Fair Value of Assets and Liabilities (Tables)

12 Months Ended

Dec. 31, 2012

Fair Value of Assets and Liabilities

Summary of assets and liabilities measured at fair value on a recurring and non-recurring basis

The following table summarizes the Company’s assets and liabilities measured at fair value on a recurring and non-recurring basis as of December 31, 2012:

($ in millions)		Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)		Counterparty and cash collateral netting		Balance as of December 31, 2012
Assets
Fixed income securities:
U.S. government and agencies	$	1,074	$	1,305	$	--			$	2,379
Municipal		--		4,366		338				4,704
Corporate		--		30,030		1,501				31,531
Foreign government		--		1,180		--				1,180
ABS		--		1,666		199				1,865
RMBS		--		1,791		--				1,791
CMBS		--		1,387		21				1,408
Redeemable preferred stock		--		17		1				18
Total fixed income securities		1,074		41,742		2,060				44,876
Equity securities		338		--		7				345
Short-term investments		220		655		--				875
Other investments:
Free-standing derivatives		--		173		3	$	(47)		129
Separate account assets		6,610		--		--				6,610
Other assets		2		--		1				3
Total recurring basis assets		8,244		42,570		2,071		(47)		52,838
Non-recurring basis (1)		--		--		6				6
Total assets at fair value	$	8,244	$	42,570	$	2,077	$	(47)	$	52,844
% of total assets at fair value		15.6 %		80.6 %		3.9 %		(0.1) %		100.0 %
Liabilities
Contractholder funds:
Derivatives embedded in life and annuity contracts	$	--	$	--	$	(553)			$	(553)
Other liabilities:
Free-standing derivatives		--		(91)		(30)	$	29		(92)
Total liabilities at fair value	$	--	$	(91)	$	(583)	$	29	$	(645)
% of total liabilities at fair value		-- %		14.1 %		90.4 %		(4.5) %		100.0 %

______________

(1) Includes $4 million of mortgage loans, $1 million of limited partnership interests and $1 million of other investments written-down to fair value in connection with recognizing other-than-temporary impairments.

The following table summarizes the Company’s assets and liabilities measured at fair value on a recurring and non-recurring basis as of December 31, 2011:

($ in millions)		Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)		Counterparty and cash collateral netting		Balance as of December 31, 2011
Assets
Fixed income securities:
U.S. government and agencies	$	1,614	$	1,129	$	--			$	2,743
Municipal		--		4,305		387				4,692
Corporate		--		29,085		1,319				30,404
Foreign government		--		1,068		--				1,068
ABS		--		1,854		254				2,108
RMBS		--		2,667		47				2,714
CMBS		--		1,653		30				1,683
Redeemable preferred stock		--		15		1				16
Total fixed income securities		1,614		41,776		2,038				45,428
Equity securities		127		38		14				179
Short-term investments		46		547		--				593
Other investments:
Free-standing derivatives		--		268		1	$	(103)		166
Separate account assets		6,984		--		--				6,984
Other assets		--		--		1				1
Total recurring basis assets		8,771		42,629		2,054		(103)		53,351
Non-recurring basis (1)		--		--		24				24
Total assets at fair value	$	8,771	$	42,629	$	2,078	$	(103)	$	53,375
% of total assets at fair value		16.4 %		79.9 %		3.9 %		(0.2) %		100.0 %
Liabilities
Contractholder funds:
Derivatives embedded in life and annuity contracts	$	--	$	--	$	(723)			$	(723)
Other liabilities:
Free-standing derivatives		--		(96)		(89)	$	60		(125)
Total liabilities at fair value	$	--	$	(96)	$	(812)	$	60	$	(848)
% of total liabilities at fair value		-- %		11.3 %		95.8 %		(7.1) %		100.0 %

_______________

(1) Includes $19 million of mortgage loans and $5 million of other investments written-down to fair value in connection with recognizing other-than-temporary impairments.

Summary of quantitative information about the significant unobservable inputs used in Level 3 fair value measurements

The following table summarizes quantitative information about the significant unobservable inputs used in Level 3 fair value measurements as of December 31, 2012.

($ in millions)	Fair value		Valuation technique	Unobservable input	Range	Weighted average
ARS backed by student loans	$	202	Discounted cash flow model	Anticipated date liquidity will return to the market	18 - 60 months	32 - 44 months
Derivatives embedded in life and annuity contracts - Equity-indexed and forward starting options	$	(419)	Stochastic cash flow model	Projected option cost	1.0 - 2.0 %	1.92 %

Schedule of rollforward of Level 3 assets and liabilities held at fair value on a recurring basis

($ in millions)				Total gains (losses) included in:
		Balance as of December 31, 2011		Net income (1)		OCI		Transfers into Level 3		Transfers out of Level 3
Assets
Fixed income securities:
Municipal	$	387	$	(5)	$	22	$	53	$	(10)
Corporate		1,319		20		63		381		(64)
ABS		254		24		59		42		(7)
RMBS		47		--		--		--		(47)
CMBS		30		(4)		10		--		--
Redeemable preferred stock		1		--		--		--		--
Total fixed income securities		2,038		35		154		476		(128)
Equity securities		14		--		--		--		--
Other investments:
Free-standing derivatives, net		(88)		25		--		--		--
Other assets		1		--		--		--		--
Total recurring Level 3 assets	$	1,965	$	60	$	154	$	476	$	(128)
Liabilities
Contractholder funds:
Derivatives embedded in life and annuity contracts	$	(723)	$	168	$	--	$	--	$	--
Total recurring Level 3 liabilities	$	(723)	$	168	$	--	$	--	$	--

		Purchases		Sales		Issues		Settlements		Balance as of December 31, 2012
Assets
Fixed income securities:
Municipal	$	--	$	(107)	$	--	$	(2)	$	338
Corporate		125		(223)		--		(120)		1,501
ABS		11		(165)		--		(19)		199
RMBS		--		--		--		--		--
CMBS		--		--		--		(15)		21
Redeemable preferred stock		1		(1)		--		--		1
Total fixed income securities		137		(496)		--		(156)		2,060
Equity securities		5		(12)		--		--		7
Other investments:
Free-standing derivatives, net		27		--		--		9		(27)	(2)
Other assets		--		--		--		--		1
Total recurring Level 3 assets	$	169	$	(508)	$	--	$	(147)	$	2,041
Liabilities
Contractholder funds:
Derivatives embedded in life and annuity contracts	$	--	$	--	$	(79)	$	81	$	(553)
Total recurring Level 3 liabilities	$	--	$	--	$	(79)	$	81	$	(553)

_____________

(1)	The effect to net income totals $228 million and is reported in the Consolidated Statements of Operations and Comprehensive Income as follows: $38 million in realized capital gains and losses, $22 million in net investment income, $132 million in interest credited to contractholder funds and $36 million in contract benefits.
(2)	Comprises $3 million of assets and $30 million of liabilities.

The following table presents the rollforward of Level 3 assets and liabilities held at fair value on a recurring basis during the year ended December 31, 2011.

($ in millions)				Total gains (losses) included in:
		Balance as of December 31, 2010		Net income (1)		OCI		Transfers into Level 3		Transfers out of Level 3
Assets
Fixed income securities:
Municipal	$	601	$	(2)	$	7	$	48	$	(34)
Corporate		1,760		52		(35)		237		(410)
ABS		1,974		21		(65)		--		(1,470)
RMBS		1,189		(57)		77		--		(853)
CMBS		844		(43)		111		65		(878)
Redeemable preferred stock		1		--		--		--		--
Total fixed income securities		6,369		(29)		95		350		(3,645)
Equity securities		29		(5)		--		--		(10)
Other investments:
Free-standing derivatives, net		(77)		(37)		--		--		--
Other assets		1		--		--		--		--
Total recurring Level 3 assets	$	6,322	$	(71)	$	95	$	350	$	(3,655)
Liabilities
Contractholder funds:
Derivatives embedded in life and annuity contracts	$	(653)	$	(134)	$	--	$	--	$	--
Total recurring Level 3 liabilities	$	(653)	$	(134)	$	--	$	--	$	--

		Purchases		Sales		Issues		Settlements		Balance as of December 31, 2011
Assets
Fixed income securities:
Municipal	$	10	$	(241)	$	--	$	(2)	$	387
Corporate		266		(473)		--		(78)		1,319
ABS		146		(136)		--		(216)		254
RMBS		--		(222)		--		(87)		47
CMBS		--		(66)		--		(3)		30
Redeemable preferred stock		--		--		--		--		1
Total fixed income securities		422		(1,138)		--		(386)		2,038
Equity securities		1		(1)		--		--		14
Other investments:
Free-standing derivatives, net		18		--		--		8		(88)	(2)
Other assets		--		--		--		--		1
Total recurring Level 3 assets	$	441	$	(1,139)	$	--	$	(378)	$	1,965
Liabilities
Contractholder funds:
Derivatives embedded in life and annuity contracts	$	--	$	--	$	(100)	$	164	$	(723)
Total recurring Level 3 liabilities	$	--	$	--	$	(100)	$	164	$	(723)

_____________

(1) The effect to net income totals $(205) million and is reported in the Consolidated Statements of Operations and Comprehensive Income as follows: $(101) million in realized capital gains and losses, $34 million in net investment income, $(106) million in interest credited to contractholder funds and $(32) million in contract benefits.

(2) Comprises $1 million of assets and $89 million of liabilities.

The following table presents the rollforward of Level 3 assets and liabilities held at fair value on a recurring basis during the year ended December 31, 2010.

($ in millions)				Total gains (losses) included in:
		Balance as of December 31, 2009		Net income (1)		OCI		Purchases, sales, issues and settlements, net		Transfers into Level 3		Transfers out of Level 3		Balance as of December 31, 2010
Assets
Fixed income securities:
Municipal	$	746	$	(10)	$	8	$	(95)	$	19	$	(67)	$	601
Corporate		2,020		23		128		(285)		403		(529)		1,760
Foreign government		20		--		--		(20)		--		--		--
ABS		1,710		60		236		205		--		(237)		1,974
RMBS		1,052		(268)		475		(41)		--		(29)		1,189
CMBS		1,322		(235)		589		(525)		108		(415)		844
Redeemable preferred stock		1		--		--		--		--		--		1
Total fixed income securities		6,871		(430)		1,436		(761)		530		(1,277)		6,369
Equity securities		27		15		2		(13)		--		(2)		29
Other investments:
Free-standing derivatives, net		(53)		(43)		--		19		--		--		(77)	(2)
Other assets		2		(1)		--		--		--		--		1
Total recurring Level 3 assets	$	6,847	$	(459)	$	1,438	$	(755)	$	530	$	(1,279)	$	6,322
Liabilities
Contractholder funds:
Derivatives embedded in life and annuity contracts	$	(110)	$	(31)	$	--	$	3	$	(515)	$	--	$	(653)
Total recurring Level 3 liabilities	$	(110)	$	(31)	$	--	$	3	$	(515)	$	--	$	(653)

____________

(1)  The effect to net income totals $(490) million and is reported in the Consolidated Statements of Operations and Comprehensive Income as follows: $(522) million in realized capital gains and losses, $64 million in net investment income, $(1) million in interest credited to contractholder funds and $(31) million in contract benefits.

(2)  Comprises $10 million of assets and $87 million of liabilities.

Schedule of change in unrealized gains and losses included in net income for Level 3 assets and liabilities held

($ in millions)		2012		2011		2010
Assets
Fixed income securities:
Municipal	$	--	$	(2)	$	(7)
Corporate		15		19		37
ABS		--		(35)		52
RMBS		--		--		(203)
CMBS		(3)		(12)		(28)
Total fixed income securities		12		(30)		(149)
Equity securities		--		(4)		--
Other investments:
Free-standing derivatives, net		6		(29)		(26)
Other assets		--		--		(1)
Total recurring Level 3 assets	$	18	$	(63)	$	(176)
Liabilities
Contractholder funds:
Derivatives embedded in life and annuity contracts	$	168	$	(134)	$	(31)
Total recurring Level 3 liabilities	$	168	$	(134)	$	(31)

Schedule of carrying values and fair value estimates of financial instruments not carried at fair value

Financial assets

($ in millions)		December 31, 2012				December 31, 2011
		Carrying value		Fair value		Carrying value		Fair value
Mortgage loans	$	5,943	$	6,223	$	6,546	$	6,739
Cost method limited partnerships		617		778		754		882
Agent loans		319		314		279		279
Bank loans		282		282		299		290
Notes due from related party		275		275		275		235

Financial liabilities

($ in millions)		December 31, 2012				December 31, 2011
		Carrying value		Fair value		Carrying value		Fair value
Contractholder funds on investment contracts	$	26,984	$	27,989	$	30,161	$	30,468
Notes due to related parties		496		496		700		659
Liability for collateral		561		561		263		263