XML 177 R35.htm IDEA: XBRL DOCUMENT v2.4.0.8
Fair Value Measurements (Tables)
12 Months Ended
Dec. 31, 2012
Fair Value Disclosures [Abstract]  
Assets and (liabilities) carried at fair value by hierarchy level
The following tables present assets and (liabilities) carried at fair value by hierarchy level. These disclosures provide information as to the extent to which the Company uses fair value to measure financial instruments and information about the inputs used to value those financial instruments to allow users to assess the relative reliability of the measurements. The following table presents assets and (liabilities) carried at fair value by hierarchy level.
 
December 31, 2012
 
Total
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
Significant
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Assets accounted for at fair value on a recurring basis
 
 
 
 
Fixed maturities, AFS
 
 
 
 
ABS
$
1,673

$
—

$
1,435

$
238

CDOs
2,160

—

1,437

723

CMBS
3,912

—

3,380

532

Corporate
30,979

—

29,639

1,340

Foreign government/government agencies
1,460

—

1,426

34

States, municipalities and political subdivisions (“Municipal”)
1,998

—

1,829

169

RMBS
4,671

—

3,538

1,133

U.S. Treasuries
2,551

78

2,473

—

Total fixed maturities
49,404

78

45,157

4,169

Fixed maturities, FVO
1,010

6

805

199

Equity securities, trading
1,847

1,847

—

—

Equity securities, AFS
400

203

142

55

Derivative assets
 
 
 
 
Credit derivatives
(10
)
—

—

(10
)
Equity derivatives
30

—

—

30

Foreign exchange derivatives
104

—

104

—

Interest rate derivatives
108

—

144

(36
)
U.S. guaranteed minimum withdrawal benefit ("GMWB") hedging instruments
36

—

(53
)
89

U.S. macro hedge program
186

—

—

186

International program hedging instruments
127

—

142

(15
)
Total derivative assets [1]
581

—

337

244

Short-term investments
2,354

242

2,112

—

Limited partnerships and other alternative investments [2]
414

—

264

150

Reinsurance recoverable for U.S. GMWB and Japan GMWB, GMIB, and GMAB
1,081

—

—

1,081

Separate account assets [3]
138,497

97,976

39,938

583

Total assets accounted for at fair value on a recurring basis
$
195,588

$
100,352

$
88,755

$
6,481

Percentage of level to total
100
%
52
%
45
%
3
%
Liabilities accounted for at fair value on a recurring basis
 
 
 
 
Other policyholder funds and benefits payable
 
 
 
 
Guaranteed living benefits
$
(3,119
)
$
—

$
—

$
(3,119
)
Equity linked notes
(8
)
—

—

(8
)
Total other policyholder funds and benefits payable
(3,127
)
—

—

(3,127
)
Derivative liabilities
 
 
 
 
Credit derivatives
(6
)
—

(20
)
14

Equity derivatives
15

—

—

15

Foreign exchange derivatives
(17
)
—

(17
)
—

Interest rate derivatives
(359
)
—

(338
)
(21
)
U.S. GMWB hedging instruments
536

—

106

430

U.S. macro hedge program
100

—

—

100

International program hedging instruments
(231
)
—

(171
)
(60
)
Total derivative liabilities [4]
38

—

(440
)
478

Other liabilities
—

—

—

—

Consumer notes [5]
(2
)
—

—

(2
)
Total liabilities accounted for at fair value on a recurring basis
$
(3,091
)
$
—

$
(440
)
$
(2,651
)

 
December 31, 2011
 
Total
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
Significant
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Assets accounted for at fair value on a recurring basis
 
 
 
 
Fixed maturities, AFS
 
 
 
 
ABS
$
2,093

$
—

$
1,776

$
317

CDOs
1,798

—

1,470

328

CMBS
4,269

—

3,921

348

Corporate
30,229

—

28,732

1,497

Foreign government/government agencies
1,224

—

1,187

37

States, municipalities and political subdivisions (“Municipal”)
1,557

—

1,175

382

RMBS
3,823

—

2,890

933

U.S. Treasuries
2,785

487

2,298

—

Total fixed maturities
47,778

487

43,449

3,842

Fixed maturities, FVO
1,317

—

833

484

Equity securities, trading
1,967

1,967

—

—

Equity securities, AFS
398

227

115

56

Derivative assets
 
 
 
 
Credit derivatives
(27
)
—

(6
)
(21
)
Equity derivatives
31

—

—

31

Foreign exchange derivatives
505

—

505

—

Interest rate derivatives
78

—

38

40

U.S. GMWB hedging instruments
494

—

11

483

U.S. macro hedge program
357

—

—

357

International program hedging instruments
533

—

567

(34
)
Total derivative assets [1]
1,971

—

1,115

856

Short-term investments
3,882

520

3,362

—

Reinsurance recoverable for U.S. GMWB and Japan GMWB, GMIB, and GMAB
3,073

—

—

3,073

Separate account assets [3]
139,421

101,633

36,757

1,031

Total assets accounted for at fair value on a recurring basis
$
199,807

$
104,834

$
85,631

$
9,342

Liabilities accounted for at fair value on a recurring basis
 
 
 
 
Other policyholder funds and benefits payable
 
 
 
 
Guaranteed living benefits
$
(5,776
)
$
—

$
—

$
(5,776
)
Equity linked notes
(9
)
—

—

(9
)
Total other policyholder funds and benefits payable
(5,785
)
—

—

(5,785
)
Derivative liabilities
 
 
 
 
Credit derivatives
(493
)
—

(25
)
(468
)
Equity derivatives
5

—

—

5

Foreign exchange derivatives
140

—

140

—

Interest rate derivatives
(315
)
—

(184
)
(131
)
U.S. GMWB hedging instruments
400

—

—

400

International program hedging instruments
9

—

10

(1
)
Total derivative liabilities [4]
(254
)
—

(59
)
(195
)
Other liabilities
(9
)
—

—

(9
)
Consumer notes [5]
(4
)
—

—

(4
)
Total liabilities accounted for at fair value on a recurring basis
$
(6,052
)
$
—

$
(59
)
$
(5,993
)
[1]
Includes over-the-counter derivative instruments in a net asset value position which may require the counterparty to pledge collateral to the Company. At December 31, 2012 and December 31, 2011, $92 million and $1.4 billion, respectively, was the amount of cash collateral liability that was netted against the derivative asset value on the Consolidated Balance Sheet, and is excluded from the table above. For further information on derivative liabilities, see below in this Note 3.
[2]
Represents hedge funds where investment company accounting has been applied to a wholly-owned fund of funds measured at value.
[3]
As of December 31, 2012 and December 31, 2011, excludes approximately $3.1 billion and $4.0 billion, respectively, of investment sales receivable that are not subject to fair value accounting.
[4]
Includes over-the-counter derivative instruments in a net negative market value position (derivative liability). In the Level 3 roll forward table included below in this Note, the derivative asset and liability are referred to as “freestanding derivatives” and are presented on a net basis.
[5]
Represents embedded derivatives associated with non-funding agreement-backed consumer equity-linked notes.
Information about significant unobservable inputs used in Level 3 assets measured at fair value
The following tables present information about significant unobservable inputs used in Level 3 assets measured at fair value.
 
As of December 31, 2012
Securities
 
 
 
Unobservable Inputs
 
Assets accounted for at fair value on a recurring basis
Fair
Value
Predominant
Valuation
Method
Significant Unobservable Input
Minimum
Maximum
Weighted Average [1]
Impact of
Increase in Input
on Fair Value [2]
CMBS
$
532

Discounted cash flows
Spread (encompasses
prepayment, default risk and loss severity)
320bps
3,615bps
1,013bps
Decrease
Corporate [3]
888

Discounted cash flows
Spread
145bps
900bps
333bps
Decrease
Municipal
169

Discounted cash flows
Spread
227bps
344bps
254bps
Decrease
RMBS
1,133

Discounted cash flows
Spread
54bps
1,689bps
379bps
Decrease
 
 
 
Constant prepayment rate
0.0
%
12.0
%
2.0
%
Decrease [4]
 
 
 
Constant default rate
1.0
%
24.0
%
8.0
%
Decrease
 
 
 
Loss severity
—
%
100.0
%
80.0
%
Decrease
[1]
The weighted average is determined based on the fair value of the securities.
[2]
Conversely, the impact of a decrease in input would have the opposite impact to the fair value as that presented in the table above.
[3]
Level 3 corporate securities excludes those for which the Company bases fair value on broker quotations as discussed below.
[4]
Decrease for above market rate coupons and increase for below market rate coupons.
Information about significant unobservable inputs used in Level 3 derivative instruments measured at fair value
 
 
As of December 31, 2012
Freestanding Derivatives
 
 
 
Unobservable Inputs
 
  
Fair
Value
Predominant Valuation
Method
Significant
Unobservable Input
Minimum
Maximum
Impact of
Increase in Input
on Fair Value [1]
Equity derivatives
 
 
 
 
 
 
Equity options
$
45

Option model
Equity volatility
13%
24%
Increase
Interest rate derivative
 
 
 
 
 
 
Interest rate swaps
(57
)
Discounted  cash flows
Swap curve 
beyond 30 years
2.8%
2.8%
Increase
U.S. GMWB hedging instruments
 
 
 
 
 
 
Equity options
281

Option model
Equity volatility
10%
31%
Increase
Customized swaps
238

Discounted  cash flows
Equity volatility
10%
50%
Increase
U.S. macro hedge program
 
 
 
 
 
 
Equity options
286

Option model
Equity volatility
24%
43%
Increase
International hedging program
 
 
 
 
 
 
Equity options
44

Option model
Equity volatility
22%
33%
Increase
Long interest rate
(119
)
Option model
Interest rate volatility
—%
1%
Increase
[1]
 Conversely, the impact of a decrease in input would have the opposite impact to the fair value as that presented in the table. Changes are based on long positions, unless otherwise noted. Changes in fair value will be inversely impacted for short positions.
Information about significant unobservable inputs used in Level 3 living benefits measured at fair value
Significant increases in any of the significant unobservable inputs, in isolation, will generally have an increase or decrease correlation with the fair value measurement, as shown in the table.
 
 
Unobservable Inputs
Significant Unobservable Input
Minimum
Maximum
Impact of Increase in  Input
on Fair Value Measurement [1]
Withdrawal Utilization[2]
20%
100%
Increase
Withdrawal Rates [2]
0%
8%
Increase
Annuitization utilization [3]
0%
100%
Increase
Lapse Rates [4]
0%
75%
Decrease
Reset Elections [5]
20%
75%
Increase
Equity Volatility [6]
10%
50%
Increase
[1]
Conversely, the impact of a decrease in input would have the opposite impact to the fair value as that presented in the table.
[2]
Ranges represent assumed cumulative percentages of policyholders taking withdrawals and the annual amounts withdrawn.
[3]
For reinsurance associated with Japan GMIB, range represents assumed cumulative percentages of policyholders annuitizing variable annuity contracts.
[4]
Range represents assumed annual percentages of full surrender of the underlying variable annuity contracts across all policy durations for in force business.
[5]
Range represents assumed cumulative percentages of policyholders that would elect to reset their guaranteed benefit base.
[6]
Range represents implied market volatilities for equity indices based on multiple pricing sources.
Roll-forward of Financial Instruments Measured at Fair Value on a Recurring Basis Using Significant Unobservable Inputs (Level 3)
  
Fixed Maturities, AFS
Fixed
Maturities,
FVO
Assets
ABS
CDOs
CMBS
Corporate
Foreign
govt./govt.
agencies
Municipal
RMBS
Total Fixed
Maturities,
AFS
Fair value as of January 1, 2012
$
317

$
328

$
348

$
1,497

$
37

$
382

$
933

$
3,842

$
484

Total realized/unrealized gains (losses)
 
 
 
 
 
 
 
 
 
Included in net income [1], [2]
(2
)
(19
)
(41
)
2

—

(5
)
(68
)
(133
)
106

Included in OCI [3]
45

134

89

(38
)
1

34

298

563

—

Purchases
18

—

18

169

9

174

289

677

1

Settlements
(58
)
(36
)
(111
)
(98
)
(4
)
—

(125
)
(432
)
(1
)
Sales
(34
)
(1
)
(109
)
(74
)
(11
)
(91
)
(173
)
(493
)
(391
)
Transfers into Level 3 [4]
12

317

422

538

2

—

2

1,293

—

Transfers out of Level 3 [4]
(60
)
—

(84
)
(656
)
—

(325
)
(23
)
(1,148
)
—

Fair value as of December 31, 2012
$
238

$
723

$
532

$
1,340

$
34

$
169

$
1,133

$
4,169

$
199

Changes in unrealized gains (losses) included in net income related to financial instruments still held at December 31, 2012 [2] [7]
$
(1
)
$
(11
)
$
(17
)
$
(7
)
$
—

$
(5
)
$
(11
)
$
(52
)
$
(7
)
 
 
Freestanding Derivatives [5]
Assets (Liabilities)
Equity
Securities,
AFS
Credit
Equity
Interest
Rate
U.S.
GMWB
Hedging
U.S.
Macro
Hedge
Program
Intl.
Program
Hedging
Total Free-
Standing
Derivatives
[5]
Fair value as of January 1, 2012
$
56

$
(489
)
$
36

$
(91
)
$
883

$
357

$
(35
)
$
661

Total realized/unrealized gains (losses)
 
 
 
 
 
 
 
 
Included in net income [1], [2]
3

155

(32
)
2

(431
)
(323
)
(83
)
(712
)
Included in OCI [3]
(3
)
—

—

—

—

—

—

—

Purchases
11

—

57

1

56

252

(60
)
306

Settlements
—

338

(16
)
—

(12
)
—

95

405

Sales
(12
)
—

—

—

—

—

—

—

Transfers out of Level 3 [4]
—

—

—

31

23

—

8

62

Fair value as of December 31, 2012
$
55

$
4

$
45

$
(57
)
$
519

$
286

$
(75
)
$
722

Changes in unrealized gains (losses) included in net income related to financial instruments still held at December 31, 2012 [2] [7]
$
2

$
126

$
(8
)
$
(1
)
$
(425
)
$
(322
)
$
(85
)
$
(715
)

Assets
Limited Partnerships and Other Alternative Investments
Reinsurance Recoverable for U.S. GMWB
and Japan
GMWB, GMIB, 
and GMAB [6]
Separate
Accounts
Fair value as of January 1, 2012
$
—

$
3,073

$
1,031

Total realized/unrealized gains (losses)
 
 
 
Included in net income [1], [2]
(11
)
(2,142
)
37

Included in OCI [3]
—

(231
)
—

Purchases
26

—

252

Settlements
—

381

(1
)
Sales
—

—

(476
)
Transfers into Level 3 [4]
135

—

443

Transfers out of Level 3 [4]
—

—

(703
)
Fair value as of December 31, 2012
$
150

$
1,081

$
583

Changes in unrealized gains (losses) included in net income related to financial instruments still held at December 31, 2012 [2] [7]
$
(11
)
$
(2,142
)
$
28


 
Other Policyholder Funds and Benefits Payable
 
 
Liabilities
Guaranteed
Living
Benefits [7]
Equity Linked
Notes
Total Other
Policyholder Funds
and Benefits Payable
Other
Liabilities
Consumer
Notes
Fair value as of January 1, 2012
$
(5,776
)
$
(9
)
$
(5,785
)
$
(9
)
$
(4
)
Total realized/unrealized gains (losses)
 
 
 
 
 
Included in net income [1], [2]
2,656

1

2,657

(34
)
2

Included in OCI [3]
264

—

264

—

—

Settlements [8]
(263
)
—

(263
)
43

—

Fair value as of December 31, 2012
$
(3,119
)
$
(8
)
$
(3,127
)
$
—

$
(2
)
Changes in unrealized gains (losses) included in net income related to financial instruments still held at December 31, 2012 [2] [7]
$
2,656

$
1

$
2,657

$
—

$
2


The tables below provide a fair value roll forward for the year ended December 31, 2011 for the financial instruments classified as Level 3.
 
Fixed Maturities, AFS
 
Assets
ABS
CDOs
CMBS
Corporate
Foreign
govt./govt.
agencies
Municipal
RMBS
Total Fixed
Maturities,
AFS
Fixed
Maturities,
FVO
Fair value as of January 1, 2011
$
408

$
1,869

$
492

$
1,486

$
40

$
258

$
1,105

$
5,658

$
511

Total realized/unrealized gains (losses)
 
 
 
 
 
 
 
 
 
Included in net income [1], [2]
(26
)
(30
)
13

(27
)
—

—

(21
)
(91
)
23

Included in OCI [3]
18

112

41

(14
)
—

46

(3
)
200

—

Purchases
35

—

18

83

—

87

25

248

—

Settlements
(32
)
(129
)
(72
)
(92
)
(3
)
—

(111
)
(439
)
(2
)
Sales
(9
)
(54
)
(225
)
(122
)
—

—

(16
)
(426
)
(43
)
Transfers into Level 3 [4]
79

30

131

498

29

—

69

836

—

Transfers out of Level 3 [4]
(156
)
(1,470
)
(50
)
(315
)
(29
)
(9
)
(115
)
(2,144
)
(5
)
Fair value as of December 31, 2011
$
317

$
328

$
348

$
1,497

$
37

$
382

$
933

$
3,842

$
484

Changes in unrealized gains (losses) included in net income related to financial instruments still held at December 31, 2011 [2] [7]
$
(14
)
$
(29
)
$
(5
)
$
(11
)
$
—

$
—

$
(15
)
$
(74
)
$
19

 
 
 
Freestanding Derivatives [5]
Assets (Liabilities)
Equity
Securities,
AFS
Credit
Equity
Interest
Rate
U.S.
GMWB
Hedging
U.S.
Macro
Hedge
Program
Intl.
Program
Hedging
Total Free-
Standing
Derivatives [5]
Fair value as of January 1, 2011
$
47

$
(344
)
$
4

$
(53
)
$
600

$
203

$
5

$
415

Total realized/unrealized gains (losses)
 
 
 
 
 
 
 
 
Included in net income [1], [2]
(11
)
(144
)
(8
)
9

279

(128
)
3

11

Included in OCI [3]
(3
)
—

—

—

—

—

—

—

Purchases
31

20

40

—

23

347

(43
)
387

Settlements
—

(21
)
—

(47
)
(19
)
(65
)
—

(152
)
Sales
(4
)
—

—

—

—

—

—

—

Transfers out of Level 3 [4]
(4
)
—

—

—

—

—

—

—

Fair value as of December 31, 2011
$
56

$
(489
)
$
36

$
(91
)
$
883

$
357

$
(35
)
$
661

Changes in unrealized gains (losses) included in net income related to financial instruments still held at December 31, 2011 [2] [7]
$
(9
)
$
(137
)
$
(8
)
$
10

$
278

$
(107
)
$
(4
)
$
32

 

Assets
Reinsurance Recoverable for U.S. GMWB
and Japan
GMWB, GMIB, 
and GMAB [6]
Separate Accounts
Fair value as of January 1, 2011
$
2,002

$
1,247

Total realized/unrealized gains (losses)
 
 
Included in net income [1], [2]
504

25

Included in OCI [3]
111

—

Purchases
—

292

Settlements
456

—

Sales
—

(171
)
Transfers into Level 3 [4]
—

14

Transfers out of Level 3 [4]
—

(376
)
Fair value as of December 31, 2011
$
3,073

$
1,031

Changes in unrealized gains (losses) included in net income related to financial instruments still held at December 31, 2011 [2] [7]
$
504

$
(1
)
 
Other Policyholder Funds and Benefits Payable [1]
 
 
Liabilities
Guaranteed
Living
Benefits [7]
Equity Linked
Notes
Total Other
Policyholder Funds
and Benefits Payable
Other
Liabilities
Consumer
Notes
Fair value as of January 1, 2011
$
(4,258
)
$
(9
)
$
(4,267
)
$
(37
)
$
(5
)
Total realized/unrealized gains (losses)
 
 
 
 
 
Included in net income [1], [2]
(1,118
)
—

(1,118
)
28

1

Included in OCI [3]
(126
)
—

(126
)
—

—

Settlements
(274
)
—

(274
)
—

—

Fair value as of December 31, 2011
$
(5,776
)
$
(9
)
$
(5,785
)
$
(9
)
$
(4
)
Changes in unrealized gains (losses) included in net income related to financial instruments still held at December 31, 2011 [2] [7]
$
(1,118
)
$
—

$
(1,118
)
$
28

$
1

[1]
The Company classifies gains and losses on GMWB reinsurance derivatives and Guaranteed Living Benefit embedded derivatives as unrealized gains (losses) for purposes of disclosure in this table because it is impracticable to track on a contract-by-contract basis the realized gains (losses) for these derivatives and embedded derivatives.
[2]
All amounts in these rows are reported in net realized capital gains (losses). The realized/unrealized gains (losses) included in net income for separate account assets are offset by an equal amount for separate account liabilities, which results in a net zero impact on net income for the Company. All amounts are before income taxes and amortization of DAC.
[3]
All amounts are before income taxes and amortization of DAC.
[4]
Transfers in and/or (out) of Level 3 are primarily attributable to the availability of market observable information and the re-evaluation of the observability of pricing inputs.
[5]
Derivative instruments are reported in this table on a net basis for asset/(liability) positions and reported in the Consolidated Balance Sheet in other investments and other liabilities.
[6]
Includes fair value of reinsurance recoverables of approximately $0.9 billion and $2.6 billion as of December 31, 2012 and 2011, respectively, related to a transaction entered into with an affiliated captive reinsurer. See Note 16 - Transactions with Affiliates of Notes to Consolidated Financial Statements for more information.
[7]
Includes both market and non-market impacts in deriving realized and unrealized gains (losses).
[8]
Settlements of other liabilities reflect the removal of liabilities carried at fair value upon the deconsolidation of a variable interest entity. See Note 4 - Investments and Derivative Instruments of Notes to Consolidated Financial Statements for additional information.

Fair value of assets and liabilities accounted for using the fair value option
The following table presents the changes in fair value of those assets and liabilities accounted for using the fair value option reported in net realized capital gains and losses in the Company’s Consolidated Statements of Operations.
 
Year Ended December 31,
 
2012
2011
Assets
 
 
Fixed maturities, FVO
 
 
Corporate
$
9

$
10

CRE CDOs
64

(33
)
CMBS
(2
)
—

Foreign government
(88
)
45

RMBS
5

—

Other liabilities
 
 
Credit-linked notes
(34
)
28

Total realized capital gains (losses)
$
(46
)
$
50

Fair value of assets and liabilities accounted for using the fair value option
The following table presents the fair value of assets and liabilities accounted for using the fair value option included in the Company's Consolidated Balance Sheets.
 
December 31, 2012
December 31, 2011
Assets
 
 
Fixed maturities, FVO
 
 
ABS
$
—

$
65

Corporate
108

214

CRE CDOs
193

272

CMBS
4

—

Foreign government
699

766

Municipals
1

—

RMBS
3

—

U.S. government
2

—

Total fixed maturities, FVO
$
1,010

$
1,317

Other liabilities
 
 
Credit-linked notes [1]
$
—

$
9

[1]
As of December 31, 2011, the outstanding principal balance of the notes was $243.
Financial Instruments Not Carried at Fair Value
The following presents carrying amounts and fair values of the Company's financial instruments not carried at fair value, and not included in the above fair value discussion as of December 31, 2012 and December 31, 2011 were as follows:
 
December 31, 2012
December 31, 2011
 
Fair Value Hierarchy Level
Carrying Amount
Fair Value
Carrying Amount
Fair Value
Assets
 
 
 
 
 
Policy loans
Level 3
1,951

2,112

1,952

2,099

Mortgage loans
Level 3
4,935

5,109

4,182

4,382

Liabilities
 
 
 
 
 
Other policyholder funds and benefits payable [1]

Level 3
9,318

9,668

10,065

10,959

Consumer notes [2]

Level 3
159

159

310

305

[1]
Excludes group accident and health and universal life insurance contracts, including corporate owned life insurance.
[2]
Excludes amounts carried at fair value and included in disclosures above.