Fair Value Measurements (Tables)

9 Months Ended

Sep. 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
September 30, 2014
Assets:
Available for sale (“AFS”) fixed maturities:
U.S. Government and government agencies	$	168	$	182	$	15	$	365
States, municipalities and political subdivisions	—		6,304		66		6,370
Foreign government	—		204		—		204
Residential MBS	—		4,326		263		4,589
Commercial MBS	—		2,464		27		2,491
Asset-backed securities (“ABS”)	—		3,440		179		3,619
Corporate and other	30		11,855		442		12,327
Total AFS fixed maturities	198		28,775		992		29,965
Trading fixed maturities	30		312		—		342
Equity securities	1,305		88		81		1,474
Assets of managed investment entities (“MIE”)	281		2,636		29		2,946
Variable annuity assets (separate accounts) (*)	—		649		—		649
Other investments — derivatives	—		288		—		288
Total assets accounted for at fair value	$	1,814	$	32,748	$	1,102	$	35,664
Liabilities:
Liabilities of managed investment entities	$	242	$	—	$	2,383	$	2,625
Derivatives in annuity benefits accumulated	—		—		1,085		1,085
Other liabilities — derivatives	—		13		—		13
Total liabilities accounted for at fair value	$	242	$	13	$	3,468	$	3,723
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	0.30% – 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 third quarter and first nine 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 June 30, 2014			Net income			Other comprehensive income (loss)			Purchases and issuances			Sales and Settlements			Transfer into Level 3		Transfer out of Level 3			Balance at September 30, 2014
AFS fixed maturities:
U.S. government agency	$	15		$	—		$	—		$	—		$	—		$	—	$	—		$	15
State and municipal	61			(1		)	(1		)	—			—			7		—			66
Residential MBS	256			—			(1		)	8			(8		)	20		(12		)	263
Commercial MBS	28			(1		)	—			—			—			—		—			27
Asset-backed securities	204			—			(3		)	8			(7		)	—		(23		)	179
Corporate and other	313			(1		)	1			51			(13		)	91		—			442
Equity securities	81			—			(2		)	2			—			—		—			81
Assets of MIE	27			—			—			3			(1		)	—		—			29
Liabilities of MIE (*)	(2,322		)	5			—			(135		)	69			—		—			(2,383		)
Embedded derivatives	(1,026		)	(21		)	—			(51		)	13			—		—			(1,085		)

(*) Total realized/unrealized gains (losses) included in net income includes gains of $6 million related to liabilities outstanding as of September 30, 2014. See Note H — “Managed Investment Entities.”

				Total realized/unrealized gains (losses) included in
	Balance at June 30, 2013			Net income			Other comprehensive income (loss)			Purchases and issuances			Sales and settlements			Transfer into Level 3		Transfer out of Level 3			Balance at September 30, 2013
AFS fixed maturities:
U.S. government agency	$	20		$	—		$	(1	)	$	—		$	—		$	—	$	—		$	19
State and municipal	63			—			(1		)	—			—			—		—			62
Residential MBS	329			1			8			—			(13		)	43		(47		)	321
Commercial MBS	28			1			(1		)	—			—			—		—			28
Asset-backed securities	180			—			—			—			(4		)	11		(1		)	186
Corporate and other	295			—			(4		)	6			(3		)	—		(4		)	290
Equity securities	78			(2		)	—			—			—			—		(19		)	57
Assets of MIE	31			—			—			—			—			—		—			31
Liabilities of MIE (*)	(2,482		)	17			—			(95		)	236			—		—			(2,324		)
Embedded derivatives	(577		)	(33		)	—			(53		)	10			—		—			(653		)

(*) Total realized/unrealized gains (losses) included in net income includes gains of $20 million related to liabilities outstanding as of September 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 September 30, 2014
AFS fixed maturities:
U.S. government agency	$	15		$	—		$	—		$	—		$	—		$	—	$	—		$	15
State and municipal	61			(1		)	(1		)	—			—			7		—			66
Residential MBS	316			3			5			8			(23		)	58		(104		)	263
Commercial MBS	28			(1		)	—			—			—			—		—			27
Asset-backed securities	75			3			(2		)	68			(23		)	81		(23		)	179
Corporate and other	335			4			4			72			(59		)	91		(5		)	442
Equity securities	31			1			2			48			(9		)	22		(14		)	81
Assets of MIE	30			(2		)	—			3			(2		)	—		—			29
Liabilities of MIE (*)	(2,411		)	(3		)	—			(335		)	366			—		—			(2,383		)
Embedded derivatives	(804		)	(153		)	—			(162		)	34			—		—			(1,085		)

(*) Total realized/unrealized gains (losses) included in net income includes gains of $12 million related to liabilities outstanding as of September 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 September 30, 2013
AFS fixed maturities:
U.S. government agency	$	20		$	—		$	(1	)	$	—		$	—		$	—	$	—		$	19
State and municipal	58			—			(2		)	10			—			—		(4		)	62
Residential MBS	371			5			7			6			(42		)	68		(94		)	321
Commercial MBS	22			—			(1		)	—			—			7		—			28
Asset-backed securities	253			3			(2		)	12			(49		)	11		(42		)	186
Corporate and other	236			—			(14		)	61			(9		)	24		(8		)	290
Equity securities	37			(2		)	2			48			—			—		(28		)	57
Assets of MIE	40			(3		)	—			6			(6		)	—		(6		)	31
Liabilities of MIE (*)	(2,745		)	(22		)	—			(501		)	925			—		19			(2,324		)
Embedded derivatives	(465		)	(110		)	—			(102		)	24			—		—			(653		)

(*) Total realized/unrealized gains (losses) included in net income includes gains of $2 million related to liabilities outstanding as of September 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
September 30, 2014
Financial assets:
Cash and cash equivalents	$	1,310	$	1,310	$	1,310	$	—	$	—
Mortgage loans	1,064		1,063		—		—		1,063
Policy loans	230		230		—		—		230
Total financial assets not accounted for at fair value	$	2,604	$	2,603	$	1,310	$	—	$	1,293
Financial liabilities:
Annuity benefits accumulated (*)	$	22,839	$	22,286	$	—	$	—	$	22,286
Long-term debt	1,062		1,164		—		1,089		75
Total financial liabilities not accounted for at fair value	$	23,901	$	23,450	$	—	$	1,089	$	22,361
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.