Investments and Derivative Instruments

3 Months Ended

Mar. 31, 2013

Investments and Derivative Instruments [Abstract]

Investments and Derivative Instruments

Investments and Derivative Instruments

Net Realized Capital Gains (Losses)

	Three Months Ended March 31,
(Before-tax)	2013			2012
Gross gains on sales [1]	$	1,615		$	162
Gross losses on sales	(54		)	(65		)
Net OTTI losses recognized in earnings	(13		)	(20		)
Valuation allowances on mortgage loans	1			—
Japanese fixed annuity contract hedges, net [2]	3			(20		)
Periodic net coupon settlements on credit derivatives/Japan	(3		)	(5		)
Results of variable annuity hedge program
U.S. GMWB derivatives, net	47			185
U.S. macro hedge program	(85		)	(189		)
Total U.S. program	(38		)	(4		)
International Program	(104		)	(990		)
Total results of variable annuity hedge program	(142		)	(994		)
GMIB/GMAB/GMWB reinsurance	337			610
Coinsurance and modified coinsurance reinsurance contracts	(398		)	(915		)
Other, net [3]	88			15
Net realized capital gains (losses)	$	1,434		$	(1,232	)

[1] Includes $1.5 billion of gross gains relating to the sales of the Retirement Plans and Individual Life businesses for the three months ended March 31, 2013.

[2] Relates to the Japanese fixed annuity product (adjustment of product liability for changes in spot currency exchange rates, related derivative hedging instruments, excluding net period coupon settlements, and Japan FVO securities).

[3] Primarily consists of transactional foreign currency re-valuation associated with the internal reinsurance of the Japan variable annuity business, which is offset in AOCI, gains and losses on non-qualifying derivatives and Japan 3Win related foreign currency swaps. Includes $71 of gains relating to the sales of the Retirement Plans and Individual Life businesses for the three months ended March 31, 2013.

Net realized capital gains and losses from investment sales, after deducting the life and pension policyholders’ share for certain products, are reported as a component of revenues and are determined on a specific identification basis. Gross gains and losses on sales and impairments previously reported as unrealized gains in AOCI were $1.5 billion and $77 for the three months ended March 31,2013 and 2012, respectively. Proceeds from sales of AFS securities totaled $4.8 billion and $8.5 billion for the three months ended March 31,2013 and 2012, respectively.

Other-Than-Temporary Impairment Losses

The following table presents a roll-forward of the Company’s cumulative credit impairments on debt securities held.

	Three Months Ended March 31,
(Before-tax)	2013			2012
Balance, beginning of period	$	(813	)	$	(1,319	)
Additions for credit impairments recognized on [1]:
Securities not previously impaired	(5		)	(13		)
Securities previously impaired	—			(3		)
Reductions for credit impairments previously recognized on:
Securities that matured or were sold during the period	111			101
Securities due to an increase in expected cash flows	1			1
Balance, end of period	$	(706	)	$	(1,233	)

[1] These additions are included in the net OTTI losses recognized in earnings in the Condensed Consolidated Statements of Operations.

4. Investments and Derivative Instruments (continued)

Available-for-Sale Securities

The following table presents the Company’s AFS securities by type.

	March 31, 2013												December 31, 2012
	Cost or Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Non-Credit OTTI [1]			Cost or Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Non-Credit OTTI [1]
ABS	$	1,408	$	21	$	(114	)	$	1,315	$	(5	)	$	1,807	$	38	$	(172	)	$	1,673	$	(4	)
CDOs [2]	1,694		70		(94		)	1,664		(1		)	2,236		61		(117		)	2,160		(4		)
CMBS	2,785		169		(76		)	2,878		(6		)	3,757		262		(107		)	3,912		(7		)
Corporate	17,392		2,052		(160		)	19,284		(9		)	27,774		3,426		(221		)	30,979		(19		)
Foreign govt./govt. agencies	1,287		54		(60		)	1,281		—			1,369		120		(29		)	1,460		—
Municipal	1,032		93		(11		)	1,114		—			1,808		204		(14		)	1,998		—
RMBS	3,278		112		(77		)	3,313		(16		)	4,590		196		(115		)	4,671		(28		)
U.S. Treasuries	2,215		109		(15		)	2,309		—			2,412		151		(12		)	2,551		—
Total fixed maturities, AFS	31,091		2,680		(607		)	33,158		(37		)	45,753		4,458		(787		)	49,404		(62		)
Equity securities, AFS	379		33		(29		)	383		—			408		28		(36		)	400		—
Total AFS securities [3]	$	31,470	$	2,713	$	(636	)	$	33,541	$	(37	)	$	46,161	$	4,486	$	(823	)	$	49,804	$	(62	)

[1] Represents the amount of cumulative non-credit OTTI losses recognized in OCI on securities that also had credit impairments. These losses are included in gross unrealized losses as of March 31, 2013 and December 31, 2012.

[2] Gross unrealized gains (losses) exclude the change in fair value of bifurcated embedded derivative features of certain securities. Changes in fair value are recorded in net realized capital gains (losses).

[3] As of December 31, 2012, includes fixed maturities, AFS and equity securities, AFS relating to the sales of the Retirement Plans and Individual Life Businesses; see Note 2 - Business Disposition of Notes to Condensed Consolidated Financial Statements for further discussion of this transaction.

The following table presents the Company’s fixed maturities, AFS, by contractual maturity year.

	March 31, 2013
Contractual Maturity	Amortized Cost		Fair Value
One year or less	$	1,234	$	1,255
Over one year through five years	6,203		6,501
Over five years through ten years	5,522		5,981
Over ten years	8,967		10,251
Subtotal	21,926		23,988
Mortgage-backed and asset-backed securities	9,165		9,170
Total fixed maturities, AFS	$	31,091	$	33,158

Estimated maturities may differ from contractual maturities due to security call or prepayment provisions. Due to the potential for variability in payment speeds (i.e. prepayments or extensions), mortgage-backed and asset-backed securities are not categorized by contractual maturity.

Concentration of Credit Risk

As of March 31, 2013, the Company's only exposure to any credit concentration risk of a single issuer greater than 10% of the Company’s stockholder’s equity, other than U.S. government and certain U.S. government securities, was the Government of Japan, which represented $868 million, or 10.0% of stockholders' equity and 1.9% of total invested assets. As of March 31, 2012, the Company's only exposure to any credit concentration risk of a single issuer greater than 10% of the Company’s stockholder’s equity other than the U.S. government and certain U.S. government agencies, was the government of Japan, which represented $1.0 billion, or 11% of stockholders' equity, and 2% of total invested assets. For further discussion of concentration of credit risk, see the Concentration of Credit Risk section in Note 4 of Notes to Consolidated Financial Statements in the Company’s 2012 Form 10-K Annual Report.

4. Investments and Derivative Instruments (continued)

Securities Unrealized Loss Aging

The following tables present the Company’s unrealized loss aging for AFS securities by type and length of time the security was in a continuous unrealized loss position.

	March 31, 2013
	Less Than 12 Months							12 Months or More							Total
	Amortized Cost		Fair Value		Unrealized Losses			Amortized Cost		Fair Value		Unrealized Losses			Amortized Cost		Fair Value		Unrealized Losses
ABS	$	139	$	138	$	(1	)	$	670	$	557	$	(113	)	$	809	$	695	$	(114	)
CDOs [1]	4		3		(1		)	1,564		1,465		(93		)	1,568		1,468		(94		)
CMBS	177		166		(11		)	703		638		(65		)	880		804		(76		)
Corporate	1,010		994		(16		)	1,121		977		(144		)	2,131		1,971		(160		)
Foreign govt./govt. agencies	646		588		(58		)	9		7		(2		)	655		595		(60		)
Municipal	87		84		(3		)	88		80		(8		)	175		164		(11		)
RMBS	460		455		(5		)	656		584		(72		)	1,116		1,039		(77		)
U.S. Treasuries	203		188		(15		)	—		—		—			203		188		(15		)
Total fixed maturities	2,726		2,616		(110		)	4,811		4,308		(497		)	7,537		6,924		(607		)
Equity securities	32		31		(1		)	155		127		(28		)	187		158		(29		)
Total securities in an unrealized loss	$	2,758	$	2,647	$	(111	)	$	4,966	$	4,435	$	(525	)	$	7,724	$	7,082	$	(636	)

	December 31, 2012
	Less Than 12 Months							12 Months or More							Total
	Amortized Cost		Fair Value		Unrealized Losses			Amortized Cost		Fair Value		Unrealized Losses			Amortized Cost		Fair Value		Unrealized Losses
ABS	$	77	$	76	$	(1	)	$	787	$	616	$	(171	)	$	864	$	692	$	(172	)
CDOs [1]	5		5		—			1,640		1,515		(117		)	1,645		1,520		(117		)
CMBS	192		179		(13		)	795		701		(94		)	987		880		(107		)
Corporate	614		578		(36		)	1,339		1,154		(185		)	1,953		1,732		(221		)
Foreign govt./govt. agencies	318		290		(28		)	7		6		(1		)	325		296		(29		)
Municipal	65		62		(3		)	98		87		(11		)	163		149		(14		)
RMBS	322		321		(1		)	750		636		(114		)	1,072		957		(115		)
U.S. Treasuries	384		372		(12		)	—		—		—			384		372		(12		)
Total fixed maturities	1,977		1,883		(94		)	5,416		4,715		(693		)	7,393		6,598		(787		)
Equity securities	9		9		—			172		136		(36		)	181		145		(36		)
Total securities in an unrealized loss	$	1,986	$	1,892	$	(94	)	$	5,588	$	4,851	$	(729	)	$	7,574	$	6,743	$	(823	)

[1] Unrealized losses exclude the change in fair value of bifurcated embedded derivative features of certain securities. Changes in fair value are recorded in net realized capital gains (losses).

As of March 31, 2013, AFS securities in an unrealized loss position, consisted of 1,224 securities, primarily related to corporate securities primarily within the financial services sector, CMBS, RMBS, ABS, and CDOs which have experienced price deterioration. As of March 31, 2013, 88% of these securities were depressed less than 20% of cost or amortized cost. The decrease in unrealized losses during 2013 was primarily attributable to spread tightening in certain sectors partially offset by an increase in interest rates.

4. Investments and Derivative Instruments (continued)

Most of the securities depressed for twelve months or more relate to structured securities with exposure to commercial and residential real estate, as well as certain floating rate corporate securities or those securities with greater than 10 years to maturity, concentrated in the financial services sector. Current market spreads continue to be significantly wider than spreads at the security's respective purchase date for structured securities with exposure to commercial and residential real estate largely due to the economic and market uncertainties regarding future performance of commercial and residential real estate. The majority of these securities have a floating-rate coupon referenced to a market index that has declined substantially. In addition, equity securities include investment grade perpetual preferred securities that contain “debt-like” characteristics where the decline in fair value is not attributable to issuer-specific credit deterioration, none of which have, nor are expected to, miss a periodic dividend payment. These securities have been depressed due to the securities’ floating-rate coupon in the current low interest rate environment, general market credit spread widening since the date of purchase and the long-dated nature of the securities. The Company neither has an intention to sell nor does it expect to be required to sell the securities outlined above.

Mortgage Loans

	March 31, 2013							December 31, 2012
	Amortized Cost [1]		Valuation Allowance			Carrying Value		Amortized Cost [1]		Valuation Allowance			Carrying Value
Commercial	$	3,598	$	(13	)	$	3,585	$	4,949	$	(14	)	$	4,935
Total mortgage loans [2]	$	3,598	$	(13	)	$	3,585	$	4,949	$	(14	)	$	4,935

[1] Amortized cost represents carrying value prior to valuation allowances, if any.

[2] As of December 31, 2012, includes commercial mortgage loans relating to the sales of the Retirement Plans and Individual Life businesses; see Note 2 - Business Dispositions of Notes to Condensed Consolidated Financial Statements for further discussion of this transaction.

As of March 31, 2013, the carrying value of mortgage loans associated with the valuation allowance was $164. Included in the table above are mortgage loans held-for-sale with a carrying value and valuation allowance of $47 and $3, respectively, as of March 31, 2013 and $47 and $3, respectively, as of December 31, 2012. The carrying value of these loans is included in mortgage loans in the Company’s Condensed Consolidated Balance Sheets. As of March 31, 2013, loans within the Company’s mortgage loan portfolio that have had extensions or restructurings other than what is allowable under the original terms of the contract are immaterial.

The following table presents the activity within the Company’s valuation allowance for mortgage loans. These loans have been evaluated both individually and collectively for impairment. Loans evaluated collectively for impairment are immaterial.

	Three Months Ended March 31,
	2013			2012
Balance as of January 1	$	(14	)	$	(23	)
(Additions)/Reversals	(1		)	4
Deductions	2			5
Balance as of December 31	$	(13	)	$	(14	)

The current weighted-average loan-to-value ("LTV") ratio of the Company’s commercial mortgage loan portfolio was 56% as of March 31, 2013, while the weighted-average LTV ratio at origination of these loans was 63%. LTV ratios compare the loan amount to the value of the underlying property collateralizing the loan. The loan values are updated no less than annually through property level reviews of the portfolio. Factors considered in the property valuation include, but are not limited to, actual and expected property cash flows, geographic market data and capitalization rates. Debt service coverage ratios ("DSCRs") compare a property’s net operating income to the borrower’s principal and interest payments. The current weighted average DSCR of the Company’s commercial mortgage loan portfolio was 2.13x as of March 31, 2013. The Company held no delinquent commercial mortgage loans past due by 90 days or more as of March 31, 2013 and is not accruing income.

The following table presents the carrying value of the Company’s commercial mortgage loans by LTV and DSCR.

Commercial Mortgage Loans Credit Quality
	March 31, 2013			December 31, 2012
Loan-to-value	Carrying Value		Avg. Debt-Service Coverage Ratio	Carrying Value		Avg. Debt-Service Coverage Ratio
Greater than 80%	$	108	1.00x	$	137	0.89x
65% - 80%	1,063		2.04x	1,717		2.27x
Less than 65%	2,414		2.23x	3,081		2.44x
Total commercial mortgage loans	$	3,585	2.13x	$	4,935	2.34x

4. Investments and Derivative Instruments (continued)

The following tables present the carrying value of the Company’s mortgage loans by region and property type.

Mortgage Loans by Region
	March 31, 2013			December 31, 2012
	Carrying Value		Percent of Total	Carrying Value		Percent of Total
East North Central	$	80	2.2%	$	97	2.0%
Middle Atlantic	247		6.9%	370		7.5%
Mountain	40		1.1%	62		1.3%
New England	153		4.3%	231		4.7%
Pacific	1,062		29.6%	1,504		30.5%
South Atlantic	550		15.3%	1,012		20.5%
West North Central	16		0.4%	16		0.3%
West South Central	172		4.8%	234		4.7%
Other [1]	1,265		35.4%	1,409		28.5%
Total mortgage loans	$	3,585	100.0%	$	4,935	100.0%

[1] Primarily represents loans collateralized by multiple properties in various regions.

Mortgage Loans by Property Type
	March 31, 2013				December 31, 2012
	Carrying Value		Percent of Total		Carrying Value		Percent of Total
Commercial
Agricultural	$	96	2.7	%	$	109	2.2	%
Industrial	1,143		31.9	%	1,519		30.8	%
Lodging	60		1.7	%	81		1.6	%
Multifamily	586		16.3	%	869		17.6	%
Office	779		21.7	%	1,120		22.7	%
Retail	827		23.1	%	1,047		21.2	%
Other	94		2.6	%	190		3.9	%
Total mortgage loans	$	3,585	100.0	%	$	4,935	100.0	%

Variable Interest Entities

The Company is involved with various special purpose entities and other entities that are deemed to be VIEs primarily as a collateral manager and as an investor through normal investment activities, as well as a means of accessing capital. A VIE is an entity that either has investors that lack certain essential characteristics of a controlling financial interest or lacks sufficient funds to finance its own activities without financial support provided by other entities.

The Company performs ongoing qualitative assessments of its VIEs to determine whether the Company has a controlling financial interest in the VIE and therefore is the primary beneficiary. The Company is deemed to have a controlling financial interest when it has both the ability to direct the activities that most significantly impact the economic performance of the VIE and the obligation to absorb losses or right to receive benefits from the VIE that could potentially be significant to the VIE. Based on the Company’s assessment, if it determines it is the primary beneficiary, the Company consolidates the VIE in the Company’s Condensed Consolidated Financial Statements.

4. Investments and Derivative Instruments (continued)

Consolidated VIEs

The following table presents the carrying value of assets and liabilities, and the maximum exposure to loss relating to the VIEs for which the Company is the primary beneficiary. Creditors have no recourse against the Company in the event of default by these VIEs nor does the Company have any implied or unfunded commitments to these VIEs. The Company’s financial or other support provided to these VIEs is limited to its investment management services and original investment.

	March 31, 2013						December 31, 2012
	Total Assets		Total Liabilities  [1]		Maximum Exposure to Loss [2]		Total Assets		Total Liabilities  [1]		Maximum Exposure to Loss [2]
CDOs [3]	$	59	$	55	$	7	$	89	$	88	$	7
Investment funds [4]	132		20		111		132		20		110
Limited partnerships	4		2		2		6		3		3
Total	$	195	$	77	$	120	$	227	$	111	$	120

[1] Included in other liabilities in the Company’s Condensed Consolidated Balance Sheets.

[2] The maximum exposure to loss represents the maximum loss amount that the Company could recognize as a reduction in net investment income or as a realized capital loss and is the cost basis of the Company’s investment.

[3] Total assets included in fixed maturities, AFS, and fixed maturities, FVO, in the Company’s Condensed Consolidated Balance

Sheets.

[4] Total assets included in fixed maturities, AFS, and short-term investments in the Company’s Condensed Consolidated Balance Sheets.

CDOs represent structured investment vehicles for which the Company has a controlling financial interest as it provides collateral management services, earns a fee for those services and also holds investments in the securities issued by these vehicles. Investment funds represents wholly-owned fixed income funds established in 2012 for which the Company has exclusive management and control including management of investment securities which is the activity that most significantly impacts its economic performance. Limited partnerships represent one hedge fund for which the Company holds a majority interest in the fund as an investment.

Non-Consolidated VIEs

The Company, through normal investment activities, makes passive investments in structured securities issued by VIEs for which the Company is not the manager which are included in ABS, CDOs, CMBS and RMBS in the Available-for-Sale Securities table and fixed maturities, FVO, in the Company’s Condensed Consolidated Balance Sheets. The Company has not provided financial or other support with respect to these investments other than its original investment. For these investments, the Company determined it is not the primary beneficiary due to the relative size of the Company’s investment in comparison to the principal amount of the structured securities issued by the VIEs, the level of credit subordination which reduces the Company’s obligation to absorb losses or right to receive benefits and the Company’s inability to direct the activities that most significantly impact the economic performance of the VIEs. The Company’s maximum exposure to loss on these investments is limited to the amount of the Company’s investment.

Repurchase Agreements and Dollar Roll Agreements

The Company enters into repurchase agreements and dollar roll transactions to earn spread income, or to access liquidity relating to derivative instruments. A repurchase agreement is a transaction in which one party (transferor) agrees to sell securities to another party (transferee) in return for cash (or securities), with a simultaneous agreement to repurchase the same securities at a specified price at a later date. A dollar roll is a type of repurchase transaction where a mortgage backed security is sold with an agreement to repurchase substantially the same security at specified time in the future. These transactions are generally short-term in nature, and therefore, the carrying amounts of these instruments approximate fair value.

As part of repurchase agreements and dollar roll transactions, the Company transfers U.S. government and government agency securities and receives cash. For the repurchase agreements, the Company obtains collateral in an amount equal to at least 95% of the fair value of the securities transferred, and the agreements with third parties contain contractual provisions to allow for additional collateral to be obtained when necessary. The cash received from the repurchase program is typically invested in short-term investments or fixed maturities. The Company accounts for the repurchase agreements and dollar roll transactions as collateralized borrowings. The securities transferred under repurchase agreements and dollar roll transactions are included in fixed maturity, available-for-sale securities with the obligation to repurchase those securities recorded in Other Liabilities on the Company's Condensed Consolidated Balance Sheets. The fair value of the securities transferred was $1.3 billion and $1.6 billion with a corresponding agreement to repurchase $1.3 billion and $1.6 billion as of March 31, 2013 and December 31, 2012, respectively.

4. Investments and Derivative Instruments (continued)

The Company's repurchase agreements include master netting provisions that provide the counterparties the right to set off claims and apply securities held by them in respect of their obligations in the event of a default. The Company reported gross amounts of recognized liabilities of $904 and $923 in other liabilities on the Condensed Consolidated Balance sheets as of March 31, 2013 and December 31, 2012, respectively. These amounts represent the Company's obligations to repurchase securities under master netting agreements. The Company reported financial collateral pledged of $904 and $923 in fixed maturities, AFS on the Condensed Consolidated Balance sheets as of March 31, 2013 and December 31, 2012, respectively. The fixed maturities are predominantly U.S. government/government agency securities and are disallowed for offsetting under U.S. GAAP.

Derivative Instruments

The Company utilizes a variety of over-the-counter and exchange traded derivative instruments as a part of its overall risk management strategy, as well as to enter into replication transactions. Derivative instruments are used to manage risk associated with interest rate, equity market, credit spread, issuer default, price, and currency exchange rate risk or volatility. Replication transactions are used as an economical means to synthetically replicate the characteristics and performance of assets that would be permissible investments under the Company’s investment policies. The Company also purchases and issues financial instruments and products that either are accounted for as free-standing derivatives, such as certain reinsurance contracts, or may contain features that are deemed to be embedded derivative instruments, such as the GMWB rider included with certain variable annuity products.

Strategies that qualify for hedge accounting

Certain derivatives the Company enters into satisfy the hedge accounting requirements as outlined in Note 1 of Notes to Consolidated Financial Statements included in The Hartford’s 2012 Form 10-K Annual Report. Typically, these hedge relationships include interest rate and foreign currency swaps where the terms or expected cash flows of the securities closely match the “pay” leg terms of the swap. The swaps are typically used to manage interest rate duration of certain fixed maturity securities, or liability contracts, or convert securities, or liabilities, denominated in a foreign currency to US dollars. The hedge strategies by hedge accounting designation include:

Cash flow hedges

Interest rate swaps are predominantly used to manage portfolio duration and better match cash receipts from assets with cash disbursements required to fund liabilities. These derivatives convert interest receipts on floating-rate fixed maturity securities or interest payments on floating-rate guaranteed investment contracts to fixed rates. The Company also enters into forward starting swap agreements primarily to hedge interest rate risk inherent in the assumptions used to price certain liabilities.

Foreign currency swaps are used to convert foreign currency-denominated cash flows related to certain investment receipts and liability payments to U.S. dollars in order to reduce cash flow fluctuations due to changes in currency rates.

Fair value hedges

Interest rate swaps are used to hedge the changes in fair value of certain fixed rate liabilities and fixed maturity securities due to fluctuations in interest rates. Foreign currency swaps are used to hedge the changes in fair value of certain foreign currency-denominated fixed rate liabilities due to changes in foreign currency rates by swapping the fixed foreign payments to floating rate U.S. dollar denominated payments.

Non-qualifying strategies

Derivative relationships that do not qualify for hedge accounting or “non-qualifying strategies” primarily include the hedge programs for our U.S. and international variable annuity products, as well as the hedging and replication strategies through the use of credit default swaps. In addition, hedges of interest rate and foreign currency risk of certain fixed maturities and liabilities do not qualify for hedge accounting. These non-qualifying strategies include:

Interest rate swaps, swaptions, caps, floors, and futures

The Company uses interest rate swaps, swaptions, caps, floors, and futures to manage duration between assets and liabilities in certain investment portfolios. In addition, the Company enters into interest rate swaps to terminate existing swaps, thereby offsetting the changes in value of the original swap. As of March 31, 2013 and December 31, 2012, the notional amount of interest rate swaps in offsetting relationships was $5.1 billion.

Foreign currency swaps and forwards

The Company enters into foreign currency swaps and forwards to convert the foreign currency exposures of certain foreign currency-denominated fixed maturity investments to U.S. dollars.

Japan 3Win foreign currency swaps

Prior to the second quarter of 2009, the Company offered certain variable annuity products with a guaranteed minimum income benefit ("GMIB") rider through a wholly-owned Japanese subsidiary. The GMIB rider is reinsured to a wholly-owned U.S. subsidiary which invests in U.S. dollar denominated assets to support the liability. The U.S. subsidiary entered into pay U.S. dollar, receive yen swap contracts to hedge the currency and yen interest rate exposure between the U.S. dollar denominated assets and the yen denominated fixed liability reinsurance payments.

4. Investments and Derivative Instruments (continued)

Japanese fixed annuity hedging instruments

Prior to the second quarter of 2009, the Company offered a yen denominated fixed annuity product written by Hartford Life Insurance KK ("HLIKK"), a Japanese affiliate of the Company, and ceded to the Company. The U.S. subsidiary invests in U.S. dollar denominated securities to support the yen denominated fixed liability payments and entered into currency rate swaps to hedge the foreign currency exchange rate and yen interest rate exposures that exist as a result of U.S. dollar assets backing the yen denominated liability.

Credit derivatives

Credit default swaps are used to purchase credit protection on an individual entity or referenced index to economically hedge against default risk and credit-related changes in value on fixed maturity securities. Credit default swaps are also used to assume credit risk related to an individual entity, referenced index, or asset pool, as a part of replication transactions. These contracts require the Company to pay or receive a periodic fee in exchange for compensation from the counterparty should the referenced security issuers experience a credit event, as defined in the contract. The Company is also exposed to credit risk related to credit derivatives embedded within certain fixed maturity securities. These securities are primarily comprised of structured securities that contain credit derivatives that reference a standard index of corporate securities. In addition, the Company enters into credit default swaps to terminate existing credit default swaps, thereby offsetting the changes in value of the original swap going forward.

Equity index swaps and options

The Company formerly offered certain equity indexed products, which may contain an embedded derivative that requires bifurcation. The Company enters into S&P index swaps and options to economically hedge the equity volatility risk associated with these embedded derivatives. The Company also enters into equity index options and futures with the purpose of hedging the impact of an adverse equity market environment on the investment portfolio.

U.S. GMWB derivatives, net

The Company formerly offered certain variable annuity products with GMWB riders in the U.S. The GMWB product is a bifurcated embedded derivative (“U.S. GMWB product derivative”) that has a notional value equal to the GRB. The Company uses reinsurance contracts to transfer a portion of its risk of loss due to U.S GMWB. The reinsurance contracts covering U.S. GMWB (“U.S. GMWB reinsurance contracts”) are accounted for as free-standing derivatives with a notional amount equal to the GRB amount.

The Company utilizes derivatives (“ U.S. GMWB hedging derivatives”) as part of an actively managed program designed to hedge a portion of the capital market risk exposures of the un-reinsured GMWB due to changes in interest rates, equity market levels, and equity volatility. These derivatives include customized swaps, interest rate swaps and futures, and equity swaps, options, and futures, on certain indices including the S&P 500 index, EAFE index, and NASDAQ index. The following table represents notional and fair value for U.S. GMWB hedging instruments.

The following table presents notional and fair value for U.S. GMWB hedging instruments.

	Notional Amount				Fair Value
	March 31, 2013		December 31, 2012		March 31, 2013		December 31, 2012
Customized swaps	$	7,912	$	7,787	$	176	$	238
Equity swaps, options, and futures	4,903		5,130		139		267
Interest rate swaps and futures	6,405		5,705		31		67
Total	$	19,220	$	18,622	$	346	$	572

U.S. macro hedge program

The Company utilizes equity options and futures contracts to partially hedge against a decline in the equity markets and the resulting statutory surplus and capital impact primarily arising from GMDB, GMIB and GMWB obligations.

The following table presents notional and fair value for the U.S. macro hedge program.

	Notional Amount				Fair Value
	March 31, 2013		December 31, 2012		March 31, 2013		December 31, 2012
Equity futures	$	391	$	—	$	—	$	—
Equity options	6,158		7,442		243		286
Total	$	6,549	$	7,442	$	243	$	286

4. Investments and Derivative Instruments (continued)

International program

The Company formerly offered certain variable annuity products in the U.K. and reinsured GMWB and GMAB riders from an affiliate in Japan, which are bifurcated embedded derivatives (“International program product derivatives”). The GMWB provides the policyholder with a GRB if the account value is reduced to zero through a combination of market declines and withdrawals. The GRB is generally equal to premiums less withdrawals. Certain contract provisions can increase the GRB at contractholder election or after the passage of time. The GMAB provides the policyholder with their initial deposit in a lump sum after a specified waiting period. The notional amount of the International program product derivatives are the foreign currency denominated GRBs converted to U.S. dollars at the current foreign spot exchange rate as of the reporting period date.

The Company enters into derivative contracts (“International program hedging instruments”) to hedge a portion of the capital market risk exposures associated with the guaranteed benefits associated with the international variable annuity contracts. During 2013, the Company expanded its hedging program to effectively eliminate equity and foreign currency exchange risk. The hedging derivatives are comprised of equity futures, options, and swaps and currency forwards and options to partially hedge against a decline in the debt and equity markets or changes in foreign currency exchange rates and the resulting statutory surplus and capital impact primarily arising from GMDB, GMIB and GMWB obligations issued in the U.K. and Japan. The Company also enters into foreign currency denominated interest rate swaps and swaptions to hedge the interest rate exposure related to the potential annuitization of certain benefit obligations. The following table represents notional and fair value for the international program hedging instruments.

	Notional Amount				Fair Value
	March 31, 2013		December 31, 2012		March 31, 2013			December 31, 2012
Credit derivatives	$	350	$	350	$	28		$	28
Currency forwards [1]	8,458		9,327		140			(87		)
Currency options	11,845		9,710		(31		)	(49		)
Equity futures	1,653		1,206		—			—
Equity options	2,546		2,621		(141		)	(105		)
Equity swaps	4,131		2,683		(4		)	(12		)
Customized swaps	829		899		(20		)	(11		)
Interest rate futures	486		634		—			—
Interest rate swaps and swaptions	22,425		21,018		163			131
Total	$	52,723	$	48,448	$	135		$	(105	)

[1] As of March 31, 2013 and December 31, 2012 net notional amounts are $2.3 billion and $0.1 billion, respectively, which include $5.7 billion and $4.7 billion, respectively, related to long positions and $3.4 billion and $4.6 billion, respectively, related to short positions.

GMAB, GMWB and GMIB reinsurance contracts

The Company reinsured the GMAB, GMWB, and GMIB embedded derivatives for host variable annuity contracts written by HLIKK. The reinsurance contracts are accounted for as free-standing derivative contracts. The notional amount of the reinsurance contracts is the yen denominated GRB balance value converted at the period-end yen to U.S. dollar foreign spot exchange rate. For further information on this transaction, refer to Note 11 - Transactions with Affiliates of Notes to Condensed Consolidated Financial Statements.

Coinsurance and modified coinsurance reinsurance contracts

During 2010, a subsidiary entered into a coinsurance with funds withheld and modified coinsurance reinsurance agreement with an affiliated captive reinsurer, which creates an embedded derivative. In addition, provisions of this agreement include reinsurance to cede a portion of direct written U.S. GMWB riders, which is accounted for as an embedded derivative. Additional provisions of this agreement cede variable annuity contract GMAB, GMWB and GMIB riders reinsured by the Company that have been assumed from HLIKK and is accounted for as a free-standing derivative. For further information on this transaction, refer to Note 11 - Transactions with Affiliates of Notes to Condensed Consolidated Financial Statements.

As of March 31, 2013, the Company had approximately $1.3 billion of invested assets supporting other policyholder funds and benefits payable reinsured under a modified coinsurance arrangement in connection with the sale of the Individual Life business structured as a reinsurance transaction. The assets are held in a trust established by the Company. The Company pays or receives cash quarterly to settle the results of the reinsured business, including the investment results. As a result of this modified coinsurance arrangement, the Company has an embedded derivative that transfers to the reinsurer certain unrealized changes in fair value due to interest rate and credit risks of these assets. The notional amounts of the reinsurance contracts are the invested assets supporting the reinsured reserves that are carried at fair value.

4. Investments and Derivative Instruments (continued)

Derivative Balance Sheet Classification

The table below summarizes the balance sheet classification of the Company’s derivative related fair value amounts, as well as the gross asset and liability fair value amounts. The fair value amounts presented below do not include income accruals or cash collateral held amounts, which are netted with derivative fair value amounts to determine balance sheet presentation. Derivatives in the Company’s separate accounts where the associated gains and losses accrue directly to policyholders are not included. The Company’s derivative instruments are held for risk management purposes, unless otherwise noted in the table below. The notional amount of derivative contracts represents the basis upon which pay or receive amounts are calculated and is presented in the table to quantify the volume of the Company’s derivative activity. Notional amounts are not necessarily reflective of credit risk.

	Net Derivatives										Asset Derivatives				Liability Derivatives
	Notional Amount				Fair Value						Fair Value				Fair Value
Hedge Designation/ Derivative Type	Mar 31, 2013		Dec 31, 2012		Mar 31, 2013			Dec 31, 2012			Mar 31, 2013		Dec 31, 2012		Mar 31, 2013			Dec 31, 2012
Cash flow hedges
Interest rate swaps	$	3,837	$	3,863	$	136		$	167		$	136	$	167	$	—		$	—
Foreign currency swaps	143		163		(16		)	(17		)	4		3		(20		)	(20		)
Total cash flow hedges	3,980		4,026		120			150			140		170		(20		)	(20		)
Fair value hedges
Interest rate swaps	1,536		753		(48		)	(55		)	—		—		(48		)	(55		)
Foreign currency swaps	40		40		13			16			13		16		—			—
Total fair value hedges	1,576		793		(35		)	(39		)	13		16		(48		)	(55		)
Non-qualifying strategies
Interest rate contracts
Interest rate swaps, swaptions, caps, floors, and futures	5,405		13,432		(392		)	(363		)	323		436		(715		)	(799		)
Foreign exchange contracts
Foreign currency swaps and forwards	109		182		(10		)	(9		)	4		5		(14		)	(14		)
Japan 3Win foreign currency swaps	1,816		1,816		(257		)	(127		)	—		—		(257		)	(127		)
Japanese fixed annuity hedging instruments	1,586		1,652		118			224			147		228		(29		)	(4		)
Credit contracts
Credit derivatives that purchase credit protection	889		1,539		(4		)	(5		)	3		3		(7		)	(8		)
Credit derivatives that assume credit risk [1]	2,002		1,981		38			(8		)	45		17		(7		)	(25		)
Credit derivatives in offsetting positions	4,931		5,341		(15		)	(22		)	47		56		(62		)	(78		)
Equity contracts
Equity index swaps and options	766		791		15			35			27		45		(12		)	(10		)
Variable annuity hedge program
U.S. GMWB product derivatives [2]	27,695		28,868		(795		)	(1,249		)	—		—		(795		)	(1,249		)
U.S. GMWB reinsurance contracts	5,463		5,773		139			191			139		191		—			—
U.S. GMWB hedging instruments	19,220		18,622		346			572			564		743		(218		)	(171		)
U.S. macro hedge program	6,549		7,442		243			286			309		356		(66		)	(70		)
International program product derivatives [2]	1,785		1,876		(32		)	(42		)	—		—		(32		)	(42		)
International program hedging instruments	52,723		48,448		135			(105		)	616		657		(481		)	(762		)
Other
GMAB, GMWB, and GMIB reinsurance contracts	16,552		18,287		(1,377		)	(1,827		)	—		—		(1,377		)	(1,827		)
Coinsurance and modified coinsurance reinsurance contracts	40,170		44,985		458			890			1,138		1,566		(680		)	(676		)
Total non-qualifying strategies	187,661		201,035		(1,390		)	(1,559		)	3,362		4,303		(4,752		)	(5,862		)
Total cash flow hedges, fair value hedges, and non-qualifying strategies	$	193,217	$	205,854	$	(1,305	)	$	(1,448	)	$	3,515	$	4,489	$	(4,820	)	$	(5,937	)
Balance Sheet Location
Fixed maturities, available-for-sale	$	190	$	416	$	(6	)	$	(20	)	$	—	$	—	$	(6	)	$	(20	)
Other investments	62,421		37,809		655			581			1,479		1,049		(824		)	(468		)
Other liabilities	38,874		67,765		(335		)	38			759		1,683		(1,094		)	(1,645		)
Consumer notes	16		26		(2		)	(2		)	—		—		(2		)	(2		)
Reinsurance recoverable	45,634		47,430		597			1,081			1,277		1,757		(680		)	(676		)
Other policyholder funds and benefits payable	46,082		52,408		(2,214		)	(3,126		)	—		—		(2,214		)	(3,126		)
Total derivatives	$	193,217	$	205,854	$	(1,305	)	$	(1,448	)	$	3,515	$	4,489	$	(4,820	)	$	(5,937	)

[1]  The derivative instruments related to this strategy are held for other investment purposes.

[2] These derivatives are embedded within liabilities and are not held for risk management purposes.

4. Investments and Derivative Instruments (continued)

Change in Notional Amount

The net decrease in notional amount of derivatives since December 31, 2012, was primarily due to the following:

• The decrease in notional amount of non-qualifying interest rate contracts primarily resulted from the termination of interest rate swaptions purchased during the third quarter of 2012 designed to hedge the interest rate risk of the securities being transferred related to the sale of the Retirement Plan business segment.

• The $52.7 billion notional amount related to the international program hedging instruments as of March 31, 2013, consisted of $49.3 billion of long positions and $3.4 billion of offsetting short positions, resulting in a net notional amount of $45.9 billion. The $48.4 billion notional amount as of December 31, 2012, consisted of $43.8 billion of long positions and $4.6 billion of offsetting short positions, resulting in a net notional amount of $39.2 billion. The increase in net notional of $6.7 billion primarily resulted from the Company expanding its hedging program to effectively eliminate equity and foreign currency exchange risk.

• The decrease in notional amount of coinsurance and modified coinsurance reinsurance contracts primarily resulted from the embedded derivative product sold as part Individual Life and Retirement Plans business dispositions.

• The decrease in notional amount of GMAB, GMWB, and GMIB reinsurance contracts was primarily driven by policyholder surrender activity.

Change in Fair Value

The net increase in the total fair value of derivative instruments since December 31, 2012, was primarily related to the following:

• The increase in fair value related to the combined U.S. GMWB hedging program, which includes the U.S. GMWB product, reinsurance, and hedging derivatives, was primarily due to favorable policyholder behavior.

• The fair value related to the Japanese fixed annuity hedging instruments and Japan 3Win foreign currency swaps decreased primarily due to a depreciation of the Japanese yen in relation to the U.S. dollar.

• GMAB, GMWB and GMIB reinsurance contracts represent the guarantees that are internally reinsured from HLIKK.  The fair value of these liabilities has improved as a result of a sustained recovery in the equity markets, exchange rates, interest rates, and volatility.  For a discussion related to the reinsurance agreement refer to Note 11 - Transactions with Affiliates of Notes to Condensed Consolidated Financial Statements for more information on this transaction.

• The Coinsurance and modified coinsurance reinsurance contracts represents U.S. and International guarantees that are ceded to an affiliate.  The primary driver of the decline in the fair value of these derivatives is a result of changes in the unrealized gains/losses of the underlying portfolios associated with these contracts.  For a discussion related to the reinsurance agreement refer to Note 11 - Transactions with Affiliates of Notes to Condensed Consolidated Financial Statements for more information on this transaction.

4. Investments and Derivative Instruments (continued)

Offsetting of Derivative Assets/Liabilities

The following tables present the gross fair value amounts, the amounts offset, and net position of derivative instruments eligible for offset in the Company's Condensed Consolidated Balance Sheets.  Amounts offset include fair value amounts, income accruals and cash collateral held related to derivative instruments that are traded under a common master netting agreement, as described above.  Also included in the tables are financial collateral received and pledged, which is contractually permitted to be offset upon an event of default, however is disallowed for offsetting under U.S. GAAP.

As of March 31, 2013
	(i)		(ii)		(iii) = (i) - (ii)					(iv)			(v) = (iii) - (iv)
					Net Amounts Presented in the Statement of Financial Position						Gross Amounts Not Offset in the Statement of Financial Position
	Gross Amounts of Recognized Assets		Gross Amounts Offset in the Statement of Financial Position		Derivative Assets [1]		Accrued Interest and Cash Collateral Received [2]				Financial Collateral Received [4]		Net Amount
Description
Other investments	$	2,238	$	1,779	$	655	$	(196	)		$	346	$	113

	Gross Amounts of Recognized Liabilities			Gross Amounts Offset in the Statement of Financial Position			Derivative Liabilities [3]			Accrued Interest and Cash Collateral Pledged [3]			Financial Collateral Pledged [4]			Net Amount
Description
Other liabilities	$	(1,918	)	$	(1,569	)	$	(335	)	$	(14	)	$	(339	)	$	(10	)

As of December 31, 2012
	(i)		(ii)		(iii) = (i) - (ii)					(iv)			(v) = (iii) - (iv)
					Net Amounts Presented in the Statement of Financial Position						Gross Amounts Not Offset in the Statement of Financial Position
	Gross Amounts of Recognized Assets		Gross Amounts Offset in the Statement of Financial Position		Derivative Assets [1]		Accrued Interest and Cash Collateral Received [2]				Financial Collateral Received [4]		Net Amount
Description
Other investments	$	2,732	$	2,238	$	581	$	(87	)		$	490	$	4

	Gross Amounts of Recognized Liabilities			Gross Amounts Offset in the Statement of Financial Position			Derivative Liabilities [3]		Accrued Interest and Cash Collateral Pledged [3]			Financial Collateral Pledged [4]			Net Amount
Description
Other liabilities	$	(2,113	)	$	(1,759	)	$	38	$	(392	)	$	(300	)	$	(54	)

[1] Included in other invested assets in the Company's Condensed Consolidated Balance Sheets.

[2] Included in other assets in the Company's Condensed Consolidated Balance Sheets.

[3] Included in other liabilities in the Company's Condensed Consolidated Balance Sheets.

[4] Excludes exchange-traded futures which are settled daily.

4. Investments and Derivative Instruments (continued)

Cash Flow Hedges

For derivative instruments that are designated and qualify as cash flow hedges, the effective portion of the gain or loss on the derivative is reported as a component of OCI and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. Gains and losses on the derivative representing hedge ineffectiveness are recognized in current period earnings. All components of each derivative’s gain or loss were included in the assessment of hedge effectiveness.

The following tables presents the components of the gain or loss on derivatives that qualify as cash flow hedges:

Derivatives in Cash Flow Hedging Relationships

	Gain (Loss) Recognized in OCI on Derivative (Effective Portion)						Net Realized Capital Gains (Losses) Recognized in Income on Derivative (Ineffective Portion)
	Three Months Ended March 31,						Three Months Ended March 31,
	2013			2012			2013		2012
Interest rate swaps	$	(42	)	$	(28	)	$	—	$	—
Foreign currency swaps	1			(3		)	—		—
Total	$	(41	)	$	(31	)	$	—	$	—

		Gain or (Loss) Reclassified from AOCI into Income (Effective Portion)
		Three Months Ended March 31,
	Location	2013			2012
Interest rate swaps	Net realized capital gain/(loss)	$	64		$	4
Interest rate swaps	Net investment income	14			25
Foreign currency swaps	Net realized capital gain/(loss)	(3		)	2
Total		$	75		$	31

As of March 31, 2013, the before-tax deferred net gains on derivative instruments recorded in AOCI that are expected to be reclassified to earnings during the next twelve months are $53. This expectation is based on the anticipated interest payments on hedged investments in fixed maturity securities that will occur over the next twelve months, at which time the Company will recognize the deferred net gains (losses) as an adjustment to interest income over the term of the investment cash flows.

During the three months ended March 31, 2013 and March 31, 2012, the Company had no net reclassifications from AOCI to earnings resulting from the discontinuance of cash-flow hedges due to forecasted transactions that were no longer probable of occurring.

Fair Value Hedges

For derivative instruments that are designated and qualify as a fair value hedge, the gain or loss on the derivative, as well as the offsetting loss or gain on the hedged item attributable to the hedged risk are recognized in current earnings. The Company includes the gain or loss on the derivative in the same line item as the offsetting loss or gain on the hedged item. All components of each derivative’s gain or loss were included in the assessment of hedge effectiveness.

The Company recognized in income gains (losses) representing the ineffective portion of fair value hedges as follows:

Derivatives in Fair-Value Hedging Relationships

	Gain or (Loss) Recognized in Income [1]
	Three Months Ended March 31,
	2013						2012
	Derivative			Hedge Item			Derivative			Hedge Item
Interest rate swaps
Net realized capital gain/(loss)	$	6		$	(8	)	$	10		$	11
Foreign currency swaps
Net realized capital gain/(loss)	(2		)	2			9			14
Benefits, losses and loss adjustment expenses	(1		)	1			(3		)	(8		)
Total	$	3		$	(5	)	$	16		$	17

[1] The amounts presented do not include the periodic net coupon settlements of the derivative or the coupon income (expense) related to the hedged item. The net of the amounts presented represents the ineffective portion of the hedge.

4. Investments and Derivative Instruments (continued)

Non-qualifying Strategies

For non-qualifying strategies, including embedded derivatives that are required to be bifurcated from their host contracts and accounted for as derivatives, the gain or loss on the derivative is recognized currently in earnings within net realized capital gains (losses). The following table presents the gain or loss recognized in income on non-qualifying strategies:

Derivatives Used in Non-Qualifying Strategies

Gain or (Loss) Recognized within Net Realized Capital Gains and Losses
	Three Months Ended March 31,
	2013			2012
Interest rate contracts
Interest rate swaps, caps, floors, and forwards	$	10		$	1
Foreign exchange contracts
Foreign currency swaps and forwards	—			(3		)
Japan 3Win foreign currency swaps [1]	(130		)	(181		)
Japanese fixed annuity hedging instruments [2]	(101		)	(128		)
Credit contracts
Credit derivatives that purchase credit protection	(5		)	(23		)
Credit derivatives that assume credit risk	9			110
Equity contracts
Equity index swaps and options	(14		)	(16		)
Variable annuity hedge program
U.S. GMWB product derivatives	456			896
U.S. GMWB reinsurance contracts	(60		)	(143		)
U.S. GMWB hedging instruments	(349		)	(568		)
U.S. macro hedge program	(85		)	(189		)
International program product derivatives	9			14
International program hedging instruments	(113		)	(1,004		)
Other
GMAB, GMWB, and GMIB reinsurance contracts	337			610
Coinsurance and modified coinsurance reinsurance contracts	(396		)	(915		)
Total	$	(432	)	$	(1,539	)

[1] The associated liability is adjusted for changes in spot rates through realized capital gains and was $116 and $118 for the three months ended March 31, 2013 and 2012, respectively.

[2]  The associated liability is adjusted for changes in spot rates through realized capital gains and was $151 and $157 for the three months ended March 31, 2013 and 2012, respectively.

4. Investments and Derivative Instruments (continued)

For the three months ended March 31, 2013, the net realized capital gain (loss) related to derivatives used in non-qualifying strategies was primarily comprised of the following:

• The net loss associated with the international program hedging instruments was primarily driven by an improvement in global equity markets and depreciation of the Japanese yen in relation to the euro and the U.S. dollar. These losses were partially offset by gains due to a decrease in Japanese interest rates.

• The net gain on derivatives associated with GMAB, GMWB, and GMIB reinsurance contracts, which are reinsured to an affiliated captive reinsurer, was primarily due to an improvement in global and domestic equity markets and a decrease in currency volatility.

• The net loss on the coinsurance and modified coinsurance reinsurance agreement, which is accounted for as a derivative instrument, primarily offsets the net gain on GMAB, GMWB, and GMIB reinsurance contracts. For a discussion related to the reinsurance agreement refer to Note 11 - Transactions with Affiliates for more information on this transaction.

• The net loss related to the Japanese fixed annuity hedging instruments and the Japan 3Win foreign currency swaps was primarily due to a depreciation of the Japanese yen in relation to the U.S. dollar.

• The net gain related to the combined U.S. GMWB hedging program, which includes the U.S. GMWB product, reinsurance, and hedging derivatives, was primarily a result of favorable policyholder behavior.

• The net loss on U.S. macro hedge program was primarily due to an improvement in domestic equity markets, the passage of time, and lower equity volatility.

For the three months ended March 31, 2012, the net realized capital gain (loss) related to derivatives used in non-qualifying strategies was primarily comprised of the following:

• The net loss associated with the international program hedging instruments was primarily driven by depreciation of the yen in relation to the euro and the U.S. dollar, and an increase in global and domestic equity markets.

• The net gain associated with GMAB, GMWB, and GMIB product reinsurance contracts, which are reinsured to an affiliated captive reinsurer, was primarily due to a depreciation of the Japanese yen in comparison to the euro and the U.S. dollar, and an increase in global and domestic equity markets.

• The net loss on the coinsurance and modified coinsurance reinsurance agreement, which is accounted for as a derivative instrument primarily offsets the net loss on GMAB, GMWB, and GMIB reinsurance contracts. For a discussion related to the reinsurance agreement refer to Note 11 - Transactions with Affiliates of Notes to Condensed Consolidated Financial Statements for more information on this transaction.

• The net loss on the U.S. macro hedge program was primarily driven by an increase in the domestic equity market and lower equity market volatility.

• The net loss related to the Japanese fixed annuity hedging instruments and Japan 3Win foreign currency swaps was primarily due to the U.S. dollar strengthening in comparison to the Japanese yen and strengthening of the currency basis swap spread between U.S. dollar and Japanese yen.

• The net gain related to the combined U.S. GMWB hedging program, which includes the U.S. GMWB product, reinsurance, and hedging derivatives, was primarily a result of lower equity and interest rate volatility, favorable policyholder behavior, and a general increase in long-term interest rates.

Refer to Note 9 for additional disclosures regarding contingent credit related features in derivative agreements.

Credit Risk Assumed through Credit Derivatives

The Company enters into credit default swaps that assume credit risk of a single entity, referenced index, or asset pool in order to synthetically replicate investment transactions. The Company will receive periodic payments based on an agreed upon rate and notional amount and will only make a payment if there is a credit event. A credit event payment will typically be equal to the notional value of the swap contract less the value of the referenced security issuer’s debt obligation after the occurrence of the credit event. A credit event is generally defined as a default on contractually obligated interest or principal payments or bankruptcy of the referenced entity. The credit default swaps in which the Company assumes credit risk primarily reference investment grade single corporate issuers and baskets, which include standard and customized diversified portfolios of corporate issuers. The diversified portfolios of corporate issuers are established within sector concentration limits and may be divided into tranches that possess different credit ratings.

4. Investments and Derivative Instruments (continued)

The following tables present the notional amount, fair value, weighted average years to maturity, underlying referenced credit obligation type and average credit ratings, and offsetting notional amounts and fair value for credit derivatives in which the Company is assuming credit risk.

As of March 31, 2013

							Underlying Referenced Credit Obligation(s) [1]
Credit Derivative type by derivative risk exposure	Notional Amount [2]		Fair Value			Weighted Average Years to Maturity	Type	Average Credit Rating	Offsetting Notional Amount [3]		Offsetting Fair Value [3]
Single name credit default swaps
Investment grade risk exposure	$	1,586	$	14		3 years	Corporate Credit/ Foreign Gov.	A	$	778	$	(14	)
Below investment grade risk exposure	101		—			1 year	Corporate Credit	B	101		(2		)
Basket credit default swaps [4]
Investment grade risk exposure	2,013		12			2 years	Corporate Credit	BBB+	1,234		(6		)
Below investment grade risk exposure	266		25			5 years	Corporate Credit	BB	—		—
Investment grade risk exposure	237		(10		)	4 years	CMBS Credit	A	238		10
Below investment grade risk exposure	115		(24		)	4 years	CMBS Credit	B	115		24
Embedded credit derivatives
Investment grade risk exposure	150		139			4 years	Corporate Credit	BBB	—		—
Total	$	4,468	$	156					$	2,466	$	12

As of December 31, 2012

							Underlying Referenced Credit Obligation(s) [1]
Credit Derivative type by derivative risk exposure	Notional Amount [2]		Fair Value			Weighted Average Years to Maturity	Type	Average Credit Rating	Offsetting Notional Amount [3]		Offsetting Fair Value [3]
Single name credit default swaps
Investment grade risk exposure	$	1,787	$	8		3 years	Corporate Credit/ Foreign Gov.	A	$	878	$	(19	)
Below investment grade risk exposure	114		(1		)	1 year	Corporate Credit	B+	114		(3		)
Basket credit default swaps [4]
Investment grade risk exposure	2,074		11			2 years	Corporate Credit	BBB+	1,326		(6		)
Investment grade risk exposure	237		(12		)	4 years	CMBS Credit	A	238		12
Below investment grade risk exposure	115		(27		)	4 years	CMBS Credit	B+	115		27
Embedded credit derivatives
Investment grade risk exposure	325		296			4 years	Corporate Credit	BBB-	—		—
Total	$	4,652	$	275					$	2,671	$	11

[1] The average credit ratings are based on availability and the midpoint of the applicable ratings among Moody’s, S&P, and Fitch. If no rating is available from a rating agency, then an internally developed rating is used.

[2] Notional amount is equal to the maximum potential future loss amount. These derivatives are written under master netting agreements which include credit support annexes ("CSAs") that provide for collateral postings at the legal entity and counterparty level in accordance with ratings and threshold levels. There is no additional specific collateral related to these contracts or recourse provisions included in the contracts to offset losses.

[3] The Company has entered into offsetting credit default swaps to terminate certain existing credit default swaps, thereby offsetting the future changes in value of, or losses paid related to, the original swap.

[4] Includes $2.6 billion and $2.4 billion as of March 31, 2013 and March 31, 2012, respectively, of standard market indices of diversified portfolios of corporate issuers referenced through credit default swaps. These swaps are subsequently valued based upon the observable standard market index.