Derivatives

12 Months Ended

Dec. 31, 2012

Derivatives [Abstract]

Derivatives

9.  Derivatives

Accounting for Derivatives

See Note 1 for a description of the Company’s accounting policies for derivatives and Note 10 for information about the fair value hierarchy for derivatives.

Derivative Strategies

The Company is exposed to various risks relating to its ongoing business operations, including interest rate, foreign currency exchange rate, credit and equity market. The Company uses a variety of strategies to manage these risks, including the use of derivatives.

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 types of derivatives the Company uses include swaps, forwards, futures and option contracts. 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.

Interest Rate Derivatives

The Company uses a variety of interest rate derivatives to reduce its exposure to changes in interest rates, including interest rate swaps, caps, floors, swaptions, futures and forwards.

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 amount. The Company utilizes interest rate swaps in fair value, cash flow and 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. 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, 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. The Company utilizes swaptions in non-qualifying hedging relationships. Swaptions are included in interest rate options.

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.

Foreign Currency Exchange Rate Derivatives

The Company uses foreign currency exchange rate derivatives including foreign currency swaps, foreign currency forwards and currency options, 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 derivatives 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 notional amount. The notional 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 at the specified future date. The Company utilizes foreign currency forwards in fair value, net investment in foreign operations and non-qualifying hedging relationships.

The Company enters into currency options 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.

To a lesser extent, the Company uses exchange-traded currency futures to hedge currency mismatches between assets and liabilities.

Credit Derivatives

Credit derivatives primarily include credit default swaps that 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 to pay, at specified intervals, a premium to hedge credit risk. If a credit event occurs, as defined by the contract, 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. Credit events vary by type of issuer but typically include bankruptcy, failure to pay debt obligations, repudiation, moratorium, or involuntary restructuring. In each case, payout on a credit default swap is triggered only after the Credit Derivatives Determinations Committee of the International Swaps and Derivatives Association, Inc. deems that a credit event has occurred. 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.

Equity Derivatives

The Company uses a variety of equity derivatives to reduce its exposure to equity market risk, including equity index options, variance swaps, exchange-traded equity futures and total rate of return swaps (“TRRs”).

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. 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. The Company utilizes equity variance swaps in non-qualifying 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.

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 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. 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.

Primary Risks Managed by Derivatives and Non-Derivative Hedging Instruments

The following table presents the gross notional amount, estimated fair value and primary underlying risk exposure of the Company’s derivatives, excluding embedded derivatives, held at:

	Primary Underlying Risk Exposure	December 31,
		2012						2011
		Notional		Estimated Fair Value				Notional		Estimated Fair Value
		Amount		Assets		Liabilities		Amount		Assets		Liabilities
		(In millions)
Derivatives Designated as Hedging Instruments
Fair value hedges:
Interest rate swaps	Interest rate	$	5,397	$	1,921	$	90	$	4,580	$	1,884	$	92
Foreign currency swaps	Foreign currency exchange rate		3,187		332		85		3,220		500		98
Foreign currency forwards	Foreign currency exchange rate		—		—		—		1,830		2		10
Subtotal			8,584		2,253		175		9,630		2,386		200
Cash flow hedges:
Interest rate swaps	Interest rate		3,642		705		—		3,230		947		—
Interest rate forwards	Interest rate		675		139		—		965		210		—
Foreign currency swaps	Foreign currency exchange rate		9,038		219		355		6,370		352		306
Credit forwards	Credit		—		—		—		20		4		—
Subtotal			13,355		1,063		355		10,585		1,513		306
Foreign operations hedges:
Foreign currency forwards	Foreign currency exchange rate		2,552		43		61		1,689		53		12
Currency options	Foreign currency exchange rate		4,375		43		3		—		—		—
Subtotal			6,927		86		64		1,689		53		12
Total qualifying hedges			28,866		3,402		594		21,904		3,952		518
Derivatives Not Designated or Not Qualifying as Hedging Instruments
Interest rate swaps	Interest rate		83,250		5,201		2,043		71,923		5,410		2,107
Interest rate floors	Interest rate		56,246		1,174		837		23,866		1,246		165
Interest rate caps	Interest rate		49,465		74		—		49,665		102		—
Interest rate futures	Interest rate		11,684		1		38		14,965		25		19
Interest rate options	Interest rate		16,328		640		60		16,988		896		6
Interest rate forwards	Interest rate		—		—		—		13,068		76		91
Synthetic GICs	Interest rate		4,162		—		—		4,454		—		—
Foreign currency swaps	Foreign currency exchange rate		8,208		199		736		6,871		320		656
Foreign currency forwards	Foreign currency exchange rate		9,202		26		288		6,630		145		38
Currency futures	Foreign currency exchange rate		1,408		4		—		633		—		—
Currency options	Foreign currency exchange rate		129		1		—		1,321		6		—
Credit default swaps	Credit		12,553		90		39		13,136		326		113
Equity futures	Equity market		7,008		14		132		7,053		26		10
Equity options	Equity market		22,920		2,825		356		17,099		3,263		179
Variance swaps	Equity market		19,830		122		310		18,801		397		75
Total rate of return swaps	Equity market		3,092		4		103		1,644		10		34
Total non-designated or non-qualifying derivatives			305,485		10,375		4,942		268,117		12,248		3,493
Total		$	334,351	$	13,777	$	5,536	$	290,021	$	16,200	$	4,011

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.

Net Derivative Gains (Losses)

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

	Years Ended December 31,
	2012			2011			2010
	(In millions)
Derivatives and hedging gains (losses) (1)	$	(3,158	)	$	6,108		$	122
Embedded derivatives		1,239			(1,284	)		(387	)
Total net derivative gains (losses)	$	(1,919	)	$	4,824		$	(265	)

(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,
	2012			2011			2010
	(In millions)
Qualifying hedges:
Net investment income	$	111		$	98		$	83
Interest credited to policyholder account balances		164			214			233
Other expenses		(5	)		(4	)		(6	)
Non-qualifying hedges:
Net investment income		(6	)		(8	)		(3	)
Other revenues		47			75			108
Net derivative gains (losses)		476			411			65
Policyholder benefits and claims		(120	)		17			—
Total	$	667		$	803		$	480

Non-Qualifying Derivatives and Derivatives for Purposes Other Than Hedging

The following table presents 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, 2012:
Interest rate derivatives	$	(296	)	$	—		$	—		$	28	$	—
Foreign currency exchange rate derivatives		(660	)		—			—			—		—
Credit derivatives		(148	)		(14	)		—			—		—
Equity derivatives		(2,556	)		(9	)		(419	)		—		—
Total	$	(3,660	)	$	(23	)	$	(419	)	$	28	$	—
For the Year Ended December 31, 2011:
Interest rate derivatives	$	3,940		$	(1	)	$	—		$	236	$	—
Foreign currency exchange rate derivatives		343			(9	)		—			—		—
Credit derivatives		175			5			—			—		—
Equity derivatives		1,178			(35	)		(87	)		—		—
Total	$	5,636		$	(40	)	$	(87	)	$	236	$	—
For the Year Ended December 31, 2010:
Interest rate derivatives	$	691		$	—		$	39		$	89	$	—
Foreign currency exchange rate derivatives		196			54			—			—		(4	)
Credit derivatives		34			(2	)		—			—		—
Equity derivatives		(782	)		(41	)		(314	)		—		—
Total	$	139		$	11		$	(275	)	$	89	$	(4	)

(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.

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 assets and liabilities to floating rate assets and liabilities; (ii) foreign currency swaps to hedge the foreign currency fair value exposure of foreign currency denominated assets and liabilities; and (iii) 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 Year Ended December 31, 2012:
Interest rate swaps:	Fixed maturity securities	$	(4	)	$	—		$	(4	)
	Policyholder liabilities (1)		(82	)		96			14
Foreign currency swaps:	Foreign-denominated fixed maturity securities		(1	)		1			—
	Foreign-denominated PABs (2)		3			(20	)		(17	)
Foreign currency forwards:	Foreign-denominated fixed maturity securities		(51	)		50			(1	)
Total		$	(135	)	$	127		$	(8	)
For the Year Ended December 31, 2011:
Interest rate swaps:	Fixed maturity securities	$	(25	)	$	22		$	(3	)
	Policyholder liabilities (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
	Policyholder liabilities (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	)

(1) Fixed rate liabilities reported in PABs or future policy benefits.

(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 years ended December 31, 2012 and 2011, ($4) million and ($3) million, respectively, of the change in fair value of derivatives were excluded from the assessment of hedge effectiveness. For the year ended December 31, 2010, 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 assets and liabilities to fixed rate assets and liabilities; (ii) foreign currency swaps to hedge the foreign currency cash flow exposure of foreign currency denominated assets and liabilities; (iii) interest rate forwards and credit forwards to lock in the price to be paid for forward purchases of investments; (iv) interest rate swaps and interest rate forwards to hedge the forecasted purchases of fixed-rate investments; and (v) 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 were no longer probable of occurring. Because certain of the forecasted transactions also were not probable of occurring within two months of the anticipated date, the Company reclassified $1 million, ($13) million and $9 million from accumulated other comprehensive income (loss) into net derivative gains (losses) for the years ended December 31, 2012, 2011 and 2010, respectively, related to such discontinued cash flow hedges.

At December 31, 2012 and 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 eight years and nine years, respectively.

At December 31, 2012 and 2011, the balance in accumulated other comprehensive income (loss) associated with cash flow hedges was $1.3 billion and $1.5 billion, respectively.

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)
				Net Derivative Gains (Losses)			Net Investment Income			Other Expenses			Net Derivative Gains  (Losses)
	(In millions)
For the Year Ended December 31, 2012:
Interest rate swaps	$	(34	)	$	1		$	4		$	(3	)	$	2
Interest rate forwards		(17	)		1			2			(1	)		—
Foreign currency swaps		(164	)		23			(5	)		1			(6	)
Credit forwards		—			—			1			—			—
Total	$	(215	)	$	25		$	2		$	(3	)	$	(4	)
For the Year Ended December 31, 2011:
Interest rate swaps	$	1,023		$	(42	)	$	1		$	(10	)	$	1
Interest rate forwards		336			31			1			(1	)		2
Foreign currency swaps		175			—			(6	)		2			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
Interest rate forwards		(117	)		14			2			—			(2	)
Foreign currency swaps		34			(79	)		(6	)		2			—
Credit forwards		19			—			—			—			—
Total	$	(51	)	$	(65	)	$	(4	)	$	1		$	1

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

At December 31, 2012, ($6) 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.

Hedges of Net Investments in Foreign Operations

The Company uses foreign exchange derivatives, which may include foreign currency forwards and currency options, to hedge portions of its net investments in foreign operations against adverse movements in exchange rates. The Company measures ineffectiveness on these derivatives 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)
	Years Ended December 31,
	2012		2011		2010
	(In millions)
Foreign currency forwards	$	(50)	$	62	$	(167)
Currency options		36		—		—
Non-derivative hedging instruments		—		6		(16)
Total	$	(14)	$	68	$	(183)

(1) During the years ended December 31, 2012 and 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, 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. See Note 3.

(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, 2012 and 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 ($98) million and ($84) million, respectively.

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 $8.9 billion and $7.7 billion at December 31, 2012 and 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 December 31, 2012 and 2011, the Company would have received $74 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:

	December 31,
	2012						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	$	777		2.7	$	5		$	737		3.5
Credit default swaps referencing indices		42		2,713		2.1		(1	)		2,813		3.0
Subtotal		52		3,490		2.2		4			3,550		3.1
Baa
Single name credit default swaps (corporate)		8		1,314		3.4		(17	)		1,234		4.0
Credit default swaps referencing indices		11		3,750		4.9		(26	)		2,847		4.9
Subtotal		19		5,064		4.5		(43	)		4,081		4.6
Ba
Single name credit default swaps (corporate)		—		25		2.7		—			25		3.5
Credit default swaps referencing indices		—		—		—		—			—		—
Subtotal		—		25		2.7		—			25		3.5
B
Single name credit default swaps (corporate)		—		—		—		—			—		—
Credit default swaps referencing indices		3		300		4.9		(2	)		25		4.8
Subtotal		3		300		4.9		(2	)		25		4.8
Total	$	74	$	8,879		3.6	$	(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”), 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 $8.9 billion and $7.7 billion from the table above were $150 million and $115 million at December 31, 2012 and 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 December 31, 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 derivatives. Generally, the current credit exposure of the Company’s derivatives is limited to the net positive estimated fair value of derivatives 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 netting of payments by product and currency for periodic settlements and a single net payment to be made by one party 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 derivatives. See Note 10 for a description of the impact of credit risk on the valuation of derivatives.

The Company enters into various collateral arrangements which require both the pledging and accepting of collateral in connection with its OTC derivatives. At December 31, 2012 and 2011, the Company was obligated to return cash collateral under its control of $6.0 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 December 31, 2012 and 2011, the Company had received collateral consisting of various securities with a fair market value of $3.7 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 December 31, 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 derivatives 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 derivatives could terminate the transactions and demand immediate settlement and payment based on such party’s reasonable valuation of the derivatives.

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 of Derivatives in Net Liability Position  (1)		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, 2012:
Derivatives subject to credit-contingent provisions	$	771	$	775	$	—	$	35	$	73
Derivatives not subject to credit-contingent provisions		79		100		1		—		—
Total	$	850	$	875	$	1	$	35	$	73
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.

The Company also has exchange-traded futures and options, which require the pledging of collateral. At December 31, 2012 and 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 December 31, 2012 and 2011, the Company provided cash collateral for exchange-traded futures and options of $441 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 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 certain debt and equity securities.

The following table presents the estimated fair value and balance sheet location of the Company’s embedded derivatives that have been separated from their host contracts at:

		December 31,
	Balance Sheet Location	2012			2011
		(In millions)
Net embedded derivatives within asset host contracts:
Ceded guaranteed minimum benefits	Premiums, reinsurance and other receivables	$	439		$	327
Funds withheld on assumed reinsurance	Other invested assets		66			35
Options embedded in debt or equity securities	Investments		(88	)		(70	)
Other	Other invested assets		1			1
Net embedded derivatives within asset host contracts		$	418		$	293
Net embedded derivatives within liability host contracts:
Direct guaranteed minimum benefits	PABs	$	923		$	2,104
Assumed guaranteed minimum benefits	PABs		2,582			2,340
Funds withheld on ceded reinsurance	Other liabilities		162			122
Other	PABs		17			18
Net embedded derivatives within liability host contracts		$	3,684		$	4,584

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

	Years Ended December 31,
	2012		2011			2010
	(In millions)
Net derivative gains (losses) (1)	$	1,239	$	(1,284	)	$	(387	)
Policyholder benefits and claims	$	75	$	86		$	8

(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 ($1.7) billion, $1.8 billion and ($96) million for the years ended December 31, 2012, 2011 and 2010, respectively.