Fair Values of Assets and Liabilities (Tables)

6 Months Ended

Jun. 30, 2014

Schedule of balances of assets and liabilities measured at fair value on a recurring basis

The following tables present the balances of assets and liabilities measured at fair value on a recurring basis:



	June 30, 2014
	Level 1		Level 2		Level 3			Total
	(in millions)
Assets
Available-for-Sale securities: Fixed maturities:
Corporate debt securities	$	—	$	14,320	$	1,376		$	15,696
Residential mortgage backed securities	—		3,750		10			3,760
Commercial mortgage backed securities	—		2,343		15			2,358
State and municipal obligations	—		1,074		—			1,074
Asset backed securities	—		840		149			989
Foreign government bonds and obligations	—		258		—			258
U.S. government and agencies obligations	4		36		—			40
Total Available-for-Sale securities: Fixed maturities	4		22,621		1,550			24,175
Common stocks	3		4		1			8
Cash equivalents	2		28		—			30
Other assets:
Interest rate derivative contracts	—		1,585		—			1,585
Equity derivative contracts	298		1,377		—			1,675
Foreign exchange contracts	—		2		—			2
Other derivative contracts	—		—		1			1
Total other assets	298		2,964		1			3,263
Separate account assets	—		79,914		—			79,914
Total assets at fair value	$	307	$	105,531	$	1,552		$	107,390

Liabilities
Policyholder account balances, future policy benefits and claims:
EIA embedded derivatives	$	—	$	5	$	—		$	5
IUL embedded derivatives	—		—		184			184
GMWB and GMAB embedded derivatives	—		—		(347		)	(347		)	⁽²⁾
Total policyholder account balances, future policy benefits and claims	—		5		(163		)	(158		)	⁽¹⁾
Other liabilities:
Interest rate derivative contracts	—		1,306		—			1,306
Equity derivative contracts	464		2,314		—			2,778
Other derivative contracts	—		13		—			13
Total other liabilities	464		3,633		—			4,097
Total liabilities at fair value	$	464	$	3,638	$	(163	)	$	3,939


(1)	The Company’s adjustment for nonperformance risk resulted in a $162 million cumulative increase to the embedded derivatives.


(2)	The fair value of the GMWB and GMAB embedded derivatives was a net asset at June 30, 2014 and the amount is reported as a contra liability.



	December 31, 2013
	Level 1		Level 2		Level 3			Total
	(in millions)
Assets
Available-for-Sale securities: Fixed maturities:
Corporate debt securities	$	—	$	14,357	$	1,516		$	15,873
Residential mortgage backed securities	—		3,753		58			3,811
Commercial mortgage backed securities	—		2,404		30			2,434
State and municipal obligations	—		998		—			998
Asset backed securities	—		763		218			981
Foreign government bonds and obligations	—		245		—			245
U.S. government and agencies obligations	9		36		—			45
Total Available-for-Sale securities: Fixed maturities	9		22,556		1,822			24,387
Common stocks	3		3		—			6
Cash equivalents	1		320		—			321
Other assets:
Interest rate derivative contracts	—		1,484		—			1,484
Equity derivative contracts	265		1,503		—			1,768
Credit derivative contracts	—		3		—			3
Foreign exchange contracts	—		2		—			2
Other derivative contracts	—		4		—			4
Total other assets	265		2,996		—			3,261
Separate account assets	—		77,616		—			77,616
Total assets at fair value	$	278	$	103,491	$	1,822		$	105,591

Liabilities
Policyholder account balances, future policy benefits and claims:
EIA embedded derivatives	$	—	$	5	$	—		$	5
IUL embedded derivatives	—		—		125			125
GMWB and GMAB embedded derivatives	—		—		(575		)	(575		)	⁽²⁾
Total policyholder account balances, future policy benefits and claims	—		5		(450		)	(445		)	⁽¹⁾
Other liabilities:
Interest rate derivative contracts	—		1,672		—			1,672
Equity derivative contracts	549		2,382		—			2,931
Other derivative contracts	—		29		—			29
Total other liabilities	549		4,083		—			4,632
Total liabilities at fair value	$	549	$	4,088	$	(450	)	$	4,187


(1)	The Company’s adjustment for nonperformance risk resulted in a $150 million cumulative increase to the embedded derivatives.


(2)	The fair value of the GMWB and GMAB embedded derivatives was a net asset at December 31, 2013 and the amount is reported as a contra liability.

Summary of changes in Level 3 assets and liabilities measured at fair value on a recurring basis

The following tables provide a summary of changes in Level 3 assets and liabilities measured at fair value on a recurring basis:




	Available-for-Sale Securities: Fixed Maturities
	Corporate Debt Securities			Residential Mortgage Backed Securities			Commercial Mortgage Backed Securities			Asset Backed Securities			Total			Common Stocks		Other Assets: Other Derivatives Contracts
	(in millions)
Balance, April 1, 2014	$	1,391		$	11		$	55		$	149		$	1,606		$	—	$	—
Total gains (losses) included in:
Other comprehensive income	10			—			—			1			11			—		—
Purchases	33			—			—			—			33			1		1
Settlements	(58		)	(1		)	—			(1		)	(60		)	—		—
Transfers out of Level 3	—			—			(40		)	—			(40		)	—		—
Balance, June 30, 2014	$	1,376		$	10		$	15		$	149		$	1,550		$	1	$	1
Changes in unrealized gains (losses) relating to assets held at June 30, 2014 included in:
Benefits, claims, losses and settlement expenses	$	—		$	—		$	—		$	—		$	—		$	—	$	—




	Policyholder Account Balances, Future Policy Benefits and Claims
	IUL Embedded Derivatives				GMWB and GMAB Embedded Derivatives				Total
	(in millions)
Balance, April 1, 2014	$	154			$	(471	)		$	(317	)
Total losses included in:
Net income	8			⁽¹⁾	68			⁽²⁾	76
Issues	24				60				84
Settlements	(2		)		(4		)		(6		)
Balance, June 30, 2014	$	184			$	(347	)		$	(163	)
Changes in unrealized losses relating to liabilities held at June 30, 2014 included in:
Benefits, claims, losses and settlement expenses	$	—			$	67			$	67
Interest credited to fixed accounts	8				—				8


(1)	Included in interest credited to fixed accounts in the Consolidated Statements of Income.


(2)	Included in benefits, claims, losses and settlement expenses in the Consolidated Statements of Income.



	Available-for-Sale Securities: Fixed Maturities
	Corporate Debt Securities			Residential Mortgage Backed Securities		Commercial Mortgage Backed Securities			Asset Backed Securities			Total
	(in millions)
Balance, April 1, 2013	$	1,653		$	8	$	168		$	160		$	1,989
Total gains (losses) included in:
Net income	(1		)	—		—			—			(1		)	⁽¹⁾
Other comprehensive loss	(35		)	—		(4		)	3			(36		)
Purchases	20			42		—			—			62
Settlements	(79		)	—		—			—			(79		)
Transfers out of Level 3	—			—		—			(9		)	(9		)
Balance, June 30, 2013	$	1,558		$	50	$	164		$	154		$	1,926
Changes in unrealized gains (losses) relating to assets held at June 30, 2013 included in:
Net investment income	$	—		$	—	$	—		$	—		$	—


(1)	Included in net investment income in the Consolidated Statements of Income.



	Policyholder Account Balances, Future Policy Benefits and Claims
	IUL Embedded Derivatives			GMWB and GMAB Embedded Derivatives				Total
	(in millions)
Balance, April 1, 2013	$	61		$	266			$	327
Total (gains) losses included in:
Net income	2		⁽¹⁾	(306		)	⁽²⁾	(304		)
Issues	13			53				66
Settlements	—			(2		)		(2		)
Balance, June 30, 2013	$	76		$	11			$	87
Changes in unrealized (gains) losses relating to liabilities held at June 30, 2013 included in:
Benefits, claims, losses and settlement expenses	$	—		$	(299	)		$	(299	)
Interest credited to fixed accounts	2			—				2


(1)	Included in interest credited to fixed accounts in the Consolidated Statements of Income.


(2)	Included in benefits, claims, losses and settlement expenses in the Consolidated Statements of Income.




	Available-for-Sale Securities: Fixed Maturities
	Corporate Debt Securities			Residential Mortgage Backed Securities			Commercial Mortgage Backed Securities			Asset Backed Securities			Total			Common Stocks		Other Assets: Other Derivatives Contracts
	(in millions)
Balance, January 1, 2014	$	1,516		$	58		$	30		$	218		$	1,822		$	—	$	—
Total gains (losses) included in:
Other comprehensive income	15			—			—			1			16			—		—
Purchases	57			11			39			—			107			1		1
Sales	(11		)	—			—			—			(11		)	—		—
Settlements	(201		)	(1		)	—			(1		)	(203		)	—		—
Transfers out of Level 3	—			(58		)	(54		)	(69		)	(181		)	—		—
Balance, June 30, 2014	$	1,376		$	10		$	15		$	149		$	1,550		$	1	$	1
Changes in unrealized gains (losses) relating to assets held at June 30, 2014 included in:
Benefits, claims, losses and settlement expenses	$	—		$	—		$	—		$	—		$	—		$	—	$	—




	Policyholder Account Balances, Future Policy Benefits and Claims
	IUL Embedded Derivatives				GMWB and GMAB Embedded Derivatives				Total
	(in millions)
Balance, January 1, 2014	$	125			$	(575	)		$	(450	)
Total losses included in:
Net income	14			⁽¹⁾	120			⁽²⁾	134
Issues	48				119				167
Settlements	(3		)		(11		)		(14		)
Balance, June 30, 2014	$	184			$	(347	)		$	(163	)
Changes in unrealized losses relating to liabilities held at June 30, 2014 included in:
Benefits, claims, losses and settlement expenses	$	—			$	119			$	119
Interest credited to fixed accounts	14				—				14


(1)	Included in interest credited to fixed accounts in the Consolidated Statements of Income.


(2)	Included in benefits, claims, losses and settlement expenses in the Consolidated Statements of Income.



	Available-for-Sale Securities: Fixed Maturities
	Corporate Debt Securities			Residential Mortgage Backed Securities			Commercial Mortgage Backed Securities			Asset Backed Securities			Total
	(in millions)
Balance, January 1, 2013	$	1,654		$	23		$	170		$	156		$	2,003
Total gains (losses) included in:
Net income	(1		)	—			—			1			—			⁽¹⁾
Other comprehensive loss	(35		)	—			(6		)	7			(34		)
Purchases	74			42			—			—			116
Settlements	(134		)	—			—			(1		)	(135		)
Transfers out of Level 3	—			(15		)	—			(9		)	(24		)
Balance, June 30, 2013	$	1,558		$	50		$	164		$	154		$	1,926
Changes in unrealized gains (losses) relating to assets held at June 30, 2013 included in:
Net investment income	$	(1	)	$	—		$	—		$	1		$	—


(1)	Included in net investment income in the Consolidated Statements of Income.



	Policyholder Account Balances, Future Policy Benefits and Claims
	IUL Embedded Derivatives			GMWB and GMAB Embedded Derivatives				Total
	(in millions)
Balance, January 1, 2013	$	45		$	833			$	878
Total (gains) losses included in:
Net income	6		⁽¹⁾	(924		)	⁽²⁾	(918		)
Issues	25			103				128
Settlements	—			(1		)		(1		)
Balance, June 30, 2013	$	76		$	11			$	87
Changes in unrealized (gains) losses relating to liabilities held at June 30, 2013 included in:
Benefits, claims, losses and settlement expenses	$	—		$	(908	)		$	(908	)
Interest credited to fixed accounts	6			—				6


(1)	Included in interest credited to fixed accounts in the Consolidated Statements of Income.


(2)	Included in benefits, claims, losses and settlement expenses in the Consolidated Statements of Income.

Significant unobservable inputs used in the fair value measurements

The following tables provide a summary of the significant unobservable inputs used in the fair value measurements developed by the Company or reasonably available to the Company of Level 3 assets and liabilities:



	June 30, 2014
	Fair Value			Valuation Technique	Unobservable Input	Range				Weighted Average
	(in millions)
Corporate debt securities (private placements)	$	1,351		Discounted cash flow	Yield/spread to U.S. Treasuries	0.8	%	-	4.7%	1.3	%
Other derivative contracts	$	1		Option pricing model	Correlation⁽¹⁾	(40.0)%
IUL embedded derivatives	$	184		Discounted cash flow	Nonperformance risk⁽²⁾	56			bps
GMWB and GMAB embedded derivatives	$	(347	)	Discounted cash flow	Utilization of guaranteed withdrawals⁽³⁾	0.0	%	-	51.1%
					Surrender rate	0.1	%	-	57.9%
					Market volatility⁽⁴⁾	4.6	%	-	17.2%
					Nonperformance risk⁽²⁾	56			bps
					Elective contractholder strategy allocations⁽⁵⁾	0.0	%	-	50.0%



	December 31, 2013
	Fair Value			Valuation Technique	Unobservable Input	Range				Weighted Average
	(in millions)
Corporate debt securities (private placements)	$	1,487		Discounted cash flow	Yield/spread to U.S. Treasuries	0.9	%	-	5.3%	1.6%
IUL embedded derivatives	$	125		Discounted cash flow	Nonperformance risk⁽²⁾	74			bps
GMWB and GMAB embedded derivatives	$	(575	)	Discounted cash flow	Utilization of guaranteed withdrawals⁽³⁾	0.0	%	-	51.1%
					Surrender rate	0.1	%	-	57.9%
					Market volatility⁽⁴⁾	4.9	%	-	18.8%
					Nonperformance risk⁽²⁾	74			bps
					Elective contractholder strategy allocations⁽⁵⁾	0.0	%		50.0%


(1)	Represents the correlation between equity returns and interest rates used in the valuation of the derivative contract.


(2)	The nonperformance risk is the spread added to the observable interest rates used in the valuation of the embedded derivatives.


(3)	The utilization of guaranteed withdrawals represents the percentage of contractholders that will begin withdrawing in any given year.


(4)	Market volatility is implied volatility of fund of funds and managed volatility funds.


(5)	The elective allocation represents the percentage of contractholders that are assumed to electively switch their investment allocation to a different allocation model.

Schedule of carrying value and the estimated fair value of financial instruments that are not reported at fair value

The following tables provide the carrying value and the estimated fair value of financial instruments that are not reported at fair value. All other financial instruments that are reported at fair value have been included above in the table with balances of assets and liabilities measured at fair value on a recurring basis.



	June 30, 2014
	Carrying		Fair Value
	Value		Level 1		Level 2		Level 3		Total
	(in millions)
Financial Assets
Mortgage loans, net	$	3,307	$	—	$	—	$	3,399	$	3,399
Policy loans	791		—		—		779		779
Other investments	410		—		386		27		413

Financial Liabilities
Policyholder account balances, future policy benefits and claims	$	13,424	$	—	$	—	$	14,195	$	14,195
Short-term borrowings	200		—		200		—		200
Other liabilities	108		—		—		107		107
Separate account liabilities	397		—		397		—		397



	December 31, 2013
	Carrying		Fair Value
	Value		Level 1		Level 2		Level 3		Total
	(in millions)
Financial Assets
Mortgage loans, net	$	3,326	$	—	$	—	$	3,372	$	3,372
Policy loans	773		—		—		765		765
Other investments	385		—		346		42		388

Financial Liabilities
Policyholder account balances, future policy benefits and claims	$	14,106	$	—	$	—	$	14,724	$	14,724
Short-term borrowings	500		—		500		—		500
Line of credit with Ameriprise Financial	150		—		—		150		150
Other liabilities	137		—		—		134		134
Separate account liabilities	400		—		400		—		400

- Definition

Tabular disclosure of the fair value of financial instruments, including financial assets and financial liabilities, and the measurements of those instruments, assets, and liabilities.

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