Fair Value Measurements

6 Months Ended

Jun. 30, 2011

Fair Value Measurements [Abstract]

Fair Value Measurements

3. Fair Value Measurements

The following financial instruments are carried at fair value in the Company’s Condensed Consolidated Financial Statements: fixed maturity and equity securities, available-for-sale (“AFS”), fixed maturities at fair value using fair value option (“FVO”); equity securities, trading; short-term investments; freestanding and embedded derivatives; separate account assets; and certain other liabilities.

The following section applies the fair value hierarchy and disclosure requirements for the Company’s financial instruments that are carried at fair value. The fair value hierarchy prioritizes the inputs in the valuation techniques used to measure fair value into three broad Levels (Level 1, 2 and 3).

Level 1	Observable inputs that reflect quoted prices for identical assets or liabilities in active markets that the Company has the ability to access at the measurement date. Level 1 securities include highly liquid U.S. Treasuries, money market funds, and exchange traded equity and derivative securities.
Level 2	Observable inputs, other than quoted prices included in Level 1, for the asset or liability or prices for similar assets and liabilities. Most fixed maturities and preferred stocks are model priced by vendors using observable inputs and are classified within Level 2. Also included in the Level 2 category are exchange traded equity securities, investment grade private placement securities and derivative instruments that are priced using models with observable market inputs, including interest rate, foreign currency and certain credit default swap contracts and have no significant unobservable market inputs.
Level 3	Valuations that are derived from techniques in which one or more of the significant inputs are unobservable (including assumptions about risk). Level 3 securities include less liquid securities such as lower quality asset-backed securities (“ABS”), commercial mortgage-backed securities (“CMBS”), commercial real estate (“CRE”) collateralized debt obligations (“CDOs”), residential mortgage-backed securities (“RMBS”) primarily backed by below-prime loans and below investment grade private placement securities. Also included in Level 3 are guaranteed product embedded and reinsurance derivatives and other complex derivatives securities, including customized GMWB hedging derivatives, equity derivatives, longer dated derivatives, swaps with optionality, and certain complex credit derivatives and certain other liabilities. Because Level 3 fair values, by their nature, contain unobservable inputs as there is little or no observable market for these assets and liabilities, considerable judgment is used to determine the Level 3 fair values. Level 3 fair values represent the Company’s best estimate of an amount that could be realized in a current market exchange absent actual market exchanges.

In many situations, inputs used to measure the fair value of an asset or liability position may fall into different levels of the fair value hierarchy. In these situations, the Company will determine the level in which the fair value falls based upon the lowest level input that is significant to the determination of the fair value. Transfers of securities among the levels occur at the beginning of the reporting period. Transfers between Level 1 and Level 2 were not material for the three and six months ended June 30, 2011 and 2010. In most cases, both observable (e.g., changes in interest rates) and unobservable (e.g., changes in risk assumptions) inputs are used in the determination of fair values that the Company has classified within Level 3. Consequently, these values and the related gains and losses are based upon both observable and unobservable inputs. The Company’s fixed maturities included in Level 3 are classified as such as they are primarily priced by independent brokers and/or within illiquid markets.

	June 30, 2011
				Quoted Prices
				in Active		Significant			Significant
				Markets for		Observable			Unobservable
				Identical Assets		Inputs			Inputs
	Total			(Level 1)		(Level 2)			(Level 3)
Assets accounted for at fair value on a recurring basis
Fixed maturities, AFS
ABS	$	2,313		$	—	$	1,909		$	404
CDOs		1,877			—		—			1,877
CMBS		4,542			—		4,108			434
Corporate		28,111			—		26,654			1,457
Foreign government/government agencies		1,013			—		974			39
States, municipalities and political subdivisions (“Municipal”)		1,149			—		883			266
RMBS		3,571			—		2,598			973
U.S. Treasuries		2,417			290		2,127			—
Total fixed maturities, AFS		44,993			290		39,253			5,450
Fixed maturities, FVO		1,216			—		674			542
Equity securities, trading		2,227			2,227		—			—
Equity securities, AFS		432			249		115			68
Derivative assets
Credit derivatives		(10	)		—		(13	)		3
Equity derivatives		3			—		—			3
Foreign exchange derivatives		418			—		418			—
Interest rate derivatives		(46	)		—		(32	)		(14	)
Variable annuity hedging derivatives and macro hedge program		391			—		37			354
Total derivative assets [1]		756			—		410			346
Short-term investments		3,597			180		3,417			—
Reinsurance recoverable for U.S. GMWB and Japan GMWB, GMIB, and GMAB		1,668			—		—			1,668
Separate account assets [2]		153,127			116,031		36,028			1,068
Total assets accounted for at fair value on a recurring basis	$	208,016		$	118,977	$	79,897		$	9,142
Liabilities accounted for at fair value on a recurring basis
Other policyholder funds and benefits payable
Guaranteed living benefits	$	(3,783	)	$	—	$	—		$	(3,783	)
Equity linked notes		(10	)		—		—			(10	)
Total other policyholder funds and benefits payable		(3,793	)		—		—			(3,793	)
Derivative liabilities
Credit derivatives		(405	)		—		(46	)		(359	)
Equity derivatives		3			—		—			3
Foreign exchange derivatives		224			—		224			—
Interest rate derivatives		(76	)		—		(35	)		(41	)
Variable annuity hedging derivatives and macro hedge program		487			—		36			451
Total derivative liabilities [3]		233			—		179			54
Other liabilities		(44	)		—		—			(44	)
Consumer notes [4]		(4	)		—		—			(4	)
Total liabilities accounted for at fair value on a recurring basis	$	3,608		$	—	$	179		$	(3,787	)

[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 June 30, 2011, $362 was the amount of cash collateral liability that was netted against the derivative asset value on the Condensed Consolidated Balance Sheet, and is excluded from the table above. For further information on derivative liabilities, see below in this Note 3.
[2]	As of June 30, 2011, excludes approximately $4 billion of investment sales receivable that are not subject to fair value accounting.
[3]	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 3, the derivative asset and liability are referred to as “freestanding derivatives” and are presented on a net basis.
[4]	Represents embedded derivatives associated with non-funding agreement-backed consumer equity linked notes.

	December 31, 2010
				Quoted Prices
				in Active			Significant			Significant
				Markets for			Observable			Unobservable
				Identical Assets			Inputs			Inputs
	Total			(Level 1)			(Level 2)			(Level 3)
Assets accounted for at fair value on a recurring basis
Fixed maturities, AFS
ABS	$	2,068		$	—		$	1,660		$	408
CDOs		1,899			—			30			1,869
CMBS		5,028			—			4,536			492
Corporate		26,915			—			25,429			1,486
Foreign government/government agencies		1,002			—			962			40
Municipal		1,032			—			774			258
RMBS		4,118			—			3,013			1,105
U.S. Treasuries		2,772			248			2,524			—
Total fixed maturities, AFS		44,834			248			38,928			5,658
Fixed maturities, FVO		639			—			128			511
Equity securities, trading		2,279			2,279			—			—
Equity securities, AFS		340			174			119			47
Derivative assets
Credit derivatives		(11	)		—			(19	)		8
Equity derivatives		2			—			—			2
Foreign exchange derivatives		857			—			857			—
Interest rate derivatives		(99	)		—			(63	)		(36	)
Variable annuity hedging derivatives and macro hedge program		704			2			33			669
Total derivative assets [1]		1,453			2			808			643
Short-term investments		3,489			204			3,285			—
Reinsurance recoverable for U.S. GMWB and Japan GMWB, GMIB, and GMAB		2,002			—			—			2,002
Separate account assets [2]		153,713			116,703			35,763			1,247
Total assets accounted for at fair value on a recurring basis	$	208,749		$	119,610		$	79,031		$	10,108
Liabilities accounted for at fair value on a recurring basis
Other policyholder funds and benefits payable
Guaranteed living benefits	$	(4,258	)	$	—		$	—		$	(4,258	)
Equity linked notes		(9	)		—			—			(9	)
Total other policyholder funds and benefits payable		(4,267	)		—			—			(4,267	)
Derivative liabilities
Credit derivatives		(401	)		—			(49	)		(352	)
Equity derivatives		2			—			—			2
Foreign exchange derivatives		(25	)		—			(25	)		—
Interest rate derivatives		(59	)		—			(42	)		(17	)
Variable annuity hedging derivatives and macro hedge program		126			(2	)		(11	)		139
Total derivative liabilities [3]		(357	)		(2	)		(127	)		(228	)
Other liabilities		(37	)		—			—			(37	)
Consumer notes [4]		(5	)		—			—			(5	)
Total liabilities accounted for at fair value on a recurring basis	$	(4,666	)	$	(2	)	$	(127	)	$	(4,537	)

[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, 2010 $962 was the amount of cash collateral liability that was netted against the derivative asset value on the Condensed Consolidated Balance Sheet, and is excluded from the table above. For further information on derivative liabilities, see below in this Note 3.
[2]	As of December 31, 2010, excludes approximately $6 billion of investment sales receivable that are not subject to fair value accounting.
[3]	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.
[4]	Represents embedded derivatives associated with non-funding agreement-backed consumer equity-linked notes.

Determination of Fair Values

The valuation methodologies used to determine the fair values of assets and liabilities under the “exit price” notion reflect market-participant objectives and are based on the application of the fair value hierarchy that prioritizes relevant observable market inputs over unobservable inputs. The Company determines the fair values of certain financial assets and financial liabilities based on quoted market prices, where available and where prices represent a reasonable estimate of fair value. The Company also determines fair value based on future cash flows discounted at the appropriate current market rate. Fair values reflect adjustments for counterparty credit quality, the Company’s default spreads, liquidity, and, where appropriate, risk margins on unobservable parameters. The following is a discussion of the methodologies used to determine fair values for the financial instruments listed in the above tables.

Available-for-Sale Securities, Fixed Maturities, FVO, Equity Securities, Trading, and Short-term Investments

The fair value of AFS securities, fixed maturities, FVO, equity securities, trading, and short-term investments in an active and orderly market (e.g. not distressed or forced liquidation) is determined by management after considering one of three primary sources of information: third-party pricing services, independent broker quotations or pricing matrices. Security pricing is applied using a “waterfall” approach whereby publicly available prices are first sought from third-party pricing services, the remaining unpriced securities are submitted to independent brokers for prices, or lastly, securities are priced using a pricing matrix. Based on the typical trading volumes and the lack of quoted market prices for fixed maturities, third-party pricing services will normally derive the security prices from recent reported trades for identical or similar securities making adjustments through the reporting date based upon available market observable information as outlined above. If there are no recently reported trades, the third-party pricing services and independent brokers may use matrix or model processes to develop a security price where future cash flow expectations are developed based upon collateral performance and discounted at an estimated market rate. Included in the pricing of ABS and RMBS are estimates of the rate of future prepayments of principal over the remaining life of the securities. Such estimates are derived based on the characteristics of the underlying structure and prepayment speeds previously experienced at the interest rate levels projected for the underlying collateral. Actual prepayment experience may vary from these estimates.

Prices from third-party pricing services are often unavailable for securities that are rarely traded or are traded only in privately negotiated transactions. As a result, certain securities are priced via independent broker quotations which utilize inputs that may be difficult to corroborate with observable market based data. Additionally, the majority of these independent broker quotations are non-binding.

A pricing matrix is used to price private placement securities for which the Company is unable to obtain either a price from a third-party pricing service by discounting the expected future cash flows from the security by a developed market discount rate utilizing current credit spreads. Credit spreads are developed each month using market based data for public securities adjusted for credit spread differentials between public and private securities which are obtained from a survey of multiple private placement brokers. The appropriate credit spreads determined through this survey approach are based upon the issuer’s financial strength and term to maturity, utilizing an independent public security index and trade information and adjusting for the non-public nature of the securities.

The Company performs a monthly analysis of the prices and credit spreads received from third parties to ensure that the prices represent a reasonable estimate of the fair value. As a part of this analysis, the Company considers trading volume and other factors to determine whether the decline in market activity is significant when compared to normal activity in an active market, and if so, whether transactions may not be orderly considering the weight of available evidence. If the available evidence indicates that pricing is based upon transactions that are stale or not orderly, the Company places little, if any, weight on the transaction price and will estimate fair value utilizing an internal pricing model. This process involves quantitative and qualitative analysis and is overseen by investment and accounting professionals. Examples of procedures performed include, but are not limited to, initial and on-going review of third-party pricing services’ methodologies, review of pricing statistics and trends, back testing recent trades, and monitoring of trading volumes, new issuance activity and other market activities. In addition, the Company ensures that prices received from independent brokers represent a reasonable estimate of fair value through the use of internal and external cash flow models developed based on spreads, and when available, market indices. As a result of this analysis, if the Company determines that there is a more appropriate fair value based upon the available market data, the price received from the third party is adjusted accordingly. The Company’s internal pricing model utilizes the Company’s best estimate of expected future cash flows discounted at a rate of return that a market participant would require. The significant inputs to the model include, but are not limited to, current market inputs, such as credit loss assumptions, estimated prepayment speeds and market risk premiums.

The Company has analyzed the third-party pricing services’ valuation methodologies and related inputs, and has also evaluated the various types of securities in its investment portfolio to determine an appropriate fair value hierarchy level based upon trading activity and the observability of market inputs. Most prices provided by third-party pricing services are classified into Level 2 because the inputs used in pricing the securities are market observable. Due to a general lack of transparency in the process that brokers use to develop prices, most valuations that are based on brokers’ prices are classified as Level 3. Some valuations may be classified as Level 2 if the price can be corroborated with observable market data.

Derivative Instruments, including embedded derivatives within investments

Derivative instruments are fair valued using pricing valuation models; that utilize independent market data inputs, quoted market prices for exchange-traded derivatives, or independent broker quotations. Excluding embedded and reinsurance related derivatives, as of June 30, 2011 and December 31, 2010, 98% and 97%, respectively, of derivatives, based upon notional values, were priced by valuation models or quoted market prices. The remaining derivatives were priced by broker quotations. The Company performs a monthly analysis on derivative valuations which includes both quantitative and qualitative analysis. Examples of procedures performed include, but are not limited to, review of pricing statistics and trends, back testing recent trades, analyzing the impacts of changes in the market environment, and review of changes in market value for each derivative including those derivatives priced by brokers.

The Company utilizes derivative instruments to manage the risk associated with certain assets and liabilities. However, the derivative instrument may not be classified with the same fair value hierarchy level as the associated assets and liabilities. Therefore the realized and unrealized gains and losses on derivatives reported in Level 3 may not reflect the offsetting impact of the realized and unrealized gains and losses of the associated assets and liabilities.

Valuation Techniques and Inputs for Investments

Generally, the Company determines the estimated fair value of its AFS securities, fixed maturities, FVO, equity securities, trading, and short-term investments using the market approach. The income approach is used for securities priced using a pricing matrix, as well as for derivative instruments. For Level 1 investments, which are comprised of on-the-run U.S. Treasuries, exchange-traded equity securities, short-term investments, and exchange traded futures and option contracts, valuations are based on observable inputs that reflect quoted prices for identical assets in active markets that the Company has the ability to access at the measurement date.

For most of the Company’s debt securities, the following inputs are typically used in the Company’s pricing methods: reported trades, benchmark yields, bids and/or estimated cash flows. For securities except U.S. Treasuries, inputs also include issuer spreads, which may consider credit default swaps. Derivative instruments are valued using mid-market inputs that are predominantly observable in the market.

A description of additional inputs used in the Company’s Level 2 and Level 3 measurements is listed below:

Level 2 The fair values of most of the Company’s Level 2 investments are determined by management after considering prices received from third party pricing services. These investments include most fixed maturities and preferred stocks, including those reported in separate account assets.

• ABS, CDOs, CMBS and RMBS — Primary inputs also include monthly payment information, collateral performance, which varies by vintage year and includes delinquency rates, collateral valuation loss severity rates, collateral refinancing assumptions, credit default swap indices and, for ABS and RMBS, estimated prepayment rates.

• Corporates — Primary inputs also include observations of credit default swap curves related to the issuer.

• Foreign government/government agencies - Primary inputs also include observations of credit default swap curves related to the issuer and political events in emerging markets.

• Municipals — Primary inputs also include Municipal Securities Rulemaking Board reported trades and material event notices, and issuer financial statements.

• Short-term investments — Primary inputs also include material event notices and new issue money market rates.

• Credit derivatives — Significant inputs primarily include the swap yield curve and credit curves.

• Foreign exchange derivatives — Significant inputs primarily include the swap yield curve, currency spot and forward rates, and cross currency basis curves.

• Interest rate derivatives — Significant input is primarily the swap yield curve.

Level 3 Most of the Company’s securities classified as Level 3 are valued based on brokers’ prices. Certain long-dated securities are priced based on third party pricing services, including municipal securities and foreign government/government agencies, as well as bank loans and below investment grade private placement securities. Primary inputs for these long-dated securities are consistent with the typical inputs used in Level 1 and Level 2 measurements noted above, but include benchmark interest rate or credit spread assumptions that are not observable in the marketplace. Also included in Level 3 are certain derivative instruments that either have significant unobservable inputs or are valued based on broker quotations. Significant inputs for these derivative contracts primarily include the typical inputs used in the Level 1 and Level 2 measurements noted above, but also may include the following:

• Credit derivatives- Significant unobservable inputs may include credit correlation and swap yield curve and credit curve extrapolation beyond observable limits.

• Equity derivatives — Significant unobservable inputs may include equity volatility.

• Interest rate contracts — Significant unobservable inputs may include swap yield curve extrapolation beyond observable limits and interest rate volatility.

Product Derivatives

The Company currently offers certain variable annuity products with a guaranteed minimum withdrawal benefit (“GMWB”) rider in the U.S., and formerly offered GMWBs in the U.K. The Company has also assumed, through reinsurance from HLIKK GMIB, GMWB and GMAB. The Company has subsequently ceded certain GMWB rider liabilities and the assumed reinsurance from HLIKK to an affiliated captive reinsurer. The GMWB represents an embedded derivative in the variable annuity contract. When it is determined that (1) the embedded derivative possesses economic characteristics that are not clearly and closely related to the economic characteristics of the host contract, and (2) a separate instrument with the same terms would qualify as a derivative instrument, the embedded derivative is bifurcated from the host for measurement purposes. The embedded derivative, which is reported with the host instrument in the Condensed Consolidated Balance Sheets, is carried at fair value with changes in fair value reported in net realized capital gains and losses. The Company’s GMWB liability is carried at fair value and reported in other policyholder funds.

In valuing the embedded derivative, the Company attributes to the derivative a portion of the fees collected from the contract holder equal to the present value of future GMWB claims (the “Attributed Fees”). All changes in the fair value of the embedded derivative are recorded in net realized capital gains and losses. The excess of fees collected from the contract holder over the Attributed Fees are associated with the host variable annuity contract reported in fee income.

The reinsurance assumed on the HLIKK GMIB, GMWB, and GMAB and ceded to an affiliated captive reinsurer meets the characteristics of a free-standing derivative instrument. As a result, the derivative asset or liability is recorded at fair value with changes in the fair value reported in net realized capital gains and losses.

U.S. GMWB Ceded Reinsurance Derivative

The fair value of the U.S. GMWB reinsurance derivative is calculated as an aggregation of the components described in the Living Benefits Required to be Fair Valued discussion below and is modeled using significant unobservable policyholder behavior inputs, identical to those used in calculating the underlying liability, such as lapses, fund selection, resets and withdrawal utilization and risk margins.

During 2009, the Company entered into a reinsurance arrangement with an affiliated captive reinsurer to transfer a portion of its risk of loss associated with direct US GMWB and assumed HLIKK GMIB, GMWB, and GMAB. In addition, in 2010 the Company entered into reinsurance arrangements with the affiliated captive reinsurer to transfer its risk of loss associated with direct UK GMWB. These arrangements are recognized as a derivative and carried at fair value in reinsurance recoverables. Changes in the fair value of the reinsurance agreements are reported in net realized capital gains and losses. See Note 10 of the Notes to Condensed Consolidated Financial Statements for more information on these transactions.

Separate Account Assets

Separate account assets are primarily invested in mutual funds but also have investments in fixed maturity and equity securities. The separate account investments are valued in the same manner, and using the same pricing sources and inputs, as the fixed maturity, equity security, and short-term investments of the Company.

Living Benefits Required to be Fair Valued (in Other Policyholder Funds and Benefits Payable)

Fair values for GMWB and guaranteed minimum accumulation benefit (“GMAB”) contracts are calculated using the income approach based upon internally developed models because active, observable markets do not exist for those items. The fair value of the Company’s guaranteed benefit liabilities, classified as embedded derivatives, and the related reinsurance and customized freestanding derivatives is calculated as an aggregation of the following components: Best Estimate Claims Costs calculated based on actuarial and capital market assumptions related to projected cash flows over the lives of the contracts; Credit Standing Adjustment; and Margins representing an amount that market participants would require for the risk that the Company’s assumptions about policyholder behavior could differ from actual experience. The resulting aggregation is reconciled or calibrated, if necessary, to market information that is, or may be, available to the Company, but may not be observable by other market participants, including reinsurance discussions and transactions. The Company believes the aggregation of these components, as necessary and as reconciled or calibrated to the market information available to the Company, results in an amount that the Company would be required to transfer or receive, for an asset, to or from market participants in an active liquid market, if one existed, for those market participants to assume the risks associated with the guaranteed minimum benefits and the related reinsurance and customized derivatives. The fair value is likely to materially diverge from the ultimate settlement of the liability as the Company believes settlement will be based on our best estimate assumptions rather than those best estimate assumptions plus risk margins. In the absence of any transfer of the guaranteed benefit liability to a third party, the release of risk margins is likely to be reflected as realized gains in future periods’ net income. Each component described below is unobservable in the marketplace and requires subjectivity by the Company in determining their value.

Best Estimate Claims Costs

The Best Estimate Claims Costs is calculated based on actuarial and capital market assumptions related to projected cash flows, including the present value of benefits and related contract charges, over the lives of the contracts, incorporating expectations concerning policyholder behavior such as lapses, fund selection, resets and withdrawal utilization (for the customized derivatives, policyholder behavior is prescribed in the derivative contract). Because of the dynamic and complex nature of these cash flows, best estimate assumptions and a Monte Carlo stochastic process involving the generation of thousands of scenarios that assume risk neutral returns consistent with swap rates and a blend of observable implied index volatility levels were used. Estimating these cash flows involves numerous estimates and subjective judgments including those regarding expected markets rates of return, market volatility, correlations of market index returns to funds, fund performance, discount rates and various actuarial assumptions for policyholder behavior which emerge over time.

At each valuation date, the Company assumes expected returns based on:

• risk-free rates as represented by the Eurodollar futures, LIBOR deposits and swap rates to derive forward curve rates;

• market implied volatility assumptions for each underlying index based primarily on a blend of observed market “implied volatility” data;

• correlations of historical returns across underlying well known market indices based on actual observed returns over the ten years preceding the valuation date; and

• three years of history for fund regression.

As many guaranteed benefit obligations are relatively new in the marketplace, actual policyholder behavior experience is limited. As a result, estimates of future policyholder behavior are subjective and based on analogous internal and external data. As markets change, mature and evolve and actual policyholder behavior emerges, management continually evaluates the appropriateness of its assumptions for this component of the fair value model.

On a daily basis, the Company updates capital market assumptions used in the GMWB liability model such as interest rates and equity indices. On a weekly basis, the blend of implied equity index volatilities are updated. The Company continually monitors various aspects of policyholder behavior and may modify certain of its assumptions, including living benefit lapses and withdrawal rates, if credible emerging data indicates that changes are warranted. At a minimum, all policyholder behavior assumptions are reviewed and updated, as appropriate, in conjunction with the completion of the Company’s comprehensive study to refine its estimate of future gross profits during the third quarter of each year.

Credit Standing Adjustment

This assumption makes an adjustment that market participants would make, in determining fair value, to reflect the risk that guaranteed benefit obligations or the GMWB reinsurance recoverables will not be fulfilled (“nonperformance risk”). The Company’s estimate of the Credit Standing Adjustment incorporates a blend of observable Company and reinsurer credit default spreads from capital markets, adjusted for market recoverability. For the three and six months ended June 30, 2011, the credit standing adjustment assumption, net of reinsurance and exclusive of the impact of the credit standing adjustment on other market sensitivities, resulted in pre-tax realized gains (losses) of $22 and $122, respectively. For the three and six months ended June 30, 2010, the pre-tax gains (losses) for the credit standing adjustment assumption were $(206) and $(172) respectively.

Margins

The behavior risk margin adds a margin that market participants would require for the risk that the Company’s assumptions about policyholder behavior could differ from actual experience. The behavior risk margin is calculated by taking the difference between adverse policyholder behavior assumptions and best estimate assumptions.

There were no policyholder behavior assumptions updates for the three and six months ended June 30, 2011 and 2010.

In addition to the non-market-based updates described above, the Company recognized non-market-based updates driven by the relative outperformance (underperformance) of the underlying actively managed funds as compared to their respective indices resulting in before-tax realized gains/(losses) of approximately $1 and $5 for the three months ended June 30, 2011 and 2010, respectively, and $8 and $13 for the six months ended June 30, 2011 and 2010, respectively.

Assets and Liabilities Measured at Fair Value on a Recurring Basis Using Significant Unobservable Inputs (Level 3)

The tables below provide a fair value roll forward for the three and six months ending June 30, 2011 and 2010, for the financial instruments classified as Level 3.

For the three months ended June 30, 2011

	Fixed Maturities, AFS
													Foreign								Total Fixed
													govt./govt.								Maturities,
Assets	ABS			CDOs			CMBS			Corporate			agencies			Municipal		RMBS			AFS
Fair value as of March 31, 2011	$	395		$	1,957		$	525		$	1,436		$	44		$	258	$	985		$	5,600
Total realized/unrealized gains (losses)
Included in net income [2]		(1	)		—			18			(4	)		—			—		—			13
Included in OCI [3]		18			7			38			15			—			8		(18	)		68
Purchases		—			—			—			30			—			—		25			55
Settlements		(5	)		(33	)		(20	)		(24	)		(1	)		—		(26	)		(109	)
Sales		(2	)		(54	)		(182	)		(44	)		—			—		—			(282	)
Transfers into Level 3 [4]		19			—			55			65			—			—		7			146
Transfers out of Level 3 [4]		(20	)		—			—			(17	)		(4	)		—		—			(41	)
Fair Value as of June 30, 2011	$	404		$	1,877		$	434		$	1,457		$	39		$	266	$	973		$	5,450
Changes in unrealized gains (losses) included in net income related to financial instruments still held at June 30, 2011 [2]	$	(1	)	$	—		$	18		$	(4	)	$	—		$	—	$	—		$	13

							Derivatives
															Variable Annuity
	Fixed			Equity								Interest			Hedging Derivatives
	Maturities,			securities,			Credit			Equity		Rate			and Macro Hedge			Total
Assets	FVO			AFS			Derivatives			Derivatives		Derivatives			Program			Derivatives [5]
Fair value as of March 31, 2011	$	566		$	48		$	(339	)	$	5	$	(55	)	$	613		$	224
Total realized/unrealized gains (losses)
Included in net income [2]		(23	)		2			(15	)		1		—			42			28
Purchases		—			22			—			—		—			185			185
Settlements		(1	)		—			(2	)		—		—			(35	)		(37	)
Transfers out of Level 3 [4]		—			(4	)		—			—		—			—			—
Fair value as of June 30, 2011	$	542		$	68		$	(356	)	$	6	$	(55	)	$	805		$	400
Changes in unrealized gains (losses) included in net income related to financial instruments still held at June 30, 2011 [2]	$	(23	)	$	—		$	(16	)	$	1	$	—		$	49		$	34

	Reinsurance Recoverable for
	U.S. GMWB and Japan		Separate
Assets	GMWB, GMIB, and GMAB [6]		Accounts
Fair value as of March 31, 2011	$	1,486	$	1,207
Total realized/unrealized gains (losses)
Included in net income [1], [2]		22		5
Included in OCI [3]		49		—
Purchases		—		(94	)
Settlements		111		—
Sales		—		(22	)
Transfers into Level 3 [4]		—		3
Transfers out of Level 3 [4]		—		(31	)
Fair value as of June 30, 2011	$	1,668	$	1,068
Changes in unrealized gains (losses) included in net income related to financial instruments still held at June 30, 2011 [2]	$	22	$	4

	Other Policyholder Funds and Benefits Payable
							Total Other
	Guaranteed						Policyholder Funds
	Living			Equity Linked			and Benefits			Other			Consumer
Liabilities	Benefits [7]			Notes			Payable			Liabilities			Notes
Fair value as of March 31, 2011	$	(3,573	)	$	(10	)	$	(3,583	)	$	(51	)	$	(5	)
Total realized/unrealized gains (losses)
Included in net income [1], [2]		(87	)		—			(87	)		7			1
Included in OCI [3]		(57	)		—			(57	)		—			—
Settlements		(66	)		—			(66	)		—			—
Fair value as of June 30, 2011	$	(3,783	)	$	(10	)	$	(3,793	)	$	(44	)	$	(4	)
Changes in unrealized gains (losses) included in net income related to financial instruments still held at June 30, 2011 [2]	$	(87	)	$	—		$	(87	)	$	7		$	1

For the six months ended June 30, 2011

	Fixed Maturities, AFS
													Foreign								Total Fixed
													govt./govt.								Maturities,
Assets	ABS			CDOs			CMBS			Corporate			agencies			Municipal		RMBS			AFS
Fair value as of January 1, 2011	$	408		$	1,869		$	492		$	1,486		$	40		$	258	$	1,105		$	5,658
Total realized/unrealized gains (losses)
Included in net income [2]		(6	)		(10	)		12			(21	)		—			—		(9	)		(34	)
Included in OCI [3]		35			105			93			15			—			8		18			274
Purchases		—			—			—			42			—			—		25			67
Settlements		(15	)		(63	)		(24	)		(49	)		(1	)		—		(55	)		(207	)
Sales		(2	)		(54	)		(224	)		(106	)		—			—		(16	)		(402	)
Transfers into Level 3 [4]		69			30			85			216			4			—		7			411
Transfers out of Level 3 [4]		(85	)		—			—			(126	)		(4	)		—		(102	)		(317	)
Fair Value as of June 30, 2011	$	404		$	1,877		$	434		$	1,457		$	39		$	266	$	973		$	5,450
Changes in unrealized gains (losses) included in net income related to financial instruments still held at June 30, 2011 [2]	$	(6	)	$	(10	)	$	11		$	(20	)	$	—		$	—	$	(9	)	$	(34	)

							Derivatives
															Variable Annuity
	Fixed			Equity								Interest			Hedging Derivatives
	Maturities,			securities,			Credit			Equity		Rate			and Macro Hedge			Total
Assets	FVO			AFS			Derivatives			Derivatives		Derivatives			Program			Derivatives [5]
Fair value as of January 1, 2011	$	511		$	47		$	(344	)	$	4	$	(53	)	$	808		$	415
Total realized/unrealized gains (losses)
Included in net income [2]		33			(7	)		(7	)		2		(3	)		(160	)		(168	)
Included in OCI [3]		—			2			—			—		—			—			—
Purchases		—			30			—			—		—			208			208
Settlements		(2	)		—			(5	)		—		1			(51	)		(55	)
Transfers out of Level 3 [4]		—			(4	)		—			—		—			—			—
Fair value as of June 30, 2011	$	542		$	68		$	(356	)	$	6	$	(55	)	$	805		$	400
Changes in unrealized gains (losses) included in net income related to financial instruments still held at June 30, 2011 [2]	$	33		$	(7	)	$	(8	)	$	2	$	(1	)	$	(146	)	$	(153	)

	Reinsurance Recoverable for
	U.S. GMWB and Japan			Separate
Assets	GMWB, GMIB, and GMAB [6]			Accounts
Fair value as of January 1, 2011	$	2,002		$	1,247
Total realized/unrealized gains (losses)
Included in net income [1], [2]		(557	)		24
Purchases		—			34
Settlements		223			—
Sales		—			(169	)
Transfers into Level 3 [4]		—			12
Transfers out of Level 3 [4]		—			(80	)
Fair value as of June 30, 2011	$	1,668		$	1,068
Changes in unrealized gains (losses) included in net income related to financial instruments still held at June 30, 2011 [2]	$	(557	)	$	1

	Other Policyholder Funds and Benefits Payable
							Total Other
	Guaranteed						Policyholder Funds
	Living			Equity Linked			and Benefits			Other			Consumer
Liabilities	Benefits [7]			Notes			Payable			Liabilities			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]		609			—			609			(7	)		1
Included in OCI [3]		(2	)		—			(2	)		—			—
Settlements		(132	)		(1	)		(133	)		—			—
Fair value as of June 30, 2011	$	(3,783	)	$	(10	)	$	(3,793	)	$	(44	)	$	(4	)
Changes in unrealized gains (losses) included in net income related to financial instruments still held at June 30, 2011 [2]	$	609		$	—		$	609		$	(7	)	$	1

For the three months ended June 30, 2010

	Fixed Maturities, AFS
													Foreign								Total Fixed
													govt./govt.								Maturities,
Assets	ABS			CDOs			CMBS			Corporate			agencies		Municipal			RMBS			AFS
Fair value as of March 31, 2010	$	446		$	2,007		$	339		$	5,733		$	41	$	264		$	1,027		$	9,857
Total realized/unrealized gains (losses)
Included in net income [2]		(3	)		(20	)		(33	)		6			—		—			(17	)		(67	)
Included in OCI [3]		9			94			159			43			—		16			66			387
Purchases, issuances, and settlements		(2	)		(43	)		(14	)		(17	)		—		(8	)		143			59
Transfers into Level 3 [4]		28			11			99			104			—		—			—			242
Transfers out of Level 3 [4]		(8	)		(17	)		(50	)		(104	)		—		—			—			(179	)
Fair Value as of June 30, 2010	$	470		$	2,032		$	500		$	5,765		$	41	$	272		$	1,219		$	10,299
Changes in unrealized gains (losses) included in net income related to financial instruments still held at June 30, 2010 [2]	$	(4	)	$	(26	)	$	(30	)	$	3		$	—	$	—		$	(15	)	$	(72	)

				Derivatives
													Variable Annuity
	Equity									Interest			Hedging Derivatives
	securities,			Credit			Equity			Rate			and Macro Hedge		Total
Assets	AFS			Derivatives			Derivatives			Derivatives			Program		Derivatives [5]
Fair value as of March 31, 2010	$	37		$	(429	)	$	(1	)	$	(6	)	$	462	$	26
Total realized/unrealized gains (losses)
Included in net income [2]		(2	)		(43	)		1			1			897		856
Included in OCI [3]		4			—			—			—			—		—
Purchases, issuances, and settlements		4			3			—			(44	)		232		191
Fair value as of June 30, 2010	$	43		$	(469	)	$	—		$	(49	)	$	1,591	$	1,073
Changes in unrealized gains (losses) included in net income related to financial instruments still held at June 30, 2010 [2]	$	(4	)	$	(43	)	$	1		$	(20	)	$	917	$	855

	Reinsurance
	Recoverable for U.S.		Separate
Assets	GMWB [6]		Accounts
Fair value as of March 31, 2010	$	780	$	955
Total realized/unrealized gains (losses)
Included in net income [1], [2]		1,468		(2	)
Included in OCI [3]		89		—
Purchases, issuances, and settlements		109		5
Transfers into Level 3 [4]		—		(2	)
Transfers out of Level 3 [4]		—		(19	)
Fair value as of June 30, 2010	$	2,446	$	937
Changes in unrealized gains (losses) included in net income related to financial instruments still held at June 30, 2010 [2]	$	1,468	$	9

	Other Policyholder Funds and Benefits Payable [1]
	Guaranteed						Equity			Total Other
	Living Benefits			Institutional			Linked			Policyholder Funds and			Other			Consumer
Liabilities	[7]			Notes			Notes			Benefits Payable			Liabilities			Notes
Fair value as of March 31, 2010	$	(3,033	)	$	(7	)	$	(9	)	$	(3,049	)	$	(22	)	$	(5	)
Total realized/unrealized gains (losses)
Included in net income [1], [2]		(2,147	)		9			2			(2,136	)		6			1
Included in OCI [3]		(103	)		—			—			(103	)		—			—
Purchases, issuances and settlements		(62	)		—			—			(62	)		—			—
Fair value as of June 30, 2010	$	(5,345	)	$	2		$	(7	)	$	(5,350	)	$	(16	)	$	(4	)
Changes in unrealized gains (losses) included in net income related to financial instruments still held at June 30, 2010 [2]	$	(2,147	)	$	9		$	2		$	(2,136	)	$	—		$	1

For the six months ended June 30, 2010

	Fixed Maturities, AFS
													Foreign									Total Fixed
													govt./govt.									Maturities,
Assets	ABS			CDOs			CMBS			Corporate			agencies			Municipal			RMBS			AFS
Fair value as of January 1, 2010	$	497		$	2,109		$	269		$	5,239		$	80		$	218		$	995		$	9,407
Total realized/unrealized gains (losses)
Included in net income [2]		(3	)		(83	)		(93	)		8			—			—			(29	)		(200	)
Included in OCI [3]		32			286			227			148			—			35			146			874
Purchases, issuances, and settlements		(11	)		(55	)		(19	)		89			(6	)		23			119			140
Transfers into Level 3 [4]		28			27			166			440			—			—			—			661
Transfers out of Level 3 [4]		(73	)		(252	)		(50	)		(159	)		(33	)		(4	)		(12	)		(583	)
Fair Value as of June 30, 2010	$	470		$	2,032		$	500		$	5,765		$	41		$	272		$	1,219		$	10,299
Changes in unrealized gains (losses) included in net income related to financial instruments still held at June 30, 2010 [2]	$	(4	)	$	(88	)	$	(89	)	$	3		$	—		$	—		$	(27	)	$	(205	)

				Derivatives
													Variable Annuity
	Equity									Interest			Hedging Derivatives
	securities,			Credit			Equity			Rate			and Macro Hedge		Total
Assets	AFS			Derivatives			Derivatives			Derivatives			Program		Derivatives [5]
Fair value as of January 1, 2010	$	32		$	(161	)	$	(2	)	$	5		$	526	$	368
Total realized/unrealized gains (losses)
Included in net income [2]		(2	)		(21	)		2			1			680		662
Included in OCI [3]		8			—			—			—			—		—
Purchases, issuances, and settlements		5			3			—			(44	)		385		344
Transfers into Level 3 [4]		—			(290	)		—			—			—		(290	)
Transfers out of Level 3 [4]		—			—			—			(11	)		—		(11	)
Fair value as of June 30, 2010	$	(43	)	$	(469	)	$	—		$	(49	)	$	1,591	$	1,073
Changes in unrealized gains (losses) included in net income related to financial instruments still held at June 30, 2010 [2]	$	(5	)	$	(20	)	$	2		$	(20	)	$	663	$	625

	Reinsurance
	Recoverable for U.S.		Separate
Assets	GMWB [6]		Accounts
Fair value as of January 1, 2010	$	1,108	$	962
Total realized/unrealized gains (losses)
Included in net income [1], [2]		1,028		16
Included in OCI [3]		87		—
Purchases, issuances, and settlements		223		82
Transfers into Level 3 [4]		—		4
Transfers out of Level 3 [4]		—		(127	)
Fair value as of June 30, 2010	$	2,446	$	937
Changes in unrealized gains (losses) included in net income related to financial instruments still held at June 30, 2010 [2]	$	1,028	$	13

	Other Policyholder Funds and Benefits Payable [1]
	Guaranteed						Equity			Total Other
	Living Benefits			Institutional			Linked			Policyholder Funds and			Other			Consumer
Liabilities	[7]			Notes			Notes			Benefits Payable			Liabilities			Notes
Fair value as of January 1, 2010	$	(3,439	)	$	(2	)	$	(10	)	$	(3,451	)	$	—		$	(5	)
Total realized/unrealized gains (losses)
Included in net income [1], [2]		(1,686	)		4			3			(1,679	)		(5	)		1
Included in OCI [3]		(98	)		—			—			(98	)		—			—
Purchases, issuances and settlements		(122	)		—			—			(122	)		—			—
Transfers into Level 3 [4]		—			—			—			—			(11	)		—
Fair value as of June 30, 2010	$	(5,345	)	$	2		$	(7	)	$	(5,350	)	$	(16	)	$	(4	)
Changes in unrealized gains (losses) included in net income related to financial instruments still held at June 30, 2010 [2]	$	(1,686	)	$	4		$	3		$	(1,679	)	$	—		$	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 deferred policy acquisition costs and present value of future profits (“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 Condensed Consolidated Balance Sheet in other investments and other liabilities.
[6]	Includes fair value of reinsurance recoverables of approximately $1.4 billion and $1,896 as of June 30, 2011 and June 30, 2010, respectively, related to a transaction entered into with an affiliated captive reinsurer. See Note 10 of the Notes to Condensed Consolidated Financial Statements.
[7]	Includes both market and non-market impacts in deriving realized and unrealized gains (losses).

Fair Value Option

The Company elected the fair value option for its investments containing an embedded credit derivative which were not bifurcated as a result of adoption of new accounting guidance effective July 1, 2010. The underlying credit risk of these securities is primarily corporate bonds and commercial real estate. The Company elected the fair value option given the complexity of bifurcating the economic components associated with the embedded credit derivative. Additionally, the Company elected the fair value option for purchases of foreign government securities to align with the accounting for yen-based fixed annuity liabilities, which are adjusted for changes in spot rates through realized gains and losses. Similar to other fixed maturities, income earned from these securities is recorded in net investment income. Changes in the fair value of these securities are recorded in net realized capital gains and losses.

The Company previously elected the fair value option for one of its consolidated VIEs in order to apply a consistent accounting model for the VIE’s assets and liabilities. The VIE is an investment vehicle that holds high quality investments, derivative instruments that references third-party corporate credit and issues notes to investors that reflect the credit characteristics of the high quality investments and derivative instruments. The risks and rewards associated with the assets of the VIE inure to the investors. The investors have no recourse against the Company. As a result, there has been no adjustment to the market value of the notes for the Company’s own credit risk.

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 Condensed Consolidated Statements of Operations.

	Three Months Ended						Six Months Ended
	June 30,						June 30,
(Before-tax)	2011			2010			2011			2010
Assets
Fixed maturities, FVO
Corporate	$	2		$	1		$	14		$	2
CRE CDOs		(24	)		(4	)		19			(4	)
Foreign government		17			—			11			—
Other liabilities
Credit-linked notes		7			6			(7	)		(5	)
Total realized capital gains (losses)	$	2		$	3		$	37		$	(7	)

The following table presents the fair value of assets and liabilities accounted for using the fair value option included in the Company’s Condensed Consolidated Balance Sheets.

	June 30, 2011		December 31, 2010
Assets
Fixed maturities, FVO
ABS	$	65	$	64
CRE CDOs		280		260
Corporate		266		251
Foreign government		605		64
Total fixed maturities, FVO	$	1,216	$	639
Other liabilities
Credit-linked notes [1]	$	44	$	37

[1] As of June 30, 2011 and December 31, 2010, the outstanding principal balance of the notes was $243.

Financial Instruments Not Carried at Fair Value

The following table 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 June 30, 2011 and December 31, 2010.

	June 30, 2011				December 31, 2010
	Carrying		Fair		Carrying		Fair
	Amount		Value		Amount		Value
Assets
Mortgage loans	$	3,787	$	3,861	$	3,244	$	3,272
Policy loans		2,135		2,256		2,128		2,164
Liabilities
Other policyholder funds and benefits payable [1]	$	10,533	$	10,836	$	10,824	$	11,050
Consumer notes [2]		363		377		377		392

[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.

The Company has not made any changes in its valuation methodologies for the following assets and liabilities since December 31, 2010.

• Fair values for mortgage loans were estimated using discounted cash flow calculations based on current lending rates for similar type loans. Current lending rates reflect changes in credit spreads and the remaining terms of the loans.

• Fair value for policy loans and consumer notes were estimated using discounted cash flow calculations using current interest rates.

• Other policyholder funds and benefits payable, not carried at fair value, is determined by estimating future cash flows, discounted at the current market rate.