SEGMENT INFORMATION

Segments

The Company’s principal operations are comprised of four divisions, which together encompass seven segments, and its Corporate and Other operations. The U.S. Retirement Solutions and Investment Management division consists of the Individual Annuities, Retirement and Asset Management segments. The U.S. Individual Life and Group Insurance division consists of the Individual Life and Group Insurance segments. The International Insurance division consists of the International Insurance segment. The Closed Block division consists of the Closed Block segment. The Closed Block division is accounted for as a divested business that is reported separately from the divested businesses that are included in Corporate and Other operations. Our Corporate and Other operations include corporate items and initiatives that are not allocated to business segments and businesses that have been or will be divested.

Adjusted Operating Income

The Company analyzes the operating performance of each segment using “adjusted operating income.” Adjusted operating income does not equate to “Income (loss) from continuing operations before income taxes and equity in earnings of operating joint ventures” or “Net income (loss)” as determined in accordance with U.S. GAAP but is the measure of segment profit or loss used by the Company’s chief operating decision maker to evaluate segment performance and allocate resources, and consistent with authoritative guidance, is the measure of segment performance presented below. Adjusted operating income is calculated by adjusting each segment’s “Income (loss) from continuing operations before income taxes and equity in earnings of operating joint ventures” for the following items, which are described in greater detail below:


•	realized investment gains (losses), net, and related charges and adjustments;


•	net investment gains (losses) on trading account assets supporting insurance liabilities and changes in experience-rated contractholder liabilities due to asset value changes;


•	the contribution to income (loss) of divested businesses that have been or will be sold or exited, including businesses that have been placed in wind down status, but that did not qualify for “discontinued operations” accounting treatment under U.S. GAAP; and


•	equity in earnings of operating joint ventures and earnings attributable to noncontrolling interests.

These items are important to an understanding of overall results of operations. Adjusted operating income is not a substitute for income determined in accordance with U.S. GAAP, and the Company’s definition of adjusted operating income may differ from that used by other companies. However, the Company believes that the presentation of adjusted operating income as measured for management purposes enhances the understanding of results of operations by highlighting the results from ongoing operations and the underlying profitability factors of its businesses.

In addition, as discussed in Note 1, during the second quarter, the Company recorded an out of period adjustment resulting in a decrease of $148 million to “Income (loss) from continuing operations before income taxes and equity in earnings of operating joint ventures,” which was reflected in the three month period ended June 30, 2016 and the nine month period ended September 30, 2016. The adjustment resulted in a decrease in adjusted operating income before income taxes of $148 million for the Individual Life Insurance segment.

Realized investment gains (losses), net, and related charges and adjustments

Realized investment gains (losses), net

Adjusted operating income excludes “Realized investment gains (losses), net,” except for certain items described below. Significant activity excluded from adjusted operating income includes impairments and credit-related gains (losses) from sales of securities, the timing of which depends largely on market credit cycles and can vary considerably across periods, and interest rate-related gains (losses) from sales of securities, which are largely subject to the Company’s discretion and influenced by market opportunities, as well as the Company’s tax and capital profile. Additionally, certain gains (losses) pertaining to derivative contracts that do not qualify for hedge accounting treatment are also excluded from adjusted operating income. Trends in the underlying profitability of the Company’s businesses can be more clearly identified without the fluctuating effects of these transactions.

The following table sets forth the significant components of “Realized investment gains (losses), net” that are included in adjusted operating income and, as a result, are reflected as adjustments to “Realized investment gains (losses), net” for purposes of calculating adjusted operating income:



	Three Months Ended September 30,					Nine Months Ended September 30,
	2016			2015		2016		2015
	(in millions)
Net gains (losses) from(1):
Terminated hedges of foreign currency earnings	$	(10	)	$	74	$	33	$	234
Current period yield adjustments	$	107		$	121	$	347	$	369
Principal source of earnings	$	17		$	48	$	44	$	96

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(1)	In addition to the items in the table above, “Realized investment gains (losses), net, and related charges and adjustments” also includes an adjustment to reflect “Realized investment gains (losses), net” related to divested businesses as results of “Divested businesses,” discussed below.

Terminated Hedges of Foreign Currency Earnings. The amounts shown in the table above primarily reflect the impact of an intercompany arrangement between Corporate and Other operations and the International Insurance segment, pursuant to which the non-U.S. dollar-denominated earnings in all countries for a particular year, including its interim reporting periods, are translated at fixed currency exchange rates. The fixed rates are determined in connection with a currency hedging program designed to mitigate the risk that unfavorable rate changes will reduce the segment’s U.S. dollar equivalent earnings. Pursuant to this program, the Company’s Corporate and Other operations may execute forward currency contracts with third parties to sell the net exposure of projected earnings from the hedged currency in exchange for U.S. dollars at a specified exchange rate. The maturities of these contracts correspond with the future periods in which the identified non-U.S. dollar-denominated earnings are expected to be generated. These contracts do not qualify for hedge accounting under U.S. GAAP, so the resulting profits or losses are recorded in “Realized investment gains (losses), net.” When the contracts are terminated in the same period that the expected earnings emerge, the resulting positive or negative cash flow effect is included in adjusted operating income.

Current Period Yield Adjustments. The Company uses interest rate and currency swaps and other derivatives to manage interest and currency exchange rate exposures arising from mismatches between assets and liabilities, including duration mismatches. For derivative contracts that do not qualify for hedge accounting treatment, the periodic swap settlements, as well as certain other derivative related yield adjustments are recorded in “Realized investment gains (losses), net,” and are included in adjusted operating income to reflect the after-hedge yield of the underlying instruments. In certain instances, when these derivative contracts are terminated or offset before their final maturity, the resulting realized gains or losses are recognized in adjusted operating income over periods that generally approximate the expected terms of the derivatives or underlying instruments in order for adjusted operating income to reflect the after-hedge yield of the underlying instruments. Included in the amounts shown in the table above are gains on certain derivative contracts that were terminated or offset before their final maturity of $12 million and $14 million for the three months ended September 30, 2016 and 2015, respectively, and $36 million and $40 million for the nine months ended September 30, 2016 and 2015, respectively. Additionally, as of September 30, 2016, there was a $169 million deferred net gain related to certain derivative contracts that were terminated or offset before their final maturity, primarily in the International Insurance segment. Also included in the amounts shown in the table above are fees related to synthetic Guaranteed Investment Contracts (“GICs”) of $40 million for both the three months ended September 30, 2016 and 2015, and $118 million and $119 million for the nine months ended September 30, 2016 and 2015, respectively. Synthetic GICs are accounted for as derivatives under U.S. GAAP and, therefore, these fees are recorded in “Realized investment gains (losses), net.” See Note 14 for additional information on synthetic GICs.

Principal Source of Earnings. The Company conducts certain activities for which realized investment gains (losses) are a principal source of earnings for its businesses and therefore included in adjusted operating income, particularly within the Company’s Asset Management segment. For example, Asset Management’s strategic investing business makes investments for sale or syndication to other investors or for placement or co-investment in the Company’s managed funds and structured products. The realized investment gains (losses) associated with the sale of these strategic investments, as well as the majority of derivative results, are a principal activity for this business and included in adjusted operating income. In addition, the realized investment gains (losses) associated with loans originated by the Company’s commercial mortgage operations, as well as related derivative results and retained mortgage servicing rights, are a principal activity for this business and included in adjusted operating income.

Other items reflected as adjustments to Realized investment gains (losses), net

The following table sets forth certain other items excluded from adjusted operating income and reflected as an adjustment to “Realized investment gains (losses), net” for purposes of calculating adjusted operating income:



	Three Months Ended September 30,						Nine Months Ended September 30,
	2016			2015			2016			2015
	(in millions)
Net gains (losses) from:
Other trading account assets	$	16		$	(86	)	$	(40	)	$	(118	)
Foreign currency exchange movements	$	(314	)	$	(127	)	$	(852	)	$	31
Other activities	$	(8	)	$	4		$	(12	)	$	5

Other Trading Account Assets. The Company has certain investments in its general account portfolios that are classified as trading. These trading investments are carried at fair value and included in “Other trading account assets, at fair value” on the Company’s Unaudited Interim Consolidated Statements of Financial Position. Realized and unrealized gains (losses) for these investments are recorded in “Other income.” Consistent with the exclusion of realized investment gains (losses) with respect to other investments managed on a consistent basis, the net gains or losses on these investments are excluded from adjusted operating income.

Foreign Currency Exchange Movements. The Company has certain assets and liabilities for which, under U.S. GAAP, the changes in value, including those associated with changes in foreign currency exchange rates during the period, are recorded in “Other income.” To the extent the foreign currency exposure on these assets and liabilities is economically hedged or considered part of the Company’s capital funding strategies for its international subsidiaries, the change in value included in “Other income” is excluded from adjusted operating income.

Other Activities. The Company excludes certain other items from adjusted operating income that are consistent with similar adjustments described above.

Related charges

Charges that relate to realized investment gains (losses) are also excluded from adjusted operating income, and include the following:


•	The portion of the amortization of DAC, VOBA, unearned revenue reserves and DSI for certain products that is related to net realized investment gains (losses).


•	Policyholder dividends and interest credited to policyholders’ account balances that relate to certain life policies that pass back certain realized investment gains (losses) to the policyholder, and reserves for future policy benefits for certain policies that are affected by net realized investment gains (losses).


•	Market value adjustments paid or received upon a contractholder’s surrender of certain of the Company’s annuity products as these amounts mitigate the net realized investment gains or losses incurred upon the disposition of the underlying invested assets.

Investment gains (losses) on trading account assets supporting insurance liabilities and changes in experience-rated contractholder liabilities due to asset value changes

Certain products included in the Retirement and International Insurance segments are experience-rated in that investment results associated with these products are expected to ultimately accrue to contractholders. The majority of investments supporting these experience-rated products are classified as trading and are carried at fair value, with realized and unrealized gains (losses) reported in “Other income.” To a lesser extent, these experience-rated products are also supported by derivatives and commercial mortgage and other loans. The derivatives are carried at fair value, with realized and unrealized gains (losses) reported in “Realized investment gains (losses), net.” The commercial mortgage and other loans are carried at unpaid principal, net of unamortized discounts and an allowance for losses, with gains (losses) on sales and changes in the valuation allowance for commercial mortgage and other loans reported in “Realized investment gains (losses), net.”

Adjusted operating income excludes net investment gains (losses) on trading account assets supporting insurance liabilities, which is consistent with the exclusion of realized investment gains (losses) with respect to other investments supporting insurance liabilities managed on a consistent basis. In addition, to be consistent with the historical treatment of charges related to realized investment gains (losses) on investments, adjusted operating income also excludes the change in contractholder liabilities due to asset value changes in the pool of investments (including changes in the fair value of commercial mortgage and other loans) supporting these experience-rated contracts, which are reflected in “Interest credited to policyholders’ account balances.” These adjustments are in addition to the exclusion from adjusted operating income of net investment gains (losses) on the related derivatives and commercial mortgage and other loans through “Realized investment gains (losses), net, and related charges and adjustments,” as discussed above. The result of this approach is that adjusted operating income for these products includes net fee revenue and interest spread the Company earns on these experience-rated contracts, and excludes changes in fair value of the pool of investments, both realized and unrealized, that are expected to ultimately accrue to the contractholders.

Divested businesses

The contribution to income (loss) of divested businesses that have been or will be sold or exited, including businesses that have been placed in wind down, but that did not qualify for “discontinued operations” accounting treatment under U.S. GAAP, are excluded from adjusted operating income as the results of divested businesses are not considered relevant to understanding the Company’s ongoing operating results.

Equity in earnings of operating joint ventures and earnings attributable to noncontrolling interests

Equity in earnings of operating joint ventures, on a pre-tax basis, are included in adjusted operating income as these results are a principal source of earnings. These earnings are reflected on a U.S. GAAP basis on an after-tax basis as a separate line on the Company’s Unaudited Interim Consolidated Statements of Operations.

Earnings attributable to noncontrolling interests are excluded from adjusted operating income. Earnings attributable to noncontrolling interests represents the portion of earnings from consolidated entities that relates to the equity interests of minority investors, and are reflected on a U.S. GAAP basis as a separate line on the Company’s Unaudited Interim Consolidated Statements of Operations.

Reconciliation of adjusted operating income and net income (loss)

The table below reconciles adjusted operating income before income taxes to income from continuing operations before income taxes and equity in earnings of operating joint ventures:



	Three Months Ended September 30,						Nine Months Ended September 30,
	2016			2015			2016			2015
	(in millions)
Adjusted Operating Income before income taxes by Segment:
Individual Annuities	$	588		$	310		$	1,343		$	1,387
Retirement	239			242			694			763
Asset Management	191			180			563			581
Total U.S. Retirement Solutions and Investment Management division	1,018			732			2,600			2,731
Individual Life	111			183			(59		)	536
Group Insurance	62			44			177			149
Total U.S. Individual Life and Group Insurance division	173			227			118			685
International Insurance	780			812			2,362			2,488
Total International Insurance division	780			812			2,362			2,488
Corporate and Other operations	(413		)	(308		)	(1,140		)	(855		)
Total Corporate and Other	(413		)	(308		)	(1,140		)	(855		)
Total adjusted operating income before income taxes	1,558			1,463			3,940			5,049
Reconciling items:
Realized investment gains (losses), net, and related adjustments	223			1,117			2,443			2,719
Charges related to realized investment gains (losses), net	426			(679		)	(1,096		)	(944		)
Investment gains (losses) on trading account assets supporting insurance liabilities, net	37			(228		)	361			(365		)
Change in experience-rated contractholder liabilities due to asset value changes	1			258			(262		)	295
Divested businesses:
Closed Block division	31			108			(74		)	138
Other divested businesses	56			8			76			(26		)
Equity in earnings of operating joint ventures and earnings attributable to noncontrolling interests	(17		)	2			0			60
Consolidated income (loss) from continuing operations before income taxes and equity in earnings of operating joint ventures	$	2,315		$	2,049		$	5,388		$	6,926

The Individual Annuities segment results reflect DAC as if the individual annuity business is a stand-alone operation. The elimination of intersegment costs capitalized in accordance with this policy is included in consolidating adjustments within Corporate and Other operations.

Reconciliation of select financial information

The table below presents revenues and total assets for the Company’s reportable segments for the periods or as of the dates indicated:



	Revenues												Total Assets
	Three Months Ended September 30,						Nine Months Ended September 30,						September 30, 2016		December 31, 2015(1)
	2016			2015			2016			2015
	(in millions)
Individual Annuities	$	1,221		$	1,167		$	3,473		$	3,554		$	177,946	$	169,447
Retirement	5,134			1,937			9,268			7,595			177,765		171,183
Asset Management	750			704			2,188			2,213			51,103		54,491
Total U.S. Retirement Solutions and Investment Management division	7,105			3,808			14,929			13,362			406,814		395,121
Individual Life	1,410			1,375			3,931			3,886			79,296		71,856
Group Insurance	1,333			1,294			4,017			3,862			41,906		39,344
Total U.S. Individual Life and Group Insurance division	2,743			2,669			7,948			7,748			121,202		111,200
International Insurance	5,384			4,750			15,771			14,693			215,930		175,153
Total International Insurance division	5,384			4,750			15,771			14,693			215,930		175,153
Corporate and Other operations	(182		)	(149		)	(494		)	(418		)	12,454		13,654
Total Corporate and Other	(182		)	(149		)	(494		)	(418		)	12,454		13,654
Total	15,050			11,078			38,154			35,385			756,400		695,128
Reconciling items:
Realized investment gains (losses), net, and related adjustments	223			1,117			2,443			2,719
Charges related to realized investment gains (losses), net	(19		)	72			57			(7		)
Investment gains (losses) on trading account assets supporting insurance liabilities, net	37			(228		)	361			(365		)
Divested businesses:
Closed Block division	1,481			1,368			4,156			4,612			63,465		62,127
Other divested businesses	209			190			602			523
Equity in earnings of operating joint ventures and earnings attributable to noncontrolling interests	(20		)	2			(44		)	(4		)
Total per Unaudited Interim Consolidated Financial Statements	$	16,961		$	13,599		$	45,729		$	42,863		$	819,865	$	757,255

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(1)	Prior period amounts are presented on a basis consistent with the current period presentation, reflecting the adoption of ASU 2015-03.