Insurance

12 Months Ended

Dec. 31, 2012

Insurance [Abstract]

Insurance

4.  Insurance

Insurance Liabilities

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

	December 31,
	2012		2011
	(In millions)
Retail	$	138,082	$	138,872
Group, Voluntary & Worksite Benefits		29,996		28,899
Corporate Benefit Funding		117,065		106,225
Latin America		16,055		13,890
Asia		103,064		98,267
EMEA		20,200		22,348
Corporate & Other		9,173		9,073
Total	$	433,635	$	417,574

Future policy benefits are measured as follows:

Product Type:	Measurement Assumptions:
Participating life	Aggregate of (i) net level premium reserves for death and endowment policy benefits (calculated based upon the non-forfeiture interest rate, ranging from 3% to 7% for domestic business and 1% to 21% for international business, and mortality rates guaranteed in calculating the cash surrender values described in such contracts); and (ii) the liability for terminal dividends for domestic business.
Non-participating life	Aggregate of the present value of expected future benefit payments and related expenses less the present value of expected future net premiums. Assumptions as to mortality and persistency are based upon the Company’s experience when the basis of the liability is established. Interest rate assumptions for the aggregate future policy benefit liabilities range from 2% to 10% for domestic business and 1% to 16% for international business.
Individual and group traditional fixed annuities after annuitization	Present value of expected future payments. Interest rate assumptions used in establishing such liabilities range from 1% to 11% for domestic business and 1% to 13% for international business.
Non-medical health insurance	The net level premium method and assumptions as to future morbidity, withdrawals and interest, which provide a margin for adverse deviation. Interest rate assumptions used in establishing such liabilities range from 4% to 7% (primarily related to domestic business).
Disabled lives	Present value of benefits method and experience assumptions as to claim terminations, expenses and interest. Interest rate assumptions used in establishing such liabilities range from 2% to 8% for domestic business and 1% to 9% for international business.
Property and casualty insurance	The amount estimated for claims that have been reported but not settled and claims incurred but not reported are based upon the Company’s historical experience and other actuarial assumptions that consider the effects of current developments, anticipated trends and risk management programs, reduced for anticipated salvage and subrogation.

Participating business represented 6% of the Company’s life insurance in-force at both December 31, 2012 and 2011. Participating policies represented 20%, 21% and 26% of gross life insurance premiums for the years ended December 31, 2012, 2011 and 2010, respectively.

PABs are equal to: (i) policy account values, which consist of an accumulation of gross premium payments and investment performance; (ii) credited interest, ranging from 1% to 13% for domestic business and 1% to 16% for international business, less expenses, mortality charges and withdrawals; and (iii) fair value adjustments relating to business combinations.

Guarantees

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

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

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

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

	Annuity Contracts						Universal and Variable Life Contracts
	GMDB			GMIB			Secondary     Guarantees			Paid-Up     Guarantees		Total
	(In millions)
Direct and Assumed
Balance at January 1, 2010	$	168		$	402		$	504		$	174	$	1,248
Acquisitions		46			110			2,952			—		3,108
Incurred guaranteed benefits		149			111			536			24		820
Paid guaranteed benefits		(91	)		—			(1	)		—		(92	)
Balance at December 31, 2010		272			623			3,991			198		5,084
Incurred guaranteed benefits		273			269			496			23		1,061
Paid guaranteed benefits		(113	)		(10	)		(24	)		—		(147	)
Balance at December 31, 2011		432			882			4,463			221		5,998
Incurred guaranteed benefits		252			771			348			25		1,396
Paid guaranteed benefits		(117	)		(18	)		(26	)		—		(161	)
Balance at December 31, 2012	$	567		$	1,635		$	4,785		$	246	$	7,233
Ceded
Balance at January 1, 2010	$	6		$	—		$	182		$	122	$	310
Acquisitions		30			—			—			—		30
Incurred guaranteed benefits		18			(1	)		412			17		446
Paid guaranteed benefits		(15	)		—			—			—		(15	)
Balance at December 31, 2010		39			(1	)		594			139		771
Incurred guaranteed benefits		35			9			20			16		80
Paid guaranteed benefits		(20	)		—			—			—		(20	)
Balance at December 31, 2011		54			8			614			155		831
Incurred guaranteed benefits		22			1			139			18		180
Paid guaranteed benefits		(20	)		—			—			—		(20	)
Balance at December 31, 2012	$	56		$	9		$	753		$	173	$	991
Net
Balance at January 1, 2010	$	162		$	402		$	322		$	52	$	938
Acquisitions		16			110			2,952			—		3,078
Incurred guaranteed benefits		131			112			124			7		374
Paid guaranteed benefits		(76	)		—			(1	)		—		(77	)
Balance at December 31, 2010		233			624			3,397			59		4,313
Incurred guaranteed benefits		238			260			476			7		981
Paid guaranteed benefits		(93	)		(10	)		(24	)		—		(127	)
Balance at December 31, 2011		378			874			3,849			66		5,167
Incurred guaranteed benefits		230			770			209			7		1,216
Paid guaranteed benefits		(97	)		(18	)		(26	)		—		(141	)
Balance at December 31, 2012	$	511		$	1,626		$	4,032		$	73	$	6,242

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

	December 31,
	2012		2011
	(In millions)
Fund Groupings:
Balanced	$	67,230	$	52,823
Equity		64,209		57,750
Bond		11,188		9,838
Specialty		2,260		2,034
Money Market		1,291		1,521
Total	$	146,178	$	123,966

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

Variable Annuity Guarantees

In the Event of Death

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

At Annuitization

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

Two Tier Annuities

Defined as the excess of the upper tier, adjusted for a profit margin, less the lower tier, as of the balance sheet date. These contracts apply a lower rate of funds if the contractholder elects to surrender the contract for cash and a higher rate if the contractholder elects to annuitize.

Universal and Variable Life Contracts

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

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

	December 31,
	2012					2011
	In the   Event of Death		At   Annuitization			In the   Event of Death		At   Annuitization
	(In millions)
Annuity Contracts (1)
Variable Annuity Guarantees
Total contract account value (3)	$	184,095	$	89,137		$	163,845	$	72,016
Separate account value	$	143,893	$	84,354		$	121,841	$	66,739
Net amount at risk	$	9,501	$	4,593	(2)	$	16,641	$	2,686	(2)
Average attained age of contractholders		62 years		62 years			62 years		61 years
Two Tier Annuities
General account value		N/A	$	848			N/A	$	386
Net amount at risk		N/A	$	232			N/A	$	60
Average attained age of contractholders		N/A		51 years			N/A		60 years
	December 31,
	2012					2011
	Secondary Guarantees		Paid-Up Guarantees			Secondary Guarantees		Paid-Up Guarantees
	(In millions)
Universal and Variable Life Contracts (1)
Account value (general and separate account)	$	14,256	$	3,828		$	12,946	$	3,963
Net amount at risk	$	189,197	$	23,276		$	188,642	$	24,991
Average attained age of policyholders		54 years		60 years			53 years		59 years

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

(2) The Company had previously disclosed the NAR based on the excess of the benefit base over the contractholder’s total contract account value on the balance sheet date. Such amounts were $9.7 billion and $12.1 billion at December 31, 2012 and 2011, respectively. The Company has provided, in the table above, the NAR as defined above. The Company believes that this definition is more representative of the potential economic exposures of these guarantees as the contractholders do not have access to this difference other than through annuitization.

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

Obligations Under Funding Agreements

The Company issues fixed and floating rate funding agreements, which are denominated in either U.S. dollars or foreign currencies, to certain special purpose entities (“SPEs”) that have issued either debt securities or commercial paper for which payment of interest and principal is secured by such funding agreements. During the years ended December 31, 2012, 2011 and 2010, the Company issued $35.1 billion, $39.9 billion and $34.1 billion, respectively, and repaid $31.1 billion, $41.6 billion and $30.9 billion, respectively, of such funding agreements. At December 31, 2012 and 2011, liabilities for funding agreements outstanding, which are included in PABs, were $30.0 billion and $25.5 billion, respectively.

Certain of the Company’s subsidiaries are members of the FHLB. Holdings of FHLB common stock by branch, included in equity securities, were as follows at:

	December 31,
	2012		2011
	(In millions)
FHLB of NY	$	736	$	658
FHLB of Des Moines	$	83	$	51
FHLB of Boston	$	67	$	70
FHLB of Pittsburgh	$	14		N/A

Such subsidiaries have also entered into funding agreements. The liability for funding agreements is included in PABs. Information related to the funding agreements was as follows at:

	Liability				Collateral
	December 31,
	2012		2011		2012		2011
	(In millions)
FHLB of NY (1)	$	13,512	$	11,655	$	14,611 (2)	$	13,002 (2)
Farmer Mac (3)	$	2,750	$	2,750	$	3,159	$	3,157
FHLB of Des Moines (1)	$	1,405	$	695	$	1,902 (2)	$	953 (2)
FHLB of Boston (1)	$	450	$	450	$	537 (2)	$	518 (2)
FHLB of Pittsburgh	$	—		N/A	$	810 (2)		N/A

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

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

(3) Represents funding agreements issued to certain SPEs that have issued debt securities for which payment of interest and principal is secured by such funding agreements, and such debt securities are also guaranteed as to payment of interest and principal by the Federal Agricultural Mortgage Corporation, a federally chartered instrumentality of the U.S. (“Farmer Mac”). The obligations under these funding agreements are secured by a pledge of certain eligible agricultural real estate mortgage loans and may, under certain circumstances, be secured by other qualified collateral. The amount of collateral presented is at carrying value.

Liabilities for Unpaid Claims and Claim Expenses

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

	Years Ended December 31,
	2012			2011			2010
	(In millions)
Balance at January 1,	$	10,117		$	10,708		$	8,219
Less: Reinsurance recoverables		1,436			2,198			547
Net balance at January 1,		8,681			8,510			7,672
Acquisitions, net		—			—			583
Incurred related to:
Current year		8,399			9,028			6,482
Prior years		(69	)		(199	)		(75	)
Total incurred		8,330			8,829			6,407
Paid related to:
Current year		(5,689	)		(6,238	)		(4,050	)
Prior years		(2,467	)		(2,420	)		(2,102	)
Total paid		(8,156	)		(8,658	)		(6,152	)
Net balance at December 31,		8,855			8,681			8,510
Add: Reinsurance recoverables		1,581			1,436			2,198
Balance at December 31,	$	10,436		$	10,117		$	10,708

During 2012, 2011 and 2010, as a result of changes in estimates of insured events in the respective prior year, claims and claim adjustment expenses associated with prior years decreased by $69 million, $199 million and $75 million, respectively, due to a reduction in prior year automobile bodily injury and homeowners’ severity and improved loss ratio for non-medical health claim liabilities.

Separate Accounts

Separate account assets and liabilities include two categories of account types: pass-through separate accounts totaling $185.9 billion and $158.8 billion at December 31, 2012 and 2011, respectively, for which the policyholder assumes all investment risk, and separate accounts for which the Company contractually guarantees either a minimum return or account value to the policyholder which totaled $49.5 billion and $44.2 billion at December 31, 2012 and 2011, respectively. The latter category consisted primarily of funding agreements and participating close-out contracts. The average interest rate credited on these contracts was 2.80% and 3.12% at December 31, 2012 and 2011, respectively.

For the years ended December 31, 2012, 2011 and 2010, there were no investment gains (losses) on transfers of assets from the general account to the separate accounts.