $ 2,341 December 31, 2021 Amortized Cost by Origination Year 2021 2020 2019 2018 2017 Prior Total Residential mortgages Current (less than 30 days past due) $ 795 $ 293 $ 323 $ 50 $ 36 $ 21 $ 1,518 30-89 days past due 5 4 6 1 — — 16 90 days or over past due 1 23 46 2 — — 72 Total residential mortgages $ 801 $ 320 $ 375 $ 53 $ 36 $ 21 $ 1,606 Commercial mortgages Current (less than 30 days past due) $ 1,301 $ 543 $ — $ 6 $ — $ 324 $ 2,174 30-89 days past due — — — — — — — 90 days or over past due — — — — — — — Total commercial mortgage $ 1,301 $ 543 $ — $ 6 $ — $ 324 $ 2,174 September 30, 2022 Amortized Cost by Origination Year 2022 2021 2020 2019 2018 Prior Total Commercial mortgages LTV Less than 50% $ 35 $ 120 $ 230 $ — $ — $ 123 $ 508 50% to 60% 105 267 158 — — 139 669 60% to 75% 110 914 122 — — 9 1,155 75% to 85% — — — — — 9 9 Total commercial mortgages $ 250 $ 1,301 $ 510 $ — $ — $ 280 $ 2,341 Commercial mortgages DSCR Greater than 1.25x $ 250 $ 1,301 $ 510 $ — $ — $ 255 $ 2,316 1.00x - 1.25x — — — — — 5 5 Less than 1.00x — — — — — 20 20 Total commercial mortgages $ 250 $ 1,301 $ 510 $ — $ — $ 280 $ 2,341 December 31, 2021 Amortized Cost by Origination Year 2021 2020 2019 2018 2017 Prior Total Commercial mortgages LTV Less than 50% $ 120 $ 229 $ — $ 6 $ — $ 313 $ 668 50% to 60% 267 192 — — — 11 470 60% to 75% 914 122 — — — — 1,036 Total commercial mortgages $ 1,301 $ 543 $ — $ 6 $ — $ 324 $ 2,174 Commercial mortgages DSCR Greater than 1.25x $ 1,301 $ 543 $ — $ 4 $ — $ 284 $ 2,132 1.00x - 1.25x — — — 2 — 31 33 Less than 1.00x — — — — — 9 9 Total commercial mortgages $ 1,301 $ 543 $ — $ 6 $ — $ 324 $ 2,174 Non-accrual loans by amortized cost as of September 30, 2022 and December 31, 2021, were as follows (in millions): Amortized cost of loans on non-accrual September 30, 2022 December 31, 2021 Residential mortgage: $ 64 $ 72 Commercial mortgage: 9 — Total non-accrual loans $ 73 $ 72 Immaterial interest income was recognized on non-accrual financing receivables for the three and nine months ended September 30, 2022. It is our policy to cease to accrue interest on loans that are over 90 days delinquent. For loans less than 90 days delinquent, interest is accrued unless it is determined that the accrued interest is not collectible. If a loan becomes over 90 days delinquent, it is our general policy to initiate foreclosure proceedings unless a workout arrangement to bring the loan current is in place. As of September 30, 2022 and December 31, 2021, we had $64 million and $72 million, respectively, of residential mortgage loans that were over 90 days past due, of which $33 million and $39 million were in the process of foreclosure as of September 30, 2022 and December 31, 2021, respectively. Allowance for Expected Credit Loss We estimate expected credit losses for our commercial and residential mortgage loan portfolios using a probability of default/loss given default model. Significant inputs to this model include, where applicable, the loans' current performance, underlying collateral type, location, contractual life, LTV, DSC and Debt to Income or FICO. The model projects losses using a two year reasonable and supportable forecast and then reverts over a three year period to market-wide historical loss experience. Changes in our allowance for expected credit losses on mortgage loans are recognized in Recognized gains and losses, net in the accompanying unaudited Condensed Consolidated Statements of Earnings. The allowances for our mortgage loan portfolio is summarized as follows (in millions): Three months ended September 30, 2022 Nine months ended September 30, 2022 Residential Mortgage Commercial Mortgage Total Residential Mortgage Commercial Mortgage Total Beginning Balance $ 29 $ 6 $ 35 $ 25 $ 6 $ 31 Provision for loan losses 1 2 3 5 2 7 Ending Balance $ 30 $ 8 $ 38 $ 30 $ 8 $ 38 Three months ended September 30, 2021 Nine months ended September 30, 2021 Residential Mortgage Commercial Mortgage Total Residential Mortgage Commercial Mortgage Total Beginning Balance $ 28 $ 6 $ 34 $ 37 $ 2 $ 39 Provision for loan losses (1) — (1) (10) 4 (6) Ending Balance $ 27 $ 6 $ 33 $ 27 $ 6 $ 33 An allowance for expected credit loss is not measured on accrued interest income for commercial mortgage loans as we have a process to write-off interest on loans that enter into non-accrual status (over 90 days past due). Allowances for expected credit losses are measured on accrued interest income for residential mortgage loans and were immaterial as of September 30, 2022 and December 31, 2021. Interest and Investment Income The major sources of Interest and investment income reported on the accompanying unaudited Condensed Consolidated Statements of Earnings were as follows (in millions): Three months ended Nine months ended September 30, 2022 September 30, 2021 September 30, 2022 September 30, 2021 Fixed maturity securities, available-for-sale $ 379 $ 313 $ 1,062 $ 944 Equity securities 7 6 23 16 Preferred securities 15 13 48 45 Mortgage loans 48 34 136 90 Invested cash and short-term investments 19 4 36 5 Limited partnerships (55) 168 116 412 Tax deferred property exchange income 35 4 49 13 Other investments 13 9 27 24 Gross investment income 461 551 1,497 1,549 Investment expense (50) (43) (145) (125) Interest and investment income $ 411 $ 508 $ 1,352 $ 1,424 Recognized Gains and Losses, net Details underlying Recognized gains and losses, net reported on the accompanying unaudited Condensed Consolidated Statements of Earnings were as follows (in millions): Three months ended Nine months ended September 30, 2022 September 30, 2021 September 30, 2022 September 30, 2021 Net realized (losses) gains on fixed maturity available-for-sale securities $ (57) $ 22 $ (153) $ 75 Net realized/unrealized losses on equity securities (1) (51) (193) (423) (281) Net realized/unrealized (losses) gains on preferred securities (2) (8) (4) (216) 2 Realized (losses) gains on other invested assets (54) — (64) 8 Change in allowance for expected credit losses (8) 1 (20) 7 Derivatives and embedded derivatives: Realized (losses) gains on certain derivative instruments (74) 138 (59) 318 Unrealized losses on certain derivative instruments (70) (141) (787) (34) Change in fair value of reinsurance related embedded derivatives (3) 94 23 357 23 Change in fair value of other derivatives and embedded derivatives (2) — (10) 3 Realized (losses) gains on derivatives and embedded derivatives (52) 20 (499) 310 Recognized gains and losses, net $ (230) $ (154) $ (1,375) $ 121 (1) Includes net valuation losses of $52 million and $194 million for the three months ended September 30, 2022 and 2021, respectively, and net valuation losses of $440 million and $285 million for the nine months ended September 30, 2022 and 2021, respectively. (2) Includes net valuation losses of $6 million and $1 million for the three months ended September 30, 2022 and 2021, respectively, and net valuation (losses) gains of $(213) million and $4 million for the nine months ended September 30, 2022 and 2021, respectively. (3) Change in fair value of reinsurance related embedded derivatives is due to activity related to the reinsurance treaties with Kubera (novated from Kubera to Sommerset effective October 31, 2021) and Aspida Re. The proceeds from the sale of fixed-maturity securities and the gross gains and losses associated with those transactions were as follows (in millions): Three months ended Nine months ended September 30, 2022 September 30, 2021 September 30, 2022 September 30, 2021 Proceeds $ 731 $ 1,816 $ 2,566 $ 2,685 Gross gains 3 30 8 98 Gross losses (58) (8) (157) (24) Unconsolidated Variable Interest Entities We own investments in VIEs that are not consolidated within our financial statements. A VIE is an entity that does not have sufficient equity to finance its own activities without additional financial support, where investors lack certain characteristics of a controlling financial interest, or where the entity is structured with non-substantive voting rights. VIEs are consolidated by their ‘primary beneficiary’, a designation given to an entity that receives both the benefits from the VIE as well as the substantive power to make its key economic decisions. While we participate in the benefits from VIEs in which we invest, but do not consolidate, the substantive power to make the key economic decisions for each respective VIE resides with entities not under our common control. It is for this reason that we are not considered the primary beneficiary for the VIE investments that are not consolidated. We invest in various limited partnerships and limited liability companies primarily as a passive investor. These investments are primarily in credit funds with a bias towards current income, real assets, or private equity. Limited partnership and limited liability company interests are accounted for under the equity method and are included in Investments in unconsolidated affiliates on our unaudited Condensed Consolidated Balance Sheets. In addition, we invest in structured investments, which may be VIEs, but for which we are not the primary beneficiary. These structured investments typically invest in fixed income investments and are managed by third parties and include asset-backed securities, commercial mortgage-backed securities and residential mortgage-backed securities included in fixed maturity securities available for sale on our unaudited Condensed Consolidated Balance Sheets. Our maximum exposure to loss with respect to these VIEs is limited to the investment carrying amounts reported in our unaudited Condensed Consolidated Balance Sheets for limited partnerships and the amortized costs of our fixed maturity securities, in addition to any required unfunded commitments (also refer to Note F Commitments and Contingencies ). The following table summarizes the carrying value and the maximum loss exposure of our unconsolidated VIEs as of September 30, 2022 and December 31, 2021 (in millions). September 30, 2022 December 31, 2021 Carrying Value Maximum Loss Exposure Carrying Value Maximum Loss Exposure Investment in limited partnerships $ 2,789 $ 4,403 $ 2,350 $ 3,496 Fixed maturity securities 14,524 16,177 12,382 12,802 Total unconsolidated VIE investments $ 17,313 $ 20,580 $ 14,732 $ 16,298 Concentrations Our underlying investment concentrations that exceed 10% of shareholders equity are as follows (in millions): September 30, 2022 Blackstone Wave Asset Holdco (1) $ 902 (1) Represents a special purpose vehicle that holds investments in numerous limited partnership investments whose underlying investments are further diversified by holding interest in multiple individual investments and industries. Investment in Cannae Holdings, Inc. ("Cannae") Included in equity securities as of December 31, 2021 were 5,775,598 shares of Cannae common stock (NYSE: CNNE). The fair value of this investment based on quoted market prices as of December 31, 2021 was $203 million. During the nine months ended September 30, 2022, we sold all 5,775,598 shares of CNNE common stock back to Cannae for approximately $109 million in the aggregate. As of September 30, 2022, we held no shares of CNNE common stock. |
