Insurance

12 Months Ended

Dec. 31, 2016

5. Insurance

Insurance Liabilities

Insurance liabilities, including affiliated insurance liabilities on reinsurance assumed and ceded, are comprised of future policy benefits, policyholder account balances and other policy-related balances. Information regarding insurance liabilities by segment, as well as Corporate & Other, was as follows at:



	December 31,
	2016		2015
	(In millions)
Annuities	$	31,516	$	27,370
Life	6,687		7,105
Run-off	25,027		27,463
Corporate & Other	7,425		7,166
Total	$	70,655	$	69,104

See Note 7 for discussion of affiliated reinsurance liabilities included in the table above.

Future policy benefits are measured as follows:



Product Type:		Measurement Assumptions:
Participating life		Aggregate of (i) net level premium reserves for death and endowment policy benefits (calculated based upon the non-forfeiture interest rate of 4%, and mortality rates guaranteed in calculating the cash surrender values described in such contracts); and (ii) the liability for terminal dividends.
Nonparticipating life		Aggregate of the present value of expected future benefit payments and related expenses less the present value of expected future net premiums. Assumptions as to mortality and persistency are based upon the Company’s experience when the basis of the liability is established. Interest rate assumptions for the aggregate future policy benefit liabilities range from 3% to 8%.
Individual and group traditional fixed annuities after annuitization		Present value of expected future payments. Interest rate assumptions used in establishing such liabilities range from 3% to 8%.
Non-medical health insurance		The net level premium method and assumptions as to future morbidity, withdrawals and interest, which provide a margin for adverse deviation. Interest rate assumptions used in establishing such liabilities range from 4% to 7%.
Disabled lives		Present value of benefits method and experience assumptions as to claim terminations, expenses and interest. Interest rate assumptions used in establishing such liabilities range from 3% to 7%.

Participating business represented 4% and 3% of the Company’s life insurance in-force at December 31, 2016 and 2015, respectively. Participating policies represented 45%, 43% and 39% of gross traditional life insurance premiums for the years ended December 31, 2016, 2015 and 2014, respectively.

Policyholder account balances are equal to: (i) policy account values, which consist of an accumulation of gross premium payments; (ii) credited interest, ranging from less than 1% to 8%, less expenses, mortality charges and withdrawals; and (iii) fair value adjustments relating to business combinations.

Guarantees

The Company issues variable annuity products with guaranteed minimum benefits. GMABs, the non-life contingent portion of GMWBs and the portion of certain GMIBs that do not require annuitization are accounted for as embedded derivatives in policyholder account balances and are further discussed in Note 9. Guarantees accounted for as insurance liabilities include:



Guarantee:			Measurement Assumptions:
GMDBs	•	A return of purchase payment upon death even if the account value is reduced to zero.	•	Present value of expected death benefits in excess of the projected account balance recognizing the excess ratably over the accumulation period based on the present value of total expected assessments.
	•	An enhanced death benefit may be available for an additional fee.	•	Assumptions are consistent with those used for amortizing DAC, and are thus subject to the same variability and risk.
			•	Investment performance and volatility assumptions are consistent with the historical experience of the appropriate underlying equity index, such as the S&P 500 Index.
			•	Benefit assumptions are based on the average benefits payable over a range of scenarios.
GMIBs	•	After a specified period of time determined at the time of issuance of the variable annuity contract, a minimum accumulation of purchase payments, even if the account value is reduced to zero, that can be annuitized to receive a monthly income stream that is not less than a specified amount.	•	Present value of expected income benefits in excess of the projected account balance at any future date of annuitization and recognizing the excess ratably over the accumulation period based on present value of total expected assessments.
	•	Certain contracts also provide for a guaranteed lump sum return of purchase premium in lieu of the annuitization benefit.	•	Assumptions are consistent with those used for estimating GMDB liabilities.
			•	Calculation incorporates an assumption for the percentage of the potential annuitizations that may be elected by the contractholder.
GMWBs	•	A return of purchase payment via partial withdrawals, even if the account value is reduced to zero, provided that cumulative withdrawals in a contract year do not exceed a certain limit.	•	Expected value of the life contingent payments and expected assessments using assumptions consistent with those used for estimating the GMDB liabilities.
	•	Certain contracts include guaranteed withdrawals that are life contingent.

Information regarding the liabilities for guarantees (excluding base policy liabilities and embedded derivatives) relating to annuity and universal and variable life contracts was as follows:



	Annuity Contracts						Universal and Variable Life Contracts
	GMDBs			GMIBs			Secondary Guarantees		Total
	(In millions)
Direct
Balance at January 1, 2014	$	404		$	1,155		$	1,784	$	3,343
Incurred guaranteed benefits (1)	231			285			590		1,106
Paid guaranteed benefits	(24		)	—			—		(24		)
Balance at December 31, 2014	611			1,440			2,374		4,425
Incurred guaranteed benefits	248			317			413		978
Paid guaranteed benefits	(36		)	—			—		(36		)
Balance at December 31, 2015	823			1,757			2,787		5,367
Incurred guaranteed benefits	331			300			752		1,383
Paid guaranteed benefits	(58		)	—			—		(58		)
Balance at December 31, 2016	$	1,096		$	2,057		$	3,539	$	6,692
Net Ceded/(Assumed)
Balance at January 1, 2014	$	(205	)	$	(155	)	$	1,312	$	952
Incurred guaranteed benefits (1)	175			98			477		750
Paid guaranteed benefits	1			—			—		1
Balance at December 31, 2014	(29		)	(57		)	1,789		1,703
Incurred guaranteed benefits	19			(9		)	362		372
Paid guaranteed benefits	(33		)	—			—		(33		)
Balance at December 31, 2015	(43		)	(66		)	2,151		2,042
Incurred guaranteed benefits	41			(3		)	594		632
Paid guaranteed benefits	(54		)	(1		)	—		(55		)
Balance at December 31, 2016	$	(56	)	$	(70	)	$	2,745	$	2,619
Net
Balance at January 1, 2014	$	609		$	1,310		$	472	$	2,391
Incurred guaranteed benefits (1)	56			187			113		356
Paid guaranteed benefits	(25		)	—			—		(25		)
Balance at December 31, 2014	640			1,497			585		2,722
Incurred guaranteed benefits	229			326			51		606
Paid guaranteed benefits	(3		)	—			—		(3		)
Balance at December 31, 2015	866			1,823			636		3,325
Incurred guaranteed benefits	290			303			158		751
Paid guaranteed benefits	(4		)	1			—		(3		)
Balance at December 31, 2016	$	1,152		$	2,127		$	794	$	4,073

______________


(1)	See Note 7.

Information regarding the Company’s guarantee exposure was as follows at:



	December 31,
	2016						2015
	In the Event of Death			At Annuitization			In the Event of Death			At Annuitization
	(Dollars in millions)
Annuity Contracts (1), (2)
Variable Annuity Guarantees
Total account value (3)	$	101,827		$	57,370		$	103,830		$	58,615
Separate account value	$	97,237		$	56,048		$	98,897		$	57,284
Net amount at risk	$	6,726	(4)	$	2,906	(5)	$	8,168	(4)	$	2,088	(5)
Average attained age of contractholders	67 years			67 years			66 years			66 years



	December 31,
	2016		2015
	Secondary Guarantees
	(Dollars in millions)
Universal and Variable Life Contracts
Total account value (3)	$	7,176	$	6,919
Net amount at risk (6)	$	90,973	$	90,940
Average attained age of policyholders	60 years		59 years

______________


(1)	The Company’s annuity contracts with guarantees may offer more than one type of guarantee in each contract. Therefore, the amounts listed above may not be mutually exclusive.


(2)	Includes direct business, but excludes offsets from hedging or reinsurance, if any. Therefore, the NARs presented reflect the economic exposures of living and death benefit guarantees associated with variable annuities, but not necessarily their impact on the Company. See Note 7 for a discussion of GMxBs which have been reinsured.


(3)	Includes the contractholder’s investments in the general account and separate account, if applicable.


(4)	Defined as the death benefit less the total account value, as of the balance sheet date. It represents the amount of the claim that the Company would incur if death claims were filed on all contracts on the balance sheet date and includes any additional contractual claims associated with riders purchased to assist with covering income taxes payable upon death.

(5)

Defined as the amount (if any) that would be required to be added to the total account value to purchase a lifetime income stream, based on current annuity rates, equal to the minimum amount provided under the guaranteed benefit. This amount represents the Company’s potential economic exposure to such guarantees in the event all contractholders were to annuitize on the balance sheet date, even though the contracts contain terms that allow annuitization of the guaranteed amount only after the 10th anniversary of the contract, which not all contractholders have achieved.


(6)	Defined as the guarantee amount less the account value, as of the balance sheet date. It represents the amount of the claim that the Company would incur if death claims were filed on all contracts on the balance sheet date.

Account balances of contracts with guarantees were invested in separate account asset classes as follows at:



	December 31,
	2016		2015
	(In millions)
Fund Groupings:
Balanced	$	49,224	$	49,870
Equity	39,749		41,269
Bond	5,726		4,802
Money Market	654		768
Total	$	95,353	$	96,709

Obligations Under Funding Agreements

The Company issues fixed and floating rate funding agreements, which are denominated in either U.S. dollars or foreign currencies, to certain special purpose entities that have issued either debt securities or commercial paper for which payment of interest and principal is secured by such funding agreements. During the years ended December 31, 2016, 2015 and 2014, the Company issued $1.4 billion, $13.0 billion and $12.2 billion, respectively, and repaid $3.4 billion, $14.4 billion and $13.9 billion, respectively, of such funding agreements. As of December 31, 2016 and 2015, liabilities for funding agreements outstanding, which are included in policyholder account balances, were $127 million and $2.2 billion, respectively.

The Company is a member of the Federal Home Loan Bank (“FHLB”) of Pittsburgh and holds common stock in certain regional banks in the FHLB system (“FHLBanks”). Holdings of common stock of FHLBanks, included in equity securities, were as follows as of:



	December 31,
	2016		2015
	(In millions)
FHLB of Pittsburgh	$	44	$	85
FHLB of Boston	$	27	$	36
FHLB of Des Moines	$	4	$	4

The Company has also entered into funding agreements with FHLBanks. The liability for such funding agreements is included in policyholder account balances. Information related to such funding agreements was as follows as of:



	Liability				Collateral
	December 31,
	2016		2015		2016			2015
	(In millions)
FHLB of Pittsburgh (1)	$	500	$	1,570	$	3,765	(2)	$	1,789	(2)
FHLB of Boston (1)	$	50	$	250	$	144	(2)	$	311	(2)
FHLB of Des Moines (1)	$	95	$	95	$	266	(2)	$	147	(2)

______________

(1)

Represents funding agreements issued to the applicable FHLBank in exchange for cash and for which such FHLBank has been granted a lien on certain assets, some of which are in the custody of such FHLBank, including residential mortgage-backed securities (“RMBS”), to collateralize obligations under advances evidenced by funding agreements. The Company is permitted to withdraw any portion of the collateral in the custody of such FHLBank as long as there is no event of default and the remaining qualified collateral is sufficient to satisfy the collateral maintenance level. Upon any event of default by the Company, such FHLBank’s recovery on the collateral is limited to the amount of the Company’s liability to such FHLBank.


(2)	Advances are collateralized by mortgage-backed securities. The amount of collateral presented is at estimated fair value.

Liabilities for Unpaid Claims and Claim Expenses

Information regarding the liabilities for unpaid claims and claim expense was as follows:



	Years Ended December 31,
	2016			2015			2014
	(In millions)
Balance at December 31 of prior period	$	1,693		$	1,483		$	1,325
Less: Reinsurance recoverables	1,545			1,400			1,235
Net balance at December 31 of prior period	148			83			90
Cumulative adjustment (1)	67			—			—
Net balance at January 1,	215			83			90
Incurred related to:
Current year	638			105			3
Prior years (2)	(22		)	—			2
Total incurred	616			105			5
Paid related to:
Current year	(613		)	(30		)	—
Prior years	(60		)	(10		)	(12		)
Total paid	(673		)	(40		)	(12		)
Net balance at December 31,	158			148			83
Add: Reinsurance recoverables	1,808			1,545			1,400
Balance at December 31,	$	1,966		$	1,693		$	1,483

______________


(1)	Reflects the accumulated adjustment, net of reinsurance, upon implementation of the new guidance related to short-duration contracts. Prior periods have not been restated. See Note 1.


(2)	During 2016, 2015 and 2014, claims and claims adjustment expenses associated with prior years changed due to differences between the actual benefits paid and the expected benefits owed during those periods.

Separate Accounts

Separate account assets and liabilities include two categories of account types: pass-through separate accounts totaling $100.6 billion and $101.5 billion at December 31, 2016 and 2015, respectively, for which the policyholder assumes all investment risk, and separate accounts for which the Company contractually guarantees either a minimum return or account value to the policyholder which totaled $33 million and $189 million at December 31, 2016 and 2015, respectively. The latter category consisted of bank owned life insurance contracts. The average interest rate credited on these contracts was 2.63% and 2.56% at December 31, 2016 and 2015, respectively.

For each of the years ended December 31, 2016, 2015 and 2014, there were no investment gains (losses) on transfers of assets from the general account to the separate accounts.