Insurance

12 Months Ended

Dec. 31, 2014

4. Insurance

Insurance Liabilities

Insurance liabilities are comprised of future policy benefits, PABs and other policy-related balances. Information regarding insurance liabilities by segment, as well as Corporate & Other, was as follows at:



	December 31,
	2014		2013
	(In millions)
Retail	$	136,778	$	134,904
Group, Voluntary & Worksite Benefits	30,328		29,521
Corporate Benefit Funding	115,440		112,591
Latin America	15,596		16,227
Asia	86,483		93,066
EMEA	20,520		21,657
Corporate & Other	8,157		8,075
Total	$	413,302	$	416,041

See Note 2 for information on certain segment reporting changes during the first quarter of 2015, which were retrospectively applied.

Future policy benefits are measured as follows:



Product Type:	Measurement Assumptions:
Participating life	Aggregate of (i) net level premium reserves for death and endowment policy benefits (calculated based upon the non-forfeiture interest rate, ranging from 3% to 7% for domestic business and 1% to 11% for international business, and mortality rates guaranteed in calculating the cash surrender values described in such contracts); and (ii) the liability for terminal dividends for domestic business.
Nonparticipating life	Aggregate of the present value of expected future benefit payments and related expenses less the present value of expected future net premiums. Assumptions as to mortality and persistency are based upon the Company’s experience when the basis of the liability is established. Interest rate assumptions for the aggregate future policy benefit liabilities range from 2% to 11% for domestic business and 1% to 13% for international business.
Individual and group traditional fixed annuities after annuitization	Present value of expected future payments. Interest rate assumptions used in establishing such liabilities range from 1% to 11% for domestic business and 1% to 12% for international business.
Non-medical health insurance	The net level premium method and assumptions as to future morbidity, withdrawals and interest, which provide a margin for adverse deviation. Interest rate assumptions used in establishing such liabilities range from 4% to 7% (primarily related to domestic business).
Disabled lives	Present value of benefits method and experience assumptions as to claim terminations, expenses and interest. Interest rate assumptions used in establishing such liabilities range from 3% to 8% for domestic business and 1% to 9% for international business.
Property and casualty insurance	The amount estimated for claims that have been reported but not settled and claims incurred but not reported are based upon the Company’s historical experience and other actuarial assumptions that consider the effects of current developments, anticipated trends and risk management programs, reduced for anticipated salvage and subrogation.

Participating business represented 5% of the Company’s life insurance in-force at both December 31, 2014 and 2013. Participating policies represented 18%, 19% and 20% of gross life insurance premiums for the years ended December 31, 2014, 2013 and 2012, respectively.

PABs are equal to: (i) policy account values, which consist of an accumulation of gross premium payments and investment performance; (ii) credited interest, ranging from 1% to 13% for domestic business and 1% to 12% for international business, less expenses, mortality charges and withdrawals; and (iii) fair value adjustments relating to business combinations.

Guarantees

The Company issues variable annuity products with guaranteed minimum benefits. The non-life contingent portion of GMWBs and the portion of certain GMIBs that does not require annuitization are accounted for as embedded derivatives in PABs and are further discussed in Note 9. Guarantees accounted for as insurance liabilities include:



Guarantee:			Measurement Assumptions:
GMDBs	Ÿ	A return of purchase payment upon death even if the account value is reduced to zero.	Ÿ	Present value of expected death benefits in excess of the projected account balance recognizing the excess ratably over the accumulation period based on the present value of total expected assessments.
	Ÿ	An enhanced death benefit may be available for an additional fee.	Ÿ	Assumptions are consistent with those used for amortizing DAC, and are thus subject to the same variability and risk.
			Ÿ	Investment performance and volatility assumptions are consistent with the historical experience of the appropriate underlying equity index, such as the S&P 500 Index.
			Ÿ	Benefit assumptions are based on the average benefits payable over a range of scenarios.
GMIBs	Ÿ	After a specified period of time determined at the time of issuance of the variable annuity contract, a minimum accumulation of purchase payments, even if the account value is reduced to zero, that can be annuitized to receive a monthly income stream that is not less than a specified amount.	Ÿ	Present value of expected income benefits in excess of the projected account balance at any future date of annuitization and recognizing the excess ratably over the accumulation period based on present value of total expected assessments.
	Ÿ	Certain contracts also provide for a guaranteed lump sum return of purchase premium in lieu of the annuitization benefit.	Ÿ	Assumptions are consistent with those used for estimating GMDB liabilities.
			Ÿ	Calculation incorporates an assumption for the percentage of the potential annuitizations that may be elected by the contractholder.
GMWBs	Ÿ	A return of purchase payment via partial withdrawals, even if the account value is reduced to zero, provided that cumulative withdrawals in a contract year do not exceed a certain limit.	Ÿ	Expected value of the life contingent payments and expected assessments using assumptions consistent with those used for estimating the GMDB liabilities.
	Ÿ	Certain contracts include guaranteed withdrawals that are life contingent.

The Company also issues annuity contracts that apply a lower rate on funds deposited if the contractholder elects to surrender the contract for cash and a higher rate if the contractholder elects to annuitize (“two tier annuities”). These guarantees include benefits that are payable in the event of death, maturity or at annuitization. Certain other annuity contracts contain guaranteed annuitization benefits that may be above what would be provided by the current account value of the contract. Additionally, the Company issues universal and variable life contracts where the Company contractually guarantees to the contractholder a secondary guarantee or a guaranteed paid-up benefit.

Information regarding the liabilities for guarantees (excluding base policy liabilities and embedded derivatives) relating to annuity and universal and variable life contracts was as follows:



	Annuity Contracts						Universal and Variable Life Contracts
	GMDBs			GMIBs			Secondary Guarantees			Paid-Up Guarantees		Total
	(In millions)
Direct and Assumed
Balance at January 1, 2012	$	432		$	882		$	4,463		$	221	$	5,998
Incurred guaranteed benefits (1)	252			771			348			25		1,396
Paid guaranteed benefits	(117		)	(18		)	(26		)	—		(161		)
Balance at December 31, 2012	567			1,635			4,785			246		7,233
Incurred guaranteed benefits (1)	200			229			(64		)	20		385
Paid guaranteed benefits	(82		)	(13		)	(23		)	—		(118		)
Balance at December 31, 2013	685			1,851			4,698			266		7,500
Incurred guaranteed benefits (1)	310			262			411			22		1,005
Paid guaranteed benefits	(59		)	—			(17		)	—		(76		)
Balance at December 31, 2014	$	936		$	2,113		$	5,092		$	288	$	8,429
Ceded
Balance at January 1, 2012	$	54		$	8		$	614		$	155	$	831
Incurred guaranteed benefits	22			1			139			18		180
Paid guaranteed benefits	(20		)	—			—			—		(20		)
Balance at December 31, 2012	56			9			753			173		991
Incurred guaranteed benefits	(5		)	—			175			14		184
Paid guaranteed benefits	(10		)	(2		)	—			—		(12		)
Balance at December 31, 2013	41			7			928			187		1,163
Incurred guaranteed benefits	9			—			134			15		158
Paid guaranteed benefits	(12		)	—			—			—		(12		)
Balance at December 31, 2014	$	38		$	7		$	1,062		$	202	$	1,309
Net
Balance at January 1, 2012	$	378		$	874		$	3,849		$	66	$	5,167
Incurred guaranteed benefits	230			770			209			7		1,216
Paid guaranteed benefits	(97		)	(18		)	(26		)	—		(141		)
Balance at December 31, 2012	511			1,626			4,032			73		6,242
Incurred guaranteed benefits	205			229			(239		)	6		201
Paid guaranteed benefits	(72		)	(11		)	(23		)	—		(106		)
Balance at December 31, 2013	644			1,844			3,770			79		6,337
Incurred guaranteed benefits	301			262			277			7		847
Paid guaranteed benefits	(47		)	—			(17		)	—		(64		)
Balance at December 31, 2014	$	898		$	2,106		$	4,030		$	86	$	7,120

______________


(1)	Secondary guarantees include the effects of foreign currency translation of ($343) million, ($597) million and ($39) million at December 31, 2014, 2013 and 2012, respectively.

Account balances of contracts with insurance guarantees were invested in separate account asset classes as follows at:



	December 31,
	2014		2013
	(In millions)
Fund Groupings:
Balanced	$	87,667	$	75,928
Equity	71,742		79,036
Bond	11,416		10,632
Money Market	1,024		1,157
Total	$	171,849	$	166,753

Based on the type of guarantee, the Company defines net amount at risk as listed below. These amounts include direct and assumed business, but exclude offsets from hedging or reinsurance, if any.

Variable Annuity Guarantees

In the Event of Death

Defined as the death benefit less the total contract account value, as of the balance sheet date. It represents the amount of the claim that the Company would incur if death claims were filed on all contracts on the balance sheet date and includes any additional contractual claims associated with riders purchased to assist with covering income taxes payable upon death.

At Annuitization

Defined as the amount (if any) that would be required to be added to the total contract account value to purchase a lifetime income stream, based on current annuity rates, equal to the minimum amount provided under the guaranteed benefit. This amount represents the Company’s potential economic exposure to such guarantees in the event all contractholders were to annuitize on the balance sheet date, even though the contracts contain terms that allow annuitization of the guaranteed amount only after the 10th anniversary of the contract, which not all contractholders have achieved.

Two Tier and Other Annuities

Two tier annuities are defined as the excess of the upper tier, adjusted for a profit margin, less the lower tier, as of the balance sheet date. These contracts apply a lower rate on funds if the contractholder elects to surrender the contract for cash and a higher rate if the contractholder elects to annuitize. Other annuities are defined as the amount (if any) that would be required to be added to the total contract account value to purchase a lifetime income stream, based on current annuity rates, equal to the minimum amount provided under the guaranteed benefit. This amount represents the Company’s potential economic exposure to such guarantees in the event all contractholders were to annuitize on the balance sheet date.

Universal and Variable Life Contracts

Defined as the guarantee amount less the account value, as of the balance sheet date. It represents the amount of the claim that the Company would incur if death claims were filed on all contracts on the balance sheet date.

Information regarding the types of guarantees relating to annuity contracts and universal and variable life contracts was as follows at:



	December 31,
	2014				2013
	In the Event of Death		At Annuitization		In the Event of Death		At Annuitization
	(In millions)
Annuity Contracts (1)
Variable Annuity Guarantees
Total contract account value (2)	$	196,595	$	99,000	$	201,395	$	100,527
Separate account value	$	163,566	$	95,963	$	164,500	$	96,459
Net amount at risk (2)	$	4,230	$	1,770	$	4,203	$	1,219
Average attained age of contractholders	65 years		65 years		63 years		63 years
Two Tier and Other Annuities
Account value	N/A		$	1,040	N/A		$	880
Net amount at risk	N/A		$	340	N/A		$	234
Average attained age of contractholders	N/A		50 years		N/A		50 years



	December 31,
	2014				2013
	Secondary Guarantees		Paid-Up Guarantees		Secondary Guarantees		Paid-Up Guarantees
	(In millions)
Universal and Variable Life Contracts (1)
Account value (general and separate account)	$	16,875	$	3,587	$	16,048	$	3,700
Net amount at risk	$	180,069	$	20,344	$	185,920	$	21,737
Average attained age of policyholders	56 years		61 years		55 years		60 years

______________


(1)	The Company’s annuity and life contracts with guarantees may offer more than one type of guarantee in each contract. Therefore, the amounts listed above may not be mutually exclusive.


(2)	Includes amounts, which are not reported on the consolidated balance sheets, from assumed reinsurance of certain variable annuity products from the Company’s former operating joint venture in Japan.

Obligations Under Funding Agreements

The Company issues fixed and floating rate funding agreements, which are denominated in either U.S. dollars or foreign currencies, to certain special purpose entities (“SPEs”) that have issued either debt securities or commercial paper for which payment of interest and principal is secured by such funding agreements. During the years ended December 31, 2014, 2013 and 2012, the Company issued $48.9 billion, $37.7 billion and $35.1 billion, respectively, and repaid $45.6 billion, $36.8 billion and $31.1 billion, respectively, of such funding agreements. At December 31, 2014 and 2013, liabilities for funding agreements outstanding, which are included in PABs, were $33.9 billion and $31.2 billion, respectively.

Certain of the Company’s subsidiaries are members of regional banks in the FHLB system (“FHLBanks”). Holdings of common stock of FHLBanks, included in equity securities, were as follows at:



	December 31,
	2014		2013
	(In millions)
FHLB of NY	$	661	$	700
FHLB of Des Moines	$	66	$	76
FHLB of Boston	$	55	$	64
FHLB of Pittsburgh	$	35	$	30

Such subsidiaries have also entered into funding agreements with FHLBanks and the Federal Agricultural Mortgage Corporation, a federally chartered instrumentality of the U.S. (“Farmer Mac”). The liability for such funding agreements is included in PABs. Information related to such funding agreements was as follows at:



	Liability				Collateral
	December 31,
	2014		2013		2014			2013
	(In millions)
FHLB of NY (1)	$	12,570	$	12,770	$	15,255	(2)	$	14,287	(2)
Farmer Mac (3)	$	2,750	$	2,750	$	3,162		$	3,159
FHLB of Des Moines (1)	$	1,405	$	1,405	$	1,688	(2)	$	1,596	(2)
FHLB of Boston (1)	$	575	$	450	$	666	(2)	$	808	(2)
FHLB of Pittsburgh (1)	$	435	$	375	$	1,637	(2)	$	976	(2)

______________

(1)

Represents funding agreements issued to the applicable FHLBank in exchange for cash and for which such FHLBank has been granted a lien on certain assets, some of which are in the custody of such FHLBank, including residential mortgage-backed securities (“RMBS”), to collateralize obligations under advances evidenced by funding agreements. The Company is permitted to withdraw any portion of the collateral in the custody of such FHLBank as long as there is no event of default and the remaining qualified collateral is sufficient to satisfy the collateral maintenance level. Upon any event of default by the Company, such FHLBank’s recovery on the collateral is limited to the amount of the Company’s liability to such FHLBank.


(2)	Advances are collateralized by mortgage-backed securities. The amount of collateral presented is at estimated fair value.

(3)

Represents funding agreements issued to certain SPEs that have issued debt securities for which payment of interest and principal is secured by such funding agreements, and such debt securities are also guaranteed as to payment of interest and principal by Farmer Mac. The obligations under these funding agreements are secured by a pledge of certain eligible agricultural real estate mortgage loans and may, under certain circumstances, be secured by other qualified collateral. The amount of collateral presented is at carrying value.

Liabilities for Unpaid Claims and Claim Expenses

Information regarding the liabilities for unpaid claims and claim expenses relating to property and casualty, group accident and non-medical health policies and contracts, which are reported in future policy benefits and other policy-related balances, was as follows:



	Years Ended December 31,
	2014			2013			2012
	(In millions)
Balance at January 1,	$	10,630		$	10,436		$	10,117
Less: Reinsurance recoverables	1,661			1,581			1,436
Net balance at January 1,	8,969			8,855			8,681
Incurred related to:
Current year	9,358			8,660			8,399
Prior years (1)	(70		)	(86		)	(69		)
Total incurred	9,288			8,574			8,330
Paid related to:
Current year	(6,714		)	(6,083		)	(5,689		)
Prior years	(2,383		)	(2,377		)	(2,467		)
Total paid	(9,097		)	(8,460		)	(8,156		)
Net balance at December 31,	9,160			8,969			8,855
Add: Reinsurance recoverables	1,876			1,661			1,581
Balance at December 31,	$	11,036		$	10,630		$	10,436

______________


(1)	During 2014, 2013 and 2012, as a result of changes in estimates of insured events in the respective prior year, claims and claim adjustment expenses associated with prior years decreased due to a reduction in prior year automobile bodily injury and homeowners’ severity. In addition, 2013 and 2012 included improved loss ratios for non-medical health claim liabilities.

Separate Accounts

Separate account assets and liabilities include two categories of account types: pass-through separate accounts totaling $261.3 billion and $265.4 billion at December 31, 2014 and 2013, respectively, for which the policyholder assumes all investment risk, and separate accounts for which the Company contractually guarantees either a minimum return or account value to the policyholder which totaled $55.7 billion and $51.8 billion at December 31, 2014 and 2013, respectively. The latter category consisted primarily of funding agreements and participating close-out contracts. The average interest rate credited on these contracts was 2.25% and 2.23% at December 31, 2014 and 2013, respectively.

For the years ended December 31, 2014, 2013 and 2012, there were no investment gains (losses) on transfers of assets from the general account to the separate accounts.