v3.26.1
Derivatives and Hedge Accounting
 6 Months Ended
Jun. 30, 2026
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivatives and Hedge Accounting
9. Derivatives and Hedge Accounting
We use derivatives and other financial instruments as part of our financial risk management programs and as part of our investment
operations. Interest rate derivatives (such as interest rate futures, swaps, options and bond forwards), equity derivatives (such as
equity futures, swaps and options) and fixed maturity securities are used to economically mitigate interest rate risk, equity risk and
credit spread exposure associated with MRBs and embedded derivatives contained in insurance contract liabilities. Interest rate
derivatives are used to manage interest rate risk associated with fixed maturity securities as well as other interest rate sensitive
assets and liabilities. Equity derivatives are used to economically mitigate financial risk associated with embedded derivatives and
MRBs in certain insurance liabilities. Foreign exchange derivatives (principally foreign exchange forwards and swaps) are used to
economically mitigate risk associated with foreign denominated investments, net capital exposures and foreign currency transactions.
We use credit derivatives to manage our credit exposures. The derivatives are effective economic hedges of the exposures that they
are meant to offset. As part of our strategy to enhance investment income, in addition to hedging activities, we also enter into
derivative contracts with respect to investment operations, which may include, among other things, credit default swaps (“CDS”), total
return swaps and purchases of investments with embedded derivatives, such as equity-linked notes and convertible bonds.
Interest rate, currency and equity swaps, credit contracts, swaptions, options and forward transactions are accounted for as
derivatives, recorded on a trade-date basis and carried at fair value. Unrealized gains and losses are generally reflected in income,
except in certain situations in which hedge accounting is applied and unrealized gains and losses are reflected in AOCI. Aggregate
asset or liability positions are netted on the Condensed Consolidated Balance Sheets only to the extent permitted by qualifying master
netting arrangements in place with each respective counterparty. Cash collateral posted with counterparties in conjunction with
transactions supported by qualifying master netting arrangements is reported as a reduction of the corresponding net derivative
liability, while cash collateral received in conjunction with transactions supported by qualifying master netting arrangements is reported
as a reduction of the corresponding net derivative asset.
Derivatives, with the exception of embedded derivatives, are reported at fair value in the Condensed Consolidated Balance Sheets in
Other assets and Other liabilities. Embedded derivatives are generally presented with the host contract in the Condensed
Consolidated Balance Sheets. A bifurcated embedded derivative is measured at fair value and accounted for in the same manner as a
freestanding derivative contract. The corresponding host contract is accounted for according to the accounting guidance applicable for
that instrument.
For additional information on embedded derivatives and MRBs, see Notes 4, 13 and 14.
The following table presents the notional amounts of our derivatives and the fair value of derivative assets and liabilities in
the Condensed Consolidated Balance Sheets:
June 30, 2026
December 31, 2025
Gross Derivative
Assets
Gross Derivative
Liabilities
Gross Derivative
Assets
Gross Derivative
Liabilities
(in millions)
Notional
Amount
Fair
Value
Notional
Amount
Fair
Value
Notional
Amount
Fair
Value
Notional
Amount
Fair
Value
Derivatives designated as hedging
instruments:(a)
Interest rate contracts
$7,990
$292
$14,297
$443
$11,987
$364
$9,734
$234
Foreign exchange contracts
6,768
369
2,936
166
3,855
252
8,128
236
Derivatives not designated as
hedging instruments:(a)
Interest rate contracts
24,663
642
21,920
1,485
19,672
552
25,397
1,399
Foreign exchange contracts
9,786
543
5,763
298
6,139
459
6,847
318
Equity contracts
75,268
10,042
75,833
6,197
66,780
8,388
64,855
4,900
Credit contracts(b)
20,775
418
21,950
17
—
—
—
—
Other contracts(c)
49,978
15
44
1
49,020
14
212
4
Total derivatives, gross(d)
$195,228
$12,321
$142,743
$8,607
$157,453
$10,029
$115,173
$7,091
Counterparty netting(e)
(7,501)
(7,501)
(6,106)
(6,106)
Cash collateral(f)
(3,844)
(828)
(3,482)
(686)
Total Derivatives on Condensed
Consolidated Balance Sheets(g)
$976
$278
$441
$299
(a)Fair value amounts are shown before the effects of counterparty netting adjustments and offsetting cash collateral.
(b)Includes written credit default swaps linked to certain actively traded indices. In the case of a credit event, the maximum future payment is limited to the constituent’s
representation within the index.
(c)Consists primarily of stable value wraps and contracts with multiple underlying exposures.
(d)Includes $13.9 billion and $20.5 billion of notional amounts associated with reinsurance agreements at June 30, 2026 and December 31, 2025.
(e)Represents netting of derivative exposures covered by a qualifying master netting agreement.
(f)Represents cash collateral posted and received that is eligible for netting.
(g)Freestanding derivatives only, excludes embedded derivatives. Derivative instrument assets and liabilities are recorded in Other assets and Other liabilities,
respectively. All derivative transactions are with third parties. The fair value of assets related to bifurcated embedded derivatives were both zero at June 30, 2026 and
December 31, 2025. The fair value of liabilities related to bifurcated embedded derivatives was $17.6 billion and $16.0 billion at June 30, 2026 and December 31,
2025, respectively. A bifurcated embedded derivative is generally presented with the host contract in the Condensed Consolidated Balance Sheets. Embedded
derivatives are primarily related to guarantee features in fixed index annuities and index universal life contracts, which include equity and interest rate components;
bonds available-for-sale and the funds withheld arrangement with Fortitude Re. For additional information, see Note 7.
As of June 30, 2026 and December 31, 2025, the following amounts were recorded on the Condensed Consolidated Balance
Sheets related to the carrying amount of the hedged assets (liabilities) and cumulative basis adjustments included in the
carrying amount for fair value hedges:
June 30, 2026
December 31, 2025
(in millions)
Carrying
Amount of the
Hedged Assets
(Liabilities)
Cumulative Amount of
Fair Value Hedging
Adjustments Included
In the Carrying Amount
of the Hedged Assets
Liabilities
Carrying
Amount of the
Hedged Assets
(Liabilities)
Cumulative Amount of
Fair Value Hedging
Adjustments Included
In the Carrying Amount
of the Hedged Assets
Liabilities
Balance sheet line item in which hedged item is
recorded:
Fixed maturities, available-for-sale, at fair value(a)
$11,251
$(49)
$11,984
$(7)
Commercial mortgage and other loans(b)
$—
$(17)
$—
$(19)
Policyholder contract deposits(c)
$(14,720)
$66
$(13,022)
$(48)
(a)These amounts include the amortized cost basis of closed portfolios used to designate hedging relationships in which the hedged item is the last layer expected to be
remaining at the end of the hedging relationship. At June 30, 2026, the amortized cost basis of the closed portfolios used in these hedging relationships was $4.0
billion, the amount of the designated hedged item was $2.7 billion, and the cumulative basis adjustment associated with these hedging relationships was $(49) million.
At December 31, 2025, the amortized cost basis of the closed portfolios used in these hedging relationships was $4.0 billion, the amount of the designated hedged
item was $2.7 billion, and the cumulative basis adjustment associated with these hedging relationships was $(7) million.
(b)This relates to hedge accounting that has been discontinued, but the respective loans are still held. The cumulative adjustment is being amortized into earnings over
the remaining life of the loan.
(c)This relates to fair value hedges on GICs.
COLLATERAL
We engage in derivative transactions that are not subject to a clearing requirement directly with third parties, in most cases under
International Swaps and Derivatives Association, Inc. (“ISDA”) Master Agreements. Many of the ISDA Master Agreements also include
Credit Support Annex (“CSA”) provisions, which provide for collateral postings that may vary based on criteria such as ratings and
threshold levels. We attempt to reduce our risk with certain counterparties by entering into agreements that enable collateral to be
obtained from a counterparty on an up-front or contingent basis. We minimize the risk that counterparties might be unable to fulfill
their contractual obligations by monitoring counterparty credit exposure and collateral value and generally requiring additional
collateral to be posted upon the occurrence of certain events or circumstances. Additionally, in the case reinsurance agreements
involve derivative transactions, cash collateral is provided to us by reinsurers and can be posted to third parties under the respective
ISDA and CSA provisions.
Collateral posted by us to third parties for derivative transactions was $1.6 billion and $1.2 billion at June 30, 2026 and December 31,
2025, respectively. In the case of collateral posted under derivative transactions that are not subject to clearing, this collateral can
generally be repledged or resold by the counterparties. Collateral provided to us from third parties for derivative transactions was
$5.4 billion and $4.0 billion at June 30, 2026 and December 31, 2025, respectively. In the case of collateral provided to us under
derivative transactions that are not subject to clearing, we generally can repledge or resell collateral.
OFFSETTING
We have elected to present all derivative receivables and derivative payables, and the related cash collateral received and paid, on a
net basis on our Condensed Consolidated Balance Sheets when a legally enforceable ISDA Master Agreement exists between us and
our derivative counterparty. An ISDA Master Agreement is an agreement governing multiple derivative transactions between two
counterparties. The ISDA Master Agreement generally provides for the net settlement of all, or a specified group, of these derivative
transactions, as well as transferred collateral, through a single payment, and in a single currency, as applicable. The net settlement
provisions apply in the event of a default on, or affecting any, one derivative transaction or a termination event affecting all, or a
specified group of, derivative transactions governed by the ISDA Master Agreement.
HEDGE ACCOUNTING
We designated certain derivatives entered into with third parties as fair value hedges of available-for-sale securities held by our
insurance subsidiaries. The fair value hedges include foreign currency forwards and cross-currency swaps designated as hedges of
the change in fair value of foreign currency denominated available-for-sale securities attributable to changes in foreign exchange
rates. We also designated certain interest rate swaps entered into with third parties as fair value hedges of fixed rate GICs attributable
to changes in benchmark interest rates. In December 2025, we also entered into certain interest rate swap contracts designated as
fair value portfolio layer hedges of available-for-sale investment securities.
In 2022, we designated certain interest rate swaps entered into with related parties as cash flow hedges of forecasted coupon
payments associated with anticipated long-term debt issuances and we recognized derivative gains in AOCI. For the three and six
months ended June 30, 2026, $7 million and $14 million, respectively, and for the three and six months ended June 30, 2025, $7
million and $14 million, respectively, have been reclassified into Interest expense. The remaining amount in AOCI, of $104 million, will
be reclassified into Interest expense over the life of the hedging relationship, which can extend up to 30 years. We expect $28 million
to be reclassified into Interest expense over the next 12 months. There are no amounts excluded from the assessment of hedge
effectiveness that are recognized in earnings.
For additional information related to the debt issuances, see Note 15 to the Consolidated Financial Statements in the 2025 Form 10-K.
We also designated certain interest rate swaps as cash flow hedges of floating-rate investment assets. Related to such swaps, for the
three and six months ended June 30, 2026, we recognized derivative gains (losses) of $(99) million and
$(145) million
, respectively, in
AOCI and $2 million and $2 million, respectively, in net investment income. For the three and six months ended June 30, 2025, we
recognized derivative gains (losses) of $64 million and $246 million, respectively, in AOCI and $(14) million and $(28) million,
respectively, in net investment income. As it relates to such hedges, we do not expect any reclassifications into net investment income
over the next 12 months and there are no amounts excluded from the assessment of hedge effectiveness that are recognized in
earnings.
We use cross-currency swaps as hedging instruments in net investment hedge relationships to mitigate the foreign exchange risk
associated with our non-U.S. dollar functional currency foreign subsidiaries. For net investment hedge relationships that use
derivatives as hedging instruments, we assess hedge effectiveness and measure hedge ineffectiveness using changes in forward
rates. We recognized gains (losses) for the three and six months ended June 30, 2026 of $1 million and $3 million, respectively, and
for the three and six months ended June 30, 2025 of $(5) million and $(9) million, respectively, included in Change in foreign currency
translation adjustment in OCI related to the net investment hedge relationships. The gains (losses) recognized primarily include
transactions with related parties. A qualitative methodology is utilized to assess hedge effectiveness for net investment hedges, while
regression analysis is employed for all other hedges.
The following table presents the gain (loss) recognized in earnings on our derivative instruments in fair value hedging
relationships in the Condensed Consolidated Statements of Income (Loss):
Gains/(Losses) Recognized in Earnings for:
(in millions)
Hedging
Derivatives(a)
Excluded
Components(b)
Hedged
Items
Net Impact
Three Months Ended June 30, 2026
Interest rate contracts:
Interest credited to policyholder account balances
$(66)
$—
$63
$(3)
Net investment income
31
—
(31)
—
Foreign exchange contracts:
Realized gains (losses)
$33
$(101)
$(33)
$(101)
Three Months Ended June 30, 2025
Interest rate contracts:
Interest credited to policyholder account balances
$56
$—
$(58)
$(2)
Net investment income
—
—
—
—
Foreign exchange contracts:
Realized gains (losses)
$(619)
$(20)
$619
$(20)
Six Months Ended June 30, 2026
Interest rate contracts:
Interest credited to policyholder account balances
$(121)
$—
$117
$(4)
Net investment income
42
—
(42)
—
Foreign exchange contracts:
Realized gains (losses)
$210
$(18)
$(210)
$(18)
Six Months Ended June 30, 2025
Interest rate contracts:
Interest credited to policyholder account balances
$142
$—
$(146)
$(4)
Net investment income
—
—
—
—
Foreign exchange contracts:
Realized gains (losses)
$(883)
$127
$883
$127
(a)Gains and losses on derivative instruments designated and qualifying in fair value hedges that are included in the assessment of hedge effectiveness.
(b)Gains and losses on derivative instruments designated and qualifying in fair value hedges that are excluded from the assessment of hedge effectiveness and
recognized in earnings on a mark-to-market basis.
DERIVATIVES NOT DESIGNATED AS HEDGING INSTRUMENTS
The following table presents the effect of derivative instruments not designated as hedging instruments in the Condensed
Consolidated Statements of Income (Loss):
Gains (Losses) Recognized in Earnings
Three Months Ended                                                                                                                                                                                                                                                                                                                                                                     
June 30,
Six Months Ended                                                                                                                                                                                                                                                                                                                                                                                     
June 30,
(in millions)
2026
2025
2026
2025
By Derivative Type:
Interest rate contracts
$(25)
$(48)
$(149)
$(70)
Foreign exchange contracts
101
(397)
118
(616)
Equity contracts
1,156
352
540
(102)
Credit contracts
152
100
42
31
Other contracts
15
16
38
32
Embedded derivatives
(1,823)
(1,124)
(1,169)
(878)
Fortitude Re funds withheld embedded derivative
(316)
(251)
(302)
(847)
Total(a)
$(740)
$(1,352)
$(882)
$(2,450)
By Classification:
Policy fees
$18
$16
$34
$31
Net investment income (loss) - Fortitude Re funds withheld assets
(9)
(23)
7
(25)
Net realized gains (losses) - excluding Fortitude Re funds withheld assets
119
(785)
(103)
(1,513)
Net realized gains (losses) on Fortitude Re funds withheld assets
(10)
(59)
13
(34)
Net realized losses on Fortitude Re funds withheld embedded derivatives
(316)
(251)
(302)
(847)
Policyholder benefits
—
2
—
—
Change in the Fair value of market risk benefits(b)
(542)
(252)
(531)
(62)
Total(a)
$(740)
$(1,352)
$(882)
$(2,450)
(a)Includes gains (losses) with related parties of $2 million for the three months ended June 30, 2025, and $2 million for the six months ended June 30, 2025.
(b)This represents activity related to derivatives that economically hedge changes in fair value of certain MRBs. Excludes the impact of ceding derivative gains and losses
in conjunction with the reinsurance agreements with CSLR. Starting 2026, the amount presented is ceded to CSLR. See Note 1 for additional information.
In addition to embedded derivatives within policyholder contract deposits, certain guaranteed benefits within insurance contracts are
classified as MRBs. The change in the fair value of these benefits is disclosed in Note 14. The change in the fair value of MRBs and
the derivative instruments that hedge those risks are recognized in “Change in the fair value of MRBs, net” in the Condensed
Consolidated Statements of Income (Loss).