7. Goodwill

The Company tests goodwill for impairment during the third quarter of each year at the reporting unit level based upon data at June 30 of that year. A reporting unit is the operating segment or a business one level below the operating segment, if discrete financial information is prepared and regularly reviewed by management at that level. Step 1 of the goodwill impairment process requires a comparison of the fair value of a reporting unit to its carrying value. To determine the fair values for our reporting units, the Company generally applies a market multiple valuation, discounted cash flow valuation, and/or actuarial appraisal approach. The market multiple valuation approach utilizes market multiples of companies with similar businesses and the projected operating earnings of the reporting unit. The discounted cash flow valuation approach requires judgments about revenues, operating earnings projections, capital market assumptions and discount rates.

Since the market multiple and discounted cash flow valuation techniques indicated that the fair value of the Retail Life & Other reporting unit was below its carrying value, an actuarial appraisal, which estimates the net worth of the reporting unit, the value of existing business and the value of new business, was also performed. This appraisal also resulted in a fair value of the Retail Life & Other reporting unit that was less than the carrying value, indicating a potential for goodwill impairment. An increase in required reserves on universal life products with secondary guarantees, together with modifications to financial reinsurance treaty terms, was reflected in the fair value estimate. In addition, decreased future sales assumptions reflected in the valuation were driven by the discontinuance of certain sales of universal life products with secondary guarantees by the Company. Accordingly, the Company performed Step 2 of the goodwill impairment process, which compares the implied fair value of goodwill with the carrying value of that goodwill in the reporting unit to calculate the amount of goodwill impairment. The Company determined that all of the recorded goodwill associated with the Retail Life & Other reporting unit was not recoverable and recorded a non-cash charge of $66 million ($57 million, net of income tax) for the impairment of the entire goodwill balance in the interim condensed consolidated statements of operations and comprehensive income (loss) for both the three months and nine months ended September 30, 2013.

In addition, the Company performed its annual goodwill impairment tests of its other reporting unit during the third quarter of 2013 using a market multiple valuation approach based upon data at June 30, 2013 and concluded that the fair value of such reporting unit was in excess of its carrying values and, therefore, goodwill was not impaired.

Management continues to evaluate current market conditions that may affect the estimated fair value of the remaining reporting unit to assess whether any goodwill impairment exists. Deteriorating or adverse market conditions may have a significant impact on the estimated fair value of this reporting unit and could result in future impairments of goodwill.

The following table presents the changes in the net carrying amount of goodwill in each of the Company’s segments, as well as Corporate & Other, and the balances at:



	Retail			Corporate Benefit Funding		Corporate & Other (1)			Total
	(In millions)
Balance at December 31, 2012
Goodwill	$	241		$	307	$	405		$	953
Accumulated impairment	(218		)	—		(176		)	(394		)
Total goodwill, net	$	23		$	307	$	229		$	559
Impairments	$	(23	)	$	—	$	(43	)	$	(66	)
Balance at September 30, 2013
Goodwill	241			307		405			953
Accumulated impairment	(241		)	—		(219		)	(460		)
Total goodwill, net	$	—		$	307	$	186		$	493

____________

(1)

The $229 million of net goodwill in Corporate & Other at December 31, 2012, relates to goodwill acquired as a part of the 2005 Travelers acquisition. For purposes of goodwill impairment testing, $229 million of Corporate & Other goodwill was allocated to business units of the Retail and Corporate Benefit Funding segments in the amounts of $43 million and $186 million, respectively. As reflected in the table, the $43 million related to the Retail segment was impaired in the third quarter of 2013.