Reinsurance

3 Months Ended

Mar. 31, 2015

Reinsurance Disclosures [Abstract]

Reinsurance

Note 5― Reinsurance

The Company's insurance subsidiaries enter into agreements with other insurance companies to assume and cede reinsurance.  Reinsurance is ceded primarily to limit losses from large exposures and to permit recovery of a portion of direct or assumed losses. Reinsurance is also used in acquisition and disposition transactions when the underwriting company is not being acquired. Reinsurance does not relieve the originating insurer of liability.  The Company regularly evaluates the financial condition of its reinsurers and monitors its concentrations of credit risk.

Effective Exit of GMDB and GMIB Business

In 2013, the Company entered into an agreement with Berkshire Hathaway Life Insurance Company of Nebraska (“Berkshire”) to effectively exit the guaranteed minimum death benefit (“GMDB”) and guaranteed minimum income benefit (“GMIB”) business via a reinsurance transaction. Berkshire reinsured 100% of the Company's future claim payments in these businesses, net of other reinsurance arrangements existing at that time. The Berkshire reinsurance agreement is subject to an overall limit with approximately $3.7 billion remaining.

Because this effective exit was accomplished via a reinsurance contract, the amounts related to the reinsured GMDB and GMIB contractscannot be netted, so the gross assets and liabilities must continue to be measured and reported. The following disclosures provide further context to the methods and assumptions used to determine GMDB assets and liabilities.

GMDB

The Company estimates this liability with an internal model based on the Company's experience and future expectations over an extended period, consistent with the long-term nature of this product. Because the product is premium deficient, the Company records increases to the reserve if it is inadequate based on the model. As a result of the reinsurance transaction, reserve increases have a corresponding increase in the recorded reinsurance recoverable, provided the increased recoverable remains within the overall Berkshire limit (including the GMIB assets).

Activity in the future policy benefit reserve for the GMDB business was as follows:

	For the period ended
	March 31,		December 31,
(In millions)	2015		2014
Balance at January 1	$	1,270	$	1,396
Add: Unpaid claims		16		18
Less: Reinsurance and other amounts recoverable		1,186		1,317
Balance at January 1, net		100		97
Add: Incurred benefits		-		3
Less: Paid benefits		-		-
Ending balance, net		100		100
Less: Unpaid claims		19		16
Add: Reinsurance and other amounts recoverable		1,163		1,186
Ending balance	$	1,244	$	1,270

Benefits paid and incurred are net of ceded amounts. The ending net retained reserve is to cover ongoing administrative expenses, as well as the few claims retained by the Company.

The death benefit coverage in force for GMDB contracts assumed by the Companywas $2.7 billion as of March 31, 2015 and $2.8 billion as of December 31, 2014 assuming no reinsurance.  The death benefit coverage in force is the amount the Company would have to pay if all contractholders (approximately 346,000 as of March 31, 2015 and 354,000 as of December 31, 2014) died as of the specified date. The Company should be reimbursed in full for these payments unless the Berkshire reinsurance limit is exceeded. The aggregate value of the underlying mutual fund investments for these GMDB contracts was $12.9 billion as of March 31, 2015 and $13.1 billion as of December 31, 2014.

Effects of Reinsurance

In the Company's Consolidated Statements of Income, premiums were reported net of amounts ceded to reinsurers and Global Health Care medical costs and other benefit expenses were reported net of reinsurance recoveries in the following amounts:

	Three Months Ended
	March 31,
(In millions)	2015		2014
Ceded premiums
Individual life insurance and annuity business sold	$	41	$	45
Other		89		96
Total	$	130	$	141
Reinsurance recoveries
Individual life insurance and annuity business sold	$	86	$	99
Other		73		82
Total	$	159	$	181

Reinsurance Recoverables

Components of the Company's reinsurance recoverablesare presented below:

(In millions)
	Line of Business	Reinsurer(s)	March 31, 2015		December 31, 2014		Collateral and Other Terms at March 31, 2015
	GMDB	Berkshire	$	1,125	$	1,147	100% secured by assets in a trust.
		Other		38		39	99% secured by assets in a trust or letter of credit.
	Individual Life and Annuity (sold in 1998)	Lincoln National Life and Lincoln Life &Annuity of New York		3,846		3,817	Both companies' ratings are sufficient to avoid triggering a contractual obligation to fully secure the outstanding balance.
	Retirement Benefits Business (sold in 2004)	Prudential Retirement Insurance and Annuity		1,070		1,092	100% secured by assets in a trust.
	Supplemental Benefits business (2012 acquisition)	Great American Life		331		336	99% secured by assets in a trust.
	Global Health Care, Global Supplemental Benefits, Group Disability and Life	Various		600		561	Recoverables from more than 80 reinsurers used in the ordinary course of business. Balances range from less than $1 million up to $191 million, with 9% secured by assets in trusts or letters of credit.
	Other run-off reinsurance	Various		88		88	100% of this balance is secured by assets in a trust.
	Total reinsurance recoverables		$	7,098	$	7,080

Over 90% of the Company's reinsurance recoverables were from companies that are rated A or higher by Standard & Poor's at March 31, 2015. The Company reviews its reinsurance arrangements and establishes reserves against the recoverables if recovery is not considered probable. As of March 31, 2015, the Company's recoverables were net of a reserve of $4 million. The Company bears the risk of loss if its reinsurers and retrocessionaires do not meet or are unable to meet their reinsurance obligations to the Company.