Derivative Financial Instruments

9 Months Ended

Sep. 30, 2012

Derivative Financial Instruments [Abstract]

Derivative Financial Instruments

4. Derivative Financial Instruments

Accounting for Derivative Financial Instruments

Derivatives are financial instruments whose values are derived from interest rates, foreign currency exchange rates, credit spreads and/or other financial indices. Derivatives may be exchange-traded or contracted in the over-the-counter (“OTC”) market. The Company uses a variety of derivatives, including swaps, forwards, futures and option contracts, to manage various risks relating to its ongoing business operations. To a lesser extent, the Company uses credit default swaps and structured interest rate swaps to synthetically replicate investment risks and returns which are not readily available in the cash market. The Company also purchases certain securities, issues certain insurance policies and investment contracts and engages in certain reinsurance agreements that have embedded derivatives.

Freestanding derivatives are carried in the Company’s consolidated balance sheets either as assets within other invested assets or as liabilities within other liabilities at estimated fair value as determined through the use of quoted market prices for exchange-traded derivatives and interest rate forwards to sell certain to be announced securities or through the use of pricing models for OTC derivatives. The determination of estimated fair value of freestanding derivatives, when quoted market values are not available, is based on market standard valuation methodologies and inputs that management believes are consistent with what other market participants would use when pricing the instruments. Derivative valuations can be affected by changes in interest rates, foreign currency exchange rates, financial indices, credit spreads, default risk, nonperformance risk, volatility, liquidity and changes in estimates and assumptions used in the pricing models.

Accruals on derivatives are generally recorded in accrued investment income or within other liabilities in the consolidated balance sheets. However, accruals that are not scheduled to settle within one year are included with the derivative carrying value in other invested assets or other liabilities.

The Company does not offset the fair value amounts recognized for derivatives executed with the same counterparty under the same master netting agreement.

If a derivative is not designated as an accounting hedge or its use in managing risk does not qualify for hedge accounting, changes in the estimated fair value of the derivative are generally reported in net derivative gains (losses) except for those (i) in policyholder benefits and claims for economic hedges of variable annuity guarantees included in future policy benefits; (ii) in net investment income for (a) economic hedges of equity method investments in joint ventures, (b) all derivatives held in relation to the trading portfolios, and (c) derivatives held within contractholder-directed unit-linked investments; (iii) in other revenues for derivatives held in connection with the Company’s mortgage banking activities; and (iv) in other expenses for economic hedges of foreign currency exposure related to the Company’s international subsidiaries. The fluctuations in estimated fair value of derivatives which have not been designated for hedge accounting can result in significant volatility in net income.

To qualify for hedge accounting, at the inception of the hedging relationship, the Company formally documents its risk management objective and strategy for undertaking the hedging transaction, as well as its designation of the hedge as either (i) a hedge of the estimated fair value of a recognized asset or liability (“fair value hedge”); (ii) a hedge of a forecasted transaction or of the variability of cash flows to be received or paid related to a recognized asset or liability (“cash flow hedge”); or (iii) a hedge of a net investment in a foreign operation. In this documentation, the Company sets forth how the hedging instrument is expected to hedge the designated risks related to the hedged item and sets forth the method that will be used to retrospectively and prospectively assess the hedging instrument’s effectiveness and the method which will be used to measure ineffectiveness. A derivative designated as a hedging instrument must be assessed as being highly effective in offsetting the designated risk of the hedged item. Hedge effectiveness is formally assessed at inception and periodically throughout the life of the designated hedging relationship. Assessments of hedge effectiveness and measurements of ineffectiveness are also subject to interpretation and estimation and different interpretations or estimates may have a material effect on the amount reported in net income.

The accounting for derivatives is complex and interpretations of the primary accounting guidance continue to evolve in practice. Judgment is applied in determining the availability and application of hedge accounting designations and the appropriate accounting treatment under such accounting guidance. If it was determined that hedge accounting designations were not appropriately applied, reported net income could be materially affected.

Under a fair value hedge, changes in the estimated fair value of the hedging derivative, including amounts measured as ineffectiveness, and changes in the estimated fair value of the hedged item related to the designated risk being hedged, are reported within net derivative gains (losses). The estimated fair values of the hedging derivatives are exclusive of any accruals that are separately reported in the consolidated statement of operations and comprehensive income within interest income or interest expense to match the location of the hedged item.

Under a cash flow hedge, changes in the estimated fair value of the hedging derivative measured as effective are reported within other comprehensive income (loss), a separate component of stockholders’ equity, and the deferred gains or losses on the derivative are reclassified into the consolidated statement of operations and comprehensive income when the Company’s earnings are affected by the variability in cash flows of the hedged item. Changes in the estimated fair value of the hedging instrument measured as ineffectiveness are reported within net derivative gains (losses). The estimated fair values of the hedging derivatives are exclusive of any accruals that are separately reported in the consolidated statement of operations and comprehensive income within interest income or interest expense to match the location of the hedged item.

In a hedge of a net investment in a foreign operation, changes in the estimated fair value of the hedging derivative that are measured as effective are reported within other comprehensive income (loss) consistent with the translation adjustment for the hedged net investment in the foreign operation. Changes in the estimated fair value of the hedging instrument measured as ineffectiveness are reported within net derivative gains (losses).

The Company discontinues hedge accounting prospectively when: (i) it is determined that the derivative is no longer highly effective in offsetting changes in the estimated fair value or cash flows of a hedged item; (ii) the derivative expires, is sold, terminated, or exercised; (iii) it is no longer probable that the hedged forecasted transaction will occur; or (iv) the derivative is de-designated as a hedging instrument.

When hedge accounting is discontinued because it is determined that the derivative is not highly effective in offsetting changes in the estimated fair value or cash flows of a hedged item, the derivative continues to be carried in the consolidated balance sheets at its estimated fair value, with changes in estimated fair value recognized currently in net derivative gains (losses). The carrying value of the hedged recognized asset or liability under a fair value hedge is no longer adjusted for changes in its estimated fair value due to the hedged risk, and the cumulative adjustment to its carrying value is amortized into income over the remaining life of the hedged item. Provided the hedged forecasted transaction is still probable of occurrence, the changes in estimated fair value of derivatives recorded in other comprehensive income (loss) related to discontinued cash flow hedges are released into the consolidated statements of operations and comprehensive income when the Company’s earnings are affected by the variability in cash flows of the hedged item.

When hedge accounting is discontinued because it is no longer probable that the forecasted transactions will occur on the anticipated date or within two months of that date, the derivative continues to be carried in the consolidated balance sheets at its estimated fair value, with changes in estimated fair value recognized currently in net derivative gains (losses). Deferred gains and losses of a derivative recorded in other comprehensive income (loss) pursuant to the discontinued cash flow hedge of a forecasted transaction that is no longer probable are recognized immediately in net derivative gains (losses).

In all other situations in which hedge accounting is discontinued, the derivative is carried at its estimated fair value in the consolidated balance sheets, with changes in its estimated fair value recognized in the current period as net derivative gains (losses).

The Company issues certain products and purchases certain investments that contain embedded derivatives. The Company assesses each identified embedded derivative to determine whether it is required to be bifurcated. If the instrument would not be accounted for in its entirety at estimated fair value and it is determined that the terms of the embedded derivative are not clearly and closely related to the economic characteristics of the host contract, and that a separate instrument with the same terms would qualify as a derivative instrument, the embedded derivative is bifurcated from the host contract and accounted for as a freestanding derivative. Such embedded derivatives are carried in the consolidated balance sheets at estimated fair value with the host contract and changes in their estimated fair value are generally reported in net derivative gains (losses) except for those in policyholder benefits and claims related to ceded reinsurance of guaranteed minimum income benefits (“GMIB”). If the Company is unable to properly identify and measure an embedded derivative for separation from its host contract, the entire contract is carried on the balance sheet at estimated fair value, with changes in estimated fair value recognized in the current period in net investment gains (losses) or net investment income. Additionally, the Company may elect to carry an entire contract on the balance sheet at estimated fair value, with changes in estimated fair value recognized in the current period in net investment gains (losses) or net investment income if that contract contains an embedded derivative that requires bifurcation.

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 exchange rate 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:

		September 30, 2012						December 31, 2011
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	$	98,609	$	8,930	$	2,571	$	79,733	$	8,241	$	2,199
	Interest rate floors		23,366		1,304		174		23,866		1,246		165
	Interest rate caps		49,547		78		—		49,665		102		—
	Interest rate futures		12,469		10		20		14,965		25		19
	Interest rate options		16,065		860		12		16,988		896		6
	Interest rate forwards		770		178		—		14,033		286		91
	Synthetic GICs		4,541		—		—		4,454		—		—
Foreign currency exchange rate	Foreign currency swaps		20,223		846		1,158		16,461		1,172		1,060
	Foreign currency forwards		10,598		79		97		10,149		200		60
	Currency futures		289		—		—		633		—		—
	Currency options		2,851		1		46		1,321		6		—
Credit	Credit default swaps		13,326		100		41		13,136		326		113
	Credit forwards		—		—		—		20		4		—
Equity market	Equity futures		7,367		65		2		7,053		26		10
	Equity options		21,096		3,096		261		17,099		3,263		179
	Variance swaps		20,056		171		239		18,801		397		75
	Total rate of return swaps (“TRRs”)		2,073		10		90		1,644		10		34
	Total	$	303,246	$	15,728	$	4,711	$	290,021	$	16,200	$	4,011

(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.

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 options to hedge the foreign currency exchange rate 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 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 net investment in foreign operations and 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.

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 credit 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.

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:

	September 30, 2012						December 31, 2011
Derivatives Designated as Hedging Instruments	Notional Amount		Estimated Fair Value				Notional Amount		Estimated Fair Value
			Assets		Liabilities				Assets		Liabilities
	(In millions)
Fair value hedges:
Foreign currency swaps	$	3,187	$	312	$	79	$	3,220	$	500	$	98
Foreign currency forwards		2,480		20		—		1,830		2		10
Interest rate swaps		5,306		2,036		100		4,580		1,884		92
Subtotal		10,973		2,368		179		9,630		2,386		200
Cash flow hedges:
Foreign currency swaps		8,903		281		363		6,370		352		306
Interest rate swaps		3,792		896		—		3,230		947		—
Interest rate forwards		770		178		—		965		210		—
Credit forwards		—		—		—		20		4		—
Subtotal		13,465		1,355		363		10,585		1,513		306
Foreign operations hedges:
Foreign currency forwards		2,374		4		53		1,689		53		12
Currency options		2,650		1		46		—		—		—
Subtotal		5,024		5		99		1,689		53		12
Total qualifying hedges	$	29,462	$	3,728	$	641	$	21,904	$	3,952	$	518

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:

	September 30, 2012						December 31, 2011
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	$	89,511	$	5,998	$	2,471	$	71,923	$	5,410	$	2,107
Interest rate floors		23,366		1,304		174		23,866		1,246		165
Interest rate caps		49,547		78		—		49,665		102		—
Interest rate futures		12,469		10		20		14,965		25		19
Interest rate options		16,065		860		12		16,988		896		6
Interest rate forwards		—		—		—		13,068		76		91
Synthetic GICs		4,541		—		—		4,454		—		—
Foreign currency swaps		8,133		253		716		6,871		320		656
Foreign currency forwards		5,744		55		44		6,630		145		38
Currency futures		289		—		—		633		—		—
Currency options		201		—		—		1,321		6		—
Credit default swaps		13,326		100		41		13,136		326		113
Equity futures		7,367		65		2		7,053		26		10
Equity options		21,096		3,096		261		17,099		3,263		179
Variance swaps		20,056		171		239		18,801		397		75
TRRs		2,073		10		90		1,644		10		34
Total non-designated or non-qualifying derivatives	$	273,784	$	12,000	$	4,070	$	268,117	$	12,248	$	3,493

Net Derivative Gains (Losses)

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

	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
	(In millions)
Derivatives and hedging gains (losses) (1)	$	(945	)	$	6,504		$	(1,277	)	$	5,992
Embedded derivatives		227			(2,308	)		673			(1,759	)
Total net derivative gains (losses)	$	(718	)	$	4,196		$	(604	)	$	4,233

(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:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
	(In millions)
Qualifying hedges:
Net investment income	$	27		$	28		$	82		$	70
Interest credited to policyholder account balances		39			51			122			169
Other expenses		(2	)		(1	)		(4	)		(2	)
Non-qualifying hedges:
Net investment income		(1	)		(2	)		(4	)		(6	)
Other revenues		11			22			44			55
Net derivative gains (losses)		109			352			338			357
Policyholder benefits and claims		(52	)		19			(62	)		19
Total	$	131		$	469		$	516		$	662

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 presents 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 Three Months Ended September 30, 2012:
Interest rate swaps:	Fixed maturity securities	$	(9	)	$	7		$	(2	)
	PABs (1)		(47	)		51			4
Foreign currency swaps:	Foreign-denominated fixed maturity securities		(2	)		2			—
	Foreign-denominated PABs (2)		66			(68	)		(2	)
Foreign currency forwards:	Foreign-denominated fixed maturity securities		18			(19	)		(1	)
Total		$	26		$	(27	)	$	(1	)
For the Three Months Ended September 30, 2011:
Interest rate swaps:	Fixed maturity securities	$	(26	)	$	22		$	(4	)
	PABs (1)		957			(944	)		13
Foreign currency swaps:	Foreign-denominated fixed maturity securities		1			(1	)		—
	Foreign-denominated PABs (2)		(221	)		189			(32	)
Foreign currency forwards:	Foreign-denominated fixed maturity securities		—			—			—
Total		$	711		$	(734	)	$	(23	)
For the Nine Months Ended September 30, 2012:
Interest rate swaps:	Fixed maturity securities	$	(13	)	$	10		$	(3	)
	PABs (1)		67			(54	)		13
Foreign currency swaps:	Foreign-denominated fixed maturity securities		(1	)		1			—
	Foreign-denominated PABs (2)		(10	)		(7	)		(17	)
Foreign currency forwards:	Foreign-denominated fixed maturity securities		11			(13	)		(2	)
Total		$	54		$	(63	)	$	(9	)
For the Nine Months Ended September 30, 2011:
Interest rate swaps:	Fixed maturity securities	$	(31	)	$	27		$	(4	)
	PABs (1)		1,000			(978	)		22
Foreign currency swaps:	Foreign-denominated fixed maturity securities		—			—			—
	Foreign-denominated PABs (2)		14			(53	)		(39	)
Foreign currency forwards:	Foreign-denominated fixed maturity securities		—			—			—
Total		$	983		$	(1,004	)	$	(21	)

(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 both the three months and nine months ended September 30, 2012, $3 million of the change in fair value of derivatives were excluded from the assessment of hedge effectiveness. For both the three months and nine months ended September 30, 2011, 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) related to such discontinued cash flow hedges were ($1) million and $3 million for the three months and nine months ended September 30, 2012, respectively, and ($1) million and ($15) million for the three months and nine months ended September 30, 2011, respectively.

At both September 30, 2012 and December 31, 2011, 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.

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

	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
	(In millions)
Accumulated other comprehensive income (loss), balance at beginning of period	$	1,832		$	(165	)	$	1,514		$	(59	)
Gains (losses) deferred in other comprehensive income (loss) on the effective portion of cash flow hedges		(324	)		1,630			(4	)		1,527
Amounts reclassified to net derivative gains (losses)		1			17			(3	)		9
Amounts reclassified to net investment income		(1	)		1			(1	)		2
Amounts reclassified to other expenses		—			3			2			7
Accumulated other comprehensive income (loss), balance at end of period	$	1,508		$	1,486		$	1,508		$	1,486

At September 30, 2012, $11 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 interim condensed consolidated statements of operations and comprehensive income and the interim condensed 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)
	(In millions)
For the Three Months Ended September 30, 2012:
Interest rate swaps	$	(93	)	$	2		$	2		$	1		$	—
Foreign currency swaps		(215	)		(3	)		(1	)		—			(7	)
Interest rate forwards		(16	)		—			—			(1	)		—
Credit forwards		—			—			—			—			—
Total	$	(324	)	$	(1	)	$	1		$	—		$	(7	)
For the Three Months Ended September 30, 2011:
Interest rate swaps	$	927		$	(42	)	$	—		$	(3	)	$	(1	)
Foreign currency swaps		399			25			(2	)		—			5
Interest rate forwards		289			(1	)		—			—			27
Credit forwards		15			1			1			—			—
Total	$	1,630		$	(17	)	$	(1	)	$	(3	)	$	31
For the Nine Months Ended September 30, 2012:
Interest rate swaps	$	105		$	1		$	3		$	(2	)	$	—
Foreign currency swaps		(105	)		2			(4	)		1			(6	)
Interest rate forwards		(4	)		—			1			(1	)		—
Credit forwards		—			—			1			—			—
Total	$	(4	)	$	3		$	1		$	(2	)	$	(6	)
For the Nine Months Ended September 30, 2011:
Interest rate swaps	$	944		$	(41	)	$	1		$	(7	)	$	1
Foreign currency swaps		259			10			(5	)		1			3
Interest rate forwards		307			21			1			(1	)		16
Credit forwards		17			1			1			—			—
Total	$	1,527		$	(9	)	$	(2	)	$	(7	)	$	20

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 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 interim condensed consolidated statements of operations and comprehensive income and the interim condensed 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)
	(In millions)
For the Three Months Ended September 30, 2012:
Foreign currency forwards	$	(54	)
Foreign currency options		(24	)
Non-derivative hedging instruments		—
Total	$	(78	)
For the Three Months Ended September 30, 2011:
Foreign currency forwards	$	185
Foreign currency options		—
Non-derivative hedging instruments		—
Total	$	185
For the Nine Months Ended September 30, 2012:
Foreign currency forwards	$	(64	)
Foreign currency options		(48	)
Non-derivative hedging instruments		—
Total	$	(112	)
For the Nine Months Ended September 30, 2011:
Foreign currency forwards	$	72
Foreign currency options		—
Non-derivative hedging instruments		6
Total	$	78

(1) During the three months and nine months ended September 30, 2012, 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 periods presented. During the nine months ended September 30, 2011, the Company sold its interest in MSI MetLife, which was a hedged item in a net investment hedging relationship. See Note 2 of the Notes to the Consolidated Financial Statements included in the 2011 Annual Report.

(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 September 30, 2012 and December 31, 2011, the cumulative foreign currency translation gain (loss) recorded in accumulated other comprehensive income (loss) related to hedges of net investments in foreign operations was ($196) million and ($84) 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) interest rate forwards to buy and sell securities to economically hedge its exposure to interest rates; (vi) credit default swaps, TRRs and structured interest rate swaps to synthetically create investments; (vii) basis swaps to better match the cash flows of assets and related liabilities; (viii) credit default swaps held in relation to trading portfolios; (ix) swaptions to hedge interest rate risk; (x) inflation swaps to reduce risk generated from inflation-indexed liabilities; (xi) covered call options for income generation; (xii) interest rate lock commitments; (xiii) synthetic GICs; and (xiv) 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)
	(In millions)
For the Three Months Ended September 30, 2012:
Interest rate swaps	$	(182	)	$	—		$	—		$	31
Interest rate floors		11			—			—			—
Interest rate caps		(37	)		—			—			—
Interest rate futures		40			—			—			(1	)
Equity futures		(196	)		7			(167	)		—
Foreign currency swaps		(118	)		—			—			—
Foreign currency forwards		(32	)		—			—			—
Currency futures		6			—			—			—
Currency options		(1	)		—			—			—
Equity options		(325	)		(5	)		(30	)		—
Interest rate options		(80	)		—			—			—
Interest rate forwards		(3	)		—			—			—
Variance swaps		(148	)		—			11			—
Credit default swaps		(12	)		(6	)		—			—
TRRs		(10	)		—			—			—
Total	$	(1,087	)	$	(4	)	$	(186	)	$	30
For the Three Months Ended September 30, 2011:
Interest rate swaps	$	1,805		$	—		$	—		$	321
Interest rate floors		521			—			—			—
Interest rate caps		(127	)		—			—			—
Interest rate futures		43			—			—			(5	)
Equity futures		338			(12	)		314			—
Foreign currency swaps		272			—			—			—
Foreign currency forwards		406			—			—			—
Currency futures		28			—			—			—
Currency options		(18	)		—			—			—
Equity options		1,432			5			—			—
Interest rate options		962			—			—			27
Interest rate forwards		(5	)		—			—			(49	)
Variance swaps		325			—			—			—
Credit default swaps		163			15			—			—
TRRs		27			—			5			—
Total	$	6,172		$	8		$	319		$	294

	Net Derivative Gains (Losses)			Net Investment Income (1)			Policyholder Benefits and Claims (2)			Other Revenues (3)
	(In millions)
For the Nine Months Ended September 30, 2012:
Interest rate swaps	$	307		$	—		$	—		$	112
Interest rate floors		50			—			—			—
Interest rate caps		(99	)		—			—			—
Interest rate futures		161			—			—			(3	)
Equity futures		(707	)		7			(373	)		—
Foreign currency swaps		(95	)		—			—			—
Foreign currency forwards		(62	)		—			—			—
Currency futures		(5	)		—			—			—
Currency options		(5	)		—			—			—
Equity options		(712	)		(13	)		(49	)		—
Interest rate options		33			—			—			—
Interest rate forwards		15			—			—			(74	)
Variance swaps		(407	)		—			23			—
Credit default swaps		(132	)		(13	)		—			—
TRRs		1			—			—			—
Total	$	(1,657	)	$	(19	)	$	(399	)	$	35
For the Nine Months Ended September 30, 2011:
Interest rate swaps	$	2,179		$	(2	)	$	—		$	345
Interest rate floors		503			—			—			—
Interest rate caps		(209	)		—			—			—
Interest rate futures		(6	)		1			—			(9	)
Equity futures		393			(9	)		206			—
Foreign currency swaps		80			—			—			—
Foreign currency forwards		266			(9	)		—			—
Currency futures		37			—			—			—
Currency options		(63	)		—			—			—
Equity options		1,065			(6	)		—			—
Interest rate options		948			—			—			24
Interest rate forwards		(5	)		—			—			(88	)
Variance swaps		234			(3	)		—			—
Credit default swaps		149			14			—			—
TRRs		26			—			5			—
Total	$	5,597		$	(14	)	$	211		$	272

(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.

Credit Derivatives

In connection with synthetically created credit 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 $8.7 billion and $7.7 billion at September 30, 2012 and December 31, 2011, 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 September 30, 2012 and December 31, 2011, the Company would have received $60 million and paid $41 million, respectively, 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:

	September 30, 2012						December 31, 2011
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)	$	10	$	742		2.8	$	5		$	737		3.5
Credit default swaps referencing indices		39		2,813		2.3		(1	)		2,813		3.0
Subtotal		49		3,555		2.4		4			3,550		3.1
Baa
Single name credit default swaps (corporate)		3		1,329		3.5		(17	)		1,234		4.0
Credit default swaps referencing indices		6		3,505		5.0		(26	)		2,847		4.9
Subtotal		9		4,834		4.6		(43	)		4,081		4.6
Ba
Single name credit default swaps (corporate)		—		25		2.9		—			25		3.5
Credit default swaps referencing indices		—		—		—		—			—		—
Subtotal		—		25		2.9		—			25		3.5
B
Single name credit default swaps (corporate)		—		—		—		—			—		—
Credit default swaps referencing indices		2		273		4.7		(2	)		25		4.8
Subtotal		2		273		4.7		(2	)		25		4.8
Total	$	60	$	8,687		3.7	$	(41	)	$	7,681		3.9

(1) The rating agency designations are based on availability and the midpoint of the applicable ratings among Moody’s Investors Service (“Moody’s”), Standard & Poor’s Rating Services (“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 $8.7 billion and $7.7 billion from the table above were $149 million and $115 million at September 30, 2012 and December 31, 2011, respectively.

Written credit default swaps held in relation to the trading portfolio amounted to $10 million in notional and $0 in fair value at September 30, 2012. Written credit default swaps held in relation to the trading portfolio amounted to $10 million in notional and ($1) million in fair value at December 31, 2011.

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 September 30, 2012 and December 31, 2011, the Company was obligated to return cash collateral under its control of $8.6 billion and $9.5 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 September 30, 2012 and December 31, 2011, the Company had received collateral consisting of various securities with a fair market value of $3.3 billion and $2.5 billion, 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 September 30, 2012, 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 both the Company and the counterparty to maintain a specific investment grade credit rating from each of Moody’s and S&P. If a party’s credit ratings were to fall below that specific investment grade credit rating, that party would be in violation of these provisions, and the other party to the derivative instruments could terminate the transactions and demand immediate settlement and payment based on such party’s reasonable valuation of the derivative instruments.

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 Derivatives in Net Liability  Position (1)		Estimated Fair Value of Collateral Provided:				Fair Value of Incremental Collateral Provided Upon:
			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)
September 30, 2012:
Derivatives subject to credit-contingent provisions	$	689	$	600	$	3	$	54	$	114
Derivatives not subject to credit-contingent provisions		—		—		—		—		—
Total	$	689	$	600	$	3	$	54	$	114
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

(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 on the derivatives in the table above, the estimated fair value of the Company’s OTC derivatives with credit-contingent provisions that were in a gross liability position at September 30, 2012 was $1.0 billion. At September 30, 2012, the Company provided collateral of $603 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 September 30, 2012 would be $437 million. This amount does not consider gross derivative assets of $351 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 September 30, 2012 and December 31, 2011, the Company pledged securities collateral for exchange-traded futures and options of $40 million and $42 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 September 30, 2012 and December 31, 2011, the Company provided cash collateral for exchange-traded futures and options of $556 million and $680 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 guaranteed minimum withdrawal benefits (“GMWBs”), guaranteed minimum accumulation benefits (“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 certain debt and equity securities.

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

	September 30, 2012			December 31, 2011
	(In millions)
Net embedded derivatives within asset host contracts:
Ceded guaranteed minimum benefits	$	378		$	327
Funds withheld on assumed reinsurance		50			35
Options embedded in debt or equity securities		(97	)		(70	)
Other		1			1
Net embedded derivatives within asset host contracts	$	332		$	293
Net embedded derivatives within liability host contracts:
Direct guaranteed minimum benefits	$	1,012		$	2,104
Assumed guaranteed minimum benefits		3,180			2,340
Funds withheld on ceded reinsurance		158			122
Other		19			18
Net embedded derivatives within liability host contracts	$	4,369		$	4,584

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

	Three Months Ended September 30,						Nine Months Ended September 30,
	2012			2011			2012			2011
	(In millions)
Net derivative gains (losses) (1)	$	227		$	(2,308	)	$	673		$	(1,759	)
Policyholder benefits and claims	$	(4	)	$	113		$	(9	)	$	105

(1) The valuation of guaranteed minimum benefits includes a nonperformance risk adjustment. The amounts included in net derivative gains (losses), in connection with this adjustment, were ($534) million and ($1.2) billion for the three months and nine months ended September 30, 2012, respectively, and $2.0 billion for both the three months and nine months ended September 30, 2011.