10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

The registrant meets the conditions set forth in General Instructions H (1)(a) and (b) of Form 10-Q and is therefore filing this form with the reduced disclosure format.

[X]          QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2013

OR

[  ]           TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________ to __________

Commission file number 0-31248

ALLSTATE LIFE INSURANCE COMPANY

(Exact name of registrant as specified in its charter)

Illinois	36-2554642
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)

3100 Sanders Road, Northbrook, Illinois 60062

(Address of principal executive offices)      (Zip Code)

(847) 402-5000

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes  X No __

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes   X  No __

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,”  “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ____	Accelerated filer
Non-accelerated filer    X    (Do not check if a smaller reporting company)	Smaller reporting company ____

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ____ No   X  

As of August 2, 2013, the registrant had 23,800 common shares, $227 par value, outstanding, all of which are held by Allstate Insurance Company.

ALLSTATE LIFE INSURANCE COMPANY

INDEX TO QUARTERLY REPORT ON FORM 10-Q

June 30, 2013

PART I	FINANCIAL INFORMATION	PAGE
Item 1.	Financial Statements
	Condensed Consolidated Statements of Operations and Comprehensive Income for the Three-Month and Six-Month Periods Ended June 30, 2013 and 2012 (unaudited)	1
	Condensed Consolidated Statements of Financial Position as of June 30, 2013 (unaudited) and December 31, 2012	2
	Condensed Consolidated Statements of Shareholders’ Equity for the Six-Month Periods Ended June 30, 2013 and 2012 (unaudited)	3
	Condensed Consolidated Statements of Cash Flows for the Six-Month Periods Ended June 30, 2013 and 2012 (unaudited)	4
	Notes to Condensed Consolidated Financial Statements (unaudited)	5
	Report of Independent Registered Public Accounting Firm	37
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Operations Highlights	38
	Impact of Low Interest Rate Environment	38
	Operations	39
	Investments Highlights	45
	Investments	45
	Capital Resources and Liquidity	51
Item 4.	Controls and Procedures	54
PART II	OTHER INFORMATION
Item 1.	Legal Proceedings	54
Item 1A.	Risk Factors	54
Item 6.	Exhibits	54

PART I. FINANCIAL INFORMATION

ITEM 1.   FINANCIAL STATEMENTS

ALLSTATE LIFE INSURANCE COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

($ in millions)		Three months ended June 30,				Six months ended June 30,
		2013		2012		2013		2012
		(unaudited)				(unaudited)
Revenues
Premiums	$	150	$	152	$	295	$	298
Contract charges		260		256		524		511
Net investment income		619		650		1,240		1,323
Realized capital gains and losses:
Total other-than-temporary impairment losses		(15)		(9)		(16)		(42)
Portion of loss recognized in other comprehensive income		(2)		3		(10)		--
Net other-than-temporary impairment losses recognized in earnings		(17)		(6)		(26)		(42)
Sales and other realized capital gains and losses		75		13		103		27
Total realized capital gains and losses		58		7		77		(15)
		1,087		1,065		2,136		2,117
Costs and expenses
Contract benefits		396		388		777		752
Interest credited to contractholder funds		304		360		643		731
Amortization of deferred policy acquisition costs		51		59		104		140
Operating costs and expenses		114		109		231		221
Restructuring and related charges		--		--		2		--
Interest expense		7		11		15		22
		872		927		1,772		1,866
Gain on disposition of operations		1		3		3		6
Income from operations before income tax expense		216		141		367		257
Income tax expense		66		43		108		76
Net income		150		98		259		181
Other comprehensive (loss) income, after-tax
Change in unrealized net capital gains and losses		(562)		160		(536)		388
Change in unrealized foreign currency translation adjustments		(1)		3		--		2
Other comprehensive (loss) income, after-tax		(563)		163		(536)		390
Comprehensive (loss) income	$	(413)	$	261	$	(277)	$	571

See notes to condensed consolidated financial statements.

1

ALLSTATE LIFE INSURANCE COMPANY AND SUBSIDIARES

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

($ in millions, except par value data)		June 30,		December 31,
		2013		2012
Assets		(unaudited)
Investments
Fixed income securities, at fair value (amortized cost $38,494 and $41,194)	$	40,440	$	44,876
Mortgage loans		5,803		5,943
Equity securities, at fair value (cost $518 and $310)		550		345
Limited partnership interests		1,946		1,924
Short-term, at fair value (amortized cost $744 and $875)		744		875
Policy loans		818		836
Other		1,114		1,067
Total investments		51,415		55,866
Cash		84		341
Deferred policy acquisition costs		2,047		1,834
Reinsurance recoverables		4,521		4,570
Accrued investment income		492		489
Other assets		449		401
Separate Accounts		6,488		6,610
Total assets	$	65,496	$	70,111
Liabilities
Contractholder funds	$	35,661	$	38,634
Reserve for life-contingent contract benefits		13,449		14,117
Unearned premiums		19		20
Payable to affiliates, net		87		111
Other liabilities and accrued expenses		1,139		1,286
Deferred income taxes		1,321		1,524
Notes due to related parties		296		496
Separate Accounts		6,488		6,610
Total liabilities		58,460		62,798
Commitments and Contingent Liabilities (Note 7)
Shareholder’s Equity
Redeemable preferred stock - series A, $100 par value, 1,500,000 shares authorized, none issued		--		--
Redeemable preferred stock - series B, $100 par value, 1,500,000 shares authorized, none issued		--		--
Common stock, $227 par value, 23,800 shares authorized and outstanding		5		5
Additional capital paid-in		3,190		3,190
Retained income		2,744		2,485
Accumulated other comprehensive income:
Unrealized net capital gains and losses:
Unrealized net capital gains and losses on fixed income securities with OTTI		25		(5)
Other unrealized net capital gains and losses		1,250		2,405
Unrealized adjustment to DAC, DSI and insurance reserves		(177)		(766)
Total unrealized net capital gains and losses		1,098		1,634
Unrealized foreign currency translation adjustments		(1)		(1)
Total accumulated other comprehensive income		1,097		1,633
Total shareholder’s equity		7,036		7,313
Total liabilities and shareholder’s equity	$	65,496	$	70,111

See notes to condensed consolidated financial statements.

2

ALLSTATE LIFE INSURANCE COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDER’S EQUITY

($ in millions)		Six months ended June 30,
		2013		2012
		(unaudited)
Common stock	$	5	$	5
Additional capital paid-in		3,190		3,190
Retained income
Balance, beginning of period		2,485		2,060
Net income		259		181
Balance, end of period		2,744		2,241
Accumulated other comprehensive income
Balance, beginning of period		1,633		812
Change in unrealized net capital gains and losses		(536)		388
Change in unrealized foreign currency translation adjustments		--		2
Balance, end of period		1,097		1,202
Total shareholder’s equity	$	7,036	$	6,638

See notes to condensed consolidated financial statements.

3

ALLSTATE LIFE INSURANCE COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

($ in millions)		Six months ended June 30,
		2013		2012
Cash flows from operating activities		(unaudited)
Net income	$	259	$	181
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization and other non-cash items		(32)		(11)
Realized capital gains and losses		(77)		15
Gain on disposition of operations		(3)		(6)
Interest credited to contractholder funds		643		731
Changes in:
Policy benefits and other insurance reserves		(348)		(376)
Unearned premiums		(1)		(2)
Deferred policy acquisition costs		(26)		22
Reinsurance recoverables, net		(42)		(33)
Income taxes		110		80
Other operating assets and liabilities		(52)		(97)
Net cash provided by operating activities		431		504
Cash flows from investing activities
Proceeds from sales
Fixed income securities		2,377		3,551
Equity securities		124		2
Limited partnership interests		109		88
Mortgage loans		20		11
Other investments		22		70
Investment collections
Fixed income securities		2,659		1,444
Mortgage loans		445		449
Other investments		65		35
Investment purchases
Fixed income securities		(2,358)		(3,980)
Equity securities		(290)		(2)
Limited partnership interests		(185)		(209)
Mortgage loans		(301)		(223)
Other investments		(65)		(61)
Change in short-term investments, net		18		(102)
Change in policy loans and other investments, net		76		(5)
Net cash provided by investing activities		2,716		1,068
Cash flows from financing activities
Contractholder fund deposits		1,051		941
Contractholder fund withdrawals		(4,255)		(2,650)
Repayment of notes due to related parties		(200)		(4)
Net cash used in financing activities		(3,404)		(1,713)
Net decrease in cash		(257)		(141)
Cash at beginning of period		341		310
Cash at end of period	$	84	$	169

See notes to condensed consolidated financial statements.

4

ALLSTATE LIFE INSURANCE COMPANY

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1.  General

Basis of presentation

The accompanying condensed consolidated financial statements include the accounts of Allstate Life Insurance Company (“ALIC”) and its wholly owned subsidiaries (collectively referred to as the “Company”).  ALIC is wholly owned by Allstate Insurance Company (“AIC”), which is wholly owned by Allstate Insurance Holdings, LLC, a wholly owned subsidiary of The Allstate Corporation (the “Corporation”).

The condensed consolidated financial statements and notes as of June 30, 2013 and for the three-month and six-month periods ended June 30, 2013 and 2012 are unaudited.  The condensed consolidated financial statements reflect all adjustments (consisting only of normal recurring accruals) which are, in the opinion of management, necessary for the fair presentation of the financial position, results of operations and cash flows for the interim periods.  These condensed consolidated financial statements and notes should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012.  The results of operations for the interim periods should not be considered indicative of results to be expected for the full year.  All significant intercompany accounts and transactions have been eliminated.

Premiums and contract charges

The following table summarizes premiums and contract charges by product.

($ in millions)		Three months ended June 30,				Six months ended June 30,
		2013		2012		2013		2012
Premiums
Traditional life insurance	$	116	$	114	$	228	$	223
Immediate annuities with life contingencies		9		14		16		26
Accident and health insurance		25		24		51		49
Total premiums		150		152		295		298
Contract charges
Interest-sensitive life insurance		256		251		517		500
Fixed annuities		4		5		7		11
Total contract charges		260		256		524		511
Total premiums and contract charges	$	410	$	408	$	819	$	809

Adopted accounting standards

Disclosures about Offsetting Assets and Liabilities

In December 2011 and January 2013, the Financial Accounting Standards Board (“FASB”) issued guidance requiring expanded disclosures, including both gross and net information, for derivatives, repurchase and reverse repurchase agreements, and securities borrowing and securities lending transactions that are either offset in the reporting entity’s financial statements or those that are subject to an enforceable master netting arrangement or similar agreement.  The Company adopted the new guidance in the first quarter of 2013.  The new guidance affects disclosures only and therefore had no impact on the Company’s results of operations or financial position.

Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income

In February 2013, the FASB issued guidance requiring expanded disclosures about the amounts reclassified out of accumulated other comprehensive income by component.  The guidance requires the presentation of significant amounts reclassified out of accumulated other comprehensive income by income statement line item but only if the amount reclassified is required under accounting principles generally accepted in the United States of America (“GAAP”) to be reclassified to net income in its entirety in the same reporting period.  For other amounts that are not required under GAAP to be reclassified in their entirety to net income, cross-reference to other disclosures that provide additional detail about those amounts is required.  The Company adopted the new guidance in the first quarter of 2013.  The new guidance affects disclosures only and therefore had no impact on the Company’s results of operations or financial position.

5

2.  Supplemental Cash Flow Information

Non-cash modifications of certain mortgage loans, fixed income securities, limited partnership interests and other investments, as well as mergers completed with equity securities, totaled $191 million and $95 million for the six months ended June 30, 2013 and 2012, respectively.

Liabilities for collateral received in conjunction with the Company’s securities lending program and over-the-counter (“OTC”) derivatives are reported in other liabilities and accrued expenses or other investments.  The accompanying cash flows are included in cash flows from operating activities in the Condensed Consolidated Statements of Cash Flows along with the activities resulting from management of the proceeds, which are as follows:

($ in millions)		Six months ended June 30,
		2013		2012
Net change in proceeds managed
Net change in short-term investments	$	115	$	(162)
Operating cash flow provided (used)	$	115	$	(162)
Net change in liabilities
Liabilities for collateral, beginning of year	$	(561)	$	(263)
Liabilities for collateral, end of period		(446)		(425)
Operating cash flow (used) provided	$	(115)	$	162

3.  Investments

Fair values

The amortized cost, gross unrealized gains and losses and fair value for fixed income securities are as follows:

($ in millions)		Amortized		Gross unrealized				Fair
		cost		Gains		Losses		value
June 30, 2013
U.S. government and agencies	$	1,018	$	158	$	(1)	$	1,175
Municipal		3,906		389		(53)		4,242
Corporate		28,432		1,699		(380)		29,751
Foreign government		1,019		113		(10)		1,122
Asset-backed securities (“ABS”)		1,490		42		(69)		1,463
Residential mortgage-backed securities (“RMBS”)		1,411		67		(29)		1,449
Commercial mortgage-backed securities (“CMBS”)		1,204		49		(32)		1,221
Redeemable preferred stock		14		3		--		17
Total fixed income securities	$	38,494	$	2,520	$	(574)	$	40,440
December 31, 2012
U.S. government and agencies	$	2,137	$	242	$	--	$	2,379
Municipal		4,153		612		(61)		4,704
Corporate		28,748		2,896		(113)		31,531
Foreign government		1,017		164		(1)		1,180
ABS		1,921		49		(105)		1,865
RMBS		1,778		82		(69)		1,791
CMBS		1,425		60		(77)		1,408
Redeemable preferred stock		15		3		--		18
Total fixed income securities	$	41,194	$	4,108	$	(426)	$	44,876

6

Scheduled maturities

The scheduled maturities for fixed income securities are as follows as of June 30, 2013:

($ in millions)		Amortized cost		Fair value
Due in one year or less	$	1,630	$	1,663
Due after one year through five years		8,399		8,934
Due after five years through ten years		15,283		15,866
Due after ten years		9,077		9,844
		34,389		36,307
ABS, RMBS and CMBS		4,105		4,133
Total	$	38,494	$	40,440

Actual maturities may differ from those scheduled as a result of prepayments by the issuers.  ABS, RMBS and CMBS are shown separately because of the potential for prepayment of principal prior to contractual maturity dates.

Net investment income

Net investment income is as follows:

($ in millions)		Three months ended June 30,				Six months ended June 30,
		2013		2012		2013		2012
Fixed income securities	$	494	$	525	$	990	$	1,046
Mortgage loans		87		85		178		170
Equity securities		3		2		5		3
Limited partnership interests		37		39		67		106
Short-term investments		--		--		1		--
Policy loans		12		13		24		26
Other		16		16		32		30
Investment income, before expense		649		680		1,297		1,381
Investment expense		(30)		(30)		(57)		(58)
Net investment income	$	619	$	650	$	1,240	$	1,323

Realized capital gains and losses

Realized capital gains and losses by asset type are as follows:

($ in millions)		Three months ended June 30,				Six months ended June 30,
		2013		2012		2013		2012
Fixed income securities	$	24	$	(6)	$	6	$	(56)
Mortgage loans		(6)		9		25		8
Equity securities		31		--		32		--
Limited partnership interests		(3)		2		(3)		1
Derivatives		12		4		19		26
Other		--		(2)		(2)		6
Realized capital gains and losses	$	58	$	7	$	77	$	(15)

7

Realized capital gains and losses by transaction type are as follows:

($ in millions)		Three months ended June 30,				Six months ended June 30,
		2013		2012		2013		2012
Impairment write-downs	$	(16)	$	(6)	$	(18)	$	(26)
Change in intent write-downs		(1)		--		(8)		(16)
Net other-than-temporary impairment losses recognized in earnings		(17)		(6)		(26)		(42)
Sales		63		9		84		--
Valuation of derivative instruments		6		(11)		2		(3)
Settlements of derivative instruments		6		15		17		30
Realized capital gains and losses	$	58	$	7	$	77	$	(15)

Gross gains of $42 million and $32 million and gross losses of $15 million and $31 million were realized on sales of fixed income securities during the three months ended June 30, 2013 and 2012, respectively.  Gross gains of $66 million and $77 million and gross losses of $24 million and $97 million were realized on sales of fixed income securities during the six months ended June 30, 2013 and 2012, respectively.

Other-than-temporary impairment losses by asset type are as follows:

($ in millions)		Three months ended June 30, 2013						Six months ended June 30, 2013
		Gross		Included in OCI		Net		Gross		Included in OCI		Net
Fixed income securities:
Municipal	$	(1)	$	--	$	(1)	$	(8)	$	--	$	(8)
ABS		--		(1)		(1)		--		(1)		(1)
RMBS		--		--		--		1		(1)		--
CMBS		--		(1)		(1)		(19)		(8)		(27)
Total fixed income securities		(1)		(2)		(3)		(26)		(10)		(36)
Mortgage loans		(9)		--		(9)		17		--		17
Equity securities		(1)		--		(1)		(1)		--		(1)
Limited partnership interests		(4)		--		(4)		(4)		--		(4)
Other		--		--		--		(2)		--		(2)
Other-than-temporary impairment losses	$	(15)	$	(2)	$	(17)	$	(16)	$	(10)	$	(26)

($ in millions)		Three months ended June 30, 2012						Six months ended June 30, 2012
		Gross		Included in OCI		Net		Gross		Included in OCI		Net
Fixed income securities:
Corporate	$	(1)	$	--	$	(1)	$	(14)	$	--	$	(14)
RMBS		(5)		--		(5)		(17)		(3)		(20)
CMBS		(9)		3		(6)		(15)		3		(12)
Total fixed income securities		(15)		3		(12)		(46)		--		(46)
Mortgage loans		7		--		7		4		--		4
Limited partnership interests		(1)		--		(1)		(2)		--		(2)
Other		--		--		--		2		--		2
Other-than-temporary impairment losses	$	(9)	$	3	$	(6)	$	(42)	$	--	$	(42)

8

The total amount of other-than-temporary impairment losses included in accumulated other comprehensive income at the time of impairment for fixed income securities, which were not included in earnings, are presented in the following table.  The amount excludes $158 million and $134 million as of June 30, 2013 and December 31, 2012, respectively, of net unrealized gains related to changes in valuation of the fixed income securities subsequent to the impairment measurement date.

($ in millions)		June 30, 2013		December 31, 2012
Municipal	$	(5)	$	(5)
Corporate		(1)		(1)
ABS		(10)		(14)
RMBS		(92)		(103)
CMBS		(12)		(19)
Total	$	(120)	$	(142)

Rollforwards of the cumulative credit losses recognized in earnings for fixed income securities held as of the end of the period are as follows:

($ in millions)		Three months ended June 30,				Six months ended June 30,
		2013		2012		2013		2012
Beginning balance	$	(343)	$	(495)	$	(345)	$	(581)
Additional credit loss for securities previously other-than-temporarily impaired		(2)		(7)		(12)		(23)
Additional credit loss for securities not previously other-than-temporarily impaired		(1)		(5)		(17)		(7)
Reduction in credit loss for securities disposed or collected		28		47		56		151
Reduction in credit loss for securities the Company has made the decision to sell or  more likely than not will be required to sell		--		--		--		--
Change in credit loss due to accretion of increase in cash flows		--		--		--		--
Ending balance	$	(318)	$	(460)	$	(318)	$	(460)

The Company uses its best estimate of future cash flows expected to be collected from the fixed income security, discounted at the security’s original or current effective rate, as appropriate, to calculate a recovery value and determine whether a credit loss exists.  The determination of cash flow estimates is inherently subjective and methodologies may vary depending on facts and circumstances specific to the security.  All reasonably available information relevant to the collectability of the security, including past events, current conditions, and reasonable and supportable assumptions and forecasts, are considered when developing the estimate of cash flows expected to be collected.  That information generally includes, but is not limited to, the remaining payment terms of the security, prepayment speeds, foreign exchange rates, the financial condition and future earnings potential of the issue or issuer, expected defaults, expected recoveries, the value of underlying collateral, vintage, geographic concentration, available reserves or escrows, current subordination levels, third party guarantees and other credit enhancements.  Other information, such as industry analyst reports and forecasts, sector credit ratings, financial condition of the bond insurer for insured fixed income securities, and other market data relevant to the realizability of contractual cash flows, may also be considered.  The estimated fair value of collateral will be used to estimate recovery value if the Company determines that the security is dependent on the liquidation of collateral for ultimate settlement.  If the estimated recovery value is less than the amortized cost of the security, a credit loss exists and an other-than-temporary impairment for the difference between the estimated recovery value and amortized cost is recorded in earnings.  The portion of the unrealized loss related to factors other than credit remains classified in accumulated other comprehensive income.  If the Company determines that the fixed income security does not have sufficient cash flow or other information to estimate a recovery value for the security, the Company may conclude that the entire decline in fair value is deemed to be credit related and the loss is recorded in earnings.

9

Unrealized net capital gains and losses

Unrealized net capital gains and losses included in accumulated other comprehensive income are as follows:

($ in millions)		Fair		Gross unrealized			Unrealized net
June 30, 2013		value		Gains		Losses	gains (losses)
Fixed income securities	$	40,440	$	2,520	$	(574)	$	1,946
Equity securities		550		39		(7)		32
Short-term investments		744		--		--		--
Derivative instruments (1)		(7)		3		(10)		(7)
EMA limited partnerships (2)								(1)
Unrealized net capital gains and losses, pre-tax								1,970
Amounts recognized for:
Insurance reserves (3)								(76)
DAC and DSI (4)								(197)
Amounts recognized								(273)
Deferred income taxes								(599)
Unrealized net capital gains and losses, after-tax							$	1,098

_________________

(1) Included in the fair value of derivative instruments are $(1) million classified as assets and $6 million classified as liabilities.

(2) Unrealized net capital gains and losses for limited partnership interests represent the Company’s share of EMA limited partnerships’ other comprehensive income.  Fair value and gross gains and losses are not applicable.

(3) The insurance reserves adjustment represents the amount by which the reserve balance would increase if the net unrealized gains in the applicable product portfolios were realized and reinvested at current lower interest rates, resulting in a premium deficiency.  Although the Company evaluates premium deficiencies on the combined performance of life insurance and immediate annuities with life contingencies, the adjustment primarily relates to structured settlement annuities with life contingencies, in addition to annuity buy-outs and certain payout annuities with life contingencies.

(4) The DAC and DSI adjustment balance represents the amount by which the amortization of DAC and DSI would increase or decrease if the unrealized gains or losses in the respective product portfolios were realized.

		Fair		Gross unrealized			Unrealized net
December 31, 2012		value		Gains		Losses	gains (losses)
Fixed income securities	$	44,876	$	4,108	$	(426)	$	3,682
Equity securities		345		36		(1)		35
Short-term investments		875		--		--		--
Derivative instruments (1)		(17)		2		(19)		(17)
EMA limited partnerships								1
Unrealized net capital gains and losses, pre-tax								3,701
Amounts recognized for:
Insurance reserves								(771)
DAC and DSI								(408)
Amounts recognized								(1,179)
Deferred income taxes								(888)
Unrealized net capital gains and losses, after-tax							$	1,634

______________

(1) Included in the fair value of derivative instruments are $2 million classified as assets and $19 million classified as liabilities.

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Change in unrealized net capital gains and losses

The change in unrealized net capital gains and losses for the six months ended June 30, 2013 is as follows:

($ in millions)
Fixed income securities	$	(1,736)
Equity securities		(3)
Derivative instruments		10
EMA limited partnerships		(2)
Total		(1,731)
Amounts recognized for:
Insurance reserves		695
DAC and DSI		211
Amounts recognized		906
Deferred income taxes		289
Decrease in unrealized net capital gains and losses	$	(536)

Portfolio monitoring

The Company has a comprehensive portfolio monitoring process to identify and evaluate each fixed income and equity security whose carrying value may be other-than-temporarily impaired.

For each fixed income security in an unrealized loss position, the Company assesses whether management with the appropriate authority has made the decision to sell or whether it is more likely than not the Company will be required to sell the security before recovery of the amortized cost basis for reasons such as liquidity, contractual or regulatory purposes.  If a security meets either of these criteria, the security’s decline in fair value is considered other than temporary and is recorded in earnings.

If the Company has not made the decision to sell the fixed income security and it is not more likely than not the Company will be required to sell the fixed income security before recovery of its amortized cost basis, the Company evaluates whether it expects to receive cash flows sufficient to recover the entire amortized cost basis of the security.  The Company calculates the estimated recovery value by discounting the best estimate of future cash flows at the security’s original or current effective rate, as appropriate, and compares this to the amortized cost of the security.  If the Company does not expect to receive cash flows sufficient to recover the entire amortized cost basis of the fixed income security, the credit loss component of the impairment is recorded in earnings, with the remaining amount of the unrealized loss related to other factors recognized in other comprehensive income.

For equity securities, the Company considers various factors, including whether it has the intent and ability to hold the equity security for a period of time sufficient to recover its cost basis.  Where the Company lacks the intent and ability to hold to recovery, or believes the recovery period is extended, the equity security’s decline in fair value is considered other than temporary and is recorded in earnings.

For fixed income and equity securities managed by third parties, either the Company has contractually retained its decision making authority as it pertains to selling securities that are in an unrealized loss position or it recognizes any unrealized loss at the end of the period through a charge to earnings.

The Company’s portfolio monitoring process includes a quarterly review of all securities to identify instances where the fair value of a security compared to its amortized cost (for fixed income securities) or cost (for equity securities) is below established thresholds.  The process also includes the monitoring of other impairment indicators such as ratings, ratings downgrades and payment defaults.  The securities identified, in addition to other securities for which the Company may have a concern, are evaluated for potential other-than-temporary impairment using all reasonably available information relevant to the collectability or recovery of the security.  Inherent in the Company’s evaluation of other-than-temporary impairment for these fixed income and equity securities are assumptions and estimates about the financial condition and future earnings potential of the issue or issuer.  Some of the factors that may be considered in evaluating whether a decline in fair value is other than temporary are: 1) the financial condition, near-term and long-term prospects of the issue or issuer, including relevant industry specific market conditions and trends, geographic location and implications of rating agency actions and offering prices; 2) the specific reasons that a security is in an unrealized loss position, including overall market conditions which could affect liquidity; and 3) the length of time and extent to which the fair value has been less than amortized cost or cost.

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The following table summarizes the gross unrealized losses and fair value of fixed income and equity securities by the length of time that individual securities have been in a continuous unrealized loss position.

($ in millions)	Less than 12 months					12 months or more						Total
	Number		Fair		Unrealized	Number		Fair		Unrealized		unrealized
	of issues		value		losses	of issues		value		losses		losses
June 30, 2013
Fixed income securities
U.S. government and agencies	4	$	57	$	(1)	--	$	--	$	--	$	(1)
Municipal	49		365		(18)	28		143		(35)		(53)
Corporate	543		6,460		(295)	54		677		(85)		(380)
Foreign government	8		183		(10)	--		--		--		(10)
ABS	3		26		--	70		729		(69)		(69)
RMBS	80		131		(4)	139		238		(25)		(29)
CMBS	21		222		(5)	20		132		(27)		(32)
Total fixed income securities	708		7,444		(333)	311		1,919		(241)		(574)
Equity securities	34		109		(7)	--		--		--		(7)
Total fixed income and equity securities	742	$	7,553	$	(340)	311	$	1,919	$	(241)	$	(581)
Investment grade fixed income securities	520	$	6,594	$	(299)	221	$	1,342	$	(147)	$	(446)
Below investment grade fixed income securities	188		850		(34)	90		577		(94)		(128)
Total fixed income securities	708	$	7,444	$	(333)	311	$	1,919	$	(241)	$	(574)
December 31, 2012
Fixed income securities
U.S. government and agencies	1	$	15	$	--	--	$	--	$	--	$	--
Municipal	11		101		(7)	50		395		(54)		(61)
Corporate	79		1,086		(27)	66		829		(86)		(113)
Foreign government	2		121		(1)	--		--		--		(1)
ABS	5		38		--	76		763		(105)		(105)
RMBS	49		30		--	164		442		(69)		(69)
CMBS	10		65		--	43		358		(77)		(77)
Redeemable preferred stock	--		--		--	1		--		--		--
Total fixed income securities	157		1,456		(35)	400		2,787		(391)		(426)
Equity securities	3		57		(1)	1		--		--		(1)
Total fixed income and equity securities	160	$	1,513	$	(36)	401	$	2,787	$	(391)	$	(427)
Investment grade fixed income securities	132	$	1,244	$	(29)	262	$	1,919	$	(195)	$	(224)
Below investment grade fixed income securities	25		212		(6)	138		868		(196)		(202)
Total fixed income securities	157	$	1,456	$	(35)	400	$	2,787	$	(391)	$	(426)

As of June 30, 2013, $459 million of unrealized losses are related to securities with an unrealized loss position less than 20% of amortized cost or cost, the degree of which suggests that these securities do not pose a high risk of being other-than-temporarily impaired.  Of the $459 million, $387 million are related to unrealized losses on investment grade fixed income securities.  Investment grade is defined as a security having a rating of Aaa, Aa, A or Baa from Moody’s, a rating of AAA, AA, A or BBB from Standard & Poor’s (“S&P”), Fitch, Dominion, Kroll or Realpoint, a rating of aaa, aa, a or bbb from A.M. Best, or a comparable internal rating if an externally provided rating is not available.  Unrealized losses on investment grade securities are principally related to rising interest rates or widening credit spreads since the time of initial purchase.

As of June 30, 2013, the remaining $122 million of unrealized losses are related to securities in unrealized loss positions greater than or equal to 20% of amortized cost.  Investment grade fixed income securities comprising $59 million of these unrealized losses were evaluated based on factors such as discounted cash flows and the financial condition and near-term and long-term prospects of the issue or issuer and were determined to have adequate resources to fulfill contractual obligations.  Of the $122 million, $63 million are related to below investment grade fixed income securities.  Of these amounts, $48 million are related to below investment grade fixed income securities that had been in an unrealized loss position greater than or equal to 20% of amortized cost for a period of twelve or more consecutive months as of June 30, 2013.  Unrealized losses on below investment grade securities are principally related to ABS, RMBS and CMBS and were the result of wider credit spreads resulting from higher risk premiums since the time of initial purchase.  These wider spreads are largely due to the risk associated with the underlying collateral supporting certain ABS, RMBS and CMBS securities.

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ABS, RMBS and CMBS in an unrealized loss position were evaluated based on actual and projected collateral losses relative to the securities’ positions in the respective securitization trusts, security specific expectations of cash flows, and credit ratings.  This evaluation also takes into consideration credit enhancement, measured in terms of (i) subordination from other classes of securities in the trust that are contractually obligated to absorb losses before the class of security the Company owns, (ii) the expected impact of other structural features embedded in the securitization trust beneficial to the class of securities the Company owns, such as overcollateralization and excess spread, and (iii) for ABS and RMBS in an unrealized loss position, credit enhancements from reliable bond insurers, where applicable.  Municipal bonds in an unrealized loss position were evaluated based on the quality of the underlying securities.  Unrealized losses on equity securities are primarily related to temporary equity market fluctuations of securities that are expected to recover.

As of June 30, 2013, the Company has not made the decision to sell and it is not more likely than not the Company will be required to sell fixed income securities with unrealized losses before recovery of the amortized cost basis.  As of June 30, 2013, the Company had the intent and ability to hold equity securities with unrealized losses for a period of time sufficient for them to recover.

Limited partnerships

As of June 30, 2013 and December 31, 2012, the carrying value of equity method limited partnerships totaled $1.34 billion and $1.31 billion, respectively.  The Company recognizes an impairment loss for equity method limited partnerships when evidence demonstrates that the loss is other than temporary.  Evidence of a loss in value that is other than temporary may include the absence of an ability to recover the carrying amount of the investment or the inability of the investee to sustain a level of earnings that would justify the carrying amount of the investment.  The Company had no write-downs related to equity method limited partnerships for the three or six months ended June 30, 2013 and 2012.

As of June 30, 2013 and December 31, 2012, the carrying value for cost method limited partnerships was $611 million and $617 million, respectively.  To determine if an other-than-temporary impairment has occurred, the Company evaluates whether an impairment indicator has occurred in the period that may have a significant adverse effect on the carrying value of the investment.  Impairment indicators may include: significantly reduced valuations of the investments held by the limited partnerships; actual recent cash flows received being significantly less than expected cash flows; reduced valuations based on financing completed at a lower value; completed sale of a material underlying investment at a price significantly lower than expected; or any other adverse events since the last financial statements received that might affect the fair value of the investee’s capital.  Additionally, the Company’s portfolio monitoring process includes a quarterly review of all cost method limited partnerships to identify instances where the net asset value is below established thresholds for certain periods of time, as well as investments that are performing below expectations, for further impairment consideration.  If a cost method limited partnership is other-than-temporarily impaired, the carrying value is written down to fair value, generally estimated to be equivalent to the reported net asset value of the underlying funds.  The Company had $4 million of write-downs related to cost method limited partnerships for both the three months and six months ended June 30, 2013.  The Company had $1 million and $2 million of write-downs for the three months and six months ended June 30, 2012, respectively.

Mortgage loans

Mortgage loans are evaluated for impairment on a specific loan basis through a quarterly credit monitoring process and review of key credit quality indicators.  Mortgage loans are considered impaired when it is probable that the Company will not collect the contractual principal and interest.  Valuation allowances are established for impaired loans to reduce the carrying value to the fair value of the collateral less costs to sell or the present value of the loan’s expected future repayment cash flows discounted at the loan’s original effective interest rate.  Impaired mortgage loans may not have a valuation allowance when the fair value of the collateral less costs to sell is higher than the carrying value.  Valuation allowances are adjusted for subsequent changes in the fair value of the collateral less costs to sell.  Mortgage loans are charged off against their corresponding valuation allowances when there is no reasonable expectation of recovery.  The impairment evaluation is non-statistical in respect to the aggregate portfolio but considers facts and circumstances attributable to each loan.  It is not considered probable that additional impairment losses, beyond those identified on a specific loan basis, have been incurred as of June 30, 2013.

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Accrual of income is suspended for mortgage loans that are in default or when full and timely collection of principal and interest payments is not probable.  Cash receipts on mortgage loans on nonaccrual status are generally recorded as a reduction of carrying value.

Debt service coverage ratio is considered a key credit quality indicator when mortgage loans are evaluated for impairment.  Debt service coverage ratio represents the amount of estimated cash flows from the property available to the borrower to meet principal and interest payment obligations.  Debt service coverage ratio estimates are updated annually or more frequently if conditions are warranted based on the Company’s credit monitoring process.

The following table reflects the carrying value of non-impaired fixed rate and variable rate mortgage loans summarized by debt service coverage ratio distribution.

($ in millions)		June 30, 2013						December 31, 2012
Debt service coverage ratio distribution		Fixed rate mortgage loans		Variable rate mortgage  loans		Total		Fixed rate mortgage  loans		Variable rate mortgage  loans		Total
Below 1.0	$	224	$	--	$	224	$	266	$	--	$	266
1.0 - 1.25		1,128		8		1,136		1,158		--		1,158
1.26 - 1.50		1,207		3		1,210		1,364		17		1,381
Above 1.50		3,032		134		3,166		2,854		129		2,983
Total non-impaired mortgage loans	$	5,591	$	145	$	5,736	$	5,642	$	146	$	5,788

Mortgage loans with a debt service coverage ratio below 1.0 that are not considered impaired primarily relate to instances where the borrower has the financial capacity to fund the revenue shortfalls from the properties for the foreseeable term, the decrease in cash flows from the properties is considered temporary, or there are other risk mitigating circumstances such as additional collateral, escrow balances or borrower guarantees.

The net carrying value of impaired mortgage loans is as follows:

($ in millions)		June 30, 2013		December 31, 2012
Impaired mortgage loans with a valuation allowance	$	67	$	147
Impaired mortgage loans without a valuation allowance		--		8
Total impaired mortgage loans	$	67	$	155
Valuation allowance on impaired mortgage loans	$	21	$	42

The average balance of impaired loans was $88 million and $226 million for the six months ended June 30, 2013 and 2012, respectively.

The rollforward of the valuation allowance on impaired mortgage loans is as follows:

($ in millions)		Three months ended June 30				Six months ended June 30,
		2013		2012		2013		2012
Beginning balance	$	15	$	60	$	42	$	63
Net increase (decrease) in valuation allowance		9		(7)		(17)		(4)
Charge offs		(3)		(5)		(4)		(11)
Ending balance	$	21	$	48	$	21	$	48

The carrying value of past due mortgage loans is as follows:

($ in millions)		June 30, 2013		December 31, 2012
Less than 90 days past due	$	--	$	20
90 days or greater past due		3		4
Total past due		3		24
Current loans		5,800		5,919
Total mortgage loans	$	5,803	$	5,943

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4.  Fair Value of Assets and Liabilities

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.  The hierarchy for inputs used in determining fair value maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that observable inputs be used when available.  Assets and liabilities recorded on the Condensed Consolidated Statements of Financial Position at fair value are categorized in the fair value hierarchy based on the observability of inputs to the valuation techniques as follows:

Level 1:Assets and liabilities whose values are based on unadjusted quoted prices for identical assets or liabilities in an active market that the Company can access.

Level 2:Assets and liabilities whose values are based on the following:

(a)Quoted prices for similar assets or liabilities in active markets;

(b)Quoted prices for identical or similar assets or liabilities in markets that are not active; or

(c)Valuation models whose inputs are observable, directly or indirectly, for substantially the full term of the asset or liability.

Level 3:Assets and liabilities whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement.  Unobservable inputs reflect the Company’s estimates of the assumptions that market participants would use in valuing the assets and liabilities.

The availability of observable inputs varies by instrument.  In situations where fair value is based on internally developed pricing models or inputs that are unobservable in the market, the determination of fair value requires more judgment.  The degree of judgment exercised by the Company in determining fair value is typically greatest for instruments categorized in Level 3.  In many instances, valuation inputs used to measure fair value fall into different levels of the fair value hierarchy.  The category level in the fair value hierarchy is determined based on the lowest level input that is significant to the fair value measurement in its entirety.  The Company uses prices and inputs that are current as of the measurement date, including during periods of market disruption.  In periods of market disruption, the ability to observe prices and inputs may be reduced for many instruments.

The Company is responsible for the determination of fair value and the supporting assumptions and methodologies.  The Company gains assurance that assets and liabilities are appropriately valued through the execution of various processes and controls designed to ensure the overall reasonableness and consistent application of valuation methodologies, including inputs and assumptions, and compliance with accounting standards.  For fair values received from third parties or internally estimated, the Company’s processes and controls are designed to ensure that the valuation methodologies are appropriate and consistently applied, the inputs and assumptions are reasonable and consistent with the objective of determining fair value, and the fair values are accurately recorded.  For example, on a continuing basis, the Company assesses the reasonableness of individual fair values that have stale security prices or that exceed certain thresholds as compared to previous fair values received from valuation service providers or brokers or derived from internal models.  The Company performs procedures to understand and assess the methodologies, processes and controls of valuation service providers.  In addition, the Company may validate the reasonableness of fair values by comparing information obtained from valuation service providers or brokers to other third party valuation sources for selected securities.  The Company performs ongoing price validation procedures such as back-testing of actual sales, which corroborate the various inputs used in internal models to market observable data.  When fair value determinations are expected to be more variable, the Company validates them through reviews by members of management who have relevant expertise and who are independent of those charged with executing investment transactions.

The Company has two types of situations where investments are classified as Level 3 in the fair value hierarchy.  The first is where quotes continue to be received from independent third-party valuation service providers and all significant inputs are market observable; however, there has been a significant decrease in the volume and level of activity for the asset when compared to normal market activity such that the degree of market observability has declined to a point where categorization as a Level 3 measurement is considered appropriate.  The indicators considered in determining whether a significant decrease in the volume and level of activity for a specific asset has occurred include the level of new issuances in the primary market, trading volume in the secondary market, the level

15

of credit spreads over historical levels, applicable bid-ask spreads, and price consensus among market participants and other pricing sources.

The second situation where the Company classifies securities in Level 3 is where specific inputs significant to the fair value estimation models are not market observable.  This primarily occurs in the Company’s use of broker quotes to value certain securities where the inputs have not been corroborated to be market observable, and the use of valuation models that use significant non-market observable inputs.

Certain assets are not carried at fair value on a recurring basis, including investments such as mortgage loans, limited partnership interests, bank loans and policy loans.  Accordingly, such investments are only included in the fair value hierarchy disclosure when the investment is subject to remeasurement at fair value after initial recognition and the resulting remeasurement is reflected in the condensed consolidated financial statements.  In addition, derivatives embedded in fixed income securities are not disclosed in the hierarchy as free-standing derivatives since they are presented with the host contracts in fixed income securities.

In determining fair value, the Company principally uses the market approach which generally utilizes market transaction data for the same or similar instruments.  To a lesser extent, the Company uses the income approach which involves determining fair values from discounted cash flow methodologies.  For the majority of Level 2 and Level 3 valuations, a combination of the market and income approaches is used.

Summary of significant valuation techniques for assets and liabilities measured at fair value on a recurring basis

Level 1 measurements

·Fixed income securities:  Comprise certain U.S. Treasuries.  Valuation is based on unadjusted quoted prices for identical assets in active markets that the Company can access.

·Equity securities:  Comprise actively traded, exchange-listed equity securities. Valuation is based on unadjusted quoted prices for identical assets in active markets that the Company can access.

·Short-term:  Comprise actively traded money market funds that have daily quoted net asset values for identical assets that the Company can access.

·Separate account assets:  Comprise actively traded mutual funds that have daily quoted net asset values for identical assets that the Company can access.  Net asset values for the actively traded mutual funds in which the separate account assets are invested are obtained daily from the fund managers.

Level 2 measurements

·Fixed income securities:

U.S. government and agencies:  The primary inputs to the valuation include quoted prices for identical or similar assets in markets that are not active, contractual cash flows, benchmark yields and credit spreads.

Municipal:  The primary inputs to the valuation include quoted prices for identical or similar assets in markets that are not active, contractual cash flows, benchmark yields and credit spreads.

Corporate, including privately placed:  The primary inputs to the valuation include quoted prices for identical or similar assets in markets that are not active, contractual cash flows, benchmark yields and credit spreads.  Also included are privately placed securities valued using a discounted cash flow model that is widely accepted in the financial services industry and uses market observable inputs and inputs derived principally from, or corroborated by, observable market data.  The primary inputs to the discounted cash flow model include an interest rate yield curve, as well as published credit spreads for similar assets in markets that are not active that incorporate the credit quality and industry sector of the issuer.

Foreign government:  The primary inputs to the valuation include quoted prices for identical or similar assets in markets that are not active, contractual cash flows, benchmark yields and credit spreads.

ABS and RMBS:  The primary inputs to the valuation include quoted prices for identical or similar assets in markets that are not active, contractual cash flows, benchmark yields, prepayment speeds, collateral performance and credit spreads.  Certain ABS are valued based on non-binding broker quotes whose inputs have been corroborated to be market observable.

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CMBS:  The primary inputs to the valuation include quoted prices for identical or similar assets in markets that are not active, contractual cash flows, benchmark yields, collateral performance and credit spreads.

Redeemable preferred stock:  The primary inputs to the valuation include quoted prices for identical or similar assets in markets that are not active, contractual cash flows, benchmark yields, underlying stock prices and credit spreads.

·Equity securities:  The primary inputs to the valuation include quoted prices or quoted net asset values for identical or similar assets in markets that are not active.

·Short-term:  The primary inputs to the valuation include quoted prices for identical or similar assets in markets that are not active, contractual cash flows, benchmark yields and credit spreads.  For certain short-term investments, amortized cost is used as the best estimate of fair value.

·Other investments:  Free-standing exchange listed derivatives that are not actively traded are valued based on quoted prices for identical instruments in markets that are not active.

OTC derivatives, including interest rate swaps, foreign currency swaps, foreign exchange forward contracts, certain options and certain credit default swaps, are valued using models that rely on inputs such as interest rate yield curves, currency rates, and counterparty credit spreads that are observable for substantially the full term of the contract.  The valuation techniques underlying the models are widely accepted in the financial services industry and do not involve significant judgment.

Level 3 measurements

·Fixed income securities:

Municipal:  Municipal bonds that are not rated by third party credit rating agencies but are rated by the National Association of Insurance Commissioners (“NAIC”).  The primary inputs to the valuation of these municipal bonds include quoted prices for identical or similar assets in markets that exhibit less liquidity relative to those markets supporting Level 2 fair value measurements, contractual cash flows, benchmark yields and credit spreads.  Also includes Auction rate securities (“ARS”) primarily backed by student loans that have become illiquid due to failures in the auction market that are valued using a discounted cash flow model that is widely accepted in the financial services industry and uses significant non-market observable inputs, including the anticipated date liquidity will return to the market.

Corporate, including privately placed:  Primarily valued based on non-binding broker quotes where the inputs have not been corroborated to be market observable.  Also includes equity-indexed notes which are valued using a discounted cash flow model that is widely accepted in the financial services industry and uses significant non-market observable inputs, such as volatility.  Other inputs include an interest rate yield curve, as well as published credit spreads for similar assets that incorporate the credit quality and industry sector of the issuer.

ABS, RMBS and CMBS:  Valued based on non-binding broker quotes received from brokers who are familiar with the investments and where the inputs have not been corroborated to be market observable.

·Equity securities:  The primary inputs to the valuation include quoted prices or quoted net asset values for identical or similar assets in markets that exhibit less liquidity relative to those markets supporting Level 2 fair value measurements.

·Other investments:  Certain OTC derivatives, such as interest rate caps, certain credit default swaps and certain options (including swaptions), are valued using models that are widely accepted in the financial services industry.  These are categorized as Level 3 as a result of the significance of non-market observable inputs such as volatility.  Other primary inputs include interest rate yield curves and credit spreads.

·Contractholder funds:  Derivatives embedded in certain life and annuity contracts are valued internally using models widely accepted in the financial services industry that determine a single best estimate of fair value for the embedded derivatives within a block of contractholder liabilities.  The models primarily use stochastically determined cash flows based on the contractual elements of embedded derivatives, projected option cost and applicable market data, such as interest rate yield curves and equity index volatility assumptions.  These are categorized as Level 3 as a result of the significance of non-market observable inputs.

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Assets and liabilities measured at fair value on a non-recurring basis

Mortgage loans written-down to fair value in connection with recognizing impairments are valued based on the fair value of the underlying collateral less costs to sell.  Limited partnership interests written-down to fair value in connection with recognizing other-than-temporary impairments are valued using net asset values.

The following table summarizes the Company’s assets and liabilities measured at fair value on a recurring and non-recurring basis as of June 30, 2013.

($ 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 June 30, 2013
Assets
Fixed income securities:
U.S. government and agencies	$	221	$	954	$	--			$	1,175
Municipal		--		4,017		225				4,242
Corporate		--		28,496		1,255				29,751
Foreign government		--		1,122		--				1,122
ABS		--		1,273		190				1,463
RMBS		--		1,449		--				1,449
CMBS		--		1,216		5				1,221
Redeemable preferred stock		--		16		1				17
Total fixed income securities		221		38,543		1,676				40,440
Equity securities		495		49		6				550
Short-term investments		117		627		--				744
Other investments:
Free-standing derivatives		--		207		6	$	(14)		199
Separate account assets		6,488		--		--				6,488
Other assets		--		--		1				1
Total recurring basis assets		7,321		39,426		1,689		(14)		48,422
Non-recurring basis (1)		--		--		60				60
Total assets at fair value	$	7,321	$	39,426	$	1,749	$	(14)	$	48,482
% of total assets at fair value		15.1 %		81.3 %		3.6 %		-- %		100.0 %
Liabilities
Contractholder funds:
Derivatives embedded in life and annuity contracts	$	--	$	--	$	(533)			$	(533)
Other liabilities:
Free-standing derivatives		--		(130)		(13)	$	10		(133)
Total liabilities at fair value	$	--	$	(130)	$	(546)	$	10	$	(666)
% of total liabilities at fair value		-- %		19.5 %		82.0 %		(1.5) %		100.0 %

________________

(1) Includes $47 million of mortgage loans and $13 million of limited partnership interests written-down to fair value in connection with recognizing other-than-temporary impairments.

18

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.

19

The following table summarizes quantitative information about the significant unobservable inputs used in Level 3 fair value measurements.

($ in millions)	Fair value		Valuation technique	Unobservable input	Range	Weighted average
June 30, 2013
ARS backed by student loans	$	95	Discounted cash flow model	Anticipated date liquidity will return to the market	36 - 54 months	38 - 50 months
Derivatives embedded in life and annuity contracts - Equity-indexed and forward starting options	$	(445)	Stochastic cash flow model	Projected option cost	1.0 - 2.0 %	1.87 %
December 31, 2012
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 %

If the anticipated date liquidity will return to the market is sooner (later), it would result in a higher (lower) fair value.  If the projected option cost increased (decreased), it would result in a higher (lower) liability fair value.

As of June 30, 2013 and December 31, 2012, Level 3 fair value measurements include $1.44 billion and $1.72 billion, respectively, of fixed income securities valued based on non-binding broker quotes where the inputs have not been corroborated to be market observable.  The Company does not develop the unobservable inputs used in measuring fair value; therefore, these are not included in the table above.  However, an increase (decrease) in credit spreads for fixed income securities valued based on non-binding broker quotes would result in a lower (higher) fair value.

20

The following table presents the rollforward of Level 3 assets and liabilities held at fair value on a recurring basis during the three months ended June 30, 2013.

($ in millions)				Total gains (losses) included in:
		Balance as of March 31, 2013		Net income (1)		OCI		Transfers into Level 3		Transfers out of Level 3
Assets
Fixed income securities:
Municipal	$	251	$	--	$	(6)	$	--	$	--
Corporate		1,363		8		(36)		38		(43)
ABS		211		(1)		8		--		(16)
CMBS		6		(1)		--		--		--
Redeemable preferred stock		1		--		--		--		--
Total fixed income securities		1,832		6		(34)		38		(59)
Equity securities		7		--		--		--		--
Other investments:
Free-standing derivatives, net		(20)		15		--		--		--
Other assets		1		--		--		--		--
Total recurring Level 3 assets	$	1,820	$	21	$	(34)	$	38	$	(59)
Liabilities
Contractholder funds:
Derivatives embedded in life and annuity contracts	$	(567)	$	57	$	--	$	--	$	--
Total recurring Level 3 liabilities	$	(567)	$	57	$	--	$	--	$	--
		Purchases		Sales		Issues		Settlements		Balance as of June 30, 2013
Assets
Fixed income securities:
Municipal	$	--	$	(20)	$	--	$	--	$	225
Corporate		21		(27)		--		(69)		1,255
ABS		--		--		--		(12)		190
CMBS		--		--		--		--		5
Redeemable preferred stock		--		--		--		--		1
Total fixed income securities		21		(47)		--		(81)		1,676
Equity securities		--		(1)		--		--		6
Other investments:
Free-standing derivatives, net		--		--		--		(2)		(7)	(2)
Other assets		--		--		--		--		1
Total recurring Level 3 assets	$	21	$	(48)	$	--	$	(83)	$	1,676
Liabilities
Contractholder funds:
Derivatives embedded in life and annuity contracts	$	--	$	--	$	(26)	$	3	$	(533)
Total recurring Level 3 liabilities	$	--	$	--	$	(26)	$	3	$	(533)

_____________

(1) The effect to net income totals $78 million and is reported in the Condensed Consolidated Statements of Operations and Comprehensive Income as follows: $15 million in realized capital gains and losses, $4 million in net investment income, $39 million in interest credited to contractholder funds and $20 million in contract benefits.

(2) Comprises $6 million of assets and $13 million of liabilities.

21

The following table presents the rollforward of Level 3 assets and liabilities held at fair value on a recurring basis during the six months ended June 30, 2013.

($ in millions)				Total gains (losses) included in:
		Balance as of December 31, 2012		Net income (1)		OCI		Transfers into Level 3		Transfers out of Level 3
Assets
Fixed income securities:
Municipal	$	338	$	(12)	$	20	$	--	$	--
Corporate		1,501		20		(38)		63		(168)
ABS		199		(1)		15		17		(16)
CMBS		21		(1)		2		--		--
Redeemable preferred stock		1		--		--		--		--
Total fixed income securities		2,060		6		(1)		80		(184)
Equity securities		7		--		--		--		--
Other investments:
Free-standing derivatives, net		(27)		22		--		--		--
Other assets		1		--		--		--		--
Total recurring Level 3 assets	$	2,041	$	28	$	(1)	$	80	$	(184)
Liabilities
Contractholder funds:
Derivatives embedded in life and annuity contracts	$	(553)	$	63	$	--	$	--	$	--
Total recurring Level 3 liabilities	$	(553)	$	63	$	--	$	--	$	--
		Purchases		Sales		Issues		Settlements		Balance as of June 30, 2013
Assets
Fixed income securities:
Municipal	$	--	$	(121)	$	--	$	--	$	225
Corporate		93		(136)		--		(80)		1,255
ABS		--		(8)		--		(16)		190
CMBS		--		(17)		--		--		5
Redeemable preferred stock		--		--		--		--		1
Total fixed income securities		93		(282)		--		(96)		1,676
Equity securities		--		(1)		--		--		6
Other investments:
Free-standing derivatives, net		1		--		--		(3)		(7)	(2)
Other assets		--		--		--		--		1
Total recurring Level 3 assets	$	94	$	(283)	$	--	$	(99)	$	1,676
Liabilities
Contractholder funds:
Derivatives embedded in life and annuity contracts	$	--	$	--	$	(50)	$	7	$	(533)
Total recurring Level 3 liabilities	$	--	$	--	$	(50)	$	7	$	(533)

____________

(1) The effect to net income totals $91 million and is reported in the Condensed Consolidated Statements of Operations and Comprehensive Income as follows: $17 million in realized capital gains and losses, $9 million in net investment income, $19 million in interest credited to contractholder funds and $46 million in contract benefits.

(2) Comprises $6 million of assets and $13 million of liabilities.

22

The following table presents the rollforward of Level 3 assets and liabilities held at fair value on a recurring basis during the three months ended June 30, 2012.

($ in millions)				Total gains (losses) included in:
		Balance as of March 31, 2012		Net income (1)		OCI		Transfers into Level 3		Transfers out of Level 3
Assets
Fixed income securities:
Municipal	$	387	$	--	$	2	$	--	$	(10)
Corporate		1,329		2		(6)		77		--
ABS		277		16		(1)		--		--
CMBS		20		(1)		2		--		--
Redeemable preferred stock		1		--		--		--		--
Total fixed income securities		2,014		17		(3)		77		(10)
Equity securities		14		--		1		--		--
Other investments:
Free-standing derivatives, net		(70)		(3)		--		--		--
Other assets		1		--		--		--		--
Total recurring Level 3 assets	$	1,959	$	14	$	(2)	$	77	$	(10)
Liabilities
Contractholder funds:
Derivatives embedded in life and annuity contracts	$	(730)	$	16	$	--	$	--	$	--
Total recurring Level 3 liabilities	$	(730)	$	16	$	--	$	--	$	--
		Purchases		Sales		Issues		Settlements		Balance as of June 31, 2012
Assets
Fixed income securities:
Municipal	$	--	$	(16)	$	--	$	--	$	363
Corporate		25		(20)		--		(4)		1,403
ABS		--		(11)		--		(7)		274
CMBS		--		--		--		--		21
Redeemable preferred stock		1		(1)		--		--		1
Total fixed income securities		26		(48)		--		(11)		2,062
Equity securities		5		(5)		--		--		15
Other investments:
Free-standing derivatives, net		3		--		--		(1)		(71)	(2)
Other assets		--		--		--		--		1
Total recurring Level 3 assets	$	34	$	(53)	$	--	$	(12)	$	2,007
Liabilities
Contractholder funds:
Derivatives embedded in life and annuity contracts	$	--	$	--	$	(17)	$	24	$	(707)
Total recurring Level 3 liabilities	$	--	$	--	$	(17)	$	24	$	(707)

____________

(1) The effect to net income totals $30 million and is reported in the Condensed Consolidated Statements of Operations and Comprehensive Income as follows: $9 million in realized capital gains and losses, $6 million in net investment income, $32 million in interest credited to contractholder funds and $(17) million in contract benefits.

(2) Comprises $1 million of assets and $72 million of liabilities.

23

The following table presents the rollforward of Level 3 assets and liabilities held at fair value on a recurring basis during the six months ended June 30, 2012.

($ 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	$	--	$	2	$	--	$	(10)
Corporate		1,319		7		20		133		(10)
ABS		254		29		12		--		--
RMBS		47		--		--		--		(47)
CMBS		30		(2)		8		--		--
Redeemable preferred stock		1		--		--		--		--
Total fixed income securities		2,038		34		42		133		(67)
Equity securities		14		--		1		--		--
Other investments:
Free-standing derivatives, net		(88)		12		--		--		--
Other assets		1		--		--		--		--
Total recurring Level 3 assets	$	1,965	$	46	$	43	$	133	$	(67)
Liabilities
Contractholder funds:
Derivatives embedded in life and annuity contracts	$	(723)	$	(9)	$	--	$	--	$	--
Total recurring Level 3 liabilities	$	(723)	$	(9)	$	--	$	--	$	--
		Purchases		Sales		Issues		Settlements		Balance as of June 30, 2012
Assets
Fixed income securities:
Municipal	$	--	$	(16)	$	--	$	--	$	363
Corporate		44		(74)		--		(36)		1,403
ABS		--		(11)		--		(10)		274
RMBS		--		--		--		--		--
CMBS		--		--		--		(15)		21
Redeemable preferred stock		1		(1)		--		--		1
Total fixed income securities		45		(102)		--		(61)		2,062
Equity securities		5		(5)		--		--		15
Other investments:
Free-standing derivatives, net		6		--		--		(1)		(71)	(2)
Other assets		--		--		--		--		1
Total recurring Level 3 assets	$	56	$	(107)	$	--	$	(62)	$	2,007
Liabilities
Contractholder funds:
Derivatives embedded in life and annuity contracts	$	--	$	--	$	(29)	$	54	$	(707)
Total recurring Level 3 liabilities	$	--	$	--	$	(29)	$	54	$	(707)

__________

(1) The effect to net income totals $37 million and is reported in the Condensed Consolidated Statements of Operations and Comprehensive Income as follows: $35 million in realized capital gains and losses, $12 million in net investment income, $(24) million in interest credited to contractholder funds and $14 million in contract benefits.

(2) Comprises $1 million of assets and $72 million of liabilities.

Transfers between level categorizations may occur due to changes in the availability of market observable inputs, which generally are caused by changes in market conditions such as liquidity, trading volume or bid-ask spreads.  Transfers between level categorizations may also occur due to changes in the valuation source.  For example, in situations where a fair value quote is not provided by the Company’s independent third-party valuation service provider and as a result the price is stale or has been replaced with a broker quote whose inputs have not been corroborated to be market observable, the security is transferred into Level 3.  Transfers in and out of level categorizations are reported as having occurred at the beginning of the quarter in which the transfer occurred.  Therefore, for all transfers into Level 3, all realized and changes in unrealized gains and losses in the quarter of transfer are reflected in the Level 3 rollforward table.

24

There were no transfers between Level 1 and Level 2 during the three months and six months ended June 30, 2013.  During the three months ended June 30, 2012, certain U.S. government securities were transferred into Level 1 from Level 2 as a result of increased liquidity in the market and a sustained increase in the market activity for these assets.

Transfers into Level 3 during the three months and six months ended June 30, 2013 and 2012 included situations where a fair value quote was not provided by the Company’s independent third-party valuation service provider and as a result the price was stale or had been replaced with a broker quote where the inputs have not been corroborated to be market observable resulting in the security being classified as Level 3.  Transfers out of Level 3 during the three months and six months ended June 30, 2013 and 2012 included situations where a broker quote was used in the prior period and a fair value quote became available from the Company’s independent third-party valuation service provider in the current period.  A quote utilizing the new pricing source was not available as of the prior period, and any gains or losses related to the change in valuation source for individual securities were not significant.

The following table provides the change in unrealized gains and losses included in net income for Level 3 assets and liabilities held as of June 30.

($ in millions)		Three months ended June 30,				Six months ended June 30,
		2013		2012		2013		2012
Assets
Fixed income securities:
Municipal	$	--	$	--	$	(6)	$	--
Corporate		4		1		7		9
ABS		(1)		5		(1)		18
CMBS		(1)		(1)		(2)		(1	)
Total fixed income securities		2		5		(2)		26
Other investments:
Free-standing derivatives, net		9		(4)		16		11
Total recurring Level 3 assets	$	11	$	1	$	14	$	37
Liabilities
Contractholder funds:
Derivatives embedded in life and annuity contracts	$	57	$	16	$	63	$	(9	)
Total recurring Level 3 liabilities	$	57	$	16	$	63	$	(9	)

The amounts in the table above represent the change in unrealized gains and losses included in net income for the period of time that the asset or liability was determined to be in Level 3.  These gains and losses total $68 million for the three months ended June 30, 2013 and are reported as follows: $7 million in realized capital gains and losses, $4 million in net investment income, $37 million in interest credited to contractholder funds and $20 million in contract benefits.  These gains and losses total $17 million for the three months ended June 30, 2012 and are reported as follows: $(4) million in realized capital gains and losses, $6 million in net investment income, $32 million in interest credited to contractholder funds and $(17) million in contract benefits.  These gains and losses total $77 million for the six months ended June 30, 2013 and are reported as follows: $8 million in realized capital gains and losses, $6 million in net investment income, $17 million in interest credited to contractholder funds and $46 million in contract benefits.  These gains and losses total $28 million for the six months ended June 30, 2012 and are reported as follows: $26 million in realized capital gains and losses, $12 million in net investment income, $(24) million in interest credited to contractholder funds and $14 million in contract benefits.

25

Presented below are the carrying values and fair value estimates of financial instruments not carried at fair value.

Financial assets

($ in millions)		June 30, 2013				December 31, 2012
		Carrying value		Fair value		Carrying value		Fair value
Mortgage loans	$	5,803	$	6,054	$	5,943	$	6,223
Cost method limited partnerships		611		793		617		778
Agent loans		321		306		319		314
Bank loans		261		260		282		282
Notes due from related party		275		275		275		275

The fair value of mortgage loans is based on discounted contractual cash flows or, if the loans are impaired due to credit reasons, the fair value of collateral less costs to sell.  Risk adjusted discount rates are selected using current rates at which similar loans would be made to borrowers with similar characteristics, using similar types of properties as collateral.  The fair value of cost method limited partnerships is determined using reported net asset values of the underlying funds.  The fair value of agent loans, which are reported in other investments, is based on discounted cash flow calculations that use discount rates with a spread over U.S. Treasury rates. Assumptions used in developing estimated cash flows and discount rates consider the loan’s credit and liquidity risks.  The fair value of bank loans, which are reported in other investments, is based on broker quotes from brokers familiar with the loans and current market conditions.  The fair value of notes due from related party, which are reported in other investments, is based on discounted cash flow calculations using current interest rates for instruments with comparable terms.  The fair value measurements for mortgage loans, cost method limited partnerships, agent loans, bank loans and notes due from related party are categorized as Level 3.

Financial liabilities

($ in millions)		June 30, 2013				December 31, 2012
		Carrying value		Fair value		Carrying value		Fair value
Contractholder funds on investment contracts	$	23,989	$	24,646	$	26,984	$	27,989
Notes due to related parties		296		296		496		496
Liability for collateral		446		446		561		561

The fair value of contractholder funds on investment contracts is based on the terms of the underlying contracts utilizing prevailing market rates for similar contracts adjusted for the Company’s own credit risk.  Deferred annuities included in contractholder funds are valued using discounted cash flow models which incorporate market value margins, which are based on the cost of holding economic capital, and the Company’s own credit risk.  Immediate annuities without life contingencies and fixed rate funding agreements are valued at the present value of future benefits using market implied interest rates which include the Company’s own credit risk.  The fair value measurements for contractholder funds on investment contracts are categorized as Level 3.

The fair value of notes due to related parties is based on discounted cash flow calculations using current interest rates for instruments with comparable terms and considers the Company’s own credit risk.  The liability for collateral is valued at carrying value due to its short-term nature.  The fair value measurements for liability for collateral are categorized as Level 2.  The fair value measurements for notes due to related parties are categorized as Level 3.

5.  Derivative Financial Instruments

The Company uses derivatives to manage risks with certain assets and liabilities arising from the potential adverse impacts from changes in risk-free interest rates, changes in equity market valuations, increases in credit spreads and foreign currency fluctuations, and for asset replication.  The Company does not use derivatives for speculative purposes.

Asset-liability management is a risk management strategy that is principally employed to balance the respective interest-rate sensitivities of the Company’s assets and liabilities.  Depending upon the attributes of the assets

26

acquired and liabilities issued, derivative instruments such as interest rate swaps, caps, swaptions and futures are utilized to change the interest rate characteristics of existing assets and liabilities to ensure the relationship is maintained within specified ranges and to reduce exposure to rising or falling interest rates.  The Company uses financial futures and interest rate swaps to hedge anticipated asset purchases and liability issuances and futures and options for hedging the equity exposure contained in its equity indexed life and annuity product contracts that offer equity returns to contractholders.  In addition, the Company uses interest rate swaps to hedge interest rate risk inherent in funding agreements.  The Company uses foreign currency swaps and forwards primarily to reduce the foreign currency risk associated with issuing foreign currency denominated funding agreements and holding foreign currency denominated investments.  Credit default swaps are typically used to mitigate the credit risk within the Company’s fixed income portfolio.

Asset replication refers to the “synthetic” creation of assets through the use of derivatives and primarily investment grade host bonds to replicate securities that are either unavailable in the cash markets or more economical to acquire in synthetic form.  The Company replicates fixed income securities using a combination of a credit default swap and one or more highly rated fixed income securities to synthetically replicate the economic characteristics of one or more cash market securities.

The Company also has derivatives embedded in non-derivative host contracts that are required to be separated from the host contracts and accounted for at fair value with changes in fair value of embedded derivatives reported in net income.  The Company’s primary embedded derivatives are equity options in life and annuity product contracts, which provide equity returns to contractholders; equity-indexed notes containing equity call options, which provide a coupon payout that is determined using one or more equity-based indices; credit default swaps in synthetic collateralized debt obligations, which provide enhanced coupon rates as a result of selling credit protection; and conversion options in fixed income securities, which provide the Company with the right to convert the instrument into a predetermined number of shares of common stock.

When derivatives meet specific criteria, they may be designated as accounting hedges and accounted for as fair value, cash flow, foreign currency fair value or foreign currency cash flow hedges.  The Company designates certain of its interest rate and foreign currency swap contracts and certain investment risk transfer reinsurance agreements as fair value hedges when the hedging instrument is highly effective in offsetting the risk of changes in the fair value of the hedged item.  The Company designates certain of its foreign currency swap contracts as cash flow hedges when the hedging instrument is highly effective in offsetting the exposure of variations in cash flows for the hedged risk that could affect net income.  Amounts are reclassified to net investment income or realized capital gains and losses as the hedged item affects net income.

The notional amounts specified in the contracts are used to calculate the exchange of contractual payments under the agreements and are generally not representative of the potential for gain or loss on these agreements.  However, the notional amounts specified in credit default swaps where the Company has sold credit protection represent the maximum amount of potential loss, assuming no recoveries.

Fair value, which is equal to the carrying value, is the estimated amount that the Company would receive or pay to terminate the derivative contracts at the reporting date.  The carrying value amounts for OTC derivatives are further adjusted for the effects, if any, of enforceable master netting agreements and are presented on a net basis, by counterparty agreement, in the Condensed Consolidated Statements of Financial Position.  For certain exchange traded and cleared derivatives, margin deposits are required as well as daily cash settlements of margin accounts.  As of June 30, 2013, the Company pledged $4 million of securities in the form of margin deposits.

For those derivatives which qualify for fair value hedge accounting, net income includes the changes in the fair value of both the derivative instrument and the hedged risk, and therefore reflects any hedging ineffectiveness.  For cash flow hedges, gains and losses are amortized from accumulated other comprehensive income and are reported in net income in the same period the forecasted transactions being hedged impact net income.

Non-hedge accounting is generally used for “portfolio” level hedging strategies where the terms of the individual hedged items do not meet the strict homogeneity requirements to permit the application of hedge accounting.  For non-hedge derivatives, net income includes changes in fair value and accrued periodic settlements, when applicable.  With the exception of non-hedge derivatives used for asset replication and non-hedge embedded derivatives, all of the Company’s derivatives are evaluated for their ongoing effectiveness as either accounting hedge or non-hedge derivative financial instruments on at least a quarterly basis.

27

The following table provides a summary of the volume and fair value positions of derivative instruments as well as their reporting location in the Condensed Consolidated Statement of Financial Position as of June 30, 2013.

($ in millions, except number of contracts)			Volume (1)
	Balance sheet location		Notional amount	Number of contracts		Fair value,  net		Gross  asset		Gross  liability
Asset derivatives
Derivatives designated as accounting hedging instruments
Foreign currency swap agreements	Other investments	$	89	n/a	$	(1)	$	3	$	(4	)
Derivatives not designated as accounting hedging instruments
Interest rate contracts
Interest rate swap agreements	Other investments		1,332	n/a		6		7		(1	)
Interest rate cap agreements	Other investments		290	n/a		5		5		--
Equity and index contracts
Options and warrants (2)	Other investments		13	11,110		192		192		--
Foreign currency contracts
Foreign currency forwards	Other investments		45	n/a		--		--		--
Embedded derivative financial instruments
Conversion options	Fixed income securities		5	n/a		--		--		--
Credit default swaps	Fixed income securities		12	n/a		(12)		--		(12	)
Credit default contracts
Credit default swaps – buying protection	Other investments		71	n/a		(1)		--		(1	)
Credit default swaps – selling protection	Other investments		85	n/a		1		1		--
Other contracts
Other contracts	Other assets		4	n/a		1		1		--
Subtotal			1,857	11,110		192		206		(14	)
Total asset derivatives		$	1,946	11,110	$	191	$	209	$	(18	)
Liability derivatives
Derivatives designated as accounting hedging instruments
Foreign currency swap agreements	Other liabilities & accrued expenses	$	59	n/a	$	(5)	$	--	$	(5	)
Derivatives not designated as accounting hedging instruments
Interest rate contracts
Interest rate swap agreements	Other liabilities & accrued expenses		85	n/a		5		5		--
Interest rate cap agreements	Other liabilities & accrued expenses		149	n/a		--		--		--
Equity and index contracts
Options and futures	Other liabilities & accrued expenses		108	11,260		(116)		--		(116	)
Embedded derivative financial instruments
Guaranteed accumulation benefits	Contractholder funds		786	n/a		(59)		--		(59	)
Guaranteed withdrawal benefits	Contractholder funds		539	n/a		(24)		--		(24	)
Equity-indexed and forward starting options in life and annuity product contracts	Contractholder funds		3,996	n/a		(445)		--		(445	)
Other embedded derivative financial instruments	Contractholder funds		85	n/a		(5)		--		(5	)
Credit default contracts
Credit default swaps – buying protection	Other liabilities & accrued expenses		145	n/a		(1)		--		(1	)
Credit default swaps – selling protection	Other liabilities & accrued expenses		100	n/a		(14)		--		(14	)
Subtotal			5,993	11,260		(659)		5		(664	)
Total liability derivatives			6,052	11,260		(664)	$	5	$	(669	)
Total derivatives		$	7,998	22,370	$	(473)

____________________

(1)   Volume for OTC derivative contracts is represented by their notional amounts.  Volume for exchange traded derivatives is represented by the number of contracts, which is the basis on which they are traded.  (n/a = not applicable)

(2)   In addition to the number of contracts presented in the table, the Company held 837,100 stock warrants.  Stock warrants can be converted to cash upon sale of those instruments or exercised for shares of common stock.

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The following table provides a summary of the volume and fair value positions of derivative instruments as well as their reporting location in the Consolidated Statement of Financial Position as of December 31, 2012.

($ in millions, except number of contracts)			Volume (1)			Fair
	Balance sheet location		Notional amount	Number of contracts		value, net		Gross asset		Gross liability
Asset derivatives
Derivatives designated as accounting hedging instruments
Foreign currency swap agreements	Other investments	$	16	n/a	$	2	$	2	$	--
Derivatives not designated as accounting hedging instruments
Interest rate contracts
Interest rate swap agreements	Other investments		5,541	n/a		19		28		(9	)
Interest rate cap agreements	Other investments		372	n/a		1		1		--
Financial futures contracts	Other assets		n/a	2		--		--		--
Equity and index contracts
Options and warrants (2)	Other investments		146	12,400		125		125		--
Financial futures contracts	Other assets		n/a	249		2		2		--
Foreign currency contracts
Foreign currency forwards	Other investments		44	n/a		--		--		--
Embedded derivative financial instruments
Conversion options	Fixed income securities		5	n/a		--		--		--
Equity-indexed call options	Fixed income securities		90	n/a		9		9		--
Credit default swaps	Fixed income securities		12	n/a		(12)		--		(12	)
Credit default contracts
Credit default swaps – buying protection	Other investments		32	n/a		(1)		--		(1	)
Credit default swaps – selling protection	Other investments		100	n/a		1		1		--
Other contracts
Other contracts	Other assets		4	n/a		1		1		--
Subtotal			6,346	12,651		145		167		(22	)
Total asset derivatives		$	6,362	12,651	$	147	$	169	$	(22	)
Liability derivatives
Derivatives designated as accounting hedging instruments
Foreign currency swap agreements	Other liabilities & accrued expenses	$	135	n/a	$	(19)	$	--	$	(19	)
Derivatives not designated as accounting hedging instruments
Interest rate contracts
Interest rate swap agreements	Other liabilities & accrued expenses		1,185	n/a		16		18		(2	)
Interest rate swaption agreements	Other liabilities & accrued expenses		250	n/a		--		--		--
Interest rate cap agreements	Other liabilities & accrued expenses		429	n/a		1		1		--
Financial futures contracts	Other liabilities & accrued expenses		--	357		--		--		--
Equity and index contracts
Options and futures	Other liabilities & accrued expenses		--	12,262		(58)		--		(58	)
Embedded derivative financial instruments
Guaranteed accumulation benefits	Contractholder funds		820	n/a		(86)		--		(86	)
Guaranteed withdrawal benefits	Contractholder funds		554	n/a		(39)		--		(39	)
Equity-indexed and forward starting options in life and annuity product contracts	Contractholder funds		3,916	n/a		(419)		--		(419	)
Other embedded derivative financial instruments	Contractholder funds		85	n/a		(9)		--		(9	)
Credit default contracts
Credit default swaps – buying protection	Other liabilities & accrued expenses		193	n/a		(2)		--		(2	)
Credit default swaps – selling protection	Other liabilities & accrued expenses		130	n/a		(30)		--		(30	)
Subtotal			7,562	12,619		(626)		19		(645	)
Total liability derivatives			7,697	12,619		(645)	$	19	$	(664	)
Total derivatives		$	14,059	25,270	$	(498)

____________________

(1)   Volume for OTC derivative contracts is represented by their notional amounts.  Volume for exchange traded derivatives is represented by the number of contracts, which is the basis on which they are traded.  (n/a = not applicable)

(2)   In addition to the number of contracts presented in the table, the Company held 837,100 stock warrants.  Stock warrants can be converted to cash upon sale of those instruments or exercised for shares of common stock.

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The following table provides gross and net amounts for the Company’s OTC derivatives, all of which are subject to enforceable master netting agreements.

($ in millions)				Offsets
		Gross amount		Counter- party netting		Cash collateral (received) pledged		Net amount on balance sheet		Securities collateral (received) pledged		Net amount
June 30, 2013
Asset derivatives	$	21	$	(11)	$	(3)	$	7	$	(2)	$	5
Liability derivatives		(26)		11		(1)		(16)		20		4
December 31, 2012
Asset derivatives	$	52	$	(29)	$	(18)	$	5	$	(5)	$	--
Liability derivatives		(63)		29		--		(34)		25		(9)

The following table provides a summary of the impacts of the Company’s foreign currency contracts in cash flow hedging relationships.  Amortization of net losses from accumulated other comprehensive income related to cash flow hedges is expected to be $2 million during the next twelve months.  There was no hedge ineffectiveness reported in realized gains and losses for the three months and six months ended June 30, 2013 or 2012.

($ in millions)		Three months ended June 30,				Six months ended June 30,
		2013		2012		2013		2012
Gain recognized in OCI on derivatives during the period	$	6	$	5	$	9	$	--
Loss recognized in OCI on derivatives during the term of the hedging relationship		(7)		(11)		(7)		(11)
Loss reclassified from AOCI into income (net investment income)		(1)		--		(1)		--
Loss reclassified from AOCI into income (realized capital gains and losses)		--		--		--		(1)

The following tables present gains and losses from valuation, settlements and hedge ineffectiveness reported on derivatives used in fair value hedging relationships and derivatives not designated as accounting hedging instruments in the Condensed Consolidated Statements of Operations and Comprehensive Income.  For the three months and six months ended June 30, 2013, the Company had no derivatives used in fair value hedging relationships.

($ in millions)		Net investment income		Realized capital gains and losses		Contract benefits		Interest credited to contractholder funds		Total gain (loss) recognized in net income on derivatives
Three months ended June 30, 2013
Interest rate contracts	$	--	$	3	$	--	$	--	$	3
Equity and index contracts		--		--		--		9		9
Embedded derivative financial instruments		--		--		20		14		34
Foreign currency contracts		--		--		--		--		--
Credit default contracts		--		9		--		--		9
Other contracts				--		--		(3)		(3)
Total	$	--	$	12	$	20	$	20	$	52
Six months ended June 30, 2013
Interest rate contracts	$	--	$	3	$	--	$	--	$	3
Equity and index contracts		--		--		--		47		47
Embedded derivative financial instruments		--		(1)		46		(26)		19
Foreign currency contracts		--		1		--		--		1
Credit default contracts		--		16		--		--		16
Other contracts				--		--		(3)		(3)
Total	$	--	$	19	$	46	$	18	$	83

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		Net investment income		Realized capital gains and losses		Contract benefits		Interest credited to contractholder funds		Total gain (loss) recognized in net income on derivatives
Three months ended June 30, 2012
Derivatives in fair value accounting hedging relationships
Interest rate contracts	$	--	$	--	$	--	$	--	$	--
Derivatives not designated as accounting hedging instruments
Interest rate contracts	$	--	$	4	$	--	$	--	$	4
Equity and index contracts		--		--		--		(16)		(16)
Embedded derivative financial instruments		--		3		(17)		40		26
Foreign currency contracts		--		(1)		--		--		(1)
Credit default contracts		--		(2)		--		--		(2)
Total	$	--	$	4	$	(17)	$	24	$	11
Six months ended June 30, 2012
Derivatives in fair value accounting hedging relationships
Interest rate contracts	$	(1)	$	--	$	--	$	--	$	(1)
Derivatives not designated as accounting hedging instruments
Interest rate contracts		--		3		--		--		3
Equity and index contracts		--		--		--		37		37
Embedded derivative financial instruments		--		18		14		2		34
Foreign currency contracts		--		(1)		--		--		(1)
Credit default contracts		--		7		--		--		7
Other contracts		--		--		--		2		2
Subtotal		--		27		14		41		82
Total	$	(1)	$	27	$	14	$	41	$	81

The following table provides a summary of the changes in fair value of the Company’s fair value hedging relationships in the Condensed Consolidated Statements of Operations and Comprehensive Income.

($ in millions)		Gain (loss) on derivatives		Gain (loss) on hedged risk
Location of gain or (loss) recognized in net income on derivatives		Interest rate contracts		Investments
Three months ended June 30, 2012
Net investment income	$	1	$	(1)
Six months ended June 30, 2012
Net investment income	$	2	$	(2)

The Company manages its exposure to credit risk by utilizing highly rated counterparties, establishing risk control limits, executing enforceable master netting agreements (“MNAs”) and obtaining collateral where appropriate.  The Company uses MNAs for OTC derivative transactions that permit either party to net payments due for transactions and collateral is either pledged or obtained when certain predetermined exposure limits are exceeded.  As of June 30, 2013, counterparties pledged $7 million in cash and securities to the Company, and the Company pledged $21 million in securities to counterparties which includes $9 million of collateral posted under MNAs for contracts containing credit-risk-contingent provisions that are in a liability position and $12 million of collateral posted under MNAs for contracts without credit-risk-contingent liabilities.  The Company has not incurred any losses on derivative financial instruments due to counterparty nonperformance.  Other derivatives, including futures and certain option contracts, are traded on organized exchanges which require margin deposits and guarantee the execution of trades, thereby mitigating any potential credit risk.

Counterparty credit exposure represents the Company’s potential loss if all of the counterparties concurrently

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fail to perform under the contractual terms of the contracts and all collateral, if any, becomes worthless.  This exposure is measured by the fair value of OTC derivative contracts with a positive fair value at the reporting date reduced by the effect, if any, of enforceable master netting agreements.

The following table summarizes the counterparty credit exposure by counterparty credit rating as it relates to the Company’s OTC derivatives.

($ in millions)	June 30, 2013							December 31, 2012
Rating (1)	Number of counter- parties		Notional amount (2)		Credit exposure (2)		Exposure, net of collateral (2)	Number of counter- parties		Notional amount (2)		Credit exposure (2)		Exposure, net of collateral (2)
A+	1	$	887	$	2	$	2	1	$	19	$	--	$	--
A	4		123		3		1	3		2,252		12		--
A-	2		94		1		1	2		311		1		1
BBB+	1		809		4		1	1		3,617		11		--
Total	8	$	1,913	$	10	$	5	7	$	6,199	$	24	$	1

(1) Rating is the lower of S&P or Moody’s ratings.

(2) Only OTC derivatives with a net positive fair value are included for each counterparty.

Market risk is the risk that the Company will incur losses due to adverse changes in market rates and prices.  Market risk exists for all of the derivative financial instruments the Company currently holds, as these instruments may become less valuable due to adverse changes in market conditions.  To limit this risk, the Company’s senior management has established risk control limits.  In addition, changes in fair value of the derivative financial instruments that the Company uses for risk management purposes are generally offset by the change in the fair value or cash flows of the hedged risk component of the related assets, liabilities or forecasted transactions.

Certain of the Company’s derivative instruments contain credit-risk-contingent termination events, cross-default provisions and credit support annex agreements.  Credit-risk-contingent termination events allow the counterparties to terminate the derivative on certain dates if ALIC’s or Allstate Life Insurance Company of New York’s (“ALNY”) financial strength credit ratings by Moody’s or S&P fall below a certain level or in the event ALIC or ALNY are no longer rated by either Moody’s or S&P.  Credit-risk-contingent cross-default provisions allow the counterparties to terminate the derivative instruments if the Company defaults by pre-determined threshold amounts on certain debt instruments.  Credit-risk-contingent credit support annex agreements specify the amount of collateral the Company must post to counterparties based on ALIC’s or ALNY’s financial strength credit ratings by Moody’s or S&P, or in the event ALIC or ALNY are no longer rated by either Moody’s or S&P.

The following summarizes the fair value of derivative instruments with termination, cross-default or collateral credit-risk-contingent features that are in a liability position, as well as the fair value of assets and collateral that are netted against the liability in accordance with provisions within enforceable MNAs.

($ in millions)		June 30, 2013		December 31, 2012
Gross liability fair value of contracts containing credit-risk-contingent features	$	19	$	62
Gross asset fair value of contracts containing credit-risk-contingent features and subject to MNAs		(10)		(28)
Collateral posted under MNAs for contracts containing credit-risk-contingent features		(9)		(25)
Maximum amount of additional exposure for contracts with credit-risk-contingent features if all features were triggered concurrently	$	--	$	9

Credit derivatives - selling protection

Free-standing credit default swaps (“CDS”) are utilized for selling credit protection against a specified credit event.  A credit default swap is a derivative instrument, representing an agreement between two parties to exchange the credit risk of a specified entity (or a group of entities), or an index based on the credit risk of a group of entities (all commonly referred to as the “reference entity” or a portfolio of “reference entities”), in return for a periodic premium.  In selling protection, CDS are used to replicate fixed income securities and to complement the cash market when credit exposure to certain issuers is not available or when the derivative alternative is less expensive than the cash market alternative.  CDS typically have a five-year term.

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The following table shows the CDS notional amounts by credit rating and fair value of protection sold.

($ in millions)		Notional amount
		AA		A		BBB		BB and lower		Total		Fair value
June 30, 2013
Single name
Investment grade corporate debt (1)	$	--	$	5	$	--	$	--	$	5	$	--
Baskets
First-to-default
Municipal		--		100		--		--		100		(13)
Index
Investment grade corporate debt (1)		1		20		54		5		80		--
Total	$	1	$	125	$	54	$	5	$	185	$	(13)
December 31, 2012
Single name
Investment grade corporate debt (1)	$	--	$	5	$	--	$	--	$	5	$	--
Municipal		25		--		--		--		25		(3)
Subtotal		25		5		--		--		30		(3)
Baskets
First-to-default
Municipal		--		100		--		--		100		(26)
Index
Investment grade corporate debt (1)		1		26		68		5		100		--
Total	$	26	$	131	$	68	$	5	$	230	$	(29)

(1) Investment grade corporate debt categorization is based on the rating of the underlying name(s) at initial purchase.

In selling protection with CDS, the Company sells credit protection on an identified single name, a basket of names in a first-to-default (“FTD”) structure or a specific tranche of a basket, or credit derivative index (“CDX”) that is generally investment grade, and in return receives periodic premiums through expiration or termination of the agreement.  With single name CDS, this premium or credit spread generally corresponds to the difference between the yield on the reference entity’s public fixed maturity cash instruments and swap rates at the time the agreement is executed.  With a FTD basket or a tranche of a basket, because of the additional credit risk inherent in a basket of named reference entities, the premium generally corresponds to a high proportion of the sum of the credit spreads of the names in the basket and the correlation between the names.  CDX is utilized to take a position on multiple (generally 125) reference entities.  Credit events are typically defined as bankruptcy, failure to pay, or restructuring, depending on the nature of the reference entities.  If a credit event occurs, the Company settles with the counterparty, either through physical settlement or cash settlement.  In a physical settlement, a reference asset is delivered by the buyer of protection to the Company, in exchange for cash payment at par, whereas in a cash settlement, the Company pays the difference between par and the prescribed value of the reference asset.  When a credit event occurs in a single name or FTD basket (for FTD, the first credit event occurring for any one name in the basket), the contract terminates at the time of settlement.  When a credit event occurs in a tranche of a basket, there is no immediate impact to the Company until cumulative losses in the basket exceed the contractual subordination.  To date, realized losses have not exceeded the subordination.  For CDX, the reference entity’s name incurring the credit event is removed from the index while the contract continues until expiration.  The maximum payout on a CDS is the contract notional amount.  A physical settlement may afford the Company with recovery rights as the new owner of the asset.

The Company monitors risk associated with credit derivatives through individual name credit limits at both a credit derivative and a combined cash instrument/credit derivative level.  The ratings of individual names for which protection has been sold are also monitored.

In addition to the CDS described above, the Company’s synthetic collateralized debt obligations contain

33

embedded credit default swaps which sell protection on a basket of reference entities.  The synthetic collateralized debt obligations are fully funded; therefore, the Company is not obligated to contribute additional funds when credit events occur related to the reference entities named in the embedded credit default swaps.  The Company’s maximum amount at risk equals the amount of its aggregate initial investment in the synthetic collateralized debt obligations.

6.  Reinsurance

The effects of reinsurance on premiums and contract charges are as follows:

($ in millions)		Three months ended June 30,				Six months ended June 30,
		2013		2012		2013		2012
Direct	$	520	$	536	$	1,035	$	1,071
Assumed
Affiliate		31		29		61		57
Non-affiliate		17		4		34		9
Ceded-non-affiliate		(158)		(161)		(311)		(328)
Premiums and contract charges, net of reinsurance	$	410	$	408	$	819	$	809

The effects of reinsurance on contract benefits are as follows:

($ in millions)		Three months ended June 30,				Six months ended June 30,
		2013		2012		2013		2012
Direct	$	441	$	499	$	871	$	901
Assumed
Affiliate		18		17		40		35
Non-affiliate		12		5		25		10
Ceded-non-affiliate		(75)		(133)		(159)		(194)
Contract benefits, net of reinsurance	$	396	$	388	$	777	$	752

The effects of reinsurance on interest credited to contractholder funds are as follows:

($ in millions)		Three months ended June 30,				Six months ended June 30,
		2013		2012		2013		2012
Direct	$	302	$	360	$	637	$	734
Assumed
Affiliate		3		3		5		5
Non-affiliate		8		4		15		6
Ceded-non-affiliate		(9)		(7)		(14)		(14)
Interest credited to contractholder funds, net of reinsurance	$	304	$	360	$	643	$	731

7.  Guarantees and Contingent Liabilities

Guaranty funds

Under state insurance guaranty fund laws, insurers doing business in a state can be assessed, up to prescribed limits, for certain obligations of insolvent insurance companies to policyholders and claimants.  Amounts assessed to each company are typically related to its proportion of business written in each state.  The Company’s policy is to accrue assessments when the entity for which the insolvency relates has met its state of domicile’s statutory definition of insolvency and the amount of the loss is reasonably estimable.  In most states, the definition is met with a declaration of financial insolvency by a court of competent jurisdiction.  In certain states there must also be a final order of liquidation.

Executive Life Insurance Company of New York (“ELNY”) has been under the jurisdiction of the New York Liquidation Bureau (the “Bureau”) as part of a 1992 court-ordered rehabilitation plan.  ELNY continues to fully pay annuity benefits when due.  The Superintendent of Insurance of the State of New York in conjunction with the New York Attorney General filed a proposed formal plan of liquidation on September 1, 2011 and a court order

34

approving the plan, as amended, was entered on April 16, 2012.  On May 30, 2012, an attorney representing a number of ELNY payees filed a notice, appealing the ELNY Order of Liquidation.  On February 6, 2013, the New York Appellate Division issued its order on that appeal and affirmed the lower court’s order of liquidation.  On March 8, 2013, the attorney representing those payees filed a further appeal.  On May 2, 2013, the motion of leave to appeal the ELNY liquidation plan was denied by the NY Court of Appeals.  No further appeals are expected.

During second quarter 2013, the Company received and paid assessments from certain state guaranty associations.  The Company previously accrued a liability for the Company’s estimated aggregate exposure for guaranty fund assessments and participation in an industry sponsored plan to supplement certain ELNY policyholders.  The ultimate cost will depend on the level of guaranty fund system participation and the realization of tax benefits.  Under current law, the Company may be allowed to recoup a portion of the amount of any additional guaranty fund assessment in periods subsequent to the recognition of the assessment by offsetting future state related taxes.

Guarantees

The Company owns certain fixed income securities that obligate the Company to exchange credit risk or to forfeit principal due, depending on the nature or occurrence of specified credit events for the reference entities.  In the event all such specified credit events were to occur, the Company’s maximum amount at risk on these fixed income securities, as measured by the amount of the aggregate initial investment, was $4 million as of June 30, 2013.  The obligations associated with these fixed income securities expire at various dates on or before March 11, 2018.

Related to the disposal through reinsurance of substantially all of the Company’s variable annuity business to Prudential in 2006, the Company and the Corporation have agreed to indemnify Prudential for certain pre-closing contingent liabilities (including extra-contractual liabilities of the Company and liabilities specifically excluded from the transaction) that the Company has agreed to retain.  In addition, the Company and the Corporation will each indemnify Prudential for certain post-closing liabilities that may arise from the acts of the Company and its agents, including in connection with the Company’s provision of transition services.  The reinsurance agreements contain no limitations or indemnifications with regard to insurance risk transfer, and transferred all of the future risks and responsibilities for performance on the underlying variable annuity contracts to Prudential, including those related to benefit guarantees.  Management does not believe this agreement will have a material effect on results of operations, cash flows or financial position of the Company.

In the normal course of business, the Company provides standard indemnifications to contractual counterparties in connection with numerous transactions, including acquisitions and divestitures.  The types of indemnifications typically provided include indemnifications for breaches of representations and warranties, taxes and certain other liabilities, such as third party lawsuits.  The indemnification clauses are often standard contractual terms and are entered into in the normal course of business based on an assessment that the risk of loss would be remote.  The terms of the indemnifications vary in duration and nature.  In many cases, the maximum obligation is not explicitly stated and the contingencies triggering the obligation to indemnify have not occurred and are not expected to occur.  Consequently, the maximum amount of the obligation under such indemnifications is not determinable.  Historically, the Company has not made any material payments pursuant to these obligations.

The aggregate liability balance related to all guarantees was not material as of June 30, 2013.

Regulation and Compliance

The Company is subject to changing social, economic and regulatory conditions.  From time to time, regulatory authorities or legislative bodies seek to impose additional regulations regarding agent and broker compensation, regulate the nature of and amount of investments, and otherwise expand overall regulation of insurance products and the insurance industry.  The Company has established procedures and policies to facilitate compliance with laws and regulations, to foster prudent business operations, and to support financial reporting.  The Company routinely reviews its practices to validate compliance with laws and regulations and with internal procedures and policies.  As a result of these reviews, from time to time the Company may decide to modify some of its procedures and policies.  Such modifications, and the reviews that led to them, may be accompanied by payments being made and costs being incurred.  The ultimate changes and eventual effects of these actions on the Company’s business, if any, are uncertain.

35

The Company is currently being examined by certain states for compliance with unclaimed property laws.  It is possible that this examination may result in additional payments of abandoned funds to states and to changes in the Company’s practices and procedures for the identification of escheatable funds, which could impact benefit payments and reserves, among other consequences; however, it is not likely to have a material effect on the condensed consolidated financial statements of the Company.

8.  Other Comprehensive Income

The components of other comprehensive (loss) income on a pre-tax and after-tax basis are as follows:

($ in millions)		Three months ended June 30,
		2013						2012
		Pre- tax		Tax		After- tax		Pre- tax		Tax		After- tax
Unrealized net holding gains and losses arising during the period, net of related offsets	$	(807)	$	282	$	(525)	$	242	$	(85)	$	157
Less: reclassification adjustment of realized capital gains and losses		57		(20)		37		(5)		2		(3)
Unrealized net capital gains and losses		(864)		302		(562)		247		(87)		160
Unrealized foreign currency translation adjustments		(2)		1		(1)		5		(2)		3
Other comprehensive (loss) income	$	(866)	$	303		(563)	$	252	$	(89)		163
Net income						150						98
Comprehensive (loss) income					$	(413)					$	261

		Six months ended June 30,
		2013						2012
		Pre- tax		Tax		After- tax		Pre- tax		Tax		After- tax
Unrealized net holding gains and losses arising during the period, net of related offsets	$	(792)	$	277	$	(515)	$	542	$	(190)	$	352
Less: reclassification adjustment of realized capital gains and losses		33		(12)		21		(56)		20		(36)
Unrealized net capital gains and losses		(825)		289		(536)		598		(210)		388
Unrealized foreign currency translation adjustments		--		--		--		3		(1)		2
Other comprehensive (loss) income	$	(825)	$	289		(536)	$	601	$	(211)		390
Net income						259						181
Comprehensive (loss) income					$	(277)					$	571

9.  Subsequent Event

Sale agreement

On July 17, 2013, the Company entered into a definitive agreement with Resolution Life Holdings, Inc. to sell Lincoln Benefit Life Company and its business generated through independent master brokerage agencies for $600 million.  The transaction is expected to close by December 31, 2013.  The transaction is subject to regulatory approvals and other customary closing conditions.  A loss on disposition estimated to be in the range of approximately $475 million to $525 million, after-tax, will be recorded in third quarter 2013.  The total reduction in shareholder’s equity, including the impact to unrealized capital gains and losses, is estimated to be in the range of approximately $575 million to $675 million.  This transaction will meet the criteria for held-for-sale accounting beginning in third quarter 2013.

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholder of

Allstate Life Insurance Company

Northbrook, IL 60062

We have reviewed the accompanying condensed consolidated statement of financial position of Allstate Life Insurance Company and subsidiaries (the “Company”), an affiliate of The Allstate Corporation, as of June 30, 2013, and the related condensed consolidated statements of operations and comprehensive income for the three-month and six-month periods ended June 30, 2013 and 2012, and of shareholder’s equity and cash flows for the six-month periods ended June 30, 2013 and 2012.  These interim financial statements are the responsibility of the Company’s management.

We conducted our reviews in accordance with the standards of the Public Company Accounting Oversight Board (United States).  A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters.  It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole.  Accordingly, we do not express such an opinion.

Based on our reviews, we are not aware of any material modifications that should be made to such condensed consolidated interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated statement of financial position of Allstate Life Insurance Company and subsidiaries as of December 31, 2012, and the related consolidated statements of operations and comprehensive income, shareholder’s equity, and cash flows for the year then ended (not presented herein); and in our report dated March 8, 2013, we expressed an unqualified opinion on those consolidated financial statements.  In our opinion, the information set forth in the accompanying condensed consolidated statement of financial position as of December 31, 2012 is fairly stated, in all material respects, in relation to the consolidated statement of financial position from which it has been derived.

/s/ Deloitte & Touche LLP

Chicago, Illinois

August 2, 2013

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Item 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS FOR THE THREE-MONTH AND SIX-MONTH PERIODS ENDED JUNE 30, 2013 AND 2012

OVERVIEW

The following discussion highlights significant factors influencing the consolidated financial position and results of operations of Allstate Life Insurance Company (referred to in this document as “we,” “our,” “us,” or the “Company”).  It should be read in conjunction with the condensed consolidated financial statements and notes thereto found under Part I. Item 1. contained herein, and with the discussion, analysis, consolidated financial statements and notes thereto in Part I. Item 1. and Part II. Item 7. and Item 8. of the Allstate Life Insurance Company Annual Report on Form 10-K for 2012.  We operate as a single segment entity based on the manner in which we use financial information to evaluate business performance and to determine the allocation of resources.

OPERATIONS HIGHLIGHTS

·Net income was $150 million and $259 million in the second quarter and first six months of 2013, respectively, compared to $98 million and $181 million in the second quarter and first six months of 2012, respectively.

·Premiums and contract charges on underwritten products, including traditional life, interest-sensitive life and accident and health insurance, totaled $397 million in the second quarter of 2013, an increase of 2.1% from $389 million in the second quarter of 2012, and $796 million in the first six months of 2013, an increase of 3.1% from $772 million in the first six months of 2012.

·Investments totaled $51.42 billion as of June 30, 2013, reflecting a decrease of $4.45 billion from $55.87 billion as of December 31, 2012.  Net investment income decreased 4.8% to $619 million in the second quarter of 2013 and 6.3% to $1.24 billion in the first six months of 2013 from $650 million and $1.32 billion in the second quarter and first six months of 2012, respectively.

·Net realized capital gains totaled $58 million in the second quarter of 2013 compared to $7 million in the second quarter of 2012, and net realized capital gains totaled $77 million in the first six months of 2013 compared to net realized capital losses of $15 million in the first six months of 2012.

·Contractholder funds totaled $35.66 billion as of June 30, 2013, reflecting decreases of $2.97 billion from $38.63 billion as of December 31, 2012.

IMPACT OF LOW INTEREST RATE ENVIRONMENT

The low interest rate environment in the U.S. has resulted in our current reinvestment yields being lower than the overall portfolio income yield, primarily for our investments in fixed income securities and commercial mortgage loans.  During 2012, the Federal Reserve Board announced its decision to keep interest rates low through at least 2014 and to increase the prominence of the unemployment rate as an input to monetary policy decisions.  More recent announcements in 2013 have begun to foreshadow the potential tapering of large-scale purchases of longer-term Treasury and agency mortgage-backed securities in the open market.  The Federal Open Market Committee has also reiterated that it expects a highly accommodative stance of monetary policy to remain appropriate for a considerable time after the asset purchase program ends and the economic recovery strengthens.  Despite the measured commentary and assurances around monetary policy remaining accommodative, interest rates have risen in 2013 and risk markets have become more volatile.  We anticipate that interest rates will continue to increase but remain below historic averages and the portfolio income yield for some period.  We also expect capital markets to remain volatile while they adjust to a new equilibrium.

Deferred annuity contracts with fixed and guaranteed crediting rates, or floors that limit crediting rate reductions, are adversely impacted by a prolonged low interest rate environment since we may not be able to reduce crediting rates sufficiently to maintain investment spreads.  Financial results of long duration products that do not have stated crediting rate guarantees but for which underlying assets may have to be reinvested at interest rates that are lower than portfolio rates, such as structured settlements and term life insurance, may also be adversely impacted.

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The following table summarizes the weighted average guaranteed crediting rates and weighted average current crediting rates as of June 30, 2013 for certain fixed annuities and interest-sensitive life contracts where management has the ability to change the crediting rate, subject to a contractual minimum.  Other products, including equity-indexed, variable and immediate annuities, equity-indexed and variable life, and institutional products totaling $8.90 billion of contractholder funds, have been excluded from the analysis because management does not have the ability to change the crediting rate or the minimum crediting rate is not considered meaningful in this context.

($ in millions)	Weightedaverage guaranteed crediting rates	Weighted average current crediting rates	Contractholder funds
Annuities with annual crediting rate resets	3.18 %	3.18 %	$  10,155
Annuities with multi-year rate guarantees (1):
Resettable in next 12 months	1.75	4.01	1,853
Resettable after 12 months	1.61	3.38	4,457
Interest-sensitive life insurance	3.88	4.03	10,297

(1)  These contracts include interest rate guarantee periods which are typically 5 or 6 years.

Investing activity will continue to decrease our portfolio yield as long as market yields remain below the current portfolio yield.  The portfolio yield has been less impacted by reinvestment in the current low interest rate environment, as much of the investment cash flows have been used to fund the managed reduction in spread-based liabilities.  The declines in both invested assets and portfolio yield are expected to result in lower net investment income in future periods.

We expect approximately 7.9% of the amortized cost of fixed income securities not subject to prepayment and approximately 14.2% of commercial mortgage loans to mature through 2014.  We have $40.19 billion of such assets as of June 30, 2013.  Additionally, for asset-backed securities (“ABS”), residential mortgage-backed securities (“RMBS”) and commercial mortgage-backed securities (“CMBS”) that have the potential for prepayment and are therefore not categorized by contractual maturity, we received periodic principal payments of $880 million in the first six months of 2013.  To the extent portfolio cash flows are reinvested, the average pre-tax investment yield of 5.1% is expected to decline due to lower market yields.

In order to mitigate the unfavorable impact that the current interest rate environment has on investment results, we are:

·Optimizing return and risk in an uncertain economic climate and volatile investment market.

·Shifting the portfolio mix in the next few years to have less reliance on lending to borrowers and a greater proportion of ownership of assets including real estate and other cash-generating assets.

·Managing the alignment of assets with respect to our changing liability profile.

These topics are discussed in more detail in the respective sections of the MD&A.

OPERATIONS

Strategy changes

On July 17, 2013, we announced plans to exit the independent master brokerage agencies distribution channel.  In connection with this announcement, on July 17, 2013, we entered into a definitive agreement with Resolution Life Holdings, Inc. to sell Lincoln Benefit Life Company (“LBL”), its life insurance business generated through independent master brokerage agencies, and all of its deferred fixed annuity and accident and health insurance business for $600 million.  The transaction is expected to close by December 31, 2013.  The transaction is subject to regulatory approvals and other customary closing conditions.  The business being sold had $341 million of premiums and contract charges in 2012.  Effective July 18, 2013, we are no longer offering any products through the independent master brokerage agency distribution channel.

Effective January 1, 2014, we will no longer offer fixed annuities.  Allstate exclusive agencies and exclusive financial specialists will have non-proprietary fixed annuities available to sell.

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We are planning to outsource the administration of our annuity business to a third party administration company by the end of 2014.  We expect to have restructuring expense charges relating to these changes in late 2013 and into 2014.

Summary analysis  Summarized financial data is presented in the following table.

($ in millions)		Three months ended June 30,				Six months ended June 30,
		2013		2012		2013		2012
Revenues
Premiums	$	150	$	152	$	295	$	298
Contract charges		260		256		524		511
Net investment income		619		650		1,240		1,323
Realized capital gains and losses		58		7		77		(15)
Total revenues		1,087		1,065		2,136		2,117
Costs and expenses
Contract benefits		(396)		(388)		(777)		(752)
Interest credited to contractholder funds		(304)		(360)		(643)		(731)
Amortization of DAC		(51)		(59)		(104)		(140)
Operating costs and expenses		(114)		(109)		(231)		(221)
Restructuring and related charges		--		--		(2)		--
Interest expense		(7)		(11)		(15)		(22)
Total costs and expenses		(872)		(927)		(1,772)		(1,866)
Gain on disposition of operations		1		3		3		6
Income tax expense		(66)		(43)		(108)		(76)
Net income	$	150	$	98	$	259	$	181
Investments as of June 30					$	51,415	$	56,613

Net income was $150 million in the second quarter of 2013 compared to $98 million in the second quarter of 2012.  The increase was primarily due to decreased interest credited to contractholder funds and higher net realized capital gains, partially offset by lower net investment income.

Net income was $259 million in the first six months of 2013 compared to $181 million in the first six months of 2012.  The increase was primarily due to net realized capital gains in the first six months of 2013 compared to net realized capital losses in the first six months of 2012 and decreased interest credited to contractholder funds, partially offset by lower net investment income.

Analysis of revenues Total revenues increased 2.1% or $22 million in the second quarter of 2013 compared to the second quarter of 2012, primarily due to higher net realized capital gains, partially offset by lower net investment income.  Total revenues increased 0.9% or $19 million in the first six months of 2013 compared to the first six months of 2012, primarily due to net realized capital gains in the first six months of 2013 compared to net realized capital losses in the first six months of 2012, partially offset by lower net investment income.

Premiums represent revenues generated from traditional life insurance, immediate annuities with life contingencies, and accident and health insurance products that have significant mortality or morbidity risk.

Contract charges are revenues generated from interest-sensitive and variable life insurance and fixed annuities for which deposits are classified as contractholder funds or separate account liabilities.  Contract charges are assessed against the contractholder account values for maintenance, administration, cost of insurance and surrender prior to contractually specified dates.

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The following table summarizes premiums and contract charges by product.

($ in millions)		Three months ended June 30,				Six months ended June 30,
		2013		2012		2013		2012
Underwritten products
Traditional life insurance premiums	$	116	$	114	$	228	$	223
Accident and health insurance premiums		25		24		51		49
Interest-sensitive life insurance contract charges		256		251		517		500
Subtotal		397		389		796		772
Annuities
Immediate annuities with life contingencies premiums		9		14		16		26
Other fixed annuity contract charges		4		5		7		11
Subtotal		13		19		23		37
Premiums and contract charges (1)	$	410	$	408	$	819	$	809

(1)Contract charges related to the cost of insurance totaled $176 million and $168 million for the second quarter of 2013 and 2012, respectively, and $353 million and $336 million in the first six months of 2013 and 2012, respectively.

Total premiums and contract charges increased 0.5% and 1.2% in the second quarter and the first six months of 2013, respectively, compared to the same periods of 2012, primarily due to higher contract charges on interest-sensitive life insurance products primarily resulting from the growth of insurance in force and the aging of our policyholders, partially offset by lower sales of immediate annuities with life contingencies.  Effective March 22, 2013, we are no longer offering structured settlement annuities.  We will continue to service the in-force structured settlement contracts.

Contractholder funds represent interest-bearing liabilities arising from the sale of products such as interest-sensitive life insurance, fixed annuities and funding agreements.  The balance of contractholder funds is equal to the cumulative deposits received and interest credited to the contractholder less cumulative contract benefits, surrenders, withdrawals, maturities and contract charges for mortality or administrative expenses.  The following table shows the changes in contractholder funds.

($ in millions)		Three months ended June 30,				Six months ended June 30,
		2013		2012		2013		2012
Contractholder funds, beginning balance	$	38,116	$	40,936	$	38,634	$	41,669
Deposits
Fixed annuities		280		184		567		337
Interest-sensitive life insurance		301		309		662		617
Total deposits		581		493		1,229		954
Interest credited		306		363		650		735
Benefits, withdrawals, maturities and other adjustments
Benefits		(394)		(329)		(786)		(683)
Surrenders and partial withdrawals		(840)		(944)		(1,726)		(1,882)
Maturities of and interest payments on institutional products		(1,797)		(88)		(1,798)		(89)
Contract charges		(255)		(247)		(513)		(493)
Net transfers from separate accounts		5		2		6		4
Other adjustments (1)		(61)		(29)		(35)		(58)
Total benefits, withdrawals, maturities and other adjustments		(3,342)		(1,635)		(4,852)		(3,201)
Contractholder funds, ending balance	$	35,661	$	40,157	$	35,661	$	40,157

(1)The table above illustrates the changes in contractholder funds, which are presented gross of reinsurance recoverables on the Condensed Consolidated Statements of Financial Position.  The table above is intended to supplement our discussion and analysis of revenues, which are

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presented net of reinsurance on the Condensed Consolidated Statements of Operations and Comprehensive Income.  As a result, the net change in contractholder funds associated with products reinsured to third parties is reflected as a component of the other adjustments line.

Contractholder funds decreased 6.4% and 7.7% in the second quarter and first six months of 2013, respectively, compared to decreases of 1.9% and 3.6% in the same periods of 2012, respectively, reflecting a large institutional product maturity in second quarter 2013 and our continuing strategy to reduce our concentration in spread-based products.  Average contractholder funds decreased 9.0% and 9.2% in the second quarter and first six months of 2013, respectively, compared to the same periods of 2012.

Contractholder deposits increased 17.8% and 28.8% in the second quarter and first six months of 2013, respectively, compared to the same periods of 2012, primarily due to increased fixed annuity deposits driven by new equity-indexed annuity products launched in second quarter 2012 and higher deposits on immediate annuities.

Maturities of and interest payments on institutional products in the second quarter and first six months of 2013 include a $1.75 billion maturity.  There are $85 million of institutional products outstanding as of June 30, 2013.

Surrenders and partial withdrawals on deferred fixed annuities and interest-sensitive life insurance products decreased 11.0% to $840 million in the second quarter of 2013 and 8.3% to $1.73 billion in the first six months of 2013 from $944 million and $1.88 billion in the second quarter and first six months of 2012, respectively.  The annualized surrender and partial withdrawal rate on deferred fixed annuities and interest-sensitive life insurance products, based on the beginning of year contractholder funds, was 10.9% in both the first six months of 2013 and 2012.

Analysis of costs and expenses Total costs and expenses decreased 5.9% or $55 million in the second quarter of 2013 and 5.0% or $94 million in the first six months of 2013 compared to the same periods of 2012, primarily due to lower interest credited to contractholder funds and amortization of DAC, partially offset by higher contract benefits.

Contract benefits increased 2.1% or $8 million in the second quarter of 2013 and 3.3% or $25 million in the first six months of 2013 compared to the same periods of 2012, primarily due to worse mortality experience on life insurance.

We analyze our mortality and morbidity results using the difference between premiums and contract charges earned for the cost of insurance and contract benefits excluding the portion related to the implied interest on immediate annuities with life contingencies (“benefit spread”).  This implied interest totaled $130 million and $263 million in the second quarter and first six months of 2013, respectively, compared to $136 million and $270 million in the second quarter and first six months of 2012, respectively.

The benefit spread by product group is disclosed in the following table.

($ in millions)		Three months ended June 30,				Six months ended June 30,
		2013		2012		2013		2012
Life insurance	$	72	$	83	$	155	$	171
Accident and health insurance		4		6		12		14
Annuities		(16)		(21)		(33)		(33)
Total benefit spread	$	60	$	68	$	134	$	152

Benefit spread decreased 11.8% or $8 million in the second quarter of 2013 and 11.8% or $18 million in the first six months of 2013 compared to the same periods of 2012, primarily due to worse mortality experience on life insurance, partially offset by higher cost of insurance contract charges on interest-sensitive life insurance.

Interest credited to contractholder funds decreased 15.6% or $56 million in the second quarter of 2013 and 12.0% or $88 million in the first six months of 2013 compared to the same periods of 2012, primarily due to lower average contractholder funds and lower interest crediting rates.  Valuation changes on derivatives embedded in equity-indexed annuity contracts that are not hedged decreased interest credited to contractholder funds by $5 million in the second quarter of 2013 and increased interest credited to contractholder funds by $4 million in the first six months of 2013, compared to increases of $4 million and $14 million in the second quarter and first six months of 2012, respectively.

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In order to analyze the impact of net investment income and interest credited to contractholders on net income, we monitor the difference between net investment income and the sum of interest credited to contractholder funds and the implied interest on immediate annuities with life contingencies, which is included as a component of contract benefits on the Condensed Consolidated Statements of Operations and Comprehensive Income (“investment spread”).

The investment spread by product group is shown in the following table.

($ in millions)		Three months ended June 30,				Six months ended June 30,
		2013		2012		2013		2012
Annuities and institutional products	$	86	$	70	$	143	$	166
Life insurance		27		21		53		39
Accident and health insurance		3		3		7		6
Net investment income on investments supporting capital		64		64		135		125
Investment spread before valuation changes on embedded derivatives that are not hedged		180		158		338		336
Valuation changes on derivatives embedded in equity-indexed annuity contracts that are not hedged		5		(4)		(4)		(14)
Total investment spread	$	185	$	154	$	334	$	322

Investment spread before valuation changes on embedded derivatives that are not hedged increased 13.9% or $22 million in the second quarter of 2013 compared to the same period of 2012 primarily due to lower crediting rates, partially offset by the continued managed reduction in our spread-based business in force.  Investment spread before valuation changes on embedded derivatives that are not hedged increased 0.6% or $2 million in the first six months of 2013 compared to the same period of 2012 primarily due to lower crediting rates, partially offset by the continued managed reduction in our spread-based business in force.

To further analyze investment spreads, the following table summarizes the weighted average investment yield on assets supporting product liabilities and capital, interest crediting rates and investment spreads.

	Three months ended June 30,
	Weighted average investment yield				Weighted average interest crediting rate				Weighted average investment spreads
	2013		2012		2013		2012		2013		2012
Interest-sensitive life insurance	5.2	%	5.3	%	3.8	%	4.0	%	1.4	%	1.3	%
Deferred fixed annuities and institutional products	4.7		4.6		2.9		3.2		1.8		1.4
Immediate fixed annuities with and without life contingencies	6.8		6.9		6.0		6.2		0.8		0.7
Investments supporting capital, traditional life and other products	3.9		4.2		n/a		n/a		n/a		n/a

	Six months ended June 30,
	Weighted average investment yield				Weighted average interest crediting rate				Weighted average investment spreads
	2013		2012		2013		2012		2013		2012
Interest-sensitive life insurance	5.3	%	5.4	%	3.9	%	4.1	%	1.4	%	1.3	%
Deferred fixed annuities and institutional products	4.6		4.6		3.0		3.2		1.6		1.4
Immediate fixed annuities with and without life contingencies	6.5		7.3		6.0		6.1		0.5		1.2
Investments supporting capital, traditional life and other products	4.1		4.1		n/a		n/a		n/a		n/a

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The following table summarizes our product liabilities and indicates the account value of those contracts and policies in which an investment spread is generated.

($ in millions)		June 30,
		2013		2012
Immediate fixed annuities with life contingencies	$	8,891	$	8,865
Other life contingent contracts and other		4,558		5,021
Reserve for life-contingent contract benefits	$	13,449	$	13,886
Interest-sensitive life insurance	$	10,453	$	10,268
Deferred fixed annuities		20,852		23,710
Immediate fixed annuities without life contingencies		3,771		3,838
Institutional products		85		1,850
Other		500		491
Contractholder funds	$	35,661	$	40,157

Amortization of DAC decreased 13.6% or $8 million in the second quarter of 2013 and 25.7% or $36 million in the first six months of 2013 compared to the same periods of 2012.  The components of amortization of DAC are summarized in the following table.

($ in millions)		Three months ended June 30,				Six months ended June 30,
		2013		2012		2013		2012
Amortization of DAC before amortization relating to realized capital gains and losses, valuation changes on embedded derivatives that are not hedged and changes in assumptions	$	45	$	58	$	99	$	124
Amortization relating to realized capital gains and losses(1) and valuation changes on embedded derivatives that are not hedged		6		1		5		16
Amortization acceleration for changes in assumptions (“DAC unlocking”)		--		--		--		--
Total amortization of DAC	$	51	$	59	$	104	$	140

_________________

(1) The impact of realized capital gains and losses on amortization of DAC is dependent upon the relationship between the assets that give rise to the gain or loss and the product liability supported by the assets.  Fluctuations result from changes in the impact of realized capital gains and losses on actual and expected gross profits.

The decrease in DAC amortization in the second quarter and first six months of 2013 compared to the same periods of 2012 was primarily due to decreased amortization on interest-sensitive life insurance resulting from decreased benefit spread and decreased amortization on fixed annuity products due to the DAC balance for contracts issued prior to 2010 being fully amortized in second quarter 2012.

Operating costs and expenses increased 4.6% or $5 million in the second quarter of 2013 and 4.5% or $10 million in the first six months of 2013 compared to the same periods of 2012.  The following table summarizes operating costs and expenses.

($ in millions)		Three months ended June 30,				Six months ended June 30,
		2013		2012		2013		2012
Non-deferrable commissions	$	6	$	9	$	13	$	17
General and administrative expenses		98		90		197		184
Taxes and licenses		10		10		21		20
Total operating costs and expenses	$	114	$	109	$	231	$	221
Restructuring and related charges	$	--	$	--	$	2	$	--

General and administrative expenses increased 8.9% or $8 million in the second quarter of 2013 and 7.1% or $13 million in the first six months of 2013 compared to the same periods of 2012 primarily due to higher employee related costs.

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INVESTMENTS HIGHLIGHTS

· Investments totaled $51.42 billion as of June 30, 2013, decreasing from $55.87 billion as of December 31, 2012.

· Unrealized net capital gains totaled $1.97 billion as of June 30, 2013, decreasing from $3.70 billion as of December 31, 2012.

· Net investment income was $619 million in the second quarter of 2013, a decrease of 4.8% from $650 million in the second quarter of 2012, and $1.24 billion in the first six months of 2013, a decrease of 6.3% from $1.32 billion in the first six months of 2012.

· Net realized capital gains were $58 million in the second quarter of 2013 compared to $7 million in the second quarter of 2012, and $77 million in the first six months of 2013 compared to net realized capital losses of $15 million in the first six months of 2012.

INVESTMENTS

The composition of the investment portfolio as of June 30, 2013 is presented in the following table.

($ in millions)			Percentto total
Fixed income securities (1)	$	40,440	78.7	%
Mortgage loans		5,803	11.3
Equity securities (2)		550	1.1
Limited partnership interests (3)		1,946	3.8
Short-term investments (4)		744	1.4
Policy loans		818	1.6
Other		1,114	2.1
Total	$	51,415	100.0	%

_____________________
(1)	Fixed income securities are carried at fair value.  Amortized cost basis for these securities was $38.49 billion.
(2)	Equity securities are carried at fair value.  Cost basis for these securities was $518 million.
(3)	We have commitments to invest in additional limited partnership interests totaling $1.09 billion.
(4)	Short-term investments are carried at fair value.  Amortized cost basis for these investments was $744 million.

Total investments decreased to $51.42 billion as of June 30, 2013, from $55.87 billion as of December 31, 2012, primarily due to net reductions in contractholder funds of $2.97 billion and lower fixed income valuations.  The decline in valuation of fixed income securities for the six months ended June 30, 2013 was due to increasing risk-free interest rates and wider credit spreads.

Fixed income securities by type are listed in the following table.

($ in millions)		Fair value as of June 30, 2013	Percent to total investments		Fair value as of December 31, 2012	Percent to total investments
U.S. government and agencies	$	1,175	2.3 %	$	2,379	4.3 %
Municipal		4,242	8.3		4,704	8.4
Corporate		29,751	57.9		31,531	56.5
Foreign government		1,122	2.2		1,180	2.1
ABS		1,463	2.8		1,865	3.3
RMBS		1,449	2.8		1,791	3.2
CMBS		1,221	2.4		1,408	2.5
Redeemable preferred stock		17	--		18	--
Total fixed income securities	$	40,440	78.7 %	$	44,876	80.3 %

As of June 30, 2013, 91.7% of the fixed income securities portfolio was rated investment grade, which is defined as a security having a rating of Aaa, Aa, A or Baa from Moody’s, a rating of AAA, AA, A or BBB from Standard & Poor’s (“S&P”), Fitch, Dominion, Kroll or Realpoint, a rating of aaa, aa, a or bbb from A.M. Best, or a comparable internal rating if an externally provided rating is not available.  All of our fixed income securities are rated by third party credit rating agencies, the National Association of Insurance Commissioners, and/or are internally rated.  Our initial investment decisions and ongoing monitoring procedures for fixed income securities are

45

based on a thorough due diligence process which includes, but is not limited to, an assessment of the credit quality, sector, structure, and liquidity risks of each issue.

The following table summarizes the fair value and unrealized net capital gains and losses for fixed income securities by credit rating as of June 30, 2013.

($ in millions)		Aaa				Aa				A
		Fair value		Unrealized gain/(loss)		Fair value		Unrealized gain/(loss)		Fair value		Unrealized gain/(loss)
U.S. government and agencies	$	1,175	$	157	$	--	$	--	$	--	$	--
Municipal
Taxable and tax exempt		227		16		2,350		239		1,208		104
Auction rate securities (“ARS”)		32		--		63		--		--		--
Corporate
Public		612		28		1,572		65		7,667		372
Privately placed		543		23		845		55		2,873		206
Foreign government		469		70		254		10		151		11
ABS
Collateralized debt obligations (“CDO”)		115		4		472		4		271		(21)
Consumer and other asset-backed securities (“Consumer and other ABS”)		198		9		59		2		53		2
RMBS
U.S. government sponsored entities (“U.S. Agency”)		491		24		--		--		--		--
Prime residential mortgage-backed securities (“Prime”)		38		1		21		--		39		2
Alt-A residential mortgage-backed securities (“Alt-A”)		--		--		--		--		10		--
Subprime residential mortgage-backed securities (“Subprime”)		--		--		--		--		36		--
CMBS		586		19		80		2		135		3
Redeemable preferred stock		--		--		--		--		--		--
Total fixed income securities	$	4,486	$	351	$	5,716	$	377	$	12,443	$	679

		Baa				Ba or lower				Total
		Fair value		Unrealized gain/(loss)		Fair value		Unrealized gain/(loss)		Fair value		Unrealized gain/(loss)
U.S. government and agencies	$	--	$	--	$	--	$	--	$	1,175	$	157
Municipal
Taxable and tax exempt		280		(18)		82		(5)		4,147		336
ARS		--		--		--		--		95		--
Corporate
Public		8,624		353		1,452		30		19,927		848
Privately placed		4,837		191		726		(4)		9,824		471
Foreign government		248		12		--		--		1,122		103
ABS
CDO		131		(14)		121		(14)		1,110		(41)
Consumer and other ABS		36		2		7		(1)		353		14
RMBS
U.S. Agency		--		--		--		--		491		24
Prime		108		1		164		19		370		23
Alt-A		50		1		242		(1)		302		--
Subprime		8		--		242		(9)		286		(9)
CMBS		107		2		313		(9)		1,221		17
Redeemable preferred stock		16		3		1		--		17		3
Total fixed income securities	$	14,445	$	533	$	3,350	$	6	$	40,440	$	1,946

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Municipal bonds, including taxable, tax exempt and ARS securities, totaled $4.24 billion as of June 30, 2013 with an unrealized net capital gain of $336 million.  The municipal bond portfolio includes general obligations of state and local issuers and revenue bonds (including pre-refunded bonds, which are bonds for which an irrevocable trust has been established to fund the remaining payments of principal and interest).

Corporate bonds, including publicly traded and privately placed, totaled $29.75 billion as of June 30, 2013, with an unrealized net capital gain of $1.32 billion.  Privately placed securities primarily consist of corporate issued senior debt securities that are directly negotiated with the borrower or are in unregistered form.

ABS, RMBS and CMBS are structured securities that are primarily collateralized by consumer or corporate borrowings and residential and commercial real estate loans.  The cash flows from the underlying collateral paid to the securitization trust are generally applied in a pre-determined order and are designed so that each security issued by the trust, typically referred to as a “class”, qualifies for a specific original rating.  For example, the “senior” portion or “top” of the capital structure, or rating class, which would originally qualify for a rating of Aaa typically has priority in receiving principal repayments on the underlying collateral and retains this priority until the class is paid in full.  In a sequential structure, underlying collateral principal repayments are directed to the most senior rated Aaa class in the structure until paid in full, after which principal repayments are directed to the next most senior Aaa class in the structure until it is paid in full.  Senior Aaa classes generally share any losses from the underlying collateral on a pro-rata basis after losses are absorbed by classes with lower original ratings.  The payment priority and class subordination included in these securities serves as credit enhancement for holders of the senior or top portions of the structures.  These securities continue to retain the payment priority features that existed at the origination of the securitization trust.  Other forms of credit enhancement may include structural features embedded in the securitization trust, such as overcollateralization, excess spread and bond insurance.  The underlying collateral can have fixed interest rates, variable interest rates (such as adjustable rate mortgages) or may contain features of both fixed and variable rate mortgages.

ABS, including CDO and Consumer and other ABS, totaled $1.46 billion as of June 30, 2013, with 91.3% rated investment grade and an unrealized net capital loss of $27 million.  Credit risk is managed by monitoring the performance of the underlying collateral.  Many of the securities in the ABS portfolio have credit enhancement with features such as overcollateralization, subordinated structures, reserve funds, guarantees and/or insurance.

CDO totaled $1.11 billion as of June 30, 2013, with 89.1% rated investment grade.  CDO consist primarily of obligations collateralized by high yield and investment grade corporate credits including $1.05 billion of cash flow CDO with unrealized net capital losses of $40 million.  Cash flow CDO are structures collateralized primarily by below investment grade senior secured corporate loans.  The underlying collateral is generally actively managed by external managers that monitor the collateral’s performance and is well diversified across industries and among issuers.  The remaining $60 million of securities consisted of market value CDO with unrealized net capital losses of $1 million.

Consumer and other ABS totaled $353 million as of June 30, 2013, with 98.0% rated investment grade.  Consumer and other ABS consists of $54 million of consumer auto and $299 million of other ABS with unrealized net capital gains of $1 million and $13 million, respectively.

RMBS, including U.S. Agency, Prime, Alt-A and Subprime, totaled $1.45 billion as of June 30, 2013, with 55.3% rated investment grade and an unrealized net capital gain of $38 million.  The RMBS portfolio is subject to interest rate risk, but unlike other fixed income securities, is additionally subject to significant prepayment risk from the underlying residential mortgage loans.  The credit risk associated with the U.S. Agency portfolio is mitigated because they were issued by or have underlying collateral guaranteed by U.S. government agencies.  Prime are collateralized by residential mortgage loans issued to prime borrowers.  Alt-A includes securities collateralized by residential mortgage loans issued to borrowers who do not qualify for prime financing terms due to high loan-to-value ratios or limited supporting documentation, but have stronger credit profiles than subprime borrowers.  Subprime includes securities collateralized by residential mortgage loans issued to borrowers that cannot qualify for Prime or Alt-A financing terms due in part to weak or limited credit history.  It also includes securities that are collateralized by certain second lien mortgages regardless of the borrower’s credit history.  The Subprime portfolio consisted of $182 million and $104 million of first lien and second lien securities, respectively.  The Subprime portfolio unrealized net capital loss of $9 million as of June 30, 2013 was the result of wider credit spreads than at initial purchase.  Wider spreads are largely due to the risk associated with the underlying collateral supporting certain Subprime securities.

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CMBS totaled $1.22 billion as of June 30, 2013, with 74.4% rated investment grade and an unrealized net capital gain of $17 million.  The CMBS portfolio is subject to credit risk and has a sequential paydown structure.  Of the CMBS investments, 96.8% are traditional conduit transactions collateralized by commercial mortgage loans, broadly diversified across property types and geographical area.  The remainder consists of non-traditional CMBS such as small balance transactions, large loan pools and single borrower transactions.

Mortgage loans Our mortgage loan portfolio totaled $5.80 billion as of June 30, 2013 compared to $5.94 billion as of December 31, 2012, and primarily comprises loans secured by first mortgages on developed commercial real estate.  Key considerations used to manage our exposure include property type and geographic diversification.  For further detail on our mortgage loan portfolio, see Note 3 of the condensed consolidated financial statements.

Limited partnership interests consist of investments in private equity/debt funds, real estate funds, hedge funds and tax credit funds.  The limited partnership interests portfolio is well diversified across a number of characteristics including fund managers, vintage years, strategies, geography (including international), and company/property types.  The following table presents information about our limited partnership interests as of June 30, 2013.  There were no hedge funds as of June 30, 2013.

($ in millions)		Private equity/debt funds (1)		Real estate funds		Tax credit funds		Total
Cost method of accounting (“Cost”)	$	474	$	137	$	--	$	611
Equity method of accounting (“EMA”)		740		276		319		1,335
Total	$	1,214	$	413	$	319	$	1,946
Number of managers		101		27		11
Number of individual funds		168		52		20
Largest exposure to single fund	$	29	$	35	$	27

_______________

(1) Includes $179 million of infrastructure and real asset funds.

The following tables show the earnings from our limited partnership interests by fund type and accounting classification.

($ in millions)		Three months ended June 30,
		2013								2012
		Cost		EMA		Total income		Impairment write-downs		Cost		EMA		Total income		Impairment write-downs
Private equity/debt funds	$	18	$	14	$	32	$	(4)	$	11	$	27	$	38	$	1
Real estate funds		4		7		11		--		1		3		4		(2)
Tax credit funds		--		(6)		(6)		--		--		(3)		(3)		--
Total	$	22	$	15	$	37	$	(4)	$	12	$	27	$	39	$	(1)

		Six months ended June 30,
		2013								2012
		Cost		EMA		Total income		Impairment write-downs		Cost		EMA		Total income		Impairment write-downs
Private equity/debt funds	$	29	$	25	$	54	$	(4)	$	18	$	70	$	88	$	--
Real estate funds		6		14		20		--		1		22		23		(2)
Hedge funds		--		1		1		--		--		--		--		--
Tax credit funds		--		(8)		(8)		--		--		(5)		(5)		--
Total	$	35	$	32	$	67	$	(4)	$	19	$	87	$	106	$	(2)

Limited partnership interests produced income, excluding impairment write-downs, of $37 million and $67 million in the three months and six months ended June 30, 2013, respectively, compared to $39 million and $106 million in the three months and six months ended June 30, 2012, respectively.  Income on EMA limited partnerships is recognized on a delay due to the availability of the related financial statements.  The recognition of income on hedge funds is primarily on a one-month delay and the income recognition on private equity/debt funds, real estate

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funds and tax credit funds are generally on a three-month delay.  Income on cost method limited partnerships is recognized only upon receipt of amounts distributed by the partnerships.

Unrealized net capital gains totaled $1.97 billion as of June 30, 2013 compared to $3.70 billion as of December 31, 2012.  The decline from December 31, 2012 was due to increasing risk-free interest rates and wider credit spreads.  The following table presents unrealized net capital gains and losses.

($ in millions)		June 30, 2013		December 31, 2012
U.S. government and agencies	$	157	$	242
Municipal		336		551
Corporate		1,319		2,783
Foreign government		103		163
ABS		(27)		(56)
RMBS		38		13
CMBS		17		(17)
Redeemable preferred stock		3		3
Fixed income securities		1,946		3,682
Equity securities		32		35
EMA limited partnerships		(1)		1
Derivatives		(7)		(17)
Unrealized net capital gains and losses, pre-tax	$	1,970	$	3,701

The unrealized net capital gains for the fixed income portfolio totaled $1.95 billion and comprised $2.52 billion of gross unrealized gains and $574 million of gross unrealized losses as of June 30, 2013.  This is compared to unrealized net capital gains for the fixed income portfolio totaling $3.68 billion, comprised of $4.11 billion of gross unrealized gains and $426 million of gross unrealized losses as of December 31, 2012.

Gross unrealized gains and losses on fixed income securities by type and sector as of June 30, 2013 are provided in the following table.

($ in millions)		Amortized		Gross unrealized				Fair
		cost		Gains		Losses		value
Corporate:
Consumer goods (cyclical and non-cyclical)	$	5,744	$	305	$	(64)	$	5,985
Banking		1,832		71		(60)		1,843
Utilities		6,111		519		(52)		6,578
Basic industry		1,872		68		(45)		1,895
Capital goods		3,102		179		(39)		3,242
Energy		2,584		139		(30)		2,693
Communications		1,822		98		(26)		1,894
Technology		1,459		54		(25)		1,488
Transportation		1,502		118		(17)		1,603
Financial services		1,779		100		(17)		1,862
Other		625		48		(5)		668
Total corporate fixed income portfolio		28,432		1,699		(380)		29,751
U.S. government and agencies		1,018		158		(1)		1,175
Municipal		3,906		389		(53)		4,242
Foreign government		1,019		113		(10)		1,122
ABS		1,490		42		(69)		1,463
RMBS		1,411		67		(29)		1,449
CMBS		1,204		49		(32)		1,221
Redeemable preferred stock		14		3		--		17
Total fixed income securities	$	38,494	$	2,520	$	(574)	$	40,440

The consumer goods, banking, utilities and basic industry sectors had the highest concentration of gross unrealized losses in our corporate fixed income securities portfolio as of June 30, 2013.  In general, credit spreads remain wider than at initial purchase for most of the securities with gross unrealized losses in these categories.

The unrealized net capital gain for the equity portfolio totaled $32 million and comprised $39 million of gross unrealized gains and $7 million of gross unrealized losses as of June 30, 2013.  This is compared to an unrealized

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net capital gain for the equity portfolio totaling $35 million, comprised of $36 million of gross unrealized gains and $1 million of gross unrealized losses as of December 31, 2012.

Net investment income  The following table presents net investment income.

($ in millions)		Three months endedJune 30,				Six months ended June 30,
		2013		2012		2013		2012
Fixed income securities	$	494	$	525	$	990	$	1,046
Mortgage loans		87		85		178		170
Equity securities		3		2		5		3
Limited partnership interests		37		39		67		106
Short-term investments		--		--		1		--
Policy loans		12		13		24		26
Other		16		16		32		30
Investment income, before expense		649		680		1,297		1,381
Investment expense		(30)		(30)		(57)		(58)
Net investment income	$	619	$	650	$	1,240	$	1,323

Net investment income decreased 4.8% or $31 million in the second quarter of 2013 and 6.3% or $83 million in the first six months of 2013 compared to the same periods of 2012, primarily due to lower average investment balances and lower limited partnership income, partially offset by higher prepayment fee income and litigation proceeds which together increased 2013 income by a total of $20 million in the second quarter of 2013 and $47 million in the first six months of 2013.

Realized capital gains and losses  The following table presents the components of realized capital gains and losses and the related tax effect.

($ in millions)		Three months ended June 30,				Six months ended June 30,
		2013		2012		2013		2012
Impairment write-downs	$	(16)	$	(6)	$	(18)	$	(26)
Change in intent write-downs		(1)		--		(8)		(16)
Net other-than-temporary impairment losses recognized in earnings		(17)		(6)		(26)		(42)
Sales		63		9		84		--
Valuation of derivative instruments		6		(11)		2		(3)
Settlements of derivative instruments		6		15		17		30
Realized capital gains and losses, pre-tax		58		7		77		(15)
Income tax (expense) benefit		(20)		(2)		(27)		5
Realized capital gains and losses, after-tax	$	38	$	5	$	50	$	(10)

Impairment write-downs, which includes changes in the mortgage loan valuation allowance, are presented in the following table.

($ in millions)		Three months ended June 30,				Six months ended June 30,
		2013		2012		2013		2012
Fixed income securities	$	(3)	$	(12)	$	(29)	$	(30)
Mortgage loans		(9)		7		17		4
Limited partnership interests		(4)		(1)		(4)		(2)
Other investments		--		--		(2)		2
Impairment write-downs	$	(16)	$	(6)	$	(18)	$	(26)

Impairment write-downs on fixed income securities for the three months and six months ended June 30, 2013 were primarily driven by CMBS that experienced deterioration in expected cash flows.  The valuation allowance on mortgage loans as of June 30, 2013 decreased compared to December 31, 2012 due to increases in the fair value of the collateral less costs to sell for certain previously impaired loans.

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Change in intent write-downs totaling $1 million in the three months ended June 30, 2013 were related to the repositioning and ongoing portfolio management of our equity securities.  Change in intent write-downs totaling $8 million in the six months ended June 30, 2013 were primarily a result of plans to reduce holdings of ARS backed by student loans.

Sales generated $63 million and $84 million of net realized capital gains in the three months and six months ended June 30, 2013, respectively, primarily related to sales of fixed income securities and equity securities in connection with portfolio repositioning.

Valuation and settlements of derivative instruments generated net realized capital gains of $12 million and $19 million for the three months and six months ended June 30, 2013, respectively, primarily composed of gains on credit default swaps due to the tightening of credit spreads on the underlying credit names.

CAPITAL RESOURCES AND LIQUIDITY

Capital resources consist of shareholder’s equity and notes due to related parties, representing funds deployed or available to be deployed to support business operations.  The following table summarizes our capital resources.

($ in millions)		June 30,2013		December 31, 2012
Common stock, retained income and additional capital paid-in	$	5,939	$	5,680
Accumulated other comprehensive income		1,097		1,633
Total shareholder’s equity		7,036		7,313
Notes due to related parties		296		496
Total capital resources	$	7,332	$	7,809

Shareholder’s equity decreased in the first six months of 2013, primarily due to decreased unrealized net capital gains on investments, partially offset by net income.

Financial ratings and strength  Our ratings are influenced by many factors including our operating and financial performance, asset quality, liquidity, asset/liability management, overall portfolio mix, financial leverage (i.e., debt), exposure to risks, the current level of operating leverage and AIC’s ratings.  In January 2013, A.M. Best affirmed our financial strength rating of A+ and the outlook for the rating remained stable.  In April 2013, Moody’s affirmed our financial strength rating of A1 and the outlook for the rating was revised to stable from negative.  In May 2013, S&P affirmed our financial strength rating of A+ and the outlook for the rating was revised to stable from negative.  In the future, if our financial position is less than rating agency expectations including those related to capitalization at the parent company, AIC or the Company, we could be exposed to a downgrade in our ratings which we do not view as being material to our business model or strategies.

The sale of LBL is expected to generate deployable capital of approximately $1 billion, which will be returned to AIC as allowed by regulatory dividend limitations.  The $1 billion includes the estimated gain on the sale on a statutory-basis of accounting in the range of approximately $350 million to $400 million and the release of risk-based capital.  Subsequent to the announcement of the planned sale of LBL, the rating agencies initiated reviews of LBL’s ratings and outlook.  Moody’s downgraded LBL from A1 to Baa1 and revised the rating outlook from stable to negative.  Both the rating and outlook will be finalized after the transaction closes.  S&P downgraded LBL from A+ to BBB+ and placed LBL on CreditWatch negative.  Both the rating and CreditWatch will be finalized after the transaction closes.  A.M. Best placed LBL’s rating under review with negative implications, pending a final determination on both the rating and outlook after the transaction closes.  The Moody’s, S&P and A.M. Best ratings and outlook of Allstate Life Insurance Company (“ALIC”) are unaffected by the sale of LBL.

The Company, AIC and the Corporation are party to the Amended and Restated Intercompany Liquidity Agreement (“Liquidity Agreement”) which allows for short-term advances of funds to be made between parties for liquidity and other general corporate purposes.  The Liquidity Agreement does not establish a commitment to advance funds on the part of any party.  The Company and AIC each serve as a lender and borrower and the Corporation serves only as a lender.  The Company also has a capital support agreement with AIC.  Under the capital support agreement, AIC is committed to provide capital to the Company to maintain an adequate capital level.  The maximum amount of potential funding under each of these agreements is $1.00 billion.

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In addition to the Liquidity Agreement, the Company also has an intercompany loan agreement with the Corporation.  The amount of intercompany loans available to the Company is at the discretion of the Corporation.  The maximum amount of loans the Corporation will have outstanding to all its eligible subsidiaries at any given point in time is limited to $1.00 billion.  The Corporation may use commercial paper borrowings, bank lines of credit and securities lending to fund intercompany borrowings.

Liquidity sources and uses  We actively manage our financial position and liquidity levels in light of changing market, economic, and business conditions.  Liquidity is managed at both the entity and enterprise level across the Company, and is assessed on both base and stressed level liquidity needs.  We believe we have sufficient liquidity to meet these needs.  Additionally, we have existing intercompany agreements in place that facilitate liquidity management across the Company to enhance flexibility.

Allstate parent company capital capacity The Corporation has at the parent holding company level deployable assets totaling $2.37 billion as of June 30, 2013.  These assets include cash and investments that are generally saleable within one quarter totaling $1.79 billion.  This provides funds for the parent company’s relatively low fixed charges and other corporate purposes.

The Company has access to additional borrowing to support liquidity through the Corporation as follows:

·A commercial paper facility with a borrowing limit of $1.00 billion to cover short-term cash needs.  As of June 30, 2013, the remaining borrowing capacity was $500 million; however, the outstanding balance can fluctuate daily.

·A $1.00 billion unsecured revolving credit facility is available for short-term liquidity requirements and backs the commercial paper facility.  The Corporation has the option to extend the expiration of its initial five year term by one year at the first and second anniversary of the facility, upon approval of existing or replacement lenders.  In April 2013, the Corporation utilized the option on the first anniversary of the facility and extended the facility by one year making its current expiration April 2018.  The facility is fully subscribed among 12 lenders with the largest commitment being $115 million.  The commitments of the lenders are several and no lender is responsible for any other lender’s commitment if such lender fails to make a loan under the facility.  This facility contains an increase provision that would allow up to an additional $500 million of borrowing.  This facility has a financial covenant requiring that the Corporation not exceed a 37.5% debt to capitalization ratio as defined in the agreement.  This ratio was 18.3% as of June 30, 2013.  Although the right to borrow under the facility is not subject to a minimum rating requirement, the costs of maintaining the facility and borrowing under it are based on the ratings of the Corporation’s senior unsecured, unguaranteed long-term debt.  There were no borrowings under the credit facility during the second quarter and first six months of 2013.  The total amount outstanding at any point in time under the combination of the commercial paper program and the credit facility cannot exceed the amount that can be borrowed under the credit facility.

·A universal shelf registration statement was filed by the Corporation with the Securities and Exchange Commission on April 30, 2012.  The Corporation can use this shelf registration to issue an unspecified amount of debt securities, common stock (including 435 million shares of treasury stock as of June 30, 2013), preferred stock, depositary shares, warrants, stock purchase contracts, stock purchase units and securities of trust subsidiaries.  The specific terms of any securities the Corporation issues under this registration statement will be provided in the applicable prospectus supplements.

Dividend limitations  The ability of ALIC to pay dividends is dependent on business conditions, income, cash requirements and other relevant factors.  The payment of shareholder dividends by ALIC to AIC without the prior approval of the Illinois Department of Insurance (“IL DOI”) is limited to formula amounts based on net income and capital and surplus, determined in conformity with statutory accounting practices, as well as the timing and amount of dividends paid in the preceding twelve months.  Based on the formula and absent the limitation discussed as follows, the maximum amount of dividends ALIC would be able to pay without prior IL DOI approval at a given point in time during 2013 is $371 million.  However, any dividend must be paid out of unassigned surplus excluding unrealized appreciation from investments, which for ALIC totaled a deficit position of $675 million as of December 31, 2012.  Therefore, during 2013 ALIC will not be able to pay dividends without prior IL DOI approval.  ALIC will be able to pay dividends without prior IL DOI approval when its unassigned surplus excluding unrealized appreciation from investments becomes positive.  The sale of LBL is expected to reduce the deficit in the range of approximately $425 million to $475 million.  ALIC also can repurchase its shares and return capital to AIC with the approval of the IL DOI.

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Under state insurance laws, insurance companies are required to maintain paid up capital of not less than the minimum capital requirement applicable to the types of insurance they are authorized to write.  Insurance companies are also subject to risk-based capital (“RBC”) requirements adopted by state insurance regulators.  A company’s “authorized control level RBC” is calculated using various factors applied to certain financial balances and activity.  Companies that do not maintain statutory capital and surplus at a level in excess of the company action level RBC, which is two times authorized control level RBC, are required to take specified actions.  Company action level RBC is significantly in excess of the minimum capital requirements.  ALIC’s total statutory capital and surplus and authorized control level RBC were $3.38 billion and $551 million, respectively, as of December 31, 2012.

Liquidity exposure  Contractholder funds were $35.66 billion as of June 30, 2013.  The following table summarizes contractholder funds by their contractual withdrawal provisions as of June 30, 2013.

($ in millions)			Percent to total
Not subject to discretionary withdrawal	$	4,119	11.6%
Subject to discretionary withdrawal with adjustments:
Specified surrender charges (1)		11,881	33.3
Market value adjustments (2)		4,994	14.0
Subject to discretionary withdrawal without adjustments (3)		14,667	41.1
Total contractholder funds (4)	$	35,661	100.0%

_______________
(1)	Includes $5.68 billion of liabilities with a contractual surrender charge of less than 5% of the account balance.
(2)	$4.13 billion of the contracts with market value adjusted surrenders have a 30-45 day period at the end of their initial and subsequent interest rate guarantee periods (which are typically 5 or 6 years) during which there is no surrender charge or market value adjustment.
(3)	76% of these contracts have a minimum interest crediting rate guarantee of 3% or higher.
(4)	Includes $1.03 billion of contractholder funds on variable annuities reinsured to The Prudential Insurance Company of America, a subsidiary of Prudential Financial Inc., in 2006.

Retail life and annuity products may be surrendered by customers for a variety of reasons.  Reasons unique to individual customers include a current or unexpected need for cash or a change in life insurance coverage needs.  Other key factors that may impact the likelihood of customer surrender include the level of the contract surrender charge, the length of time the contract has been in force, distribution channel, market interest rates, equity market conditions and potential tax implications.  In addition, the propensity for retail life insurance policies to lapse is lower than it is for fixed annuities because of the need for the insured to be re-underwritten upon policy replacement.  Surrenders and partial withdrawals for our retail annuities decreased 11.8% and 8.6% in the second quarter and first six months of 2013, respectively, compared to the same periods of 2012.  The annualized surrender and partial withdrawal rate on deferred fixed annuities and interest-sensitive life insurance products, based on the beginning of year contractholder funds, was 10.9% in both the first six months of 2013 and 2012.  We strive to promptly pay customers who request cash surrenders; however, statutory regulations generally provide up to six months in most states to fulfill surrender requests.

Our asset-liability management practices enable us to manage the differences between the cash flows generated by our investment portfolio and the expected cash flow requirements of our life insurance and annuity product obligations.

Cash flows  As reflected in our Condensed Consolidated Statements of Cash Flows, lower cash provided by operating activities in the first six months of 2013 compared to the first six months of 2012 was primarily due to lower net investment income.

Higher cash provided by investing activities in the first six months of 2013 compared to the first six months of 2012 was due to higher investment collections and net transactional activity.

Higher cash used in financing activities in the first six months of 2013 compared to the first six months of 2012 was primarily due to a $1.75 billion institutional product maturity.

53

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures.  We maintain disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934.  Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report.  Based upon this evaluation, the principal executive officer and the principal financial officer concluded that our disclosure controls and procedures are effective in providing reasonable assurance that material information required to be disclosed in our reports filed with or submitted to the Securities and Exchange Commission under the Securities Exchange Act is made known to management, including the principal executive officer and the principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting.  During the fiscal quarter ended June 30, 2013, there have been no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II.  OTHER INFORMATION

Item 1.   Legal Proceedings

Information required for Part II, Item 1 is incorporated by reference to the discussion under the heading “Regulation and Compliance” in Note 7 of the condensed consolidated financial statements in Part I, Item 1 of this Form 10-Q.

Item 1A. Risk Factors

This document contains “forward-looking statements” that anticipate results based on our estimates, assumptions and plans that are subject to uncertainty.  These statements are made subject to the safe-harbor provisions of the Private Securities Litigation Reform Act of 1995.  We assume no obligation to update any forward-looking statements as a result of new information or future events or developments.

These forward-looking statements do not relate strictly to historical or current facts and may be identified by their use of words like “plans,” “seeks,” “expects,” “will,” “should,” “anticipates,” “estimates,” “intends,” “believes,” “likely,” “targets” and other words with similar meanings.  These statements may address, among other things, our strategy for growth, product development, investment results, regulatory approvals, market position, expenses, financial results, litigation and reserves.  We believe that these statements are based on reasonable estimates, assumptions and plans.  However, if the estimates, assumptions or plans underlying the forward-looking statements prove inaccurate or if other risks or uncertainties arise, actual results could differ materially from those communicated in these forward-looking statements.  Risk factors which could cause actual results to differ materially from those suggested by such forward-looking statements include but are not limited to those discussed or identified in this document, in our public filings with the Securities and Exchange Commission, and those incorporated by reference in Part I, Item 1A of the Allstate Life Insurance Company Annual Report on Form 10-K for 2012.

Item 6.  Exhibits

(a)Exhibits

An Exhibit Index has been filed as part of this report on page E-1.

54

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	Allstate Life Insurance Company
	(Registrant)
August 2, 2013
	By	/s/ Samuel H. Pilch
		Samuel H. Pilch
		(chief accounting officer and duly
		authorized officer of Registrant)

55

		Incorporated by Reference
Exhibit Number	Exhibit Description	Form	File Number	Exhibit	Filing Date	Filed or Furnished Herewith
10.1	Stock Purchase agreement, dated July 17, 2013, among the Registrant, Resolution Life Holdings, Inc, and Resolution Life L.P.	8-K	1-11840	10.1	July 22, 2013
15	Acknowledgment of awareness from Deloitte & Touche LLP, dated August 2, 2013, concerning unaudited interim financial information					X
31(i)	Rule 13a-14(a) Certification of Principal Executive Officer					X
31(i)	Rule 13a-14(a) Certification of Principal Financial Officer					X
32	Section 1350 Certifications					X
101.INS	XBRL Instance Document					X
101.SCH	XBRL Taxonomy Extension Schema					X
101.CAL	XBRL Taxonomy Extension Calculation Linkbase					X
101.DEF	XBRL Taxonomy Extension Definition Linkbase					X
101.LAB	XBRL Taxonomy Extension Label Linkbase					X
101.PRE	XBRL Taxonomy Extension Presentation Linkbase					X

E-1

EX-15

EXHIBIT 15

Allstate Life Insurance Company

3100 Sanders Road
Northbrook, IL 60062

We have reviewed, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the unaudited interim financial information of Allstate Life Insurance Company and subsidiaries for the periods ended June 30, 2013 and 2012, as indicated in our report dated August 2, 2013; because we did not perform an audit, we expressed no opinion on that information.

We are aware that our report referred to above, which is included in your Quarterly Report on Form 10-Q for the quarter ended June 30, 2013, is incorporated by reference in the following Registration Statements:

Form S-3 Registration Statement Nos.	Form N-4 Registration Statement Nos.
333-150286	333-102934
333-150577	333-114560
333-150583	333-114561
333-177476	333-114562
333-177477	333-121687
333-177478	333-121691
333-177479	333-121692
333-177480	333-121693
333-177481	333-121695
333-177666
333-177671
333-177672
333-177673
333-177675
333-178570
333-187073

We also are aware that the aforementioned report, pursuant to Rule 436(c) under the Securities Act of 1933, is not considered a part of the Registration Statement prepared or certified by an accountant or a report prepared or certified by an accountant within the meaning of Sections 7 and 11 of that Act.

/s/ Deloitte & Touche LLP

Chicago, Illinois

August 2, 2013

E-2

EX-31.(I)

CERTIFICATIONS EXHIBIT 31 (i)

I, Don Civgin, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Allstate Life Insurance Company;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 2, 2013
	/s/ Don Civgin
	Don Civgin
	President and Chief Executive Officer

E-3

CERTIFICATIONS EXHIBIT 31 (i)

I, Jesse E. Merten, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Allstate Life Insurance Company;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 2, 2013
	/s/ Jesse E. Merten
	Jesse E. Merten
	Senior Vice President and
	Chief Financial Officer

E-4

EX-32

EXHIBIT 32

SECTION 1350 CERTIFICATIONS

Each of the undersigned hereby certifies that to his knowledge the quarterly report on Form 10-Q for the fiscal period ended June 30, 2013 of Allstate Life Insurance Company filed with the Securities and Exchange Commission fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in such report fairly presents, in all material respects, the financial condition and result of operations of Allstate Life Insurance Company.

Date: August 2, 2013
	/s/ Don Civgin
	Don Civgin
	President and Chief Executive Officer
	/s/ Jesse E. Merten
	Jesse E. Merten
	Senior Vice President and Chief Financial Officer

E-5

XML

Supplemental Cash Flow Information (Tables)

6 Months Ended

Jun. 30, 2013

Supplemental Cash Flow Information

Schedule of supplemental cash flow information from collateralized securities received

($ in millions)		Six months ended June 30,
		2013		2012
Net change in proceeds managed
Net change in short-term investments	$	115	$	(162)
Operating cash flow provided (used)	$	115	$	(162)
Net change in liabilities
Liabilities for collateral, beginning of year	$	(561)	$	(263)
Liabilities for collateral, end of period		(446)		(425)
Operating cash flow (used) provided	$	(115)	$	162

XML

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (Parenthetical) (USD $) In Millions, except Share data, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012
Fixed income securities, at fair value, amortized cost (in dollars)	$ 38,494	$ 41,194
Equity securities, at fair value, cost (in dollars)	518	310
Short-term, at fair value, amortized cost (in dollars)	$ 744	$ 875
Common stock, par value (in dollars per share)	$ 227	$ 227
Common stock, shares authorized	23,800	23,800
Common stock, shares outstanding	23,800	23,800
Series A
Redeemable preferred stock, par value (in dollars per share)	$ 100	$ 100
Redeemable preferred stock, shares authorized	1,500,000	1,500,000
Redeemable preferred stock, shares issued	0	0
Series B
Redeemable preferred stock, par value (in dollars per share)	$ 100	$ 100
Redeemable preferred stock, shares authorized	1,500,000	1,500,000
Redeemable preferred stock, shares issued	0	0

XML

Fair Value of Assets and Liabilities

6 Months Ended

Jun. 30, 2013

Fair Value of Assets and Liabilities

Fair Value of Assets and Liabilities

4.  Fair Value of Assets and Liabilities

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.  The hierarchy for inputs used in determining fair value maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that observable inputs be used when available.  Assets and liabilities recorded on the Condensed Consolidated Statements of Financial Position at fair value are categorized in the fair value hierarchy based on the observability of inputs to the valuation techniques as follows:

Level 1: Assets and liabilities whose values are based on unadjusted quoted prices for identical assets or liabilities in an active market that the Company can access.

Level 2: Assets and liabilities whose values are based on the following:

(a) Quoted prices for similar assets or liabilities in active markets;

(b) Quoted prices for identical or similar assets or liabilities in markets that are not active; or

(c) Valuation models whose inputs are observable, directly or indirectly, for substantially the full term of the asset or liability.

Level 3: Assets and liabilities whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement.  Unobservable inputs reflect the Company’s estimates of the assumptions that market participants would use in valuing the assets and liabilities.

The availability of observable inputs varies by instrument.  In situations where fair value is based on internally developed pricing models or inputs that are unobservable in the market, the determination of fair value requires more judgment.  The degree of judgment exercised by the Company in determining fair value is typically greatest for instruments categorized in Level 3.  In many instances, valuation inputs used to measure fair value fall into different levels of the fair value hierarchy.  The category level in the fair value hierarchy is determined based on the lowest level input that is significant to the fair value measurement in its entirety.  The Company uses prices and inputs that are current as of the measurement date, including during periods of market disruption.  In periods of market disruption, the ability to observe prices and inputs may be reduced for many instruments.

The Company is responsible for the determination of fair value and the supporting assumptions and methodologies.  The Company gains assurance that assets and liabilities are appropriately valued through the execution of various processes and controls designed to ensure the overall reasonableness and consistent application of valuation methodologies, including inputs and assumptions, and compliance with accounting standards.  For fair values received from third parties or internally estimated, the Company’s processes and controls are designed to ensure that the valuation methodologies are appropriate and consistently applied, the inputs and assumptions are reasonable and consistent with the objective of determining fair value, and the fair values are accurately recorded.  For example, on a continuing basis, the Company assesses the reasonableness of individual fair values that have stale security prices or that exceed certain thresholds as compared to previous fair values received from valuation service providers or brokers or derived from internal models.  The Company performs procedures to understand and assess the methodologies, processes and controls of valuation service providers.  In addition, the Company may validate the reasonableness of fair values by comparing information obtained from valuation service providers or brokers to other third party valuation sources for selected securities.  The Company performs ongoing price validation procedures such as back-testing of actual sales, which corroborate the various inputs used in internal models to market observable data.  When fair value determinations are expected to be more variable, the Company validates them through reviews by members of management who have relevant expertise and who are independent of those charged with executing investment transactions.

The Company has two types of situations where investments are classified as Level 3 in the fair value hierarchy.  The first is where quotes continue to be received from independent third-party valuation service providers and all significant inputs are market observable; however, there has been a significant decrease in the volume and level of activity for the asset when compared to normal market activity such that the degree of market observability has declined to a point where categorization as a Level 3 measurement is considered appropriate.  The indicators considered in determining whether a significant decrease in the volume and level of activity for a specific asset has occurred include the level of new issuances in the primary market, trading volume in the secondary market, the level of credit spreads over historical levels, applicable bid-ask spreads, and price consensus among market participants and other pricing sources.

The second situation where the Company classifies securities in Level 3 is where specific inputs significant to the fair value estimation models are not market observable.  This primarily occurs in the Company’s use of broker quotes to value certain securities where the inputs have not been corroborated to be market observable, and the use of valuation models that use significant non-market observable inputs.

Certain assets are not carried at fair value on a recurring basis, including investments such as mortgage loans, limited partnership interests, bank loans and policy loans.  Accordingly, such investments are only included in the fair value hierarchy disclosure when the investment is subject to remeasurement at fair value after initial recognition and the resulting remeasurement is reflected in the condensed consolidated financial statements.  In addition, derivatives embedded in fixed income securities are not disclosed in the hierarchy as free-standing derivatives since they are presented with the host contracts in fixed income securities.

In determining fair value, the Company principally uses the market approach which generally utilizes market transaction data for the same or similar instruments.  To a lesser extent, the Company uses the income approach which involves determining fair values from discounted cash flow methodologies.  For the majority of Level 2 and Level 3 valuations, a combination of the market and income approaches is used.

Summary of significant valuation techniques for assets and liabilities measured at fair value on a recurring basis

Level 1 measurements

· Fixed income securities:  Comprise certain U.S. Treasuries.  Valuation is based on unadjusted quoted prices for identical assets in active markets that the Company can access.

· Equity securities:  Comprise actively traded, exchange-listed equity securities. Valuation is based on unadjusted quoted prices for identical assets in active markets that the Company can access.

· Short-term:  Comprise actively traded money market funds that have daily quoted net asset values for identical assets that the Company can access.

· Separate account assets:  Comprise actively traded mutual funds that have daily quoted net asset values for identical assets that the Company can access.  Net asset values for the actively traded mutual funds in which the separate account assets are invested are obtained daily from the fund managers.

Level 2 measurements

· Fixed income securities:

U.S. government and agencies:  The primary inputs to the valuation include quoted prices for identical or similar assets in markets that are not active, contractual cash flows, benchmark yields and credit spreads.

Municipal:  The primary inputs to the valuation include quoted prices for identical or similar assets in markets that are not active, contractual cash flows, benchmark yields and credit spreads.

Corporate, including privately placed:  The primary inputs to the valuation include quoted prices for identical or similar assets in markets that are not active, contractual cash flows, benchmark yields and credit spreads.  Also included are privately placed securities valued using a discounted cash flow model that is widely accepted in the financial services industry and uses market observable inputs and inputs derived principally from, or corroborated by, observable market data.  The primary inputs to the discounted cash flow model include an interest rate yield curve, as well as published credit spreads for similar assets in markets that are not active that incorporate the credit quality and industry sector of the issuer.

Foreign government:  The primary inputs to the valuation include quoted prices for identical or similar assets in markets that are not active, contractual cash flows, benchmark yields and credit spreads.

ABS and RMBS:  The primary inputs to the valuation include quoted prices for identical or similar assets in markets that are not active, contractual cash flows, benchmark yields, prepayment speeds, collateral performance and credit spreads.  Certain ABS are valued based on non-binding broker quotes whose inputs have been corroborated to be market observable.

CMBS:  The primary inputs to the valuation include quoted prices for identical or similar assets in markets that are not active, contractual cash flows, benchmark yields, collateral performance and credit spreads.

Redeemable preferred stock:  The primary inputs to the valuation include quoted prices for identical or similar assets in markets that are not active, contractual cash flows, benchmark yields, underlying stock prices and credit spreads.

· Equity securities:  The primary inputs to the valuation include quoted prices or quoted net asset values for identical or similar assets in markets that are not active.

· Short-term:  The primary inputs to the valuation include quoted prices for identical or similar assets in markets that are not active, contractual cash flows, benchmark yields and credit spreads.  For certain short-term investments, amortized cost is used as the best estimate of fair value.

· Other investments:  Free-standing exchange listed derivatives that are not actively traded are valued based on quoted prices for identical instruments in markets that are not active.

OTC derivatives, including interest rate swaps, foreign currency swaps, foreign exchange forward contracts, certain options and certain credit default swaps, are valued using models that rely on inputs such as interest rate yield curves, currency rates, and counterparty credit spreads that are observable for substantially the full term of the contract.  The valuation techniques underlying the models are widely accepted in the financial services industry and do not involve significant judgment.

Level 3 measurements

· Fixed income securities:

Municipal:  Municipal bonds that are not rated by third party credit rating agencies but are rated by the National Association of Insurance Commissioners (“NAIC”).  The primary inputs to the valuation of these municipal bonds include quoted prices for identical or similar assets in markets that exhibit less liquidity relative to those markets supporting Level 2 fair value measurements, contractual cash flows, benchmark yields and credit spreads.  Also includes Auction rate securities (“ARS”) primarily backed by student loans that have become illiquid due to failures in the auction market that are valued using a discounted cash flow model that is widely accepted in the financial services industry and uses significant non-market observable inputs, including the anticipated date liquidity will return to the market.

Corporate, including privately placed:  Primarily valued based on non-binding broker quotes where the inputs have not been corroborated to be market observable.  Also includes equity-indexed notes which are valued using a discounted cash flow model that is widely accepted in the financial services industry and uses significant non-market observable inputs, such as volatility.  Other inputs include an interest rate yield curve, as well as published credit spreads for similar assets that incorporate the credit quality and industry sector of the issuer.

ABS, RMBS and CMBS:  Valued based on non-binding broker quotes received from brokers who are familiar with the investments and where the inputs have not been corroborated to be market observable.

· Equity securities:  The primary inputs to the valuation include quoted prices or quoted net asset values for identical or similar assets in markets that exhibit less liquidity relative to those markets supporting Level 2 fair value measurements.

· Other investments:  Certain OTC derivatives, such as interest rate caps, certain credit default swaps and certain options (including swaptions), are valued using models that are widely accepted in the financial services industry.  These are categorized as Level 3 as a result of the significance of non-market observable inputs such as volatility.  Other primary inputs include interest rate yield curves and credit spreads.

· Contractholder funds:  Derivatives embedded in certain life and annuity contracts are valued internally using models widely accepted in the financial services industry that determine a single best estimate of fair value for the embedded derivatives within a block of contractholder liabilities.  The models primarily use stochastically determined cash flows based on the contractual elements of embedded derivatives, projected option cost and applicable market data, such as interest rate yield curves and equity index volatility assumptions.  These are categorized as Level 3 as a result of the significance of non-market observable inputs.

Assets and liabilities measured at fair value on a non-recurring basis

Mortgage loans written-down to fair value in connection with recognizing impairments are valued based on the fair value of the underlying collateral less costs to sell.  Limited partnership interests written-down to fair value in connection with recognizing other-than-temporary impairments are valued using net asset values.

The following table summarizes the Company’s assets and liabilities measured at fair value on a recurring and non-recurring basis as of June 30, 2013.

($ 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 June 30, 2013
Assets
Fixed income securities:
U.S. government and agencies	$	221	$	954	$	--			$	1,175
Municipal		--		4,017		225				4,242
Corporate		--		28,496		1,255				29,751
Foreign government		--		1,122		--				1,122
ABS		--		1,273		190				1,463
RMBS		--		1,449		--				1,449
CMBS		--		1,216		5				1,221
Redeemable preferred stock		--		16		1				17
Total fixed income securities		221		38,543		1,676				40,440
Equity securities		495		49		6				550
Short-term investments		117		627		--				744
Other investments:
Free-standing derivatives		--		207		6	$	(14)		199
Separate account assets		6,488		--		--				6,488
Other assets		--		--		1				1
Total recurring basis assets		7,321		39,426		1,689		(14)		48,422
Non-recurring basis (1)		--		--		60				60
Total assets at fair value	$	7,321	$	39,426	$	1,749	$	(14)	$	48,482
% of total assets at fair value		15.1 %		81.3 %		3.6 %		-- %		100.0 %
Liabilities
Contractholder funds:
Derivatives embedded in life and annuity contracts	$	--	$	--	$	(533)			$	(533)
Other liabilities:
Free-standing derivatives		--		(130)		(13)	$	10		(133)
Total liabilities at fair value	$	--	$	(130)	$	(546)	$	10	$	(666)
% of total liabilities at fair value		-- %		19.5 %		82.0 %		(1.5) %		100.0 %

________________

(1) Includes $47 million of mortgage loans and $13 million of limited partnership interests 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, 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 quantitative information about the significant unobservable inputs used in Level 3 fair value measurements.

($ in millions)	Fair value		Valuation technique	Unobservable input	Range	Weighted average
June 30, 2013
ARS backed by student loans	$	95	Discounted cash flow model	Anticipated date liquidity will return to the market	36 - 54 months	38 - 50 months
Derivatives embedded in life and annuity contracts - Equity-indexed and forward starting options	$	(445)	Stochastic cash flow model	Projected option cost	1.0 - 2.0 %	1.87 %
December 31, 2012
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 %

If the anticipated date liquidity will return to the market is sooner (later), it would result in a higher (lower) fair value.  If the projected option cost increased (decreased), it would result in a higher (lower) liability fair value.

As of June 30, 2013 and December 31, 2012, Level 3 fair value measurements include $1.44 billion and $1.72 billion, respectively, of fixed income securities valued based on non-binding broker quotes where the inputs have not been corroborated to be market observable.  The Company does not develop the unobservable inputs used in measuring fair value; therefore, these are not included in the table above.  However, an increase (decrease) in credit spreads for fixed income securities valued based on non-binding broker quotes would result in a lower (higher) fair value.

The following table presents the rollforward of Level 3 assets and liabilities held at fair value on a recurring basis during the three months ended June 30, 2013.

($ in millions)				Total gains (losses) included in:
		Balance as of March 31, 2013		Net income (1)		OCI		Transfers into Level 3		Transfers out of Level 3
Assets
Fixed income securities:
Municipal	$	251	$	--	$	(6)	$	--	$	--
Corporate		1,363		8		(36)		38		(43)
ABS		211		(1)		8		--		(16)
CMBS		6		(1)		--		--		--
Redeemable preferred stock		1		--		--		--		--
Total fixed income securities		1,832		6		(34)		38		(59)
Equity securities		7		--		--		--		--
Other investments:
Free-standing derivatives, net		(20)		15		--		--		--
Other assets		1		--		--		--		--
Total recurring Level 3 assets	$	1,820	$	21	$	(34)	$	38	$	(59)
Liabilities
Contractholder funds:
Derivatives embedded in life and annuity contracts	$	(567)	$	57	$	--	$	--	$	--
Total recurring Level 3 liabilities	$	(567)	$	57	$	--	$	--	$	--
		Purchases		Sales		Issues		Settlements		Balance as of June 30, 2013
Assets
Fixed income securities:
Municipal	$	--	$	(20)	$	--	$	--	$	225
Corporate		21		(27)		--		(69)		1,255
ABS		--		--		--		(12)		190
CMBS		--		--		--		--		5
Redeemable preferred stock		--		--		--		--		1
Total fixed income securities		21		(47)		--		(81)		1,676
Equity securities		--		(1)		--		--		6
Other investments:
Free-standing derivatives, net		--		--		--		(2)		(7)	(2)
Other assets		--		--		--		--		1
Total recurring Level 3 assets	$	21	$	(48)	$	--	$	(83)	$	1,676
Liabilities
Contractholder funds:
Derivatives embedded in life and annuity contracts	$	--	$	--	$	(26)	$	3	$	(533)
Total recurring Level 3 liabilities	$	--	$	--	$	(26)	$	3	$	(533)

_____________

(1) The effect to net income totals $78 million and is reported in the Condensed Consolidated Statements of Operations and Comprehensive Income as follows: $15 million in realized capital gains and losses, $4 million in net investment income, $39 million in interest credited to contractholder funds and $20 million in contract benefits.

(2) Comprises $6 million of assets and $13 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 six months ended June 30, 2013.

($ in millions)				Total gains (losses) included in:
		Balance as of December 31, 2012		Net income (1)		OCI		Transfers into Level 3		Transfers out of Level 3
Assets
Fixed income securities:
Municipal	$	338	$	(12)	$	20	$	--	$	--
Corporate		1,501		20		(38)		63		(168)
ABS		199		(1)		15		17		(16)
CMBS		21		(1)		2		--		--
Redeemable preferred stock		1		--		--		--		--
Total fixed income securities		2,060		6		(1)		80		(184)
Equity securities		7		--		--		--		--
Other investments:
Free-standing derivatives, net		(27)		22		--		--		--
Other assets		1		--		--		--		--
Total recurring Level 3 assets	$	2,041	$	28	$	(1)	$	80	$	(184)
Liabilities
Contractholder funds:
Derivatives embedded in life and annuity contracts	$	(553)	$	63	$	--	$	--	$	--
Total recurring Level 3 liabilities	$	(553)	$	63	$	--	$	--	$	--
		Purchases		Sales		Issues		Settlements		Balance as of June 30, 2013
Assets
Fixed income securities:
Municipal	$	--	$	(121)	$	--	$	--	$	225
Corporate		93		(136)		--		(80)		1,255
ABS		--		(8)		--		(16)		190
CMBS		--		(17)		--		--		5
Redeemable preferred stock		--		--		--		--		1
Total fixed income securities		93		(282)		--		(96)		1,676
Equity securities		--		(1)		--		--		6
Other investments:
Free-standing derivatives, net		1		--		--		(3)		(7)	(2)
Other assets		--		--		--		--		1
Total recurring Level 3 assets	$	94	$	(283)	$	--	$	(99)	$	1,676
Liabilities
Contractholder funds:
Derivatives embedded in life and annuity contracts	$	--	$	--	$	(50)	$	7	$	(533)
Total recurring Level 3 liabilities	$	--	$	--	$	(50)	$	7	$	(533)

____________

(1) The effect to net income totals $91 million and is reported in the Condensed Consolidated Statements of Operations and Comprehensive Income as follows: $17 million in realized capital gains and losses, $9 million in net investment income, $19 million in interest credited to contractholder funds and $46 million in contract benefits.

(2) Comprises $6 million of assets and $13 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 three months ended June 30, 2012.

($ in millions)				Total gains (losses) included in:
		Balance as of March 31, 2012		Net income (1)		OCI		Transfers into Level 3		Transfers out of Level 3
Assets
Fixed income securities:
Municipal	$	387	$	--	$	2	$	--	$	(10)
Corporate		1,329		2		(6)		77		--
ABS		277		16		(1)		--		--
CMBS		20		(1)		2		--		--
Redeemable preferred stock		1		--		--		--		--
Total fixed income securities		2,014		17		(3)		77		(10)
Equity securities		14		--		1		--		--
Other investments:
Free-standing derivatives, net		(70)		(3)		--		--		--
Other assets		1		--		--		--		--
Total recurring Level 3 assets	$	1,959	$	14	$	(2)	$	77	$	(10)
Liabilities
Contractholder funds:
Derivatives embedded in life and annuity contracts	$	(730)	$	16	$	--	$	--	$	--
Total recurring Level 3 liabilities	$	(730)	$	16	$	--	$	--	$	--
		Purchases		Sales		Issues		Settlements		Balance as of June 31, 2012
Assets
Fixed income securities:
Municipal	$	--	$	(16)	$	--	$	--	$	363
Corporate		25		(20)		--		(4)		1,403
ABS		--		(11)		--		(7)		274
CMBS		--		--		--		--		21
Redeemable preferred stock		1		(1)		--		--		1
Total fixed income securities		26		(48)		--		(11)		2,062
Equity securities		5		(5)		--		--		15
Other investments:
Free-standing derivatives, net		3		--		--		(1)		(71)	(2)
Other assets		--		--		--		--		1
Total recurring Level 3 assets	$	34	$	(53)	$	--	$	(12)	$	2,007
Liabilities
Contractholder funds:
Derivatives embedded in life and annuity contracts	$	--	$	--	$	(17)	$	24	$	(707)
Total recurring Level 3 liabilities	$	--	$	--	$	(17)	$	24	$	(707)

____________

(1) The effect to net income totals $30 million and is reported in the Condensed Consolidated Statements of Operations and Comprehensive Income as follows: $9 million in realized capital gains and losses, $6 million in net investment income, $32 million in interest credited to contractholder funds and $(17) million in contract benefits.

(2) Comprises $1 million of assets and $72 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 six months ended June 30, 2012.

($ 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	$	--	$	2	$	--	$	(10)
Corporate		1,319		7		20		133		(10)
ABS		254		29		12		--		--
RMBS		47		--		--		--		(47)
CMBS		30		(2)		8		--		--
Redeemable preferred stock		1		--		--		--		--
Total fixed income securities		2,038		34		42		133		(67)
Equity securities		14		--		1		--		--
Other investments:
Free-standing derivatives, net		(88)		12		--		--		--
Other assets		1		--		--		--		--
Total recurring Level 3 assets	$	1,965	$	46	$	43	$	133	$	(67)
Liabilities
Contractholder funds:
Derivatives embedded in life and annuity contracts	$	(723)	$	(9)	$	--	$	--	$	--
Total recurring Level 3 liabilities	$	(723)	$	(9)	$	--	$	--	$	--
		Purchases		Sales		Issues		Settlements		Balance as of June 30, 2012
Assets
Fixed income securities:
Municipal	$	--	$	(16)	$	--	$	--	$	363
Corporate		44		(74)		--		(36)		1,403
ABS		--		(11)		--		(10)		274
RMBS		--		--		--		--		--
CMBS		--		--		--		(15)		21
Redeemable preferred stock		1		(1)		--		--		1
Total fixed income securities		45		(102)		--		(61)		2,062
Equity securities		5		(5)		--		--		15
Other investments:
Free-standing derivatives, net		6		--		--		(1)		(71)	(2)
Other assets		--		--		--		--		1
Total recurring Level 3 assets	$	56	$	(107)	$	--	$	(62)	$	2,007
Liabilities
Contractholder funds:
Derivatives embedded in life and annuity contracts	$	--	$	--	$	(29)	$	54	$	(707)
Total recurring Level 3 liabilities	$	--	$	--	$	(29)	$	54	$	(707)

__________

(1) The effect to net income totals $37 million and is reported in the Condensed Consolidated Statements of Operations and Comprehensive Income as follows: $35 million in realized capital gains and losses, $12 million in net investment income, $(24) million in interest credited to contractholder funds and $14 million in contract benefits.

(2) Comprises $1 million of assets and $72 million of liabilities.

Transfers between level categorizations may occur due to changes in the availability of market observable inputs, which generally are caused by changes in market conditions such as liquidity, trading volume or bid-ask spreads.  Transfers between level categorizations may also occur due to changes in the valuation source.  For example, in situations where a fair value quote is not provided by the Company’s independent third-party valuation service provider and as a result the price is stale or has been replaced with a broker quote whose inputs have not been corroborated to be market observable, the security is transferred into Level 3.  Transfers in and out of level categorizations are reported as having occurred at the beginning of the quarter in which the transfer occurred.  Therefore, for all transfers into Level 3, all realized and changes in unrealized gains and losses in the quarter of transfer are reflected in the Level 3 rollforward table.

There were no transfers between Level 1 and Level 2 during the three months and six months ended June 30, 2013.  During the three months ended June 30, 2012, certain U.S. government securities were transferred into Level 1 from Level 2 as a result of increased liquidity in the market and a sustained increase in the market activity for these assets.

Transfers into Level 3 during the three months and six months ended June 30, 2013 and 2012 included situations where a fair value quote was not provided by the Company’s independent third-party valuation service provider and as a result the price was stale or had been replaced with a broker quote where the inputs have not been corroborated to be market observable resulting in the security being classified as Level 3.  Transfers out of Level 3 during the three months and six months ended June 30, 2013 and 2012 included situations where a broker quote was used in the prior period and a fair value quote became available from the Company’s independent third-party valuation service provider in the current period.  A quote utilizing the new pricing source was not available as of the prior period, and any gains or losses related to the change in valuation source for individual securities were not significant.

The following table provides the change in unrealized gains and losses included in net income for Level 3 assets and liabilities held as of June 30.

($ in millions)		Three months ended June 30,				Six months ended June 30,
		2013		2012		2013		2012
Assets
Fixed income securities:
Municipal	$	--	$	--	$	(6)	$	--
Corporate		4		1		7		9
ABS		(1)		5		(1)		18
CMBS		(1)		(1)		(2)		(1	)
Total fixed income securities		2		5		(2)		26
Other investments:
Free-standing derivatives, net		9		(4)		16		11
Total recurring Level 3 assets	$	11	$	1	$	14	$	37
Liabilities
Contractholder funds:
Derivatives embedded in life and annuity contracts	$	57	$	16	$	63	$	(9	)
Total recurring Level 3 liabilities	$	57	$	16	$	63	$	(9	)

The amounts in the table above represent the change in unrealized gains and losses included in net income for the period of time that the asset or liability was determined to be in Level 3.  These gains and losses total $68 million for the three months ended June 30, 2013 and are reported as follows: $7 million in realized capital gains and losses, $4 million in net investment income, $37 million in interest credited to contractholder funds and $20 million in contract benefits.  These gains and losses total $17 million for the three months ended June 30, 2012 and are reported as follows: $(4) million in realized capital gains and losses, $6 million in net investment income, $32 million in interest credited to contractholder funds and $(17) million in contract benefits.  These gains and losses total $77 million for the six months ended June 30, 2013 and are reported as follows: $8 million in realized capital gains and losses, $6 million in net investment income, $17 million in interest credited to contractholder funds and $46 million in contract benefits.  These gains and losses total $28 million for the six months ended June 30, 2012 and are reported as follows: $26 million in realized capital gains and losses, $12 million in net investment income, $(24) million in interest credited to contractholder funds and $14 million in contract benefits.

Presented below are the carrying values and fair value estimates of financial instruments not carried at fair value.

Financial assets

($ in millions)		June 30, 2013				December 31, 2012
		Carrying value		Fair value		Carrying value		Fair value
Mortgage loans	$	5,803	$	6,054	$	5,943	$	6,223
Cost method limited partnerships		611		793		617		778
Agent loans		321		306		319		314
Bank loans		261		260		282		282
Notes due from related party		275		275		275		275

The fair value of mortgage loans is based on discounted contractual cash flows or, if the loans are impaired due to credit reasons, the fair value of collateral less costs to sell.  Risk adjusted discount rates are selected using current rates at which similar loans would be made to borrowers with similar characteristics, using similar types of properties as collateral.  The fair value of cost method limited partnerships is determined using reported net asset values of the underlying funds.  The fair value of agent loans, which are reported in other investments, is based on discounted cash flow calculations that use discount rates with a spread over U.S. Treasury rates. Assumptions used in developing estimated cash flows and discount rates consider the loan’s credit and liquidity risks.  The fair value of bank loans, which are reported in other investments, is based on broker quotes from brokers familiar with the loans and current market conditions.  The fair value of notes due from related party, which are reported in other investments, is based on discounted cash flow calculations using current interest rates for instruments with comparable terms.  The fair value measurements for mortgage loans, cost method limited partnerships, agent loans, bank loans and notes due from related party are categorized as Level 3.

Financial liabilities

($ in millions)		June 30, 2013				December 31, 2012
		Carrying value		Fair value		Carrying value		Fair value
Contractholder funds on investment contracts	$	23,989	$	24,646	$	26,984	$	27,989
Notes due to related parties		296		296		496		496
Liability for collateral		446		446		561		561

The fair value of contractholder funds on investment contracts is based on the terms of the underlying contracts utilizing prevailing market rates for similar contracts adjusted for the Company’s own credit risk.  Deferred annuities included in contractholder funds are valued using discounted cash flow models which incorporate market value margins, which are based on the cost of holding economic capital, and the Company’s own credit risk.  Immediate annuities without life contingencies and fixed rate funding agreements are valued at the present value of future benefits using market implied interest rates which include the Company’s own credit risk.  The fair value measurements for contractholder funds on investment contracts are categorized as Level 3.

The fair value of notes due to related parties is based on discounted cash flow calculations using current interest rates for instruments with comparable terms and considers the Company’s own credit risk.  The liability for collateral is valued at carrying value due to its short-term nature.  The fair value measurements for liability for collateral are categorized as Level 2.  The fair value measurements for notes due to related parties are categorized as Level 3.

XML

Supplemental Cash Flow Information (Details) (USD $) In Millions, unless otherwise specified	6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012
Supplemental Cash Flow Information
Non-cash modifications of certain mortgage loans, fixed income securities, limited partnerships and other investments, as well as mergers completed with equity securities	$ 191	$ 95
Net change in proceeds managed
Net change in short-term investments	115	(162)
Operating cash flow provided (used)	115	(162)
Net change in liabilities
Liabilities for collateral, beginning of year	(561)	(263)
Liabilities for collateral, end of period	(446)	(425)
Operating cash flow (used) provided	$ (115)	$ 162

XML

Investments (Tables)

6 Months Ended

Jun. 30, 2013

Investments

Schedule for fixed income securities at amortized cost, gross unrealized gains and losses and fair value

($ in millions)		Amortized		Gross unrealized				Fair
		cost		Gains		Losses		value
June 30, 2013
U.S. government and agencies	$	1,018	$	158	$	(1)	$	1,175
Municipal		3,906		389		(53)		4,242
Corporate		28,432		1,699		(380)		29,751
Foreign government		1,019		113		(10)		1,122
Asset-backed securities (“ABS”)		1,490		42		(69)		1,463
Residential mortgage-backed securities (“RMBS”)		1,411		67		(29)		1,449
Commercial mortgage-backed securities (“CMBS”)		1,204		49		(32)		1,221
Redeemable preferred stock		14		3		--		17
Total fixed income securities	$	38,494	$	2,520	$	(574)	$	40,440
December 31, 2012
U.S. government and agencies	$	2,137	$	242	$	--	$	2,379
Municipal		4,153		612		(61)		4,704
Corporate		28,748		2,896		(113)		31,531
Foreign government		1,017		164		(1)		1,180
ABS		1,921		49		(105)		1,865
RMBS		1,778		82		(69)		1,791
CMBS		1,425		60		(77)		1,408
Redeemable preferred stock		15		3		--		18
Total fixed income securities	$	41,194	$	4,108	$	(426)	$	44,876

Schedule for fixed income securities based on contractual maturities

The scheduled maturities for fixed income securities are as follows as of June 30, 2013:

($ in millions)		Amortized cost		Fair value
Due in one year or less	$	1,630	$	1,663
Due after one year through five years		8,399		8,934
Due after five years through ten years		15,283		15,866
Due after ten years		9,077		9,844
		34,389		36,307
ABS, RMBS and CMBS		4,105		4,133
Total	$	38,494	$	40,440

Schedule of net investment income

($ in millions)		Three months ended June 30,				Six months ended June 30,
		2013		2012		2013		2012
Fixed income securities	$	494	$	525	$	990	$	1,046
Mortgage loans		87		85		178		170
Equity securities		3		2		5		3
Limited partnership interests		37		39		67		106
Short-term investments		--		--		1		--
Policy loans		12		13		24		26
Other		16		16		32		30
Investment income, before expense		649		680		1,297		1,381
Investment expense		(30)		(30)		(57)		(58)
Net investment income	$	619	$	650	$	1,240	$	1,323

Schedule of realized capital gains and losses by asset type

($ in millions)		Three months ended June 30,				Six months ended June 30,
		2013		2012		2013		2012
Fixed income securities	$	24	$	(6)	$	6	$	(56)
Mortgage loans		(6)		9		25		8
Equity securities		31		--		32		--
Limited partnership interests		(3)		2		(3)		1
Derivatives		12		4		19		26
Other		--		(2)		(2)		6
Realized capital gains and losses	$	58	$	7	$	77	$	(15)

Schedule of realized capital gains and losses by transaction type

($ in millions)		Three months ended June 30,				Six months ended June 30,
		2013		2012		2013		2012
Impairment write-downs	$	(16)	$	(6)	$	(18)	$	(26)
Change in intent write-downs		(1)		--		(8)		(16)
Net other-than-temporary impairment losses recognized in earnings		(17)		(6)		(26)		(42)
Sales		63		9		84		--
Valuation of derivative instruments		6		(11)		2		(3)
Settlements of derivative instruments		6		15		17		30
Realized capital gains and losses	$	58	$	7	$	77	$	(15)

Schedule of other-than-temporary impairment losses by asset type

($ in millions)		Three months ended June 30, 2013						Six months ended June 30, 2013
		Gross		Included in OCI		Net		Gross		Included in OCI		Net
Fixed income securities:
Municipal	$	(1)	$	--	$	(1)	$	(8)	$	--	$	(8)
ABS		--		(1)		(1)		--		(1)		(1)
RMBS		--		--		--		1		(1)		--
CMBS		--		(1)		(1)		(19)		(8)		(27)
Total fixed income securities		(1)		(2)		(3)		(26)		(10)		(36)
Mortgage loans		(9)		--		(9)		17		--		17
Equity securities		(1)		--		(1)		(1)		--		(1)
Limited partnership interests		(4)		--		(4)		(4)		--		(4)
Other		--		--		--		(2)		--		(2)
Other-than-temporary impairment losses	$	(15)	$	(2)	$	(17)	$	(16)	$	(10)	$	(26)

($ in millions)		Three months ended June 30, 2012						Six months ended June 30, 2012
		Gross		Included in OCI		Net		Gross		Included in OCI		Net
Fixed income securities:
Corporate	$	(1)	$	--	$	(1)	$	(14)	$	--	$	(14)
RMBS		(5)		--		(5)		(17)		(3)		(20)
CMBS		(9)		3		(6)		(15)		3		(12)
Total fixed income securities		(15)		3		(12)		(46)		--		(46)
Mortgage loans		7		--		7		4		--		4
Limited partnership interests		(1)		--		(1)		(2)		--		(2)
Other		--		--		--		2		--		2
Other-than-temporary impairment losses	$	(9)	$	3	$	(6)	$	(42)	$	--	$	(42)

Schedule of other-than-temporary impairment losses on fixed income securities included in accumulated other comprehensive income

($ in millions)		June 30, 2013		December 31, 2012
Municipal	$	(5)	$	(5)
Corporate		(1)		(1)
ABS		(10)		(14)
RMBS		(92)		(103)
CMBS		(12)		(19)
Total	$	(120)	$	(142)

Schedule of rollforwards of the cumulative credit losses recognized in earnings for fixed income securities held

($ in millions)		Three months ended June 30,				Six months ended June 30,
		2013		2012		2013		2012
Beginning balance	$	(343)	$	(495)	$	(345)	$	(581)
Additional credit loss for securities previously other-than-temporarily impaired		(2)		(7)		(12)		(23)
Additional credit loss for securities not previously other-than-temporarily impaired		(1)		(5)		(17)		(7)
Reduction in credit loss for securities disposed or collected		28		47		56		151
Reduction in credit loss for securities the Company has made the decision to sell or  more likely than not will be required to sell		--		--		--		--
Change in credit loss due to accretion of increase in cash flows		--		--		--		--
Ending balance	$	(318)	$	(460)	$	(318)	$	(460)

Schedule of unrealized net capital gains and losses

($ in millions)		Fair		Gross unrealized			Unrealized net
June 30, 2013		value		Gains		Losses	gains (losses)
Fixed income securities	$	40,440	$	2,520	$	(574)	$	1,946
Equity securities		550		39		(7)		32
Short-term investments		744		--		--		--
Derivative instruments (1)		(7)		3		(10)		(7)
EMA limited partnerships (2)								(1)
Unrealized net capital gains and losses, pre-tax								1,970
Amounts recognized for:
Insurance reserves (3)								(76)
DAC and DSI (4)								(197)
Amounts recognized								(273)
Deferred income taxes								(599)
Unrealized net capital gains and losses, after-tax							$	1,098

_________________

(1) Included in the fair value of derivative instruments are $(1) million classified as assets and $6 million classified as liabilities.

(2) Unrealized net capital gains and losses for limited partnership interests represent the Company’s share of EMA limited partnerships’ other comprehensive income.  Fair value and gross gains and losses are not applicable.

(3) The insurance reserves adjustment represents the amount by which the reserve balance would increase if the net unrealized gains in the applicable product portfolios were realized and reinvested at current lower interest rates, resulting in a premium deficiency.  Although the Company evaluates premium deficiencies on the combined performance of life insurance and immediate annuities with life contingencies, the adjustment primarily relates to structured settlement annuities with life contingencies, in addition to annuity buy-outs and certain payout annuities with life contingencies.

(4) The DAC and DSI adjustment balance represents the amount by which the amortization of DAC and DSI would increase or decrease if the unrealized gains or losses in the respective product portfolios were realized.

		Fair		Gross unrealized			Unrealized net
December 31, 2012		value		Gains		Losses	gains (losses)
Fixed income securities	$	44,876	$	4,108	$	(426)	$	3,682
Equity securities		345		36		(1)		35
Short-term investments		875		--		--		--
Derivative instruments (1)		(17)		2		(19)		(17)
EMA limited partnerships								1
Unrealized net capital gains and losses, pre-tax								3,701
Amounts recognized for:
Insurance reserves								(771)
DAC and DSI								(408)
Amounts recognized								(1,179)
Deferred income taxes								(888)
Unrealized net capital gains and losses, after-tax							$	1,634

______________

(1) Included in the fair value of derivative instruments are $2 million classified as assets and $19 million classified as liabilities.

Schedule of change in unrealized net capital gains and losses

The change in unrealized net capital gains and losses for the six months ended June 30, 2013 is as follows:

($ in millions)
Fixed income securities	$	(1,736)
Equity securities		(3)
Derivative instruments		10
EMA limited partnerships		(2)
Total		(1,731)
Amounts recognized for:
Insurance reserves		695
DAC and DSI		211
Amounts recognized		906
Deferred income taxes		289
Decrease in unrealized net capital gains and losses	$	(536)

Summary of gross unrealized losses and fair value of fixed income and equity securities by length of time

($ in millions)	Less than 12 months					12 months or more						Total
	Number		Fair		Unrealized	Number		Fair		Unrealized		unrealized
	of issues		value		losses	of issues		value		losses		losses
June 30, 2013
Fixed income securities
U.S. government and agencies	4	$	57	$	(1)	--	$	--	$	--	$	(1)
Municipal	49		365		(18)	28		143		(35)		(53)
Corporate	543		6,460		(295)	54		677		(85)		(380)
Foreign government	8		183		(10)	--		--		--		(10)
ABS	3		26		--	70		729		(69)		(69)
RMBS	80		131		(4)	139		238		(25)		(29)
CMBS	21		222		(5)	20		132		(27)		(32)
Total fixed income securities	708		7,444		(333)	311		1,919		(241)		(574)
Equity securities	34		109		(7)	--		--		--		(7)
Total fixed income and equity securities	742	$	7,553	$	(340)	311	$	1,919	$	(241)	$	(581)
Investment grade fixed income securities	520	$	6,594	$	(299)	221	$	1,342	$	(147)	$	(446)
Below investment grade fixed income securities	188		850		(34)	90		577		(94)		(128)
Total fixed income securities	708	$	7,444	$	(333)	311	$	1,919	$	(241)	$	(574)
December 31, 2012
Fixed income securities
U.S. government and agencies	1	$	15	$	--	--	$	--	$	--	$	--
Municipal	11		101		(7)	50		395		(54)		(61)
Corporate	79		1,086		(27)	66		829		(86)		(113)
Foreign government	2		121		(1)	--		--		--		(1)
ABS	5		38		--	76		763		(105)		(105)
RMBS	49		30		--	164		442		(69)		(69)
CMBS	10		65		--	43		358		(77)		(77)
Redeemable preferred stock	--		--		--	1		--		--		--
Total fixed income securities	157		1,456		(35)	400		2,787		(391)		(426)
Equity securities	3		57		(1)	1		--		--		(1)
Total fixed income and equity securities	160	$	1,513	$	(36)	401	$	2,787	$	(391)	$	(427)
Investment grade fixed income securities	132	$	1,244	$	(29)	262	$	1,919	$	(195)	$	(224)
Below investment grade fixed income securities	25		212		(6)	138		868		(196)		(202)
Total fixed income securities	157	$	1,456	$	(35)	400	$	2,787	$	(391)	$	(426)

Summary of carrying value of non-impaired fixed and variable rate mortgage loans by debt service coverage ratio distribution

($ in millions)		June 30, 2013						December 31, 2012
Debt service coverage ratio distribution		Fixed rate mortgage loans		Variable rate mortgage  loans		Total		Fixed rate mortgage  loans		Variable rate mortgage  loans		Total
Below 1.0	$	224	$	--	$	224	$	266	$	--	$	266
1.0 - 1.25		1,128		8		1,136		1,158		--		1,158
1.26 - 1.50		1,207		3		1,210		1,364		17		1,381
Above 1.50		3,032		134		3,166		2,854		129		2,983
Total non-impaired mortgage loans	$	5,591	$	145	$	5,736	$	5,642	$	146	$	5,788

Schedule of net carrying value of impaired mortgage loans

($ in millions)		June 30, 2013		December 31, 2012
Impaired mortgage loans with a valuation allowance	$	67	$	147
Impaired mortgage loans without a valuation allowance		--		8
Total impaired mortgage loans	$	67	$	155
Valuation allowance on impaired mortgage loans	$	21	$	42

Schedule of rollforward of the valuation allowance on impaired mortgage loans

($ in millions)		Three months ended June 30				Six months ended June 30,
		2013		2012		2013		2012
Beginning balance	$	15	$	60	$	42	$	63
Net increase (decrease) in valuation allowance		9		(7)		(17)		(4)
Charge offs		(3)		(5)		(4)		(11)
Ending balance	$	21	$	48	$	21	$	48

Schedule of carrying value of past due mortgage loans

($ in millions)		June 30, 2013		December 31, 2012
Less than 90 days past due	$	--	$	20
90 days or greater past due		3		4
Total past due		3		24
Current loans		5,800		5,919
Total mortgage loans	$	5,803	$	5,943

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Derivative Financial Instruments (Details 6) (USD $) In Millions, unless otherwise specified	6 Months Ended
	Jun. 30, 2013 entity	Jun. 30, 2013 Credit default swaps	Dec. 31, 2012 Credit default swaps	Dec. 31, 2012 Credit default swaps Single name	Jun. 30, 2013 Credit default swaps Single name Investment grade corporate debt	Dec. 31, 2012 Credit default swaps Single name Investment grade corporate debt	Dec. 31, 2012 Credit default swaps Single name Municipal	Jun. 30, 2013 Credit default swaps First-to-default Municipal	Dec. 31, 2012 Credit default swaps First-to-default Municipal	Jun. 30, 2013 Credit default swaps Index Investment grade corporate debt	Dec. 31, 2012 Credit default swaps Index Investment grade corporate debt	Jun. 30, 2013 AA Credit default swaps	Dec. 31, 2012 AA Credit default swaps	Dec. 31, 2012 AA Credit default swaps Single name	Dec. 31, 2012 AA Credit default swaps Single name Municipal	Jun. 30, 2013 AA Credit default swaps Index Investment grade corporate debt	Dec. 31, 2012 AA Credit default swaps Index Investment grade corporate debt	Jun. 30, 2013 A Credit default swaps	Dec. 31, 2012 A Credit default swaps	Dec. 31, 2012 A Credit default swaps Single name	Jun. 30, 2013 A Credit default swaps Single name Investment grade corporate debt	Dec. 31, 2012 A Credit default swaps Single name Investment grade corporate debt	Jun. 30, 2013 A Credit default swaps First-to-default Municipal	Dec. 31, 2012 A Credit default swaps First-to-default Municipal	Jun. 30, 2013 A Credit default swaps Index Investment grade corporate debt	Dec. 31, 2012 A Credit default swaps Index Investment grade corporate debt	Jun. 30, 2013 BBB Credit default swaps	Dec. 31, 2012 BBB Credit default swaps	Jun. 30, 2013 BBB Credit default swaps Index Investment grade corporate debt	Dec. 31, 2012 BBB Credit default swaps Index Investment grade corporate debt	Jun. 30, 2013 BB and lower Credit default swaps	Dec. 31, 2012 BB and lower Credit default swaps	Jun. 30, 2013 BB and lower Credit default swaps Index Investment grade corporate debt	Dec. 31, 2012 BB and lower Credit default swaps Index Investment grade corporate debt
Derivative Financial Instruments
Term of credit default swaps (in years)	P5Y
Credit Derivatives
Notional amount		$ 185	$ 230	$ 30	$ 5	$ 5	$ 25	$ 100	$ 100	$ 80	$ 100	$ 1	$ 26	$ 25	$ 25	$ 1	$ 1	$ 125	$ 131	$ 5	$ 5	$ 5	$ 100	$ 100	$ 20	$ 26	$ 54	$ 68	$ 54	$ 68	$ 5	$ 5	$ 5	$ 5
Fair value		$ (13)	$ (29)	$ (3)			$ (3)	$ (13)	$ (26)
The number of reference entities generally included in a CDX index	125

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Fair Value of Assets and Liabilities (Details 2) (USD $) In Millions, unless otherwise specified	6 Months Ended	12 Months Ended
	Jun. 30, 2013	Dec. 31, 2012
ARS backed by student loans | Discounted cash flow model
Quantitative information about the significant unobservable inputs
Fair value	$ 95	$ 202
ARS backed by student loans | Maximum | Discounted cash flow model
Quantitative information about the significant unobservable inputs
Anticipated date liquidity will return to the market	54 months	60 months
ARS backed by student loans | Maximum | Weighted average | Discounted cash flow model
Quantitative information about the significant unobservable inputs
Anticipated date liquidity will return to the market	50 months	44 months
ARS backed by student loans | Minimum | Discounted cash flow model
Quantitative information about the significant unobservable inputs
Anticipated date liquidity will return to the market	36 months	18 months
ARS backed by student loans | Minimum | Weighted average | Discounted cash flow model
Quantitative information about the significant unobservable inputs
Anticipated date liquidity will return to the market	38 months	32 months
Derivatives embedded in life and annuity contracts - Equity-indexed and forward starting options | Stochastic cash flow model
Quantitative information about the significant unobservable inputs
Fair value	(445)	(419)
Derivatives embedded in life and annuity contracts - Equity-indexed and forward starting options | Weighted average | Stochastic cash flow model
Quantitative information about the significant unobservable inputs
Projected option cost (as a percent)	1.87%	1.92%
Derivatives embedded in life and annuity contracts - Equity-indexed and forward starting options | Maximum | Stochastic cash flow model
Quantitative information about the significant unobservable inputs
Projected option cost (as a percent)	2.00%	2.00%
Derivatives embedded in life and annuity contracts - Equity-indexed and forward starting options | Minimum | Stochastic cash flow model
Quantitative information about the significant unobservable inputs
Projected option cost (as a percent)	1.00%	1.00%
Fixed income securities - non-binding broker quotes
Quantitative information about the significant unobservable inputs
Fair value	$ 1,440	$ 1,720

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Investments (Details 3) (USD $) In Millions, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Net investment income
Investment income, before expense	$ 649	$ 680	$ 1,297	$ 1,381
Investment expense	(30)	(30)	(57)	(58)
Net investment income	619	650	1,240	1,323
Fixed income securities
Net investment income
Investment income, before expense	494	525	990	1,046
Mortgage loans
Net investment income
Investment income, before expense	87	85	178	170
Equity securities
Net investment income
Investment income, before expense	3	2	5	3
Limited partnership interests
Net investment income
Investment income, before expense	37	39	67	106
Short-term investments
Net investment income
Investment income, before expense			1
Policy loans
Net investment income
Investment income, before expense	12	13	24	26
Other
Net investment income
Investment income, before expense	$ 16	$ 16	$ 32	$ 30

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Investments (Details 2) (USD $) In Millions, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012
Amortized cost
Due in one year or less	$ 1,630
Due after one year through five years	8,399
Due after five years through ten years	15,283
Due after ten years	9,077
Subtotal	34,389
ABS, RMBS and CMBS	4,105
Total	38,494
Fair value
Due in one year or less	1,663
Due after one year through five years	8,934
Due after five years through ten years	15,866
Due after ten years	9,844
Subtotal	36,307
ABS, RMBS and CMBS	4,133
Total	$ 40,440	$ 44,876

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Derivative Financial Instruments (Details 4) (Net investment income, USD $) In Millions, unless otherwise specified	3 Months Ended	6 Months Ended
	Jun. 30, 2012	Jun. 30, 2012
Investments
Derivative Instruments Change in Fair Value of Fair Value Hedges
Gain (loss) on hedged risk	$ (1)	$ (2)
Interest rate contracts
Derivative Instruments Change in Fair Value of Fair Value Hedges
Gain (loss) on derivatives	$ 1	$ 2

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Investments (Details 10) (USD $) In Millions, unless otherwise specified	Jun. 30, 2013 security	Dec. 31, 2012 security
Fixed income and equity securities
Less than 12 months
Number of issues, continuous unrealized loss position for less than 12 months	742	160
Fair value, continuous unrealized loss position for less than 12 months	$ 7,553	$ 1,513
Unrealized losses, continuous unrealized loss position for less than 12 months	(340)	(36)
12 months or more
Number of issues, continuous unrealized loss position for 12 months or more	311	401
Fair value, continuous unrealized loss position for 12 months or more	1,919	2,787
Unrealized losses, continuous unrealized loss position for 12 months or more	(241)	(391)
Total unrealized losses
Total unrealized losses	(581)	(427)
Fixed income securities
Less than 12 months
Number of issues, continuous unrealized loss position for less than 12 months	708	157
Fair value, continuous unrealized loss position for less than 12 months	7,444	1,456
Unrealized losses, continuous unrealized loss position for less than 12 months	(333)	(35)
12 months or more
Number of issues, continuous unrealized loss position for 12 months or more	311	400
Fair value, continuous unrealized loss position for 12 months or more	1,919	2,787
Unrealized losses, continuous unrealized loss position for 12 months or more	(241)	(391)
Total unrealized losses
Gross unrealized losses	(574)	(426)
U.S. government and agencies
Less than 12 months
Number of issues, continuous unrealized loss position for less than 12 months	4	1
Fair value, continuous unrealized loss position for less than 12 months	57	15
Unrealized losses, continuous unrealized loss position for less than 12 months	(1)
Total unrealized losses
Total unrealized losses	(1)
Municipal
Less than 12 months
Number of issues, continuous unrealized loss position for less than 12 months	49	11
Fair value, continuous unrealized loss position for less than 12 months	365	101
Unrealized losses, continuous unrealized loss position for less than 12 months	(18)	(7)
12 months or more
Number of issues, continuous unrealized loss position for 12 months or more	28	50
Fair value, continuous unrealized loss position for 12 months or more	143	395
Unrealized losses, continuous unrealized loss position for 12 months or more	(35)	(54)
Total unrealized losses
Total unrealized losses	(53)	(61)
Corporate
Less than 12 months
Number of issues, continuous unrealized loss position for less than 12 months	543	79
Fair value, continuous unrealized loss position for less than 12 months	6,460	1,086
Unrealized losses, continuous unrealized loss position for less than 12 months	(295)	(27)
12 months or more
Number of issues, continuous unrealized loss position for 12 months or more	54	66
Fair value, continuous unrealized loss position for 12 months or more	677	829
Unrealized losses, continuous unrealized loss position for 12 months or more	(85)	(86)
Total unrealized losses
Total unrealized losses	(380)	(113)
Foreign government
Less than 12 months
Number of issues, continuous unrealized loss position for less than 12 months	8	2
Fair value, continuous unrealized loss position for less than 12 months	183	121
Unrealized losses, continuous unrealized loss position for less than 12 months	(10)	(1)
Total unrealized losses
Total unrealized losses	(10)	(1)
ABS
Less than 12 months
Number of issues, continuous unrealized loss position for less than 12 months	3	5
Fair value, continuous unrealized loss position for less than 12 months	26	38
12 months or more
Number of issues, continuous unrealized loss position for 12 months or more	70	76
Fair value, continuous unrealized loss position for 12 months or more	729	763
Unrealized losses, continuous unrealized loss position for 12 months or more	(69)	(105)
Total unrealized losses
Total unrealized losses	(69)	(105)
RMBS
Less than 12 months
Number of issues, continuous unrealized loss position for less than 12 months	80	49
Fair value, continuous unrealized loss position for less than 12 months	131	30
Unrealized losses, continuous unrealized loss position for less than 12 months	(4)
12 months or more
Number of issues, continuous unrealized loss position for 12 months or more	139	164
Fair value, continuous unrealized loss position for 12 months or more	238	442
Unrealized losses, continuous unrealized loss position for 12 months or more	(25)	(69)
Total unrealized losses
Total unrealized losses	(29)	(69)
CMBS
Less than 12 months
Number of issues, continuous unrealized loss position for less than 12 months	21	10
Fair value, continuous unrealized loss position for less than 12 months	222	65
Unrealized losses, continuous unrealized loss position for less than 12 months	(5)
12 months or more
Number of issues, continuous unrealized loss position for 12 months or more	20	43
Fair value, continuous unrealized loss position for 12 months or more	132	358
Unrealized losses, continuous unrealized loss position for 12 months or more	(27)	(77)
Total unrealized losses
Total unrealized losses	(32)	(77)
Redeemable preferred stock
12 months or more
Number of issues, continuous unrealized loss position for 12 months or more		1
Investment grade fixed income securities
Less than 12 months
Number of issues, continuous unrealized loss position for less than 12 months	520	132
Fair value, continuous unrealized loss position for less than 12 months	6,594	1,244
Unrealized losses, continuous unrealized loss position for less than 12 months	(299)	(29)
12 months or more
Number of issues, continuous unrealized loss position for 12 months or more	221	262
Fair value, continuous unrealized loss position for 12 months or more	1,342	1,919
Unrealized losses, continuous unrealized loss position for 12 months or more	(147)	(195)
Total unrealized losses
Total unrealized losses	(446)	(224)
Below investment grade fixed income securities
Less than 12 months
Number of issues, continuous unrealized loss position for less than 12 months	188	25
Fair value, continuous unrealized loss position for less than 12 months	850	212
Unrealized losses, continuous unrealized loss position for less than 12 months	(34)	(6)
12 months or more
Number of issues, continuous unrealized loss position for 12 months or more	90	138
Fair value, continuous unrealized loss position for 12 months or more	577	868
Unrealized losses, continuous unrealized loss position for 12 months or more	(94)	(196)
Total unrealized losses
Total unrealized losses	(128)	(202)
Equity securities
Less than 12 months
Number of issues, continuous unrealized loss position for less than 12 months	34	3
Fair value, continuous unrealized loss position for less than 12 months	109	57
Unrealized losses, continuous unrealized loss position for less than 12 months	(7)	(1)
12 months or more
Number of issues, continuous unrealized loss position for 12 months or more		1
Total unrealized losses
Gross unrealized losses on equity securities	$ (7)	$ (1)

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Fair Value of Assets and Liabilities (Details 4) (USD $) In Millions, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Rollforward of Level 3 assets held at fair value on a recurring basis
Balance at beginning of period	$ (567)	$ (730)	$ (553)	$ (723)
Total gains (losses) included in: net income	57	16	63	(9)
Issues	(26)	(17)	(50)	(29)
Settlements	3	24	7	54
Balance at end of period	(533)	(707)	(533)	(707)
Derivatives embedded in life and annuity contracts
Rollforward of Level 3 assets held at fair value on a recurring basis
Balance at beginning of period	(567)	(730)	(553)	(723)
Total gains (losses) included in: net income	57	16	63	(9)
Issues	(26)	(17)	(50)	(29)
Settlements	3	24	7	54
Balance at end of period	$ (533)	$ (707)	$ (533)	$ (707)

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Reinsurance (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Effects of reinsurance on revenue
Direct premiums and contract charges	$ 520	$ 536	$ 1,035	$ 1,071
Total premiums and contract charges	410	408	819	809
Effects of reinsurance on cost and expenses
Direct contract benefits	441	499	871	901
Direct interest credited to contractholder funds	302	360	637	734
Contract benefits, net of reinsurance	396	388	777	752
Interest credited to contractholder funds, net of reinsurance	304	360	643	731
Affiliate
Effects of reinsurance on revenue
Assumed premiums and contract charges	31	29	61	57
Effects of reinsurance on cost and expenses
Assumed contract benefits	18	17	40	35
Assumed interest credited to contractholder funds	3	3	5	5
Non-affiliate
Effects of reinsurance on revenue
Assumed premiums and contract charges	17	4	34	9
Ceded premiums and contract charges	(158)	(161)	(311)	(328)
Effects of reinsurance on cost and expenses
Assumed contract benefits	12	5	25	10
Assumed interest credited to contractholder funds	8	4	15	6
Ceded contract benefits	(75)	(133)	(159)	(194)
Ceded interest credited to contractholder funds	$ (9)	$ (7)	$ (14)	$ (14)

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Investments (Details 7) (USD $) In Millions, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012	Dec. 31, 2012
Investments
Net unrealized gains related to changes in valuation of fixed income securities subsequent to impairment measurement date	$ 158		$ 158		$ 134
Other-than-temporary impairment losses included in accumulated other comprehensive income
Amount of other-than-temporary impairment losses included in accumulated other comprehensive income for fixed income securities, not included in earnings	(120)		(120)		(142)
Credit Losses on Fixed Income Securities
Beginning balance	(343)	(495)	(345)	(581)
Additional credit loss for securities previously other-than-temporarily impaired	(2)	(7)	(12)	(23)
Additional credit loss for securities not previously other-than-temporarily impaired	(1)	(5)	(17)	(7)
Reduction in credit loss for securities disposed or collected	28	47	56	151
Ending balance	(318)	(460)	(318)	(460)
Municipal
Other-than-temporary impairment losses included in accumulated other comprehensive income
Amount of other-than-temporary impairment losses included in accumulated other comprehensive income for fixed income securities, not included in earnings	(5)		(5)		(5)
Corporate
Other-than-temporary impairment losses included in accumulated other comprehensive income
Amount of other-than-temporary impairment losses included in accumulated other comprehensive income for fixed income securities, not included in earnings	(1)		(1)		(1)
ABS
Other-than-temporary impairment losses included in accumulated other comprehensive income
Amount of other-than-temporary impairment losses included in accumulated other comprehensive income for fixed income securities, not included in earnings	(10)		(10)		(14)
RMBS
Other-than-temporary impairment losses included in accumulated other comprehensive income
Amount of other-than-temporary impairment losses included in accumulated other comprehensive income for fixed income securities, not included in earnings	(92)		(92)		(103)
CMBS
Other-than-temporary impairment losses included in accumulated other comprehensive income
Amount of other-than-temporary impairment losses included in accumulated other comprehensive income for fixed income securities, not included in earnings	$ (12)		$ (12)		$ (19)

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Derivative Financial Instruments (Details) (USD $)	6 Months Ended
	Jun. 30, 2013 contract	Dec. 31, 2012 contract
Derivative Financial Instruments
Assumed recoveries under sale of credit protection	$ 0
Securities pledged in the form of margin deposits	4,000,000
Derivatives, Fair Value
Total asset derivatives, Notional amount	1,946,000,000	6,362,000,000
Total liability derivatives, Notional amount	6,052,000,000	7,697,000,000
Total derivatives, Notional amount	7,998,000,000	14,059,000,000
Total asset derivatives, Number of contracts	11,110	12,651
Total liability derivatives, Number of contracts	11,260	12,619
Total derivatives, Number of contracts	22,370	25,270
Total asset derivatives, Fair value, net	191,000,000	147,000,000
Asset derivatives, Gross asset	209,000,000	169,000,000
Asset derivatives, Gross liability	(18,000,000)	(22,000,000)
Total liability derivatives, Fair value, net	(664,000,000)	(645,000,000)
Total derivatives, Fair value, net	(473,000,000)	(498,000,000)
Liability derivatives, Gross asset	5,000,000	19,000,000
Liability derivatives, Gross liability	(669,000,000)	(664,000,000)
Number of stock warrants held by the company related to derivative contracts (in shares)	837,100	837,100
Derivatives not designated as accounting hedging instruments
Derivatives, Fair Value
Total asset derivatives, Notional amount	1,857,000,000	6,346,000,000
Total liability derivatives, Notional amount	5,993,000,000	7,562,000,000
Total asset derivatives, Number of contracts	11,110	12,651
Total liability derivatives, Number of contracts	11,260	12,619
Total asset derivatives, Fair value, net	192,000,000	145,000,000
Asset derivatives, Gross asset	206,000,000	167,000,000
Asset derivatives, Gross liability	(14,000,000)	(22,000,000)
Total liability derivatives, Fair value, net	(659,000,000)	(626,000,000)
Liability derivatives, Gross asset	5,000,000	19,000,000
Liability derivatives, Gross liability	(664,000,000)	(645,000,000)
Interest rate swap agreements | Derivatives not designated as accounting hedging instruments | Other investments
Derivatives, Fair Value
Total asset derivatives, Notional amount	1,332,000,000	5,541,000,000
Total asset derivatives, Fair value, net	6,000,000	19,000,000
Asset derivatives, Gross asset	7,000,000	28,000,000
Asset derivatives, Gross liability	(1,000,000)	(9,000,000)
Interest rate swap agreements | Derivatives not designated as accounting hedging instruments | Other liabilities and accrued expenses
Derivatives, Fair Value
Total liability derivatives, Notional amount	85,000,000	1,185,000,000
Total liability derivatives, Fair value, net	5,000,000	16,000,000
Liability derivatives, Gross asset	5,000,000	18,000,000
Liability derivatives, Gross liability		(2,000,000)
Other contracts | Derivatives not designated as accounting hedging instruments | Other assets
Derivatives, Fair Value
Total asset derivatives, Notional amount	4,000,000	4,000,000
Total asset derivatives, Fair value, net	1,000,000	1,000,000
Asset derivatives, Gross asset	1,000,000	1,000,000
Foreign currency swap agreements | Derivatives designated as accounting hedging instruments | Other investments
Derivatives, Fair Value
Total asset derivatives, Notional amount	89,000,000	16,000,000
Total asset derivatives, Fair value, net	(1,000,000)	2,000,000
Asset derivatives, Gross asset	3,000,000	2,000,000
Asset derivatives, Gross liability	(4,000,000)
Foreign currency swap agreements | Derivatives designated as accounting hedging instruments | Other liabilities and accrued expenses
Derivatives, Fair Value
Total liability derivatives, Notional amount	59,000,000	135,000,000
Total liability derivatives, Fair value, net	(5,000,000)	(19,000,000)
Liability derivatives, Gross liability	(5,000,000)	(19,000,000)
Interest rate swaption agreements | Derivatives not designated as accounting hedging instruments | Other liabilities and accrued expenses
Derivatives, Fair Value
Total liability derivatives, Notional amount		250,000,000
Interest rate cap agreements | Derivatives not designated as accounting hedging instruments | Other investments
Derivatives, Fair Value
Total asset derivatives, Notional amount	290,000,000	372,000,000
Total asset derivatives, Fair value, net	5,000,000	1,000,000
Asset derivatives, Gross asset	5,000,000	1,000,000
Interest rate cap agreements | Derivatives not designated as accounting hedging instruments | Other liabilities and accrued expenses
Derivatives, Fair Value
Total liability derivatives, Notional amount	149,000,000	429,000,000
Total liability derivatives, Fair value, net		1,000,000
Liability derivatives, Gross asset		1,000,000
Financial futures contracts - Interest rate contracts | Derivatives not designated as accounting hedging instruments | Other assets
Derivatives, Fair Value
Total asset derivatives, Number of contracts		2
Financial futures contracts - Interest rate contracts | Derivatives not designated as accounting hedging instruments | Other liabilities and accrued expenses
Derivatives, Fair Value
Total liability derivatives, Number of contracts		357
Financial futures contracts - Equity and index contracts | Derivatives not designated as accounting hedging instruments | Other assets
Derivatives, Fair Value
Total asset derivatives, Number of contracts		249
Total asset derivatives, Fair value, net		2,000,000
Asset derivatives, Gross asset		2,000,000
Options and warrants | Derivatives not designated as accounting hedging instruments | Other investments
Derivatives, Fair Value
Total asset derivatives, Notional amount	13,000,000	146,000,000
Total asset derivatives, Number of contracts	11,110	12,400
Total asset derivatives, Fair value, net	192,000,000	125,000,000
Asset derivatives, Gross asset	192,000,000	125,000,000
Options and futures | Derivatives not designated as accounting hedging instruments | Other liabilities and accrued expenses
Derivatives, Fair Value
Total liability derivatives, Notional amount	108,000,000
Total liability derivatives, Number of contracts	11,260	12,262
Total liability derivatives, Fair value, net	(116,000,000)	(58,000,000)
Liability derivatives, Gross liability	(116,000,000)	(58,000,000)
Foreign currency forwards | Derivatives not designated as accounting hedging instruments | Other investments
Derivatives, Fair Value
Total asset derivatives, Notional amount	45,000,000	44,000,000
Conversion options | Derivatives not designated as accounting hedging instruments | Fixed income securities
Derivatives, Fair Value
Total asset derivatives, Notional amount	5,000,000	5,000,000
Equity-indexed call options | Derivatives not designated as accounting hedging instruments | Fixed income securities
Derivatives, Fair Value
Total asset derivatives, Notional amount		90,000,000
Total asset derivatives, Fair value, net		9,000,000
Asset derivatives, Gross asset		9,000,000
Credit default swaps | Derivatives not designated as accounting hedging instruments | Fixed income securities
Derivatives, Fair Value
Total asset derivatives, Notional amount	12,000,000	12,000,000
Total asset derivatives, Fair value, net	(12,000,000)	(12,000,000)
Asset derivatives, Gross liability	(12,000,000)	(12,000,000)
Guaranteed accumulation benefits | Derivatives not designated as accounting hedging instruments | Contractholder funds
Derivatives, Fair Value
Total liability derivatives, Notional amount	786,000,000	820,000,000
Total liability derivatives, Fair value, net	(59,000,000)	(86,000,000)
Liability derivatives, Gross liability	(59,000,000)	(86,000,000)
Guaranteed withdrawal benefits | Derivatives not designated as accounting hedging instruments | Contractholder funds
Derivatives, Fair Value
Total liability derivatives, Notional amount	539,000,000	554,000,000
Total liability derivatives, Fair value, net	(24,000,000)	(39,000,000)
Liability derivatives, Gross liability	(24,000,000)	(39,000,000)
Equity-indexed and forward starting options in life and annuity product contracts | Derivatives not designated as accounting hedging instruments | Contractholder funds
Derivatives, Fair Value
Total liability derivatives, Notional amount	3,996,000,000	3,916,000,000
Total liability derivatives, Fair value, net	(445,000,000)	(419,000,000)
Liability derivatives, Gross liability	(445,000,000)	(419,000,000)
Other embedded derivative financial instruments | Derivatives not designated as accounting hedging instruments | Contractholder funds
Derivatives, Fair Value
Total liability derivatives, Notional amount	85,000,000	85,000,000
Total liability derivatives, Fair value, net	(5,000,000)	(9,000,000)
Liability derivatives, Gross liability	(5,000,000)	(9,000,000)
Credit default swaps - buying protection | Derivatives not designated as accounting hedging instruments | Other investments
Derivatives, Fair Value
Total asset derivatives, Notional amount	71,000,000	32,000,000
Total asset derivatives, Fair value, net	(1,000,000)	(1,000,000)
Asset derivatives, Gross liability	(1,000,000)	(1,000,000)
Credit default swaps - buying protection | Derivatives not designated as accounting hedging instruments | Other liabilities and accrued expenses
Derivatives, Fair Value
Total liability derivatives, Notional amount	145,000,000	193,000,000
Total liability derivatives, Fair value, net	(1,000,000)	(2,000,000)
Liability derivatives, Gross liability	(1,000,000)	(2,000,000)
Credit default swaps - selling protection | Derivatives not designated as accounting hedging instruments | Other investments
Derivatives, Fair Value
Total asset derivatives, Notional amount	85,000,000	100,000,000
Total asset derivatives, Fair value, net	1,000,000	1,000,000
Asset derivatives, Gross asset	1,000,000	1,000,000
Credit default swaps - selling protection | Derivatives not designated as accounting hedging instruments | Other liabilities and accrued expenses
Derivatives, Fair Value
Total liability derivatives, Notional amount	100,000,000	130,000,000
Total liability derivatives, Fair value, net	(14,000,000)	(30,000,000)
Liability derivatives, Gross liability	$ (14,000,000)	$ (30,000,000)

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Investments (Details) (USD $) In Millions, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012
Amortized cost, gross unrealized gains and losses and fair value for fixed income securities
Amortized cost	$ 38,494	$ 41,194
Gross unrealized gains	2,520	4,108
Gross unrealized losses	(574)	(426)
Fair value	40,440	44,876
U.S. government and agencies
Amortized cost, gross unrealized gains and losses and fair value for fixed income securities
Amortized cost	1,018	2,137
Gross unrealized gains	158	242
Gross unrealized losses	(1)
Fair value	1,175	2,379
Municipal
Amortized cost, gross unrealized gains and losses and fair value for fixed income securities
Amortized cost	3,906	4,153
Gross unrealized gains	389	612
Gross unrealized losses	(53)	(61)
Fair value	4,242	4,704
Corporate
Amortized cost, gross unrealized gains and losses and fair value for fixed income securities
Amortized cost	28,432	28,748
Gross unrealized gains	1,699	2,896
Gross unrealized losses	(380)	(113)
Fair value	29,751	31,531
Foreign government
Amortized cost, gross unrealized gains and losses and fair value for fixed income securities
Amortized cost	1,019	1,017
Gross unrealized gains	113	164
Gross unrealized losses	(10)	(1)
Fair value	1,122	1,180
Asset-backed securities ("ABS")
Amortized cost, gross unrealized gains and losses and fair value for fixed income securities
Amortized cost	1,490	1,921
Gross unrealized gains	42	49
Gross unrealized losses	(69)	(105)
Fair value	1,463	1,865
Residential mortgage-backed securities ("RMBS")
Amortized cost, gross unrealized gains and losses and fair value for fixed income securities
Amortized cost	1,411	1,778
Gross unrealized gains	67	82
Gross unrealized losses	(29)	(69)
Fair value	1,449	1,791
Commercial mortgage-backed securities ("CMBS")
Amortized cost, gross unrealized gains and losses and fair value for fixed income securities
Amortized cost	1,204	1,425
Gross unrealized gains	49	60
Gross unrealized losses	(32)	(77)
Fair value	1,221	1,408
Redeemable preferred stock
Amortized cost, gross unrealized gains and losses and fair value for fixed income securities
Amortized cost	14	15
Gross unrealized gains	3	3
Fair value	$ 17	$ 18

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $) In Millions, unless otherwise specified	6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012
Cash flows from operating activities
Net income	$ 259	$ 181
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization and other non-cash items	(32)	(11)
Realized capital gains and losses	(77)	15
Gain on disposition of operations	(3)	(6)
Interest credited to contractholder funds	643	731
Changes in:
Policy benefits and other insurance reserves	(348)	(376)
Unearned premiums	(1)	(2)
Deferred policy acquisition costs	(26)	22
Reinsurance recoverables, net	(42)	(33)
Income taxes	110	80
Other operating assets and liabilities	(52)	(97)
Net cash provided by operating activities	431	504
Proceeds from sales
Fixed income securities	2,377	3,551
Equity securities	124	2
Limited partnership interests	109	88
Mortgage loans	20	11
Other investments	22	70
Investment collections
Fixed income securities	2,659	1,444
Mortgage loans	445	449
Other investments	65	35
Investment purchases
Fixed income securities	(2,358)	(3,980)
Equity securities	(290)	(2)
Limited partnership interests	(185)	(209)
Mortgage loans	(301)	(223)
Other investments	(65)	(61)
Change in short-term investments, net	18	(102)
Change in policy loans and other investments, net	76	(5)
Net cash provided by investing activities	2,716	1,068
Cash flows from financing activities
Contractholder fund deposits	1,051	941
Contractholder fund withdrawals	(4,255)	(2,650)
Repayment of notes due to related parties	(200)	(4)
Net cash used in financing activities	(3,404)	(1,713)
Net decrease in cash	(257)	(141)
Cash at beginning of period	341	310
Cash at end of period	$ 84	$ 169

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Supplemental Cash Flow Information

6 Months Ended

Jun. 30, 2013

Supplemental Cash Flow Information

Supplemental Cash Flow Information

2.  Supplemental Cash Flow Information

Non-cash modifications of certain mortgage loans, fixed income securities, limited partnership interests and other investments, as well as mergers completed with equity securities, totaled $191 million and $95 million for the six months ended June 30, 2013 and 2012, respectively.

Liabilities for collateral received in conjunction with the Company’s securities lending program and over-the-counter (“OTC”) derivatives are reported in other liabilities and accrued expenses or other investments.  The accompanying cash flows are included in cash flows from operating activities in the Condensed Consolidated Statements of Cash Flows along with the activities resulting from management of the proceeds, which are as follows:

($ in millions)		Six months ended June 30,
		2013		2012
Net change in proceeds managed
Net change in short-term investments	$	115	$	(162)
Operating cash flow provided (used)	$	115	$	(162)
Net change in liabilities
Liabilities for collateral, beginning of year	$	(561)	$	(263)
Liabilities for collateral, end of period		(446)		(425)
Operating cash flow (used) provided	$	(115)	$	162

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Derivative Financial Instruments

6 Months Ended

Jun. 30, 2013

Derivative Financial Instruments

Derivative Financial Instruments

5.  Derivative Financial Instruments

The Company uses derivatives to manage risks with certain assets and liabilities arising from the potential adverse impacts from changes in risk-free interest rates, changes in equity market valuations, increases in credit spreads and foreign currency fluctuations, and for asset replication.  The Company does not use derivatives for speculative purposes.

Asset-liability management is a risk management strategy that is principally employed to balance the respective interest-rate sensitivities of the Company’s assets and liabilities.  Depending upon the attributes of the assets acquired and liabilities issued, derivative instruments such as interest rate swaps, caps, swaptions and futures are utilized to change the interest rate characteristics of existing assets and liabilities to ensure the relationship is maintained within specified ranges and to reduce exposure to rising or falling interest rates.  The Company uses financial futures and interest rate swaps to hedge anticipated asset purchases and liability issuances and futures and options for hedging the equity exposure contained in its equity indexed life and annuity product contracts that offer equity returns to contractholders.  In addition, the Company uses interest rate swaps to hedge interest rate risk inherent in funding agreements.  The Company uses foreign currency swaps and forwards primarily to reduce the foreign currency risk associated with issuing foreign currency denominated funding agreements and holding foreign currency denominated investments.  Credit default swaps are typically used to mitigate the credit risk within the Company’s fixed income portfolio.

Asset replication refers to the “synthetic” creation of assets through the use of derivatives and primarily investment grade host bonds to replicate securities that are either unavailable in the cash markets or more economical to acquire in synthetic form.  The Company replicates fixed income securities using a combination of a credit default swap and one or more highly rated fixed income securities to synthetically replicate the economic characteristics of one or more cash market securities.

The Company also has derivatives embedded in non-derivative host contracts that are required to be separated from the host contracts and accounted for at fair value with changes in fair value of embedded derivatives reported in net income.  The Company’s primary embedded derivatives are equity options in life and annuity product contracts, which provide equity returns to contractholders; equity-indexed notes containing equity call options, which provide a coupon payout that is determined using one or more equity-based indices; credit default swaps in synthetic collateralized debt obligations, which provide enhanced coupon rates as a result of selling credit protection; and conversion options in fixed income securities, which provide the Company with the right to convert the instrument into a predetermined number of shares of common stock.

When derivatives meet specific criteria, they may be designated as accounting hedges and accounted for as fair value, cash flow, foreign currency fair value or foreign currency cash flow hedges.  The Company designates certain of its interest rate and foreign currency swap contracts and certain investment risk transfer reinsurance agreements as fair value hedges when the hedging instrument is highly effective in offsetting the risk of changes in the fair value of the hedged item.  The Company designates certain of its foreign currency swap contracts as cash flow hedges when the hedging instrument is highly effective in offsetting the exposure of variations in cash flows for the hedged risk that could affect net income.  Amounts are reclassified to net investment income or realized capital gains and losses as the hedged item affects net income.

The notional amounts specified in the contracts are used to calculate the exchange of contractual payments under the agreements and are generally not representative of the potential for gain or loss on these agreements.  However, the notional amounts specified in credit default swaps where the Company has sold credit protection represent the maximum amount of potential loss, assuming no recoveries.

Fair value, which is equal to the carrying value, is the estimated amount that the Company would receive or pay to terminate the derivative contracts at the reporting date.  The carrying value amounts for OTC derivatives are further adjusted for the effects, if any, of enforceable master netting agreements and are presented on a net basis, by counterparty agreement, in the Condensed Consolidated Statements of Financial Position.  For certain exchange traded and cleared derivatives, margin deposits are required as well as daily cash settlements of margin accounts.  As of June 30, 2013, the Company pledged $4 million of securities in the form of margin deposits.

For those derivatives which qualify for fair value hedge accounting, net income includes the changes in the fair value of both the derivative instrument and the hedged risk, and therefore reflects any hedging ineffectiveness.  For cash flow hedges, gains and losses are amortized from accumulated other comprehensive income and are reported in net income in the same period the forecasted transactions being hedged impact net income.

Non-hedge accounting is generally used for “portfolio” level hedging strategies where the terms of the individual hedged items do not meet the strict homogeneity requirements to permit the application of hedge accounting.  For non-hedge derivatives, net income includes changes in fair value and accrued periodic settlements, when applicable.  With the exception of non-hedge derivatives used for asset replication and non-hedge embedded derivatives, all of the Company’s derivatives are evaluated for their ongoing effectiveness as either accounting hedge or non-hedge derivative financial instruments on at least a quarterly basis.

The following table provides a summary of the volume and fair value positions of derivative instruments as well as their reporting location in the Condensed Consolidated Statement of Financial Position as of June 30, 2013.

($ in millions, except number of contracts)			Volume (1)
	Balance sheet location		Notional amount	Number of contracts		Fair value,  net		Gross  asset		Gross  liability
Asset derivatives
Derivatives designated as accounting hedging instruments
Foreign currency swap agreements	Other investments	$	89	n/a	$	(1)	$	3	$	(4	)
Derivatives not designated as accounting hedging instruments
Interest rate contracts
Interest rate swap agreements	Other investments		1,332	n/a		6		7		(1	)
Interest rate cap agreements	Other investments		290	n/a		5		5		--
Equity and index contracts
Options and warrants (2)	Other investments		13	11,110		192		192		--
Foreign currency contracts
Foreign currency forwards	Other investments		45	n/a		--		--		--
Embedded derivative financial instruments
Conversion options	Fixed income securities		5	n/a		--		--		--
Credit default swaps	Fixed income securities		12	n/a		(12)		--		(12	)
Credit default contracts
Credit default swaps – buying protection	Other investments		71	n/a		(1)		--		(1	)
Credit default swaps – selling protection	Other investments		85	n/a		1		1		--
Other contracts
Other contracts	Other assets		4	n/a		1		1		--
Subtotal			1,857	11,110		192		206		(14	)
Total asset derivatives		$	1,946	11,110	$	191	$	209	$	(18	)
Liability derivatives
Derivatives designated as accounting hedging instruments
Foreign currency swap agreements	Other liabilities & accrued expenses	$	59	n/a	$	(5)	$	--	$	(5	)
Derivatives not designated as accounting hedging instruments
Interest rate contracts
Interest rate swap agreements	Other liabilities & accrued expenses		85	n/a		5		5		--
Interest rate cap agreements	Other liabilities & accrued expenses		149	n/a		--		--		--
Equity and index contracts
Options and futures	Other liabilities & accrued expenses		108	11,260		(116)		--		(116	)
Embedded derivative financial instruments
Guaranteed accumulation benefits	Contractholder funds		786	n/a		(59)		--		(59	)
Guaranteed withdrawal benefits	Contractholder funds		539	n/a		(24)		--		(24	)
Equity-indexed and forward starting options in life and annuity product contracts	Contractholder funds		3,996	n/a		(445)		--		(445	)
Other embedded derivative financial instruments	Contractholder funds		85	n/a		(5)		--		(5	)
Credit default contracts
Credit default swaps – buying protection	Other liabilities & accrued expenses		145	n/a		(1)		--		(1	)
Credit default swaps – selling protection	Other liabilities & accrued expenses		100	n/a		(14)		--		(14	)
Subtotal			5,993	11,260		(659)		5		(664	)
Total liability derivatives			6,052	11,260		(664)	$	5	$	(669	)
Total derivatives		$	7,998	22,370	$	(473)

____________________

(1)   Volume for OTC derivative contracts is represented by their notional amounts.  Volume for exchange traded derivatives is represented by the number of contracts, which is the basis on which they are traded.  (n/a = not applicable)

(2)   In addition to the number of contracts presented in the table, the Company held 837,100 stock warrants.  Stock warrants can be converted to cash upon sale of those instruments or exercised for shares of common stock.

The following table provides a summary of the volume and fair value positions of derivative instruments as well as their reporting location in the Consolidated Statement of Financial Position as of December 31, 2012.

($ in millions, except number of contracts)			Volume (1)			Fair
	Balance sheet location		Notional amount	Number of contracts		value, net		Gross asset		Gross liability
Asset derivatives
Derivatives designated as accounting hedging instruments
Foreign currency swap agreements	Other investments	$	16	n/a	$	2	$	2	$	--
Derivatives not designated as accounting hedging instruments
Interest rate contracts
Interest rate swap agreements	Other investments		5,541	n/a		19		28		(9	)
Interest rate cap agreements	Other investments		372	n/a		1		1		--
Financial futures contracts	Other assets		n/a	2		--		--		--
Equity and index contracts
Options and warrants (2)	Other investments		146	12,400		125		125		--
Financial futures contracts	Other assets		n/a	249		2		2		--
Foreign currency contracts
Foreign currency forwards	Other investments		44	n/a		--		--		--
Embedded derivative financial instruments
Conversion options	Fixed income securities		5	n/a		--		--		--
Equity-indexed call options	Fixed income securities		90	n/a		9		9		--
Credit default swaps	Fixed income securities		12	n/a		(12)		--		(12	)
Credit default contracts
Credit default swaps – buying protection	Other investments		32	n/a		(1)		--		(1	)
Credit default swaps – selling protection	Other investments		100	n/a		1		1		--
Other contracts
Other contracts	Other assets		4	n/a		1		1		--
Subtotal			6,346	12,651		145		167		(22	)
Total asset derivatives		$	6,362	12,651	$	147	$	169	$	(22	)
Liability derivatives
Derivatives designated as accounting hedging instruments
Foreign currency swap agreements	Other liabilities & accrued expenses	$	135	n/a	$	(19)	$	--	$	(19	)
Derivatives not designated as accounting hedging instruments
Interest rate contracts
Interest rate swap agreements	Other liabilities & accrued expenses		1,185	n/a		16		18		(2	)
Interest rate swaption agreements	Other liabilities & accrued expenses		250	n/a		--		--		--
Interest rate cap agreements	Other liabilities & accrued expenses		429	n/a		1		1		--
Financial futures contracts	Other liabilities & accrued expenses		--	357		--		--		--
Equity and index contracts
Options and futures	Other liabilities & accrued expenses		--	12,262		(58)		--		(58	)
Embedded derivative financial instruments
Guaranteed accumulation benefits	Contractholder funds		820	n/a		(86)		--		(86	)
Guaranteed withdrawal benefits	Contractholder funds		554	n/a		(39)		--		(39	)
Equity-indexed and forward starting options in life and annuity product contracts	Contractholder funds		3,916	n/a		(419)		--		(419	)
Other embedded derivative financial instruments	Contractholder funds		85	n/a		(9)		--		(9	)
Credit default contracts
Credit default swaps – buying protection	Other liabilities & accrued expenses		193	n/a		(2)		--		(2	)
Credit default swaps – selling protection	Other liabilities & accrued expenses		130	n/a		(30)		--		(30	)
Subtotal			7,562	12,619		(626)		19		(645	)
Total liability derivatives			7,697	12,619		(645)	$	19	$	(664	)
Total derivatives		$	14,059	25,270	$	(498)

____________________

(1)   Volume for OTC derivative contracts is represented by their notional amounts.  Volume for exchange traded derivatives is represented by the number of contracts, which is the basis on which they are traded.  (n/a = not applicable)

(2)   In addition to the number of contracts presented in the table, the Company held 837,100 stock warrants.  Stock warrants can be converted to cash upon sale of those instruments or exercised for shares of common stock.

The following table provides gross and net amounts for the Company’s OTC derivatives, all of which are subject to enforceable master netting agreements.

($ in millions)				Offsets
		Gross amount		Counter- party netting		Cash collateral (received) pledged		Net amount on balance sheet		Securities collateral (received) pledged		Net amount
June 30, 2013
Asset derivatives	$	21	$	(11)	$	(3)	$	7	$	(2)	$	5
Liability derivatives		(26)		11		(1)		(16)		20		4
December 31, 2012
Asset derivatives	$	52	$	(29)	$	(18)	$	5	$	(5)	$	--
Liability derivatives		(63)		29		--		(34)		25		(9)

The following table provides a summary of the impacts of the Company’s foreign currency contracts in cash flow hedging relationships.  Amortization of net losses from accumulated other comprehensive income related to cash flow hedges is expected to be $2 million during the next twelve months.  There was no hedge ineffectiveness reported in realized gains and losses for the three months and six months ended June 30, 2013 or 2012.

($ in millions)		Three months ended June 30,				Six months ended June 30,
		2013		2012		2013		2012
Gain recognized in OCI on derivatives during the period	$	6	$	5	$	9	$	--
Loss recognized in OCI on derivatives during the term of the hedging relationship		(7)		(11)		(7)		(11)
Loss reclassified from AOCI into income (net investment income)		(1)		--		(1)		--
Loss reclassified from AOCI into income (realized capital gains and losses)		--		--		--		(1)

The following tables present gains and losses from valuation, settlements and hedge ineffectiveness reported on derivatives used in fair value hedging relationships and derivatives not designated as accounting hedging instruments in the Condensed Consolidated Statements of Operations and Comprehensive Income.  For the three months and six months ended June 30, 2013, the Company had no derivatives used in fair value hedging relationships.

($ in millions)		Net investment income		Realized capital gains and losses		Contract benefits		Interest credited to contractholder funds		Total gain (loss) recognized in net income on derivatives
Three months ended June 30, 2013
Interest rate contracts	$	--	$	3	$	--	$	--	$	3
Equity and index contracts		--		--		--		9		9
Embedded derivative financial instruments		--		--		20		14		34
Foreign currency contracts		--		--		--		--		--
Credit default contracts		--		9		--		--		9
Other contracts				--		--		(3)		(3)
Total	$	--	$	12	$	20	$	20	$	52
Six months ended June 30, 2013
Interest rate contracts	$	--	$	3	$	--	$	--	$	3
Equity and index contracts		--		--		--		47		47
Embedded derivative financial instruments		--		(1)		46		(26)		19
Foreign currency contracts		--		1		--		--		1
Credit default contracts		--		16		--		--		16
Other contracts				--		--		(3)		(3)
Total	$	--	$	19	$	46	$	18	$	83

		Net investment income		Realized capital gains and losses		Contract benefits		Interest credited to contractholder funds		Total gain (loss) recognized in net income on derivatives
Three months ended June 30, 2012
Derivatives in fair value accounting hedging relationships
Interest rate contracts	$	--	$	--	$	--	$	--	$	--
Derivatives not designated as accounting hedging instruments
Interest rate contracts	$	--	$	4	$	--	$	--	$	4
Equity and index contracts		--		--		--		(16)		(16)
Embedded derivative financial instruments		--		3		(17)		40		26
Foreign currency contracts		--		(1)		--		--		(1)
Credit default contracts		--		(2)		--		--		(2)
Total	$	--	$	4	$	(17)	$	24	$	11
Six months ended June 30, 2012
Derivatives in fair value accounting hedging relationships
Interest rate contracts	$	(1)	$	--	$	--	$	--	$	(1)
Derivatives not designated as accounting hedging instruments
Interest rate contracts		--		3		--		--		3
Equity and index contracts		--		--		--		37		37
Embedded derivative financial instruments		--		18		14		2		34
Foreign currency contracts		--		(1)		--		--		(1)
Credit default contracts		--		7		--		--		7
Other contracts		--		--		--		2		2
Subtotal		--		27		14		41		82
Total	$	(1)	$	27	$	14	$	41	$	81

The following table provides a summary of the changes in fair value of the Company’s fair value hedging relationships in the Condensed Consolidated Statements of Operations and Comprehensive Income.

($ in millions)		Gain (loss) on derivatives		Gain (loss) on hedged risk
Location of gain or (loss) recognized in net income on derivatives		Interest rate contracts		Investments
Three months ended June 30, 2012
Net investment income	$	1	$	(1)
Six months ended June 30, 2012
Net investment income	$	2	$	(2)

The Company manages its exposure to credit risk by utilizing highly rated counterparties, establishing risk control limits, executing enforceable master netting agreements (“MNAs”) and obtaining collateral where appropriate.  The Company uses MNAs for OTC derivative transactions that permit either party to net payments due for transactions and collateral is either pledged or obtained when certain predetermined exposure limits are exceeded.  As of June 30, 2013, counterparties pledged $7 million in cash and securities to the Company, and the Company pledged $21 million in securities to counterparties which includes $9 million of collateral posted under MNAs for contracts containing credit-risk-contingent provisions that are in a liability position and $12 million of collateral posted under MNAs for contracts without credit-risk-contingent liabilities.  The Company has not incurred any losses on derivative financial instruments due to counterparty nonperformance.  Other derivatives, including futures and certain option contracts, are traded on organized exchanges which require margin deposits and guarantee the execution of trades, thereby mitigating any potential credit risk.

Counterparty credit exposure represents the Company’s potential loss if all of the counterparties concurrently fail to perform under the contractual terms of the contracts and all collateral, if any, becomes worthless.  This exposure is measured by the fair value of OTC derivative contracts with a positive fair value at the reporting date reduced by the effect, if any, of enforceable master netting agreements.

The following table summarizes the counterparty credit exposure by counterparty credit rating as it relates to the Company’s OTC derivatives.

($ in millions)	June 30, 2013							December 31, 2012
Rating (1)	Number of counter- parties		Notional amount (2)		Credit exposure (2)		Exposure, net of collateral (2)	Number of counter- parties		Notional amount (2)		Credit exposure (2)		Exposure, net of collateral (2)
A+	1	$	887	$	2	$	2	1	$	19	$	--	$	--
A	4		123		3		1	3		2,252		12		--
A-	2		94		1		1	2		311		1		1
BBB+	1		809		4		1	1		3,617		11		--
Total	8	$	1,913	$	10	$	5	7	$	6,199	$	24	$	1

(1) Rating is the lower of S&P or Moody’s ratings.

(2) Only OTC derivatives with a net positive fair value are included for each counterparty.

Market risk is the risk that the Company will incur losses due to adverse changes in market rates and prices.  Market risk exists for all of the derivative financial instruments the Company currently holds, as these instruments may become less valuable due to adverse changes in market conditions.  To limit this risk, the Company’s senior management has established risk control limits.  In addition, changes in fair value of the derivative financial instruments that the Company uses for risk management purposes are generally offset by the change in the fair value or cash flows of the hedged risk component of the related assets, liabilities or forecasted transactions.

Certain of the Company’s derivative instruments contain credit-risk-contingent termination events, cross-default provisions and credit support annex agreements.  Credit-risk-contingent termination events allow the counterparties to terminate the derivative on certain dates if ALIC’s or Allstate Life Insurance Company of New York’s (“ALNY”) financial strength credit ratings by Moody’s or S&P fall below a certain level or in the event ALIC or ALNY are no longer rated by either Moody’s or S&P.  Credit-risk-contingent cross-default provisions allow the counterparties to terminate the derivative instruments if the Company defaults by pre-determined threshold amounts on certain debt instruments.  Credit-risk-contingent credit support annex agreements specify the amount of collateral the Company must post to counterparties based on ALIC’s or ALNY’s financial strength credit ratings by Moody’s or S&P, or in the event ALIC or ALNY are no longer rated by either Moody’s or S&P.

The following summarizes the fair value of derivative instruments with termination, cross-default or collateral credit-risk-contingent features that are in a liability position, as well as the fair value of assets and collateral that are netted against the liability in accordance with provisions within enforceable MNAs.

($ in millions)		June 30, 2013		December 31, 2012
Gross liability fair value of contracts containing credit-risk-contingent features	$	19	$	62
Gross asset fair value of contracts containing credit-risk-contingent features and subject to MNAs		(10)		(28)
Collateral posted under MNAs for contracts containing credit-risk-contingent features		(9)		(25)
Maximum amount of additional exposure for contracts with credit-risk-contingent features if all features were triggered concurrently	$	--	$	9

Credit derivatives - selling protection

Free-standing credit default swaps (“CDS”) are utilized for selling credit protection against a specified credit event.  A credit default swap is a derivative instrument, representing an agreement between two parties to exchange the credit risk of a specified entity (or a group of entities), or an index based on the credit risk of a group of entities (all commonly referred to as the “reference entity” or a portfolio of “reference entities”), in return for a periodic premium.  In selling protection, CDS are used to replicate fixed income securities and to complement the cash market when credit exposure to certain issuers is not available or when the derivative alternative is less expensive than the cash market alternative.  CDS typically have a five-year term.

The following table shows the CDS notional amounts by credit rating and fair value of protection sold.

($ in millions)		Notional amount
		AA		A		BBB		BB and lower		Total		Fair value
June 30, 2013
Single name
Investment grade corporate debt (1)	$	--	$	5	$	--	$	--	$	5	$	--
Baskets
First-to-default
Municipal		--		100		--		--		100		(13)
Index
Investment grade corporate debt (1)		1		20		54		5		80		--
Total	$	1	$	125	$	54	$	5	$	185	$	(13)
December 31, 2012
Single name
Investment grade corporate debt (1)	$	--	$	5	$	--	$	--	$	5	$	--
Municipal		25		--		--		--		25		(3)
Subtotal		25		5		--		--		30		(3)
Baskets
First-to-default
Municipal		--		100		--		--		100		(26)
Index
Investment grade corporate debt (1)		1		26		68		5		100		--
Total	$	26	$	131	$	68	$	5	$	230	$	(29)

(1) Investment grade corporate debt categorization is based on the rating of the underlying name(s) at initial purchase.

In selling protection with CDS, the Company sells credit protection on an identified single name, a basket of names in a first-to-default (“FTD”) structure or a specific tranche of a basket, or credit derivative index (“CDX”) that is generally investment grade, and in return receives periodic premiums through expiration or termination of the agreement.  With single name CDS, this premium or credit spread generally corresponds to the difference between the yield on the reference entity’s public fixed maturity cash instruments and swap rates at the time the agreement is executed.  With a FTD basket or a tranche of a basket, because of the additional credit risk inherent in a basket of named reference entities, the premium generally corresponds to a high proportion of the sum of the credit spreads of the names in the basket and the correlation between the names.  CDX is utilized to take a position on multiple (generally 125) reference entities.  Credit events are typically defined as bankruptcy, failure to pay, or restructuring, depending on the nature of the reference entities.  If a credit event occurs, the Company settles with the counterparty, either through physical settlement or cash settlement.  In a physical settlement, a reference asset is delivered by the buyer of protection to the Company, in exchange for cash payment at par, whereas in a cash settlement, the Company pays the difference between par and the prescribed value of the reference asset.  When a credit event occurs in a single name or FTD basket (for FTD, the first credit event occurring for any one name in the basket), the contract terminates at the time of settlement.  When a credit event occurs in a tranche of a basket, there is no immediate impact to the Company until cumulative losses in the basket exceed the contractual subordination.  To date, realized losses have not exceeded the subordination.  For CDX, the reference entity’s name incurring the credit event is removed from the index while the contract continues until expiration.  The maximum payout on a CDS is the contract notional amount.  A physical settlement may afford the Company with recovery rights as the new owner of the asset.

The Company monitors risk associated with credit derivatives through individual name credit limits at both a credit derivative and a combined cash instrument/credit derivative level.  The ratings of individual names for which protection has been sold are also monitored.

In addition to the CDS described above, the Company’s synthetic collateralized debt obligations contain embedded credit default swaps which sell protection on a basket of reference entities.  The synthetic collateralized debt obligations are fully funded; therefore, the Company is not obligated to contribute additional funds when credit events occur related to the reference entities named in the embedded credit default swaps.  The Company’s maximum amount at risk equals the amount of its aggregate initial investment in the synthetic collateralized debt obligations.

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Investments

6 Months Ended

Jun. 30, 2013

Investments

Investments

3.  Investments

Fair values

The amortized cost, gross unrealized gains and losses and fair value for fixed income securities are as follows:

($ in millions)		Amortized		Gross unrealized				Fair
		cost		Gains		Losses		value
June 30, 2013
U.S. government and agencies	$	1,018	$	158	$	(1)	$	1,175
Municipal		3,906		389		(53)		4,242
Corporate		28,432		1,699		(380)		29,751
Foreign government		1,019		113		(10)		1,122
Asset-backed securities (“ABS”)		1,490		42		(69)		1,463
Residential mortgage-backed securities (“RMBS”)		1,411		67		(29)		1,449
Commercial mortgage-backed securities (“CMBS”)		1,204		49		(32)		1,221
Redeemable preferred stock		14		3		--		17
Total fixed income securities	$	38,494	$	2,520	$	(574)	$	40,440
December 31, 2012
U.S. government and agencies	$	2,137	$	242	$	--	$	2,379
Municipal		4,153		612		(61)		4,704
Corporate		28,748		2,896		(113)		31,531
Foreign government		1,017		164		(1)		1,180
ABS		1,921		49		(105)		1,865
RMBS		1,778		82		(69)		1,791
CMBS		1,425		60		(77)		1,408
Redeemable preferred stock		15		3		--		18
Total fixed income securities	$	41,194	$	4,108	$	(426)	$	44,876

Scheduled maturities

The scheduled maturities for fixed income securities are as follows as of June 30, 2013:

($ in millions)		Amortized cost		Fair value
Due in one year or less	$	1,630	$	1,663
Due after one year through five years		8,399		8,934
Due after five years through ten years		15,283		15,866
Due after ten years		9,077		9,844
		34,389		36,307
ABS, RMBS and CMBS		4,105		4,133
Total	$	38,494	$	40,440

Actual maturities may differ from those scheduled as a result of prepayments by the issuers.  ABS, RMBS and CMBS are shown separately because of the potential for prepayment of principal prior to contractual maturity dates.

Net investment income

Net investment income is as follows:

($ in millions)		Three months ended June 30,				Six months ended June 30,
		2013		2012		2013		2012
Fixed income securities	$	494	$	525	$	990	$	1,046
Mortgage loans		87		85		178		170
Equity securities		3		2		5		3
Limited partnership interests		37		39		67		106
Short-term investments		--		--		1		--
Policy loans		12		13		24		26
Other		16		16		32		30
Investment income, before expense		649		680		1,297		1,381
Investment expense		(30)		(30)		(57)		(58)
Net investment income	$	619	$	650	$	1,240	$	1,323

Realized capital gains and losses

Realized capital gains and losses by asset type are as follows:

($ in millions)		Three months ended June 30,				Six months ended June 30,
		2013		2012		2013		2012
Fixed income securities	$	24	$	(6)	$	6	$	(56)
Mortgage loans		(6)		9		25		8
Equity securities		31		--		32		--
Limited partnership interests		(3)		2		(3)		1
Derivatives		12		4		19		26
Other		--		(2)		(2)		6
Realized capital gains and losses	$	58	$	7	$	77	$	(15)

Realized capital gains and losses by transaction type are as follows:

($ in millions)		Three months ended June 30,				Six months ended June 30,
		2013		2012		2013		2012
Impairment write-downs	$	(16)	$	(6)	$	(18)	$	(26)
Change in intent write-downs		(1)		--		(8)		(16)
Net other-than-temporary impairment losses recognized in earnings		(17)		(6)		(26)		(42)
Sales		63		9		84		--
Valuation of derivative instruments		6		(11)		2		(3)
Settlements of derivative instruments		6		15		17		30
Realized capital gains and losses	$	58	$	7	$	77	$	(15)

Gross gains of $42 million and $32 million and gross losses of $15 million and $31 million were realized on sales of fixed income securities during the three months ended June 30, 2013 and 2012, respectively.  Gross gains of $66 million and $77 million and gross losses of $24 million and $97 million were realized on sales of fixed income securities during the six months ended June 30, 2013 and 2012, respectively.

Other-than-temporary impairment losses by asset type are as follows:

($ in millions)		Three months ended June 30, 2013						Six months ended June 30, 2013
		Gross		Included in OCI		Net		Gross		Included in OCI		Net
Fixed income securities:
Municipal	$	(1)	$	--	$	(1)	$	(8)	$	--	$	(8)
ABS		--		(1)		(1)		--		(1)		(1)
RMBS		--		--		--		1		(1)		--
CMBS		--		(1)		(1)		(19)		(8)		(27)
Total fixed income securities		(1)		(2)		(3)		(26)		(10)		(36)
Mortgage loans		(9)		--		(9)		17		--		17
Equity securities		(1)		--		(1)		(1)		--		(1)
Limited partnership interests		(4)		--		(4)		(4)		--		(4)
Other		--		--		--		(2)		--		(2)
Other-than-temporary impairment losses	$	(15)	$	(2)	$	(17)	$	(16)	$	(10)	$	(26)

($ in millions)		Three months ended June 30, 2012						Six months ended June 30, 2012
		Gross		Included in OCI		Net		Gross		Included in OCI		Net
Fixed income securities:
Corporate	$	(1)	$	--	$	(1)	$	(14)	$	--	$	(14)
RMBS		(5)		--		(5)		(17)		(3)		(20)
CMBS		(9)		3		(6)		(15)		3		(12)
Total fixed income securities		(15)		3		(12)		(46)		--		(46)
Mortgage loans		7		--		7		4		--		4
Limited partnership interests		(1)		--		(1)		(2)		--		(2)
Other		--		--		--		2		--		2
Other-than-temporary impairment losses	$	(9)	$	3	$	(6)	$	(42)	$	--	$	(42)

The total amount of other-than-temporary impairment losses included in accumulated other comprehensive income at the time of impairment for fixed income securities, which were not included in earnings, are presented in the following table.  The amount excludes $158 million and $134 million as of June 30, 2013 and December 31, 2012, respectively, of net unrealized gains related to changes in valuation of the fixed income securities subsequent to the impairment measurement date.

($ in millions)		June 30, 2013		December 31, 2012
Municipal	$	(5)	$	(5)
Corporate		(1)		(1)
ABS		(10)		(14)
RMBS		(92)		(103)
CMBS		(12)		(19)
Total	$	(120)	$	(142)

Rollforwards of the cumulative credit losses recognized in earnings for fixed income securities held as of the end of the period are as follows:

($ in millions)		Three months ended June 30,				Six months ended June 30,
		2013		2012		2013		2012
Beginning balance	$	(343)	$	(495)	$	(345)	$	(581)
Additional credit loss for securities previously other-than-temporarily impaired		(2)		(7)		(12)		(23)
Additional credit loss for securities not previously other-than-temporarily impaired		(1)		(5)		(17)		(7)
Reduction in credit loss for securities disposed or collected		28		47		56		151
Reduction in credit loss for securities the Company has made the decision to sell or  more likely than not will be required to sell		--		--		--		--
Change in credit loss due to accretion of increase in cash flows		--		--		--		--
Ending balance	$	(318)	$	(460)	$	(318)	$	(460)

The Company uses its best estimate of future cash flows expected to be collected from the fixed income security, discounted at the security’s original or current effective rate, as appropriate, to calculate a recovery value and determine whether a credit loss exists.  The determination of cash flow estimates is inherently subjective and methodologies may vary depending on facts and circumstances specific to the security.  All reasonably available information relevant to the collectability of the security, including past events, current conditions, and reasonable and supportable assumptions and forecasts, are considered when developing the estimate of cash flows expected to be collected.  That information generally includes, but is not limited to, the remaining payment terms of the security, prepayment speeds, foreign exchange rates, the financial condition and future earnings potential of the issue or issuer, expected defaults, expected recoveries, the value of underlying collateral, vintage, geographic concentration, available reserves or escrows, current subordination levels, third party guarantees and other credit enhancements.  Other information, such as industry analyst reports and forecasts, sector credit ratings, financial condition of the bond insurer for insured fixed income securities, and other market data relevant to the realizability of contractual cash flows, may also be considered.  The estimated fair value of collateral will be used to estimate recovery value if the Company determines that the security is dependent on the liquidation of collateral for ultimate settlement.  If the estimated recovery value is less than the amortized cost of the security, a credit loss exists and an other-than-temporary impairment for the difference between the estimated recovery value and amortized cost is recorded in earnings.  The portion of the unrealized loss related to factors other than credit remains classified in accumulated other comprehensive income.  If the Company determines that the fixed income security does not have sufficient cash flow or other information to estimate a recovery value for the security, the Company may conclude that the entire decline in fair value is deemed to be credit related and the loss is recorded in earnings.

Unrealized net capital gains and losses

Unrealized net capital gains and losses included in accumulated other comprehensive income are as follows:

($ in millions)		Fair		Gross unrealized			Unrealized net
June 30, 2013		value		Gains		Losses	gains (losses)
Fixed income securities	$	40,440	$	2,520	$	(574)	$	1,946
Equity securities		550		39		(7)		32
Short-term investments		744		--		--		--
Derivative instruments (1)		(7)		3		(10)		(7)
EMA limited partnerships (2)								(1)
Unrealized net capital gains and losses, pre-tax								1,970
Amounts recognized for:
Insurance reserves (3)								(76)
DAC and DSI (4)								(197)
Amounts recognized								(273)
Deferred income taxes								(599)
Unrealized net capital gains and losses, after-tax							$	1,098

_________________

(1) Included in the fair value of derivative instruments are $(1) million classified as assets and $6 million classified as liabilities.

(2) Unrealized net capital gains and losses for limited partnership interests represent the Company’s share of EMA limited partnerships’ other comprehensive income.  Fair value and gross gains and losses are not applicable.

(3) The insurance reserves adjustment represents the amount by which the reserve balance would increase if the net unrealized gains in the applicable product portfolios were realized and reinvested at current lower interest rates, resulting in a premium deficiency.  Although the Company evaluates premium deficiencies on the combined performance of life insurance and immediate annuities with life contingencies, the adjustment primarily relates to structured settlement annuities with life contingencies, in addition to annuity buy-outs and certain payout annuities with life contingencies.

(4) The DAC and DSI adjustment balance represents the amount by which the amortization of DAC and DSI would increase or decrease if the unrealized gains or losses in the respective product portfolios were realized.

		Fair		Gross unrealized			Unrealized net
December 31, 2012		value		Gains		Losses	gains (losses)
Fixed income securities	$	44,876	$	4,108	$	(426)	$	3,682
Equity securities		345		36		(1)		35
Short-term investments		875		--		--		--
Derivative instruments (1)		(17)		2		(19)		(17)
EMA limited partnerships								1
Unrealized net capital gains and losses, pre-tax								3,701
Amounts recognized for:
Insurance reserves								(771)
DAC and DSI								(408)
Amounts recognized								(1,179)
Deferred income taxes								(888)
Unrealized net capital gains and losses, after-tax							$	1,634

______________

(1) Included in the fair value of derivative instruments are $2 million classified as assets and $19 million classified as liabilities.

Change in unrealized net capital gains and losses

The change in unrealized net capital gains and losses for the six months ended June 30, 2013 is as follows:

($ in millions)
Fixed income securities	$	(1,736)
Equity securities		(3)
Derivative instruments		10
EMA limited partnerships		(2)
Total		(1,731)
Amounts recognized for:
Insurance reserves		695
DAC and DSI		211
Amounts recognized		906
Deferred income taxes		289
Decrease in unrealized net capital gains and losses	$	(536)

Portfolio monitoring

The Company has a comprehensive portfolio monitoring process to identify and evaluate each fixed income and equity security whose carrying value may be other-than-temporarily impaired.

For each fixed income security in an unrealized loss position, the Company assesses whether management with the appropriate authority has made the decision to sell or whether it is more likely than not the Company will be required to sell the security before recovery of the amortized cost basis for reasons such as liquidity, contractual or regulatory purposes.  If a security meets either of these criteria, the security’s decline in fair value is considered other than temporary and is recorded in earnings.

If the Company has not made the decision to sell the fixed income security and it is not more likely than not the Company will be required to sell the fixed income security before recovery of its amortized cost basis, the Company evaluates whether it expects to receive cash flows sufficient to recover the entire amortized cost basis of the security.  The Company calculates the estimated recovery value by discounting the best estimate of future cash flows at the security’s original or current effective rate, as appropriate, and compares this to the amortized cost of the security.  If the Company does not expect to receive cash flows sufficient to recover the entire amortized cost basis of the fixed income security, the credit loss component of the impairment is recorded in earnings, with the remaining amount of the unrealized loss related to other factors recognized in other comprehensive income.

For equity securities, the Company considers various factors, including whether it has the intent and ability to hold the equity security for a period of time sufficient to recover its cost basis.  Where the Company lacks the intent and ability to hold to recovery, or believes the recovery period is extended, the equity security’s decline in fair value is considered other than temporary and is recorded in earnings.

For fixed income and equity securities managed by third parties, either the Company has contractually retained its decision making authority as it pertains to selling securities that are in an unrealized loss position or it recognizes any unrealized loss at the end of the period through a charge to earnings.

The Company’s portfolio monitoring process includes a quarterly review of all securities to identify instances where the fair value of a security compared to its amortized cost (for fixed income securities) or cost (for equity securities) is below established thresholds.  The process also includes the monitoring of other impairment indicators such as ratings, ratings downgrades and payment defaults.  The securities identified, in addition to other securities for which the Company may have a concern, are evaluated for potential other-than-temporary impairment using all reasonably available information relevant to the collectability or recovery of the security.  Inherent in the Company’s evaluation of other-than-temporary impairment for these fixed income and equity securities are assumptions and estimates about the financial condition and future earnings potential of the issue or issuer.  Some of the factors that may be considered in evaluating whether a decline in fair value is other than temporary are: 1) the financial condition, near-term and long-term prospects of the issue or issuer, including relevant industry specific market conditions and trends, geographic location and implications of rating agency actions and offering prices; 2) the specific reasons that a security is in an unrealized loss position, including overall market conditions which could affect liquidity; and 3) the length of time and extent to which the fair value has been less than amortized cost or cost.

The following table summarizes the gross unrealized losses and fair value of fixed income and equity securities by the length of time that individual securities have been in a continuous unrealized loss position.

($ in millions)	Less than 12 months					12 months or more						Total
	Number		Fair		Unrealized	Number		Fair		Unrealized		unrealized
	of issues		value		losses	of issues		value		losses		losses
June 30, 2013
Fixed income securities
U.S. government and agencies	4	$	57	$	(1)	--	$	--	$	--	$	(1)
Municipal	49		365		(18)	28		143		(35)		(53)
Corporate	543		6,460		(295)	54		677		(85)		(380)
Foreign government	8		183		(10)	--		--		--		(10)
ABS	3		26		--	70		729		(69)		(69)
RMBS	80		131		(4)	139		238		(25)		(29)
CMBS	21		222		(5)	20		132		(27)		(32)
Total fixed income securities	708		7,444		(333)	311		1,919		(241)		(574)
Equity securities	34		109		(7)	--		--		--		(7)
Total fixed income and equity securities	742	$	7,553	$	(340)	311	$	1,919	$	(241)	$	(581)
Investment grade fixed income securities	520	$	6,594	$	(299)	221	$	1,342	$	(147)	$	(446)
Below investment grade fixed income securities	188		850		(34)	90		577		(94)		(128)
Total fixed income securities	708	$	7,444	$	(333)	311	$	1,919	$	(241)	$	(574)
December 31, 2012
Fixed income securities
U.S. government and agencies	1	$	15	$	--	--	$	--	$	--	$	--
Municipal	11		101		(7)	50		395		(54)		(61)
Corporate	79		1,086		(27)	66		829		(86)		(113)
Foreign government	2		121		(1)	--		--		--		(1)
ABS	5		38		--	76		763		(105)		(105)
RMBS	49		30		--	164		442		(69)		(69)
CMBS	10		65		--	43		358		(77)		(77)
Redeemable preferred stock	--		--		--	1		--		--		--
Total fixed income securities	157		1,456		(35)	400		2,787		(391)		(426)
Equity securities	3		57		(1)	1		--		--		(1)
Total fixed income and equity securities	160	$	1,513	$	(36)	401	$	2,787	$	(391)	$	(427)
Investment grade fixed income securities	132	$	1,244	$	(29)	262	$	1,919	$	(195)	$	(224)
Below investment grade fixed income securities	25		212		(6)	138		868		(196)		(202)
Total fixed income securities	157	$	1,456	$	(35)	400	$	2,787	$	(391)	$	(426)

As of June 30, 2013, $459 million of unrealized losses are related to securities with an unrealized loss position less than 20% of amortized cost or cost, the degree of which suggests that these securities do not pose a high risk of being other-than-temporarily impaired.  Of the $459 million, $387 million are related to unrealized losses on investment grade fixed income securities.  Investment grade is defined as a security having a rating of Aaa, Aa, A or Baa from Moody’s, a rating of AAA, AA, A or BBB from Standard & Poor’s (“S&P”), Fitch, Dominion, Kroll or Realpoint, a rating of aaa, aa, a or bbb from A.M. Best, or a comparable internal rating if an externally provided rating is not available.  Unrealized losses on investment grade securities are principally related to rising interest rates or widening credit spreads since the time of initial purchase.

As of June 30, 2013, the remaining $122 million of unrealized losses are related to securities in unrealized loss positions greater than or equal to 20% of amortized cost.  Investment grade fixed income securities comprising $59 million of these unrealized losses were evaluated based on factors such as discounted cash flows and the financial condition and near-term and long-term prospects of the issue or issuer and were determined to have adequate resources to fulfill contractual obligations.  Of the $122 million, $63 million are related to below investment grade fixed income securities.  Of these amounts, $48 million are related to below investment grade fixed income securities that had been in an unrealized loss position greater than or equal to 20% of amortized cost for a period of twelve or more consecutive months as of June 30, 2013.  Unrealized losses on below investment grade securities are principally related to ABS, RMBS and CMBS and were the result of wider credit spreads resulting from higher risk premiums since the time of initial purchase.  These wider spreads are largely due to the risk associated with the underlying collateral supporting certain ABS, RMBS and CMBS securities.

ABS, RMBS and CMBS in an unrealized loss position were evaluated based on actual and projected collateral losses relative to the securities’ positions in the respective securitization trusts, security specific expectations of cash flows, and credit ratings.  This evaluation also takes into consideration credit enhancement, measured in terms of (i) subordination from other classes of securities in the trust that are contractually obligated to absorb losses before the class of security the Company owns, (ii) the expected impact of other structural features embedded in the securitization trust beneficial to the class of securities the Company owns, such as overcollateralization and excess spread, and (iii) for ABS and RMBS in an unrealized loss position, credit enhancements from reliable bond insurers, where applicable.  Municipal bonds in an unrealized loss position were evaluated based on the quality of the underlying securities.  Unrealized losses on equity securities are primarily related to temporary equity market fluctuations of securities that are expected to recover.

As of June 30, 2013, the Company has not made the decision to sell and it is not more likely than not the Company will be required to sell fixed income securities with unrealized losses before recovery of the amortized cost basis.  As of June 30, 2013, the Company had the intent and ability to hold equity securities with unrealized losses for a period of time sufficient for them to recover.

Limited partnerships

As of June 30, 2013 and December 31, 2012, the carrying value of equity method limited partnerships totaled $1.34 billion and $1.31 billion, respectively.  The Company recognizes an impairment loss for equity method limited partnerships when evidence demonstrates that the loss is other than temporary.  Evidence of a loss in value that is other than temporary may include the absence of an ability to recover the carrying amount of the investment or the inability of the investee to sustain a level of earnings that would justify the carrying amount of the investment.  The Company had no write-downs related to equity method limited partnerships for the three or six months ended June 30, 2013 and 2012.

As of June 30, 2013 and December 31, 2012, the carrying value for cost method limited partnerships was $611 million and $617 million, respectively.  To determine if an other-than-temporary impairment has occurred, the Company evaluates whether an impairment indicator has occurred in the period that may have a significant adverse effect on the carrying value of the investment.  Impairment indicators may include: significantly reduced valuations of the investments held by the limited partnerships; actual recent cash flows received being significantly less than expected cash flows; reduced valuations based on financing completed at a lower value; completed sale of a material underlying investment at a price significantly lower than expected; or any other adverse events since the last financial statements received that might affect the fair value of the investee’s capital.  Additionally, the Company’s portfolio monitoring process includes a quarterly review of all cost method limited partnerships to identify instances where the net asset value is below established thresholds for certain periods of time, as well as investments that are performing below expectations, for further impairment consideration.  If a cost method limited partnership is other-than-temporarily impaired, the carrying value is written down to fair value, generally estimated to be equivalent to the reported net asset value of the underlying funds.  The Company had $4 million of write-downs related to cost method limited partnerships for both the three months and six months ended June 30, 2013.  The Company had $1 million and $2 million of write-downs for the three months and six months ended June 30, 2012, respectively.

Mortgage loans

Mortgage loans are evaluated for impairment on a specific loan basis through a quarterly credit monitoring process and review of key credit quality indicators.  Mortgage loans are considered impaired when it is probable that the Company will not collect the contractual principal and interest.  Valuation allowances are established for impaired loans to reduce the carrying value to the fair value of the collateral less costs to sell or the present value of the loan’s expected future repayment cash flows discounted at the loan’s original effective interest rate.  Impaired mortgage loans may not have a valuation allowance when the fair value of the collateral less costs to sell is higher than the carrying value.  Valuation allowances are adjusted for subsequent changes in the fair value of the collateral less costs to sell.  Mortgage loans are charged off against their corresponding valuation allowances when there is no reasonable expectation of recovery.  The impairment evaluation is non-statistical in respect to the aggregate portfolio but considers facts and circumstances attributable to each loan.  It is not considered probable that additional impairment losses, beyond those identified on a specific loan basis, have been incurred as of June 30, 2013.

Accrual of income is suspended for mortgage loans that are in default or when full and timely collection of principal and interest payments is not probable.  Cash receipts on mortgage loans on nonaccrual status are generally recorded as a reduction of carrying value.

Debt service coverage ratio is considered a key credit quality indicator when mortgage loans are evaluated for impairment.  Debt service coverage ratio represents the amount of estimated cash flows from the property available to the borrower to meet principal and interest payment obligations.  Debt service coverage ratio estimates are updated annually or more frequently if conditions are warranted based on the Company’s credit monitoring process.

The following table reflects the carrying value of non-impaired fixed rate and variable rate mortgage loans summarized by debt service coverage ratio distribution.

($ in millions)		June 30, 2013						December 31, 2012
Debt service coverage ratio distribution		Fixed rate mortgage loans		Variable rate mortgage  loans		Total		Fixed rate mortgage  loans		Variable rate mortgage  loans		Total
Below 1.0	$	224	$	--	$	224	$	266	$	--	$	266
1.0 - 1.25		1,128		8		1,136		1,158		--		1,158
1.26 - 1.50		1,207		3		1,210		1,364		17		1,381
Above 1.50		3,032		134		3,166		2,854		129		2,983
Total non-impaired mortgage loans	$	5,591	$	145	$	5,736	$	5,642	$	146	$	5,788

Mortgage loans with a debt service coverage ratio below 1.0 that are not considered impaired primarily relate to instances where the borrower has the financial capacity to fund the revenue shortfalls from the properties for the foreseeable term, the decrease in cash flows from the properties is considered temporary, or there are other risk mitigating circumstances such as additional collateral, escrow balances or borrower guarantees.

The net carrying value of impaired mortgage loans is as follows:

($ in millions)		June 30, 2013		December 31, 2012
Impaired mortgage loans with a valuation allowance	$	67	$	147
Impaired mortgage loans without a valuation allowance		--		8
Total impaired mortgage loans	$	67	$	155
Valuation allowance on impaired mortgage loans	$	21	$	42

The average balance of impaired loans was $88 million and $226 million for the six months ended June 30, 2013 and 2012, respectively.

The rollforward of the valuation allowance on impaired mortgage loans is as follows:

($ in millions)		Three months ended June 30				Six months ended June 30,
		2013		2012		2013		2012
Beginning balance	$	15	$	60	$	42	$	63
Net increase (decrease) in valuation allowance		9		(7)		(17)		(4)
Charge offs		(3)		(5)		(4)		(11)
Ending balance	$	21	$	48	$	21	$	48

The carrying value of past due mortgage loans is as follows:

($ in millions)		June 30, 2013		December 31, 2012
Less than 90 days past due	$	--	$	20
90 days or greater past due		3		4
Total past due		3		24
Current loans		5,800		5,919
Total mortgage loans	$	5,803	$	5,943

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Fair Value of Assets and Liabilities (Details 5) (USD $) In Millions, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Gains (losses) included in net income for Level 3 assets and liabilities:
Gains (losses) for Level 3 assets still held at the balance sheet date, included in earnings	$ 11	$ 1	$ 14	$ 37
Gains (losses) for Level 3 liabilities still held at the balance sheet date, included in earnings	57	16	63	(9)
Gains (losses) for Level 3 assets and liabilities still held at the balance sheet date, included in earnings	68	17	77	28
Gains (losses) for Level 3 assets still held at the balance sheet date, included in realized capital gains and losses	7	(4)	8	26
Gains (losses) for Level 3 assets still held at the balance sheet date, included in investment income	4	6	6	12
Gains (losses) for Level 3 assets still held at the balance sheet date, included in interest credited to contract holder funds	37	32	17	(24)
Gains (losses) for Level 3 liabilities still held at the balance sheet date, included in life and annuity contract benefits	20	(17)	46	14
Derivatives embedded in life and annuity contracts
Gains (losses) included in net income for Level 3 assets and liabilities:
Gains (losses) for Level 3 liabilities still held at the balance sheet date, included in earnings	57	16	63	(9)
Fixed income securities
Gains (losses) included in net income for Level 3 assets and liabilities:
Gains (losses) for Level 3 assets still held at the balance sheet date, included in earnings	2	5	(2)	26
Municipal
Gains (losses) included in net income for Level 3 assets and liabilities:
Gains (losses) for Level 3 assets still held at the balance sheet date, included in earnings			(6)
Corporate
Gains (losses) included in net income for Level 3 assets and liabilities:
Gains (losses) for Level 3 assets still held at the balance sheet date, included in earnings	4	1	7	9
ABS
Gains (losses) included in net income for Level 3 assets and liabilities:
Gains (losses) for Level 3 assets still held at the balance sheet date, included in earnings	(1)	5	(1)	18
CMBS
Gains (losses) included in net income for Level 3 assets and liabilities:
Gains (losses) for Level 3 assets still held at the balance sheet date, included in earnings	(1)	(1)	(2)	(1)
Free-standing derivatives, net
Gains (losses) included in net income for Level 3 assets and liabilities:
Gains (losses) for Level 3 assets still held at the balance sheet date, included in earnings	$ 9	$ (4)	$ 16	$ 11

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Investments (Details 4) (USD $) In Millions, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Realized capital gains and losses by asset type
Realized capital gains and losses	$ 58	$ 7	$ 77	$ (15)
Fixed income securities
Realized capital gains and losses by asset type
Realized capital gains and losses	24	(6)	6	(56)
Mortgage loans
Realized capital gains and losses by asset type
Realized capital gains and losses	(6)	9	25	8
Equity securities
Realized capital gains and losses by asset type
Realized capital gains and losses	31		32
Limited partnership interests
Realized capital gains and losses by asset type
Realized capital gains and losses	(3)	2	(3)	1
Derivatives
Realized capital gains and losses by asset type
Realized capital gains and losses	12	4	19	26
Other
Realized capital gains and losses by asset type
Realized capital gains and losses		$ (2)	$ (2)	$ 6

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Investments (Details 8) (USD $) In Millions, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012
Fair value
Fixed income securities	$ 40,440	$ 44,876
Equity securities	550	345
Short-term investments	744	875
Derivative instruments	(7)	(17)
Gross unrealized Gains
Fixed income securities	2,520	4,108
Equity securities	39	36
Derivative instruments	3	2
Gross unrealized Losses
Fixed income securities	(574)	(426)
Equity securities	(7)	(1)
Derivative instruments	(10)	(19)
Unrealized net gains (losses)
Fixed income securities	1,946	3,682
Equity securities	32	35
Derivative instruments	(7)	(17)
EMA limited partnerships	(1)	1
Unrealized net capital gains and losses, pre-tax	1,970	3,701
Amount recognized for:
Insurance reserves	(76)	(771)
DAC and DSI	(197)	(408)
Amounts recognized	(273)	(1,179)
Deferred income taxes	(599)	(888)
Total unrealized net capital gains and losses	1,098	1,634
Fair value of derivative securities classified as assets, with unrealized net gains (losses) in AOCI	(1)	2
Fair value of derivative securities classified as liabilities, with unrealized net gains (losses) in AOCI	$ 6	$ 19

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Fair Value of Assets and Liabilities (Details) (USD $) In Millions, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012	Jun. 30, 2012
Assets
Fixed income securities	$ 40,440	$ 44,876
Equity securities	550	345
Short-term Investments	744	875
Other investments:
Free-standing derivatives, assets	6		1
Separate account assets	6,488	6,610
Other liabilities:
Free-standing derivatives, liabilities	(13)		(72)
U.S. government and agencies
Assets
Fixed income securities	1,175	2,379
Municipal
Assets
Fixed income securities	4,242	4,704
Corporate
Assets
Fixed income securities	29,751	31,531
Foreign government
Assets
Fixed income securities	1,122	1,180
ABS
Assets
Fixed income securities	1,463	1,865
RMBS
Assets
Fixed income securities	1,449	1,791
CMBS
Assets
Fixed income securities	1,221	1,408
Redeemable preferred stock
Assets
Fixed income securities	17	18
Quoted prices in active markets for identical assets (Level 1)
Other investments:
Total assets at fair value	7,321	8,244
% of total assets at fair value	15.10%	15.60%
Significant other observable inputs (Level 2)
Other investments:
Total assets at fair value	39,426	42,570
% of total assets at fair value	81.30%	80.60%
Other liabilities:
Free-standing derivatives, liabilities	(130)	(91)
Total liabilities at fair value	(130)	(91)
% of total liabilities at fair value	19.50%	14.10%
Significant unobservable inputs (Level 3)
Other investments:
Total assets at fair value	1,749	2,077
% of total assets at fair value	3.60%	3.90%
Contract holder funds:
Derivatives embedded in life and annuity contracts	(533)	(553)
Other liabilities:
Free-standing derivatives, liabilities	(13)	(30)
Total liabilities at fair value	(546)	(583)
% of total liabilities at fair value	82.00%	90.40%
Counterparty and cash collateral netting
Other investments:
Total assets at fair value	(14)	(47)
% of total assets at fair value		(0.10%)
Other liabilities:
Free-standing derivatives, liabilities	10	29
Total liabilities at fair value	10	29
% of total liabilities at fair value	(1.50%)	(4.50%)
Fair Value
Other investments:
Total assets at fair value	48,482	52,844
% of total assets at fair value	100.00%	100.00%
Mortgage loans	47	4
Other investments		1
Limited partnership interests	13	1
Contract holder funds:
Derivatives embedded in life and annuity contracts	(533)	(553)
Other liabilities:
Free-standing derivatives, liabilities	(133)	(92)
Total liabilities at fair value	(666)	(645)
% of total liabilities at fair value	100.00%	100.00%
Recurring basis | Quoted prices in active markets for identical assets (Level 1)
Assets
Fixed income securities	221	1,074
Equity securities	495	338
Short-term Investments	117	220
Other investments:
Separate account assets	6,488	6,610
Other assets		2
Total assets at fair value	7,321	8,244
Recurring basis | Quoted prices in active markets for identical assets (Level 1) | U.S. government and agencies
Assets
Fixed income securities	221	1,074
Recurring basis | Significant other observable inputs (Level 2)
Assets
Fixed income securities	38,543	41,742
Equity securities	49
Short-term Investments	627	655
Other investments:
Free-standing derivatives, assets	207	173
Total assets at fair value	39,426	42,570
Recurring basis | Significant other observable inputs (Level 2) | U.S. government and agencies
Assets
Fixed income securities	954	1,305
Recurring basis | Significant other observable inputs (Level 2) | Municipal
Assets
Fixed income securities	4,017	4,366
Recurring basis | Significant other observable inputs (Level 2) | Corporate
Assets
Fixed income securities	28,496	30,030
Recurring basis | Significant other observable inputs (Level 2) | Foreign government
Assets
Fixed income securities	1,122	1,180
Recurring basis | Significant other observable inputs (Level 2) | ABS
Assets
Fixed income securities	1,273	1,666
Recurring basis | Significant other observable inputs (Level 2) | RMBS
Assets
Fixed income securities	1,449	1,791
Recurring basis | Significant other observable inputs (Level 2) | CMBS
Assets
Fixed income securities	1,216	1,387
Recurring basis | Significant other observable inputs (Level 2) | Redeemable preferred stock
Assets
Fixed income securities	16	17
Recurring basis | Significant unobservable inputs (Level 3)
Assets
Fixed income securities	1,676	2,060
Equity securities	6	7
Other investments:
Free-standing derivatives, assets	6	3
Other assets	1	1
Total assets at fair value	1,689	2,071
Recurring basis | Significant unobservable inputs (Level 3) | Municipal
Assets
Fixed income securities	225	338
Recurring basis | Significant unobservable inputs (Level 3) | Corporate
Assets
Fixed income securities	1,255	1,501
Recurring basis | Significant unobservable inputs (Level 3) | ABS
Assets
Fixed income securities	190	199
Recurring basis | Significant unobservable inputs (Level 3) | CMBS
Assets
Fixed income securities	5	21
Recurring basis | Significant unobservable inputs (Level 3) | Redeemable preferred stock
Assets
Fixed income securities	1	1
Recurring basis | Counterparty and cash collateral netting
Other investments:
Free-standing derivatives, assets	(14)	(47)
Total assets at fair value	(14)	(47)
Recurring basis | Fair Value
Assets
Fixed income securities	40,440	44,876
Equity securities	550	345
Short-term Investments	744	875
Other investments:
Free-standing derivatives, assets	199	129
Separate account assets	6,488	6,610
Other assets	1	3
Total assets at fair value	48,422	52,838
Non-recurring basis | Significant unobservable inputs (Level 3)
Other investments:
Total assets at fair value	60	6
Non-recurring basis | Fair Value
Other investments:
Total assets at fair value	$ 60	$ 6

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Guarantees and Contingent Liabilities (Details) (Obligations of insolvent insurance companies, USD $) In Millions, unless otherwise specified	Jun. 30, 2013
Obligations of insolvent insurance companies
Guarantees and Contingent Liabilities
Maximum amount at risk pursuant to a guarantee	$ 4

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Derivative Financial Instruments (Details 3) (USD $) In Millions, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Derivative Financial Instruments
Cash flow hedge losses to be reclassified from AOCI during the next twelve months	$ 2		$ 2
Hedge ineffectiveness in realized gains	0	0	0	0
Gain recognized in OCI on derivatives during the period	6	5	9
Loss recognized in OCI on derivatives during the term of the hedging relationship	(7)	(11)	(7)	(11)
Loss reclassified from AOCI into income (net investment income)	(1)		(1)
Loss reclassified from AOCI into income (realized capital gains and losses)				(1)
Derivative Instruments, Gain (Loss)
Derivatives not designated as accounting hedging instruments, total gain (loss) recognized in net income on derivatives	52	11	83	82
Total gain (loss) recognized in net income on derivatives				81
Net investment income
Derivative Instruments, Gain (Loss)
Total gain (loss) recognized in net income on derivatives				(1)
Realized capital gains and losses
Derivative Instruments, Gain (Loss)
Derivatives not designated as accounting hedging instruments, total gain (loss) recognized in net income on derivatives	12	4	19	27
Total gain (loss) recognized in net income on derivatives				27
Contract benefits
Derivative Instruments, Gain (Loss)
Derivatives not designated as accounting hedging instruments, total gain (loss) recognized in net income on derivatives	20	(17)	46	14
Total gain (loss) recognized in net income on derivatives				14
Interest credited to contractholder funds
Derivative Instruments, Gain (Loss)
Derivatives not designated as accounting hedging instruments, total gain (loss) recognized in net income on derivatives	20	24	18	41
Total gain (loss) recognized in net income on derivatives				41
Interest rate contracts
Derivative Instruments, Gain (Loss)
Derivatives in fair value accounting hedging relationships, total gain (loss) recognized in net income on derivatives				(1)
Derivatives not designated as accounting hedging instruments, total gain (loss) recognized in net income on derivatives	3	4	3	3
Interest rate contracts | Net investment income
Derivative Instruments, Gain (Loss)
Derivatives in fair value accounting hedging relationships, total gain (loss) recognized in net income on derivatives				(1)
Interest rate contracts | Realized capital gains and losses
Derivative Instruments, Gain (Loss)
Derivatives not designated as accounting hedging instruments, total gain (loss) recognized in net income on derivatives	3	4	3	3
Equity and index contracts
Derivative Instruments, Gain (Loss)
Derivatives not designated as accounting hedging instruments, total gain (loss) recognized in net income on derivatives	9	(16)	47	37
Equity and index contracts | Interest credited to contractholder funds
Derivative Instruments, Gain (Loss)
Derivatives not designated as accounting hedging instruments, total gain (loss) recognized in net income on derivatives	9	(16)	47	37
Embedded derivative financial instruments
Derivative Instruments, Gain (Loss)
Derivatives not designated as accounting hedging instruments, total gain (loss) recognized in net income on derivatives	34	26	19	34
Embedded derivative financial instruments | Realized capital gains and losses
Derivative Instruments, Gain (Loss)
Derivatives not designated as accounting hedging instruments, total gain (loss) recognized in net income on derivatives		3	(1)	18
Embedded derivative financial instruments | Contract benefits
Derivative Instruments, Gain (Loss)
Derivatives not designated as accounting hedging instruments, total gain (loss) recognized in net income on derivatives	20	(17)	46	14
Embedded derivative financial instruments | Interest credited to contractholder funds
Derivative Instruments, Gain (Loss)
Derivatives not designated as accounting hedging instruments, total gain (loss) recognized in net income on derivatives	14	40	(26)	2
Foreign currency contracts
Derivative Instruments, Gain (Loss)
Derivatives not designated as accounting hedging instruments, total gain (loss) recognized in net income on derivatives		(1)	1	(1)
Foreign currency contracts | Realized capital gains and losses
Derivative Instruments, Gain (Loss)
Derivatives not designated as accounting hedging instruments, total gain (loss) recognized in net income on derivatives		(1)	1	(1)
Credit default swaps
Derivative Instruments, Gain (Loss)
Derivatives not designated as accounting hedging instruments, total gain (loss) recognized in net income on derivatives	9	(2)	16	7
Credit default swaps | Realized capital gains and losses
Derivative Instruments, Gain (Loss)
Derivatives not designated as accounting hedging instruments, total gain (loss) recognized in net income on derivatives	9	(2)	16	7
Other contracts
Derivative Instruments, Gain (Loss)
Derivatives not designated as accounting hedging instruments, total gain (loss) recognized in net income on derivatives	(3)		(3)	2
Other contracts | Interest credited to contractholder funds
Derivative Instruments, Gain (Loss)
Derivatives not designated as accounting hedging instruments, total gain (loss) recognized in net income on derivatives	$ (3)		$ (3)	$ 2

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CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (USD $) In Millions, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012
Investments
Fixed income securities, at fair value (amortized cost $38,494 and $41,194)	$ 40,440	$ 44,876
Mortgage loans	5,803	5,943
Equity securities, at fair value (cost $518 and $310)	550	345
Limited partnership interests	1,946	1,924
Short-term, at fair value (amortized cost $744 and $875)	744	875
Policy loans	818	836
Other	1,114	1,067
Total investments	51,415	55,866
Cash	84	341
Deferred policy acquisition costs	2,047	1,834
Reinsurance recoverables	4,521	4,570
Accrued investment income	492	489
Other assets	449	401
Separate Accounts	6,488	6,610
Total assets	65,496	70,111
Liabilities
Contractholder funds	35,661	38,634
Reserve for life-contingent contract benefits	13,449	14,117
Unearned premiums	19	20
Payable to affiliates, net	87	111
Other liabilities and accrued expenses	1,139	1,286
Deferred income taxes	1,321	1,524
Notes due to related parties	296	496
Separate Accounts	6,488	6,610
Total liabilities	58,460	62,798
Commitments and Contingent Liabilities (Note 7)
Shareholder's Equity
Common stock, $227 par value, 23,800 shares authorized and outstanding	5	5
Additional capital paid-in	3,190	3,190
Retained income	2,744	2,485
Unrealized net capital gains and losses:
Unrealized net capital gains and losses on fixed income securities with OTTI	25	(5)
Other unrealized net capital gains and losses	1,250	2,405
Unrealized adjustment to DAC, DSI and insurance reserves	(177)	(766)
Total unrealized net capital gains and losses	1,098	1,634
Unrealized foreign currency translation adjustments	(1)	(1)
Total accumulated other comprehensive income	1,097	1,633
Total shareholder's equity	7,036	7,313
Total liabilities and shareholder's equity	65,496	70,111
Series A
Shareholder's Equity
Redeemable preferred stock
Series B
Shareholder's Equity
Redeemable preferred stock

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Other Comprehensive Income

6 Months Ended

Jun. 30, 2013

Other Comprehensive Income

Other Comprehensive Income

8.  Other Comprehensive Income

The components of other comprehensive (loss) income on a pre-tax and after-tax basis are as follows:

($ in millions)		Three months ended June 30,
		2013						2012
		Pre- tax		Tax		After- tax		Pre- tax		Tax		After- tax
Unrealized net holding gains and losses arising during the period, net of related offsets	$	(807)	$	282	$	(525)	$	242	$	(85)	$	157
Less: reclassification adjustment of realized capital gains and losses		57		(20)		37		(5)		2		(3)
Unrealized net capital gains and losses		(864)		302		(562)		247		(87)		160
Unrealized foreign currency translation adjustments		(2)		1		(1)		5		(2)		3
Other comprehensive (loss) income	$	(866)	$	303		(563)	$	252	$	(89)		163
Net income						150						98
Comprehensive (loss) income					$	(413)					$	261

		Six months ended June 30,
		2013						2012
		Pre- tax		Tax		After- tax		Pre- tax		Tax		After- tax
Unrealized net holding gains and losses arising during the period, net of related offsets	$	(792)	$	277	$	(515)	$	542	$	(190)	$	352
Less: reclassification adjustment of realized capital gains and losses		33		(12)		21		(56)		20		(36)
Unrealized net capital gains and losses		(825)		289		(536)		598		(210)		388
Unrealized foreign currency translation adjustments		--		--		--		3		(1)		2
Other comprehensive (loss) income	$	(825)	$	289		(536)	$	601	$	(211)		390
Net income						259						181
Comprehensive (loss) income					$	(277)					$	571

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CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY (USD $) In Millions, unless otherwise specified	Total	Common stock	Additional capital paid-in	Retained income	Accumulated other comprehensive income
Balance, beginning of period at Dec. 31, 2011				$ 2,060	$ 812
Increase (decrease) in equity
Net income	181			181
Change in unrealized net capital gains and losses	388				388
Change in unrealized foreign currency translation adjustments	2				2
Balance, end of period at Jun. 30, 2012	6,638	5	3,190	2,241	1,202
Balance, beginning of period at Dec. 31, 2012	7,313			2,485	1,633
Increase (decrease) in equity
Net income	259			259
Change in unrealized net capital gains and losses	(536)				(536)
Balance, end of period at Jun. 30, 2013	$ 7,036	$ 5	$ 3,190	$ 2,744	$ 1,097

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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (USD $) In Millions, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Revenues
Premiums	$ 150	$ 152	$ 295	$ 298
Contract charges	260	256	524	511
Net investment income	619	650	1,240	1,323
Realized capital gains and losses:
Total other-than-temporary impairment losses	(15)	(9)	(16)	(42)
Portion of loss recognized in other comprehensive income	(2)	3	(10)
Net other-than-temporary impairment losses recognized in earnings	(17)	(6)	(26)	(42)
Sales and other realized capital gains and losses	75	13	103	27
Total realized capital gains and losses	58	7	77	(15)
Total revenues	1,087	1,065	2,136	2,117
Costs and expenses
Contract benefits	396	388	777	752
Interest credited to contractholder funds	304	360	643	731
Amortization of deferred policy acquisition costs	51	59	104	140
Operating costs and expenses	114	109	231	221
Restructuring and related charges			2
Interest expense	7	11	15	22
Total costs and expenses	872	927	1,772	1,866
Gain on disposition of operations	1	3	3	6
Income from operations before income tax expense	216	141	367	257
Income tax expense	66	43	108	76
Net income	150	98	259	181
Other comprehensive (loss) income, after-tax
Change in unrealized net capital gains and losses	(562)	160	(536)	388
Change in unrealized foreign currency translation adjustments	(1)	3		2
Other comprehensive (loss) income, after-tax	(563)	163	(536)	390
Comprehensive (loss) income	$ (413)	$ 261	$ (277)	$ 571

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Other Comprehensive Income (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Pre-tax
Unrealized net holding gains and losses arising during the period, net of related offsets	$ (807)	$ 242	$ (792)	$ 542
Less: reclassification adjustment of realized capital gains and losses	57	(5)	33	(56)
Unrealized net capital gains and losses	(864)	247	(825)	598
Unrealized foreign currency translation adjustments	(2)	5		3
Other comprehensive (loss) income	(866)	252	(825)	601
Tax
Unrealized net holding gains and losses arising during the period, net of related offsets	282	(85)	277	(190)
Less: reclassification adjustment of realized capital gains and losses	(20)	2	(12)	20
Unrealized net capital gains and losses	302	(87)	289	(210)
Unrealized foreign currency translation adjustments	1	(2)		(1)
Other comprehensive (loss) income	303	(89)	289	(211)
After-tax
Unrealized net holding gains and losses arising during the period, net of related offsets	(525)	157	(515)	352
Less: reclassification adjustment of realized capital gains and losses	37	(3)	21	(36)
Unrealized net capital gains and losses	(562)	160	(536)	388
Unrealized foreign currency translation adjustments	(1)	3		2
Other comprehensive (loss) income, after-tax	(563)	163	(536)	390
Net income	150	98	259	181
Comprehensive (loss) income	$ (413)	$ 261	$ (277)	$ 571

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Investments (Details 5) (USD $) In Millions, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Investments
Impairment write-downs	$ (16)	$ (6)	$ (18)	$ (26)
Change in intent write-downs	(1)		(8)	(16)
Net other-than-temporary impairment losses recognized in earnings	(17)	(6)	(26)	(42)
Sales	63	9	84
Valuation of derivative instruments	6	(11)	2	(3)
Settlements of derivative instruments	6	15	17	30
Total realized capital gains and losses	58	7	77	(15)
Fixed income securities
Investments
Net other-than-temporary impairment losses recognized in earnings	(3)	(12)	(36)	(46)
Total realized capital gains and losses	24	(6)	6	(56)
Schedule of Available for Sale Securities
Gross gains on sales of fixed income securities	42	32	66	77
Gross losses on sales of fixed income securities	$ 15	$ 31	$ 24	$ 97

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General (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Premiums and contract charges by product
Premiums	$ 150	$ 152	$ 295	$ 298
Contract charges	260	256	524	511
Total premiums and contract charges	410	408	819	809
Traditional life insurance
Premiums and contract charges by product
Premiums	116	114	228	223
Immediate annuities with life contingencies
Premiums and contract charges by product
Premiums	9	14	16	26
Accident and health insurance
Premiums and contract charges by product
Premiums	25	24	51	49
Interest-sensitive life insurance
Premiums and contract charges by product
Contract charges	256	251	517	500
Fixed annuities
Premiums and contract charges by product
Contract charges	$ 4	$ 5	$ 7	$ 11

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Derivative Financial Instruments (Details 2) (USD $) In Millions, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012
Asset derivatives
Asset derivatives gross amount	$ 209	$ 169
Liability derivatives
Liability derivatives gross amount	(669)	(664)
OTC derivatives
Asset derivatives
Asset derivatives gross amount	21	52
Offsets of derivative assets under counterparty netting	(11)	(29)
Derivative asset offsets under cash collateral received	(3)	(18)
Derivative assets net amount on balance sheet	7	5
Derivative assets pledged under securities collateral	(2)	(5)
Derivative assets net amount	5
Liability derivatives
Liability derivatives gross amount	(26)	(63)
Offsets of derivative liabilities under counterparty netting	11	29
Derivative liability offsets under cash collateral pledged	(1)
Derivative liabilities net amount on balance sheet	(16)	(34)
Derivative liabilities received under securities collateral	20	25
Derivative liabilities net amount	$ 4	$ (9)

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Fair Value of Assets and Liabilities (Details 3) (USD $) In Millions, unless otherwise specified	3 Months Ended		6 Months Ended		3 Months Ended		6 Months Ended		3 Months Ended		6 Months Ended		3 Months Ended		6 Months Ended		3 Months Ended		6 Months Ended			3 Months Ended		6 Months Ended		3 Months Ended	6 Months Ended				3 Months Ended		6 Months Ended		3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013 Fixed income securities	Jun. 30, 2012 Fixed income securities	Jun. 30, 2013 Fixed income securities	Jun. 30, 2012 Fixed income securities	Jun. 30, 2013 Municipal	Jun. 30, 2012 Municipal	Jun. 30, 2013 Municipal	Jun. 30, 2012 Municipal	Jun. 30, 2013 Corporate	Jun. 30, 2012 Corporate	Jun. 30, 2013 Corporate	Jun. 30, 2012 Corporate	Jun. 30, 2013 ABS	Jun. 30, 2012 ABS	Jun. 30, 2013 ABS	Jun. 30, 2012 ABS	Jun. 30, 2012 RMBS	Jun. 30, 2013 CMBS	Jun. 30, 2012 CMBS	Jun. 30, 2013 CMBS	Jun. 30, 2012 CMBS	Jun. 30, 2012 Redeemable preferred stock	Jun. 30, 2012 Redeemable preferred stock	Jun. 30, 2013 Redeemable preferred stock	Mar. 31, 2013 Redeemable preferred stock	Dec. 31, 2012 Redeemable preferred stock	Jun. 30, 2013 Equity securities	Jun. 30, 2012 Equity securities	Jun. 30, 2013 Equity securities	Jun. 30, 2012 Equity securities	Jun. 30, 2013 Free-standing derivatives, net	Jun. 30, 2012 Free-standing derivatives, net	Jun. 30, 2013 Free-standing derivatives, net	Jun. 30, 2012 Free-standing derivatives, net	Jun. 30, 2013 Other assets	Mar. 31, 2013 Other assets	Dec. 31, 2012 Other assets	Jun. 30, 2012 Other assets	Mar. 31, 2012 Other assets	Dec. 31, 2011 Other assets
Rollforward of Level 3 assets held at fair value on a recurring basis
Balance at beginning of period	$ 1,820	$ 1,959	$ 2,041	$ 1,965	$ 1,832	$ 2,014	$ 2,060	$ 2,038	$ 251	$ 387	$ 338	$ 387	$ 1,363	$ 1,329	$ 1,501	$ 1,319	$ 211	$ 277	$ 199	$ 254	$ 47	$ 6	$ 20	$ 21	$ 30	$ 1	$ 1	$ 1	$ 1	$ 1	$ 7	$ 14	$ 7	$ 14	$ (20)	$ (70)	$ (27)	$ (88)	$ 1	$ 1	$ 1	$ 1	$ 1	$ 1
Total gains (losses) included in: net income	21	14	28	46	6	17	6	34			(12)		8	2	20	7	(1)	16	(1)	29		(1)	(1)	(1)	(2)										15	(3)	22	12
Total gains (losses) included in: OCI	(34)	(2)	(1)	43	(34)	(3)	(1)	42	(6)	2	20	2	(36)	(6)	(38)	20	8	(1)	15	12			2	2	8							1		1
Transfers into Level 3	38	77	80	133	38	77	80	133					38	77	63	133			17
Transfers out of Level 3	(59)	(10)	(184)	(67)	(59)	(10)	(184)	(67)		(10)		(10)	(43)		(168)	(10)	(16)		(16)		(47)
Purchases	21	34	94	56	21	26	93	45					21	25	93	44										1	1					5		5		3	1	6
Sales	(48)	(53)	(283)	(107)	(47)	(48)	(282)	(102)	(20)	(16)	(121)	(16)	(27)	(20)	(136)	(74)		(11)	(8)	(11)				(17)		(1)	(1)				(1)	(5)	(1)	(5)
Settlements	(83)	(12)	(99)	(62)	(81)	(11)	(96)	(61)					(69)	(4)	(80)	(36)	(12)	(7)	(16)	(10)					(15)										(2)	(1)	(3)	(1)
Balance at end of period	1,676	2,007	1,676	2,007	1,676	2,062	1,676	2,062	225	363	225	363	1,255	1,403	1,255	1,403	190	274	190	274		5	21	5	21	1	1	1	1	1	6	15	6	15	(7)	(71)	(7)	(71)	1	1	1	1	1	1
Fair value assets and liabilities measured on recurring basis, gain (loss) included in earnings
Total realized and unrealized gains (losses) included in net income, recurring Level 3 assets and liabilities	78	30	91	37
Effect to net income included in realized capital gains and losses	15	9	17	35
Effect to net income included in investment income	4	6	9	12
Effect to net income included in interest credited to contract holder funds	39	32	19	(24)
Effect to net income included in contract benefits	20	(17)	46	14
Free-standing derivatives, assets	6	1	6	1
Free-standing derivatives, liabilities	13	72	13	72
Assets transferred between Level 1 and Level 2	0	0	0	0
Liabilities transferred between Level 1 and Level 2	$ 0	$ 0	$ 0	$ 0

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Investments (Details 11) (USD $) In Millions, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012	Dec. 31, 2012
Other details of unrealized loss
Unrealized losses related to securities with unrealized loss position less than 20% of amortized cost or cost	$ 459		$ 459
Unrealized losses related to securities with unrealized loss position greater than or equal to 20% of amortized cost or cost	122		122
Limited partnerships
Limited partnership interests	1,946		1,946		1,924
Write-downs of limited partnership	15	9	16	42
Equity method limited partnerships
Limited partnerships
Limited partnership interests	1,340		1,340		1,310
Write-downs of limited partnership	0	0	0	0
Cost method limited partnership interests
Limited partnerships
Limited partnership interests	611		611		617
Write-downs of limited partnership	4	1	4	2
Investment grade fixed income securities
Other details of unrealized loss
Unrealized losses related to securities with unrealized loss position less than 20% of amortized cost or cost	387		387
Unrealized losses related to securities with unrealized loss position greater than or equal to 20% of amortized cost or cost	59		59
Below investment grade fixed income securities
Other details of unrealized loss
Unrealized losses related to securities with unrealized loss position greater than or equal to 20% of amortized cost or cost	63		63
Unrealized losses related to securities with unrealized loss position greater than 20% of cost or amortized cost, unrealized loss position of 12 or more consecutive months	48		48
Equity securities
Limited partnerships
Write-downs of limited partnership	$ 1		$ 1

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Investments (Details 12) (USD $) In Millions, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012	Dec. 31, 2012
Carrying value of non-impaired fixed rate and variable rate mortgage loans by debt service coverage ratio distribution
Total mortgage loans	$ 5,803		$ 5,803		$ 5,943
Net carrying value of impaired mortgage loans
Impaired mortgage loans with a valuation allowance	67		67		147
Impaired mortgage loans without a valuation allowance					8
Total impaired mortgage loans	67		67		155
Valuation allowance on impaired mortgage loans	21	48	21	48
Rollforward of the valuation allowance on impaired mortgage loans
Beginning balance	15	60	42	63
Net increase (decrease) in valuation allowance	9	(7)	(17)	(4)
Charge offs	(3)	(5)	(4)	(11)
Ending balance	21	48	21	48
Carrying value of past due mortgage loans
Less than 90 days past due					20
90 days or greater past due	3		3		4
Total past due	3		3		24
Current loans	5,800		5,800		5,919
Total mortgage loans	5,803		5,803		5,943
Non-impaired mortgage loans
Carrying value of non-impaired fixed rate and variable rate mortgage loans by debt service coverage ratio distribution
Fixed rate mortgage loans	5,591		5,591		5,642
Variable rate mortgage loans	145		145		146
Total mortgage loans	5,736		5,736		5,788
Non-impaired mortgage loans | Below 1.0
Carrying value of non-impaired fixed rate and variable rate mortgage loans by debt service coverage ratio distribution
Fixed rate mortgage loans	224		224		266
Total mortgage loans	224		224		266
Non-impaired mortgage loans | 1.0 - 1.25
Carrying value of non-impaired fixed rate and variable rate mortgage loans by debt service coverage ratio distribution
Fixed rate mortgage loans	1,128		1,128		1,158
Variable rate mortgage loans	8		8
Total mortgage loans	1,136		1,136		1,158
Non-impaired mortgage loans | 1.26 - 1.50
Carrying value of non-impaired fixed rate and variable rate mortgage loans by debt service coverage ratio distribution
Fixed rate mortgage loans	1,207		1,207		1,364
Variable rate mortgage loans	3		3		17
Total mortgage loans	1,210		1,210		1,381
Non-impaired mortgage loans | Above 1.50
Carrying value of non-impaired fixed rate and variable rate mortgage loans by debt service coverage ratio distribution
Fixed rate mortgage loans	3,032		3,032		2,854
Variable rate mortgage loans	134		134		129
Total mortgage loans	3,166		3,166		2,983
Mortgage loans
Average carrying value and interest income recognized on impaired mortgage loans
Average balance impaired mortgage loans			$ 88	$ 226

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Guarantees and Contingent Liabilities

6 Months Ended

Jun. 30, 2013

Guarantees and Contingent Liabilities

Guarantees and Contingent Liabilities

7.  Guarantees and Contingent Liabilities

Guaranty funds

Under state insurance guaranty fund laws, insurers doing business in a state can be assessed, up to prescribed limits, for certain obligations of insolvent insurance companies to policyholders and claimants.  Amounts assessed to each company are typically related to its proportion of business written in each state.  The Company’s policy is to accrue assessments when the entity for which the insolvency relates has met its state of domicile’s statutory definition of insolvency and the amount of the loss is reasonably estimable.  In most states, the definition is met with a declaration of financial insolvency by a court of competent jurisdiction.  In certain states there must also be a final order of liquidation.

Executive Life Insurance Company of New York (“ELNY”) has been under the jurisdiction of the New York Liquidation Bureau (the “Bureau”) as part of a 1992 court-ordered rehabilitation plan.  ELNY continues to fully pay annuity benefits when due.  The Superintendent of Insurance of the State of New York in conjunction with the New York Attorney General filed a proposed formal plan of liquidation on September 1, 2011 and a court order approving the plan, as amended, was entered on April 16, 2012.  On May 30, 2012, an attorney representing a number of ELNY payees filed a notice, appealing the ELNY Order of Liquidation.  On February 6, 2013, the New York Appellate Division issued its order on that appeal and affirmed the lower court’s order of liquidation.  On March 8, 2013, the attorney representing those payees filed a further appeal.  On May 2, 2013, the motion of leave to appeal the ELNY liquidation plan was denied by the NY Court of Appeals.  No further appeals are expected.

During second quarter 2013, the Company received and paid assessments from certain state guaranty associations.  The Company previously accrued a liability for the Company’s estimated aggregate exposure for guaranty fund assessments and participation in an industry sponsored plan to supplement certain ELNY policyholders.  The ultimate cost will depend on the level of guaranty fund system participation and the realization of tax benefits.  Under current law, the Company may be allowed to recoup a portion of the amount of any additional guaranty fund assessment in periods subsequent to the recognition of the assessment by offsetting future state related taxes.

Guarantees

The Company owns certain fixed income securities that obligate the Company to exchange credit risk or to forfeit principal due, depending on the nature or occurrence of specified credit events for the reference entities.  In the event all such specified credit events were to occur, the Company’s maximum amount at risk on these fixed income securities, as measured by the amount of the aggregate initial investment, was $4 million as of June 30, 2013.  The obligations associated with these fixed income securities expire at various dates on or before March 11, 2018.

Related to the disposal through reinsurance of substantially all of the Company’s variable annuity business to Prudential in 2006, the Company and the Corporation have agreed to indemnify Prudential for certain pre-closing contingent liabilities (including extra-contractual liabilities of the Company and liabilities specifically excluded from the transaction) that the Company has agreed to retain.  In addition, the Company and the Corporation will each indemnify Prudential for certain post-closing liabilities that may arise from the acts of the Company and its agents, including in connection with the Company’s provision of transition services.  The reinsurance agreements contain no limitations or indemnifications with regard to insurance risk transfer, and transferred all of the future risks and responsibilities for performance on the underlying variable annuity contracts to Prudential, including those related to benefit guarantees.  Management does not believe this agreement will have a material effect on results of operations, cash flows or financial position of the Company.

In the normal course of business, the Company provides standard indemnifications to contractual counterparties in connection with numerous transactions, including acquisitions and divestitures.  The types of indemnifications typically provided include indemnifications for breaches of representations and warranties, taxes and certain other liabilities, such as third party lawsuits.  The indemnification clauses are often standard contractual terms and are entered into in the normal course of business based on an assessment that the risk of loss would be remote.  The terms of the indemnifications vary in duration and nature.  In many cases, the maximum obligation is not explicitly stated and the contingencies triggering the obligation to indemnify have not occurred and are not expected to occur.  Consequently, the maximum amount of the obligation under such indemnifications is not determinable.  Historically, the Company has not made any material payments pursuant to these obligations.

The aggregate liability balance related to all guarantees was not material as of June 30, 2013.

Regulation and Compliance

The Company is subject to changing social, economic and regulatory conditions.  From time to time, regulatory authorities or legislative bodies seek to impose additional regulations regarding agent and broker compensation, regulate the nature of and amount of investments, and otherwise expand overall regulation of insurance products and the insurance industry.  The Company has established procedures and policies to facilitate compliance with laws and regulations, to foster prudent business operations, and to support financial reporting.  The Company routinely reviews its practices to validate compliance with laws and regulations and with internal procedures and policies.  As a result of these reviews, from time to time the Company may decide to modify some of its procedures and policies.  Such modifications, and the reviews that led to them, may be accompanied by payments being made and costs being incurred.  The ultimate changes and eventual effects of these actions on the Company’s business, if any, are uncertain.

The Company is currently being examined by certain states for compliance with unclaimed property laws.  It is possible that this examination may result in additional payments of abandoned funds to states and to changes in the Company’s practices and procedures for the identification of escheatable funds, which could impact benefit payments and reserves, among other consequences; however, it is not likely to have a material effect on the condensed consolidated financial statements of the Company.

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Investments (Details 6) (USD $) In Millions, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Other-than-temporary impairment losses by asset type
Total other-than-temporary impairment losses	$ (15)	$ (9)	$ (16)	$ (42)
Portion of loss recognized in other comprehensive income	(2)	3	(10)
Net other-than-temporary impairment losses recognized in earnings	(17)	(6)	(26)	(42)
Fixed income securities
Other-than-temporary impairment losses by asset type
Total other-than-temporary impairment losses	(1)	(15)	(26)	(46)
Portion of loss recognized in other comprehensive income	(2)	3	(10)
Net other-than-temporary impairment losses recognized in earnings	(3)	(12)	(36)	(46)
Municipal
Other-than-temporary impairment losses by asset type
Total other-than-temporary impairment losses	(1)		(8)
Net other-than-temporary impairment losses recognized in earnings	(1)		(8)
ABS
Other-than-temporary impairment losses by asset type
Portion of loss recognized in other comprehensive income	(1)		(1)
Net other-than-temporary impairment losses recognized in earnings	(1)		(1)
Corporate
Other-than-temporary impairment losses by asset type
Total other-than-temporary impairment losses		(1)		(14)
Net other-than-temporary impairment losses recognized in earnings		(1)		(14)
RMBS
Other-than-temporary impairment losses by asset type
Total other-than-temporary impairment losses		(5)	1	(17)
Portion of loss recognized in other comprehensive income			(1)	(3)
Net other-than-temporary impairment losses recognized in earnings		(5)		(20)
CMBS
Other-than-temporary impairment losses by asset type
Total other-than-temporary impairment losses		(9)	(19)	(15)
Portion of loss recognized in other comprehensive income	(1)	3	(8)	3
Net other-than-temporary impairment losses recognized in earnings	(1)	(6)	(27)	(12)
Mortgage loans
Other-than-temporary impairment losses by asset type
Total other-than-temporary impairment losses	(9)	7	17	4
Net other-than-temporary impairment losses recognized in earnings	(9)	7	17	4
Equity securities
Other-than-temporary impairment losses by asset type
Total other-than-temporary impairment losses	(1)		(1)
Net other-than-temporary impairment losses recognized in earnings	(1)		(1)
Limited partnership interests
Other-than-temporary impairment losses by asset type
Total other-than-temporary impairment losses	(4)	(1)	(4)	(2)
Net other-than-temporary impairment losses recognized in earnings	(4)	(1)	(4)	(2)
Other
Other-than-temporary impairment losses by asset type
Total other-than-temporary impairment losses			(2)	2
Net other-than-temporary impairment losses recognized in earnings			$ (2)	$ 2

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Fair Value of Assets and Liabilities (Details 6) (USD $) In Millions, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012	Jun. 30, 2012	Dec. 31, 2011
Financial assets
Mortgage loans	$ 5,803	$ 5,943
Financial liabilities
Notes due to related parties	296	496
Liability for collateral	446	561	425	263
Carrying value
Financial assets
Mortgage loans	5,803	5,943
Cost method limited partnerships	611	617
Agent Loans	321	319
Bank loans	261	282
Notes due from related party	275	275
Financial liabilities
Contract holder funds on investment contracts	23,989	26,984
Notes due to related parties	296	496
Liability for collateral	446	561
Fair Value
Financial assets
Mortgage loans	6,054	6,223
Cost method limited partnerships	793	778
Agent Loans	306	314
Bank loans	260	282
Notes due from related party	275	275
Financial liabilities
Contract holder funds on investment contracts	24,646	27,989
Notes due to related parties	296	496
Liability for collateral	$ 446	$ 561

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General (Tables)

6 Months Ended

Jun. 30, 2013

General

Summary of premiums and contract charges by product

($ in millions)		Three months ended June 30,				Six months ended June 30,
		2013		2012		2013		2012
Premiums
Traditional life insurance	$	116	$	114	$	228	$	223
Immediate annuities with life contingencies		9		14		16		26
Accident and health insurance		25		24		51		49
Total premiums		150		152		295		298
Contract charges
Interest-sensitive life insurance		256		251		517		500
Fixed annuities		4		5		7		11
Total contract charges		260		256		524		511
Total premiums and contract charges	$	410	$	408	$	819	$	809

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Reinsurance

6 Months Ended

Jun. 30, 2013

Reinsurance

Reinsurance

6.  Reinsurance

The effects of reinsurance on premiums and contract charges are as follows:

($ in millions)		Three months ended June 30,				Six months ended June 30,
		2013		2012		2013		2012
Direct	$	520	$	536	$	1,035	$	1,071
Assumed
Affiliate		31		29		61		57
Non-affiliate		17		4		34		9
Ceded-non-affiliate		(158)		(161)		(311)		(328)
Premiums and contract charges, net of reinsurance	$	410	$	408	$	819	$	809

The effects of reinsurance on contract benefits are as follows:

($ in millions)		Three months ended June 30,				Six months ended June 30,
		2013		2012		2013		2012
Direct	$	441	$	499	$	871	$	901
Assumed
Affiliate		18		17		40		35
Non-affiliate		12		5		25		10
Ceded-non-affiliate		(75)		(133)		(159)		(194)
Contract benefits, net of reinsurance	$	396	$	388	$	777	$	752

The effects of reinsurance on interest credited to contractholder funds are as follows:

($ in millions)		Three months ended June 30,				Six months ended June 30,
		2013		2012		2013		2012
Direct	$	302	$	360	$	637	$	734
Assumed
Affiliate		3		3		5		5
Non-affiliate		8		4		15		6
Ceded-non-affiliate		(9)		(7)		(14)		(14)
Interest credited to contractholder funds, net of reinsurance	$	304	$	360	$	643	$	731

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General

6 Months Ended

Jun. 30, 2013

General

General

1.  General

Basis of presentation

The accompanying condensed consolidated financial statements include the accounts of Allstate Life Insurance Company (“ALIC”) and its wholly owned subsidiaries (collectively referred to as the “Company”).  ALIC is wholly owned by Allstate Insurance Company (“AIC”), which is wholly owned by Allstate Insurance Holdings, LLC, a wholly owned subsidiary of The Allstate Corporation (the “Corporation”).

The condensed consolidated financial statements and notes as of June 30, 2013 and for the three-month and six-month periods ended June 30, 2013 and 2012 are unaudited.  The condensed consolidated financial statements reflect all adjustments (consisting only of normal recurring accruals) which are, in the opinion of management, necessary for the fair presentation of the financial position, results of operations and cash flows for the interim periods.  These condensed consolidated financial statements and notes should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012.  The results of operations for the interim periods should not be considered indicative of results to be expected for the full year.  All significant intercompany accounts and transactions have been eliminated.

Premiums and contract charges

The following table summarizes premiums and contract charges by product.

($ in millions)		Three months ended June 30,				Six months ended June 30,
		2013		2012		2013		2012
Premiums
Traditional life insurance	$	116	$	114	$	228	$	223
Immediate annuities with life contingencies		9		14		16		26
Accident and health insurance		25		24		51		49
Total premiums		150		152		295		298
Contract charges
Interest-sensitive life insurance		256		251		517		500
Fixed annuities		4		5		7		11
Total contract charges		260		256		524		511
Total premiums and contract charges	$	410	$	408	$	819	$	809

Adopted accounting standards

Disclosures about Offsetting Assets and Liabilities

In December 2011 and January 2013, the Financial Accounting Standards Board (“FASB”) issued guidance requiring expanded disclosures, including both gross and net information, for derivatives, repurchase and reverse repurchase agreements, and securities borrowing and securities lending transactions that are either offset in the reporting entity’s financial statements or those that are subject to an enforceable master netting arrangement or similar agreement.  The Company adopted the new guidance in the first quarter of 2013.  The new guidance affects disclosures only and therefore had no impact on the Company’s results of operations or financial position.

Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income

In February 2013, the FASB issued guidance requiring expanded disclosures about the amounts reclassified out of accumulated other comprehensive income by component.  The guidance requires the presentation of significant amounts reclassified out of accumulated other comprehensive income by income statement line item but only if the amount reclassified is required under accounting principles generally accepted in the United States of America (“GAAP”) to be reclassified to net income in its entirety in the same reporting period.  For other amounts that are not required under GAAP to be reclassified in their entirety to net income, cross-reference to other disclosures that provide additional detail about those amounts is required.  The Company adopted the new guidance in the first quarter of 2013.  The new guidance affects disclosures only and therefore had no impact on the Company’s results of operations or financial position.

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Subsequent Event (Details) (Subsequent event, Expected impact, Sale agreement, USD $) In Millions, unless otherwise specified	0 Months Ended
	Jul. 17, 2013
Subsequent event
Sale price of Lincoln Benefit Life Company and its business generated through independent master brokerage agencies	$ 600
Minimum
Subsequent event
Estimated after-tax loss on disposition	(475)
Estimated increase (decrease) in shareholders' equity	(575)
Maximum
Subsequent event
Estimated after-tax loss on disposition	(525)
Estimated increase (decrease) in shareholders' equity	$ (675)

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Derivative Financial Instruments (Details 5) (USD $) In Millions, unless otherwise specified	Jun. 30, 2013 party	Dec. 31, 2012 party
Derivative Financial Instruments
Cash and securities pledged as collateral by counterparties	$ 7
Securities pledged as collateral to counterparties	21
Collateral posted under MNAs for contracts without credit-risk-contingent liabilities	12
Credit Derivatives
Number of counter-parties	8	7
Notional amount	1,913	6,199
Credit exposure	10	24
Exposure, net of collateral	5	1
Gross liability fair value of contracts containing credit-risk-contingent features	19	62
Gross asset fair value of contracts containing credit-risk-contingent features and subject to MNAs	(10)	(28)
Collateral posted under MNAs for contracts containing credit-risk-contingent features	(9)	(25)
Maximum amount of additional exposure for contracts with credit-risk-contingent features if all features were triggered concurrently		9
A+
Credit Derivatives
Number of counter-parties	1	1
Notional amount	887	19
Credit exposure	2
Exposure, net of collateral	2
A
Credit Derivatives
Number of counter-parties	4	3
Notional amount	123	2,252
Credit exposure	3	12
Exposure, net of collateral	1
A-
Credit Derivatives
Number of counter-parties	2	2
Notional amount	94	311
Credit exposure	1	1
Exposure, net of collateral	1	1
BBB+
Credit Derivatives
Number of counter-parties	1	1
Notional amount	809	3,617
Credit exposure	4	11
Exposure, net of collateral	$ 1

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Investments (Details 9) (USD $) In Millions, unless otherwise specified	6 Months Ended
	Jun. 30, 2013
Change in Unrealized Gain (Loss) Recognized in Accumulated Other Comprehensive Income (Loss)
Change in unrealized net capital gains and losses	$ (1,731)
Amount recognized for:
Insurance reserves	695
DAC and DSI	211
Amounts recognized	906
Deferred income taxes	289
Decrease in unrealized net capital gains and losses	(536)
EMA limited partnerships
Change in Unrealized Gain (Loss) Recognized in Accumulated Other Comprehensive Income (Loss)
Change in unrealized net capital gains and losses	(2)
Fixed income securities
Change in Unrealized Gain (Loss) Recognized in Accumulated Other Comprehensive Income (Loss)
Change in unrealized net capital gains and losses	(1,736)
Equity securities
Change in Unrealized Gain (Loss) Recognized in Accumulated Other Comprehensive Income (Loss)
Change in unrealized net capital gains and losses	(3)
Derivative instruments
Change in Unrealized Gain (Loss) Recognized in Accumulated Other Comprehensive Income (Loss)
Change in unrealized net capital gains and losses	$ 10

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Fair Value of Assets and Liabilities (Tables)

6 Months Ended

Jun. 30, 2013

Fair Value of Assets and Liabilities

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

($ 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 June 30, 2013
Assets
Fixed income securities:
U.S. government and agencies	$	221	$	954	$	--			$	1,175
Municipal		--		4,017		225				4,242
Corporate		--		28,496		1,255				29,751
Foreign government		--		1,122		--				1,122
ABS		--		1,273		190				1,463
RMBS		--		1,449		--				1,449
CMBS		--		1,216		5				1,221
Redeemable preferred stock		--		16		1				17
Total fixed income securities		221		38,543		1,676				40,440
Equity securities		495		49		6				550
Short-term investments		117		627		--				744
Other investments:
Free-standing derivatives		--		207		6	$	(14)		199
Separate account assets		6,488		--		--				6,488
Other assets		--		--		1				1
Total recurring basis assets		7,321		39,426		1,689		(14)		48,422
Non-recurring basis (1)		--		--		60				60
Total assets at fair value	$	7,321	$	39,426	$	1,749	$	(14)	$	48,482
% of total assets at fair value		15.1 %		81.3 %		3.6 %		-- %		100.0 %
Liabilities
Contractholder funds:
Derivatives embedded in life and annuity contracts	$	--	$	--	$	(533)			$	(533)
Other liabilities:
Free-standing derivatives		--		(130)		(13)	$	10		(133)
Total liabilities at fair value	$	--	$	(130)	$	(546)	$	10	$	(666)
% of total liabilities at fair value		-- %		19.5 %		82.0 %		(1.5) %		100.0 %

________________

(1) Includes $47 million of mortgage loans and $13 million of limited partnership interests written-down to fair value in connection with recognizing other-than-temporary impairments.

($ 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.

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

($ in millions)	Fair value		Valuation technique	Unobservable input	Range	Weighted average
June 30, 2013
ARS backed by student loans	$	95	Discounted cash flow model	Anticipated date liquidity will return to the market	36 - 54 months	38 - 50 months
Derivatives embedded in life and annuity contracts - Equity-indexed and forward starting options	$	(445)	Stochastic cash flow model	Projected option cost	1.0 - 2.0 %	1.87 %
December 31, 2012
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 March 31, 2013		Net income (1)		OCI		Transfers into Level 3		Transfers out of Level 3
Assets
Fixed income securities:
Municipal	$	251	$	--	$	(6)	$	--	$	--
Corporate		1,363		8		(36)		38		(43)
ABS		211		(1)		8		--		(16)
CMBS		6		(1)		--		--		--
Redeemable preferred stock		1		--		--		--		--
Total fixed income securities		1,832		6		(34)		38		(59)
Equity securities		7		--		--		--		--
Other investments:
Free-standing derivatives, net		(20)		15		--		--		--
Other assets		1		--		--		--		--
Total recurring Level 3 assets	$	1,820	$	21	$	(34)	$	38	$	(59)
Liabilities
Contractholder funds:
Derivatives embedded in life and annuity contracts	$	(567)	$	57	$	--	$	--	$	--
Total recurring Level 3 liabilities	$	(567)	$	57	$	--	$	--	$	--
		Purchases		Sales		Issues		Settlements		Balance as of June 30, 2013
Assets
Fixed income securities:
Municipal	$	--	$	(20)	$	--	$	--	$	225
Corporate		21		(27)		--		(69)		1,255
ABS		--		--		--		(12)		190
CMBS		--		--		--		--		5
Redeemable preferred stock		--		--		--		--		1
Total fixed income securities		21		(47)		--		(81)		1,676
Equity securities		--		(1)		--		--		6
Other investments:
Free-standing derivatives, net		--		--		--		(2)		(7)	(2)
Other assets		--		--		--		--		1
Total recurring Level 3 assets	$	21	$	(48)	$	--	$	(83)	$	1,676
Liabilities
Contractholder funds:
Derivatives embedded in life and annuity contracts	$	--	$	--	$	(26)	$	3	$	(533)
Total recurring Level 3 liabilities	$	--	$	--	$	(26)	$	3	$	(533)

_____________

(1) The effect to net income totals $78 million and is reported in the Condensed Consolidated Statements of Operations and Comprehensive Income as follows: $15 million in realized capital gains and losses, $4 million in net investment income, $39 million in interest credited to contractholder funds and $20 million in contract benefits.

(2) Comprises $6 million of assets and $13 million of liabilities.

($ in millions)				Total gains (losses) included in:
		Balance as of December 31, 2012		Net income (1)		OCI		Transfers into Level 3		Transfers out of Level 3
Assets
Fixed income securities:
Municipal	$	338	$	(12)	$	20	$	--	$	--
Corporate		1,501		20		(38)		63		(168)
ABS		199		(1)		15		17		(16)
CMBS		21		(1)		2		--		--
Redeemable preferred stock		1		--		--		--		--
Total fixed income securities		2,060		6		(1)		80		(184)
Equity securities		7		--		--		--		--
Other investments:
Free-standing derivatives, net		(27)		22		--		--		--
Other assets		1		--		--		--		--
Total recurring Level 3 assets	$	2,041	$	28	$	(1)	$	80	$	(184)
Liabilities
Contractholder funds:
Derivatives embedded in life and annuity contracts	$	(553)	$	63	$	--	$	--	$	--
Total recurring Level 3 liabilities	$	(553)	$	63	$	--	$	--	$	--
		Purchases		Sales		Issues		Settlements		Balance as of June 30, 2013
Assets
Fixed income securities:
Municipal	$	--	$	(121)	$	--	$	--	$	225
Corporate		93		(136)		--		(80)		1,255
ABS		--		(8)		--		(16)		190
CMBS		--		(17)		--		--		5
Redeemable preferred stock		--		--		--		--		1
Total fixed income securities		93		(282)		--		(96)		1,676
Equity securities		--		(1)		--		--		6
Other investments:
Free-standing derivatives, net		1		--		--		(3)		(7)	(2)
Other assets		--		--		--		--		1
Total recurring Level 3 assets	$	94	$	(283)	$	--	$	(99)	$	1,676
Liabilities
Contractholder funds:
Derivatives embedded in life and annuity contracts	$	--	$	--	$	(50)	$	7	$	(533)
Total recurring Level 3 liabilities	$	--	$	--	$	(50)	$	7	$	(533)

____________

(1) The effect to net income totals $91 million and is reported in the Condensed Consolidated Statements of Operations and Comprehensive Income as follows: $17 million in realized capital gains and losses, $9 million in net investment income, $19 million in interest credited to contractholder funds and $46 million in contract benefits.

(2) Comprises $6 million of assets and $13 million of liabilities.

($ in millions)				Total gains (losses) included in:
		Balance as of March 31, 2012		Net income (1)		OCI		Transfers into Level 3		Transfers out of Level 3
Assets
Fixed income securities:
Municipal	$	387	$	--	$	2	$	--	$	(10)
Corporate		1,329		2		(6)		77		--
ABS		277		16		(1)		--		--
CMBS		20		(1)		2		--		--
Redeemable preferred stock		1		--		--		--		--
Total fixed income securities		2,014		17		(3)		77		(10)
Equity securities		14		--		1		--		--
Other investments:
Free-standing derivatives, net		(70)		(3)		--		--		--
Other assets		1		--		--		--		--
Total recurring Level 3 assets	$	1,959	$	14	$	(2)	$	77	$	(10)
Liabilities
Contractholder funds:
Derivatives embedded in life and annuity contracts	$	(730)	$	16	$	--	$	--	$	--
Total recurring Level 3 liabilities	$	(730)	$	16	$	--	$	--	$	--
		Purchases		Sales		Issues		Settlements		Balance as of June 31, 2012
Assets
Fixed income securities:
Municipal	$	--	$	(16)	$	--	$	--	$	363
Corporate		25		(20)		--		(4)		1,403
ABS		--		(11)		--		(7)		274
CMBS		--		--		--		--		21
Redeemable preferred stock		1		(1)		--		--		1
Total fixed income securities		26		(48)		--		(11)		2,062
Equity securities		5		(5)		--		--		15
Other investments:
Free-standing derivatives, net		3		--		--		(1)		(71)	(2)
Other assets		--		--		--		--		1
Total recurring Level 3 assets	$	34	$	(53)	$	--	$	(12)	$	2,007
Liabilities
Contractholder funds:
Derivatives embedded in life and annuity contracts	$	--	$	--	$	(17)	$	24	$	(707)
Total recurring Level 3 liabilities	$	--	$	--	$	(17)	$	24	$	(707)

____________

(1) The effect to net income totals $30 million and is reported in the Condensed Consolidated Statements of Operations and Comprehensive Income as follows: $9 million in realized capital gains and losses, $6 million in net investment income, $32 million in interest credited to contractholder funds and $(17) million in contract benefits.

(2) Comprises $1 million of assets and $72 million of liabilities.

($ 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	$	--	$	2	$	--	$	(10)
Corporate		1,319		7		20		133		(10)
ABS		254		29		12		--		--
RMBS		47		--		--		--		(47)
CMBS		30		(2)		8		--		--
Redeemable preferred stock		1		--		--		--		--
Total fixed income securities		2,038		34		42		133		(67)
Equity securities		14		--		1		--		--
Other investments:
Free-standing derivatives, net		(88)		12		--		--		--
Other assets		1		--		--		--		--
Total recurring Level 3 assets	$	1,965	$	46	$	43	$	133	$	(67)
Liabilities
Contractholder funds:
Derivatives embedded in life and annuity contracts	$	(723)	$	(9)	$	--	$	--	$	--
Total recurring Level 3 liabilities	$	(723)	$	(9)	$	--	$	--	$	--
		Purchases		Sales		Issues		Settlements		Balance as of June 30, 2012
Assets
Fixed income securities:
Municipal	$	--	$	(16)	$	--	$	--	$	363
Corporate		44		(74)		--		(36)		1,403
ABS		--		(11)		--		(10)		274
RMBS		--		--		--		--		--
CMBS		--		--		--		(15)		21
Redeemable preferred stock		1		(1)		--		--		1
Total fixed income securities		45		(102)		--		(61)		2,062
Equity securities		5		(5)		--		--		15
Other investments:
Free-standing derivatives, net		6		--		--		(1)		(71)	(2)
Other assets		--		--		--		--		1
Total recurring Level 3 assets	$	56	$	(107)	$	--	$	(62)	$	2,007
Liabilities
Contractholder funds:
Derivatives embedded in life and annuity contracts	$	--	$	--	$	(29)	$	54	$	(707)
Total recurring Level 3 liabilities	$	--	$	--	$	(29)	$	54	$	(707)

__________

(1) The effect to net income totals $37 million and is reported in the Condensed Consolidated Statements of Operations and Comprehensive Income as follows: $35 million in realized capital gains and losses, $12 million in net investment income, $(24) million in interest credited to contractholder funds and $14 million in contract benefits.

(2) Comprises $1 million of assets and $72 million of liabilities.

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

($ in millions)		Three months ended June 30,				Six months ended June 30,
		2013		2012		2013		2012
Assets
Fixed income securities:
Municipal	$	--	$	--	$	(6)	$	--
Corporate		4		1		7		9
ABS		(1)		5		(1)		18
CMBS		(1)		(1)		(2)		(1	)
Total fixed income securities		2		5		(2)		26
Other investments:
Free-standing derivatives, net		9		(4)		16		11
Total recurring Level 3 assets	$	11	$	1	$	14	$	37
Liabilities
Contractholder funds:
Derivatives embedded in life and annuity contracts	$	57	$	16	$	63	$	(9	)
Total recurring Level 3 liabilities	$	57	$	16	$	63	$	(9	)

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

Financial assets

($ in millions)		June 30, 2013				December 31, 2012
		Carrying value		Fair value		Carrying value		Fair value
Mortgage loans	$	5,803	$	6,054	$	5,943	$	6,223
Cost method limited partnerships		611		793		617		778
Agent loans		321		306		319		314
Bank loans		261		260		282		282
Notes due from related party		275		275		275		275

Financial liabilities

($ in millions)		June 30, 2013				December 31, 2012
		Carrying value		Fair value		Carrying value		Fair value
Contractholder funds on investment contracts	$	23,989	$	24,646	$	26,984	$	27,989
Notes due to related parties		296		296		496		496
Liability for collateral		446		446		561		561

XML

Subsequent Event

6 Months Ended

Jun. 30, 2013

Subsequent Event

Subsequent Event

9.  Subsequent Event

Sale agreement

On July 17, 2013, the Company entered into a definitive agreement with Resolution Life Holdings, Inc. to sell Lincoln Benefit Life Company and its business generated through independent master brokerage agencies for $600 million.  The transaction is expected to close by December 31, 2013.  The transaction is subject to regulatory approvals and other customary closing conditions.  A loss on disposition estimated to be in the range of approximately $475 million to $525 million, after-tax, will be recorded in third quarter 2013.  The total reduction in shareholder’s equity, including the impact to unrealized capital gains and losses, is estimated to be in the range of approximately $575 million to $675 million.  This transaction will meet the criteria for held-for-sale accounting beginning in third quarter 2013.

XML

Other Comprehensive Income (Tables)

6 Months Ended

Jun. 30, 2013

Other Comprehensive Income

Schedule of components of other comprehensive (loss) income on a pre-tax and after-tax basis

($ in millions)		Three months ended June 30,
		2013						2012
		Pre- tax		Tax		After- tax		Pre- tax		Tax		After- tax
Unrealized net holding gains and losses arising during the period, net of related offsets	$	(807)	$	282	$	(525)	$	242	$	(85)	$	157
Less: reclassification adjustment of realized capital gains and losses		57		(20)		37		(5)		2		(3)
Unrealized net capital gains and losses		(864)		302		(562)		247		(87)		160
Unrealized foreign currency translation adjustments		(2)		1		(1)		5		(2)		3
Other comprehensive (loss) income	$	(866)	$	303		(563)	$	252	$	(89)		163
Net income						150						98
Comprehensive (loss) income					$	(413)					$	261

		Six months ended June 30,
		2013						2012
		Pre- tax		Tax		After- tax		Pre- tax		Tax		After- tax
Unrealized net holding gains and losses arising during the period, net of related offsets	$	(792)	$	277	$	(515)	$	542	$	(190)	$	352
Less: reclassification adjustment of realized capital gains and losses		33		(12)		21		(56)		20		(36)
Unrealized net capital gains and losses		(825)		289		(536)		598		(210)		388
Unrealized foreign currency translation adjustments		--		--		--		3		(1)		2
Other comprehensive (loss) income	$	(825)	$	289		(536)	$	601	$	(211)		390
Net income						259						181
Comprehensive (loss) income					$	(277)					$	571

XML

Derivative Financial Instruments (Tables)

6 Months Ended

Jun. 30, 2013

Derivative Financial Instruments

Summary of volume and fair value positions of derivative instruments and reporting location in the Statement of Financial Position

The following table provides a summary of the volume and fair value positions of derivative instruments as well as their reporting location in the Condensed Consolidated Statement of Financial Position as of June 30, 2013.

($ in millions, except number of contracts)			Volume (1)
	Balance sheet location		Notional amount	Number of contracts		Fair value,  net		Gross  asset		Gross  liability
Asset derivatives
Derivatives designated as accounting hedging instruments
Foreign currency swap agreements	Other investments	$	89	n/a	$	(1)	$	3	$	(4	)
Derivatives not designated as accounting hedging instruments
Interest rate contracts
Interest rate swap agreements	Other investments		1,332	n/a		6		7		(1	)
Interest rate cap agreements	Other investments		290	n/a		5		5		--
Equity and index contracts
Options and warrants (2)	Other investments		13	11,110		192		192		--
Foreign currency contracts
Foreign currency forwards	Other investments		45	n/a		--		--		--
Embedded derivative financial instruments
Conversion options	Fixed income securities		5	n/a		--		--		--
Credit default swaps	Fixed income securities		12	n/a		(12)		--		(12	)
Credit default contracts
Credit default swaps – buying protection	Other investments		71	n/a		(1)		--		(1	)
Credit default swaps – selling protection	Other investments		85	n/a		1		1		--
Other contracts
Other contracts	Other assets		4	n/a		1		1		--
Subtotal			1,857	11,110		192		206		(14	)
Total asset derivatives		$	1,946	11,110	$	191	$	209	$	(18	)
Liability derivatives
Derivatives designated as accounting hedging instruments
Foreign currency swap agreements	Other liabilities & accrued expenses	$	59	n/a	$	(5)	$	--	$	(5	)
Derivatives not designated as accounting hedging instruments
Interest rate contracts
Interest rate swap agreements	Other liabilities & accrued expenses		85	n/a		5		5		--
Interest rate cap agreements	Other liabilities & accrued expenses		149	n/a		--		--		--
Equity and index contracts
Options and futures	Other liabilities & accrued expenses		108	11,260		(116)		--		(116	)
Embedded derivative financial instruments
Guaranteed accumulation benefits	Contractholder funds		786	n/a		(59)		--		(59	)
Guaranteed withdrawal benefits	Contractholder funds		539	n/a		(24)		--		(24	)
Equity-indexed and forward starting options in life and annuity product contracts	Contractholder funds		3,996	n/a		(445)		--		(445	)
Other embedded derivative financial instruments	Contractholder funds		85	n/a		(5)		--		(5	)
Credit default contracts
Credit default swaps – buying protection	Other liabilities & accrued expenses		145	n/a		(1)		--		(1	)
Credit default swaps – selling protection	Other liabilities & accrued expenses		100	n/a		(14)		--		(14	)
Subtotal			5,993	11,260		(659)		5		(664	)
Total liability derivatives			6,052	11,260		(664)	$	5	$	(669	)
Total derivatives		$	7,998	22,370	$	(473)

____________________

(1)   Volume for OTC derivative contracts is represented by their notional amounts.  Volume for exchange traded derivatives is represented by the number of contracts, which is the basis on which they are traded.  (n/a = not applicable)

(2)   In addition to the number of contracts presented in the table, the Company held 837,100 stock warrants.  Stock warrants can be converted to cash upon sale of those instruments or exercised for shares of common stock.

The following table provides a summary of the volume and fair value positions of derivative instruments as well as their reporting location in the Consolidated Statement of Financial Position as of December 31, 2012.

($ in millions, except number of contracts)			Volume (1)			Fair
	Balance sheet location		Notional amount	Number of contracts		value, net		Gross asset		Gross liability
Asset derivatives
Derivatives designated as accounting hedging instruments
Foreign currency swap agreements	Other investments	$	16	n/a	$	2	$	2	$	--
Derivatives not designated as accounting hedging instruments
Interest rate contracts
Interest rate swap agreements	Other investments		5,541	n/a		19		28		(9	)
Interest rate cap agreements	Other investments		372	n/a		1		1		--
Financial futures contracts	Other assets		n/a	2		--		--		--
Equity and index contracts
Options and warrants (2)	Other investments		146	12,400		125		125		--
Financial futures contracts	Other assets		n/a	249		2		2		--
Foreign currency contracts
Foreign currency forwards	Other investments		44	n/a		--		--		--
Embedded derivative financial instruments
Conversion options	Fixed income securities		5	n/a		--		--		--
Equity-indexed call options	Fixed income securities		90	n/a		9		9		--
Credit default swaps	Fixed income securities		12	n/a		(12)		--		(12	)
Credit default contracts
Credit default swaps – buying protection	Other investments		32	n/a		(1)		--		(1	)
Credit default swaps – selling protection	Other investments		100	n/a		1		1		--
Other contracts
Other contracts	Other assets		4	n/a		1		1		--
Subtotal			6,346	12,651		145		167		(22	)
Total asset derivatives		$	6,362	12,651	$	147	$	169	$	(22	)
Liability derivatives
Derivatives designated as accounting hedging instruments
Foreign currency swap agreements	Other liabilities & accrued expenses	$	135	n/a	$	(19)	$	--	$	(19	)
Derivatives not designated as accounting hedging instruments
Interest rate contracts
Interest rate swap agreements	Other liabilities & accrued expenses		1,185	n/a		16		18		(2	)
Interest rate swaption agreements	Other liabilities & accrued expenses		250	n/a		--		--		--
Interest rate cap agreements	Other liabilities & accrued expenses		429	n/a		1		1		--
Financial futures contracts	Other liabilities & accrued expenses		--	357		--		--		--
Equity and index contracts
Options and futures	Other liabilities & accrued expenses		--	12,262		(58)		--		(58	)
Embedded derivative financial instruments
Guaranteed accumulation benefits	Contractholder funds		820	n/a		(86)		--		(86	)
Guaranteed withdrawal benefits	Contractholder funds		554	n/a		(39)		--		(39	)
Equity-indexed and forward starting options in life and annuity product contracts	Contractholder funds		3,916	n/a		(419)		--		(419	)
Other embedded derivative financial instruments	Contractholder funds		85	n/a		(9)		--		(9	)
Credit default contracts
Credit default swaps – buying protection	Other liabilities & accrued expenses		193	n/a		(2)		--		(2	)
Credit default swaps – selling protection	Other liabilities & accrued expenses		130	n/a		(30)		--		(30	)
Subtotal			7,562	12,619		(626)		19		(645	)
Total liability derivatives			7,697	12,619		(645)	$	19	$	(664	)
Total derivatives		$	14,059	25,270	$	(498)

____________________

(1)   Volume for OTC derivative contracts is represented by their notional amounts.  Volume for exchange traded derivatives is represented by the number of contracts, which is the basis on which they are traded.  (n/a = not applicable)

(2)   In addition to the number of contracts presented in the table, the Company held 837,100 stock warrants.  Stock warrants can be converted to cash upon sale of those instruments or exercised for shares of common stock.

Schedule of gross and net amounts about the Company's OTC derivatives subject to enforceable master netting arrangements

($ in millions)				Offsets
		Gross amount		Counter- party netting		Cash collateral (received) pledged		Net amount on balance sheet		Securities collateral (received) pledged		Net amount
June 30, 2013
Asset derivatives	$	21	$	(11)	$	(3)	$	7	$	(2)	$	5
Liability derivatives		(26)		11		(1)		(16)		20		4
December 31, 2012
Asset derivatives	$	52	$	(29)	$	(18)	$	5	$	(5)	$	--
Liability derivatives		(63)		29		--		(34)		25		(9)

Summary of impacts on operations and AOCI from foreign currency contracts, cash flow hedges

($ in millions)		Three months ended June 30,				Six months ended June 30,
		2013		2012		2013		2012
Gain recognized in OCI on derivatives during the period	$	6	$	5	$	9	$	--
Loss recognized in OCI on derivatives during the term of the hedging relationship		(7)		(11)		(7)		(11)
Loss reclassified from AOCI into income (net investment income)		(1)		--		(1)		--
Loss reclassified from AOCI into income (realized capital gains and losses)		--		--		--		(1)

Schedule of gains and losses from valuation, settlements, and hedge ineffectiveness, fair value hedges and derivatives not designated as hedges

($ in millions)		Net investment income		Realized capital gains and losses		Contract benefits		Interest credited to contractholder funds		Total gain (loss) recognized in net income on derivatives
Three months ended June 30, 2013
Interest rate contracts	$	--	$	3	$	--	$	--	$	3
Equity and index contracts		--		--		--		9		9
Embedded derivative financial instruments		--		--		20		14		34
Foreign currency contracts		--		--		--		--		--
Credit default contracts		--		9		--		--		9
Other contracts				--		--		(3)		(3)
Total	$	--	$	12	$	20	$	20	$	52
Six months ended June 30, 2013
Interest rate contracts	$	--	$	3	$	--	$	--	$	3
Equity and index contracts		--		--		--		47		47
Embedded derivative financial instruments		--		(1)		46		(26)		19
Foreign currency contracts		--		1		--		--		1
Credit default contracts		--		16		--		--		16
Other contracts				--		--		(3)		(3)
Total	$	--	$	19	$	46	$	18	$	83

		Net investment income		Realized capital gains and losses		Contract benefits		Interest credited to contractholder funds		Total gain (loss) recognized in net income on derivatives
Three months ended June 30, 2012
Derivatives in fair value accounting hedging relationships
Interest rate contracts	$	--	$	--	$	--	$	--	$	--
Derivatives not designated as accounting hedging instruments
Interest rate contracts	$	--	$	4	$	--	$	--	$	4
Equity and index contracts		--		--		--		(16)		(16)
Embedded derivative financial instruments		--		3		(17)		40		26
Foreign currency contracts		--		(1)		--		--		(1)
Credit default contracts		--		(2)		--		--		(2)
Total	$	--	$	4	$	(17)	$	24	$	11
Six months ended June 30, 2012
Derivatives in fair value accounting hedging relationships
Interest rate contracts	$	(1)	$	--	$	--	$	--	$	(1)
Derivatives not designated as accounting hedging instruments
Interest rate contracts		--		3		--		--		3
Equity and index contracts		--		--		--		37		37
Embedded derivative financial instruments		--		18		14		2		34
Foreign currency contracts		--		(1)		--		--		(1)
Credit default contracts		--		7		--		--		7
Other contracts		--		--		--		2		2
Subtotal		--		27		14		41		82
Total	$	(1)	$	27	$	14	$	41	$	81

Summary of the changes in fair value of fair value hedging relationships

($ in millions)		Gain (loss) on derivatives		Gain (loss) on hedged risk
Location of gain or (loss) recognized in net income on derivatives		Interest rate contracts		Investments
Three months ended June 30, 2012
Net investment income	$	1	$	(1)
Six months ended June 30, 2012
Net investment income	$	2	$	(2)

Summary of counterparty credit exposure by counterparty credit rating

($ in millions)	June 30, 2013							December 31, 2012
Rating (1)	Number of counter- parties		Notional amount (2)		Credit exposure (2)		Exposure, net of collateral (2)	Number of counter- parties		Notional amount (2)		Credit exposure (2)		Exposure, net of collateral (2)
A+	1	$	887	$	2	$	2	1	$	19	$	--	$	--
A	4		123		3		1	3		2,252		12		--
A-	2		94		1		1	2		311		1		1
BBB+	1		809		4		1	1		3,617		11		--
Total	8	$	1,913	$	10	$	5	7	$	6,199	$	24	$	1

(1) Rating is the lower of S&P or Moody’s ratings.

(2) Only OTC derivatives with a net positive fair value are included for each counterparty.

Summary of derivative instruments with credit features in a liability position, including fair value of assets and collateral netted against the liability

($ in millions)		June 30, 2013		December 31, 2012
Gross liability fair value of contracts containing credit-risk-contingent features	$	19	$	62
Gross asset fair value of contracts containing credit-risk-contingent features and subject to MNAs		(10)		(28)
Collateral posted under MNAs for contracts containing credit-risk-contingent features		(9)		(25)
Maximum amount of additional exposure for contracts with credit-risk-contingent features if all features were triggered concurrently	$	--	$	9

Schedule of CDS notional amounts by credit rating and fair value of protection sold

($ in millions)		Notional amount
		AA		A		BBB		BB and lower		Total		Fair value
June 30, 2013
Single name
Investment grade corporate debt (1)	$	--	$	5	$	--	$	--	$	5	$	--
Baskets
First-to-default
Municipal		--		100		--		--		100		(13)
Index
Investment grade corporate debt (1)		1		20		54		5		80		--
Total	$	1	$	125	$	54	$	5	$	185	$	(13)
December 31, 2012
Single name
Investment grade corporate debt (1)	$	--	$	5	$	--	$	--	$	5	$	--
Municipal		25		--		--		--		25		(3)
Subtotal		25		5		--		--		30		(3)
Baskets
First-to-default
Municipal		--		100		--		--		100		(26)
Index
Investment grade corporate debt (1)		1		26		68		5		100		--
Total	$	26	$	131	$	68	$	5	$	230	$	(29)

(1) Investment grade corporate debt categorization is based on the rating of the underlying name(s) at initial purchase.

XML

Document and Entity Information	6 Months Ended
	Jun. 30, 2013	Aug. 02, 2013
Document and Entity Information
Entity Registrant Name	ALLSTATE LIFE INSURANCE CO
Entity Central Index Key	0000352736
Document Type	10-Q
Document Period End Date	Jun. 30, 2013
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity Current Reporting Status	Yes
Entity Filer Category	Non-accelerated Filer
Entity Common Stock, Shares Outstanding		23,800
Document Fiscal Year Focus	2013
Document Fiscal Period Focus	Q2

XML

Reinsurance (Tables)

6 Months Ended

Jun. 30, 2013

Reinsurance

Effects of reinsurance on premiums and contract charges

($ in millions)		Three months ended June 30,				Six months ended June 30,
		2013		2012		2013		2012
Direct	$	520	$	536	$	1,035	$	1,071
Assumed
Affiliate		31		29		61		57
Non-affiliate		17		4		34		9
Ceded-non-affiliate		(158)		(161)		(311)		(328)
Premiums and contract charges, net of reinsurance	$	410	$	408	$	819	$	809

Effects of reinsurance on contract benefits

($ in millions)		Three months ended June 30,				Six months ended June 30,
		2013		2012		2013		2012
Direct	$	441	$	499	$	871	$	901
Assumed
Affiliate		18		17		40		35
Non-affiliate		12		5		25		10
Ceded-non-affiliate		(75)		(133)		(159)		(194)
Contract benefits, net of reinsurance	$	396	$	388	$	777	$	752

Effects of reinsurance on interest credited to contractholder funds

($ in millions)		Three months ended June 30,				Six months ended June 30,
		2013		2012		2013		2012
Direct	$	302	$	360	$	637	$	734
Assumed
Affiliate		3		3		5		5
Non-affiliate		8		4		15		6
Ceded-non-affiliate		(9)		(7)		(14)		(14)
Interest credited to contractholder funds, net of reinsurance	$	304	$	360	$	643	$	731