Fair Value Measurements (Tables)

6 Months Ended

Jun. 30, 2014

Fair Value Disclosures [Abstract]

Assets and liabilities measured at fair value

Assets and liabilities measured and carried at fair value in the financial statements are summarized below (in millions):

	Level 1		Level 2		Level 3		Total
June 30, 2014
Assets:
Available for sale (“AFS”) fixed maturities:
U.S. Government and government agencies	$	168	$	166	$	15	$	349
States, municipalities and political subdivisions	—		6,167		61		6,228
Foreign government	—		138		—		138
Residential MBS	—		4,428		256		4,684
Commercial MBS	—		2,555		28		2,583
Asset-backed securities (“ABS”)	—		3,015		204		3,219
Corporate and other	30		11,444		313		11,787
Total AFS fixed maturities	198		27,913		877		28,988
Trading fixed maturities	31		312		—		343
Equity securities	1,185		207		81		1,473
Assets of managed investment entities (“MIE”)	232		2,540		27		2,799
Variable annuity assets (separate accounts) (*)	—		681		—		681
Other investments — derivatives	—		313		—		313
Total assets accounted for at fair value	$	1,646	$	31,966	$	985	$	34,597
Liabilities:
Liabilities of managed investment entities	$	177	$	—	$	2,322	$	2,499
Derivatives in annuity benefits accumulated	—		—		1,026		1,026
Other liabilities — derivatives	—		13		—		13
Total liabilities accounted for at fair value	$	177	$	13	$	3,348	$	3,538
December 31, 2013
Assets:
Available for sale fixed maturities:
U.S. Government and government agencies	$	147	$	152	$	15	$	314
States, municipalities and political subdivisions	—		5,311		61		5,372
Foreign government	—		208		—		208
Residential MBS	—		3,994		316		4,310
Commercial MBS	—		2,696		28		2,724
Asset-backed securities	—		2,418		75		2,493
Corporate and other	28		10,672		335		11,035
Total AFS fixed maturities	175		25,451		830		26,456
Trading fixed maturities	—		305		—		305
Equity securities	1,023		125		31		1,179
Assets of managed investment entities	266		2,592		30		2,888
Variable annuity assets (separate accounts) (*)	—		665		—		665
Other investments — derivatives	—		274		—		274
Total assets accounted for at fair value	$	1,464	$	29,412	$	891	$	31,767
Liabilities:
Liabilities of managed investment entities	$	156	$	—	$	2,411	$	2,567
Derivatives in annuity benefits accumulated	—		—		804		804
Other liabilities — derivatives	—		10		—		10
Total liabilities accounted for at fair value	$	156	$	10	$	3,215	$	3,381

(*)    Variable annuity liabilities equal the fair value of variable annuity assets.

Unobservable inputs used by management in determining fair value of embedded derivatives

The following table presents information about the unobservable inputs used by management in determining fair value of these embedded derivatives. See Note F — “Derivatives.”

Unobservable Input	Range
Adjustment for insurance subsidiary’s credit risk	0.35% – 1.60% over the risk free rate
Risk margin for uncertainty in cash flows	0.3% reduction in the discount rate
Surrenders	4% – 16% of indexed account value
Partial surrenders	2% – 6% of indexed account value
Annuitizations	1% – 2% of indexed account value
Deaths	1.5% – 2.5% of indexed account value
Budgeted option costs	2.5% – 4.0% of indexed account value

Changes in balances of Level 3 financial assets and liabilities

Changes in balances of Level 3 financial assets and liabilities carried at fair value during the second quarter and first six months of 2014 and 2013 are presented below (in millions). The transfers into and out of Level 3 were due to changes in the availability of market observable inputs. All transfers are reflected in the table at fair value as of the end of the reporting period.

				Total realized/unrealized gains (losses) included in
	Balance at March 31, 2014			Net income			Other comprehensive income (loss)		Purchases and issuances			Sales and Settlements			Transfer into Level 3		Transfer out of Level 3			Balance at June 30, 2014
AFS fixed maturities:
U.S. government agency	$	15		$	—		$	—	$	—		$	—		$	—	$	—		$	15
State and municipal	61			—			—		—			—			—		—			61
Residential MBS	272			2			2		—			(7		)	6		(19		)	256
Commercial MBS	28			—			—		—			—			—		—			28
Asset-backed securities	206			3			—		10			(15		)	—		—			204
Corporate and other	322			4			—		20			(30		)	—		(3		)	313
Equity securities	41			—			2		16			—			22		—			81
Assets of MIE	29			(1		)	—		—			(1		)	—		—			27
Liabilities of MIE (*)	(2,322		)	(9		)	—		(155		)	164			—		—			(2,322		)
Embedded derivatives	(904		)	(78		)	—		(56		)	12			—		—			(1,026		)

(*) Total realized/unrealized gains (losses) included in net income includes gains of $1 million related to liabilities outstanding as of June 30, 2014. See Note H — “Managed Investment Entities.”

				Total realized/unrealized gains (losses) included in
	Balance at March 31, 2013			Net income			Other comprehensive income (loss)			Purchases and issuances			Sales and settlements			Transfer into Level 3		Transfer out of Level 3			Balance at June 30, 2013
AFS fixed maturities:
U.S. government agency	$	20		$	—		$	—		$	—		$	—		$	—	$	—		$	20
State and municipal	54			—			(1		)	10			—			—		—			63
Residential MBS	354			2			(7		)	—			(17		)	9		(12		)	329
Commercial MBS	30			(2		)	—			—			—			—		—			28
Asset-backed securities	245			2			(2		)	—			(39		)	—		(26		)	180
Corporate and other	244			—			(10		)	44			(4		)	25		(4		)	295
Equity securities	49			—			(1		)	39			—			—		(9		)	78
Assets of MIE	30			1			—			6			(6		)	—		—			31
Liabilities of MIE (*)	(2,501		)	(14		)	—			(406		)	439			—		—			(2,482		)
Embedded derivatives	(555		)	3			—			(32		)	7			—		—			(577		)

(*) Total realized/unrealized gains (losses) included in net income includes losses of $9 million related to liabilities outstanding as of June 30, 2013. See Note H — “Managed Investment Entities.”

				Total realized/unrealized gains (losses) included in
	Balance at December 31, 2013			Net income			Other comprehensive income (loss)		Purchases and issuances			Sales and settlements			Transfer into Level 3		Transfer out of Level 3			Balance at June 30, 2014
AFS fixed maturities:
U.S. government agency	$	15		$	—		$	—	$	—		$	—		$	—	$	—		$	15
State and municipal	61			—			—		—			—			—		—			61
Residential MBS	316			3			6		—			(15		)	38		(92		)	256
Commercial MBS	28			—			—		—			—			—		—			28
Asset-backed securities	75			3			1		60			(16		)	81		—			204
Corporate and other	335			5			3		21			(46		)	—		(5		)	313
Equity securities	31			1			4		46			(9		)	22		(14		)	81
Assets of MIE	30			(2		)	—		—			(1		)	—		—			27
Liabilities of MIE (*)	(2,411		)	(8		)	—		(200		)	297			—		—			(2,322		)
Embedded derivatives	(804		)	(132		)	—		(111		)	21			—		—			(1,026		)

(*) Total realized/unrealized gains (losses) included in net income includes gains of $5 million related to liabilities outstanding as of June 30, 2014. See Note H — “Managed Investment Entities.”

				Total realized/unrealized gains (losses) included in
	Balance at December 31, 2012			Net income			Other comprehensive income (loss)			Purchases and issuances			Sales and settlements			Transfer into Level 3		Transfer out of Level 3			Balance at June 30, 2013
AFS fixed maturities:
U.S. government agency	$	20		$	—		$	—		$	—		$	—		$	—	$	—		$	20
State and municipal	58			—			(1		)	10			—			—		(4		)	63
Residential MBS	371			4			(1		)	6			(29		)	25		(47		)	329
Commercial MBS	22			(1		)	—			—			—			7		—			28
Asset-backed securities	253			3			(2		)	12			(45		)	—		(41		)	180
Corporate and other	236			—			(10		)	55			(6		)	24		(4		)	295
Equity securities	37			—			2			48			—			—		(9		)	78
Assets of MIE	40			(3		)	—			6			(6		)	—		(6		)	31
Liabilities of MIE (*)	(2,745		)	(39		)	—			(406		)	689			—		19			(2,482		)
Embedded derivatives	(465		)	(77		)	—			(49		)	14			—		—			(577		)

(*) Total realized/unrealized gains (losses) included in net income includes losses of $24 million related to liabilities outstanding as of June 30, 2013. See Note H — “Managed Investment Entities.”

Fair value of financial instruments

The carrying value and fair value of financial instruments that are not carried at fair value in the financial statements are summarized below (in millions):

	Carrying Value		Fair Value		Level 1		Level 2		Level 3
June 30, 2014
Financial assets:
Cash and cash equivalents	$	2,116	$	2,116	$	2,116	$	—	$	—
Mortgage loans	920		917		—		—		917
Policy loans	233		233		—		—		233
Total financial assets not accounted for at fair value	$	3,269	$	3,266	$	2,116	$	—	$	1,150
Financial liabilities:
Annuity benefits accumulated (*)	$	22,314	$	21,888	$	—	$	—	$	21,888
Long-term debt	912		1,036		—		961		75
Total financial liabilities not accounted for at fair value	$	23,226	$	22,924	$	—	$	961	$	21,963
December 31, 2013
Financial assets:
Cash and cash equivalents	$	1,639	$	1,639	$	1,639	$	—	$	—
Mortgage loans	781		779		—		—		779
Policy loans	238		238		—		—		238
Total financial assets not accounted for at fair value	$	2,658	$	2,656	$	1,639	$	—	$	1,017
Financial liabilities:
Annuity benefits accumulated (*)	$	20,741	$	19,959	$	—	$	—	$	19,959
Long-term debt	913		985		—		909		76
Total financial liabilities not accounted for at fair value	$	21,654	$	20,944	$	—	$	909	$	20,035

(*)    Excludes life contingent annuities in the payout phase.