| Investments | 1.25 1.00 - 1.25 <1.00 September 30, 2023 LTV Ratios: Less than 50.00% $ 527 $ 4 $ 10 $ 541 22 % $ 505 24 % 50.00% to 59.99% 765 — — 765 31 % 654 31 % 60.00% to 74.99% 1,160 27 — 1,187 47 % 952 45 % 75.00% to 84.99% — 2 9 11 — % 10 — % Greater than 85% — — 9 9 — % 6 — % Total CMLs (a) $ 2,452 $ 33 $ 28 $ 2,513 100 % $ 2,127 100 % December 31, 2022 LTV Ratios: Less than 50.00% $ 511 $ 4 $ 11 $ 526 22 % $ 490 24 % 50.00% to 59.99% 706 — — 706 29 % 615 30 % 60.00% to 74.99% 1,154 3 — 1,157 48 % 955 45 % 75.00% to 84.99% — — 18 18 1 % 14 1 % Total CMLs (a) $ 2,371 $ 7 $ 29 $ 2,407 100 % $ 2,074 100 % (a) Excludes loans under development with an amortized cost and estimated fair value of $ 21 million for September 30, 2023 and an amortized cost and estimated fair value of $9 million for December 31, 2022. September 30, 2023 Amortized Cost by Origination Year 2023 2022 2021 2020 2019 Prior Total LTV Less than 50.00% $ 52 $ 111 $ 157 $ 97 $ — $ 124 $ 541 50.00% to 59.99% 78 126 294 129 — 138 765 60.00% to 74.99% 39 81 694 373 — — 1,187 75.00% to 84.99% 2 9 — — — — 11 Greater than 85% — — — — — 9 9 Total CMLs (a) $ 171 $ 327 $ 1,145 $ 599 $ — $ 271 $ 2,513 DSCR Greater than 1.25x $ 146 $ 315 $ 1,145 $ 599 $ — $ 247 $ 2,452 1.00x - 1.25x 25 3 — — — 5 33 Less than 1.00x — 9 — — — 19 28 Total CMLs (a) $ 171 $ 327 $ 1,145 $ 599 $ — $ 271 $ 2,513 December 31, 2022 Amortized Cost by Origination Year 2022 2021 2020 2019 2018 Prior Total LTV Less than 50.00% $ 70 $ 120 $ 207 $ — $ — $ 129 $ 526 50.00% to 59.99% 149 268 158 — — 131 706 60.00% to 74.99% 113 912 123 — — 9 1,157 75.00% to 84.99% 9 — — — — 9 18 Total CMLs (a) $ 341 $ 1,300 $ 488 $ — $ — $ 278 $ 2,407 DSCR Greater than 1.25x $ 329 $ 1,300 $ 488 $ — $ — $ 254 $ 2,371 1.00x - 1.25x 3 — — — — 4 7 Less than 1.00x 9 — — — — 20 29 Total CMLs (a) $ 341 $ 1,300 $ 488 $ — $ — $ 278 $ 2,407 (a) Excludes loans under development with an amortized cost and estimated fair value of $ 21 million for September 30, 2023 and an amortized cost and estimated fair value of $9 million for December 31, 2022. We recognize a mortgage loan as delinquent when payments on the loan are greater than 30 days past due. At September 30, 2023 and December 31, 2022 we had one CML that was delinquent in principal or interest payments as shown in the risk rating exposure table above. Residential Mortgage Loans Residential mortgage loans (“RMLs”) represented approximately 6% of our total investments as of September 30, 2023 and December 31, 2022. Our RMLs 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, gross of valuation allowances (dollars in millions): September 30, 2023 U.S. State: Amortized Cost % of Total Florida $ 148 5 % New York 128 5 % All other states (a) 2,428 90 % Total RMLs, gross of valuation allowance $ 2,704 100 % (a) The individual concentration of each state is equal to or less than 5% as of September 30, 2023. December 31, 2022 U.S. State: Amortized Cost % of Total Florida $ 324 15 % Texas 215 10 % New Jersey 172 8 % Pennsylvania 153 7 % California 139 6 % New York 138 6 % Georgia 125 6 % All other states (a) 914 42 % Total RMLs, gross of valuation allowance $ 2,180 100 % (a) The individual concentration of each state is equal to or less than 5% as of December 31, 2022. RMLs 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 non-accrual status, which is assessed monthly. The credit quality of RMLs as of September 30, 2023 and December 31, 2022, was as follows (dollars in millions): September 30, 2023 December 31, 2022 Performance indicators: Amortized Cost % of Total Amortized Cost % of Total Performing $ 2,636 97 % $ 2,118 97 % Non-performing 68 3 % 62 3 % Total RMLs, gross of valuation allowance $ 2,704 100 % $ 2,180 100 % Allowance for expected loan loss (49) — % (32) — % Total RMLs, net of valuation allowance $ 2,655 100 % $ 2,148 100 % RMLs segregated by risk rating exposure as of September 30, 2023 and December 31, 2022, were as follows, gross of valuation allowances (in millions): September 30, 2023 Amortized Cost by Origination Year 2023 2022 2021 2020 2019 Prior Total Current (less than 30 days past due) $ 236 $ 948 $ 846 $ 190 $ 183 $ 194 $ 2,597 30-89 days past due 1 3 15 9 6 6 40 90 days or more past due — 4 25 13 23 2 67 Total RML mortgages $ 237 $ 955 $ 886 $ 212 $ 212 $ 202 $ 2,704 December 31, 2022 Amortized Cost by Origination Year 2022 2021 2020 2019 2018 Prior Total Current (less than 30 days past due) $ 766 $ 884 $ 214 $ 185 $ 23 $ 33 $ 2,105 30-89 days past due 2 7 — 4 — — 13 90 days or more past due 3 9 15 34 1 — 62 Total RML mortgages $ 771 $ 900 $ 229 $ 223 $ 24 $ 33 $ 2,180 Non-accrual loans by amortized cost as of September 30, 2023 and December 31, 2022, were as follows (in millions): Amortized cost of loans on non-accrual September 30, 2023 December 31, 2022 Residential mortgage: $ 67 $ 62 Commercial mortgage: 9 9 Total non-accrual mortgages $ 76 $ 71 Immaterial interest income was recognized on non-accrual financing receivables for the three and nine months ended September 30, 2023 and September 30, 2022. It is our policy to cease to accrue interest on loans that are delinquent for 90 days or more. 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 90 days or more 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, 2023 and December 31, 2022, we had $67 million and $62 million, respectively, of RMLs that were over 90 days past due, of which $37 million and $38 million were in the process of foreclosure as of September 30, 2023 and December 31, 2022 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 Operations. The allowances for our mortgage loan portfolio are summarized as follows (in millions): Three months ended September 30, 2023 Nine months ended September 30, 2023 Residential Mortgage Commercial Mortgage Total Residential Mortgage Commercial Mortgage Total Beginning Balance $ (51) $ (13) $ (64) $ (32) $ (10) $ (42) Provision for loan losses 2 (2) — (17) (5) (22) Ending Balance $ (49) $ (15) $ (64) $ (49) $ (15) $ (64) 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) 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 (90 days or more past due). Allowances for expected credit losses are measured on accrued interest income for residential mortgage loans and were immaterial as of September 30, 2023 and September 30, 2022. Interest and Investment Income The major sources of Interest and investment income reported on the accompanying unaudited Condensed Consolidated Statements of Operations were as follows (in millions): Three months ended Nine months ended September 30, 2023 September 30, 2022 September 30, 2023 September 30, 2022 Fixed maturity securities, available-for-sale $ 476 $ 364 $ 1,356 $ 1,019 Equity securities 5 5 14 12 Preferred securities 9 9 31 36 Mortgage loans 59 48 167 136 Invested cash and short-term investments 19 10 52 23 Limited partnerships 68 (55) 169 116 Other investments 5 8 19 15 Gross investment income 641 389 1,808 1,357 Investment expense (63) (49) (186) (141) Interest and investment income $ 578 $ 340 $ 1,622 $ 1,216 Interest and investment income is shown net of amounts attributable to certain funds withheld reinsurance agreements which is passed along to the reinsurer in accordance with the terms of these agreements. Interest and investment income attributable to these agreements, and thus excluded from the totals in the table above, was $102 million and $236 million for the three and nine months ended September 30, 2023, respectively, and $29 million and $67 million for the three and nine months ended September 30, 2022, respectively. Recognized Gains and (Losses), net Details underlying Recognized gains and (losses), net reported on the accompanying unaudited Condensed Consolidated Statements of Operations were as follows (in millions): Three months ended Nine months ended September 30, 2023 September 30, 2022 September 30, 2023 September 30, 2022 Net realized (losses) gains on fixed maturity available-for-sale securities $ (32) $ (54) $ (128) $ (147) Net realized/unrealized (losses) gains on equity securities (a) 7 (9) 15 (31) Net realized/unrealized (losses) gains on preferred securities (b) 2 (4) (2) (154) Realized (losses) gains on other invested assets 12 (14) 27 (18) Change in allowance for expected credit losses (4) (7) (33) (14) Derivatives and embedded derivatives: Realized (losses) gains on certain derivative instruments (30) (74) (184) (59) Unrealized (losses) gains on certain derivative instruments (297) (70) 14 (787) Change in fair value of reinsurance related embedded derivatives (c) 36 94 34 357 Change in fair value of other derivatives and embedded derivatives (3) (2) — (10) Realized (losses) gains on derivatives and embedded derivatives (294) (52) (136) (499) Recognized gains and (losses), net $ (309) $ (140) $ (257) $ (863) (a) Includes net valuation (losses) gains of $7 million and $(9) million for the three months ended September 30, 2023 and September 30, 2022, respectively, and net valuation (losses) gains of $15 million and $(31) million for the nine months ended September 30, 2023 and September 30, 2022, respectively. (b) Includes net valuation (losses) gains of $3 million and $(2) million for the three months ended September 30, 2023 and September 30, 2022, respectively, and net valuation (losses) gains of $47 million and $(151) million for the nine months ended September 30, 2023 and September 30, 2022, respectively. (c) Change in fair value of reinsurance related embedded derivatives is due to activity related to the reinsurance treaties with Somerset and Aspida Re. Recognized gains and (losses), net is shown net of amounts attributable to certain funds withheld reinsurance agreements which is passed along to the reinsurer in accordance with the terms of these agreements. Recognized gains and (losses) attributable to these agreements, and thus excluded from the totals in the table above, was $43 million and $42 million for the three and nine months ended September 30, 2023, respectively, and $105 million and $384 million for the three and nine month periods ended September 30, 2022, respectively. 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, 2023 September 30, 2022 September 30, 2023 September 30, 2022 Proceeds $ 868 $ 673 $ 1,921 $ 2,468 Gross gains 2 3 7 7 Gross losses (27) (55) (106) (149) 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 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 Condensed Consolidated Balance Sheets. Our maximum exposure to loss with respect to these VIEs is limited to the investment carrying amounts reported in our 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 N - Commitments and Contingencies ). The following table summarizes the carrying value and the maximum loss exposure of our unconsolidated VIEs as of September 30, 2023 and December 31, 2022 (in millions): September 30, 2023 December 31, 2022 Carrying Value Maximum Loss Exposure Carrying Value Maximum Loss Exposure Investment in unconsolidated affiliates $ 2,920 $ 4,525 $ 2,427 $ 4,030 Fixed maturity securities 19,320 21,091 15,680 17,404 Total unconsolidated VIE investments $ 22" id="sjs-B4">Investments Our investments in fixed maturity securities 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 within AOCI, net of 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 are summarized as follows (in millions): September 30, 2023 Amortized Cost Allowance for Expected Credit Losses Gross Unrealized Gains Gross Unrealized Losses Fair Value Carrying Value AFS securities Asset-backed securities $ 13,880 $ (18) $ 132 $ (622) $ 13,372 $ 13,372 Commercial mortgage-backed securities 4,481 (17) 12 (367) 4,109 4,109 Corporates 18,350 — 11 (3,531) 14,830 14,830 Hybrids 670 — 3 (72) 601 601 Municipals 1,816 — — (331) 1,485 1,485 Residential mortgage-backed securities 2,321 (3) 7 (156) 2,169 2,169 U.S. Government 103 — — (4) 99 99 Foreign Governments 263 — — (57) 206 206 Total AFS securities $ 41,884 $ (38) $ 165 $ (5,140) $ 36,871 $ 36,871 December 31, 2022 Amortized Cost Allowance for Expected Credit Losses Gross Unrealized Gains Gross Unrealized Losses Fair Value Carrying Value AFS securities Asset-backed securities $ 12,209 $ (8) $ 36 $ (770) $ 11,467 $ 11,467 Commercial mortgage-backed securities 3,309 (1) 12 (284) 3,036 3,036 Corporates 15,879 (15) 30 (2,995) 12,899 12,899 Hybrids 781 — 8 (84) 705 705 Municipals 1,695 — 4 (289) 1,410 1,410 Residential mortgage-backed securities 1,631 (7) 6 (109) 1,521 1,521 U.S. Government 34 — — (2) 32 32 Foreign Governments 185 — — (37) 148 148 Total AFS securities $ 35,723 $ (31) $ 96 $ (4,570) $ 31,218 $ 31,218 As of September 30, 2023 and December 31, 2022, the Company held $44 million and $27 million, respectively, of investments that were non-income producing for a period greater than twelve months. As of September 30, 2023 and December 31, 2022, the Company's accrued interest receivable balance was $ 468 358 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 $3,840 million and $3,387 million as of September 30, 2023 and December 31, 2022, respectively. The amortized cost and fair value of fixed maturity securities by contractual maturities, as applicable, are shown below (in millions). Actual maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations. September 30, 2023 December 31, 2022 Amortized Cost Fair Value Amortized Cost Fair Value Corporates, Non-structured Hybrids, Municipal and U.S. Government Securities: Due in one year or less $ 270 $ 264 $ 124 $ 123 Due after one year through five years 3,202 3,040 2,193 2,059 Due after five years through ten years 2,481 2,210 1,840 1,633 Due after ten years 15,249 11,707 14,417 11,379 Subtotal 21,202 17,221 18,574 15,194 Other securities, which provide for periodic payments: Asset-backed securities 13,880 13,372 12,209 11,467 Commercial mortgage-backed securities 4,481 4,109 3,309 3,036 Residential mortgage-backed securities 2,321 2,169 1,631 1,521 Subtotal 20,682 19,650 17,149 16,024 Total fixed maturity AFS securities $ 41,884 $ 36,871 $ 35,723 $ 31,218 Allowance for Current 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 unaudited Condensed Consolidated Statements of Operations, 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 unaudited Condensed Consolidated Statements of Operations. 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 unaudited Condensed Consolidated Statements of Operations. The remainder of unrealized loss is held in other comprehensive income in the accompanying unaudited Condensed Consolidated Statements of Equity. The activity in the allowance for expected credit losses of AFS securities aggregated by investment category was as follows (in millions): Three months ended September 30, 2023 Additions Reductions Balance at Beginning of Period For credit losses on securities for which losses were not previously recorded For initial credit losses on purchased securities accounted for as PCD financial assets (a) (Additions) reductions in allowance recorded on previously impaired securities For securities sold during the period For securities intended/required to be sold prior to recovery of amortized cost basis Write offs charged against the allowance Recoveries of amounts previously written off Balance at End of Period AFS securities Asset-backed securities $ (7) $ (7) $ — $ (4) $ — $ — $ — $ — $ (18) Commercial mortgage-backed securities (18) (1) — 2 — — — — (17) Residential mortgage-backed securities (7) (3) — 7 — — — — (3) Total AFS securities $ (32) $ (11) $ — $ 5 $ — $ — $ — $ — $ (38) Three months ended September 30, 2022 Additions Reductions Balance at Beginning of Period For credit losses on securities for which losses were not previously recorded For initial credit losses on purchased securities accounted for as PCD financial assets (a) (Additions) reductions in allowance recorded on previously impaired securities For securities sold during the period For securities intended/required to be sold prior to recovery of amortized cost basis Write offs charged against the allowance Recoveries of amounts previously written off Balance at End of Period AFS securities Asset-backed securities $ (2) $ (7) $ — $ — $ — $ — $ 1 — $ (8) Commercial mortgage-backed securities — — — — — — — — — Corporates — — — — — — — — — Residential mortgage-backed securities (3) (2) — (2) — — — — (7) Total AFS securities $ (5) $ (9) $ — $ (2) $ — $ — $ 1 $ — $ (15) Nine months ended September 30, 2023 Additions Reductions Balance at Beginning of Period For credit losses on securities for which losses were not previously recorded For initial credit losses on purchased securities accounted for as PCD financial assets (a) (Additions) reductions in allowance recorded on previously impaired securities For securities sold during the period For securities intended/required to be sold prior to recovery of amortized cost basis Write offs charged against the allowance Recoveries of amounts previously written off Balance at End of Period AFS securities Asset-backed securities $ (8) $ (13) $ — $ 3 $ — $ — $ — — $ (18) Commercial mortgage-backed securities (1) (21) — 5 — — — — (17) Corporates (15) — — — 15 — — — — Residential mortgage-backed securities (7) (4) — 8 — — — — (3) Total AFS securities $ (31) $ (38) $ — $ 16 $ 15 $ — $ — $ — $ (38) Nine months ended September 30, 2022 Additions Reductions Balance at Beginning of Period For credit losses on securities for which losses were not previously recorded For initial credit losses on purchased securities accounted for as PCD financial assets (a) (Additions) reductions in allowance recorded on previously impaired securities For securities sold during the period For securities intended/required to be sold prior to recovery of amortized cost basis Write offs charged against the allowance Recoveries of amounts previously written off Balance at End of Period AFS securities Asset-backed securities $ (3) $ (7) $ — $ (1) $ 2 $ — $ 1 — $ (8) Commercial mortgage-backed securities (2) — — — 2 — — — — Residential mortgage-backed securities (3) (2) — (2) — — — — (7) Total AFS securities $ (8) $ (9) $ — $ (3) $ 4 $ — $ 1 $ — $ (15) (a) Purchased credit deteriorated financial assets (“PCD”) PCDs 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 nine months ended September 30, 2023 or for the year ended December 31, 2022. 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, 2023 and December 31, 2022 were as follows (dollars in millions): September 30, 2023 Less than 12 months 12 months or longer Total Fair Value Gross Unrealized Fair Value Gross Unrealized Fair Value Gross Unrealized AFS securities Asset-backed securities $ 2,655 $ (174) $ 5,291 $ (404) $ 7,946 $ (578) Commercial mortgage-backed securities 1,102 (77) 1,764 (257) 2,866 (334) Corporates 5,479 (465) 9,031 (3,066) 14,510 (3,531) Hybrids 68 (3) 513 (69) 581 (72) Municipals 625 (90) 837 (242) 1,462 (332) Residential mortgage-backed securities 1,099 (28) 658 (122) 1,757 (150) U.S. Government 91 (3) 9 (1) 100 (4) Foreign Government 76 (6) 124 (50) 200 (56) Total AFS securities $ 11,195 $ (846) $ 18,227 $ (4,211) $ 29,422 $ (5,057) Total number of AFS in an unrealized loss position less than twelve months 2,024 Total number of AFS securities in an unrealized loss position twelve months or longer 2,559 Total number of AFS securities in an unrealized loss position 4,583 December 31, 2022 Less than 12 months 12 months or longer Total Fair Value Gross Unrealized Fair Value Gross Unrealized Fair Value Gross Unrealized AFS securities Asset-backed securities $ 7,001 $ (410) $ 3,727 $ (360) $ 10,728 $ (770) Commercial mortgage-backed securities 2,065 (168) 475 (116) 2,540 (284) Corporates 8,780 (1,679) 3,231 (1,312) 12,011 (2,991) Hybrids 619 (83) 3 (1) 622 (84) Municipals 948 (176) 352 (113) 1,300 (289) Residential mortgage-backed securities 990 (51) 184 (22) 1,174 (73) U.S. Government 11 (1) 21 (1) 32 (2) Foreign Government 119 (32) 14 (5) 133 (37) Total AFS securities $ 20,533 $ (2,600) $ 8,007 $ (1,930) $ 28,540 $ (4,530) Total number of AFS securities in an unrealized loss position less than twelve months 2,774 Total number of AFS securities in an unrealized loss position twelve months or longer 1,212 Total number of AFS securities in an unrealized loss position 3,986 We determined the increase in unrealized losses as of September 30, 2023, compared to December 31, 2022, was caused primarily by higher treasury rates. For securities in an unrealized loss position as of September 30, 2023, our allowance for expected credit loss was $38 million. We believe the unrealized loss position for which we have not recorded an allowance for expected credit loss as of September 30, 2023 was primarily attributable to interest rate increases, near-term illiquidity, and other macroeconomic uncertainties 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% and 6% of our total investments as of September 30, 2023 and December 31, 2022, respectively. The mortgage loans in our investment portfolio, are generally comprised of high quality commercial first lien and mezzanine real estate loans. Mortgage loans are primarily 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, 2023 December 31, 2022 Gross Carrying Value % of Total Gross Carrying Value % of Total Property Type: Hotel $ 18 1 % $ 18 1 % Industrial 583 23 % 520 22 % Mixed Use 11 — % 12 1 % Multifamily 1,012 40 % 1,013 42 % Office 327 13 % 330 14 % Retail 102 4 % 105 4 % Student Housing 83 3 % 83 3 % Other 398 16 % 335 13 % Total CMLs, gross of valuation allowance $ 2,534 100 % $ 2,416 100 % Allowance for expected credit loss (15) (10) Total CMLs, net of valuation allowance $ 2,519 $ 2,406 U.S. Region: East North Central $ 145 5 % $ 151 6 % East South Central 76 3 % 76 3 % Middle Atlantic 355 14 % 326 13 % Mountain 353 14 % 355 15 % New England 178 7 % 158 7 % Pacific 731 29 % 708 28 % South Atlantic 575 23 % 521 22 % West North Central 4 — % 4 1 % West South Central 117 5 % 117 5 % Total CMLs, gross of valuation allowance $ 2,534 100 % $ 2,416 100 % Allowance for expected credit loss (15) (10) Total CMLs, net of valuation allowance $ 2,519 $ 2,406 CMLs segregated by risk rating exposure as of September 30, 2023 and December 31, 2022, were as follows, gross of valuation allowances (in millions): September 30, 2023 Amortized Cost by Origination Year 2023 2022 2021 2020 2019 Prior Total Current (less than 30 days past due) $ 171 $ 327 $ 1,145 $ 599 $ — $ 262 $ 2,504 30-89 days past due — — — — — — — 90 days or more past due — — — — — 9 9 Total CMLs (a) $ 171 $ 327 $ 1,145 $ 599 $ — $ 271 $ 2,513 December 31, 2022 Amortized Cost by Origination Year 2022 2021 2020 2019 2018 Prior Total Current (less than 30 days past due) $ 350 $ 1,300 $ 488 $ — $ — $ 269 $ 2,407 30-89 days past due — — — — — — — 90 days or more past due — — — — — 9 9 Total CMLs $ 350 $ 1,300 $ 488 $ — $ — $ 278 $ 2,416 (a) Excludes loans under development with an amortized cost and estimated fair value of $ 21 million for September 30, 2023. 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. We normalize our DSC ratios to a 25-year amortization period for purposes of our general loan allowance evaluation. 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, gross of valuation allowances at September 30, 2023 and December 31, 2022 (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, 2023 LTV Ratios: Less than 50.00% $ 527 $ 4 $ 10 $ 541 22 % $ 505 24 % 50.00% to 59.99% 765 — — 765 31 % 654 31 % 60.00% to 74.99% 1,160 27 — 1,187 47 % 952 45 % 75.00% to 84.99% — 2 9 11 — % 10 — % Greater than 85% — — 9 9 — % 6 — % Total CMLs (a) $ 2,452 $ 33 $ 28 $ 2,513 100 % $ 2,127 100 % December 31, 2022 LTV Ratios: Less than 50.00% $ 511 $ 4 $ 11 $ 526 22 % $ 490 24 % 50.00% to 59.99% 706 — — 706 29 % 615 30 % 60.00% to 74.99% 1,154 3 — 1,157 48 % 955 45 % 75.00% to 84.99% — — 18 18 1 % 14 1 % Total CMLs (a) $ 2,371 $ 7 $ 29 $ 2,407 100 % $ 2,074 100 % (a) Excludes loans under development with an amortized cost and estimated fair value of $ 21 million for September 30, 2023 and an amortized cost and estimated fair value of $9 million for December 31, 2022. September 30, 2023 Amortized Cost by Origination Year 2023 2022 2021 2020 2019 Prior Total LTV Less than 50.00% $ 52 $ 111 $ 157 $ 97 $ — $ 124 $ 541 50.00% to 59.99% 78 126 294 129 — 138 765 60.00% to 74.99% 39 81 694 373 — — 1,187 75.00% to 84.99% 2 9 — — — — 11 Greater than 85% — — — — — 9 9 Total CMLs (a) $ 171 $ 327 $ 1,145 $ 599 $ — $ 271 $ 2,513 DSCR Greater than 1.25x $ 146 $ 315 $ 1,145 $ 599 $ — $ 247 $ 2,452 1.00x - 1.25x 25 3 — — — 5 33 Less than 1.00x — 9 — — — 19 28 Total CMLs (a) $ 171 $ 327 $ 1,145 $ 599 $ — $ 271 $ 2,513 December 31, 2022 Amortized Cost by Origination Year 2022 2021 2020 2019 2018 Prior Total LTV Less than 50.00% $ 70 $ 120 $ 207 $ — $ — $ 129 $ 526 50.00% to 59.99% 149 268 158 — — 131 706 60.00% to 74.99% 113 912 123 — — 9 1,157 75.00% to 84.99% 9 — — — — 9 18 Total CMLs (a) $ 341 $ 1,300 $ 488 $ — $ — $ 278 $ 2,407 DSCR Greater than 1.25x $ 329 $ 1,300 $ 488 $ — $ — $ 254 $ 2,371 1.00x - 1.25x 3 — — — — 4 7 Less than 1.00x 9 — — — — 20 29 Total CMLs (a) $ 341 $ 1,300 $ 488 $ — $ — $ 278 $ 2,407 (a) Excludes loans under development with an amortized cost and estimated fair value of $ 21 million for September 30, 2023 and an amortized cost and estimated fair value of $9 million for December 31, 2022. We recognize a mortgage loan as delinquent when payments on the loan are greater than 30 days past due. At September 30, 2023 and December 31, 2022 we had one CML that was delinquent in principal or interest payments as shown in the risk rating exposure table above. Residential Mortgage Loans Residential mortgage loans (“RMLs”) represented approximately 6% of our total investments as of September 30, 2023 and December 31, 2022. Our RMLs 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, gross of valuation allowances (dollars in millions): September 30, 2023 U.S. State: Amortized Cost % of Total Florida $ 148 5 % New York 128 5 % All other states (a) 2,428 90 % Total RMLs, gross of valuation allowance $ 2,704 100 % (a) The individual concentration of each state is equal to or less than 5% as of September 30, 2023. December 31, 2022 U.S. State: Amortized Cost % of Total Florida $ 324 15 % Texas 215 10 % New Jersey 172 8 % Pennsylvania 153 7 % California 139 6 % New York 138 6 % Georgia 125 6 % All other states (a) 914 42 % Total RMLs, gross of valuation allowance $ 2,180 100 % (a) The individual concentration of each state is equal to or less than 5% as of December 31, 2022. RMLs 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 non-accrual status, which is assessed monthly. The credit quality of RMLs as of September 30, 2023 and December 31, 2022, was as follows (dollars in millions): September 30, 2023 December 31, 2022 Performance indicators: Amortized Cost % of Total Amortized Cost % of Total Performing $ 2,636 97 % $ 2,118 97 % Non-performing 68 3 % 62 3 % Total RMLs, gross of valuation allowance $ 2,704 100 % $ 2,180 100 % Allowance for expected loan loss (49) — % (32) — % Total RMLs, net of valuation allowance $ 2,655 100 % $ 2,148 100 % RMLs segregated by risk rating exposure as of September 30, 2023 and December 31, 2022, were as follows, gross of valuation allowances (in millions): September 30, 2023 Amortized Cost by Origination Year 2023 2022 2021 2020 2019 Prior Total Current (less than 30 days past due) $ 236 $ 948 $ 846 $ 190 $ 183 $ 194 $ 2,597 30-89 days past due 1 3 15 9 6 6 40 90 days or more past due — 4 25 13 23 2 67 Total RML mortgages $ 237 $ 955 $ 886 $ 212 $ 212 $ 202 $ 2,704 December 31, 2022 Amortized Cost by Origination Year 2022 2021 2020 2019 2018 Prior Total Current (less than 30 days past due) $ 766 $ 884 $ 214 $ 185 $ 23 $ 33 $ 2,105 30-89 days past due 2 7 — 4 — — 13 90 days or more past due 3 9 15 34 1 — 62 Total RML mortgages $ 771 $ 900 $ 229 $ 223 $ 24 $ 33 $ 2,180 Non-accrual loans by amortized cost as of September 30, 2023 and December 31, 2022, were as follows (in millions): Amortized cost of loans on non-accrual September 30, 2023 December 31, 2022 Residential mortgage: $ 67 $ 62 Commercial mortgage: 9 9 Total non-accrual mortgages $ 76 $ 71 Immaterial interest income was recognized on non-accrual financing receivables for the three and nine months ended September 30, 2023 and September 30, 2022. It is our policy to cease to accrue interest on loans that are delinquent for 90 days or more. 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 90 days or more 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, 2023 and December 31, 2022, we had $67 million and $62 million, respectively, of RMLs that were over 90 days past due, of which $37 million and $38 million were in the process of foreclosure as of September 30, 2023 and December 31, 2022 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 Operations. The allowances for our mortgage loan portfolio are summarized as follows (in millions): Three months ended September 30, 2023 Nine months ended September 30, 2023 Residential Mortgage Commercial Mortgage Total Residential Mortgage Commercial Mortgage Total Beginning Balance $ (51) $ (13) $ (64) $ (32) $ (10) $ (42) Provision for loan losses 2 (2) — (17) (5) (22) Ending Balance $ (49) $ (15) $ (64) $ (49) $ (15) $ (64) 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) 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 (90 days or more past due). Allowances for expected credit losses are measured on accrued interest income for residential mortgage loans and were immaterial as of September 30, 2023 and September 30, 2022. Interest and Investment Income The major sources of Interest and investment income reported on the accompanying unaudited Condensed Consolidated Statements of Operations were as follows (in millions): Three months ended Nine months ended September 30, 2023 September 30, 2022 September 30, 2023 September 30, 2022 Fixed maturity securities, available-for-sale $ 476 $ 364 $ 1,356 $ 1,019 Equity securities 5 5 14 12 Preferred securities 9 9 31 36 Mortgage loans 59 48 167 136 Invested cash and short-term investments 19 10 52 23 Limited partnerships 68 (55) 169 116 Other investments 5 8 19 15 Gross investment income 641 389 1,808 1,357 Investment expense (63) (49) (186) (141) Interest and investment income $ 578 $ 340 $ 1,622 $ 1,216 Interest and investment income is shown net of amounts attributable to certain funds withheld reinsurance agreements which is passed along to the reinsurer in accordance with the terms of these agreements. Interest and investment income attributable to these agreements, and thus excluded from the totals in the table above, was $102 million and $236 million for the three and nine months ended September 30, 2023, respectively, and $29 million and $67 million for the three and nine months ended September 30, 2022, respectively. Recognized Gains and (Losses), net Details underlying Recognized gains and (losses), net reported on the accompanying unaudited Condensed Consolidated Statements of Operations were as follows (in millions): Three months ended Nine months ended September 30, 2023 September 30, 2022 September 30, 2023 September 30, 2022 Net realized (losses) gains on fixed maturity available-for-sale securities $ (32) $ (54) $ (128) $ (147) Net realized/unrealized (losses) gains on equity securities (a) 7 (9) 15 (31) Net realized/unrealized (losses) gains on preferred securities (b) 2 (4) (2) (154) Realized (losses) gains on other invested assets 12 (14) 27 (18) Change in allowance for expected credit losses (4) (7) (33) (14) Derivatives and embedded derivatives: Realized (losses) gains on certain derivative instruments (30) (74) (184) (59) Unrealized (losses) gains on certain derivative instruments (297) (70) 14 (787) Change in fair value of reinsurance related embedded derivatives (c) 36 94 34 357 Change in fair value of other derivatives and embedded derivatives (3) (2) — (10) Realized (losses) gains on derivatives and embedded derivatives (294) (52) (136) (499) Recognized gains and (losses), net $ (309) $ (140) $ (257) $ (863) (a) Includes net valuation (losses) gains of $7 million and $(9) million for the three months ended September 30, 2023 and September 30, 2022, respectively, and net valuation (losses) gains of $15 million and $(31) million for the nine months ended September 30, 2023 and September 30, 2022, respectively. (b) Includes net valuation (losses) gains of $3 million and $(2) million for the three months ended September 30, 2023 and September 30, 2022, respectively, and net valuation (losses) gains of $47 million and $(151) million for the nine months ended September 30, 2023 and September 30, 2022, respectively. (c) Change in fair value of reinsurance related embedded derivatives is due to activity related to the reinsurance treaties with Somerset and Aspida Re. Recognized gains and (losses), net is shown net of amounts attributable to certain funds withheld reinsurance agreements which is passed along to the reinsurer in accordance with the terms of these agreements. Recognized gains and (losses) attributable to these agreements, and thus excluded from the totals in the table above, was $43 million and $42 million for the three and nine months ended September 30, 2023, respectively, and $105 million and $384 million for the three and nine month periods ended September 30, 2022, respectively. 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, 2023 September 30, 2022 September 30, 2023 September 30, 2022 Proceeds $ 868 $ 673 $ 1,921 $ 2,468 Gross gains 2 3 7 7 Gross losses (27) (55) (106) (149) 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 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 Condensed Consolidated Balance Sheets. Our maximum exposure to loss with respect to these VIEs is limited to the investment carrying amounts reported in our 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 N - Commitments and Contingencies ). The following table summarizes the carrying value and the maximum loss exposure of our unconsolidated VIEs as of September 30, 2023 and December 31, 2022 (in millions): September 30, 2023 December 31, 2022 Carrying Value Maximum Loss Exposure Carrying Value Maximum Loss Exposure Investment in unconsolidated affiliates $ 2,920 $ 4,525 $ 2,427 $ 4,030 Fixed maturity securities 19,320 21,091 15,680 17,404 Total unconsolidated VIE investments $ 22 |
