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 March 31, 2014

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 May 8, 2014, 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

March 31, 2014

		PAGE
PART I	FINANCIAL INFORMATION
Item 1.	Financial Statements
	Condensed Consolidated Statements of Operations and Comprehensive Income for the Three-Month Periods Ended March 31, 2014 and 2013 (unaudited)	1
	Condensed Consolidated Statements of Financial Position as of March 31, 2014 (unaudited) and December 31, 2013	2
	Condensed Consolidated Statements of Shareholder’s Equity for the Three-Month Periods Ended March 31, 2014 and 2013 (unaudited)	3
	Condensed Consolidated Statements of Cash Flows for the Three-Month Periods Ended March 31, 2014 and 2013 (unaudited)	4
	Notes to Condensed Consolidated Financial Statements (unaudited)	5
	Report of Independent Registered Public Accounting Firm	34
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Operations Highlights	35
	Operations	35
	Investments Highlights	40
	Investments	40
	Capital Resources and Liquidity	46
Item 4.	Controls and Procedures	49
PART II	OTHER INFORMATION
Item 1.	Legal Proceedings	50
Item 1A.	Risk Factors	50
Item 6.	Exhibits	50

PART I. FINANCIAL INFORMATION

ITEM 1.   FINANCIAL STATEMENTS

ALLSTATE LIFE INSURANCE COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

($ in millions)		Three months ended March 31,
		2014			2013
		(unaudited)
Revenues
Premiums	$	156		$	145
Contract charges		267			264
Net investment income		626			621
Realized capital gains and losses:
Total other-than-temporary impairment losses		(8	)		(1	)
Portion of loss recognized in other comprehensive income		(1	)		(8	)
Net other-than-temporary impairment losses recognized in earnings		(9	)		(9	)
Sales and other realized capital gains and losses		9			28
Total realized capital gains and losses		--			19
		1,049			1,049
Costs and expenses
Contract benefits		411			381
Interest credited to contractholder funds		300			339
Amortization of deferred policy acquisition costs		45			53
Operating costs and expenses		81			117
Restructuring and related charges		2			2
Interest expense		4			8
		843			900
(Loss) gain on disposition of operations		(59	)		2
Income from operations before income tax expense		147			151
Income tax expense		20			42
Net income		127			109
Other comprehensive income, after-tax
Change in unrealized net capital gains and losses		325			26
Change in unrealized foreign currency translation adjustments		1			1
Other comprehensive income, after-tax		326			27
Comprehensive income	$	453		$	136

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)		March 31, 2014		December 31, 2013
Assets		(unaudited)
Investments
Fixed income securities, at fair value (amortized cost $27,199 and $27,427)	$	29,092	$	28,756
Mortgage loans		3,959		4,173
Equity securities, at fair value (cost $796 and $565)		903		650
Limited partnership interests		2,121		2,064
Short-term, at fair value (amortized cost $763 and $590)		763		590
Policy loans		616		623
Other		997		1,088
Total investments		38,451		37,944
Cash		229		93
Deferred policy acquisition costs		1,276		1,331
Reinsurance recoverables		2,629		2,754
Accrued investment income		353		358
Other assets		230		256
Separate Accounts		4,878		5,039
Assets held for sale		15,390		15,593
Total assets	$	63,436	$	63,368
Liabilities
Contractholder funds	$	23,286	$	23,604
Reserve for life-contingent contract benefits		11,633		11,589
Unearned premiums		6		6
Payable to affiliates, net		48		100
Other liabilities and accrued expenses		1,039		838
Deferred income taxes		1,107		941
Notes due to related parties		275		282
Separate Accounts		4,878		5,039
Liabilities held for sale		14,641		14,899
Total liabilities		56,913		57,298
Commitments and Contingent Liabilities (Note 8)
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		2,690		2,690
Retained income		2,574		2,447
Accumulated other comprehensive income:
Unrealized net capital gains and losses:
Unrealized net capital gains and losses on fixed income securities with OTTI		41		31
Other unrealized net capital gains and losses		1,456		997
Unrealized adjustment to DAC, DSI and insurance reserves		(245)		(101)
Total unrealized net capital gains and losses		1,252		927
Unrealized foreign currency translation adjustments		2		1
Total accumulated other comprehensive income		1,254		928
Total shareholder’s equity		6,523		6,070
Total liabilities and shareholder’s equity	$	63,436	$	63,368

See notes to condensed consolidated financial statements.

2

ALLSTATE LIFE INSURANCE COMPANY AND SUBSIDIARES

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDER’S EQUITY

($ in millions)		Three months endedMarch 31,
		2014		2013
		(unaudited)
Common stock	$	5	$	5
Additional capital paid-in		2,690		3,190
Retained income
Balance, beginning of period		2,447		2,485
Net income		127		109
Balance, end of period		2,574		2,594
Accumulated other comprehensive income
Balance, beginning of period		928		1,633
Change in unrealized net capital gains and losses		325		26
Change in unrealized foreign currency translation adjustments		1		1
Balance, end of period		1,254		1,660
Total shareholder’s equity	$	6,523	$	7,449

See notes to condensed consolidated financial statements.

3

ALLSTATE LIFE INSURANCE COMPANY AND SUBSIDIARES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

($ in millions)		Three months ended March 31,
		2014		2013
Cash flows from operating activities		(unaudited)
Net income	$	127	$	109
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization and other non-cash items		(17)		(14)
Realized capital gains and losses		--		(19)
Loss (gain) on disposition of operations		59		(2)
Interest credited to contractholder funds		300		339
Changes in:
Policy benefits and other insurance reserves		(175)		(159)
Deferred policy acquisition costs		5		(21)
Reinsurance recoverables, net		(28)		(16)
Income taxes		17		43
Other operating assets and liabilities		(83)		6
Net cash provided by operating activities		205		266
Cash flows from investing activities
Proceeds from sales
Fixed income securities		817		938
Equity securities		68		29
Limited partnership interests		72		45
Mortgage loans		10		2
Other investments		13		10
Investment collections
Fixed income securities		538		1,220
Mortgage loans		288		221
Other investments		19		33
Investment purchases
Fixed income securities		(745)		(1,618)
Equity securities		(309)		(20)
Limited partnership interests		(112)		(81)
Mortgage loans		(2)		(74)
Other investments		--		(35)
Change in short-term investments, net		199		(404)
Change in policy loans and other investments, net		29		25
Disposition of operations		(2)		--
Net cash provided by investing activities		883		291
Cash flows from financing activities
Contractholder fund deposits		371		579
Contractholder fund withdrawals		(1,074)		(1,252)
Repayment of notes due to related parties		(7)		--
Net cash used in financing activities		(710)		(673)
Cash classified as held for sale		(242)		--
Net increase (decrease) in cash		136		(116)
Cash at beginning of period		93		341
Cash at end of period	$	229	$	225

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 March 31, 2014 and for the three-month periods ended March 31, 2014 and 2013 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, 2013.  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
		March 31,
		2014		2013
Premiums
Traditional life insurance	$	123	$	112
Immediate annuities with life contingencies		5		7
Accident and health insurance		28		26
Total premiums		156		145
Contract charges
Interest-sensitive life insurance		261		261
Fixed annuities		6		3
Total contract charges		267		264
Total premiums and contract charges	$	423	$	409

Pending accounting standard

Accounting for Investments in Qualified Affordable Housing Projects

In January 2014, the FASB issued guidance which allows entities that invest in certain qualified affordable housing projects through limited liability entities the option to account for these investments using the proportional amortization method if certain conditions are met.  Under the proportional amortization method, the entity amortizes the initial cost of the investment in proportion to the tax credits and other tax benefits received and recognizes the net investment performance in the income statement as a component of income tax expense or benefit.  The guidance is effective for reporting periods beginning after December 15, 2014 and is to be applied retrospectively.  Early adoption is permitted.  The Company is in the process of evaluating the impact of adoption, which is not expected to be material to the Company’s results of operations and financial position.

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2.  Held for Sale Transaction and Subsequent Event

On July 17, 2013, the Company entered into a definitive agreement with Resolution Life Holdings, Inc. to sell Lincoln Benefit Life Company (“LBL”), LBL’s life insurance business generated through independent master brokerage agencies, and all of LBL’s deferred fixed annuity and long-term care insurance business.  This transaction met the criteria for held for sale accounting.  As a result, the related assets and liabilities are included as single line items in the asset and liability sections of the Condensed Consolidated Statements of Financial Position as of March 31, 2014 and December 31, 2013.  The following table summarizes the assets and liabilities held for sale.

($ in millions)		March 31, 2014		December 31, 2013
Assets
Investments
Fixed income securities	$	9,959	$	10,167
Mortgage loans		1,289		1,367
Short-term investments		--		160
Policy loans		197		198
Other investments		61		91
Total investments		11,506		11,983
Cash		242		--
Deferred policy acquisition costs		714		743
Reinsurance recoverables, net		1,782		1,660
Accrued investment income		108		109
Other assets		85		79
Separate Accounts		1,661		1,701
Assets held for sale		16,098		16,275
Less: Loss accrual		(708)		(682)
Total assets held for sale	$	15,390	$	15,593
Liabilities
Reserve for life-contingent contract benefits	$	2,000	$	1,894
Contractholder funds		10,661		10,945
Unearned premiums		11		12
Deferred income taxes		151		151
Other liabilities and accrued expenses		157		196
Separate Accounts		1,661		1,701
Total liabilities held for sale	$	14,641	$	14,899

Included in shareholder’s equity is $155 million and $85 million of accumulated other comprehensive income related to assets held for sale as of March 31, 2014 and December 31, 2013, respectively.

The estimated loss on disposition, excluding any impact of unrealized net capital gains and losses, increased by $61 million, pre-tax, ($18 million, after-tax) in first quarter 2014.

On April 1, 2014, the Company closed the sale.  The estimated gross sale price is $796 million, representing $594 million of cash and the retention of tax benefits.  The actual cash proceeds will be based on the actual valuation as of the closing date of April 1, 2014.

6

3.  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 $46 million and $57 million for the three months ended March 31, 2014 and 2013, respectively.

Liabilities for collateral received in conjunction with the Company’s securities lending program and over-the-counter (“OTC”) and cleared 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 for the three months ended March 31 are as follows:

($ in millions)		2014		2013
Net change in proceeds managed
Net change in short-term investments	$	(169)	$	(64)
Operating cash flow used		(169)		(64)
Net change in liabilities
Liabilities for collateral, beginning of period	$	(328)	$	(561)
Liabilities for collateral, end of period		(497)		(625)
Operating cash flow provided	$	169	$	64

4.  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
March 31, 2014
U.S. government and agencies	$	683	$	96	$	--	$	779
Municipal		3,103		334		(36)		3,401
Corporate		20,552		1,482		(161)		21,873
Foreign government		703		84		(3)		784
Asset-backed securities (“ABS”)		771		28		(28)		771
Residential mortgage-backed securities (“RMBS”)		703		56		(8)		751
Commercial mortgage-backed securities (“CMBS”)		670		51		(4)		717
Redeemable preferred stock		14		2		--		16
Total fixed income securities	$	27,199	$	2,133	$	(240)	$	29,092
December 31, 2013
U.S. government and agencies	$	678	$	90	$	(2)	$	766
Municipal		3,135		231		(62)		3,304
Corporate		20,397		1,214		(295)		21,316
Foreign government		715		83		(6)		792
ABS		1,011		30		(34)		1,007
RMBS		752		50		(12)		790
CMBS		724		47		(7)		764
Redeemable preferred stock		15		2		--		17
Total fixed income securities	$	27,427	$	1,747	$	(418)	$	28,756

7

Scheduled maturities

The scheduled maturities for fixed income securities are as follows as of March 31, 2014:

($ in millions)		Amortized cost		Fair value
Due in one year or less	$	1,304	$	1,333
Due after one year through five years		5,025		5,438
Due after five years through ten years		11,086		11,634
Due after ten years		7,640		8,448
		25,055		26,853
ABS, RMBS and CMBS		2,144		2,239
Total	$	27,199	$	29,092

Actual maturities may differ from those scheduled as a result of calls and make-whole payments 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 for the three months ended March 31 is as follows:

($ in millions)		2014		2013
Fixed income securities	$	474	$	496
Mortgage loans		75		91
Equity securities		4		2
Limited partnership interests		67		30
Short-term investments		--		1
Policy loans		11		12
Other		15		16
Investment income, before expense		646		648
Investment expense		(20)		(27)
Net investment income	$	626	$	621

Realized capital gains and losses

Realized capital gains and losses by asset type for the three months ended March 31 are as follows:

($ in millions)		2014		2013
Fixed income securities	$	(5)	$	(18)
Mortgage loans		3		31
Equity securities		2		1
Limited partnership interests		(5)		--
Derivatives		2		7
Other		3		(2)
Realized capital gains and losses	$	--	$	19

Realized capital gains and losses by transaction type for the three months ended March 31 are as follows:

($ in millions)		2014		2013
Impairment write-downs	$	(4)	$	(2)
Change in intent write-downs		(5)		(7)
Net other-than-temporary impairment losses recognized in earnings		(9)		(9)
Sales		7		21
Valuation of derivative instruments		3		(4)
Settlements of derivative instruments		(1)		11
Realized capital gains and losses	$	--	$	19

Gross gains of $17 million and $25 million and gross losses of $14 million and $9 million were realized on sales of fixed income and equity securities during the three months ended March 31, 2014 and 2013, respectively.

8

Other-than-temporary impairment losses by asset type for the three months ended March 31 are as follows:

($ in millions)		2014						2013
		Gross		Included in OCI		Net		Gross		Included in OCI		Net
Fixed income securities:
Municipal	$	(1)	$	--	$	(1)	$	(7)	$	--	$	(7)
RMBS		--		(1)		(1)		1		(1)		--
CMBS		--		--		--		(19)		(7)		(26)
Total fixed income securities		(1)		(1)		(2)		(25)		(8)		(33)
Mortgage loans		4		--		4		26		--		26
Equity securities		(4)		--		(4)		--		--		--
Limited partnership interests		(7)		--		(7)		--		--		--
Other		--		--		--		(2)		--		(2)
Other-than-temporary impairment losses	$	(8)	$	(1)	$	(9)	$	(1)	$	(8)	$	(9)

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 $177 million and $164 million as of March 31, 2014 and December 31, 2013, respectively, of net unrealized gains related to changes in valuation of the fixed income securities subsequent to the impairment measurement date.

($ in millions)		March 31, 2014		December 31, 2013
Municipal	$	(5)	$	(5)
ABS		(10)		(10)
RMBS		(87)		(90)
CMBS		(12)		(12)
Total	$	(114)	$	(117)

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 March 31,
		2014		2013
Beginning balance	$	(299)	$	(345)
Additional credit loss for securities previously other-than-temporarily impaired		(1)		(11)
Additional credit loss for securities not previously other-than-temporarily impaired		--		(15)
Reduction in credit loss for securities disposed or collected		7		28
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 (1)	$	(293)	$	(343)

(1) The March 31, 2014 ending balance includes $59 million of cumulative credit losses recognized in earnings for fixed income securities that are classified as held for sale.

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

9

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
March 31, 2014		value		Gains		Losses	gains (losses)
Fixed income securities	$	29,092	$	2,133	$	(240)	$	1,893
Equity securities		903		112		(5)		107
Short-term investments		763		--		--		--
Derivative instruments (1)		(15)		1		(16)		(15)
EMA limited partnerships (2)								(2)
Investments classified as held for sale								327
Unrealized net capital gains and losses, pre-tax								2,310
Amounts recognized for:
Insurance reserves (3)								(134)
DAC and DSI (4)								(242)
Amounts recognized								(376)
Deferred income taxes								(682)
Unrealized net capital gains and losses, after-tax							$	1,252

(1) Included in the fair value of derivative instruments are $1 million classified as assets and $16 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.

10

($ in millions)		Fair		Gross unrealized			Unrealized net
December 31, 2013		value		Gains		Losses	gains (losses)
Fixed income securities	$	28,756	$	1,747	$	(418)	$	1,329
Equity securities		650		90		(5)		85
Short-term investments		590		--		--		--
Derivative instruments (1)		(13)		1		(14)		(13)
EMA limited partnerships								(2)
Investments classified as held for sale								190
Unrealized net capital gains and losses, pre-tax								1,589
Amounts recognized for:
Insurance reserves								--
DAC and DSI								(156)
Amounts recognized								(156)
Deferred income taxes								(506)
Unrealized net capital gains and losses, after-tax							$	927

(1) Included in the fair value of derivative instruments are $1 million classified as assets and $14 million classified as liabilities.

Change in unrealized net capital gains and losses

The change in unrealized net capital gains and losses for the three months ended March 31, 2014 is as follows:

($ in millions)
Fixed income securities	$	564
Equity securities		22
Derivative instruments		(2)
Investments classified as held for sale		137
Total		721
Amounts recognized for:
Insurance reserves		(134)
DAC and DSI		(86)
Amounts recognized		(220)
Deferred income taxes		(176)
Increase in unrealized net capital gains and losses, after-tax	$	325

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.

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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
March 31, 2014
Fixed income securities
U.S. government and agencies	3	$	37	$	--	--	$	--	$	--	$	--
Municipal	37		192		(9)	21		110		(27)		(36)
Corporate	309		3,088		(99)	46		465		(62)		(161)
Foreign government	5		55		(2)	1		14		(1)		(3)
ABS	6		38		(1)	31		296		(27)		(28)
RMBS	35		38		(1)	41		96		(7)		(8)
CMBS	5		22		--	4		41		(4)		(4)
Total fixed income securities	400		3,470		(112)	144		1,022		(128)		(240)
Equity securities	28		81		(5)	--		--		--		(5)
Total fixed income and equity securities	428	$	3,551	$	(117)	144	$	1,022	$	(128)	$	(245)
Investment grade fixed income securities	328	$	3,091	$	(103)	97	$	743	$	(88)	$	(191)
Below investment grade fixed income securities	72		379		(9)	47		279		(40)		(49)
Total fixed income securities	400	$	3,470	$	(112)	144	$	1,022	$	(128)	$	(240)
December 31, 2013
Fixed income securities
U.S. government and agencies	4	$	76	$	(2)	--	$	--	$	--	$	(2)
Municipal	63		347		(24)	21		99		(38)		(62)
Corporate	530		5,191		(224)	48		467		(71)		(295)
Foreign government	7		76		(4)	1		13		(2)		(6)
ABS	17		162		(1)	42		400		(33)		(34)
RMBS	35		42		(2)	47		129		(10)		(12)
CMBS	5		14		--	6		52		(7)		(7)
Total fixed income securities	661		5,908		(257)	165		1,160		(161)		(418)
Equity securities	25		80		(5)	--		--		--		(5)
Total fixed income and equity securities	686	$	5,988	$	(262)	165	$	1,160	$	(161)	$	(423)
Investment grade fixed income securities	526	$	5,272	$	(236)	110	$	834	$	(112)	$	(348)
Below investment grade fixed income securities	135		636		(21)	55		326		(49)		(70)
Total fixed income securities	661	$	5,908	$	(257)	165	$	1,160	$	(161)	$	(418)

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As of March 31, 2014, $191 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 $191 million, $154 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 Standards and 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 increasing risk-free interest rates or widening credit spreads since the time of initial purchase.

As of March 31, 2014, the remaining $54 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 $37 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 $54 million, $17 million are related to below investment grade fixed income securities.  Of these amounts, $9 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 March 31, 2014.

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 March 31, 2014, 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 March 31, 2014, 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 March 31, 2014 and December 31, 2013, the carrying value of equity method limited partnerships totaled $1.52 billion and $1.46 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 months ended March 31, 2014 and 2013.

As of March 31, 2014 and December 31, 2013, the carrying value for cost method limited partnerships was $603 million and $605 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 $7 million of write-downs related to cost method limited partnerships for the three months ended March 31, 2014.  The Company had no write-downs related

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to cost method limited partnerships for the three months ended March 31, 2013.

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 March 31, 2014.

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)		March 31, 2014						December 31, 2013
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	$	179	$	--	$	179	$	153	$	--	$	153
1.0 - 1.25		544		--		544		560		--		560
1.26 - 1.50		1,119		2		1,121		1,167		2		1,169
Above 1.50		2,063		38		2,101		2,176		38		2,214
Total non-impaired mortgage loans	$	3,905	$	40	$	3,945	$	4,056	$	40	$	4,096

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)		March 31, 2014		December 31, 2013
Impaired mortgage loans with a valuation allowance	$	14	$	77
Impaired mortgage loans without a valuation allowance		--		--
Total impaired mortgage loans	$	14	$	77
Valuation allowance on impaired mortgage loans	$	9	$	21

The average balance of impaired loans was $46 million and $99 million for the three months ended March 31, 2014 and 2013, respectively.

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The rollforward of the valuation allowance on impaired mortgage loans for the three months ended March 31 is as follows:

($ in millions)		2014		2013
Beginning balance	$	21	$	42
Net decrease in valuation allowance		(4)		(26)
Charge offs		(8)		(1)
Ending balance	$	9	$	15

Payments on all mortgage loans were current as of March 31, 2014 and December 31, 2013.

5.  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

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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. Treasury fixed income securities.  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.

·Assets held for sale:  Comprise U.S. Treasury fixed income securities, short-term investments and separate account assets.  The valuation is based on the respective asset type as described above.

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

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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.

·Assets held for sale:  Comprise U.S. government and agencies, municipal, corporate, foreign government, ABS, RMBS and CMBS fixed income securities, and short-term investments.  The valuation is based on the respective asset type as described above.

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 and 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 included are 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 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.

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·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.

·Assets held for sale:  Comprise municipal, corporate, ABS and CMBS fixed income securities.  The valuation is based on the respective asset type as described above.

·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.

·Liabilities held for sale:  Comprise derivatives embedded in life and annuity contracts.  The valuation is the same as described above for contractholder funds.

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 carrying value of the LBL business was written-down to fair value in connection with being classified as held for sale.

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The following table summarizes the Company’s assets and liabilities measured at fair value on a recurring and non-recurring basis as of March 31, 2014.

($ 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 March 31, 2014
Assets
Fixed income securities:
U.S. government and agencies	$	145	$	634	$	--			$	779
Municipal		--		3,282		119				3,401
Corporate		--		20,982		891				21,873
Foreign government		--		784		--				784
ABS		--		649		122				771
RMBS		--		751		--				751
CMBS		--		712		5				717
Redeemable preferred stock		--		16		--				16
Total fixed income securities		145		27,810		1,137				29,092
Equity securities		849		48		6				903
Short-term investments		115		648		--				763
Other investments: Free-standing derivatives		--		170		5	$	(8)		167
Separate account assets		4,878		--		--				4,878
Other assets		1		--		--				1
Assets held for sale		1,688		9,585		347				11,620
Total recurring basis assets		7,676		38,261		1,495		(8)		47,424
Non-recurring basis (1)		--		--		5				5
Total assets at fair value	$	7,676	$	38,261	$	1,500	$	(8)	$	47,429
% of total assets at fair value		16.2 %		80.7 %		3.1 %		-- %		100.0 %
Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	--	$	--	$	(319)			$	(319)
Other liabilities: Free-standing derivatives		--		(108)		(12)	$	6		(114)
Liabilities held for sale		--		--		(230)				(230)
Total recurring basis liabilities		--		(108)		(561)		6		(663)
Non-recurring basis (2)		--		--		(10,641)				(10,641)
Total liabilities at fair value	$	--	$	(108)	$	(11,202)	$	6	$	(11,304)
% of total liabilities at fair value		-- %		1.0 %		99.1 %		(0.1) %		100.0 %

(1)   Includes $5 million of limited partnership interests written-down to fair value in connection with recognizing other-than-temporary impairments.

(2)Relates to LBL business held for sale (see Note 2). The total fair value measurement includes $15,390 million of assets held for sale and $(14,641) million of liabilities held for sale, less $11,620 million of assets and $(230) million of liabilities measured at fair value on a recurring basis.

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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, 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 December 31, 2013
Assets
Fixed income securities:
U.S. government and agencies	$	145	$	621	$	--			$	766
Municipal		--		3,185		119				3,304
Corporate		--		20,308		1,008				21,316
Foreign government		--		792		--				792
ABS		--		895		112				1,007
RMBS		--		790		--				790
CMBS		--		763		1				764
Redeemable preferred stock		--		16		1				17
Total fixed income securities		145		27,370		1,241				28,756
Equity securities		593		51		6				650
Short-term investments		129		461		--				590
Other investments: Free-standing derivatives		--		268		9	$	(11)		266
Separate account assets		5,039		--		--				5,039
Assets held for sale		1,854		9,812		362				12,028
Total recurring basis assets		7,760		37,962		1,618		(11)		47,329
Non-recurring basis (1)		--		--		17				17
Total assets at fair value	$	7,760	$	37,962	$	1,635	$	(11)	$	47,346
% of total assets at fair value		16.4 %		80.2 %		3.4 %		-- %		100.0 %
Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	--	$	--	$	(307)			$	(307)
Other liabilities: Free-standing derivatives		--		(185)		(14)	$	7		(192)
Liabilities held for sale		--		--		(246)				(246)
Total recurring basis liabilities		--		(185)		(567)		7		(745)
Non-recurring basis (2)		--		--		(11,088)				(11,088)
Total liabilities at fair value	$	--	$	(185)	$	(11,655)	$	7	$	(11,833)
% of total liabilities at fair value		-- %		1.6 %		98.5 %		(0.1) %		100.0 %

(1)Includes $8 million of mortgage loans and $9 million of limited partnership interests written-down to fair value in connection with recognizing other-than-temporary impairments.

(2)Relates to LBL business held for sale (see Note 2). The total fair value measurement includes $15,593 million of assets held for sale and $(14,899) million of liabilities held for sale, less $12,028 million of assets and $(246) million of liabilities measured at fair value on a recurring basis.

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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
March 31, 2014
Derivatives embedded in life and annuity contracts – Equity-indexed and forward starting options	$	(264)	Stochastic cash flow model	Projected option cost	1.0 - 2.0 %	1.76 %
Liabilities held for sale – Equity-indexed and forward starting options	$	(230)	Stochastic cash flow model	Projected option cost	1.0 - 2.0 %	1.90 %
December 31, 2013
Derivatives embedded in life and annuity contracts – Equity-indexed and forward starting options	$	(247)	Stochastic cash flow model	Projected option cost	1.0 - 2.0 %	1.75 %
Liabilities held for sale – Equity-indexed and forward starting options	$	(246)	Stochastic cash flow model	Projected option cost	1.0 - 2.0 %	1.91 %

If the projected option cost increased (decreased), it would result in a higher (lower) liability fair value.

As of March 31, 2014 and December 31, 2013, Level 3 fair value measurements include $1.05 billion and $1.15 billion, respectively, of fixed income securities valued based on non-binding broker quotes where the inputs have not been corroborated to be market observable.  As of March 31, 2014 and December 31, 2013, Level 3 fair value measurements for assets held for sale include $317 million and $319 million, 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.

21

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 March 31, 2014.

($ in millions)				Total gains (losses) included in:
		Balance as of December 31, 2013		Net income (1)		OCI		Transfers into Level 3		Transfers out of Level 3
Assets
Fixed income securities:
Municipal	$	119	$	(1)	$	2	$	--	$	--
Corporate		1,008		5		--		--		(25)
ABS		112		--		--		--		--
CMBS		1		--		--		--		--
Redeemable preferred stock		1		--		--		--		--
Total fixed income securities		1,241		4		2		--		(25)
Equity securities		6		--		--		--		--
Free-standing derivatives, net		(5)		(2)		--		--		--
Assets held for sale		362		(1)		2		4		(2)
Total recurring Level 3 assets	$	1,604	$	1	$	4	$	4	$	(27)
Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	(307)	$	(2)	$	--	$	--	$	--
Liabilities held for sale		(246)		17		--		--		--
Total recurring Level 3 liabilities	$	(553)	$	15	$	--	$	--	$	--

		Transfer from held for sale		Purchases/ Issues (2)		Sales		Settlements		Balance as of March 31, 2014
Assets
Fixed income securities:
Municipal	$	--	$	--	$	(1)	$	--	$	119
Corporate		--		2		(86)		(13)		891
ABS		--		11		--		(1)		122
CMBS		4		--		--		--		5
Redeemable preferred stock		--		--		(1)		--		--
Total fixed income securities		4		13		(88)		(14)		1,137
Equity securities		--		--		--		--		6
Free-standing derivatives, net		--		2		--		(2)		(7)	(3)
Assets held for sale		(4)		--		(8)		(6)		347
Total recurring Level 3 assets	$	--	$	15	$	(96)	$	(22)	$	1,483
Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	--	$	(11)	$	--	$	1	$	(319)
Liabilities held for sale		--		(4)		--		3		(230)
Total recurring Level 3 liabilities	$	--	$	(15)	$	--	$	4	$	(549)

____________

(1) The effect to net income totals $16 million and is reported in the Condensed Consolidated Statements of Operations and Comprehensive Income as follows: $3 million in realized capital gains and losses, $2 million in net investment income, $10 million in interest credited to contractholder funds, $5 million in contract benefits and $(4) million in loss on disposition of operations.

(2) Represents purchases for assets and issues for liabilities.

(3) Comprises $5 million of assets and $12 million of liabilities.

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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 March 31, 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)	$	26	$	--	$	--
Corporate		1,501		12		(2)		25		(125)
ABS		199		--		7		17		--
CMBS		21		--		2		--		--
Redeemable preferred stock		1		--		--		--		--
Total fixed income securities		2,060		--		33		42		(125)
Equity securities		7		--		--		--		--
Free-standing derivatives, net		(27)		7		--		--		--
Other assets		1		--		--		--		--
Total recurring Level 3 assets	$	2,041	$	7	$	33	$	42	$	(125)
Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	(553)	$	6	$	--	$	--	$	--
Total recurring Level 3 liabilities	$	(553)	$	6	$	--	$	--	$	--

		Purchases		Sales		Issues		Settlements		Balance as of March 31, 2013
Assets
Fixed income securities:
Municipal	$	--	$	(101)	$	--	$	--	$	251
Corporate		72		(109)		--		(11)		1,363
ABS		--		(8)		--		(4)		211
CMBS		--		(17)		--		--		6
Redeemable preferred stock		--		--		--		--		1
Total fixed income securities		72		(235)		--		(15)		1,832
Equity securities		--		--		--		--		7
Free-standing derivatives, net		1		--		--		(1)		(20)	(2)
Other assets		--		--		--		--		1
Total recurring Level 3 assets	$	73	$	(235)	$	--	$	(16)	$	1,820
Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	--	$	--	$	(24)	$	4	$	(567)
Total recurring Level 3 liabilities	$	--	$	--	$	(24)	$	4	$	(567)

____________

(1) The effect to net income totals $13 million and is reported in the Condensed Consolidated Statements of Operations and Comprehensive Income as follows: $2 million in realized capital gains and losses, $5 million in net investment income, $(20) million in interest credited to contractholder funds and $26 million in contract benefits.

(2) Comprises $4 million of assets and $24 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 ended March 31, 2014 or 2013.

Transfers into Level 3 during the three months ended March 31, 2014 and 2013 included situations where a fair value quote was not provided by the Company’s independent third-party valuation service provider and as a result

23

the price was stale or had been replaced with a broker quote where the inputs had 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 ended March 31, 2014 and 2013 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 March 31.

($ in millions)		2014		2013
Assets
Fixed income securities:
Municipal	$	(1)	$	(7)
Corporate		4		5
CMBS		--		(1)
Total fixed income securities		3		(3)
Free-standing derivatives, net		--		7
Assets held for sale		(1)		--
Total recurring Level 3 assets	$	2	$	4
Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	(2)	$	6
Liabilities held for sale		17		--
Total recurring Level 3 liabilities	$	15	$	6

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 $17 million for the three months ended March 31, 2014 and are reported as follows: $1 million in realized capital gains and losses, $3 million in net investment income, $10 million in interest credited to contractholder funds, $5 million in contract benefits and $(2) million in loss on disposition of operations.  These gains and losses total $10 million for the three months ended March 31, 2013 and are reported as follows: $4 million in net investment income, $(20) million in interest credited to contractholder funds and $26 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)		March 31, 2014				December 31, 2013
		Carrying  value		Fair  value		Carrying  value		Fair  value
Mortgage loans	$	3,959	$	4,148	$	4,173	$	4,300
Cost method limited partnerships		603		817		605		799
Agent loans		348		344		341		325
Bank loans		170		171		160		161
Notes due from related party		275		275		275		275
Assets held for sale		1,350		1,436		1,458		1,532

The fair value of mortgage loans, including those classified as assets held for sale, 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 or assets

24

held for sale, 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, notes due from related party and assets held for sale are categorized as Level 3.

Financial liabilities

($ in millions)		March 31, 2014				December 31, 2013
		Carrying  value		Fair  value		Carrying  value		Fair  value
Contractholder funds on investment contracts	$	15,241	$	15,941	$	15,542	$	16,198
Notes due to related parties		275		275		282		282
Liability for collateral		497		497		328		328
Liabilities held for sale		7,166		7,127		7,417		7,298

The fair value of contractholder funds on investment contracts, including those classified as liabilities held for sale, 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 and liabilities held for sale 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.

6.  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.

The Company may also use derivatives to manage the risk associated with corporate actions, including the sale of a business.  During the first quarter of 2014 and December 2013, swaptions were utilized to hedge the expected proceeds from the pending disposition of LBL.

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

25

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 March 31, 2014, the Company pledged $6 million of cash and 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.

26

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 March 31, 2014.

($ 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	$	16	n/a	$	1	$	1	$	--
Derivatives not designated as accounting hedging instruments
Interest rate contracts
Interest rate cap agreements	Other investments		56	n/a		1		1		--
Equity and index contracts
Options and warrants (2)	Other investments		--	7,905		163		163		--
Financial futures contracts	Other assets		--	1,117		1		1		--
Foreign currency contracts
Foreign currency forwards	Other investments		47	n/a		--		--		--
Embedded derivative financial instruments
Credit default swaps	Fixed income securities		12	n/a		(12)		--		(12	)
Credit default contracts
Credit default swaps – buying protection	Other investments		1	n/a		--		--		--
Credit default swaps – selling protection	Other investments		85	n/a		2		2		--
Other contracts
Other contracts	Other assets		4	n/a		--		--		--
Subtotal			205	9,022		155		167		(12	)
Total asset derivatives		$	221	9,022	$	156	$	168	$	(12	)
Liability derivatives
Derivatives designated as accounting hedging instruments
Foreign currency swap agreements	Other liabilities & accrued expenses	$	129	n/a	$	(16)	$	--	$	(16	)
Derivatives not designated as accounting hedging instruments
Interest rate contracts
Interest rate swap agreements	Other liabilities & accrued expenses		85	n/a		4		4		--
Interest rate swaption agreements	Other liabilities & accrued expenses		5,000	n/a		--		--		--
Interest rate cap agreements	Other liabilities & accrued expenses		233	n/a		4		4		--
Equity and index contracts
Options	Other liabilities & accrued expenses		--	7,905		(89)		--		(89	)
Embedded derivative financial instruments
Guaranteed accumulation benefits	Contractholder funds		711	n/a		(39)		--		(39	)
Guaranteed withdrawal benefits	Contractholder funds		493	n/a		(12)		--		(12	)
Equity-indexed and forward starting options in life and annuity product contracts	Contractholder funds		1,755	n/a		(264)		--		(264	)
	Liabilities held for sale		2,239	n/a		(230)		--		(230	)
Other embedded derivative financial instruments	Contractholder funds		85	n/a		(4)		--		(4	)
Credit default contracts
Credit default swaps – buying protection	Other liabilities & accrued expenses		168	n/a		(3)		--		(3	)
Credit default swaps – selling protection	Other liabilities & accrued expenses		100	n/a		(12)		--		(12	)
Subtotal			10,869	7,905		(645)		8		(653	)
Total liability derivatives			10,998	7,905		(661)	$	8	$	(669	)
Total derivatives		$	11,219	16,927	$	(505)

(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.

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 Consolidated Statement of Financial Position as of December 31, 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	$	16	n/a	$	1	$	1	$	--
Derivatives not designated as accounting hedging instruments
Interest rate contracts
Interest rate swaption agreements	Other investments		1,420	n/a		--		--		--
Interest rate cap agreements	Other investments		61	n/a		2		2		--
Equity and index contracts
Options and warrants (2)	Other investments		3	10,035		261		261		--
Financial futures contracts	Other assets		--	627		--		--		--
Foreign currency contracts
Foreign currency forwards	Other investments		47	n/a		--		--		--
Embedded derivative financial instruments
Credit default swaps	Fixed income securities		12	n/a		(12)		--		(12	)
Credit default contracts
Credit default swaps – buying protection	Other investments		1	n/a		--		--		--
Credit default swaps – selling protection	Other investments		85	n/a		2		2		--
Other contracts
Other contracts	Other assets		4	n/a		--		--		--
Subtotal			1,633	10,662		253		265		(12	)
Total asset derivatives		$	1,649	10,662	$	254	$	266	$	(12	)
Liability derivatives
Derivatives designated as accounting hedging instruments
Foreign currency swap agreements	Other liabilities & accrued expenses	$	132	n/a	$	(15)	$	--	$	(15	)
Derivatives not designated as accounting hedging instruments
Interest rate contracts
Interest rate swap agreements	Other liabilities & accrued expenses		85	n/a		4		4		--
Interest rate swaption agreements	Other liabilities & accrued expenses		4,570	n/a		1		1		--
Interest rate cap agreements	Other liabilities & accrued expenses		262	n/a		4		4		--
Equity and index contracts
Options	Other liabilities & accrued expenses		55	10,035		(165)		2		(167	)
Embedded derivative financial instruments
Guaranteed accumulation benefits	Contractholder funds		738	n/a		(43)		--		(43	)
Guaranteed withdrawal benefits	Contractholder funds		506	n/a		(13)		--		(13	)
Equity-indexed and forward starting options in life and annuity product contracts	Contractholder funds		1,693	n/a		(247)		--		(247	)
	Liabilities held for sale		2,363	n/a		(246)		--		(246	)
Other embedded derivative financial instruments	Contractholder funds		85	n/a		(4)		--		(4	)
Credit default contracts
Credit default swaps – buying protection	Other liabilities & accrued expenses		171	n/a		(2)		--		(2	)
Credit default swaps – selling protection	Other liabilities & accrued expenses		100	n/a		(15)		--		(15	)
Subtotal			10,628	10,035		(726)		11		(737	)
Total liability derivatives			10,760	10,035		(741)	$	11	$	(752	)
Total derivatives		$	12,409	20,697	$	(487)

(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.

28

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
March 31, 2014
Asset derivatives	$	10	$	(8)	$	--	$	2	$	(2)	$	--
Liability derivatives		(30)		8		(2)		(24)		20		(4)
December 31, 2013
Asset derivatives	$	14	$	(11)	$	--	$	3	$	(3)	$	--
Liability derivatives		(33)		11		(4)		(26)		22		(4)

The following table provides a summary of the impacts of the Company’s foreign currency contracts in cash flow hedging relationships for the three months ended March 31.  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 ended March 31, 2014 or 2013.

($ in millions)		2014		2013
(Loss) gain recognized in OCI on derivatives during the period	$	(2)	$	3
Loss recognized in OCI on derivatives during the term of the hedging relationship		(15)		(14)
Loss reclassified from AOCI into income (net investment income)		--		--
Loss reclassified from AOCI into income (realized capital gains and losses)		--		--

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.  As of March 31, 2014 and 2013, the Company had no derivatives used in fair value hedging relationships.

($ in millions)		Realized capital gains and losses		Contract benefits		Interest credited to contractholder funds		Loss on disposition of operations		Total gain (loss) recognized in net income on derivatives
Three months ended March 31, 2014
Interest rate contracts	$	(1)	$	--	$	--	$	(4)	$	(5)
Equity and index contracts		--		--		9		--		9
Embedded derivative financial instruments		--		5		(1)		--		4
Credit default contracts		3		--		--		--		3
Total	$	2	$	5	$	8	$	(4)	$	11
Three months ended March 31, 2013
Equity and index contracts	$	--	$	--	$	38	$	--	$	38
Embedded derivative financial instruments		(1)		26		(40)		--		(15)
Foreign currency contracts		1		--		--		--		1
Credit default contracts		7		--		--		--		7
Total	$	7	$	26	$	(2)	$	--	$	31

The Company manages its exposure to credit risk by utilizing highly rated counterparties, establishing risk control limits, executing legally 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 March 31, 2014, counterparties pledged $5 million in cash and securities to the Company, and the Company pledged $21 million in securities to counterparties which includes $19 million of collateral posted under MNAs for contracts containing credit-risk-contingent provisions that are in a liability position and $2 million of collateral posted under MNAs for contracts without credit-risk-contingent liabilities. The Company has not incurred

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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 legally 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)	March 31, 2014							December 31, 2013
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	$	21	$	1	$	1	1	$	22	$	1	$	1
A	4		96		2		--	4		1,523		2		--
A-	--		--		--		--	1		24		1		--
BBB+	1		3		--		--	1		3		--		--
BBB	1		76		--		--	1		76		1		--
Total	7	$	196	$	3	$	1	8	$	1,648	$	5	$	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 legally enforceable MNAs.

($ in millions)		March 31, 2014		December 31, 2013
Gross liability fair value of contracts containing credit-risk-contingent features	$	28	$	25
Gross asset fair value of contracts containing credit-risk-contingent features and subject to MNAs		(7)		(9)
Collateral posted under MNAs for contracts containing credit-risk-contingent features		(19)		(14)
Maximum amount of additional exposure for contracts with credit-risk-contingent features if all features were triggered concurrently	$	2	$	2

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

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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
March 31, 2014
Single name
Corporate debt	$	--	$	5	$	--	$	--	$	5	$	--
First-to-default Basket
Municipal		--		100		--		--		100		(12)
Index
Corporate debt		1		20		55		4		80		2
Total	$	1	$	125	$	55	$	4	$	185	$	(10)
December 31, 2013
Single name
Corporate debt	$	--	$	5	$	--	$	--	$	5	$	--
First-to-default Basket
Municipal		--		100		--		--		100		(15)
Index
Corporate debt		1		20		55		4		80		2
Total	$	1	$	125	$	55	$	4	$	185	$	(13)

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 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, 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.  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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7.  Reinsurance

The effects of reinsurance on premiums and contract charges for the three months ended March 31 are as follows:

($ in millions)		2014		2013
Direct	$	521	$	515
Assumed
Affiliate		33		30
Non-affiliate		16		17
Ceded-non-affiliate		(147)		(153)
Premiums and contract charges, net of reinsurance	$	423	$	409

The effects of reinsurance on contract benefits for the three months ended March 31 are as follows:

($ in millions)		2014		2013
Direct	$	493	$	430
Assumed
Affiliate		23		22
Non-affiliate		13		13
Ceded-non-affiliate		(118)		(84)
Contract benefits, net of reinsurance	$	411	$	381

The effects of reinsurance on interest credited to contractholder funds for the three months ended March 31 are as follows:

($ in millions)		2014		2013
Direct	$	298	$	335
Assumed
Affiliate		2		2
Non-affiliate		7		7
Ceded-non-affiliate		(7)		(5)
Interest credited to contractholder funds, net of reinsurance	$	300	$	339

8.  Guarantees and Contingent Liabilities

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 March 31, 2014.  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

32

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 March 31, 2014.

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.

9.  Other Comprehensive Income

The components of other comprehensive income on a pre-tax and after-tax basis for the three months ended March 31 are as follows:

($ in millions)		2014						2013
		Pre- tax		Tax		After- tax		Pre- tax		Tax		After- tax
Unrealized net holding gains and losses arising during the period, net of related offsets	$	492	$	(173)	$	319	$	21	$	(7)	$	14
Less: reclassification adjustment of realized capital gains and losses		(9)		3		(6)		(18)		6		(12)
Unrealized net capital gains and losses		501		(176)		325		39		(13)		26
Unrealized foreign currency translation adjustments		2		(1)		1		2		(1)		1
Other comprehensive income	$	503	$	(177)	$	326	$	41	$	(14)	$	27
Net income						127						109
Comprehensive income					$	453					$	136

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholder of

Allstate Life Insurance Company

Northbrook, Illinois 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 March 31, 2014, and the related condensed consolidated statements of operations and comprehensive income, shareholder’s equity and cash flows for the three-month periods ended March 31, 2014 and 2013.  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, 2013, 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 5, 2014, 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, 2013 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

May 8, 2014

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Item 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2014 AND 2013

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,” the “Company” or “ALIC”).  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 2013.  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 $127 million in the first quarter of 2014 compared to $109 million in the first quarter of 2013.

· Premiums and contract charges on underwritten products, including traditional life, interest-sensitive life and accident and health insurance, totaled $412 million in the first quarter of 2014, an increase of 3.3% from $399 million in the first quarter of 2013.

· Investments totaled $38.45 billion as of March 31, 2014, reflecting an increase of $507 million from $37.94 billion as of December 31, 2013. Investments classified as held for sale totaled $11.51 billion as of March 31, 2014. Net investment income increased 0.8% to $626 million in the first quarter of 2014 from $621 million in the first quarter of 2013.

· Net realized capital gains were zero in the first quarter of 2014 compared to $19 million in the first quarter of 2013.

· Contractholder funds totaled $23.29 billion as of March 31, 2014, reflecting a decrease of $318 million from $23.60 billion as of December 31, 2013. Contractholder funds classified as held for sale totaled $10.66 billion as of March 31, 2014.

· On April 1, 2014, we closed the sale of LBL, LBL’s life insurance business generated through independent master brokerage agencies, and all of LBL’s deferred fixed annuity and long-term care insurance business to Resolution Life Holdings, Inc. The estimated loss on disposition increased by $18 million, after-tax, in first quarter 2014. Net income relating to the LBL business being sold was approximately $28 million in first quarter 2014.

OPERATIONS

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

($ in millions)		Three months ended March 31,
		2014		2013
Revenues
Premiums	$	156	$	145
Contract charges		267		264
Net investment income		626		621
Realized capital gains and losses		--		19
Total revenues		1,049		1,049
Costs and expenses
Contract benefits		(411)		(381)
Interest credited to contractholder funds		(300)		(339)
Amortization of DAC		(45)		(53)
Operating costs and expenses		(81)		(117)
Restructuring and related charges		(2)		(2)
Interest expense		(4)		(8)
Total costs and expenses		(843)		(900)
(Loss) gain on disposition of operations		(59)		2
Income tax expense		(20)		(42)
Net income	$	127	$	109

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Net income was $127 million in the first quarter of 2014 compared to $109 million in the first quarter of 2013.  The increase was primarily due to the lower interest credited to contractholder funds and lower operating costs and expenses, partially offset by the increase in the estimated loss on disposition related to the pending LBL sale and higher contract benefits.

Analysis of revenues Total revenues in the first quarter of 2014 were comparable to the first quarter of 2013.

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.

The following table summarizes premiums and contract charges by product.

($ in millions)		Three months ended March 31,
		2014		2013
Underwritten products
Traditional life insurance premiums	$	123	$	112
Accident and health insurance premiums		28		26
Interest-sensitive life insurance contract charges		261		261
Subtotal		412		399
Annuities
Immediate annuities with life contingencies premiums		5		7
Other fixed annuity contract charges		6		3
Subtotal		11		10
Premiums and contract charges (1)	$	423	$	409
(1)Contract charges related to the cost of insurance totaled $185 million and $177 million for the first quarter of 2014 and 2013, respectively.

Total premiums and contract charges increased 3.4% in the first quarter of 2014 compared to the first quarter of 2013, primarily due to increased traditional life insurance premiums due to higher renewals and sales through Allstate agencies.

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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 March 31,
				2014		2013
Contractholder funds, beginning balance			$	23,604	$	38,634
Contractholder funds classified as held for sale, beginning balance				10,945		--
Total contractholder funds, including those classified as held for sale				34,549		38,634
Deposits
Interest-sensitive life insurance				291		361
Fixed annuities				127		287
Total deposits				418		648
Interest credited				301		344
Benefits, withdrawals, maturities and other adjustments
Benefits				(375)		(392)
Surrenders and partial withdrawals				(707)		(886)
Maturities of and interest payments on institutional products				--		(1)
Contract charges				(260)		(258)
Net transfers from separate accounts				3		1
Other adjustments (1)				18		26
Total benefits, withdrawals, maturities and other adjustments				(1,321)		(1,510)
Contractholder funds classified as held for sale, ending balance				(10,661)		--
Contractholder funds, ending balance			$	23,286	$	38,116
	(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 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 1.3% in both the first quarter of 2014 and 2013.  The decrease in the first quarter of 2014 reflects no longer offering fixed annuity products beginning January 1, 2014.

Contractholder deposits decreased 35.5% in the first quarter of 2014 compared to the same period of 2013, primarily due to no longer offering fixed annuity products beginning January 1, 2014, as well as lower deposits on interest-sensitive life insurance.

Surrenders and partial withdrawals on deferred fixed annuities and interest-sensitive life insurance products decreased 20.2% to $707 million in the first quarter of 2014 from $886 million in the first quarter of 2013.  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 9.5% in the first quarter of 2014 compared to 11.2% in the same period of 2013.

Analysis of costs and expenses Total costs and expenses decreased 6.3% or $57 million in the first quarter of 2014 compared to the same period of 2013, primarily due to lower interest credited to contractholder funds and lower operating costs and expenses, partially offset by higher contract benefits.

Contract benefits increased 7.9% or $30 million in the first quarter of 2014 compared to the same period of 2013, 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

37

immediate annuities with life contingencies (“benefit spread”).  This implied interest totaled $130 million and $133 million in the first quarter of 2014 and 2013, respectively.

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

($ in millions)		Three months ended March 31,
		2014		2013
Life insurance	$	72	$	83
Accident and health insurance		8		8
Annuities		(20)		(17)
Total benefit spread	$	60	$	74

Benefit spread decreased 18.9% or $14 million in the first quarter of 2014 compared to the first quarter of 2013, primarily due to worse mortality experience on life insurance and annuities, partially offset by higher life insurance premiums and cost of insurance contract charges.

Interest credited to contractholder funds decreased 11.5% or $39 million in the first quarter of 2014 compared to the same period of 2013, 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 increased interest credited to contractholder funds by $17 million in the first quarter of 2014 compared to $9 million in the first quarter of 2013.

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 March 31,
		2014		2013
Annuities and institutional products	$	108	$	57
Life insurance		31		26
Accident and health insurance		4		4
Net investment income on investments supporting capital		70		71
Investment spread before valuation changes on embedded derivatives that are not hedged		213		158
Valuation changes on derivatives embedded in equity-indexed annuity contracts that are not hedged		(17)		(9)
Total investment spread	$	196	$	149

Investment spread before valuation changes on embedded derivatives that are not hedged increased 34.8% or $55 million in the first quarter of 2014 compared to the first quarter of 2013, primarily due to higher limited partnership income and lower crediting rates, partially offset by the continued managed reduction in our spread-based business in force.

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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 for the three months ended March 31.  For purposes of these calculations, investments, reserves and contractholder funds classified as held for sale are included.

	Weighted average investment yield				Weighted average interest crediting rate				Weighted average investment spreads
	2014		2013		2014		2013		2014		2013
Interest-sensitive life insurance	5.3	%	5.4	%	3.8	%	3.9	%	1.5	%	1.5	%
Deferred fixed annuities and institutional products	4.5		4.6		2.8		3.1		1.7		1.5
Immediate fixed annuities with and without life contingencies	7.5		6.3		6.0		6.0		1.5		0.3
Investments supporting capital, traditional life and other products	4.1		4.1		n/a		n/a		n/a		n/a

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)		March 31,
		2014			2013
Immediate fixed annuities with life contingencies	$		8,917	$		8,885
Other life contingent contracts and other		2,716			5,096
Reserve for life-contingent contract benefits	$		11,633	$		13,981
Interest-sensitive life insurance	$		7,114	$		10,432
Deferred fixed annuities		12,243			21,456
Immediate fixed annuities without life contingencies		3,618			3,795
Institutional products		85			1,874
Other		226			559
Contractholder funds	$		23,286	$		38,116
Traditional life insurance	$		651	$		--
Accident and health insurance		1,349			--
Interest-sensitive life insurance		3,495			--
Deferred fixed annuities		7,166			--
Liabilities held for sale	$		12,661	$		--

Amortization of DAC decreased 15.1% or $8 million in the first quarter of 2014 compared to the same period of 2013.  The components of amortization of DAC are summarized in the following table.

($ in millions)			Three months ended March 31,
			2014		2013
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	$	54
Amortization (accretion) relating to realized capital gains and losses (1) and valuation changes on embedded derivatives that are not hedged			--		(1	)
Amortization acceleration for changes in assumptions (“DAC unlocking”)			--		--
Total amortization of DAC		$	45	$	53
(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.

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The decrease in DAC amortization in the first quarter of 2014 compared to the same period of 2013 was primarily due to lower amortization on interest-sensitive life insurance resulting from decreased benefit spread.

Operating costs and expenses decreased 30.8% or $36 million in the first quarter of 2014 compared to the first quarter of 2013.  The following table summarizes operating costs and expenses.

($ in millions)		Three months ended March 31,
		2014		2013
Non-deferrable commissions	$	9	$	7
General and administrative expenses		61		99
Taxes and licenses		11		11
Total operating costs and expenses	$	81	$	117
Restructuring and related charges	$	2	$	2

General and administrative expenses decreased 38.4% or $38 million in the first quarter of 2014 compared to the same period of 2013, primarily due to lower employee related expenses, lower net Allstate agencies distribution channel expenses reflecting increased fees from sales of third party financial products, and lower technology and marketing costs.

INVESTMENTS HIGHLIGHTS

· Investments totaled $38.45 billion as of March 31, 2014, increasing from $37.94 billion as of December 31, 2013. Investments classified as held for sale totaled $11.51 billion as of March 31, 2014.

· Unrealized net capital gains totaled $2.31 billion as of March 31, 2014, increasing from $1.59 billion as of December 31, 2013.

· Net investment income was $626 million in the first quarter of 2014, an increase of 0.8% from $621 million in the first quarter of 2013.

· Net realized capital gains were zero in the first quarter of 2014 compared to $19 million in the first quarter of 2013.

INVESTMENTS

The composition of the investment portfolio as of March 31, 2014 is presented in the following table.

($ in millions)				Percentto total
Fixed income securities (1)		$	29,092	75.7	%
Mortgage loans			3,959	10.3
Equity securities (2)			903	2.3
Limited partnership interests (3)			2,121	5.5
Short-term investments (4)			763	2.0
Policy loans			616	1.6
Other			997	2.6
Total		$	38,451	100.0	%
(1)	Fixed income securities are carried at fair value.  Amortized cost basis for these securities was $27.20 billion.
(2)	Equity securities are carried at fair value.  Cost basis for these securities was $796 million.
(3)	We have commitments to invest in additional limited partnership interests totaling $1.34 billion.
(4)	Short-term investments are carried at fair value.  Amortized cost basis for these investments was $763 million.

Total investments increased to $38.45 billion as of March 31, 2014, from $37.94 billion as of December 31, 2013, primarily due to higher fixed income valuations resulting from a decrease in risk-free interest rates.

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

($ in millions)		Fair value as of March 31, 2014	Percent to total investments			Fair value as of December 31, 2013	Percent to total investments
U.S. government and agencies	$	779	2.0	%	$	766	2.0	%
Municipal		3,401	8.9			3,304	8.7
Corporate		21,873	56.9			21,316	56.2
Foreign government		784	2.0			792	2.1
Asset-backed securities (“ABS”)		771	2.0			1,007	2.7
Residential mortgage-backed securities (“RMBS”)		751	2.0			790	2.1
Commercial mortgage-backed securities (“CMBS”)		717	1.9			764	2.0
Redeemable preferred stock		16	--			17	--
Total fixed income securities	$	29,092	75.7	%	$	28,756	75.8	%

As of March 31, 2014, 89.1% 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 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 March 31, 2014.

($ in millions)		Investment grade				Below investment grade				Total
		Fair value		Unrealized gain/(loss)		Fair value		Unrealized gain/(loss)		Fair value		Unrealized gain/(loss)
U.S. government and agencies	$	779	$	96	$	--	$	--	$	779	$	96
Municipal		3,353		300		48		(2)		3,401		298
Corporate
Public		13,379		843		1,591		52		14,970		895
Privately placed		6,163		408		740		18		6,903		426
Foreign government		784		81		--		--		784		81
ABS
Collateralized debt obligations (“CDO”)		449		(1)		90		(7)		539		(8)
Consumer and other asset-backed securities (“Consumer and other ABS”)		225		8		7		--		232		8
RMBS
U.S. government sponsored entities (“U.S. Agency”)		206		11		--		--		206		11
Prime residential mortgage-backed securities (“Prime”)		83		2		136		20		219		22
Alt-A residential mortgage-backed securities (“Alt-A”)		14		1		171		12		185		13
Subprime residential mortgage-backed securities (“Subprime”)		5		--		136		2		141		2
CMBS		469		24		248		23		717		47
Redeemable preferred stock		16		2		--		--		16		2
Total fixed income securities	$	25,925	$	1,775	$	3,167	$	118	$	29,092	$	1,893

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Municipal bonds totaled $3.40 billion as of March 31, 2014 with an unrealized net capital gain of $298 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 $21.87 billion as of March 31, 2014, 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 $771 million as of March 31, 2014, with 87.4% rated investment grade.  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 $539 million as of March 31, 2014, with 83.3% rated investment grade and an unrealized net capital loss of $8 million.  CDO consist of obligations collateralized by cash flow CDO, which are structures collateralized primarily by below investment grade senior secured corporate loans.

Consumer and other ABS totaled $232 million as of March 31, 2014, with 97.0% rated investment grade and an unrealized net capital gain of $8 million.

RMBS totaled $751 million as of March 31, 2014, with 41.0% rated investment grade and an unrealized net capital gain of $48 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.  RMBS consists of a U.S. Agency portfolio having collateral issued or guaranteed by U.S. government agencies and a non-agency portfolio consisting of securities collateralized by Prime, Alt-A and Subprime loans.  The non-agency portfolio totaled $545 million as of March 31, 2014, with 18.7% rated investment grade and an unrealized net capital gain of $37 million.

CMBS totaled $717 million as of March 31, 2014, with 65.4% rated investment grade and an unrealized net capital gain of $47 million.  The CMBS portfolio is subject to credit risk and has a sequential paydown structure.  Of the CMBS investments, 99.8% 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 $3.96 billion as of March 31, 2014 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 4 of the condensed consolidated financial statements.

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Limited partnership interests consist of investments in private equity/debt funds, real estate funds, tax credit funds and other 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 March 31, 2014.

($ in millions)		Private equity/debt funds (1)		Real estate funds		Tax credit funds		Otherfunds		Total
Cost method of accounting (“Cost”)	$	484	$	119	$	--	$	--	$	603
Equity method of accounting (“EMA”)		891		286		307		34		1,518
Total	$	1,375	$	405	$	307	$	34	$	2,121
Number of managers		105		29		11		2
Number of individual funds		179		53		20		2
Largest exposure to single fund	$	70	$	34	$	26	$	29
(1) Includes $277 million of infrastructure and real asset funds.

The following tables show the earnings from our limited partnership interests by fund type and accounting classification for the three months ended March 31.

($ in millions)		2014											2013
		Cost		EMA			Total income			Impairment write-downs			Cost		EMA			Total income			Impairment write-downs
Private equity/debt funds	$	18	$	39		$	57		$	(6	)	$	11	$	11		$	22		$	--
Real estate funds		6		6			12			(1	)		2		7			9			--
Tax credit funds		--		(2	)		(2	)		--			--		(2	)		(2	)		--
Other funds		--		--			--			--			--		1			1			--
Total	$	24	$	43		$	67		$	(7	)	$	13	$	17		$	30		$	--

Limited partnership interests produced income, excluding impairment write-downs, of $67 million in the three months ended March 31, 2014 compared to $30 million in the three months ended March 31, 2013.  Higher EMA limited partnership income resulted from favorable equity valuations which increased the carrying value of the partnerships, while cost method limited partnerships experienced an increase in earnings distributed by the partnerships.  Income on EMA limited partnerships is recognized on a delay due to the availability of the related financial statements.  The recognition of income on private equity/debt funds, real estate funds and tax credit funds are generally on a three month delay and the income recognition on other funds is primarily on a one month delay.  Income on cost method limited partnerships is recognized only upon receipt of amounts distributed by the partnerships.

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Unrealized net capital gains totaled $2.31 billion as of March 31, 2014 compared to $1.59 billion as of December 31, 2013.  The increase was primarily due to a decrease in risk-free interest rates.

The following table presents unrealized net capital gains and losses.

($ in millions)		March 31, 2014		December 31, 2013
U.S. government and agencies	$	96	$	88
Municipal		298		169
Corporate		1,321		919
Foreign government		81		77
ABS		--		(4)
RMBS		48		38
CMBS		47		40
Redeemable preferred stock		2		2
Fixed income securities		1,893		1,329
Equity securities		107		85
Derivatives		(15)		(13)
EMA limited partnerships		(2)		(2)
Investments classified as held for sale		327		190
Unrealized net capital gains and losses, pre-tax	$	2,310	$	1,589

The unrealized net capital gain for the fixed income portfolio totaled $1.89 billion and comprised $2.13 billion of gross unrealized gains and $240 million of gross unrealized losses as of March 31, 2014.  This is compared to an unrealized net capital gain for the fixed income portfolio totaling $1.33 billion, comprised of $1.75 billion of gross unrealized gains and $418 million of gross unrealized losses as of December 31, 2013.

Gross unrealized gains and losses on fixed income securities by type and sector as of March 31, 2014 are provided in the following table.

($ in millions)		Amortized		Gross unrealized				Fair
		cost		Gains		Losses		value
Corporate:
Banking	$	1,130	$	49	$	(34)	$	1,145
Utilities		4,829		465		(29)		5,265
Capital goods		2,303		162		(22)		2,443
Consumer goods (cyclical and non-cyclical)		3,964		252		(21)		4,195
Basic industry		1,348		63		(16)		1,395
Energy		1,781		127		(12)		1,896
Technology		999		41		(10)		1,030
Communications		1,437		105		(5)		1,537
Financial services		1,178		83		(5)		1,256
Transportation		1,040		94		(5)		1,129
Other		543		41		(2)		582
Total corporate fixed income portfolio		20,552		1,482		(161)		21,873
U.S. government and agencies		683		96		--		779
Municipal		3,103		334		(36)		3,401
Foreign government		703		84		(3)		784
ABS		771		28		(28)		771
RMBS		703		56		(8)		751
CMBS		670		51		(4)		717
Redeemable preferred stock		14		2		--		16
Total fixed income securities	$	27,199	$	2,133	$	(240)	$	29,092

The banking, utilities, capital goods and consumer goods sectors had the highest concentration of gross unrealized losses in our corporate fixed income securities portfolio as of March 31, 2014.  In general, the gross unrealized losses are principally related to increasing risk-free interest rates or widening credit spreads since the time of initial purchase.

The unrealized net capital gain for the equity portfolio totaled $107 million and comprised $112 million of gross unrealized gains and $5 million of gross unrealized losses as of March 31, 2014.  This is compared to an

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unrealized net capital gain for the equity portfolio totaling $85 million, comprised of $90 million of gross unrealized gains and $5 million of gross unrealized losses as of December 31, 2013.

Net investment income  The following table presents net investment income.

($ in millions)		Three months ended March 31,
		2014		2013
Fixed income securities	$	474	$	496
Mortgage loans		75		91
Equity securities		4		2
Limited partnership interests		67		30
Short-term investments		--		1
Policy loans		11		12
Other		15		16
Investment income, before expense		646		648
Investment expense		(20)		(27)
Net investment income	$	626	$	621

Net investment income increased 0.8% or $5 million in the first quarter of 2014 compared to the first quarter of 2013, primarily due to higher limited partnership income, partially offset by lower average investment balances.  Higher EMA limited partnership income resulted from favorable equity valuations which increased the carrying value of the partnerships, while cost method limited partnerships experienced an increase in earnings distributed by the partnerships.  Net investment income in the first quarter of 2014 includes $122 million relating to investments classified as held for sale.

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 March 31,
		2014		2013
Impairment write-downs	$	(4)	$	(2)
Change in intent write-downs		(5)		(7)
Net other-than-temporary impairment losses recognized in earnings		(9)		(9)
Sales		7		21
Valuation of derivative instruments		3		(4)
Settlements of derivative instruments		(1)		11
Realized capital gains and losses, pre-tax		--		19
Income tax expense		--		(7)
Realized capital gains and losses, after-tax	$	--	$	12

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

($ in millions)		Three months ended March 31,
		2014		2013
Fixed income securities	$	(1)	$	(26)
Mortgage loans		4		26
Equity securities		--		--
Limited partnership interests		(7)		--
Other investments		--		(2)
Impairment write-downs	$	(4)	$	(2)

Limited partnership write-downs in the three months ended March 31, 2014 primarily related to cost method limited partnerships that experienced declines in portfolio valuations deemed to be other than temporary.

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Change in intent write-downs totaling $5 million in the three months ended March 31, 2014 were primarily related to the ongoing portfolio management of our equity securities.

Sales generated $7 million of net realized capital gains in the three months ended March 31, 2014 primarily related to equity securities in connection with ongoing portfolio management.

Valuation and settlements of derivative instruments generated net realized capital gains of $2 million for the three months ended March 31, 2014 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)		March 31, 2014		December 31, 2013
Common stock, retained income and additional capital paid-in	$	5,269	$	5,142
Accumulated other comprehensive income		1,254		928
Total shareholder’s equity		6,523		6,070
Notes due to related parties		275		282
Total capital resources	$	6,798	$	6,352

Shareholder’s equity increased in the first quarter of 2014, primarily due to increased unrealized net capital gains on investments and net income.

Notes due to related parties decreased in the first quarter of 2014 as the Company repaid the remaining $7 million of notes issued to AIC.

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 2014, A.M. Best affirmed our financial strength rating of A+ and the outlook for the rating remained stable.  There have been no changes to our insurance financial strength ratings from Moody’s and S&P since December 31, 2013.

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.

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 $3.35 billion as of March 31, 2014 comprising cash and investments that are generally saleable within one quarter.  This provides funds for the parent company’s fixed charges and other corporate purposes.

The Company has access to additional borrowing to support liquidity through the Corporation as follows.  The amount available to the Company is at the discretion of the Corporation.

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·A commercial paper facility with a borrowing limit of $1.00 billion to cover short-term cash needs.  As of March 31, 2014, there were no balances outstanding and therefore the remaining borrowing capacity was $1.00 billion; 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.  In April 2014, the Corporation amended the maturity date of this facility to April 2019 and also amended the option to extend the expiration by one year to the first and second anniversary of the amendment, upon approval of existing or replacement lenders.  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 15.3% as of March 31, 2014.  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 first three months of 2014.  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 466 million shares of treasury stock as of March 31, 2014), 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.

Liquidity exposure  Contractholder funds were $23.29 billion as of March 31, 2014.  The following table summarizes contractholder funds by their contractual withdrawal provisions as of March 31, 2014.

($ in millions)			Percent to total
Not subject to discretionary withdrawal	$	3,742	16.1%
Subject to discretionary withdrawal with adjustments:
Specified surrender charges (1)		6,656	28.6
Market value adjustments (2)		3,129	13.4
Subject to discretionary withdrawal without adjustments (3)		9,759	41.9
Total contractholder funds (4)	$	23,286	100.0%
(1)Includes $2.98 billion of liabilities with a contractual surrender charge of less than 5% of the account balance. (2)$2.36 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, 6, 7 or 10 years) during which there is no surrender charge or market value adjustment. (3)80% of these contracts have a minimum interest crediting rate guarantee of 3% or higher. (4)Includes $881 million 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 29.2% in the first three months of 2014 compared to the same period of 2013.  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 9.5% and 11.2% in the first three months of 2014 and 2013, respectively.  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.

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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 three months of 2014 compared to the first three months of 2013 was primarily due to higher contract benefits paid and lower net investment income, partially offset by higher premiums.

Higher cash was provided by investing activities in the first three months of 2014 compared to the first three months of 2013 as cash balances were increased to prepare for the settlement of the sale of LBL, including cash classified as held for sale, and for securities lending activities.  In addition, in the 2013 period short-term investments were increased to support scheduled maturities of institutional products.

Higher cash used in financing activities in the first three months of 2014 compared to the first three months of 2013 was primarily due to lower deposits, partially offset by lower contractholder benefits and withdrawals on fixed annuities and interest-sensitive life insurance.

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Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures.  We maintain disclosure controls and procedures as defined in Rules 13a-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 March 31, 2014, 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.

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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 8 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 2013.

Item 6.  Exhibits

(a)Exhibits

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

50

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)
May 8, 2014
	By	/s/ Samuel H. Pilch
		Samuel H. Pilch
		(chief accounting officer and duly
		authorized officer of Registrant)

51

		Incorporated by Reference
Exhibit Number	Exhibit Description	Form	File Number	Exhibit	Filing Date	Filed or Furnished Herewith
10.1	Amended and Restated Reinsurance Agreement, dated April 1, 2014, between the Registrant and Lincoln Benefit Life Company	8-K	1-11840	10.1	April 7, 2014
10.2	Partial Commutation Agreement, dated April 1, 2014, between the Registrant and Lincoln Benefit Life Company	8-K	1-11840	10.2	April 7, 2014
10.3	Amendment No. 1 to Credit Agreement dated as of April 27, 2014	8-K	1-11840	10.1	April 29, 2014
15	Acknowledgment of awareness from Deloitte & Touche LLP, dated May 8, 2014, 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 three-month periods ended March 31, 2014 and 2013, as indicated in our report dated May 8, 2014; 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 March 31, 2014, 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
333-177478	333-121687
333-177479	333-121691
333-177480	333-121692
333-177481	333-121693
333-177666	333-121695
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

May 8, 2014

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: May 8, 2014
	/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: May 8, 2014
	/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 March 31, 2014 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: May 8, 2014
	/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

Fair Value of Assets and Liabilities (Details) (USD $) In Millions, unless otherwise specified	Mar. 31, 2014	Dec. 31, 2013	Mar. 31, 2013
Assets
Fixed income securities	$ 29,092	$ 28,756
Equity securities	903	650
Short-term Investments	763	590
Other investments:
Free-standing derivatives, assets	5		4
Separate account assets	4,878	5,039
Other liabilities:
Free-standing derivatives, liabilities	(12)		(24)
Liabilities held for sale	(14,641)	(14,899)
LBL
Other investments:
Assets held for sale	15,390	15,593
Other liabilities:
Liabilities held for sale	(14,641)	(14,899)
U.S. government and agencies
Assets
Fixed income securities	779	766
Municipal
Assets
Fixed income securities	3,401	3,304
Corporate
Assets
Fixed income securities	21,873	21,316
Foreign government
Assets
Fixed income securities	784	792
ABS
Assets
Fixed income securities	771	1,007
RMBS
Assets
Fixed income securities	751	790
CMBS
Assets
Fixed income securities	717	764
Redeemable preferred stock
Assets
Fixed income securities	16	17
Quoted prices in active markets for identical assets (Level 1)
Other investments:
Total assets at fair value	7,676	7,760
% of total assets at fair value	16.20%	16.40%
Significant other observable inputs (Level 2)
Other investments:
Total assets at fair value	38,261	37,962
% of total assets at fair value	80.70%	80.20%
Other liabilities:
Total liabilities at fair value	(108)	(185)
% of total liabilities at fair value	1.00%	1.60%
Significant unobservable inputs (Level 3)
Other investments:
Total assets at fair value	1,500	1,635
% of total assets at fair value	3.10%	3.40%
Other liabilities:
Total liabilities at fair value	(11,202)	(11,655)
% of total liabilities at fair value	99.10%	98.50%
Counterparty and cash collateral netting
Other investments:
Total assets at fair value	(8)	(11)
Other liabilities:
Total liabilities at fair value	6	7
% of total liabilities at fair value	(0.10%)	(0.10%)
Fair Value
Other investments:
Total assets at fair value	47,429	47,346
% of total assets at fair value	100.00%	100.00%
Mortgage loans		8
Limited partnership interests	5	9
Other liabilities:
Total liabilities at fair value	(11,304)	(11,833)
% of total liabilities at fair value	100.00%	100.00%
Recurring basis | LBL
Other investments:
Assets held for sale	11,620	12,028
Other liabilities:
Liabilities held for sale	(230)	(246)
Recurring basis | Quoted prices in active markets for identical assets (Level 1)
Assets
Fixed income securities	145	145
Equity securities	849	593
Short-term Investments	115	129
Other investments:
Separate account assets	4,878	5,039
Other assets	1
Assets held for sale	1,688	1,854
Total assets at fair value	7,676	7,760
Recurring basis | Quoted prices in active markets for identical assets (Level 1) | U.S. government and agencies
Assets
Fixed income securities	145	145
Recurring basis | Significant other observable inputs (Level 2)
Assets
Fixed income securities	27,810	27,370
Equity securities	48	51
Short-term Investments	648	461
Other investments:
Free-standing derivatives, assets	170	268
Assets held for sale	9,585	9,812
Total assets at fair value	38,261	37,962
Other liabilities:
Free-standing derivatives, liabilities	(108)	(185)
Total liabilities at fair value	(108)	(185)
Recurring basis | Significant other observable inputs (Level 2) | U.S. government and agencies
Assets
Fixed income securities	634	621
Recurring basis | Significant other observable inputs (Level 2) | Municipal
Assets
Fixed income securities	3,282	3,185
Recurring basis | Significant other observable inputs (Level 2) | Corporate
Assets
Fixed income securities	20,982	20,308
Recurring basis | Significant other observable inputs (Level 2) | Foreign government
Assets
Fixed income securities	784	792
Recurring basis | Significant other observable inputs (Level 2) | ABS
Assets
Fixed income securities	649	895
Recurring basis | Significant other observable inputs (Level 2) | RMBS
Assets
Fixed income securities	751	790
Recurring basis | Significant other observable inputs (Level 2) | CMBS
Assets
Fixed income securities	712	763
Recurring basis | Significant other observable inputs (Level 2) | Redeemable preferred stock
Assets
Fixed income securities	16	16
Recurring basis | Significant unobservable inputs (Level 3)
Assets
Fixed income securities	1,137	1,241
Equity securities	6	6
Other investments:
Free-standing derivatives, assets	5	9
Assets held for sale	347	362
Total assets at fair value	1,495	1,618
Contract holder funds:
Derivatives embedded in life and annuity contracts	(319)	(307)
Other liabilities:
Free-standing derivatives, liabilities	(12)	(14)
Liabilities held for sale	(230)	(246)
Total liabilities at fair value	(561)	(567)
Recurring basis | Significant unobservable inputs (Level 3) | Municipal
Assets
Fixed income securities	119	119
Recurring basis | Significant unobservable inputs (Level 3) | Corporate
Assets
Fixed income securities	891	1,008
Recurring basis | Significant unobservable inputs (Level 3) | ABS
Assets
Fixed income securities	122	112
Recurring basis | Significant unobservable inputs (Level 3) | CMBS
Assets
Fixed income securities	5	1
Recurring basis | Significant unobservable inputs (Level 3) | Redeemable preferred stock
Assets
Fixed income securities		1
Recurring basis | Counterparty and cash collateral netting
Other investments:
Free-standing derivatives, assets	(8)	(11)
Total assets at fair value	(8)	(11)
Other liabilities:
Free-standing derivatives, liabilities	6	7
Total liabilities at fair value	6	7
Recurring basis | Fair Value
Assets
Fixed income securities	29,092	28,756
Equity securities	903	650
Short-term Investments	763	590
Other investments:
Free-standing derivatives, assets	167	266
Separate account assets	4,878	5,039
Other assets	1
Assets held for sale	11,620	12,028
Total assets at fair value	47,424	47,329
Contract holder funds:
Derivatives embedded in life and annuity contracts	(319)	(307)
Other liabilities:
Free-standing derivatives, liabilities	(114)	(192)
Liabilities held for sale	(230)	(246)
Total liabilities at fair value	(663)	(745)
Recurring basis | Fair Value | U.S. government and agencies
Assets
Fixed income securities	779	766
Recurring basis | Fair Value | Municipal
Assets
Fixed income securities	3,401	3,304
Recurring basis | Fair Value | Corporate
Assets
Fixed income securities	21,873	21,316
Recurring basis | Fair Value | Foreign government
Assets
Fixed income securities	784	792
Recurring basis | Fair Value | ABS
Assets
Fixed income securities	771	1,007
Recurring basis | Fair Value | RMBS
Assets
Fixed income securities	751	790
Recurring basis | Fair Value | CMBS
Assets
Fixed income securities	717	764
Recurring basis | Fair Value | Redeemable preferred stock
Assets
Fixed income securities	16	17
Non-recurring basis | Significant unobservable inputs (Level 3)
Other investments:
Total assets at fair value	5	17
Other liabilities:
Total liabilities at fair value	(10,641)	(11,088)
Non-recurring basis | Fair Value
Other investments:
Total assets at fair value	5	17
Other liabilities:
Total liabilities at fair value	$ (10,641)	$ (11,088)

XML

Derivative Financial Instruments (Details 4) (USD $) In Millions, unless otherwise specified	Mar. 31, 2014 party	Dec. 31, 2013 party
Derivative Financial Instruments
Cash and securities pledged as collateral by counterparties	$ 5
Securities pledged as collateral to counterparties	21
Collateral posted under MNAs, credit-risk-contingent provisions in a liability position	19	14
Collateral posted under MNAs for contracts without credit-risk-contingent liabilities	2
Credit Derivatives
Number of counter-parties	7	8
Notional amount	196	1,648
Credit exposure	3	5
Exposure, net of collateral	1	1
Gross liability fair value of contracts containing credit-risk-contingent features	28	25
Gross asset fair value of contracts containing credit-risk-contingent features and subject to MNAs	(7)	(9)
Collateral posted under MNAs for contracts containing credit-risk-contingent features	(19)	(14)
Maximum amount of additional exposure for contracts with credit-risk-contingent features if all features were triggered concurrently	2	2
A+
Credit Derivatives
Number of counter-parties	1	1
Notional amount	21	22
Credit exposure	1	1
Exposure, net of collateral	1	1
A
Credit Derivatives
Number of counter-parties	4	4
Notional amount	96	1,523
Credit exposure	2	2
A-
Credit Derivatives
Number of counter-parties		1
Notional amount		24
Credit exposure		1
BBB+
Credit Derivatives
Number of counter-parties	1	1
Notional amount	3	3
BBB
Credit Derivatives
Number of counter-parties	1	1
Notional amount	76	76
Credit exposure		$ 1

XML

Derivative Financial Instruments (Details 2) (USD $) In Millions, unless otherwise specified	Mar. 31, 2014	Dec. 31, 2013
Asset derivatives
Asset derivatives gross amount	$ 168	$ 266
Derivative assets net amount on balance sheet	156	254
Liability derivatives
Liability derivatives gross amount	(669)	(752)
Derivative liabilities net amount on balance sheet	(661)	(741)
OTC derivatives
Asset derivatives
Asset derivatives gross amount	10	14
Offsets of derivative assets under counterparty netting	(8)	(11)
Derivative assets net amount on balance sheet	2	3
Derivative assets pledged under securities collateral	(2)	(3)
Liability derivatives
Liability derivatives gross amount	(30)	(33)
Offsets of derivative liabilities under counterparty netting	8	11
Derivative liability offsets under cash collateral pledged	(2)	(4)
Derivative liabilities net amount on balance sheet	(24)	(26)
Derivative liabilities received under securities collateral	20	22
Derivative liabilities net amount	$ (4)	$ (4)

XML

Investments (Details 7) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013	Dec. 31, 2013
Investments
Net unrealized gains related to changes in valuation of fixed income securities subsequent to impairment measurement date	$ 177		$ 164
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	(114)		(117)
Credit Losses on Fixed Income Securities
Beginning balance	(299)	(345)
Additional credit loss for securities previously other-than-temporarily impaired	(1)	(11)
Additional credit loss for securities not previously other-than-temporarily impaired		(15)
Reduction in credit loss for securities disposed or collected	7	28
Ending balance	(293)	(343)
Cumulative credit losses recognized in earnings for securities classified as held for sale	59
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)
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)
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	(87)		(90)
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)

XML

Held for Sale Transaction and Subsequent Event (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended			0 Months Ended
	Mar. 31, 2014	Mar. 31, 2014 Lincoln Benefit Life Company	Dec. 31, 2013 Lincoln Benefit Life Company	Apr. 02, 2014 Lincoln Benefit Life Company Subsequent event	Apr. 02, 2014 Lincoln Benefit Life Company Expected impact Subsequent event	Mar. 31, 2014 Lincoln Benefit Life Company Fixed income securities	Dec. 31, 2013 Lincoln Benefit Life Company Fixed income securities	Mar. 31, 2014 Lincoln Benefit Life Company Mortgage loans	Dec. 31, 2013 Lincoln Benefit Life Company Mortgage loans	Dec. 31, 2013 Lincoln Benefit Life Company Short-term investments	Mar. 31, 2014 Lincoln Benefit Life Company Policy loans	Dec. 31, 2013 Lincoln Benefit Life Company Policy loans	Mar. 31, 2014 Lincoln Benefit Life Company Other investments	Dec. 31, 2013 Lincoln Benefit Life Company Other investments
Assets
Investments		$ 11,506	$ 11,983			$ 9,959	$ 10,167	$ 1,289	$ 1,367	$ 160	$ 197	$ 198	$ 61	$ 91
Cash		242
Deferred policy acquisition costs		714	743
Reinsurance recoverables, net		1,782	1,660
Accrued investment income		108	109
Other assets		85	79
Separate Accounts		1,661	1,701
Assets held for sale		16,098	16,275
Less: Loss accrual		(708)	(682)
Total assets held for sale		15,390	15,593
Liabilities
Reserve for life-contingent contract benefits		2,000	1,894
Contractholder funds		10,661	10,945
Unearned premiums		11	12
Deferred income taxes		151	151
Other liabilities and accrued expenses		157	196
Separate Accounts		1,661	1,701
Total liabilities held for sale		14,641	14,899
Accumulated other comprehensive income related to assets held for sale		155	85
Estimated loss on disposition, pre-tax		61
Estimated loss on disposition, after-tax		18
Gross sale price	(2)			796
Estimated cash proceeds from sale					$ 594

XML

Reinsurance (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013
Effects of reinsurance on revenue
Direct premiums and contract charges	$ 521	$ 515
Total premiums and contract charges	423	409
Effects of reinsurance on cost and expenses
Direct contract benefits	493	430
Direct interest credited to contractholder funds	298	335
Contract benefits, net of reinsurance	411	381
Interest credited to contractholder funds, net of reinsurance	300	339
Affiliate
Effects of reinsurance on revenue
Assumed premiums and contract charges	33	30
Effects of reinsurance on cost and expenses
Assumed contract benefits	23	22
Assumed interest credited to contractholder funds	2	2
Non-affiliate
Effects of reinsurance on revenue
Assumed premiums and contract charges	16	17
Ceded premiums and contract charges	(147)	(153)
Effects of reinsurance on cost and expenses
Assumed contract benefits	13	13
Assumed interest credited to contractholder funds	7	7
Ceded contract benefits	(118)	(84)
Ceded interest credited to contractholder funds	$ (7)	$ (5)

XML

Fair Value of Assets and Liabilities (Details 4) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013
Rollforward of Level 3 assets held at fair value on a recurring basis
Balance at beginning of period	$ (553)	$ (553)
Total gains (losses) included in: net income	15	6
Issues	(15)	(24)
Settlements	4	4
Balance at end of period	(549)	(567)
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	(307)	(553)
Total gains (losses) included in: net income	(2)	6
Issues	(11)	(24)
Settlements	1	4
Balance at end of period	(319)	(567)
Liabilities held for sale
Rollforward of Level 3 assets held at fair value on a recurring basis
Balance at beginning of period	(246)
Total gains (losses) included in: net income	17
Issues	(4)
Settlements	3
Balance at end of period	$ (230)

XML

Investments (Details 11) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013	Dec. 31, 2013
Other details of unrealized loss
Unrealized losses related to securities with unrealized loss position less than 20% of amortized cost or cost	$ 191
Unrealized losses related to securities with unrealized loss position greater than or equal to 20% of amortized cost or cost	54
Limited partnerships
Limited partnership interests	2,121		2,064
Write-downs of limited partnership	8	1
Equity method limited partnerships
Limited partnerships
Limited partnership interests	1,520		1,460
Write-downs of limited partnership	0	0
Cost method limited partnership interests
Limited partnerships
Limited partnership interests	603		605
Write-downs of limited partnership	7	0
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	154
Unrealized losses related to securities with unrealized loss position greater than or equal to 20% of amortized cost or cost	37
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	17
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	$ 9

XML

Other Comprehensive Income (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013
Pre-tax
Unrealized net holding gains and losses arising during the period, net of related offsets	$ 492	$ 21
Less: reclassification adjustment of realized capital gains and losses	(9)	(18)
Unrealized net capital gains and losses	501	39
Unrealized foreign currency translation adjustments	2	2
Other comprehensive income	503	41
Tax
Unrealized net holding gains and losses arising during the period, net of related offsets	(173)	(7)
Less: reclassification adjustment of realized capital gains and losses	3	6
Unrealized net capital gains and losses	(176)	(13)
Unrealized foreign currency translation adjustments	(1)	(1)
Other comprehensive income	(177)	(14)
After-tax
Unrealized net holding gains and losses arising during the period, net of related offsets	319	14
Less: reclassification adjustment of realized capital gains and losses	(6)	(12)
Unrealized net capital gains and losses	325	26
Unrealized foreign currency translation adjustments	1	1
Other comprehensive income, after-tax	326	27
Net income	127	109
Comprehensive income	$ 453	$ 136

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Derivative Financial Instruments (Details 3) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013
Derivative Financial Instruments
Cash flow hedge losses to be reclassified from AOCI during the next twelve months	$ (2)
Hedge ineffectiveness in realized gains	0	0
(Loss) gain recognized in OCI on derivatives during the period	(2)	3
Loss recognized in OCI on derivatives during the term of the hedging relationship	(15)	(14)
Derivative Instruments, Gain (Loss)
Derivatives not designated as accounting hedging instruments, total gain (loss) recognized in net income on derivatives	11	31
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	2	7
Contract benefits
Derivative Instruments, Gain (Loss)
Derivatives not designated as accounting hedging instruments, total gain (loss) recognized in net income on derivatives	5	26
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	8	(2)
Loss on disposition of operations
Derivative Instruments, Gain (Loss)
Derivatives not designated as accounting hedging instruments, total gain (loss) recognized in net income on derivatives	(4)
Interest rate contracts
Derivative Instruments, Gain (Loss)
Derivatives not designated as accounting hedging instruments, total gain (loss) recognized in net income on derivatives	(5)
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	(1)
Interest rate contracts | Loss on disposition of operations
Derivative Instruments, Gain (Loss)
Derivatives not designated as accounting hedging instruments, total gain (loss) recognized in net income on derivatives	(4)
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	38
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	38
Embedded derivative financial instruments
Derivative Instruments, Gain (Loss)
Derivatives not designated as accounting hedging instruments, total gain (loss) recognized in net income on derivatives	4	(15)
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		(1)
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	5	26
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	(1)	(40)
Foreign currency contracts
Derivative Instruments, Gain (Loss)
Derivatives not designated as accounting hedging instruments, total gain (loss) recognized in net income on derivatives		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
Credit default swaps
Derivative Instruments, Gain (Loss)
Derivatives not designated as accounting hedging instruments, total gain (loss) recognized in net income on derivatives	3	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	$ 3	$ 7

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Supplemental Cash Flow Information

3 Months Ended

Mar. 31, 2014

Supplemental Cash Flow Information

Supplemental Cash Flow Information

3.  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 $46 million and $57 million for the three months ended March 31, 2014 and 2013, respectively.

Liabilities for collateral received in conjunction with the Company’s securities lending program and over-the-counter (“OTC”) and cleared 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 for the three months ended March 31 are as follows:

($ in millions)		2014		2013
Net change in proceeds managed
Net change in short-term investments	$	(169)	$	(64)
Operating cash flow used		(169)		(64)
Net change in liabilities
Liabilities for collateral, beginning of period	$	(328)	$	(561)
Liabilities for collateral, end of period		(497)		(625)
Operating cash flow provided	$	169	$	64

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Fair Value of Assets and Liabilities (Details 5) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013
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	$ 4
Gains (losses) for Level 3 liabilities still held at the balance sheet date, included in earnings	15	6
Gains (losses) for Level 3 assets and liabilities still held at the balance sheet date, included in earnings	17	10
Realized capital gains and losses
Gains (losses) included in net income for Level 3 assets and liabilities:
Gains (losses) for Level 3 assets and liabilities still held at the balance sheet date	1
Net investment income
Gains (losses) included in net income for Level 3 assets and liabilities:
Gains (losses) for Level 3 assets and liabilities still held at the balance sheet date	3	4
Interest credited to contractholder funds
Gains (losses) included in net income for Level 3 assets and liabilities:
Gains (losses) for Level 3 assets and liabilities still held at the balance sheet date	10	(20)
Contract benefits
Gains (losses) included in net income for Level 3 assets and liabilities:
Gains (losses) for Level 3 assets and liabilities still held at the balance sheet date	5	26
Loss on disposition of operations
Gains (losses) included in net income for Level 3 assets and liabilities:
Gains (losses) for Level 3 assets and liabilities still held at the balance sheet date	(2)
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	(2)	6
Liabilities held for sale
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	17
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	3	(3)
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	(1)	(7)
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	5
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)
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		7
Assets held for sale
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)

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Investments (Details 3) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013
Net investment income
Investment income, before expense	$ 646	$ 648
Investment expense	(20)	(27)
Net investment income	626	621
Fixed income securities
Net investment income
Investment income, before expense	474	496
Mortgage loans
Net investment income
Investment income, before expense	75	91
Equity securities
Net investment income
Investment income, before expense	4	2
Limited partnership interests
Net investment income
Investment income, before expense	67	30
Short-term investments
Net investment income
Investment income, before expense		1
Policy loans
Net investment income
Investment income, before expense	11	12
Other
Net investment income
Investment income, before expense	$ 15	$ 16

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Investments (Details 2) (USD $) In Millions, unless otherwise specified	Mar. 31, 2014	Dec. 31, 2013
Amortized cost
Due in one year or less	$ 1,304
Due after one year through five years	5,025
Due after five years through ten years	11,086
Due after ten years	7,640
Subtotal	25,055
ABS, RMBS and CMBS	2,144
Total	27,199
Fair value
Due in one year or less	1,333
Due after one year through five years	5,438
Due after five years through ten years	11,634
Due after ten years	8,448
Subtotal	26,853
ABS, RMBS and CMBS	2,239
Total	$ 29,092	$ 28,756

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Fair Value of Assets and Liabilities (Details 6) (USD $) In Millions, unless otherwise specified	Mar. 31, 2014	Dec. 31, 2013	Mar. 31, 2013	Dec. 31, 2012
Financial assets
Mortgage loans	$ 3,959	$ 4,173
Assets held for sale	15,390	15,593
Financial liabilities
Notes due to related parties	275	282
Liability for collateral	497	328	625	561
Liabilities held for sale	14,641	14,899
Carrying value
Financial assets
Mortgage loans	3,959	4,173
Cost method limited partnerships	603	605
Agent Loans	348	341
Bank loans	170	160
Notes due from related party	275	275
Assets held for sale	1,350	1,458
Financial liabilities
Contract holder funds on investment contracts	15,241	15,542
Notes due to related parties	275	282
Liability for collateral	497	328
Liabilities held for sale	7,166	7,417
Fair Value
Financial assets
Mortgage loans	4,148	4,300
Cost method limited partnerships	817	799
Agent Loans	344	325
Bank loans	171	161
Notes due from related party	275	275
Assets held for sale	1,436	1,532
Financial liabilities
Contract holder funds on investment contracts	15,941	16,198
Notes due to related parties	275	282
Liability for collateral	497	328
Liabilities held for sale	$ 7,127	$ 7,298

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Investments (Details 4) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013
Realized capital gains and losses by asset type
Realized capital gains and losses		$ 19
Fixed income securities
Realized capital gains and losses by asset type
Realized capital gains and losses	(5)	(18)
Mortgage loans
Realized capital gains and losses by asset type
Realized capital gains and losses	3	31
Equity securities
Realized capital gains and losses by asset type
Realized capital gains and losses	2	1
Limited partnership interests
Realized capital gains and losses by asset type
Realized capital gains and losses	(5)
Derivatives
Realized capital gains and losses by asset type
Realized capital gains and losses	2	7
Other
Realized capital gains and losses by asset type
Realized capital gains and losses	$ 3	$ (2)

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Investments (Details 5) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013
Investments
Impairment write-downs	$ (4)	$ (2)
Change in intent write-downs	(5)	(7)
Net other-than-temporary impairment losses recognized in earnings	(9)	(9)
Sales	7	21
Valuation of derivative instruments	3	(4)
Settlements of derivative instruments	(1)	11
Total realized capital gains and losses		19
Fixed income securities
Investments
Net other-than-temporary impairment losses recognized in earnings	(2)	(33)
Total realized capital gains and losses	(5)	(18)
Schedule of Available for Sale Securities
Gross gains on sales of fixed income securities	17	25
Gross losses on sales of fixed income securities	$ 14	$ 9

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Held for Sale Transaction and Subsequent Event

3 Months Ended

Mar. 31, 2014

Held for Sale Transaction and Subsequent Event

Held for Sale Transaction and Subsequent Event

2.  Held for Sale Transaction and Subsequent Event

On July 17, 2013, the Company entered into a definitive agreement with Resolution Life Holdings, Inc. to sell Lincoln Benefit Life Company (“LBL”), LBL’s life insurance business generated through independent master brokerage agencies, and all of LBL’s deferred fixed annuity and long-term care insurance business.  This transaction met the criteria for held for sale accounting.  As a result, the related assets and liabilities are included as single line items in the asset and liability sections of the Condensed Consolidated Statements of Financial Position as of March 31, 2014 and December 31, 2013.  The following table summarizes the assets and liabilities held for sale.

($ in millions)		March 31, 2014		December 31, 2013
Assets
Investments
Fixed income securities	$	9,959	$	10,167
Mortgage loans		1,289		1,367
Short-term investments		--		160
Policy loans		197		198
Other investments		61		91
Total investments		11,506		11,983
Cash		242		--
Deferred policy acquisition costs		714		743
Reinsurance recoverables, net		1,782		1,660
Accrued investment income		108		109
Other assets		85		79
Separate Accounts		1,661		1,701
Assets held for sale		16,098		16,275
Less: Loss accrual		(708)		(682)
Total assets held for sale	$	15,390	$	15,593
Liabilities
Reserve for life-contingent contract benefits	$	2,000	$	1,894
Contractholder funds		10,661		10,945
Unearned premiums		11		12
Deferred income taxes		151		151
Other liabilities and accrued expenses		157		196
Separate Accounts		1,661		1,701
Total liabilities held for sale	$	14,641	$	14,899

Included in shareholder’s equity is $155 million and $85 million of accumulated other comprehensive income related to assets held for sale as of March 31, 2014 and December 31, 2013, respectively.

The estimated loss on disposition, excluding any impact of unrealized net capital gains and losses, increased by $61 million, pre-tax, ($18 million, after-tax) in first quarter 2014.

On April 1, 2014, the Company closed the sale.  The estimated gross sale price is $796 million, representing $594 million of cash and the retention of tax benefits.  The actual cash proceeds will be based on the actual valuation as of the closing date of April 1, 2014.

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Investments (Details 6) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013
Other-than-temporary impairment losses by asset type
Total other-than-temporary impairment losses	$ (8)	$ (1)
Portion of loss recognized in other comprehensive income	(1)	(8)
Net other-than-temporary impairment losses recognized in earnings	(9)	(9)
Fixed income securities
Other-than-temporary impairment losses by asset type
Total other-than-temporary impairment losses	(1)	(25)
Portion of loss recognized in other comprehensive income	(1)	(8)
Net other-than-temporary impairment losses recognized in earnings	(2)	(33)
Municipal
Other-than-temporary impairment losses by asset type
Total other-than-temporary impairment losses	(1)	(7)
Net other-than-temporary impairment losses recognized in earnings	(1)	(7)
RMBS
Other-than-temporary impairment losses by asset type
Total other-than-temporary impairment losses		1
Portion of loss recognized in other comprehensive income	(1)	(1)
Net other-than-temporary impairment losses recognized in earnings	(1)
CMBS
Other-than-temporary impairment losses by asset type
Total other-than-temporary impairment losses		(19)
Portion of loss recognized in other comprehensive income		(7)
Net other-than-temporary impairment losses recognized in earnings		(26)
Mortgage loans
Other-than-temporary impairment losses by asset type
Total other-than-temporary impairment losses	4	26
Net other-than-temporary impairment losses recognized in earnings	4	26
Equity securities
Other-than-temporary impairment losses by asset type
Total other-than-temporary impairment losses	(4)
Net other-than-temporary impairment losses recognized in earnings	(4)
Limited partnership interests
Other-than-temporary impairment losses by asset type
Total other-than-temporary impairment losses	(7)
Net other-than-temporary impairment losses recognized in earnings	(7)
Other
Other-than-temporary impairment losses by asset type
Total other-than-temporary impairment losses		(2)
Net other-than-temporary impairment losses recognized in earnings		$ (2)

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Fair Value of Assets and Liabilities (Details 2) (Significant unobservable inputs (Level 3), USD $) In Millions, unless otherwise specified	3 Months Ended	12 Months Ended
	Mar. 31, 2014	Dec. 31, 2013
Quantitative information about the significant unobservable inputs
Fair value	$ 1,500	$ 1,635
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	(264)	(247)
Weighted average projected option cost (as a percent)	1.76%	1.75%
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%
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%
Fixed income securities - non-binding broker quotes
Quantitative information about the significant unobservable inputs
Fair value	1,050	1,150
Fair value	317	319
Liabilities held for sale - Equity-indexed and forward starting options | Stochastic cash flow model
Quantitative information about the significant unobservable inputs
Fair value	$ (230)	$ (246)
Weighted average projected option cost (as a percent)	1.90%	1.91%
Liabilities held for sale - 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%
Liabilities held for sale - 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%

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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013
Revenues
Premiums	$ 156	$ 145
Contract charges	267	264
Net investment income	626	621
Realized capital gains and losses:
Total other-than-temporary impairment losses	(8)	(1)
Portion of loss recognized in other comprehensive income	(1)	(8)
Net other-than-temporary impairment losses recognized in earnings	(9)	(9)
Sales and other realized capital gains and losses	9	28
Total realized capital gains and losses		19
Total revenues	1,049	1,049
Costs and expenses
Contract benefits	411	381
Interest credited to contractholder funds	300	339
Amortization of deferred policy acquisition costs	45	53
Operating costs and expenses	81	117
Restructuring and related charges	2	2
Interest expense	4	8
Total costs and expenses	843	900
(Loss) gain on disposition of operations	(59)	2
Income from operations before income tax expense	147	151
Income tax expense	20	42
Net income	127	109
Other comprehensive income, after-tax
Change in unrealized net capital gains and losses	325	26
Change in unrealized foreign currency translation adjustments	1	1
Other comprehensive income, after-tax	326	27
Comprehensive income	$ 453	$ 136

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Derivative Financial Instruments (Details) (USD $) In Millions, except Share data, unless otherwise specified	3 Months Ended
	Mar. 31, 2014 contract	Dec. 31, 2013 contract
Derivative Financial Instruments
Assumed recoveries under sale of credit protection	$ 0
Securities pledged in the form of margin deposits	6
Derivatives, Fair Value
Total asset derivatives, Notional amount	221	1,649
Total liability derivatives, Notional amount	10,998	10,760
Total derivatives, Notional amount	11,219	12,409
Total asset derivatives, Number of contracts	9,022	10,662
Total liability derivatives, Number of contracts	7,905	10,035
Total derivatives, Number of contracts	16,927	20,697
Total asset derivatives, Fair value, net	156	254
Asset derivatives, Gross asset	168	266
Asset derivatives, Gross liability	(12)	(12)
Derivative liabilities net amount on balance sheet	(661)	(741)
Total derivatives, Fair value, net	(505)	(487)
Liability derivatives, Gross asset	8	11
Liability derivatives, Gross liability	(669)	(752)
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	205	1,633
Total liability derivatives, Notional amount	10,869	10,628
Total asset derivatives, Number of contracts	9,022	10,662
Total liability derivatives, Number of contracts	7,905	10,035
Total asset derivatives, Fair value, net	155	253
Asset derivatives, Gross asset	167	265
Asset derivatives, Gross liability	(12)	(12)
Derivative liabilities net amount on balance sheet	(645)	(726)
Liability derivatives, Gross asset	8	11
Liability derivatives, Gross liability	(653)	(737)
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	85
Derivative liabilities net amount on balance sheet	4	4
Liability derivatives, Gross asset	4	4
Other contracts | Derivatives not designated as accounting hedging instruments | Other assets
Derivatives, Fair Value
Total asset derivatives, Notional amount	4	4
Foreign currency swap agreements | Derivatives designated as accounting hedging instruments | Other investments
Derivatives, Fair Value
Total asset derivatives, Notional amount	16	16
Total asset derivatives, Fair value, net	1	1
Asset derivatives, Gross asset	1	1
Foreign currency swap agreements | Derivatives designated as accounting hedging instruments | Other liabilities and accrued expenses
Derivatives, Fair Value
Total liability derivatives, Notional amount	129	132
Derivative liabilities net amount on balance sheet	(16)	(15)
Liability derivatives, Gross liability	(16)	(15)
Interest rate swaption agreements | Derivatives not designated as accounting hedging instruments | Other investments
Derivatives, Fair Value
Total asset derivatives, Notional amount		1,420
Interest rate swaption agreements | Derivatives not designated as accounting hedging instruments | Other liabilities and accrued expenses
Derivatives, Fair Value
Total liability derivatives, Notional amount	5,000	4,570
Derivative liabilities net amount on balance sheet		1
Liability derivatives, Gross asset		1
Interest rate cap agreements | Derivatives not designated as accounting hedging instruments | Other investments
Derivatives, Fair Value
Total asset derivatives, Notional amount	56	61
Total asset derivatives, Fair value, net	1	2
Asset derivatives, Gross asset	1	2
Interest rate cap agreements | Derivatives not designated as accounting hedging instruments | Other liabilities and accrued expenses
Derivatives, Fair Value
Total liability derivatives, Notional amount	233	262
Derivative liabilities net amount on balance sheet	4	4
Liability derivatives, Gross asset	4	4
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	1,117	627
Total asset derivatives, Fair value, net	1
Asset derivatives, Gross asset	1
Options and warrants | Derivatives not designated as accounting hedging instruments | Other investments
Derivatives, Fair Value
Total asset derivatives, Notional amount		3
Total asset derivatives, Number of contracts	7,905	10,035
Total asset derivatives, Fair value, net	163	261
Asset derivatives, Gross asset	163	261
Options and futures | Derivatives not designated as accounting hedging instruments | Other liabilities and accrued expenses
Derivatives, Fair Value
Total liability derivatives, Notional amount		55
Total liability derivatives, Number of contracts	7,905	10,035
Derivative liabilities net amount on balance sheet	(89)	(165)
Liability derivatives, Gross asset		2
Liability derivatives, Gross liability	(89)	(167)
Foreign currency forwards | Derivatives not designated as accounting hedging instruments | Other investments
Derivatives, Fair Value
Total asset derivatives, Notional amount	47	47
Credit default swaps | Derivatives not designated as accounting hedging instruments | Fixed income securities
Derivatives, Fair Value
Total asset derivatives, Notional amount	12	12
Total asset derivatives, Fair value, net	(12)	(12)
Asset derivatives, Gross liability	(12)	(12)
Guaranteed accumulation benefits | Derivatives not designated as accounting hedging instruments | Contractholder funds
Derivatives, Fair Value
Total liability derivatives, Notional amount	711	738
Derivative liabilities net amount on balance sheet	(39)	(43)
Liability derivatives, Gross liability	(39)	(43)
Guaranteed withdrawal benefits | Derivatives not designated as accounting hedging instruments | Contractholder funds
Derivatives, Fair Value
Total liability derivatives, Notional amount	493	506
Derivative liabilities net amount on balance sheet	(12)	(13)
Liability derivatives, Gross liability	(12)	(13)
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	1,755	1,693
Derivative liabilities net amount on balance sheet	(264)	(247)
Liability derivatives, Gross liability	(264)	(247)
Equity-indexed and forward starting options in life and annuity product contracts | Derivatives not designated as accounting hedging instruments | Liabilities held for sale
Derivatives, Fair Value
Total liability derivatives, Notional amount	2,239	2,363
Derivative liabilities net amount on balance sheet	(230)	(246)
Liability derivatives, Gross liability	(230)	(246)
Other embedded derivative financial instruments | Derivatives not designated as accounting hedging instruments | Contractholder funds
Derivatives, Fair Value
Total liability derivatives, Notional amount	85	85
Derivative liabilities net amount on balance sheet	(4)	(4)
Liability derivatives, Gross liability	(4)	(4)
Credit default swaps - buying protection | Derivatives not designated as accounting hedging instruments | Other investments
Derivatives, Fair Value
Total asset derivatives, Notional amount	1	1
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	168	171
Derivative liabilities net amount on balance sheet	(3)	(2)
Liability derivatives, Gross liability	(3)	(2)
Credit default swaps - selling protection | Derivatives not designated as accounting hedging instruments | Other investments
Derivatives, Fair Value
Total asset derivatives, Notional amount	85	85
Total asset derivatives, Fair value, net	2	2
Asset derivatives, Gross asset	2	2
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	100
Derivative liabilities net amount on balance sheet	(12)	(15)
Liability derivatives, Gross liability	$ (12)	$ (15)

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013
Cash flows from operating activities
Net income	$ 127	$ 109
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization and other non-cash items	(17)	(14)
Realized capital gains and losses		(19)
Loss (gain) on disposition of operations	59	(2)
Interest credited to contractholder funds	300	339
Changes in:
Policy benefits and other insurance reserves	(175)	(159)
Deferred policy acquisition costs	5	(21)
Reinsurance recoverables, net	(28)	(16)
Income taxes	17	43
Other operating assets and liabilities	(83)	6
Net cash provided by operating activities	205	266
Proceeds from sales
Fixed income securities	817	938
Equity securities	68	29
Limited partnership interests	72	45
Mortgage loans	10	2
Other investments	13	10
Investment collections
Fixed income securities	538	1,220
Mortgage loans	288	221
Other investments	19	33
Investment purchases
Fixed income securities	(745)	(1,618)
Equity securities	(309)	(20)
Limited partnership interests	(112)	(81)
Mortgage loans	(2)	(74)
Other investments		(35)
Change in short-term investments, net	199	(404)
Change in policy loans and other investments, net	29	25
Disposition of operations	(2)
Net cash provided by investing activities	883	291
Cash flows from financing activities
Contractholder fund deposits	371	579
Contractholder fund withdrawals	(1,074)	(1,252)
Repayment of notes due to related parties	(7)
Net cash used in financing activities	(710)	(673)
Cash classified as held for sale	(242)
Net increase (decrease) in cash	136	(116)
Cash at beginning of period	93	341
Cash at end of period	$ 229	$ 225

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Investments (Details 9) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2014
Change in Unrealized Gain (Loss) Recognized in Accumulated Other Comprehensive Income (Loss)
Change in unrealized net capital gains and losses	$ 721
Amount recognized for:
Insurance reserves	(134)
DAC and DSI	(86)
Amounts recognized	(220)
Deferred income taxes	(176)
Increase in unrealized net capital gains and losses, after-tax	325
Fixed income securities
Change in Unrealized Gain (Loss) Recognized in Accumulated Other Comprehensive Income (Loss)
Change in unrealized net capital gains and losses	564
Equity securities
Change in Unrealized Gain (Loss) Recognized in Accumulated Other Comprehensive Income (Loss)
Change in unrealized net capital gains and losses	22
Derivative instruments
Change in Unrealized Gain (Loss) Recognized in Accumulated Other Comprehensive Income (Loss)
Change in unrealized net capital gains and losses	(2)
Investments classified as held for sale
Change in Unrealized Gain (Loss) Recognized in Accumulated Other Comprehensive Income (Loss)
Change in unrealized net capital gains and losses	$ 137

XML

Reinsurance (Tables)

3 Months Ended

Mar. 31, 2014

Reinsurance

Effects of reinsurance on premiums and contract charges

($ in millions)		2014		2013
Direct	$	521	$	515
Assumed
Affiliate		33		30
Non-affiliate		16		17
Ceded-non-affiliate		(147)		(153)
Premiums and contract charges, net of reinsurance	$	423	$	409

Effects of reinsurance on contract benefits

($ in millions)		2014		2013
Direct	$	493	$	430
Assumed
Affiliate		23		22
Non-affiliate		13		13
Ceded-non-affiliate		(118)		(84)
Contract benefits, net of reinsurance	$	411	$	381

Effects of reinsurance on interest credited to contractholder funds

($ in millions)		2014		2013
Direct	$	298	$	335
Assumed
Affiliate		2		2
Non-affiliate		7		7
Ceded-non-affiliate		(7)		(5)
Interest credited to contractholder funds, net of reinsurance	$	300	$	339

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Investments (Details 10) (USD $) In Millions, unless otherwise specified	Mar. 31, 2014 security	Dec. 31, 2013 security
Fixed income and equity securities
Less than 12 months
Number of issues, continuous unrealized loss position for less than 12 months	428	686
Fair value, continuous unrealized loss position for less than 12 months	$ 3,551	$ 5,988
Unrealized losses, continuous unrealized loss position for less than 12 months	(117)	(262)
12 months or more
Number of issues, continuous unrealized loss position for 12 months or more	144	165
Fair value, continuous unrealized loss position for 12 months or more	1,022	1,160
Unrealized losses, continuous unrealized loss position for 12 months or more	(128)	(161)
Total unrealized losses
Total unrealized losses	(245)	(423)
Fixed income securities
Less than 12 months
Number of issues, continuous unrealized loss position for less than 12 months	400	661
Fair value, continuous unrealized loss position for less than 12 months	3,470	5,908
Unrealized losses, continuous unrealized loss position for less than 12 months	(112)	(257)
12 months or more
Number of issues, continuous unrealized loss position for 12 months or more	144	165
Fair value, continuous unrealized loss position for 12 months or more	1,022	1,160
Unrealized losses, continuous unrealized loss position for 12 months or more	(128)	(161)
Total unrealized losses
Gross unrealized losses	(240)	(418)
U.S. government and agencies
Less than 12 months
Number of issues, continuous unrealized loss position for less than 12 months	3	4
Fair value, continuous unrealized loss position for less than 12 months	37	76
Unrealized losses, continuous unrealized loss position for less than 12 months		(2)
Total unrealized losses
Total unrealized losses		(2)
Municipal
Less than 12 months
Number of issues, continuous unrealized loss position for less than 12 months	37	63
Fair value, continuous unrealized loss position for less than 12 months	192	347
Unrealized losses, continuous unrealized loss position for less than 12 months	(9)	(24)
12 months or more
Number of issues, continuous unrealized loss position for 12 months or more	21	21
Fair value, continuous unrealized loss position for 12 months or more	110	99
Unrealized losses, continuous unrealized loss position for 12 months or more	(27)	(38)
Total unrealized losses
Total unrealized losses	(36)	(62)
Corporate
Less than 12 months
Number of issues, continuous unrealized loss position for less than 12 months	309	530
Fair value, continuous unrealized loss position for less than 12 months	3,088	5,191
Unrealized losses, continuous unrealized loss position for less than 12 months	(99)	(224)
12 months or more
Number of issues, continuous unrealized loss position for 12 months or more	46	48
Fair value, continuous unrealized loss position for 12 months or more	465	467
Unrealized losses, continuous unrealized loss position for 12 months or more	(62)	(71)
Total unrealized losses
Total unrealized losses	(161)	(295)
Foreign government
Less than 12 months
Number of issues, continuous unrealized loss position for less than 12 months	5	7
Fair value, continuous unrealized loss position for less than 12 months	55	76
Unrealized losses, continuous unrealized loss position for less than 12 months	(2)	(4)
12 months or more
Number of issues, continuous unrealized loss position for 12 months or more	1	1
Fair value, continuous unrealized loss position for 12 months or more	14	13
Unrealized losses, continuous unrealized loss position for 12 months or more	(1)	(2)
Total unrealized losses
Total unrealized losses	(3)	(6)
ABS
Less than 12 months
Number of issues, continuous unrealized loss position for less than 12 months	6	17
Fair value, continuous unrealized loss position for less than 12 months	38	162
Unrealized losses, continuous unrealized loss position for less than 12 months	(1)	(1)
12 months or more
Number of issues, continuous unrealized loss position for 12 months or more	31	42
Fair value, continuous unrealized loss position for 12 months or more	296	400
Unrealized losses, continuous unrealized loss position for 12 months or more	(27)	(33)
Total unrealized losses
Total unrealized losses	(28)	(34)
RMBS
Less than 12 months
Number of issues, continuous unrealized loss position for less than 12 months	35	35
Fair value, continuous unrealized loss position for less than 12 months	38	42
Unrealized losses, continuous unrealized loss position for less than 12 months	(1)	(2)
12 months or more
Number of issues, continuous unrealized loss position for 12 months or more	41	47
Fair value, continuous unrealized loss position for 12 months or more	96	129
Unrealized losses, continuous unrealized loss position for 12 months or more	(7)	(10)
Total unrealized losses
Total unrealized losses	(8)	(12)
CMBS
Less than 12 months
Number of issues, continuous unrealized loss position for less than 12 months	5	5
Fair value, continuous unrealized loss position for less than 12 months	22	14
12 months or more
Number of issues, continuous unrealized loss position for 12 months or more	4	6
Fair value, continuous unrealized loss position for 12 months or more	41	52
Unrealized losses, continuous unrealized loss position for 12 months or more	(4)	(7)
Total unrealized losses
Total unrealized losses	(4)	(7)
Investment grade fixed income securities
Less than 12 months
Number of issues, continuous unrealized loss position for less than 12 months	328	526
Fair value, continuous unrealized loss position for less than 12 months	3,091	5,272
Unrealized losses, continuous unrealized loss position for less than 12 months	(103)	(236)
12 months or more
Number of issues, continuous unrealized loss position for 12 months or more	97	110
Fair value, continuous unrealized loss position for 12 months or more	743	834
Unrealized losses, continuous unrealized loss position for 12 months or more	(88)	(112)
Total unrealized losses
Total unrealized losses	(191)	(348)
Below investment grade fixed income securities
Less than 12 months
Number of issues, continuous unrealized loss position for less than 12 months	72	135
Fair value, continuous unrealized loss position for less than 12 months	379	636
Unrealized losses, continuous unrealized loss position for less than 12 months	(9)	(21)
12 months or more
Number of issues, continuous unrealized loss position for 12 months or more	47	55
Fair value, continuous unrealized loss position for 12 months or more	279	326
Unrealized losses, continuous unrealized loss position for 12 months or more	(40)	(49)
Total unrealized losses
Total unrealized losses	(49)	(70)
Equity securities
Less than 12 months
Number of issues, continuous unrealized loss position for less than 12 months	28	25
Fair value, continuous unrealized loss position for less than 12 months	81	80
Unrealized losses, continuous unrealized loss position for less than 12 months	(5)	(5)
Total unrealized losses
Gross unrealized losses on equity securities	$ (5)	$ (5)

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General (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013
Premiums and contract charges by product
Premiums	$ 156	$ 145
Contract charges	267	264
Total premiums and contract charges	423	409
Traditional life insurance
Premiums and contract charges by product
Premiums	123	112
Immediate annuities with life contingencies
Premiums and contract charges by product
Premiums	5	7
Accident and health insurance
Premiums and contract charges by product
Premiums	28	26
Interest-sensitive life insurance
Premiums and contract charges by product
Contract charges	261	261
Fixed annuities
Premiums and contract charges by product
Contract charges	$ 6	$ 3

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General

3 Months Ended

Mar. 31, 2014

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 March 31, 2014 and for the three-month periods ended March 31, 2014 and 2013 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, 2013.  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
		March 31,
		2014		2013
Premiums
Traditional life insurance	$	123	$	112
Immediate annuities with life contingencies		5		7
Accident and health insurance		28		26
Total premiums		156		145
Contract charges
Interest-sensitive life insurance		261		261
Fixed annuities		6		3
Total contract charges		267		264
Total premiums and contract charges	$	423	$	409

Pending accounting standard

Accounting for Investments in Qualified Affordable Housing Projects

In January 2014, the FASB issued guidance which allows entities that invest in certain qualified affordable housing projects through limited liability entities the option to account for these investments using the proportional amortization method if certain conditions are met.  Under the proportional amortization method, the entity amortizes the initial cost of the investment in proportion to the tax credits and other tax benefits received and recognizes the net investment performance in the income statement as a component of income tax expense or benefit.  The guidance is effective for reporting periods beginning after December 15, 2014 and is to be applied retrospectively.  Early adoption is permitted.  The Company is in the process of evaluating the impact of adoption, which is not expected to be material to the Company’s results of operations and financial position.

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CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (USD $) In Millions, unless otherwise specified	Mar. 31, 2014	Dec. 31, 2013
Investments
Fixed income securities, at fair value (amortized cost $27,199 and $27,427)	$ 29,092	$ 28,756
Mortgage loans	3,959	4,173
Equity securities, at fair value (cost $796 and $565)	903	650
Limited partnership interests	2,121	2,064
Short-term, at fair value (amortized cost $763 and $590)	763	590
Policy loans	616	623
Other	997	1,088
Total investments	38,451	37,944
Cash	229	93
Deferred policy acquisition costs	1,276	1,331
Reinsurance recoverables	2,629	2,754
Accrued investment income	353	358
Other assets	230	256
Separate Accounts	4,878	5,039
Assets held for sale	15,390	15,593
Total assets	63,436	63,368
Liabilities
Contractholder funds	23,286	23,604
Reserve for life-contingent contract benefits	11,633	11,589
Unearned premiums	6	6
Payable to affiliates, net	48	100
Other liabilities and accrued expenses	1,039	838
Deferred income taxes	1,107	941
Notes due to related parties	275	282
Separate Accounts	4,878	5,039
Liabilities held for sale	14,641	14,899
Total liabilities	56,913	57,298
Commitments and Contingent Liabilities (Note 8)
Shareholder's Equity
Common stock, $227 par value, 23,800 shares authorized and outstanding	5	5
Additional capital paid-in	2,690	2,690
Retained income	2,574	2,447
Unrealized net capital gains and losses:
Unrealized net capital gains and losses on fixed income securities with OTTI	41	31
Other unrealized net capital gains and losses	1,456	997
Unrealized adjustment to DAC, DSI and insurance reserves	(245)	(101)
Total unrealized net capital gains and losses	1,252	927
Unrealized foreign currency translation adjustments	2	1
Total accumulated other comprehensive income	1,254	928
Total shareholder's equity	6,523	6,070
Total liabilities and shareholder's equity	63,436	63,368
Series A
Shareholder's Equity
Redeemable preferred stock
Series B
Shareholder's Equity
Redeemable preferred stock

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Held for Sale Transaction and Subsequent Event (Tables)

3 Months Ended

Mar. 31, 2014

Held for Sale Transaction and Subsequent Event

Summary of assets and liabilities held for sale

($ in millions)		March 31, 2014		December 31, 2013
Assets
Investments
Fixed income securities	$	9,959	$	10,167
Mortgage loans		1,289		1,367
Short-term investments		--		160
Policy loans		197		198
Other investments		61		91
Total investments		11,506		11,983
Cash		242		--
Deferred policy acquisition costs		714		743
Reinsurance recoverables, net		1,782		1,660
Accrued investment income		108		109
Other assets		85		79
Separate Accounts		1,661		1,701
Assets held for sale		16,098		16,275
Less: Loss accrual		(708)		(682)
Total assets held for sale	$	15,390	$	15,593
Liabilities
Reserve for life-contingent contract benefits	$	2,000	$	1,894
Contractholder funds		10,661		10,945
Unearned premiums		11		12
Deferred income taxes		151		151
Other liabilities and accrued expenses		157		196
Separate Accounts		1,661		1,701
Total liabilities held for sale	$	14,641	$	14,899

XML

Document and Entity Information	3 Months Ended
	Mar. 31, 2014	May 08, 2014
Document and Entity Information
Entity Registrant Name	ALLSTATE LIFE INSURANCE CO
Entity Central Index Key	0000352736
Document Type	10-Q
Document Period End Date	Mar. 31, 2014
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	2014
Document Fiscal Period Focus	Q1

XML

Supplemental Cash Flow Information (Tables)

3 Months Ended

Mar. 31, 2014

Supplemental Cash Flow Information

Schedule of supplemental cash flow information from collateralized securities received

($ in millions)		2014		2013
Net change in proceeds managed
Net change in short-term investments	$	(169)	$	(64)
Operating cash flow used		(169)		(64)
Net change in liabilities
Liabilities for collateral, beginning of period	$	(328)	$	(561)
Liabilities for collateral, end of period		(497)		(625)
Operating cash flow provided	$	169	$	64

XML

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (Parenthetical) (USD $) In Millions, except Share data, unless otherwise specified	Mar. 31, 2014	Dec. 31, 2013
Fixed income securities, at fair value, amortized cost (in dollars)	$ 27,199	$ 27,427
Equity securities, at fair value, cost (in dollars)	796	565
Short-term, at fair value, amortized cost (in dollars)	$ 763	$ 590
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

Derivative Financial Instruments

3 Months Ended

Mar. 31, 2014

Derivative Financial Instruments

Derivative Financial Instruments

6.  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.

The Company may also use derivatives to manage the risk associated with corporate actions, including the sale of a business.  During the first quarter of 2014 and December 2013, swaptions were utilized to hedge the expected proceeds from the pending disposition of LBL.

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 March 31, 2014, the Company pledged $6 million of cash and 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 March 31, 2014.

($ 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	$	16	n/a	$	1	$	1	$	--
Derivatives not designated as accounting hedging instruments
Interest rate contracts
Interest rate cap agreements	Other investments		56	n/a		1		1		--
Equity and index contracts
Options and warrants (2)	Other investments		--	7,905		163		163		--
Financial futures contracts	Other assets		--	1,117		1		1		--
Foreign currency contracts
Foreign currency forwards	Other investments		47	n/a		--		--		--
Embedded derivative financial instruments
Credit default swaps	Fixed income securities		12	n/a		(12)		--		(12	)
Credit default contracts
Credit default swaps – buying protection	Other investments		1	n/a		--		--		--
Credit default swaps – selling protection	Other investments		85	n/a		2		2		--
Other contracts
Other contracts	Other assets		4	n/a		--		--		--
Subtotal			205	9,022		155		167		(12	)
Total asset derivatives		$	221	9,022	$	156	$	168	$	(12	)
Liability derivatives
Derivatives designated as accounting hedging instruments
Foreign currency swap agreements	Other liabilities & accrued expenses	$	129	n/a	$	(16)	$	--	$	(16	)
Derivatives not designated as accounting hedging instruments
Interest rate contracts
Interest rate swap agreements	Other liabilities & accrued expenses		85	n/a		4		4		--
Interest rate swaption agreements	Other liabilities & accrued expenses		5,000	n/a		--		--		--
Interest rate cap agreements	Other liabilities & accrued expenses		233	n/a		4		4		--
Equity and index contracts
Options	Other liabilities & accrued expenses		--	7,905		(89)		--		(89	)
Embedded derivative financial instruments
Guaranteed accumulation benefits	Contractholder funds		711	n/a		(39)		--		(39	)
Guaranteed withdrawal benefits	Contractholder funds		493	n/a		(12)		--		(12	)
Equity-indexed and forward starting options in life and annuity product contracts	Contractholder funds		1,755	n/a		(264)		--		(264	)
	Liabilities held for sale		2,239	n/a		(230)		--		(230	)
Other embedded derivative financial instruments	Contractholder funds		85	n/a		(4)		--		(4	)
Credit default contracts
Credit default swaps – buying protection	Other liabilities & accrued expenses		168	n/a		(3)		--		(3	)
Credit default swaps – selling protection	Other liabilities & accrued expenses		100	n/a		(12)		--		(12	)
Subtotal			10,869	7,905		(645)		8		(653	)
Total liability derivatives			10,998	7,905		(661)	$	8	$	(669	)
Total derivatives		$	11,219	16,927	$	(505)

(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, 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	$	16	n/a	$	1	$	1	$	--
Derivatives not designated as accounting hedging instruments
Interest rate contracts
Interest rate swaption agreements	Other investments		1,420	n/a		--		--		--
Interest rate cap agreements	Other investments		61	n/a		2		2		--
Equity and index contracts
Options and warrants (2)	Other investments		3	10,035		261		261		--
Financial futures contracts	Other assets		--	627		--		--		--
Foreign currency contracts
Foreign currency forwards	Other investments		47	n/a		--		--		--
Embedded derivative financial instruments
Credit default swaps	Fixed income securities		12	n/a		(12)		--		(12	)
Credit default contracts
Credit default swaps – buying protection	Other investments		1	n/a		--		--		--
Credit default swaps – selling protection	Other investments		85	n/a		2		2		--
Other contracts
Other contracts	Other assets		4	n/a		--		--		--
Subtotal			1,633	10,662		253		265		(12	)
Total asset derivatives		$	1,649	10,662	$	254	$	266	$	(12	)
Liability derivatives
Derivatives designated as accounting hedging instruments
Foreign currency swap agreements	Other liabilities & accrued expenses	$	132	n/a	$	(15)	$	--	$	(15	)
Derivatives not designated as accounting hedging instruments
Interest rate contracts
Interest rate swap agreements	Other liabilities & accrued expenses		85	n/a		4		4		--
Interest rate swaption agreements	Other liabilities & accrued expenses		4,570	n/a		1		1		--
Interest rate cap agreements	Other liabilities & accrued expenses		262	n/a		4		4		--
Equity and index contracts
Options	Other liabilities & accrued expenses		55	10,035		(165)		2		(167	)
Embedded derivative financial instruments
Guaranteed accumulation benefits	Contractholder funds		738	n/a		(43)		--		(43	)
Guaranteed withdrawal benefits	Contractholder funds		506	n/a		(13)		--		(13	)
Equity-indexed and forward starting options in life and annuity product contracts	Contractholder funds		1,693	n/a		(247)		--		(247	)
	Liabilities held for sale		2,363	n/a		(246)		--		(246	)
Other embedded derivative financial instruments	Contractholder funds		85	n/a		(4)		--		(4	)
Credit default contracts
Credit default swaps – buying protection	Other liabilities & accrued expenses		171	n/a		(2)		--		(2	)
Credit default swaps – selling protection	Other liabilities & accrued expenses		100	n/a		(15)		--		(15	)
Subtotal			10,628	10,035		(726)		11		(737	)
Total liability derivatives			10,760	10,035		(741)	$	11	$	(752	)
Total derivatives		$	12,409	20,697	$	(487)

(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
March 31, 2014
Asset derivatives	$	10	$	(8)	$	--	$	2	$	(2)	$	--
Liability derivatives		(30)		8		(2)		(24)		20		(4)
December 31, 2013
Asset derivatives	$	14	$	(11)	$	--	$	3	$	(3)	$	--
Liability derivatives		(33)		11		(4)		(26)		22		(4)

The following table provides a summary of the impacts of the Company’s foreign currency contracts in cash flow hedging relationships for the three months ended March 31.  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 ended March 31, 2014 or 2013.

($ in millions)		2014		2013
(Loss) gain recognized in OCI on derivatives during the period	$	(2)	$	3
Loss recognized in OCI on derivatives during the term of the hedging relationship		(15)		(14)
Loss reclassified from AOCI into income (net investment income)		--		--
Loss reclassified from AOCI into income (realized capital gains and losses)		--		--

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.  As of March 31, 2014 and 2013, the Company had no derivatives used in fair value hedging relationships.

($ in millions)		Realized capital gains and losses		Contract benefits		Interest credited to contractholder funds		Loss on disposition of operations		Total gain (loss) recognized in net income on derivatives
Three months ended March 31, 2014
Interest rate contracts	$	(1)	$	--	$	--	$	(4)	$	(5)
Equity and index contracts		--		--		9		--		9
Embedded derivative financial instruments		--		5		(1)		--		4
Credit default contracts		3		--		--		--		3
Total	$	2	$	5	$	8	$	(4)	$	11
Three months ended March 31, 2013
Equity and index contracts	$	--	$	--	$	38	$	--	$	38
Embedded derivative financial instruments		(1)		26		(40)		--		(15)
Foreign currency contracts		1		--		--		--		1
Credit default contracts		7		--		--		--		7
Total	$	7	$	26	$	(2)	$	--	$	31

The Company manages its exposure to credit risk by utilizing highly rated counterparties, establishing risk control limits, executing legally 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 March 31, 2014, counterparties pledged $5 million in cash and securities to the Company, and the Company pledged $21 million in securities to counterparties which includes $19 million of collateral posted under MNAs for contracts containing credit-risk-contingent provisions that are in a liability position and $2 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 legally 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)	March 31, 2014							December 31, 2013
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	$	21	$	1	$	1	1	$	22	$	1	$	1
A	4		96		2		--	4		1,523		2		--
A-	--		--		--		--	1		24		1		--
BBB+	1		3		--		--	1		3		--		--
BBB	1		76		--		--	1		76		1		--
Total	7	$	196	$	3	$	1	8	$	1,648	$	5	$	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 legally enforceable MNAs.

($ in millions)		March 31, 2014		December 31, 2013
Gross liability fair value of contracts containing credit-risk-contingent features	$	28	$	25
Gross asset fair value of contracts containing credit-risk-contingent features and subject to MNAs		(7)		(9)
Collateral posted under MNAs for contracts containing credit-risk-contingent features		(19)		(14)
Maximum amount of additional exposure for contracts with credit-risk-contingent features if all features were triggered concurrently	$	2	$	2

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
March 31, 2014
Single name
Corporate debt	$	--	$	5	$	--	$	--	$	5	$	--
First-to-default Basket
Municipal		--		100		--		--		100		(12)
Index
Corporate debt		1		20		55		4		80		2
Total	$	1	$	125	$	55	$	4	$	185	$	(10)
December 31, 2013
Single name
Corporate debt	$	--	$	5	$	--	$	--	$	5	$	--
First-to-default Basket
Municipal		--		100		--		--		100		(15)
Index
Corporate debt		1		20		55		4		80		2
Total	$	1	$	125	$	55	$	4	$	185	$	(13)

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 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, 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.  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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Fair Value of Assets and Liabilities

3 Months Ended

Mar. 31, 2014

Fair Value of Assets and Liabilities

Fair Value of Assets and Liabilities

5.  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. Treasury fixed income securities.  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.

· Assets held for sale:  Comprise U.S. Treasury fixed income securities, short-term investments and separate account assets.  The valuation is based on the respective asset type as described above.

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.

· Assets held for sale:  Comprise U.S. government and agencies, municipal, corporate, foreign government, ABS, RMBS and CMBS fixed income securities, and short-term investments.  The valuation is based on the respective asset type as described above.

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 and 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 included are 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 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.

· Assets held for sale:  Comprise municipal, corporate, ABS and CMBS fixed income securities.  The valuation is based on the respective asset type as described above.

· 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.

· Liabilities held for sale:  Comprise derivatives embedded in life and annuity contracts.  The valuation is the same as described above for contractholder funds.

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 carrying value of the LBL business was written-down to fair value in connection with being classified as held for sale.

The following table summarizes the Company’s assets and liabilities measured at fair value on a recurring and non-recurring basis as of March 31, 2014.

($ 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 March 31, 2014
Assets
Fixed income securities:
U.S. government and agencies	$	145	$	634	$	--			$	779
Municipal		--		3,282		119				3,401
Corporate		--		20,982		891				21,873
Foreign government		--		784		--				784
ABS		--		649		122				771
RMBS		--		751		--				751
CMBS		--		712		5				717
Redeemable preferred stock		--		16		--				16
Total fixed income securities		145		27,810		1,137				29,092
Equity securities		849		48		6				903
Short-term investments		115		648		--				763
Other investments: Free-standing derivatives		--		170		5	$	(8)		167
Separate account assets		4,878		--		--				4,878
Other assets		1		--		--				1
Assets held for sale		1,688		9,585		347				11,620
Total recurring basis assets		7,676		38,261		1,495		(8)		47,424
Non-recurring basis (1)		--		--		5				5
Total assets at fair value	$	7,676	$	38,261	$	1,500	$	(8)	$	47,429
% of total assets at fair value		16.2 %		80.7 %		3.1 %		-- %		100.0 %
Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	--	$	--	$	(319)			$	(319)
Other liabilities: Free-standing derivatives		--		(108)		(12)	$	6		(114)
Liabilities held for sale		--		--		(230)				(230)
Total recurring basis liabilities		--		(108)		(561)		6		(663)
Non-recurring basis (2)		--		--		(10,641)				(10,641)
Total liabilities at fair value	$	--	$	(108)	$	(11,202)	$	6	$	(11,304)
% of total liabilities at fair value		-- %		1.0 %		99.1 %		(0.1) %		100.0 %

(1)   Includes $5 million of limited partnership interests written-down to fair value in connection with recognizing other-than-temporary impairments.

(2)Relates to LBL business held for sale (see Note 2). The total fair value measurement includes $15,390 million of assets held for sale and $(14,641) million of liabilities held for sale, less $11,620 million of assets and $(230) million of liabilities measured at fair value on a recurring basis.

The following table summarizes the Company’s assets and liabilities measured at fair value on a recurring and non-recurring basis as of December 31, 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 December 31, 2013
Assets
Fixed income securities:
U.S. government and agencies	$	145	$	621	$	--			$	766
Municipal		--		3,185		119				3,304
Corporate		--		20,308		1,008				21,316
Foreign government		--		792		--				792
ABS		--		895		112				1,007
RMBS		--		790		--				790
CMBS		--		763		1				764
Redeemable preferred stock		--		16		1				17
Total fixed income securities		145		27,370		1,241				28,756
Equity securities		593		51		6				650
Short-term investments		129		461		--				590
Other investments: Free-standing derivatives		--		268		9	$	(11)		266
Separate account assets		5,039		--		--				5,039
Assets held for sale		1,854		9,812		362				12,028
Total recurring basis assets		7,760		37,962		1,618		(11)		47,329
Non-recurring basis (1)		--		--		17				17
Total assets at fair value	$	7,760	$	37,962	$	1,635	$	(11)	$	47,346
% of total assets at fair value		16.4 %		80.2 %		3.4 %		-- %		100.0 %
Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	--	$	--	$	(307)			$	(307)
Other liabilities: Free-standing derivatives		--		(185)		(14)	$	7		(192)
Liabilities held for sale		--		--		(246)				(246)
Total recurring basis liabilities		--		(185)		(567)		7		(745)
Non-recurring basis (2)		--		--		(11,088)				(11,088)
Total liabilities at fair value	$	--	$	(185)	$	(11,655)	$	7	$	(11,833)
% of total liabilities at fair value		-- %		1.6 %		98.5 %		(0.1) %		100.0 %

(1)Includes $8 million of mortgage loans and $9 million of limited partnership interests written-down to fair value in connection with recognizing other-than-temporary impairments.

(2)Relates to LBL business held for sale (see Note 2). The total fair value measurement includes $15,593 million of assets held for sale and $(14,899) million of liabilities held for sale, less $12,028 million of assets and $(246) million of liabilities measured at fair value on a recurring basis.

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
March 31, 2014
Derivatives embedded in life and annuity contracts – Equity-indexed and forward starting options	$	(264)	Stochastic cash flow model	Projected option cost	1.0 - 2.0 %	1.76 %
Liabilities held for sale – Equity-indexed and forward starting options	$	(230)	Stochastic cash flow model	Projected option cost	1.0 - 2.0 %	1.90 %
December 31, 2013
Derivatives embedded in life and annuity contracts – Equity-indexed and forward starting options	$	(247)	Stochastic cash flow model	Projected option cost	1.0 - 2.0 %	1.75 %
Liabilities held for sale – Equity-indexed and forward starting options	$	(246)	Stochastic cash flow model	Projected option cost	1.0 - 2.0 %	1.91 %

If the projected option cost increased (decreased), it would result in a higher (lower) liability fair value.

As of March 31, 2014 and December 31, 2013, Level 3 fair value measurements include $1.05 billion and $1.15 billion, respectively, of fixed income securities valued based on non-binding broker quotes where the inputs have not been corroborated to be market observable.  As of March 31, 2014 and December 31, 2013, Level 3 fair value measurements for assets held for sale include $317 million and $319 million, 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 March 31, 2014.

($ in millions)				Total gains (losses) included in:
		Balance as of December 31, 2013		Net income (1)		OCI		Transfers into Level 3		Transfers out of Level 3
Assets
Fixed income securities:
Municipal	$	119	$	(1)	$	2	$	--	$	--
Corporate		1,008		5		--		--		(25)
ABS		112		--		--		--		--
CMBS		1		--		--		--		--
Redeemable preferred stock		1		--		--		--		--
Total fixed income securities		1,241		4		2		--		(25)
Equity securities		6		--		--		--		--
Free-standing derivatives, net		(5)		(2)		--		--		--
Assets held for sale		362		(1)		2		4		(2)
Total recurring Level 3 assets	$	1,604	$	1	$	4	$	4	$	(27)
Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	(307)	$	(2)	$	--	$	--	$	--
Liabilities held for sale		(246)		17		--		--		--
Total recurring Level 3 liabilities	$	(553)	$	15	$	--	$	--	$	--

		Transfer from held for sale		Purchases/ Issues (2)		Sales		Settlements		Balance as of March 31, 2014
Assets
Fixed income securities:
Municipal	$	--	$	--	$	(1)	$	--	$	119
Corporate		--		2		(86)		(13)		891
ABS		--		11		--		(1)		122
CMBS		4		--		--		--		5
Redeemable preferred stock		--		--		(1)		--		--
Total fixed income securities		4		13		(88)		(14)		1,137
Equity securities		--		--		--		--		6
Free-standing derivatives, net		--		2		--		(2)		(7)	(3)
Assets held for sale		(4)		--		(8)		(6)		347
Total recurring Level 3 assets	$	--	$	15	$	(96)	$	(22)	$	1,483
Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	--	$	(11)	$	--	$	1	$	(319)
Liabilities held for sale		--		(4)		--		3		(230)
Total recurring Level 3 liabilities	$	--	$	(15)	$	--	$	4	$	(549)

____________

(1) The effect to net income totals $16 million and is reported in the Condensed Consolidated Statements of Operations and Comprehensive Income as follows: $3 million in realized capital gains and losses, $2 million in net investment income, $10 million in interest credited to contractholder funds, $5 million in contract benefits and $(4) million in loss on disposition of operations.

(2) Represents purchases for assets and issues for liabilities.

(3) Comprises $5 million of assets and $12 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 March 31, 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)	$	26	$	--	$	--
Corporate		1,501		12		(2)		25		(125)
ABS		199		--		7		17		--
CMBS		21		--		2		--		--
Redeemable preferred stock		1		--		--		--		--
Total fixed income securities		2,060		--		33		42		(125)
Equity securities		7		--		--		--		--
Free-standing derivatives, net		(27)		7		--		--		--
Other assets		1		--		--		--		--
Total recurring Level 3 assets	$	2,041	$	7	$	33	$	42	$	(125)
Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	(553)	$	6	$	--	$	--	$	--
Total recurring Level 3 liabilities	$	(553)	$	6	$	--	$	--	$	--

		Purchases		Sales		Issues		Settlements		Balance as of March 31, 2013
Assets
Fixed income securities:
Municipal	$	--	$	(101)	$	--	$	--	$	251
Corporate		72		(109)		--		(11)		1,363
ABS		--		(8)		--		(4)		211
CMBS		--		(17)		--		--		6
Redeemable preferred stock		--		--		--		--		1
Total fixed income securities		72		(235)		--		(15)		1,832
Equity securities		--		--		--		--		7
Free-standing derivatives, net		1		--		--		(1)		(20)	(2)
Other assets		--		--		--		--		1
Total recurring Level 3 assets	$	73	$	(235)	$	--	$	(16)	$	1,820
Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	--	$	--	$	(24)	$	4	$	(567)
Total recurring Level 3 liabilities	$	--	$	--	$	(24)	$	4	$	(567)

____________

(1) The effect to net income totals $13 million and is reported in the Condensed Consolidated Statements of Operations and Comprehensive Income as follows: $2 million in realized capital gains and losses, $5 million in net investment income, $(20) million in interest credited to contractholder funds and $26 million in contract benefits.

(2) Comprises $4 million of assets and $24 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 ended March 31, 2014 or 2013.

Transfers into Level 3 during the three months ended March 31, 2014 and 2013 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 had 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 ended March 31, 2014 and 2013 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 March 31.

($ in millions)		2014		2013
Assets
Fixed income securities:
Municipal	$	(1)	$	(7)
Corporate		4		5
CMBS		--		(1)
Total fixed income securities		3		(3)
Free-standing derivatives, net		--		7
Assets held for sale		(1)		--
Total recurring Level 3 assets	$	2	$	4
Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	(2)	$	6
Liabilities held for sale		17		--
Total recurring Level 3 liabilities	$	15	$	6

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 $17 million for the three months ended March 31, 2014 and are reported as follows: $1 million in realized capital gains and losses, $3 million in net investment income, $10 million in interest credited to contractholder funds, $5 million in contract benefits and $(2) million in loss on disposition of operations.  These gains and losses total $10 million for the three months ended March 31, 2013 and are reported as follows: $4 million in net investment income, $(20) million in interest credited to contractholder funds and $26 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)		March 31, 2014				December 31, 2013
		Carrying  value		Fair  value		Carrying  value		Fair  value
Mortgage loans	$	3,959	$	4,148	$	4,173	$	4,300
Cost method limited partnerships		603		817		605		799
Agent loans		348		344		341		325
Bank loans		170		171		160		161
Notes due from related party		275		275		275		275
Assets held for sale		1,350		1,436		1,458		1,532

The fair value of mortgage loans, including those classified as assets held for sale, 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 or assets held for sale, 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, notes due from related party and assets held for sale are categorized as Level 3.

Financial liabilities

($ in millions)		March 31, 2014				December 31, 2013
		Carrying  value		Fair  value		Carrying  value		Fair  value
Contractholder funds on investment contracts	$	15,241	$	15,941	$	15,542	$	16,198
Notes due to related parties		275		275		282		282
Liability for collateral		497		497		328		328
Liabilities held for sale		7,166		7,127		7,417		7,298

The fair value of contractholder funds on investment contracts, including those classified as liabilities held for sale, 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 and liabilities held for sale 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.

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Other Comprehensive Income (Tables)

3 Months Ended

Mar. 31, 2014

Other Comprehensive Income

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

($ in millions)		2014						2013
		Pre- tax		Tax		After- tax		Pre- tax		Tax		After- tax
Unrealized net holding gains and losses arising during the period, net of related offsets	$	492	$	(173)	$	319	$	21	$	(7)	$	14
Less: reclassification adjustment of realized capital gains and losses		(9)		3		(6)		(18)		6		(12)
Unrealized net capital gains and losses		501		(176)		325		39		(13)		26
Unrealized foreign currency translation adjustments		2		(1)		1		2		(1)		1
Other comprehensive income	$	503	$	(177)	$	326	$	41	$	(14)	$	27
Net income						127						109
Comprehensive income					$	453					$	136

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Investments (Tables)

3 Months Ended

Mar. 31, 2014

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
March 31, 2014
U.S. government and agencies	$	683	$	96	$	--	$	779
Municipal		3,103		334		(36)		3,401
Corporate		20,552		1,482		(161)		21,873
Foreign government		703		84		(3)		784
Asset-backed securities (“ABS”)		771		28		(28)		771
Residential mortgage-backed securities (“RMBS”)		703		56		(8)		751
Commercial mortgage-backed securities (“CMBS”)		670		51		(4)		717
Redeemable preferred stock		14		2		--		16
Total fixed income securities	$	27,199	$	2,133	$	(240)	$	29,092
December 31, 2013
U.S. government and agencies	$	678	$	90	$	(2)	$	766
Municipal		3,135		231		(62)		3,304
Corporate		20,397		1,214		(295)		21,316
Foreign government		715		83		(6)		792
ABS		1,011		30		(34)		1,007
RMBS		752		50		(12)		790
CMBS		724		47		(7)		764
Redeemable preferred stock		15		2		--		17
Total fixed income securities	$	27,427	$	1,747	$	(418)	$	28,756

Schedule for fixed income securities based on contractual maturities

The scheduled maturities for fixed income securities are as follows as of March 31, 2014:

($ in millions)		Amortized cost		Fair value
Due in one year or less	$	1,304	$	1,333
Due after one year through five years		5,025		5,438
Due after five years through ten years		11,086		11,634
Due after ten years		7,640		8,448
		25,055		26,853
ABS, RMBS and CMBS		2,144		2,239
Total	$	27,199	$	29,092

Schedule of net investment income

($ in millions)		2014		2013
Fixed income securities	$	474	$	496
Mortgage loans		75		91
Equity securities		4		2
Limited partnership interests		67		30
Short-term investments		--		1
Policy loans		11		12
Other		15		16
Investment income, before expense		646		648
Investment expense		(20)		(27)
Net investment income	$	626	$	621

Schedule of realized capital gains and losses by asset type

($ in millions)		2014		2013
Fixed income securities	$	(5)	$	(18)
Mortgage loans		3		31
Equity securities		2		1
Limited partnership interests		(5)		--
Derivatives		2		7
Other		3		(2)
Realized capital gains and losses	$	--	$	19

Schedule of realized capital gains and losses by transaction type

($ in millions)		2014		2013
Impairment write-downs	$	(4)	$	(2)
Change in intent write-downs		(5)		(7)
Net other-than-temporary impairment losses recognized in earnings		(9)		(9)
Sales		7		21
Valuation of derivative instruments		3		(4)
Settlements of derivative instruments		(1)		11
Realized capital gains and losses	$	--	$	19

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

($ in millions)		2014						2013
		Gross		Included in OCI		Net		Gross		Included in OCI		Net
Fixed income securities:
Municipal	$	(1)	$	--	$	(1)	$	(7)	$	--	$	(7)
RMBS		--		(1)		(1)		1		(1)		--
CMBS		--		--		--		(19)		(7)		(26)
Total fixed income securities		(1)		(1)		(2)		(25)		(8)		(33)
Mortgage loans		4		--		4		26		--		26
Equity securities		(4)		--		(4)		--		--		--
Limited partnership interests		(7)		--		(7)		--		--		--
Other		--		--		--		(2)		--		(2)
Other-than-temporary impairment losses	$	(8)	$	(1)	$	(9)	$	(1)	$	(8)	$	(9)

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

($ in millions)		March 31, 2014		December 31, 2013
Municipal	$	(5)	$	(5)
ABS		(10)		(10)
RMBS		(87)		(90)
CMBS		(12)		(12)
Total	$	(114)	$	(117)

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

($ in millions)		Three months ended March 31,
		2014		2013
Beginning balance	$	(299)	$	(345)
Additional credit loss for securities previously other-than-temporarily impaired		(1)		(11)
Additional credit loss for securities not previously other-than-temporarily impaired		--		(15)
Reduction in credit loss for securities disposed or collected		7		28
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 (1)	$	(293)	$	(343)

(1) The March 31, 2014 ending balance includes $59 million of cumulative credit losses recognized in earnings for fixed income securities that are classified as held for sale.

Schedule of unrealized net capital gains and losses included in accumulated other comprehensive income

($ in millions)		Fair		Gross unrealized			Unrealized net
March 31, 2014		value		Gains		Losses	gains (losses)
Fixed income securities	$	29,092	$	2,133	$	(240)	$	1,893
Equity securities		903		112		(5)		107
Short-term investments		763		--		--		--
Derivative instruments (1)		(15)		1		(16)		(15)
EMA limited partnerships (2)								(2)
Investments classified as held for sale								327
Unrealized net capital gains and losses, pre-tax								2,310
Amounts recognized for:
Insurance reserves (3)								(134)
DAC and DSI (4)								(242)
Amounts recognized								(376)
Deferred income taxes								(682)
Unrealized net capital gains and losses, after-tax							$	1,252

(1) Included in the fair value of derivative instruments are $1 million classified as assets and $16 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.

($ in millions)		Fair		Gross unrealized			Unrealized net
December 31, 2013		value		Gains		Losses	gains (losses)
Fixed income securities	$	28,756	$	1,747	$	(418)	$	1,329
Equity securities		650		90		(5)		85
Short-term investments		590		--		--		--
Derivative instruments (1)		(13)		1		(14)		(13)
EMA limited partnerships								(2)
Investments classified as held for sale								190
Unrealized net capital gains and losses, pre-tax								1,589
Amounts recognized for:
Insurance reserves								--
DAC and DSI								(156)
Amounts recognized								(156)
Deferred income taxes								(506)
Unrealized net capital gains and losses, after-tax							$	927

(1) Included in the fair value of derivative instruments are $1 million classified as assets and $14 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 three months ended March 31, 2014 is as follows:

($ in millions)
Fixed income securities	$	564
Equity securities		22
Derivative instruments		(2)
Investments classified as held for sale		137
Total		721
Amounts recognized for:
Insurance reserves		(134)
DAC and DSI		(86)
Amounts recognized		(220)
Deferred income taxes		(176)
Increase in unrealized net capital gains and losses, after-tax	$	325

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
March 31, 2014
Fixed income securities
U.S. government and agencies	3	$	37	$	--	--	$	--	$	--	$	--
Municipal	37		192		(9)	21		110		(27)		(36)
Corporate	309		3,088		(99)	46		465		(62)		(161)
Foreign government	5		55		(2)	1		14		(1)		(3)
ABS	6		38		(1)	31		296		(27)		(28)
RMBS	35		38		(1)	41		96		(7)		(8)
CMBS	5		22		--	4		41		(4)		(4)
Total fixed income securities	400		3,470		(112)	144		1,022		(128)		(240)
Equity securities	28		81		(5)	--		--		--		(5)
Total fixed income and equity securities	428	$	3,551	$	(117)	144	$	1,022	$	(128)	$	(245)
Investment grade fixed income securities	328	$	3,091	$	(103)	97	$	743	$	(88)	$	(191)
Below investment grade fixed income securities	72		379		(9)	47		279		(40)		(49)
Total fixed income securities	400	$	3,470	$	(112)	144	$	1,022	$	(128)	$	(240)
December 31, 2013
Fixed income securities
U.S. government and agencies	4	$	76	$	(2)	--	$	--	$	--	$	(2)
Municipal	63		347		(24)	21		99		(38)		(62)
Corporate	530		5,191		(224)	48		467		(71)		(295)
Foreign government	7		76		(4)	1		13		(2)		(6)
ABS	17		162		(1)	42		400		(33)		(34)
RMBS	35		42		(2)	47		129		(10)		(12)
CMBS	5		14		--	6		52		(7)		(7)
Total fixed income securities	661		5,908		(257)	165		1,160		(161)		(418)
Equity securities	25		80		(5)	--		--		--		(5)
Total fixed income and equity securities	686	$	5,988	$	(262)	165	$	1,160	$	(161)	$	(423)
Investment grade fixed income securities	526	$	5,272	$	(236)	110	$	834	$	(112)	$	(348)
Below investment grade fixed income securities	135		636		(21)	55		326		(49)		(70)
Total fixed income securities	661	$	5,908	$	(257)	165	$	1,160	$	(161)	$	(418)

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

($ in millions)		March 31, 2014						December 31, 2013
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	$	179	$	--	$	179	$	153	$	--	$	153
1.0 - 1.25		544		--		544		560		--		560
1.26 - 1.50		1,119		2		1,121		1,167		2		1,169
Above 1.50		2,063		38		2,101		2,176		38		2,214
Total non-impaired mortgage loans	$	3,905	$	40	$	3,945	$	4,056	$	40	$	4,096

Schedule of net carrying value of impaired mortgage loans

($ in millions)		March 31, 2014		December 31, 2013
Impaired mortgage loans with a valuation allowance	$	14	$	77
Impaired mortgage loans without a valuation allowance		--		--
Total impaired mortgage loans	$	14	$	77
Valuation allowance on impaired mortgage loans	$	9	$	21

Schedule of rollforward of the valuation allowance on impaired mortgage loans

($ in millions)		2014		2013
Beginning balance	$	21	$	42
Net decrease in valuation allowance		(4)		(26)
Charge offs		(8)		(1)
Ending balance	$	9	$	15

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Other Comprehensive Income

3 Months Ended

Mar. 31, 2014

Other Comprehensive Income

Other Comprehensive Income

9.  Other Comprehensive Income

The components of other comprehensive income on a pre-tax and after-tax basis for the three months ended March 31 are as follows:

($ in millions)		2014						2013
		Pre- tax		Tax		After- tax		Pre- tax		Tax		After- tax
Unrealized net holding gains and losses arising during the period, net of related offsets	$	492	$	(173)	$	319	$	21	$	(7)	$	14
Less: reclassification adjustment of realized capital gains and losses		(9)		3		(6)		(18)		6		(12)
Unrealized net capital gains and losses		501		(176)		325		39		(13)		26
Unrealized foreign currency translation adjustments		2		(1)		1		2		(1)		1
Other comprehensive income	$	503	$	(177)	$	326	$	41	$	(14)	$	27
Net income						127						109
Comprehensive income					$	453					$	136

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Reinsurance

3 Months Ended

Mar. 31, 2014

Reinsurance

Reinsurance

7.  Reinsurance

The effects of reinsurance on premiums and contract charges for the three months ended March 31 are as follows:

($ in millions)		2014		2013
Direct	$	521	$	515
Assumed
Affiliate		33		30
Non-affiliate		16		17
Ceded-non-affiliate		(147)		(153)
Premiums and contract charges, net of reinsurance	$	423	$	409

The effects of reinsurance on contract benefits for the three months ended March 31 are as follows:

($ in millions)		2014		2013
Direct	$	493	$	430
Assumed
Affiliate		23		22
Non-affiliate		13		13
Ceded-non-affiliate		(118)		(84)
Contract benefits, net of reinsurance	$	411	$	381

The effects of reinsurance on interest credited to contractholder funds for the three months ended March 31 are as follows:

($ in millions)		2014		2013
Direct	$	298	$	335
Assumed
Affiliate		2		2
Non-affiliate		7		7
Ceded-non-affiliate		(7)		(5)
Interest credited to contractholder funds, net of reinsurance	$	300	$	339

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Guarantees and Contingent Liabilities

3 Months Ended

Mar. 31, 2014

Guarantees and Contingent Liabilities

Guarantees and Contingent Liabilities

8.  Guarantees and Contingent Liabilities

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 March 31, 2014.  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 March 31, 2014.

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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General (Tables)

3 Months Ended

Mar. 31, 2014

General

Summary of premiums and contract charges by product

($ in millions)		Three months ended
		March 31,
		2014		2013
Premiums
Traditional life insurance	$	123	$	112
Immediate annuities with life contingencies		5		7
Accident and health insurance		28		26
Total premiums		156		145
Contract charges
Interest-sensitive life insurance		261		261
Fixed annuities		6		3
Total contract charges		267		264
Total premiums and contract charges	$	423	$	409

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Investments (Details 8) (USD $) In Millions, unless otherwise specified	Mar. 31, 2014	Dec. 31, 2013
Fair value
Fixed income securities	$ 29,092	$ 28,756
Equity securities	903	650
Short-term investments	763	590
Derivative instruments	(15)	(13)
Gross unrealized Gains
Fixed income securities	2,133	1,747
Equity securities	112	90
Derivative instruments	1	1
Gross unrealized Losses
Fixed income securities	(240)	(418)
Equity securities	(5)	(5)
Derivative instruments	(16)	(14)
Unrealized net gains (losses)
Fixed income securities	1,893	1,329
Equity securities	107	85
Derivative instruments	(15)	(13)
EMA limited partnerships	(2)	(2)
Investments classified as held for sale	327	190
Unrealized net capital gains and losses, pre-tax	2,310	1,589
Amount recognized for:
Insurance reserves	(134)
DAC and DSI	(242)	(156)
Amounts recognized	(376)	(156)
Deferred income taxes	(682)	(506)
Total unrealized net capital gains and losses	1,252	927
Fair value of derivative securities classified as assets, with unrealized net gains (losses) in AOCI	1	1
Fair value of derivative securities classified as liabilities, with unrealized net gains (losses) in AOCI	$ 16	$ 14

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Guarantees and Contingent Liabilities (Details) (Obligations of insolvent insurance companies, USD $) In Millions, unless otherwise specified	Mar. 31, 2014
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 (Tables)

3 Months Ended

Mar. 31, 2014

Derivative Financial Instruments

Summary of volume and fair value positions of derivative instruments and reporting location in the Condensed Consolidated 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 March 31, 2014.

($ 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	$	16	n/a	$	1	$	1	$	--
Derivatives not designated as accounting hedging instruments
Interest rate contracts
Interest rate cap agreements	Other investments		56	n/a		1		1		--
Equity and index contracts
Options and warrants (2)	Other investments		--	7,905		163		163		--
Financial futures contracts	Other assets		--	1,117		1		1		--
Foreign currency contracts
Foreign currency forwards	Other investments		47	n/a		--		--		--
Embedded derivative financial instruments
Credit default swaps	Fixed income securities		12	n/a		(12)		--		(12	)
Credit default contracts
Credit default swaps – buying protection	Other investments		1	n/a		--		--		--
Credit default swaps – selling protection	Other investments		85	n/a		2		2		--
Other contracts
Other contracts	Other assets		4	n/a		--		--		--
Subtotal			205	9,022		155		167		(12	)
Total asset derivatives		$	221	9,022	$	156	$	168	$	(12	)
Liability derivatives
Derivatives designated as accounting hedging instruments
Foreign currency swap agreements	Other liabilities & accrued expenses	$	129	n/a	$	(16)	$	--	$	(16	)
Derivatives not designated as accounting hedging instruments
Interest rate contracts
Interest rate swap agreements	Other liabilities & accrued expenses		85	n/a		4		4		--
Interest rate swaption agreements	Other liabilities & accrued expenses		5,000	n/a		--		--		--
Interest rate cap agreements	Other liabilities & accrued expenses		233	n/a		4		4		--
Equity and index contracts
Options	Other liabilities & accrued expenses		--	7,905		(89)		--		(89	)
Embedded derivative financial instruments
Guaranteed accumulation benefits	Contractholder funds		711	n/a		(39)		--		(39	)
Guaranteed withdrawal benefits	Contractholder funds		493	n/a		(12)		--		(12	)
Equity-indexed and forward starting options in life and annuity product contracts	Contractholder funds		1,755	n/a		(264)		--		(264	)
	Liabilities held for sale		2,239	n/a		(230)		--		(230	)
Other embedded derivative financial instruments	Contractholder funds		85	n/a		(4)		--		(4	)
Credit default contracts
Credit default swaps – buying protection	Other liabilities & accrued expenses		168	n/a		(3)		--		(3	)
Credit default swaps – selling protection	Other liabilities & accrued expenses		100	n/a		(12)		--		(12	)
Subtotal			10,869	7,905		(645)		8		(653	)
Total liability derivatives			10,998	7,905		(661)	$	8	$	(669	)
Total derivatives		$	11,219	16,927	$	(505)

(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, 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	$	16	n/a	$	1	$	1	$	--
Derivatives not designated as accounting hedging instruments
Interest rate contracts
Interest rate swaption agreements	Other investments		1,420	n/a		--		--		--
Interest rate cap agreements	Other investments		61	n/a		2		2		--
Equity and index contracts
Options and warrants (2)	Other investments		3	10,035		261		261		--
Financial futures contracts	Other assets		--	627		--		--		--
Foreign currency contracts
Foreign currency forwards	Other investments		47	n/a		--		--		--
Embedded derivative financial instruments
Credit default swaps	Fixed income securities		12	n/a		(12)		--		(12	)
Credit default contracts
Credit default swaps – buying protection	Other investments		1	n/a		--		--		--
Credit default swaps – selling protection	Other investments		85	n/a		2		2		--
Other contracts
Other contracts	Other assets		4	n/a		--		--		--
Subtotal			1,633	10,662		253		265		(12	)
Total asset derivatives		$	1,649	10,662	$	254	$	266	$	(12	)
Liability derivatives
Derivatives designated as accounting hedging instruments
Foreign currency swap agreements	Other liabilities & accrued expenses	$	132	n/a	$	(15)	$	--	$	(15	)
Derivatives not designated as accounting hedging instruments
Interest rate contracts
Interest rate swap agreements	Other liabilities & accrued expenses		85	n/a		4		4		--
Interest rate swaption agreements	Other liabilities & accrued expenses		4,570	n/a		1		1		--
Interest rate cap agreements	Other liabilities & accrued expenses		262	n/a		4		4		--
Equity and index contracts
Options	Other liabilities & accrued expenses		55	10,035		(165)		2		(167	)
Embedded derivative financial instruments
Guaranteed accumulation benefits	Contractholder funds		738	n/a		(43)		--		(43	)
Guaranteed withdrawal benefits	Contractholder funds		506	n/a		(13)		--		(13	)
Equity-indexed and forward starting options in life and annuity product contracts	Contractholder funds		1,693	n/a		(247)		--		(247	)
	Liabilities held for sale		2,363	n/a		(246)		--		(246	)
Other embedded derivative financial instruments	Contractholder funds		85	n/a		(4)		--		(4	)
Credit default contracts
Credit default swaps – buying protection	Other liabilities & accrued expenses		171	n/a		(2)		--		(2	)
Credit default swaps – selling protection	Other liabilities & accrued expenses		100	n/a		(15)		--		(15	)
Subtotal			10,628	10,035		(726)		11		(737	)
Total liability derivatives			10,760	10,035		(741)	$	11	$	(752	)
Total derivatives		$	12,409	20,697	$	(487)

(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
March 31, 2014
Asset derivatives	$	10	$	(8)	$	--	$	2	$	(2)	$	--
Liability derivatives		(30)		8		(2)		(24)		20		(4)
December 31, 2013
Asset derivatives	$	14	$	(11)	$	--	$	3	$	(3)	$	--
Liability derivatives		(33)		11		(4)		(26)		22		(4)

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

($ in millions)		2014		2013
(Loss) gain recognized in OCI on derivatives during the period	$	(2)	$	3
Loss recognized in OCI on derivatives during the term of the hedging relationship		(15)		(14)
Loss reclassified from AOCI into income (net investment income)		--		--
Loss reclassified from AOCI into income (realized capital gains and losses)		--		--

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

($ in millions)		Realized capital gains and losses		Contract benefits		Interest credited to contractholder funds		Loss on disposition of operations		Total gain (loss) recognized in net income on derivatives
Three months ended March 31, 2014
Interest rate contracts	$	(1)	$	--	$	--	$	(4)	$	(5)
Equity and index contracts		--		--		9		--		9
Embedded derivative financial instruments		--		5		(1)		--		4
Credit default contracts		3		--		--		--		3
Total	$	2	$	5	$	8	$	(4)	$	11
Three months ended March 31, 2013
Equity and index contracts	$	--	$	--	$	38	$	--	$	38
Embedded derivative financial instruments		(1)		26		(40)		--		(15)
Foreign currency contracts		1		--		--		--		1
Credit default contracts		7		--		--		--		7
Total	$	7	$	26	$	(2)	$	--	$	31

Summary of counterparty credit exposure by counterparty credit rating

($ in millions)	March 31, 2014							December 31, 2013
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	$	21	$	1	$	1	1	$	22	$	1	$	1
A	4		96		2		--	4		1,523		2		--
A-	--		--		--		--	1		24		1		--
BBB+	1		3		--		--	1		3		--		--
BBB	1		76		--		--	1		76		1		--
Total	7	$	196	$	3	$	1	8	$	1,648	$	5	$	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)		March 31, 2014		December 31, 2013
Gross liability fair value of contracts containing credit-risk-contingent features	$	28	$	25
Gross asset fair value of contracts containing credit-risk-contingent features and subject to MNAs		(7)		(9)
Collateral posted under MNAs for contracts containing credit-risk-contingent features		(19)		(14)
Maximum amount of additional exposure for contracts with credit-risk-contingent features if all features were triggered concurrently	$	2	$	2

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
March 31, 2014
Single name
Corporate debt	$	--	$	5	$	--	$	--	$	5	$	--
First-to-default Basket
Municipal		--		100		--		--		100		(12)
Index
Corporate debt		1		20		55		4		80		2
Total	$	1	$	125	$	55	$	4	$	185	$	(10)
December 31, 2013
Single name
Corporate debt	$	--	$	5	$	--	$	--	$	5	$	--
First-to-default Basket
Municipal		--		100		--		--		100		(15)
Index
Corporate debt		1		20		55		4		80		2
Total	$	1	$	125	$	55	$	4	$	185	$	(13)

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Supplemental Cash Flow Information (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013
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	$ 46	$ 57
Net change in proceeds managed
Net change in short-term investments	(169)	(64)
Operating cash flow used	(169)	(64)
Net change in liabilities
Liabilities for collateral, beginning of period	(328)	(561)
Liabilities for collateral, end of period	(497)	(625)
Operating cash flow provided	$ 169	$ 64

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Derivative Financial Instruments (Details 5) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2014 entity	Dec. 31, 2013
Derivative Financial Instruments
Term of credit default swaps (in years)	5 years
Credit Derivatives
Notional amount	$ 11,219	$ 12,409
The number of reference entities generally included in a CDX index	125
Credit default swaps
Credit Derivatives
Notional amount	185	185
Fair value	(10)	(13)
Credit default swaps | Single name | Corporate debt
Credit Derivatives
Notional amount	5	5
Credit default swaps | First-to-default Basket | Municipal
Credit Derivatives
Notional amount	100	100
Fair value	(12)	(15)
Credit default swaps | Index | Corporate debt
Credit Derivatives
Notional amount	80	80
Fair value	2	2
AA | Credit default swaps
Credit Derivatives
Notional amount	1	1
AA | Credit default swaps | Index | Corporate debt
Credit Derivatives
Notional amount	1	1
A | Credit default swaps
Credit Derivatives
Notional amount	125	125
A | Credit default swaps | Single name | Corporate debt
Credit Derivatives
Notional amount	5	5
A | Credit default swaps | First-to-default Basket | Municipal
Credit Derivatives
Notional amount	100	100
A | Credit default swaps | Index | Corporate debt
Credit Derivatives
Notional amount	20	20
BBB | Credit default swaps
Credit Derivatives
Notional amount	55	55
BBB | Credit default swaps | Index | Corporate debt
Credit Derivatives
Notional amount	55	55
BB and lower | Credit default swaps
Credit Derivatives
Notional amount	4	4
BB and lower | Credit default swaps | Index | Corporate debt
Credit Derivatives
Notional amount	$ 4	$ 4

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Fair Value of Assets and Liabilities (Details 3) (USD $) In Millions, unless otherwise specified	3 Months Ended																												3 Months Ended				3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013	Mar. 31, 2014 Realized capital gains and losses	Mar. 31, 2013 Realized capital gains and losses	Mar. 31, 2014 Net investment income	Mar. 31, 2013 Net investment income	Mar. 31, 2014 Interest credited to contractholder funds	Mar. 31, 2013 Interest credited to contractholder funds	Mar. 31, 2014 Contract benefits	Mar. 31, 2013 Contract benefits	Mar. 31, 2014 Loss on disposition of operations	Mar. 31, 2014 Fixed income securities	Mar. 31, 2013 Fixed income securities	Mar. 31, 2014 Municipal	Mar. 31, 2013 Municipal	Mar. 31, 2014 Corporate	Mar. 31, 2013 Corporate	Mar. 31, 2014 ABS	Mar. 31, 2013 ABS	Mar. 31, 2014 CMBS	Mar. 31, 2013 CMBS	Mar. 31, 2014 Redeemable preferred stock	Mar. 31, 2013 Redeemable preferred stock	Dec. 31, 2012 Redeemable preferred stock	Mar. 31, 2014 Equity securities	Dec. 31, 2013 Equity securities	Mar. 31, 2013 Equity securities	Dec. 31, 2012 Equity securities	Mar. 31, 2014 Free-standing derivatives, net	Mar. 31, 2013 Free-standing derivatives, net	Mar. 31, 2013 Other assets	Dec. 31, 2012 Other assets	Mar. 31, 2014 Assets held for sale
Rollforward of Level 3 assets held at fair value on a recurring basis
Balance at beginning of period	$ 1,604	$ 2,041										$ 1,241	$ 2,060	$ 119	$ 338	$ 1,008	$ 1,501	$ 112	$ 199	$ 1	$ 21	$ 1	$ 1	$ 1	$ 6	$ 6	$ 7	$ 7	$ (5)	$ (27)	$ 1	$ 1	$ 362
Total gains (losses) included in: net income	1	7	3	2	2	5	10	(20)	5	26	(4)	4		(1)	(12)	5	12												(2)	7			(1)
Total gains (losses) included in: OCI	4	33										2	33	2	26		(2)		7		2												2
Transfers into Level 3	4	42											42				25		17														4
Transfers out of Level 3	(27)	(125)										(25)	(125)			(25)	(125)																(2)
Transfer from held for sale												4								4													(4)
Purchases	15	73										13	72			2	72	11											2	1
Sales	(96)	(235)										(88)	(235)	(1)	(101)	(86)	(109)		(8)		(17)	(1)											(8)
Settlements	(22)	(16)										(14)	(15)			(13)	(11)	(1)	(4)										(2)	(1)			(6)
Balance at end of period	1,483	1,820										1,137	1,832	119	251	891	1,363	122	211	5	6		1	1	6	6	7	7	(7)	(20)	1	1	347
Effect to net income reported in the Condensed Consolidated Statements of Operations and Comprehensive Income	1	7	3	2	2	5	10	(20)	5	26	(4)	4		(1)	(12)	5	12												(2)	7			(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	16	13
Free-standing derivatives, assets	5	4
Free-standing derivatives, liabilities	12	24
Assets transferred between Level 1 and Level 2	0	0
Liabilities transferred between Level 1 and Level 2	$ 0	$ 0

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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, 2012				$ 2,485	$ 1,633
Increase (decrease) in equity
Net income	109			109
Change in unrealized net capital gains and losses	26				26
Change in unrealized foreign currency translation adjustments	1				1
Balance, end of period at Mar. 31, 2013	7,449	5	3,190	2,594	1,660
Balance, beginning of period at Dec. 31, 2013	6,070			2,447	928
Increase (decrease) in equity
Net income	127			127
Change in unrealized net capital gains and losses	325				325
Change in unrealized foreign currency translation adjustments	1				1
Balance, end of period at Mar. 31, 2014	$ 6,523	$ 5	$ 2,690	$ 2,574	$ 1,254

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Investments

3 Months Ended

Mar. 31, 2014

Investments

Investments

4.  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
March 31, 2014
U.S. government and agencies	$	683	$	96	$	--	$	779
Municipal		3,103		334		(36)		3,401
Corporate		20,552		1,482		(161)		21,873
Foreign government		703		84		(3)		784
Asset-backed securities (“ABS”)		771		28		(28)		771
Residential mortgage-backed securities (“RMBS”)		703		56		(8)		751
Commercial mortgage-backed securities (“CMBS”)		670		51		(4)		717
Redeemable preferred stock		14		2		--		16
Total fixed income securities	$	27,199	$	2,133	$	(240)	$	29,092
December 31, 2013
U.S. government and agencies	$	678	$	90	$	(2)	$	766
Municipal		3,135		231		(62)		3,304
Corporate		20,397		1,214		(295)		21,316
Foreign government		715		83		(6)		792
ABS		1,011		30		(34)		1,007
RMBS		752		50		(12)		790
CMBS		724		47		(7)		764
Redeemable preferred stock		15		2		--		17
Total fixed income securities	$	27,427	$	1,747	$	(418)	$	28,756

Scheduled maturities

The scheduled maturities for fixed income securities are as follows as of March 31, 2014:

($ in millions)		Amortized cost		Fair value
Due in one year or less	$	1,304	$	1,333
Due after one year through five years		5,025		5,438
Due after five years through ten years		11,086		11,634
Due after ten years		7,640		8,448
		25,055		26,853
ABS, RMBS and CMBS		2,144		2,239
Total	$	27,199	$	29,092

Actual maturities may differ from those scheduled as a result of calls and make-whole payments 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 for the three months ended March 31 is as follows:

($ in millions)		2014		2013
Fixed income securities	$	474	$	496
Mortgage loans		75		91
Equity securities		4		2
Limited partnership interests		67		30
Short-term investments		--		1
Policy loans		11		12
Other		15		16
Investment income, before expense		646		648
Investment expense		(20)		(27)
Net investment income	$	626	$	621

Realized capital gains and losses

Realized capital gains and losses by asset type for the three months ended March 31 are as follows:

($ in millions)		2014		2013
Fixed income securities	$	(5)	$	(18)
Mortgage loans		3		31
Equity securities		2		1
Limited partnership interests		(5)		--
Derivatives		2		7
Other		3		(2)
Realized capital gains and losses	$	--	$	19

Realized capital gains and losses by transaction type for the three months ended March 31 are as follows:

($ in millions)		2014		2013
Impairment write-downs	$	(4)	$	(2)
Change in intent write-downs		(5)		(7)
Net other-than-temporary impairment losses recognized in earnings		(9)		(9)
Sales		7		21
Valuation of derivative instruments		3		(4)
Settlements of derivative instruments		(1)		11
Realized capital gains and losses	$	--	$	19

Gross gains of $17 million and $25 million and gross losses of $14 million and $9 million were realized on sales of fixed income and equity securities during the three months ended March 31, 2014 and 2013, respectively.

Other-than-temporary impairment losses by asset type for the three months ended March 31 are as follows:

($ in millions)		2014						2013
		Gross		Included in OCI		Net		Gross		Included in OCI		Net
Fixed income securities:
Municipal	$	(1)	$	--	$	(1)	$	(7)	$	--	$	(7)
RMBS		--		(1)		(1)		1		(1)		--
CMBS		--		--		--		(19)		(7)		(26)
Total fixed income securities		(1)		(1)		(2)		(25)		(8)		(33)
Mortgage loans		4		--		4		26		--		26
Equity securities		(4)		--		(4)		--		--		--
Limited partnership interests		(7)		--		(7)		--		--		--
Other		--		--		--		(2)		--		(2)
Other-than-temporary impairment losses	$	(8)	$	(1)	$	(9)	$	(1)	$	(8)	$	(9)

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 $177 million and $164 million as of March 31, 2014 and December 31, 2013, respectively, of net unrealized gains related to changes in valuation of the fixed income securities subsequent to the impairment measurement date.

($ in millions)		March 31, 2014		December 31, 2013
Municipal	$	(5)	$	(5)
ABS		(10)		(10)
RMBS		(87)		(90)
CMBS		(12)		(12)
Total	$	(114)	$	(117)

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 March 31,
		2014		2013
Beginning balance	$	(299)	$	(345)
Additional credit loss for securities previously other-than-temporarily impaired		(1)		(11)
Additional credit loss for securities not previously other-than-temporarily impaired		--		(15)
Reduction in credit loss for securities disposed or collected		7		28
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 (1)	$	(293)	$	(343)

(1) The March 31, 2014 ending balance includes $59 million of cumulative credit losses recognized in earnings for fixed income securities that are classified as held for sale.

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
March 31, 2014		value		Gains		Losses	gains (losses)
Fixed income securities	$	29,092	$	2,133	$	(240)	$	1,893
Equity securities		903		112		(5)		107
Short-term investments		763		--		--		--
Derivative instruments (1)		(15)		1		(16)		(15)
EMA limited partnerships (2)								(2)
Investments classified as held for sale								327
Unrealized net capital gains and losses, pre-tax								2,310
Amounts recognized for:
Insurance reserves (3)								(134)
DAC and DSI (4)								(242)
Amounts recognized								(376)
Deferred income taxes								(682)
Unrealized net capital gains and losses, after-tax							$	1,252

(1) Included in the fair value of derivative instruments are $1 million classified as assets and $16 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.

($ in millions)		Fair		Gross unrealized			Unrealized net
December 31, 2013		value		Gains		Losses	gains (losses)
Fixed income securities	$	28,756	$	1,747	$	(418)	$	1,329
Equity securities		650		90		(5)		85
Short-term investments		590		--		--		--
Derivative instruments (1)		(13)		1		(14)		(13)
EMA limited partnerships								(2)
Investments classified as held for sale								190
Unrealized net capital gains and losses, pre-tax								1,589
Amounts recognized for:
Insurance reserves								--
DAC and DSI								(156)
Amounts recognized								(156)
Deferred income taxes								(506)
Unrealized net capital gains and losses, after-tax							$	927

(1) Included in the fair value of derivative instruments are $1 million classified as assets and $14 million classified as liabilities.

Change in unrealized net capital gains and losses

The change in unrealized net capital gains and losses for the three months ended March 31, 2014 is as follows:

($ in millions)
Fixed income securities	$	564
Equity securities		22
Derivative instruments		(2)
Investments classified as held for sale		137
Total		721
Amounts recognized for:
Insurance reserves		(134)
DAC and DSI		(86)
Amounts recognized		(220)
Deferred income taxes		(176)
Increase in unrealized net capital gains and losses, after-tax	$	325

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
March 31, 2014
Fixed income securities
U.S. government and agencies	3	$	37	$	--	--	$	--	$	--	$	--
Municipal	37		192		(9)	21		110		(27)		(36)
Corporate	309		3,088		(99)	46		465		(62)		(161)
Foreign government	5		55		(2)	1		14		(1)		(3)
ABS	6		38		(1)	31		296		(27)		(28)
RMBS	35		38		(1)	41		96		(7)		(8)
CMBS	5		22		--	4		41		(4)		(4)
Total fixed income securities	400		3,470		(112)	144		1,022		(128)		(240)
Equity securities	28		81		(5)	--		--		--		(5)
Total fixed income and equity securities	428	$	3,551	$	(117)	144	$	1,022	$	(128)	$	(245)
Investment grade fixed income securities	328	$	3,091	$	(103)	97	$	743	$	(88)	$	(191)
Below investment grade fixed income securities	72		379		(9)	47		279		(40)		(49)
Total fixed income securities	400	$	3,470	$	(112)	144	$	1,022	$	(128)	$	(240)
December 31, 2013
Fixed income securities
U.S. government and agencies	4	$	76	$	(2)	--	$	--	$	--	$	(2)
Municipal	63		347		(24)	21		99		(38)		(62)
Corporate	530		5,191		(224)	48		467		(71)		(295)
Foreign government	7		76		(4)	1		13		(2)		(6)
ABS	17		162		(1)	42		400		(33)		(34)
RMBS	35		42		(2)	47		129		(10)		(12)
CMBS	5		14		--	6		52		(7)		(7)
Total fixed income securities	661		5,908		(257)	165		1,160		(161)		(418)
Equity securities	25		80		(5)	--		--		--		(5)
Total fixed income and equity securities	686	$	5,988	$	(262)	165	$	1,160	$	(161)	$	(423)
Investment grade fixed income securities	526	$	5,272	$	(236)	110	$	834	$	(112)	$	(348)
Below investment grade fixed income securities	135		636		(21)	55		326		(49)		(70)
Total fixed income securities	661	$	5,908	$	(257)	165	$	1,160	$	(161)	$	(418)

As of March 31, 2014, $191 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 $191 million, $154 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 Standards and 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 increasing risk-free interest rates or widening credit spreads since the time of initial purchase.

As of March 31, 2014, the remaining $54 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 $37 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 $54 million, $17 million are related to below investment grade fixed income securities.  Of these amounts, $9 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 March 31, 2014.

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 March 31, 2014, 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 March 31, 2014, 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 March 31, 2014 and December 31, 2013, the carrying value of equity method limited partnerships totaled $1.52 billion and $1.46 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 months ended March 31, 2014 and 2013.

As of March 31, 2014 and December 31, 2013, the carrying value for cost method limited partnerships was $603 million and $605 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 $7 million of write-downs related to cost method limited partnerships for the three months ended March 31, 2014.  The Company had no write-downs related to cost method limited partnerships for the three months ended March 31, 2013.

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 March 31, 2014.

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)		March 31, 2014						December 31, 2013
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	$	179	$	--	$	179	$	153	$	--	$	153
1.0 - 1.25		544		--		544		560		--		560
1.26 - 1.50		1,119		2		1,121		1,167		2		1,169
Above 1.50		2,063		38		2,101		2,176		38		2,214
Total non-impaired mortgage loans	$	3,905	$	40	$	3,945	$	4,056	$	40	$	4,096

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)		March 31, 2014		December 31, 2013
Impaired mortgage loans with a valuation allowance	$	14	$	77
Impaired mortgage loans without a valuation allowance		--		--
Total impaired mortgage loans	$	14	$	77
Valuation allowance on impaired mortgage loans	$	9	$	21

The average balance of impaired loans was $46 million and $99 million for the three months ended March 31, 2014 and 2013, respectively.

The rollforward of the valuation allowance on impaired mortgage loans for the three months ended March 31 is as follows:

($ in millions)		2014		2013
Beginning balance	$	21	$	42
Net decrease in valuation allowance		(4)		(26)
Charge offs		(8)		(1)
Ending balance	$	9	$	15

Payments on all mortgage loans were current as of March 31, 2014 and December 31, 2013.

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Investments (Details) (USD $) In Millions, unless otherwise specified	Mar. 31, 2014	Dec. 31, 2013
Amortized cost, gross unrealized gains and losses and fair value for fixed income securities
Amortized cost	$ 27,199	$ 27,427
Gross unrealized gains	2,133	1,747
Gross unrealized losses	(240)	(418)
Fair value	29,092	28,756
U.S. government and agencies
Amortized cost, gross unrealized gains and losses and fair value for fixed income securities
Amortized cost	683	678
Gross unrealized gains	96	90
Gross unrealized losses		(2)
Fair value	779	766
Municipal
Amortized cost, gross unrealized gains and losses and fair value for fixed income securities
Amortized cost	3,103	3,135
Gross unrealized gains	334	231
Gross unrealized losses	(36)	(62)
Fair value	3,401	3,304
Corporate
Amortized cost, gross unrealized gains and losses and fair value for fixed income securities
Amortized cost	20,552	20,397
Gross unrealized gains	1,482	1,214
Gross unrealized losses	(161)	(295)
Fair value	21,873	21,316
Foreign government
Amortized cost, gross unrealized gains and losses and fair value for fixed income securities
Amortized cost	703	715
Gross unrealized gains	84	83
Gross unrealized losses	(3)	(6)
Fair value	784	792
Asset-backed securities ("ABS")
Amortized cost, gross unrealized gains and losses and fair value for fixed income securities
Amortized cost	771	1,011
Gross unrealized gains	28	30
Gross unrealized losses	(28)	(34)
Fair value	771	1,007
Residential mortgage-backed securities ("RMBS")
Amortized cost, gross unrealized gains and losses and fair value for fixed income securities
Amortized cost	703	752
Gross unrealized gains	56	50
Gross unrealized losses	(8)	(12)
Fair value	751	790
Commercial mortgage-backed securities ("CMBS")
Amortized cost, gross unrealized gains and losses and fair value for fixed income securities
Amortized cost	670	724
Gross unrealized gains	51	47
Gross unrealized losses	(4)	(7)
Fair value	717	764
Redeemable preferred stock
Amortized cost, gross unrealized gains and losses and fair value for fixed income securities
Amortized cost	14	15
Gross unrealized gains	2	2
Fair value	$ 16	$ 17

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Investments (Details 12) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013	Dec. 31, 2013
Carrying value of non-impaired fixed rate and variable rate mortgage loans by debt service coverage ratio distribution
Total mortgage loans	$ 3,959		$ 4,173
Net carrying value of impaired mortgage loans
Impaired mortgage loans with a valuation allowance	14		77
Total impaired mortgage loans	14		77
Valuation allowance on impaired mortgage loans	9	15
Rollforward of the valuation allowance on impaired mortgage loans
Beginning balance	21	42
Net decrease in valuation allowance	(4)	(26)
Charge offs	(8)	(1)
Ending balance	9	15
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	3,905		4,056
Variable rate mortgage loans	40		40
Total mortgage loans	3,945		4,096
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	179		153
Total mortgage loans	179		153
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	544		560
Total mortgage loans	544		560
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	1,119		1,167
Variable rate mortgage loans	2		2
Total mortgage loans	1,121		1,169
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	2,063		2,176
Variable rate mortgage loans	38		38
Total mortgage loans	2,101		2,214
Mortgage loans
Average carrying value and interest income recognized on impaired mortgage loans
Average balance impaired mortgage loans	$ 46	$ 99

XML

Fair Value of Assets and Liabilities (Tables)

3 Months Ended

Mar. 31, 2014

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 March 31, 2014
Assets
Fixed income securities:
U.S. government and agencies	$	145	$	634	$	--			$	779
Municipal		--		3,282		119				3,401
Corporate		--		20,982		891				21,873
Foreign government		--		784		--				784
ABS		--		649		122				771
RMBS		--		751		--				751
CMBS		--		712		5				717
Redeemable preferred stock		--		16		--				16
Total fixed income securities		145		27,810		1,137				29,092
Equity securities		849		48		6				903
Short-term investments		115		648		--				763
Other investments: Free-standing derivatives		--		170		5	$	(8)		167
Separate account assets		4,878		--		--				4,878
Other assets		1		--		--				1
Assets held for sale		1,688		9,585		347				11,620
Total recurring basis assets		7,676		38,261		1,495		(8)		47,424
Non-recurring basis (1)		--		--		5				5
Total assets at fair value	$	7,676	$	38,261	$	1,500	$	(8)	$	47,429
% of total assets at fair value		16.2 %		80.7 %		3.1 %		-- %		100.0 %
Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	--	$	--	$	(319)			$	(319)
Other liabilities: Free-standing derivatives		--		(108)		(12)	$	6		(114)
Liabilities held for sale		--		--		(230)				(230)
Total recurring basis liabilities		--		(108)		(561)		6		(663)
Non-recurring basis (2)		--		--		(10,641)				(10,641)
Total liabilities at fair value	$	--	$	(108)	$	(11,202)	$	6	$	(11,304)
% of total liabilities at fair value		-- %		1.0 %		99.1 %		(0.1) %		100.0 %

(1)   Includes $5 million of limited partnership interests written-down to fair value in connection with recognizing other-than-temporary impairments.

(2)Relates to LBL business held for sale (see Note 2). The total fair value measurement includes $15,390 million of assets held for sale and $(14,641) million of liabilities held for sale, less $11,620 million of assets and $(230) million of liabilities measured at fair value on a 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 December 31, 2013
Assets
Fixed income securities:
U.S. government and agencies	$	145	$	621	$	--			$	766
Municipal		--		3,185		119				3,304
Corporate		--		20,308		1,008				21,316
Foreign government		--		792		--				792
ABS		--		895		112				1,007
RMBS		--		790		--				790
CMBS		--		763		1				764
Redeemable preferred stock		--		16		1				17
Total fixed income securities		145		27,370		1,241				28,756
Equity securities		593		51		6				650
Short-term investments		129		461		--				590
Other investments: Free-standing derivatives		--		268		9	$	(11)		266
Separate account assets		5,039		--		--				5,039
Assets held for sale		1,854		9,812		362				12,028
Total recurring basis assets		7,760		37,962		1,618		(11)		47,329
Non-recurring basis (1)		--		--		17				17
Total assets at fair value	$	7,760	$	37,962	$	1,635	$	(11)	$	47,346
% of total assets at fair value		16.4 %		80.2 %		3.4 %		-- %		100.0 %
Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	--	$	--	$	(307)			$	(307)
Other liabilities: Free-standing derivatives		--		(185)		(14)	$	7		(192)
Liabilities held for sale		--		--		(246)				(246)
Total recurring basis liabilities		--		(185)		(567)		7		(745)
Non-recurring basis (2)		--		--		(11,088)				(11,088)
Total liabilities at fair value	$	--	$	(185)	$	(11,655)	$	7	$	(11,833)
% of total liabilities at fair value		-- %		1.6 %		98.5 %		(0.1) %		100.0 %

(1)Includes $8 million of mortgage loans and $9 million of limited partnership interests written-down to fair value in connection with recognizing other-than-temporary impairments.

(2)Relates to LBL business held for sale (see Note 2). The total fair value measurement includes $15,593 million of assets held for sale and $(14,899) million of liabilities held for sale, less $12,028 million of assets and $(246) million of liabilities measured at fair value on a recurring basis.

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
March 31, 2014
Derivatives embedded in life and annuity contracts – Equity-indexed and forward starting options	$	(264)	Stochastic cash flow model	Projected option cost	1.0 - 2.0 %	1.76 %
Liabilities held for sale – Equity-indexed and forward starting options	$	(230)	Stochastic cash flow model	Projected option cost	1.0 - 2.0 %	1.90 %
December 31, 2013
Derivatives embedded in life and annuity contracts – Equity-indexed and forward starting options	$	(247)	Stochastic cash flow model	Projected option cost	1.0 - 2.0 %	1.75 %
Liabilities held for sale – Equity-indexed and forward starting options	$	(246)	Stochastic cash flow model	Projected option cost	1.0 - 2.0 %	1.91 %

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

($ in millions)				Total gains (losses) included in:
		Balance as of December 31, 2013		Net income (1)		OCI		Transfers into Level 3		Transfers out of Level 3
Assets
Fixed income securities:
Municipal	$	119	$	(1)	$	2	$	--	$	--
Corporate		1,008		5		--		--		(25)
ABS		112		--		--		--		--
CMBS		1		--		--		--		--
Redeemable preferred stock		1		--		--		--		--
Total fixed income securities		1,241		4		2		--		(25)
Equity securities		6		--		--		--		--
Free-standing derivatives, net		(5)		(2)		--		--		--
Assets held for sale		362		(1)		2		4		(2)
Total recurring Level 3 assets	$	1,604	$	1	$	4	$	4	$	(27)
Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	(307)	$	(2)	$	--	$	--	$	--
Liabilities held for sale		(246)		17		--		--		--
Total recurring Level 3 liabilities	$	(553)	$	15	$	--	$	--	$	--

		Transfer from held for sale		Purchases/ Issues (2)		Sales		Settlements		Balance as of March 31, 2014
Assets
Fixed income securities:
Municipal	$	--	$	--	$	(1)	$	--	$	119
Corporate		--		2		(86)		(13)		891
ABS		--		11		--		(1)		122
CMBS		4		--		--		--		5
Redeemable preferred stock		--		--		(1)		--		--
Total fixed income securities		4		13		(88)		(14)		1,137
Equity securities		--		--		--		--		6
Free-standing derivatives, net		--		2		--		(2)		(7)	(3)
Assets held for sale		(4)		--		(8)		(6)		347
Total recurring Level 3 assets	$	--	$	15	$	(96)	$	(22)	$	1,483
Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	--	$	(11)	$	--	$	1	$	(319)
Liabilities held for sale		--		(4)		--		3		(230)
Total recurring Level 3 liabilities	$	--	$	(15)	$	--	$	4	$	(549)

____________

(1) The effect to net income totals $16 million and is reported in the Condensed Consolidated Statements of Operations and Comprehensive Income as follows: $3 million in realized capital gains and losses, $2 million in net investment income, $10 million in interest credited to contractholder funds, $5 million in contract benefits and $(4) million in loss on disposition of operations.

(2) Represents purchases for assets and issues for liabilities.

(3) Comprises $5 million of assets and $12 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)	$	26	$	--	$	--
Corporate		1,501		12		(2)		25		(125)
ABS		199		--		7		17		--
CMBS		21		--		2		--		--
Redeemable preferred stock		1		--		--		--		--
Total fixed income securities		2,060		--		33		42		(125)
Equity securities		7		--		--		--		--
Free-standing derivatives, net		(27)		7		--		--		--
Other assets		1		--		--		--		--
Total recurring Level 3 assets	$	2,041	$	7	$	33	$	42	$	(125)
Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	(553)	$	6	$	--	$	--	$	--
Total recurring Level 3 liabilities	$	(553)	$	6	$	--	$	--	$	--

		Purchases		Sales		Issues		Settlements		Balance as of March 31, 2013
Assets
Fixed income securities:
Municipal	$	--	$	(101)	$	--	$	--	$	251
Corporate		72		(109)		--		(11)		1,363
ABS		--		(8)		--		(4)		211
CMBS		--		(17)		--		--		6
Redeemable preferred stock		--		--		--		--		1
Total fixed income securities		72		(235)		--		(15)		1,832
Equity securities		--		--		--		--		7
Free-standing derivatives, net		1		--		--		(1)		(20)	(2)
Other assets		--		--		--		--		1
Total recurring Level 3 assets	$	73	$	(235)	$	--	$	(16)	$	1,820
Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	--	$	--	$	(24)	$	4	$	(567)
Total recurring Level 3 liabilities	$	--	$	--	$	(24)	$	4	$	(567)

____________

(1) The effect to net income totals $13 million and is reported in the Condensed Consolidated Statements of Operations and Comprehensive Income as follows: $2 million in realized capital gains and losses, $5 million in net investment income, $(20) million in interest credited to contractholder funds and $26 million in contract benefits.

(2) Comprises $4 million of assets and $24 million of liabilities.

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

($ in millions)		2014		2013
Assets
Fixed income securities:
Municipal	$	(1)	$	(7)
Corporate		4		5
CMBS		--		(1)
Total fixed income securities		3		(3)
Free-standing derivatives, net		--		7
Assets held for sale		(1)		--
Total recurring Level 3 assets	$	2	$	4
Liabilities
Contractholder funds: Derivatives embedded in life and annuity contracts	$	(2)	$	6
Liabilities held for sale		17		--
Total recurring Level 3 liabilities	$	15	$	6

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

Financial assets

($ in millions)		March 31, 2014				December 31, 2013
		Carrying  value		Fair  value		Carrying  value		Fair  value
Mortgage loans	$	3,959	$	4,148	$	4,173	$	4,300
Cost method limited partnerships		603		817		605		799
Agent loans		348		344		341		325
Bank loans		170		171		160		161
Notes due from related party		275		275		275		275
Assets held for sale		1,350		1,436		1,458		1,532

Financial liabilities

($ in millions)		March 31, 2014				December 31, 2013
		Carrying  value		Fair  value		Carrying  value		Fair  value
Contractholder funds on investment contracts	$	15,241	$	15,941	$	15,542	$	16,198
Notes due to related parties		275		275		282		282
Liability for collateral		497		497		328		328
Liabilities held for sale		7,166		7,127		7,417		7,298