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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

2025-02-26 compared with 2024-02-28 · 30 added, 23 removed, 164 unchanged (24% of the section changed)

35 unchanged sentences

RILA Equity Market Risk

Equity market risk arises from the registered index linked annuities (RILA) we offer principally in the following ways:

• We sell RILA where the crediting rate to the contract holder is determined by reference to equity market performance.

2 unchanged sentences

Unlike variable annuities, the amount of the reduction is limited by a floor (which defines the maximum amount of market loss to which the contract holder is exposed) or buffer (which defines the amount of the market loss not credited to the contract holder).

We also offer a return of premium death benefit on our RILA.

• Many of the RILA contracts we sell have a return of premium death benefit.

Decreases in equity markets increase the likelihood that a customer’s account value will be insufficient to cover the benefit paid to the beneficiary at the time of a claim following the customer’s death.

As a result, the risk associated with such payouts is dependent on both the equity market performance and the time of the claim.

• We also offer an optional GMWB for Life.

This benefit guarantees minimum payments based on a fixed annual percentage of the benefit base.

These withdrawals may continue even if the account value subsequently falls to zero.

When equity markets decrease, we generally expect account values to decline, and the account value therefore to be able to fund relatively fewer guaranteed withdrawals.

Conversely, increases in equity markets generally increase account values and extend the number of withdrawals the account value is able to fund.

Business – “Our Product Offerings by Segment – Retail Annuities” for additional information about RILA.

In addition to equity market declines, certain other equity market changes could also increase our losses.

For example, the GMWB offered on the RILA includes a provision that steps up the benefit base if the account value exceeds the benefit base upon contract anniversary.

Therefore, if equity markets increase over the short-term but return to lower levels in the longer-term, those step-up provisions could increase the benefit base relative to the account value, resulting in additional benefit payments paid by us compared to a scenario where equity markets had remained flat over time.

The fees attributable to these guaranteed benefits are calculated based on the benefit base, so the scenario in which equity markets increase and then later decrease will also result in relatively higher fee income.

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Quantitative and Qualitative Disclosures about Market Risk

Risk Management

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ALCO regularly reviews all material financial risks in accordance with our ALM Policy.

If market risks exceed predetermined tolerances, management is required to inform the Finance and Risk Committee of our Board of Directors.

If market risks exceed predetermined tolerances, management is required to inform the Board's Finance and Risk Committee.

Management proposes how best to mitigate or address such risks, including equity market and interest rate risks.

4 unchanged sentences

We manage interest rate risk by employing product design, pricing and asset-liability management strategies intended to mitigate the potential effects of interest rate movements.

Product design and pricing strategies include the use of surrender charges, market value adjustments, restrictions on withdrawals and the ability to reset

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Quantitative and Qualitative Disclosures about Market Risk

crediting rates.

Our asset-liability management strategies may include the use of derivatives, such as interest rate swaps, interest rate swaptions (also known as a swap option) and interest rate/bond futures, as well as fixed income assets.

Product design and pricing strategies include the use of surrender charges, market value adjustments, restrictions on withdrawals and the ability to reset crediting rates.

We manage interest rate risk in aggregate, contemplating natural offsets between products before pursuing hedging transactions.

9 unchanged sentences

protecting against the economic impact of adverse market conditions, protecting our statutory capital, and stabilizing our statutory distributable earnings throughout market cycles.

Our core dynamic hedging program seeks to offset changes in economic liability associated with variable, registered index-linked, and fixed indexed annuity guaranteed benefits due to market movements, while our macro hedging program seeks to manage capital and liquidity risk.

Our core dynamic hedging program seeks to offset changes in economic liability associated with variable, registered index-linked, and fixed index annuity guaranteed benefits and index-linked interest crediting due to equity market movements, while our macro hedging program seeks to manage capital and liquidity risk.

Our hedging strategy manages equity and interest rate risk within risk tolerances through a mix of equity and interest rate derivatives and fixed income assets.

We do not directly use hedging to offset the movement in our U.S.

GAAP liabilities as market conditions change from period to period, which may result in U.S.

GAAP liabilities as market conditions change from period to period, which has resulted, and may continue to result, in U.S.

GAAP net income volatility.

Part II | Item 7A.

Quantitative and Qualitative Disclosures about Market Risk

Depending on market conditions and our capital position, we may favor the use of one type of hedging instrument over another.

3 unchanged sentences

For our equity market exposure, we compare the impact of changes to equity markets on our hedge assets relative to the liabilities these assets are intended to hedge.

For example, in periods with increasing equity markets, we expect significant losses on our equity hedges, but as increasing equity markets also generally increase contract holder account values, we expect a related decrease in the likelihood or level of future payments we need to make on our guaranteed benefits.

Likewise, in periods of decreasing markets we expect significant increases in the value of our equity hedges, but also would expect liabilities for future guaranteed benefit payments to increase.

For example, in periods with increasing equity markets, we expect significant losses on the value of our equity hedges and additional interest credited on registered index-linked and fixed index annuities, but as increasing equity markets also generally increase contract holder account values, we expect a related decrease in the likelihood or level of future payments we need to make on our guaranteed benefits.

Likewise, in periods of decreasing markets we expect significant increases in the value of our equity hedges and less interest credited on registered index-linked and fixed index annuities, but also would expect liabilities for future guaranteed benefit payments to increase.

For our interest rate exposure, similar to equity market risk, we evaluate the level of interest rate hedge coverage by comparing the impacts of interest rate movements on our hedge assets relative to the liabilities these assets are intended to hedge.

The types of derivative instruments we use to manage interest rate risk are different from those we use to manage equity market risk.

We also recognize the sensitivity of our equity hedges to interest rates but believe their contribution to the overall interest rate hedge is small due to their relatively short duration of these derivatives.

We also recognize the sensitivity of our equity hedges to interest rates but believe their contribution to the overall interest rate hedge is small due to the relatively short duration of these derivatives.

Market Risk—Fair Value Exposures

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Risk Factors – “Risks Related to Conditions in the Global Financial Markets and Economy.”

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Quantitative and Qualitative Disclosures about Market Risk

Risk Measurement—Sensitivity Analysis

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The sensitivity analysis reflects changes in fair value resulting from changes in interest rates or equity market levels and does not reflect changes in the economic value of assets or liabilities.

Part II | Item 7A.

Quantitative and Qualitative Disclosures about Market Risk

The market risk information is limited by the assumptions and parameters established in creating the related sensitivity analysis, including:

8 unchanged sentences

Based on the fair values of the financial instruments and our analysis of the impacts of the measured changes in market rates and prices, we have determined that our interest rate and equity market exposures are material.

Part II | Item 7A.

Quantitative and Qualitative Disclosures about Market Risk

The table below provides detail regarding the potential change in estimated fair value of our debt securities in addition to our variable annuity, fixed index and RILA market risk benefits and embedded derivatives due to a 50 basis point parallel increase and decrease in the yield curve by type of asset or liability (in millions):

12 unchanged sentences

Market risk benefits (4,939) (1,728) 2,001 (1,136) (2,213) 2,470

Part II | Item 7A.

Quantitative and Qualitative Disclosures about Market Risk

The fair value of certain market risk benefits reflects the present value of projected benefit payments less the present value of attributed fees.

24 unchanged sentences

Swaps $ 7,703 4.70 $ (65) $ (204) $ 66

Swaptions 23,500 0.36 (612) (752) 885

Bond Forwards 609 0.87 (51) (21) 59

Interest Rate Futures 20,592 0.25 (1,363) — 1,500

10 unchanged sentences

December 31, 2024

Calls $ — — $ — $ — $ —

Puts 26,000 0.07 (55) 59 1,226

Total options 26,000 0.07 (55) 59 1,226

Put Options $ 10,000 0.22 $ (68) $ 77 $ 286

Equity Futures 33,104 1.29 (583) — 583

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December 31, 2023

Calls $ 17,500 0.10 $ 698 $ 106 $ (99)

Puts 30,500 0.77 (473) 958 1,015

Total options 48,000 0.53 225 1,064 916

Put Options $ 26,000 0.07 $ (55) $ 59 $ 1,226

Equity Futures 24,739 1.81 (1,452) — 1,452

2 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7A. Quantitative and Qualitative Disclosures About Market Risk