Fair Values of Assets and Liabilities (Tables)

6 Months Ended

Jun. 30, 2013

Fair Values of Assets and Liabilities

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

	June 30, 2013
	Level 1		Level 2		Level 3		Total
	(in millions)
Assets
Cash equivalents	$	18	$	1,718	$	—	$	1,736
Available-for-Sale securities:
Corporate debt securities	—		16,065		1,667		17,732
Residential mortgage backed securities	—		5,380		69		5,449
Commercial mortgage backed securities	—		2,748		210		2,958
Asset backed securities	—		1,191		214		1,405
State and municipal obligations	—		2,151		—		2,151
U.S. government and agencies obligations	17		37		—		54
Foreign government bonds and obligations	—		254		—		254
Common stocks	4		6		5		15
Total Available-for-Sale securities	21		27,832		2,165		30,018
Trading securities	3		21		—		24
Separate account assets	—		74,815		—		74,815
Other assets:
Interest rate derivative contracts	—		1,754		—		1,754
Equity derivative contracts	326		1,152		—		1,478
Credit derivative contracts	—		7		—		7
Foreign currency derivative contracts	—		4		—		4
Commodity derivative contracts	—		2		—		2
Total other assets	326		2,919		—		3,245
Total assets at fair value	$	368	$	107,305	$	2,165	$	109,838
Liabilities
Future policy benefits and claims:
EIA embedded derivatives	$	—	$	3	$	—	$	3
IUL embedded derivatives	—		—		76		76
GMWB and GMAB embedded derivatives	—		—		11		11
Total future policy benefits and claims	—		3		87		90		(1)
Customer deposits	—		8		—		8
Other liabilities:
Interest rate derivative contracts	—		1,483		—		1,483
Equity derivative contracts	268		1,878		—		2,146
Foreign currency derivative contracts	1		—		—		1
Other	1		13		—		14
Total other liabilities	270		3,374		—		3,644
Total liabilities at fair value	$	270	$	3,385	$	87	$	3,742

(1) The Company’s adjustment for nonperformance risk resulted in a $263 million cumulative decrease to the embedded derivative liability.

	December 31, 2012
	Level 1		Level 2		Level 3		Total
	(in millions)
Assets
Cash equivalents	$	18	$	1,539	$	—	$	1,557
Available-for-Sale securities:
Corporate debt securities	—		17,051		1,764		18,815
Residential mortgage backed securities	—		5,145		284		5,429
Commercial mortgage backed securities	—		3,213		206		3,419
Asset backed securities	—		1,097		178		1,275
State and municipal obligations	—		2,239		—		2,239
U.S. government and agencies obligations	19		39		—		58
Foreign government bonds and obligations	—		224		—		224
Common stocks	3		4		6		13
Total Available-for-Sale securities	22		29,012		2,438		31,472
Trading securities	1		24		—		25
Separate account assets	—		72,397		—		72,397
Other assets:
Interest rate derivative contracts	—		2,358		—		2,358
Equity derivative contracts	285		973		—		1,258
Foreign currency derivative contracts	—		6		—		6
Commodity derivative contracts	—		1		—		1
Total other assets	285		3,338		—		3,623
Total assets at fair value	$	326	$	106,310	$	2,438	$	109,074
Liabilities
Future policy benefits and claims:
EIA embedded derivatives	$	—	$	2	$	—	$	2
IUL embedded derivatives	—		—		45		45
GMWB and GMAB embedded derivatives	—		—		833		833
Total future policy benefits and claims	—		2		878		880		(1)
Customer deposits	—		8		—		8
Other liabilities:
Interest rate derivative contracts	—		1,486		—		1,486
Equity derivative contracts	258		1,565		—		1,823
Foreign currency derivative contracts	1		—		—		1
Other	1		3		—		4
Total other liabilities	260		3,054		—		3,314
Total liabilities at fair value	$	260	$	3,064	$	878	$	4,202

(1) The Company’s adjustment for nonperformance risk resulted in a $398 million cumulative decrease to the embedded derivative liability.

Schedule of changes in level 3 assets and liabilities measured at fair value on a recurring basis

	Available-for-Sale Securities																	Future Policy Benefits and Claims
				Residential			Commercial														GMWB
	Corporate			Mortgage			Mortgage			Asset								IUL			and GMAB
	Debt			Backed			Backed			Backed			Common					Embedded			Embedded
	Securities			Securities			Securities			Securities			Stocks		Total			Derivatives			Derivatives			Total
	(in millions)
Balance, April 1, 2013	$	1,764		$	8		$	204		$	321		$	5	$	2,302		$	(61	)	$	(266	)	$	(327	)
Total gains (losses) included in:
Net income	(1		)	—			—			—			—		(1		)(1)	(2		)(2)	306		(3)	304
Other comprehensive loss	(37		)	—			(4		)	2			—		(39		)	—			—			—
Purchases	20			62			10			32			—		124			—			—			—
Sales	—			—			—			—			—		—			—			—			—
Issues	—			—			—			—			—		—			(13		)	(53		)	(66		)
Settlements	(79		)	(1		)	—			(1		)	—		(81		)	—			2			2
Transfers into Level 3	—			—			—			8			—		8			—			—			—
Transfers out of Level 3	—			—			—			(148		)	—		(148		)	—			—			—
Balance, June 30, 2013	$	1,667		$	69		$	210		$	214		$	5	$	2,165		$	(76	)	$	(11	)	$	(87	)
Changes in unrealized gains (losses) relating to assets and liabilities held at June 30, 2013 included in:
Net investment income	$	(1	)	$	—		$	—		$	—		$	—	$	(1	)	$	—		$	—		$	—
Interest credited to fixed accounts	—			—			—			—			—		—			(2		)	—			(2		)
Benefits, claims, losses and settlement expenses	—			—			—			—			—		—			—			299			299

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

(2) Included in interest credited to fixed accounts in the Consolidated Statements of Operations.

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

	Available-for-Sale Securities																		Future Policy Benefits and Claims:
				Residential			Commercial												GMWB
	Corporate			Mortgage			Mortgage			Asset									and GMAB
	Debt			Backed			Backed			Backed			Common						Embedded
	Securities			Securities			Securities			Securities			Stocks			Total			Derivatives
	(in millions)
Balance, April 1, 2012	$	1,422		$	241		$	89		$	191		$	6		$	1,949		$	(840	)
Total gains (losses) included in:
Net income	—			(8		)	—			1			—			(7		)(1)	(528		)(2)
Other comprehensive income	1			11			—			—			—			12			—
Purchases	95			22			7			—			—			124			—
Sales	—			—			—			—			—			—			—
Issues	—			—			—			—			—			—			(43		)
Settlements	(43		)	(16		)	—			(7		)	—			(66		)	5
Transfers into Level 3	10			16			—			—			—			26			—
Transfers out of Level 3	—			(28		)	(27		)	—			(1		)	(56		)	—
Balance, June 30, 2012	$	1,485		$	238		$	69		$	185		$	5		$	1,982		$	(1,406	)
Changes in unrealized losses relating to assets and liabilities held at June 30, 2012 included in:
Net investment income	$	—		$	(8	)	$	—		$	—		$	—		$	(8	)	$	—
Benefits, claims, losses and settlement expenses	—			—			—			—			—			—			(535		)

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

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

	Available-for-Sale Securities																		Future Policy Benefits and Claims
				Residential			Commercial															GMWB
	Corporate			Mortgage			Mortgage			Asset									IUL			and GMAB
	Debt			Backed			Backed			Backed			Common						Embedded			Embedded
	Securities			Securities			Securities			Securities			Stocks			Total			Derivatives			Derivatives			Total
	(in millions)
Balance, January 1, 2013	$	1,764		$	284		$	206		$	178		$	6		$	2,438		$	(45	)	$	(833	)	$	(878	)
Total gains (losses) included in:
Net income	(1		)	—			—			1			—			—		(1)	(6		)(2)	924		(3)	918
Other comprehensive loss	(37		)	—			(6		)	7			—			(36		)	—			—			—
Purchases	74			62			10			171			—			317			—			—			—
Sales	—			—			—			—			—			—			—			—			—
Issues	—			—			—			—			—			—			(25		)	(103		)	(128		)
Settlements	(133		)	(1		)	—			(3		)	—			(137		)	—			1			1
Transfers into Level 3	—			—			—			8			—			8			—			—			—
Transfers out of Level 3	—			(276		)	—			(148		)	(1		)	(425		)	—			—			—
Balance, June 30, 2013	$	1,667		$	69		$	210		$	214		$	5		$	2,165		$	(76	)	$	(11	)	$	(87	)
Changes in unrealized gains (losses) relating to assets and liabilities held at June 30, 2013 included in:
Net investment income	$	(1	)	$	—		$	—		$	1		$	—		$	—		$	—		$	—		$	—
Interest credited to fixed accounts	—			—			—			—			—			—			(6		)	—			(6		)
Benefits, claims, losses and settlement expenses	—			—			—			—			—			—			—			908			908

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

(2) Included in interest credited to fixed accounts in the Consolidated Statements of Operations.

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

	Available-for-Sale Securities																		Future Policy Benefits and Claims:
				Residential			Commercial												GMWB
	Corporate			Mortgage			Mortgage			Asset									and GMAB
	Debt			Backed			Backed			Backed			Common						Embedded
	Securities			Securities			Securities			Securities			Stocks			Total			Derivatives
	(in millions)
Balance, January 1, 2012	$	1,355		$	215		$	50		$	189		$	5		$	1,814		$	(1,585	)
Total gains (losses) included in:
Net income	—			(14		)	—			1			—			(13		)(1)	256		(2)
Other comprehensive income	5			28			2			1			—			36			—
Purchases	210			45			9			—			1			265			—
Sales	—			—			—			—			—			—			—
Issues	—			—			—			—			—			—			(82		)
Settlements	(95		)	(30		)	(2		)	(13		)	—			(140		)	5
Transfers into Level 3	10			22			37			7			—			76			—
Transfers out of Level 3	—			(28		)	(27		)	—			(1		)	(56		)	—
Balance, June 30, 2012	$	1,485		$	238		$	69		$	185		$	5		$	1,982		$	(1,406	)
Changes in unrealized gains (losses) relating to assets and liabilities held at June 30, 2012 included in:
Net investment income	$	—		$	(13	)	$	—		$	—		$	—		$	(13	)	$	—
Benefits, claims, losses and settlement expenses	—			—			—			—			—			—			234

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

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

Significant unobservable inputs used in the fair value measurements

	June 30, 2013
	Fair Value		Valuation Technique	Unobservable Input	Range (Weighted Average)
	(in millions)
Corporate debt securities (private placements)	$	1,617	Discounted cash flow	Yield/spread to U.S. Treasuries	0.5% - 5.8% (1.9%)
IUL embedded derivatives	$	76	Discounted cash flow	Nonperformance risk (3)	96 bps
GMWB and GMAB embedded derivatives	$	11	Discounted cash flow	Utilization of guaranteed withdrawals (1)	0% - 56.4%
				Surrender rate	0% - 56.3%
				Market volatility (2)	5.5% - 21.2%
				Nonperformance risk (3)	96 bps

	December 31, 2012
	Fair Value		Valuation Technique	Unobservable Input	Range (Weighted Average)
	(in millions)
Corporate debt securities (private placements)	$	1,712	Discounted cash flow	Yield/spread to U.S. Treasuries	1.1% - 8.5% (2.1%)
IUL embedded derivatives	$	45	Discounted cash flow	Nonperformance risk (3)	97 bps
GMWB and GMAB embedded derivatives	$	833	Discounted cash flow	Utilization of guaranteed withdrawals (1)	0% - 56.4%
				Surrender rate	0% - 56.3%
				Market volatility (2)	5.6% - 21.2%
				Nonperformance risk (3)	97 bps

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

(2) Market volatility is implied volatility of fund of funds.

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

Schedule of carrying value and estimated fair value of financial instruments

	June 30, 2013
	Carrying		Fair Value
	Value		Level 1		Level 2		Level 3		Total
	(in millions)
Financial Assets
Mortgage loans, net	$	3,558	$	—	$	—	$	3,566	$	3,566
Policy and certificate loans	761		—		1		753		754
Receivables	1,198		211		985		7		1,203
Restricted and segregated cash	2,241		2,241		—		—		2,241
Other investments and assets	364		—		300		65		365
Financial Liabilities
Future policy benefits and claims	$	14,389	$	—	$	—	$	14,972	$	14,972
Investment certificate reserves	3,700		—		—		3,392		3,392
Brokerage customer deposits	2,878		2,878		—		—		2,878
Separate account liabilities	3,358		—		3,358		—		3,358
Debt and other liabilities	3,097		240		3,033		112		3,385

	December 31, 2012
	Carrying		Fair Value
	Value		Level 1		Level 2		Level 3		Total
	(in millions)
Financial Assets
Mortgage loans, net	$	3,609	$	—	$	—	$	3,694	$	3,694
Policy and certificate loans	754		—		2		725		727
Receivables	1,067		135		926		12		1,073
Restricted and segregated cash	2,538		2,538		—		—		2,538
Other investments and assets	390		—		333		60		393
Financial Liabilities
Future policy benefits and claims	$	14,701	$	—	$	—	$	15,982	$	15,982
Investment certificate reserves	3,494		—		—		3,494		3,494
Brokerage customer deposits	3,024		3,024		—		—		3,024
Separate account liabilities	3,362		—		3,362		—		3,362
Debt and other liabilities	3,033		145		3,109		142		3,396