Reinsurance

9 Months Ended

Sep. 30, 2016

Reinsurance Disclosures [Abstract]

Reinsurance

Note 6― 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 concentrations of its 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 this business, net of other reinsurance arrangements existing at that time. The Berkshire reinsurance agreement is subject to an overall limit with approximately $3.5 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 for the methods and assumptions used to determine GMDB assets and liabilities.

GMDB

The Company estimates this liability with an internal model based on its 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
	September 30,		December 31,
(In millions)	2016		2015
Balance at January 1	$	1,252	$	1,270
Add: Unpaid claims		18		16
Less: Reinsurance and other amounts recoverable		1,164		1,186
Balance at January 1, net		106		100
Add: Incurred benefits		4		3
Less: Paid benefits		(1)		(3)
Ending balance, net		111		106
Less: Unpaid claims		18		18
Add: Reinsurance and other amounts recoverable		1,132		1,164
Ending balance	$	1,225	$	1,252

Benefits paid and incurred are net of ceded amounts. The ending net retained reserve covers ongoing administrative expenses, as well as the minor claims exposure retained by the Company.

The table below presents the account value, net amount at risk and number of underlying contractholders for guarantees assumed by the Company in the event of contractholder deaths. The net amount at risk is the amount that the Company would have to pay if all contractholders died as of the specified date. Unless the Berkshire limit is exceeded, the Company should be reimbursed in full for these payments.

(Dollars in millions, excludes impact of reinsurance ceded)	September 30, 2016		December 31, 2015
Account value	$	10,752	$	11,355
Net amount at risk	$	2,530	$	2,870
Number of contractholders		292,000		324,000

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				Nine Months Ended
	September 30,				September 30,
(In millions)	2016		2015		2016		2015
Ceded premiums
Individual life insurance and annuity business sold	$	37	$	38	$	118	$	121
Other		94		130		262		323
Total	$	131	$	168	$	380	$	444
Reinsurance recoveries
Individual life insurance and annuity business sold	$	77	$	83	$	211	$	230
Other		8		113		209		313
Total	$	85	$	196	$	420	$	543

Reinsurance Recoverables

Components of the Company's reinsurance recoverablesare presented below:

(In millions)
		September 30,		December 31,		Collateral and Other Terms
Line of Business	Reinsurer(s)	2016		2015		at September 30, 2016
GMDB	Berkshire	$	1,089	$	1,123	100% secured by assets in a trust.
	Other		43		41	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		3,612		3,705	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		944		995	100% secured by assets in a trust.
Supplemental Benefits Business (2012 acquisition)	Great American Life		301		315	100% secured by assets in a trust.
Global Health Care, Global Supplemental Benefits, Group Disability and Life	Various		475		553	Recoverables arising in the ordinary course of business from approximately 80 reinsurers including the U.S. Government. Excluding the recoverable from the U.S. Government of approximately $58 million, current balances range from less than $1 million up to $96 million, with 19% secured by assets in trusts or letters of credit.
Other run-off reinsurance	Various		75		81	99% secured by assets in trusts.
Total reinsurance recoverables		$	6,539	$	6,813

Over 90% of the Company's reinsurance recoverables were from companies that were rated A or higher by Standard & Poor's at September 30, 2016. The Company reviews its reinsurance arrangements and establishes reserves against the recoverablesif recovery is not considered probable. As of September 30, 2016, the Company's recoverables were net of a reserve of approximately $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.