Derivative Financial Instruments

12 Months Ended

Dec. 31, 2011

Derivative Financial Instruments [Abstract]

Derivative Financial Instruments

4. Derivative Financial Instruments

Accounting for Derivative Financial Instruments

See Note 1 for a description of the Company’s accounting policies for derivative financial instruments.

See Note 5 for information about the fair value hierarchy for derivatives.

Primary Risks Managed by Derivative Financial Instruments and Non-Derivative Financial Instruments

The Company is exposed to various risks relating to its ongoing business operations, including interest rate risk, foreign currency risk, credit risk and equity market risk. The Company uses a variety of strategies to manage these risks, including the use of derivative instruments. The following table presents the gross notional amount, estimated fair value and primary underlying risk exposure of the Company’s derivative financial instruments, excluding embedded derivatives, held at:

		December 31,
		2011						2010
Primary Underlying Risk Exposure	Instrument Type	Notional Amount		Estimated Fair Value (1)				Notional Amount		Estimated Fair Value (1)
				Assets		Liabilities				Assets		Liabilities
		(In millions)
Interest rate	Interest rate swaps	$	79,733	$	8,241	$	2,199	$	54,803	$	2,654	$	1,516
	Interest rate floors		23,866		1,246		165		23,866		630		66
	Interest rate caps		49,665		102		—		35,412		176		1
	Interest rate futures		14,965		25		19		9,385		43		17
	Interest rate options		16,988		896		6		8,761		144		23
	Interest rate forwards		14,033		286		91		10,374		106		135
	Synthetic GICs		4,454		—		—		4,397		—		—
Foreign currency	Foreign currency swaps		16,461		1,172		1,060		17,626		1,616		1,282
	Foreign currency forwards		10,149		200		60		10,443		119		91
	Currency futures		633		—		—		493		2		—
	Currency options		1,321		6		—		5,426		50		—
	Non-derivative hedging instruments (2)		—		—		—		169		—		185
Credit	Credit default swaps		13,136		326		113		10,957		173		104
	Credit forwards		20		4		—		90		2		3
Equity market	Equity futures		7,053		26		10		8,794		21		9
	Equity options		17,099		3,263		179		33,688		1,843		1,197
	Variance swaps		18,801		397		75		18,022		198		118
	Total rate of return swaps		1,644		10		34		1,547		—		—
	Total	$	290,021	$	16,200	$	4,011	$	254,253	$	7,777	$	4,747

(1) The estimated fair value of all derivatives in an asset position is reported within other invested assets in the consolidated balance sheets and the estimated fair value of all derivatives in a liability position is reported within other liabilities in the consolidated balance sheets.

(2) The estimated fair value of non-derivative hedging instruments represents the amortized cost of the instruments, as adjusted for foreign currency transaction gains or losses. Non-derivative hedging instruments are reported within PABs in the consolidated balance sheets.

The following table presents the gross notional amount of derivative financial instruments by maturity at December 31, 2011:

	Remaining Life
	One Year or Less		After One Year Through Five Years		After Five Years Through Ten Years		After Ten Years		Total
	(In millions)
Interest rate swaps	$	5,709	$	26,479	$	18,989	$	28,556	$	79,733
Interest rate floors		—		16,866		4,000		3,000		23,866
Interest rate caps		5,000		40,151		4,514		—		49,665
Interest rate futures		14,965		—		—		—		14,965
Interest rate options		707		11,976		4,305		—		16,988
Interest rate forwards		13,358		675		—		—		14,033
Synthetic GICs		4,454		—		—		—		4,454
Foreign currency swaps		1,255		6,593		5,793		2,820		16,461
Foreign currency forwards		9,834		237		19		59		10,149
Currency futures		633		—		—		—		633
Currency options		1,321		—		—		—		1,321
Credit default swaps		174		12,315		647		—		13,136
Credit forwards		20		—		—		—		20
Equity futures		7,053		—		—		—		7,053
Equity options		538		5,254		11,307		—		17,099
Variance swaps		1,015		2,067		15,396		323		18,801
Total rate of return swaps		1,597		47		—		—		1,644
Total	$	67,633	$	122,660	$	64,970	$	34,758	$	290,021

Interest rate swaps are used by the Company primarily to reduce market risks from changes in interest rates and to alter interest rate exposure arising from mismatches between assets and liabilities (duration mismatches). In an interest rate swap, the Company agrees with another party to exchange, at specified intervals, the difference between fixed rate and floating rate interest amounts as calculated by reference to an agreed notional principal amount. These transactions are entered into pursuant to master agreements that provide for a single net payment to be made by the counterparty at each due date. The Company utilizes interest rate swaps in fair value, cash flow and non-qualifying hedging relationships.

The Company also enters into basis swaps to better match the cash flows from assets and related liabilities. In a basis swap, both legs of the swap are floating with each based on a different index. Generally, no cash is exchanged at the outset of the contract and no principal payments are made by either party. A single net payment is usually made by one counterparty at each due date. Basis swaps are included in interest rate swaps in the preceding table. The Company utilizes basis swaps in non-qualifying hedging relationships.

Inflation swaps are used as an economic hedge to reduce inflation risk generated from inflation-indexed liabilities. Inflation swaps are included in interest rate swaps in the preceding table. The Company utilizes inflation swaps in non-qualifying hedging relationships.

Implied volatility swaps are used by the Company primarily as economic hedges of interest rate risk associated with the Company’s investments in mortgage-backed securities. In an implied volatility swap, the Company exchanges fixed payments for floating payments that are linked to certain market volatility measures. If implied volatility rises, the floating payments that the Company receives will increase, and if implied volatility falls, the floating payments that the Company receives will decrease. Implied volatility swaps are included in interest rate swaps in the preceding table. The Company utilizes implied volatility swaps in non-qualifying hedging relationships.

The Company uses structured interest rate swaps to synthetically create investments that are either more expensive to acquire or otherwise unavailable in the cash markets. These transactions are a combination of a derivative and a cash instrument such as a U.S. Treasury, agency, or other fixed maturity security. Structured interest rate swaps are included in interest rate swaps in the preceding table. Structured interest rate swaps are not designated as hedging instruments.

The Company purchases interest rate caps and floors primarily to protect its floating rate liabilities against rises in interest rates above a specified level, and against interest rate exposure arising from mismatches between assets and liabilities (duration mismatches), as well as to protect its minimum rate guarantee liabilities against declines in interest rates below a specified level, respectively. In certain instances, the Company locks in the economic impact of existing purchased caps and floors by entering into offsetting written caps and floors. The Company utilizes interest rate caps and floors in non-qualifying hedging relationships.

In exchange-traded interest rate (Treasury and swap) futures transactions, the Company agrees to purchase or sell a specified number of contracts, the value of which is determined by the different classes of interest rate securities, and to post variation margin on a daily basis in an amount equal to the difference in the daily market values of those contracts. The Company enters into exchange-traded futures with regulated futures commission merchants that are members of the exchange. Exchange-traded interest rate (Treasury and swap) futures are used primarily to hedge mismatches between the duration of assets in a portfolio and the duration of liabilities supported by those assets, to hedge against changes in value of securities the Company owns or anticipates acquiring and to hedge against changes in interest rates on anticipated liability issuances by replicating Treasury or swap curve performance. The Company utilizes exchange-traded interest rate futures in non-qualifying hedging relationships.

Swaptions are used by the Company to hedge interest rate risk associated with the Company’s long-term liabilities and invested assets. A swaption is an option to enter into a swap with a forward starting effective date. In certain instances, the Company locks in the economic impact of existing purchased swaptions by entering into offsetting written swaptions. The Company pays a premium for purchased swaptions and receives a premium for written swaptions. Swaptions are included in interest rate options in the preceding table. The Company utilizes swaptions in non-qualifying hedging relationships.

The Company writes covered call options on its portfolio of U.S. Treasury securities as an income generation strategy. In a covered call transaction, the Company receives a premium at the inception of the contract in exchange for giving the derivative counterparty the right to purchase the referenced security from the Company at a predetermined price. The call option is “covered” because the Company owns the referenced security over the term of the option. Covered call options are included in interest rate options in the preceding table. The Company utilizes covered call options in non-qualifying hedging relationships.

The Company enters into interest rate forwards to buy and sell securities. The price is agreed upon at the time of the contract and payment for such a contract is made at a specified future date. The Company also uses interest rate forwards to sell to be announced securities as economic hedges against the risk of changes in the fair value of mortgage loans held-for-sale and interest rate lock commitments. The Company utilizes interest rate forwards in cash flow and non-qualifying hedging relationships.

Interest rate lock commitments are short-term commitments to fund mortgage loan applications in process (the pipeline) for a fixed term for a fixed rate or spread. During the term of an interest rate lock commitment, the Company is exposed to the risk that interest rates will change from the rate quoted to the potential borrower. Interest rate lock commitments to fund mortgage loans that will be held-for-sale are considered derivative instruments. Interest rate lock commitments are included in interest rate forwards in the preceding table. Interest rate lock commitments are not designated as hedging instruments.

A synthetic GIC is a contract that simulates the performance of a traditional guaranteed interest contract through the use of financial instruments. Under a synthetic GIC, the policyholder owns the underlying assets. The Company guarantees a rate return on those assets for a premium. Synthetic GICs are not designated as hedging instruments.

Foreign currency derivatives, including foreign currency swaps, foreign currency forwards, currency options, and currency futures contracts, are used by the Company to reduce the risk from fluctuations in foreign currency exchange rates associated with its assets and liabilities denominated in foreign currencies. The Company also uses foreign currency forwards and swaps to hedge the foreign currency risk associated with certain of its net investments in foreign operations.

In a foreign currency swap transaction, the Company agrees with another party to exchange, at specified intervals, the difference between one currency and another at a fixed exchange rate, generally set at inception, calculated by reference to an agreed upon principal amount. The principal amount of each currency is exchanged at the inception and termination of the currency swap by each party. The Company utilizes foreign currency swaps in fair value, cash flow, net investment in foreign operations and non-qualifying hedging relationships.

In a foreign currency forward transaction, the Company agrees with another party to deliver a specified amount of an identified currency at a specified future date. The price is agreed upon at the time of the contract and payment for such a contract is made in a different currency at the specified future date. The Company utilizes foreign currency forwards in fair value, net investment in foreign operations and non-qualifying hedging relationships.

In exchange-traded currency futures transactions, the Company agrees to purchase or sell a specified number of contracts, the value of which is determined by referenced currencies, and to post variation margin on a daily basis in an amount equal to the difference in the daily market values of those contracts. The Company enters into exchange-traded futures with regulated futures commission merchants that are members of the exchange. Exchange-traded currency futures are used primarily to hedge currency mismatches between assets and liabilities. The Company utilizes exchange-traded currency futures in non-qualifying hedging relationships.

The Company enters into currency option contracts that give it the right, but not the obligation, to sell the foreign currency amount in exchange for a functional currency amount within a limited time at a contracted price. The contracts may also be net settled in cash, based on differentials in the foreign exchange rate and the strike price. The Company uses currency options to hedge against the foreign currency exposure inherent in certain of its variable annuity products. The Company also uses currency options as an economic hedge of foreign currency exposure related to the Company’s international subsidiaries. The Company utilizes currency options in non-qualifying hedging relationships.

The Company uses certain of its foreign currency denominated funding agreements to hedge portions of its net investments in foreign operations against adverse movements in exchange rates. Such contracts are included in non-derivative hedging instruments in the preceding table.

Swap spreadlocks are used by the Company to hedge invested assets on an economic basis against the risk of changes in credit spreads. Swap spreadlocks are forward transactions between two parties whose underlying reference index is a forward starting interest rate swap where the Company agrees to pay a coupon based on a predetermined reference swap spread in exchange for receiving a coupon based on a floating rate. The Company has the option to cash settle with the counterparty in lieu of maintaining the swap after the effective date. The Company utilizes swap spreadlocks in non-qualifying hedging relationships.

Certain credit default swaps are used by the Company to hedge against credit-related changes in the value of its investments. In a credit default swap transaction, the Company agrees with another party, at specified intervals, to pay a premium to hedge credit risk. If a credit event, as defined by the contract, occurs, the contract may be cash settled or it may be settled gross by the delivery of par quantities of the referenced investment equal to the specified swap notional in exchange for the payment of cash amounts by the counterparty equal to the par value of the investment surrendered. The Company utilizes credit default swaps in non-qualifying hedging relationships.

Credit default swaps are also used to synthetically create investments that are either more expensive to acquire or otherwise unavailable in the cash markets. These transactions are a combination of a derivative and one or more cash instruments such as U.S. Treasury securities, agency securities or other fixed maturity securities. The Company also enters into certain credit default swaps held in relation to trading portfolios for the purpose of generating profits on short-term differences in price. These credit default swaps are not designated as hedging instruments.

The Company enters into forwards to lock in the price to be paid for forward purchases of certain securities. The price is agreed upon at the time of the contract and payment for the contract is made at a specified future date. When the primary purpose of entering into these transactions is to hedge against the risk of changes in purchase price due to changes in credit spreads, the Company designates these as credit forwards. The Company utilizes credit forwards in cash flow hedging relationships.

In exchange-traded equity futures transactions, the Company agrees to purchase or sell a specified number of contracts, the value of which is determined by the different classes of equity securities, and to post variation margin on a daily basis in an amount equal to the difference in the daily market values of those contracts. The Company enters into exchange-traded futures with regulated futures commission merchants that are members of the exchange. Exchange-traded equity futures are used primarily to hedge liabilities embedded in certain variable annuity products offered by the Company. The Company utilizes exchange-traded equity futures in non-qualifying hedging relationships.

Equity index options are used by the Company primarily to hedge minimum guarantees embedded in certain variable annuity products offered by the Company. To hedge against adverse changes in equity indices, the Company enters into contracts to sell the equity index within a limited time at a contracted price. The contracts will be net settled in cash based on differentials in the indices at the time of exercise and the strike price. Certain of these contracts may also contain settlement provisions linked to interest rates. In certain instances, the Company may enter into a combination of transactions to hedge adverse changes in equity indices within a pre-determined range through the purchase and sale of options. Equity index options are included in equity options in the preceding table. The Company utilizes equity index options in non-qualifying hedging relationships.

Equity variance swaps are used by the Company primarily to hedge minimum guarantees embedded in certain variable annuity products offered by the Company. In an equity variance swap, the Company agrees with another party to exchange amounts in the future, based on changes in equity volatility over a defined period. Equity variance swaps are included in variance swaps in the preceding table. The Company utilizes equity variance swaps in non-qualifying hedging relationships.

Total rate of return swaps (“TRRs”) are swaps whereby the Company agrees with another party to exchange, at specified intervals, the difference between the economic risk and reward of an asset or a market index and the London Inter-Bank Offered Rate (“LIBOR”), calculated by reference to an agreed notional principal amount. No cash is exchanged at the outset of the contract. Cash is paid and received over the life of the contract based on the terms of the swap. These transactions are entered into pursuant to master agreements that provide for a single net payment to be made by the counterparty at each due date. The Company uses TRRs to hedge its equity market guarantees in certain of its insurance products. TRRs can be used as hedges or to synthetically create investments. The Company utilizes TRRs in non-qualifying hedging relationships.

Hedging

The following table presents the gross notional amount and estimated fair value of derivatives designated as hedging instruments by type of hedge designation at:

	December 31,
	2011						2010
	Notional Amount		Estimated Fair Value				Notional Amount		Estimated Fair Value
Derivatives Designated as Hedging Instruments			Assets		Liabilities				Assets		Liabilities
	(In millions)
Fair value hedges:
Foreign currency swaps	$	3,220	$	500	$	98	$	4,524	$	907	$	145
Foreign currency forwards		1,830		2		10		—		—		—
Interest rate swaps		4,580		1,884		92		5,108		823		169
Subtotal		9,630		2,386		200		9,632		1,730		314
Cash flow hedges:
Foreign currency swaps		6,370		352		306		5,556		213		347
Interest rate swaps		3,230		947		—		3,562		102		116
Interest rate forwards		965		210		—		1,140		—		107
Credit forwards		20		4		—		90		2		3
Subtotal		10,585		1,513		306		10,348		317		573
Foreign operations hedges:
Foreign currency forwards		1,689		53		12		1,935		9		26
Non-derivative hedging instruments		—		—		—		169		—		185
Subtotal		1,689		53		12		2,104		9		211
Total qualifying hedges	$	21,904	$	3,952	$	518	$	22,084	$	2,056	$	1,098

The following table presents the gross notional amount and estimated fair value of derivatives that were not designated or do not qualify as hedging instruments by derivative type at:

	December 31,
	2011						2010
Derivatives Not Designated or Not Qualifying as Hedging Instruments	Notional Amount		Estimated Fair Value				Notional Amount		Estimated Fair Value
			Assets		Liabilities				Assets		Liabilities
	(In millions)
Interest rate swaps	$	71,923	$	5,410	$	2,107	$	46,133	$	1,729	$	1,231
Interest rate floors		23,866		1,246		165		23,866		630		66
Interest rate caps		49,665		102		—		35,412		176		1
Interest rate futures		14,965		25		19		9,385		43		17
Interest rate options		16,988		896		6		8,761		144		23
Interest rate forwards		13,068		76		91		9,234		106		28
Synthetic GICs		4,454		—		—		4,397		—		—
Foreign currency swaps		6,871		320		656		7,546		496		790
Foreign currency forwards		6,630		145		38		8,508		110		65
Currency futures		633		—		—		493		2		—
Currency options		1,321		6		—		5,426		50		—
Credit default swaps		13,136		326		113		10,957		173		104
Equity futures		7,053		26		10		8,794		21		9
Equity options		17,099		3,263		179		33,688		1,843		1,197
Variance swaps		18,801		397		75		18,022		198		118
Total rate of return swaps		1,644		10		34		1,547		—		—
Total non-designated or non-qualifying derivatives	$	268,117	$	12,248	$	3,493	$	232,169	$	5,721	$	3,649

Net Derivative Gains (Losses)

The components of net derivative gains (losses) were as follows:

	Years Ended December 31,
	2011			2010			2009
	(In millions)
Derivatives and hedging gains (losses) (1)	$	6,108		$	122		$	(6,624	)
Embedded derivatives		(1,284	)		(387	)		1,758
Total net derivative gains (losses)	$	4,824		$	(265	)	$	(4,866	)

(1) Includes foreign currency transaction gains (losses) on hedged items in cash flow and non-qualifying hedging relationships, which are not presented elsewhere in this note.

The following table presents earned income on derivatives for the:

	Years Ended December 31,
	2011			2010			2009
	(In millions)
Qualifying hedges:
Net investment income	$	98		$	83		$	49
Interest credited to policyholder account balances		214			233			220
Other expenses		(4	)		(6	)		(3	)
Non-qualifying hedges:
Net investment income		(8	)		(3	)		(2	)
Other revenues		75			108			77
Net derivative gains (losses)		411			65			91
Policyholder benefits and claims		17			—			—
Total	$	803		$	480		$	432

Fair Value Hedges

The Company designates and accounts for the following as fair value hedges when they have met the requirements of fair value hedging: (i) interest rate swaps to convert fixed rate investments to floating rate investments; (ii) interest rate swaps to convert fixed rate liabilities to floating rate liabilities; (iii) foreign currency swaps to hedge the foreign currency fair value exposure of foreign currency denominated investments and liabilities; and (iv) foreign currency forwards to hedge the foreign currency fair value exposure of foreign currency denominated fixed rate investments.

The Company recognizes gains and losses on derivatives and the related hedged items in fair value hedges within net derivative gains (losses). The following table represents the amount of such net derivative gains (losses):

Derivatives in Fair Value Hedging Relationships	Hedged Items in Fair Value Hedging Relationships	Net Derivative Gains (Losses) Recognized for Derivatives			Net Derivative Gains (Losses) Recognized for Hedged Items			Ineffectiveness Recognized in Net Derivative Gains (Losses)
		(In millions)
For the Year Ended December 31, 2011:
Interest rate swaps:	Fixed maturity securities	$	(25	)	$	22		$	(3	)
	PABs (1)		1,054			(1,030	)		24
Foreign currency swaps:	Foreign-denominated fixed maturity securities		1			3			4
	Foreign-denominated PABs (2)		(24	)		(25	)		(49	)
Foreign currency forwards:	Foreign-denominated fixed maturity securities		(25	)		25			—
Total		$	981		$	(1,005	)	$	(24	)
For the Year Ended December 31, 2010:
Interest rate swaps:	Fixed maturity securities	$	(14	)	$	16		$	2
	PABs (1)		140			(142	)		(2	)
Foreign currency swaps:	Foreign-denominated fixed maturity securities		14			(14	)		—
	Foreign-denominated PABs (2)		9			(20	)		(11	)
Foreign currency forwards:	Foreign-denominated fixed maturity securities		—			—			—
Total		$	149		$	(160	)	$	(11	)
For the Year Ended December 31, 2009:
Interest rate swaps:	Fixed maturity securities	$	49		$	(42	)	$	7
	PABs (1)		(963	)		951			(12	)
Foreign currency swaps:	Foreign-denominated fixed maturity securities		(13	)		10			(3	)
	Foreign-denominated PABs (2)		462			(449	)		13
Foreign currency forwards:	Foreign-denominated fixed maturity securities		—			—			—
Total		$	(465	)	$	470		$	5

(1) Fixed rate liabilities.

(2) Fixed rate or floating rate liabilities.

For the Company’s foreign currency forwards, the change in the fair value of the derivative related to the changes in the difference between the spot price and the forward price is excluded from the assessment of hedge effectiveness. For all other derivatives, all components of each derivative’s gain or loss were included in the assessment of hedge effectiveness. For the year ended December 31, 2011, ($3) million of the change in fair value of derivatives was excluded from the assessment of hedge effectiveness. For the years ended December 31, 2010 and 2009, no component of the change in fair value of derivatives was excluded from the assessment of hedge effectiveness.

Cash Flow Hedges

The Company designates and accounts for the following as cash flow hedges when they have met the requirements of cash flow hedging: (i) interest rate swaps to convert floating rate investments to fixed rate investments; (ii) interest rate swaps to convert floating rate liabilities to fixed rate liabilities; (iii) foreign currency swaps to hedge the foreign currency cash flow exposure of foreign currency denominated investments and liabilities; (iv) interest rate forwards and credit forwards to lock in the price to be paid for forward purchases of investments; (v) interest rate swaps and interest rate forwards to hedge the forecasted purchases of fixed-rate investments; and (vi) interest rate swaps and interest rate forwards to hedge forecasted fixed-rate borrowings.

In certain instances, the Company discontinued cash flow hedge accounting because the forecasted transactions did not occur on the anticipated date, within two months of that date, or were no longer probable of occurring. The net amounts reclassified into net derivative gains (losses) for the years ended December 31, 2011, 2010 and 2009 related to such discontinued cash flow hedges were gains (losses) of ($13) million, $9 million and ($7) million, respectively.

At December 31, 2011 and 2010, the maximum length of time over which the Company was hedging its exposure to variability in future cash flows for forecasted transactions did not exceed nine years and seven years, respectively.

The following table presents the components of accumulated other comprehensive income (loss), before income tax, related to cash flow hedges:

	Years Ended December 31,
	2011			2010			2009
	(In millions)
Accumulated other comprehensive income (loss), balance at January 1,	$	(59	)	$	(76	)	$	82
Gains (losses) deferred in other comprehensive income (loss) on the effective portion of cash flow hedges		1,552			(51	)		(221	)
Amounts reclassified to net derivative gains (losses)		9			65			54
Amounts reclassified to net investment income		3			4			8
Amounts reclassified to other expenses		9			(1	)		3
Amortization of transition adjustment		—			—			(2	)
Accumulated other comprehensive income (loss), balance at December 31,	$	1,514		$	(59	)	$	(76	)

At December 31, 2011, $13 million of deferred net gains (losses) on derivatives in accumulated other comprehensive income (loss) was expected to be reclassified to earnings within the next 12 months.

The following table presents the effects of derivatives in cash flow hedging relationships on the consolidated statements of operations and the consolidated statements of equity:

Derivatives in Cash Flow Hedging Relationships	Amount of Gains (Losses) Deferred in Accumulated Other Comprehensive  Income (Loss) on Derivatives			Amount and Location of Gains (Losses) Reclassified from Accumulated Other Comprehensive Income (Loss) into Income (Loss)									Amount and Location of Gains (Losses) Recognized in Income (Loss) on Derivatives
	(Effective Portion)			(Effective Portion)									(Ineffective Portion and Amount Excluded from Effectiveness Testing)
				Net Derivative Gains (Losses)			Net Investment Income			Other Expenses			Net Derivative Gains (Losses)			Net Investment Income
	(In millions)
For the Year Ended December 31, 2011:
Interest rate swaps	$	1,023		$	(42	)	$	1		$	(10	)	$	1		$	—
Foreign currency swaps		175			—			(6	)		2			2			—
Interest rate forwards		336			31			1			(1	)		2			—
Credit forwards		18			2			1			—			—			—
Total	$	1,552		$	(9	)	$	(3	)	$	(9	)	$	5		$	—
For the Year Ended December 31, 2010:
Interest rate swaps	$	13		$	—		$	—		$	(1	)	$	3		$	—
Foreign currency swaps		34			(79	)		(6	)		2			—			—
Interest rate forwards		(117	)		14			2			—			(2	)		—
Credit forwards		19			—			—			—			—			—
Total	$	(51	)	$	(65	)	$	(4	)	$	1		$	1		$	—
For the Year Ended December 31, 2009:
Interest rate swaps	$	(45	)	$	—		$	—		$	(4	)	$	(2	)	$	—
Foreign currency swaps		(319	)		(133	)		(6	)		1			(1	)		—
Interest rate forwards		147			79			—			—			—			—
Credit forwards		(4	)		—			—			—			—			—
Total	$	(221	)	$	(54	)	$	(6	)	$	(3	)	$	(3	)	$	—

All components of each derivative’s gain or loss were included in the assessment of hedge effectiveness.

Hedges of Net Investments in Foreign Operations

The Company uses foreign exchange contracts, which may include foreign currency swaps, forwards and options, to hedge portions of its net investments in foreign operations against adverse movements in exchange rates. The Company measures ineffectiveness on these contracts based upon the change in forward rates. In addition, the Company may also use non-derivative financial instruments to hedge portions of its net investments in foreign operations against adverse movements in exchange rates. The Company measures ineffectiveness on non-derivative financial instruments based upon the change in spot rates.

When net investments in foreign operations are sold or substantially liquidated, the amounts in accumulated other comprehensive income (loss) are reclassified to the consolidated statements of operations, while a pro rata portion will be reclassified upon partial sale of the net investments in foreign operations.

The following table presents the effects of derivatives and non-derivative financial instruments in net investment hedging relationships in the consolidated statements of operations and the consolidated statements of equity:

Derivatives and Non-Derivative Hedging Instruments in Net Investment Hedging Relationships (1), (2)	Amount of Gains (Losses) Deferred in Accumulated Other Comprehensive Income (Loss) (Effective Portion)								Amount and Location of Gains (Losses) Reclassified From Accumulated Other Comprehensive Income (Loss) into Income (Loss) (Effective Portion)
									Net Investment Gains (Losses)
	Years Ended December 31,								Years Ended December 31,
	2011		2010			2009			2011		2010		2009
	(In millions)
Foreign currency forwards	$	62	$	(167	)	$	(244	)	$	—	$	—	$	(59	)
Foreign currency swaps		—		—			(18	)		—		—		(63	)
Non-derivative hedging instruments		6		(16	)		(37	)		—		—		(11	)
Total	$	68	$	(183	)	$	(299	)	$	—	$	—	$	(133	)

(1) During the year ended December 31, 2011, the Company sold its interest in MSI MetLife, which was a hedged item in a net investment hedging relationship. As a result, the Company released losses of $71 million from accumulated other comprehensive income (loss) upon the sale. This release did not impact net income for the year ended December 31, 2011 as such losses were considered in the overall impairment evaluation of the investment prior to sale. During the year ended December 31, 2010, there were no sales or substantial liquidations of net investments in foreign operations that would have required the reclassification of gains or losses from accumulated other comprehensive income (loss) into earnings. During the year ended December 31, 2009, the Company substantially liquidated, through assumption reinsurance, the portion of its Canadian operations that was being hedged in a net investment hedging relationship. As a result, the Company reclassified losses of $133 million from accumulated other comprehensive income (loss) into earnings. See Note 2.

(2) There was no ineffectiveness recognized for the Company’s hedges of net investments in foreign operations. All components of each derivative and non-derivative hedging instrument’s gain or loss were included in the assessment of hedge effectiveness.

At December 31, 2011 and 2010, the cumulative foreign currency translation gain (loss) recorded in accumulated other comprehensive income (loss) related to hedges of net investments in foreign operations was ($84) million and ($223) million, respectively.

Non-Qualifying Derivatives and Derivatives for Purposes Other Than Hedging

The Company enters into the following derivatives that do not qualify for hedge accounting or for purposes other than hedging: (i) interest rate swaps, implied volatility swaps, caps and floors and interest rate futures to economically hedge its exposure to interest rates; (ii) foreign currency forwards, swaps, option contracts and future contracts to economically hedge its exposure to adverse movements in exchange rates; (iii) credit default swaps to economically hedge exposure to adverse movements in credit; (iv) equity futures, equity index options, interest rate futures, TRRs and equity variance swaps to economically hedge liabilities embedded in certain variable annuity products; (v) swap spreadlocks to economically hedge invested assets against the risk of changes in credit spreads; (vi) interest rate forwards to buy and sell securities to economically hedge its exposure to interest rates; (vii) credit default swaps, TRRs and structured interest rate swaps to synthetically create investments; (viii) basis swaps to better match the cash flows of assets and related liabilities; (ix) credit default swaps held in relation to trading portfolios; (x) swaptions to hedge interest rate risk; (xi) inflation swaps to reduce risk generated from inflation-indexed liabilities; (xii) covered call options for income generation; (xiii) interest rate lock commitments; (xiv) synthetic GICs; and (xv) equity options to economically hedge certain invested assets against adverse changes in equity indices.

The following tables present the amount and location of gains (losses) recognized in income for derivatives that were not designated or qualifying as hedging instruments:

	Net Derivative Gains  (Losses)			Net Investment Income (1)			Policyholder Benefits and Claims (2)			Other Revenues (3)			Other Expenses (4)
	(In millions)
For the Year Ended December 31, 2011:
Interest rate swaps	$	2,544		$	(2	)	$	—		$	367		$	—
Interest rate floors		517			—			—			—			—
Interest rate caps		(228	)		—			—			—			—
Interest rate futures		100			1			—			(11	)		—
Equity futures		(3	)		(6	)		(99	)		—			—
Foreign currency swaps		70			—			—			—			—
Foreign currency forwards		310			(9	)		—			—			—
Currency futures		32			—			—			—			—
Currency options		(69	)		—			—			—			—
Equity options		941			(26	)		5			—			—
Interest rate options		1,021			—			—			24			—
Interest rate forwards		(14	)		—			—			(144	)		—
Variance swaps		244			(3	)		7			—			—
Credit default swaps		175			5			—			—			—
Total rate of return swaps		(4	)		—			—			—			—
Total	$	5,636		$	(40	)	$	(87	)	$	236		$	—
For the Year Ended December 31, 2010:
Interest rate swaps	$	622		$	4		$	39		$	172		$	—
Interest rate floors		144			—			—			—			—
Interest rate caps		(185	)		—			—			—			—
Interest rate futures		77			(4	)		—			(3	)		—
Equity futures		(58	)		(25	)		(314	)		—			—
Foreign currency swaps		52			—			—			—			—
Foreign currency forwards		250			55			—			—			—
Currency futures		(23	)		—			—			—			—
Currency options		(83	)		(1	)		—			—			(4	)
Equity options		(683	)		(16	)		—			—			—
Interest rate options		25			—			—			(6	)		—
Interest rate forwards		8			—			—			(74	)		—
Variance swaps		(55	)		—			—			—			—
Credit default swaps		34			(2	)		—			—			—
Total rate of return swaps		14			—			—			—			—
Total	$	139		$	11		$	(275	)	$	89		$	(4	)
For the Year Ended December 31, 2009:
Interest rate swaps	$	(1,700	)	$	(5	)	$	(13	)	$	(161	)	$	—
Interest rate floors		(907	)		—			—			—			—
Interest rate caps		33			—			—			—			—
Interest rate futures		(366	)		2			—			—			—
Equity futures		(681	)		(38	)		(363	)		—			—
Foreign currency swaps		(405	)		—			—			—			—
Foreign currency forwards		(102	)		(24	)		—			—			—
Currency options		(36	)		(1	)		—			—			(3	)
Equity options		(1,713	)		(68	)		—			—			—
Interest rate options		(379	)		—			—			—			—
Interest rate forwards		(7	)		—			—			(4	)		—
Variance swaps		(276	)		(13	)		—			—			—
Swap spreadlocks		(38	)		—			—			—			—
Credit default swaps		(243	)		(11	)		—			—			—
Total rate of return swaps		63			—			—			—			—
Total	$	(6,757	)	$	(158	)	$	(376	)	$	(165	)	$	(3	)

(1) Changes in estimated fair value related to economic hedges of equity method investments in joint ventures; changes in estimated fair value related to derivatives held in relation to trading portfolios; and changes in estimated fair value related to derivatives held within contractholder-directed unit-linked investments.

(2) Changes in estimated fair value related to economic hedges of variable annuity guarantees included in future policy benefits.

(3) Changes in estimated fair value related to derivatives held in connection with the Company’s mortgage banking activities.

(4) Changes in estimated fair value related to economic hedges of foreign currency exposure associated with the Company’s international subsidiaries.

Credit Derivatives

In connection with synthetically created investment transactions and credit default swaps held in relation to the trading portfolio, the Company writes credit default swaps for which it receives a premium to insure credit risk. Such credit derivatives are included within the non-qualifying derivatives and derivatives for purposes other than hedging table. If a credit event occurs, as defined by the contract, the contract may be cash settled or it may be settled gross by the Company paying the counterparty the specified swap notional amount in exchange for the delivery of par quantities of the referenced credit obligation. The Company’s maximum amount at risk, assuming the value of all referenced credit obligations is zero, was $7.7 billion and $5.1 billion at December 31, 2011 and 2010, respectively. The Company can terminate these contracts at any time through cash settlement with the counterparty at an amount equal to the then current fair value of the credit default swaps. At December 31, 2011, the Company would have paid $41 million to terminate all of these contracts, and at December 31, 2010, the Company would have received $62 million to terminate all of these contracts.

The following table presents the estimated fair value, maximum amount of future payments and weighted average years to maturity of written credit default swaps at:

	December 31,
	2011							2010
Rating Agency Designation of Referenced Credit Obligations (1)	Estimated Fair Value of Credit Default Swaps			Maximum Amount of Future Payments under Credit Default Swaps (2)		Weighted Average Years to Maturity (3)		Estimated Fair Value of Credit Default Swaps		Maximum Amount of Future Payments under Credit Default Swaps (2)		Weighted Average Years to Maturity (3)
	(In millions)							(In millions)
Aaa/Aa/A
Single name credit default swaps (corporate)	$	5		$	737		3.5	$	5	$	470		3.8
Credit default swaps referencing indices		(1	)		2,813		3.0		45		2,928		3.7
Subtotal		4			3,550		3.1		50		3,398		3.7
Baa
Single name credit default swaps (corporate)		(17	)		1,234		4.0		5		735		4.3
Credit default swaps referencing indices		(26	)		2,847		4.9		7		931		5.0
Subtotal		(43	)		4,081		4.6		12		1,666		4.7
Ba
Single name credit default swaps (corporate)		—			25		3.5		—		25		4.4
Credit default swaps referencing indices		—			—		—		—		—		—
Subtotal		—			25		3.5		—		25		4.4
B
Single name credit default swaps (corporate)		—			—		—		—		—		—
Credit default swaps referencing indices		(2	)		25		4.8		—		—		—
Subtotal		(2	)		25		4.8		—		—		—
Total	$	(41	)	$	7,681		3.9	$	62	$	5,089		4.1

(1) The rating agency designations are based on availability and the midpoint of the applicable ratings among Moody’s Investors Service, S&P and Fitch Ratings. If no rating is available from a rating agency, then an internally developed rating is used.

(2) Assumes the value of the referenced credit obligations is zero.

(3) The weighted average years to maturity of the credit default swaps is calculated based on weighted average notional amounts.

The Company has also entered into credit default swaps to purchase credit protection on certain of the referenced credit obligations in the table above. As a result, the maximum amounts of potential future recoveries available to offset the $7.7 billion and $5.1 billion from the table above were $115 million and $120 million at December 31, 2011 and 2010, respectively.

Credit Risk on Freestanding Derivatives

The Company may be exposed to credit-related losses in the event of nonperformance by counterparties to derivative financial instruments. Generally, the current credit exposure of the Company’s derivative contracts is limited to the net positive estimated fair value of derivative contracts at the reporting date after taking into consideration the existence of netting agreements and any collateral received pursuant to credit support annexes.

The Company manages its credit risk related to OTC derivatives by entering into transactions with creditworthy counterparties, maintaining collateral arrangements and through the use of master agreements that provide for a single net payment to be made by one counterparty to another at each due date and upon termination. Because exchange-traded futures and options are effected through regulated exchanges, and positions are marked to market on a daily basis, the Company has minimal exposure to credit-related losses in the event of nonperformance by counterparties to such derivative instruments. See Note 5 for a description of the impact of credit risk on the valuation of derivative instruments.

The Company enters into various collateral arrangements which require both the pledging and accepting of collateral in connection with its OTC derivative instruments. At December 31, 2011 and 2010, the Company was obligated to return cash collateral under its control of $9.5 billion and $2.6 billion, respectively. This cash collateral is included in cash and cash equivalents or in short-term investments and the obligation to return it is included in payables for collateral under securities loaned and other transactions in the consolidated balance sheets. At December 31, 2011 and 2010, the Company had received collateral consisting of various securities with a fair market value of $2.5 billion and $984 million, respectively, which were held in separate custodial accounts. Subject to certain constraints, the Company is permitted by contract to sell or repledge this collateral, but at December 31, 2011, none of the collateral had been sold or repledged.

The Company’s collateral arrangements for its OTC derivatives generally require the counterparty in a net liability position, after considering the effect of netting agreements, to pledge collateral when the fair value of that counterparty’s derivatives reaches a pre-determined threshold. Certain of these arrangements also include credit-contingent provisions that provide for a reduction of these thresholds (on a sliding scale that converges toward zero) in the event of downgrades in the credit ratings of the Company and/or the counterparty. In addition, certain of the Company’s netting agreements for derivative instruments contain provisions that require the Company to maintain a specific investment grade credit rating from at least one of the major credit rating agencies. If the Company’s credit ratings were to fall below that specific investment grade credit rating, it would be in violation of these provisions, and the counterparties to the derivative instruments could request immediate payment or demand immediate and ongoing full overnight collateralization on derivative instruments that are in a net liability position after considering the effect of netting agreements.

The following table presents the estimated fair value of the Company’s OTC derivatives that are in a net liability position after considering the effect of netting agreements, together with the estimated fair value and balance sheet location of the collateral pledged. The table also presents the incremental collateral that the Company would be required to provide if there was a one notch downgrade in the Company’s credit rating at the reporting date or if the Company’s credit rating sustained a downgrade to a level that triggered full overnight collateralization or termination of the derivative position at the reporting date. Derivatives that are not subject to collateral agreements are not included in the scope of this table.

			Estimated Fair Value of Collateral Provided:				Fair Value of Incremental Collateral Provided Upon:
	Estimated Fair Value (1) of Derivatives in Net Liability Position		Fixed Maturity Securities (2)		Cash (3)		One Notch Downgrade in the Company’s Credit Rating		Downgrade in the Company’s Credit Rating to a Level that Triggers Full Overnight Collateralization or Termination of the Derivative Position
	(In millions)
December 31, 2011:
Derivatives subject to credit-contingent provisions	$	447	$	405	$	4	$	48	$	104
Derivatives not subject to credit-contingent provisions		28		11		4		—		—
Total	$	475	$	416	$	8	$	48	$	104
December 31, 2010:
Derivatives subject to credit-contingent provisions	$	1,167	$	1,024	$	—	$	99	$	231
Derivatives not subject to credit-contingent provisions		22		—		43		—		—
Total	$	1,189	$	1,024	$	43	$	99	$	231

(1) After taking into consideration the existence of netting agreements.

(2) Included in fixed maturity securities in the consolidated balance sheets. Subject to certain constraints, the counterparties are permitted by contract to sell or repledge this collateral.

(3) Included in premiums, reinsurance and other receivables in the consolidated balance sheets.

Without considering the effect of netting agreements, the estimated fair value of the Company’s OTC derivatives with credit-contingent provisions that were in a gross liability position at December 31, 2011 was $777 million. At December 31, 2011, the Company provided collateral of $409 million in connection with these derivatives. In the unlikely event that both: (i) the Company’s credit rating was downgraded to a level that triggers full overnight collateralization or termination of all derivative positions; and (ii) the Company’s netting agreements were deemed to be legally unenforceable, then the additional collateral that the Company would be required to provide to its counterparties in connection with its derivatives in a gross liability position at December 31, 2011 would be $368 million. This amount does not consider gross derivative assets of $330 million for which the Company has the contractual right of offset.

The Company also has exchange-traded futures and options, which require the pledging of collateral. At December 31, 2011 and 2010, the Company pledged securities collateral for exchange-traded futures and options of $42 million and $40 million, respectively, which is included in fixed maturity securities. Subject to certain constraints, the counterparties are permitted by contract to sell or repledge this collateral. At December 31, 2011 and 2010, the Company provided cash collateral for exchange-traded futures and options of $680 million and $662 million, respectively, which is included in premiums, reinsurance and other receivables.

Embedded Derivatives

The Company issues certain products or purchases certain investments that contain embedded derivatives that are required to be separated from their host contracts and accounted for as freestanding derivatives. These host contracts principally include: variable annuities with guaranteed minimum benefits, including GMWBs, GMABs and certain GMIBs; ceded reinsurance of guaranteed minimum benefits related to GMABs and certain GMIBs; assumed reinsurance of guaranteed minimum benefits related to GMWBs and GMABs; funding agreements with equity or bond indexed crediting rates; funds withheld on assumed and ceded reinsurance; and options embedded in debt or equity securities.

The following table presents the estimated fair value of the Company’s embedded derivatives at:

	December 31,
	2011			2010
	(In millions)
Net embedded derivatives within asset host contracts:
Ceded guaranteed minimum benefits	$	327		$	185
Funds withheld on assumed reinsurance		35			—
Options embedded in debt or equity securities		(70	)		(57	)
Other		1			—
Net embedded derivatives within asset host contracts	$	293		$	128
Net embedded derivatives within liability host contracts:
Direct guaranteed minimum benefits	$	2,104		$	370
Funds withheld on ceded reinsurance		122			66
Assumed guaranteed minimum benefits (1)		2,340			2,186
Other		18			12
Net embedded derivatives within liability host contracts	$	4,584		$	2,634

(1) Assumed reinsurance of guaranteed minimum benefits related to GMWBs and GMABs of MSI MetLife, which was sold during the second quarter of 2011, have been separately presented in the current period. See Note 2. Comparative prior year balances, which were previously presented in direct guaranteed minimum benefits, have been conformed to the current period presentation.

The following table presents changes in estimated fair value related to embedded derivatives:

	Years Ended December 31,
	2011			2010			2009
	(In millions)
Net derivative gains (losses) (1)	$	(1,284	)	$	(387	)	$	1,758
Policyholder benefits and claims	$	86		$	8		$	(114	)

(1) The valuation of guaranteed minimum benefits includes an adjustment for nonperformance risk. The amounts included in net derivative gains (losses), in connection with this adjustment, were $1.8 billion, ($96) million and ($1.9) billion, for the years ended December 31, 2011, 2010 and 2009, respectively.