INVESTMENTS

Investment Holdings

The amortized cost for our investments in debt and perpetual securities, the cost for equity securities and the fair values of these investments are shown in the following tables.



	March 31, 2012
(In millions)	Cost or Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Securities available for sale, carried at fair value:
Fixed maturities:
Yen-denominated:
Japan government and agencies	$	10,007	$	604	$	0	$	10,611
Mortgage- and asset-backed securities	846		37		1		882
Public utilities	3,933		65		220		3,778
Sovereign and supranational	1,612		69		19		1,662
Banks/financial institutions	4,163		202		287		4,078
Other corporate	5,998		165		359		5,804
Total yen-denominated	26,559		1,142		886		26,815
Dollar-denominated:
U.S. government and agencies	100		18		0		118
Municipalities	1,061		110		8		1,163
Mortgage- and asset-backed securities	307		75		0		382
Public utilities	3,130		452		25		3,557
Sovereign and supranational	454		93		4		543
Banks/financial institutions	3,410		266		45		3,631
Other corporate	9,116		1,249		52		10,313
Total dollar-denominated	17,578		2,263		134		19,707
Total fixed maturities	44,137		3,405		1,020		46,522
Perpetual securities:
Yen-denominated:
Banks/financial institutions	4,879		110		301		4,688
Other corporate	326		25		0		351
Dollar-denominated:
Banks/financial institutions	317		13		17		313
Total perpetual securities	5,522		148		318		5,352
Equity securities	21		4		0		25
Total securities available for sale	$	49,680	$	3,557	$	1,338	$	51,899



	March 31, 2012
(In millions)	Cost or Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Securities held to maturity, carried at amortized cost:
Fixed maturities:
Yen-denominated:
Japan government and agencies	$	22,783	$	287	$	3	$	23,067
Municipalities	522		31		3		550
Mortgage- and asset-backed securities	117		4		0		121
Public utilities	5,189		175		157		5,207
Sovereign and supranational	3,970		149		166		3,953
Banks/financial institutions	11,559		174		855		10,878
Other corporate	4,694		148		174		4,668
Total yen-denominated	48,834		968		1,358		48,444
Total securities held to maturity	$	48,834	$	968	$	1,358	$	48,444



	December 31, 2011
(In millions)	Cost or Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Securities available for sale, carried at fair value:
Fixed maturities:
Yen-denominated:
Japan government and agencies	$	11,108	$	670	$	0	$	11,778
Mortgage- and asset-backed securities	912		43		1		954
Public utilities	3,850		59		226		3,683
Sovereign and supranational	1,704		87		16		1,775
Banks/financial institutions	4,312		74		359		4,027
Other corporate	6,213		120		459		5,874
Total yen-denominated	28,099		1,053		1,061		28,091
Dollar-denominated:
U.S. government and agencies	31		4		0		35
Municipalities	1,060		107		8		1,159
Mortgage- and asset-backed securities	310		74		0		384
Public utilities	3,052		517		27		3,542
Sovereign and supranational	449		89		5		533
Banks/financial institutions	3,324		223		121		3,426
Other corporate	9,031		1,433		62		10,402
Total dollar-denominated	17,257		2,447		223		19,481
Total fixed maturities	45,356		3,500		1,284		47,572
Perpetual securities:
Yen-denominated:
Banks/financial institutions	6,217		155		604		5,768
Other corporate	344		17		0		361
Dollar-denominated:
Banks/financial institutions	336		3		29		310
Total perpetual securities	6,897		175		633		6,439
Equity securities	22		4		1		25
Total securities available for sale	$	52,275	$	3,679	$	1,918	$	54,036



	December 31, 2011
(In millions)	Cost or Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Securities held to maturity, carried at amortized cost:
Fixed maturities:
Yen-denominated:
Japan government and agencies	$	18,775	$	297	$	1	$	19,071
Municipalities	553		35		4		584
Mortgage- and asset-backed securities	129		5		0		134
Public utilities	5,615		188		166		5,637
Sovereign and supranational	4,200		148		183		4,165
Banks/financial institutions	12,389		170		1,079		11,480
Other corporate	5,348		149		185		5,312
Total yen-denominated	47,009		992		1,618		46,383
Total securities held to maturity	$	47,009	$	992	$	1,618	$	46,383

The methods of determining the fair values of our investments in debt securities, perpetual securities and equity securities are described in Note 5.

During the first three months of 2012, we reclassified one investment from the held-to-maturity portfolio to the available-for-sale portfolio as a result of a significant decline in the issuer's credit worthiness. At the time of transfer, the security had an amortized cost of $122 million and an unrealized loss of $23 million. This investment was issued by Energias de Portugal SA (EDP), an integrated electric utility domiciled in Portugal.

During the first three months of 2011, we reclassified eight investments from the held-to-maturity portfolio to the available-for-sale portfolio as a result of a significant decline in the issuers' credit worthiness. At the time of the transfer, the securities had an aggregate amortized cost of $1.6 billion and an aggregate unrealized loss of $270 million. The securities transferred included our investments in the Republic of Tunisia that had an aggregate amortized cost of $769 million and four securities associated with financial institutions in Portugal and Ireland with an aggregate amortized cost of $631 million. The investments from the financial institutions in Portugal were subsequently sold by the end of the third quarter of 2011.

Contractual and Economic Maturities

The contractual maturities of our investments in fixed maturities at March 31, 2012, were as follows:



	Aflac Japan				Aflac U.S.
(In millions)	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Available for sale:
Due in one year or less	$	2,123	$	2,168	$	13	$	13
Due after one year through five years	2,223		2,330		358		387
Due after five years through 10 years	3,940		4,201		894		1,036
Due after 10 years	25,754		26,463		7,559		8,523
Mortgage- and asset-backed securities	1,108		1,209		45		56
Total fixed maturities available for sale	$	35,148	$	36,371	$	8,869	$	10,015
Held to maturity:
Due in one year or less	$	460	$	463	$	0	$	0
Due after one year through five years	1,085		1,161		0		0
Due after five years through 10 years	3,226		3,544		0		0
Due after 10 years	43,946		43,155		0		0
Mortgage- and asset-backed securities	117		121		0		0
Total fixed maturities held to maturity	$	48,834	$	48,444	$	0	$	0

At March 31, 2012, the Parent Company had a portfolio of investment-grade available-for-sale fixed-maturity securities totaling $120 million at amortized cost and $136 million at fair value, which is not included in the table above.

Expected maturities may differ from contractual maturities because some issuers have the right to call or prepay obligations with or without call or prepayment penalties.

The majority of our perpetual securities are subordinated to other debt obligations of the issuer, but rank higher than the issuer's equity securities. Perpetual securities have characteristics of both debt and equity investments, along with unique features that create economic maturity dates for the securities. Although perpetual securities have no contractual maturity date, they have stated interest coupons that were fixed at their issuance and subsequently change to a floating short-term interest rate of 125 to more than 300 basis points above an appropriate market index, generally by the 25th year after issuance, thereby creating an economic maturity date. The economic maturities of our investments in perpetual securities, which were all reported as available for sale at March 31, 2012, were as follows:



	Aflac Japan				Aflac U.S.
(In millions)	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in one year or less	$	304	$	308	$	0	$	0
Due after one year through five years	1,167		1,223		5		5
Due after five years through 10 years	521		551		0		0
Due after 10 years	3,353		3,089		172		176
Total perpetual securities available for sale	$	5,345	$	5,171	$	177	$	181

Investment Concentrations

Our investment discipline begins with a top-down approach for each investment opportunity we consider. Consistent with that approach, we first approve each country in which we invest. In our approach to sovereign analysis, we consider the political, legal and financial context of the sovereign entity in which an issuer is domiciled and operates. Next we approve the issuer's industry sector, considering such factors as the stability of results and the importance of the sector to the overall economy. Specific credit names within approved countries and industry sectors are evaluated for their market position and specific strengths and potential weaknesses. Structures in which we invest are chosen for specific portfolio management purposes, including asset/liability management, portfolio diversification and net investment income.

Banks and Financial Institutions

After Japan government bonds (JGBs), our second largest investment concentration as of March 31, 2012, was banks and financial institutions. Within the countries we approve for investment opportunities, we primarily invest in financial institutions that are strategically crucial to each approved country's economy. The bank and financial institution sector is a highly regulated industry and plays a strategic role in the global economy. We achieve some degree of diversification in the bank and financial institution sector through a geographically diverse universe of credit exposures. Within this sector, the more significant concentration of our credit risk by geographic region or country of issuer at March 31, 2012, based on amortized cost, was: Europe, excluding the United Kingdom (35%); United States (23%); United Kingdom (9%); Japan (8%); and other (25%).

Our total investments in the bank and financial institution sector, including those classified as perpetual securities, were as follows:



	March 31, 2012						December 31, 2011
	Total Investments in Banks and Financial Institutions Sector (in millions)			Percentage of Total Investment Portfolio			Total Investments in Banks and Financial Institutions Sector (in millions)			Percentage of Total Investment Portfolio
Fixed maturities:
Amortized cost		$	19,132		19	%		$	20,025		20	%
Fair value		18,587			19			18,933			19
Perpetual securities:
Upper Tier II:
Amortized cost		$	3,251		3	%		$	4,285		5	%
Fair value		3,193			3			4,244			4
Tier I:
Amortized cost		1,945			2			2,268			2
Fair value		1,808			2			1,834			2
Total:
Amortized cost		$	24,328		24	%		$	26,578		27	%
Fair value		23,588			24			25,011			25

Derisking

During the three-month period ended March 31, 2012, we continued our efforts which began in the first quarter of 2011 of pursuing strategic investment activities to lower the risk profile of our investment portfolio. Our primary focus during the first quarter of 2012 was on reducing our exposure to perpetual and other subordinated securities of European issuers, particularly in the financial sector. See further details in the Realized Investment Gains and Losses section below.

Realized Investment Gains and Losses

Information regarding pretax realized gains and losses from investments is as follows:



	Three Months Ended March 31,
(In millions)	2012			2011
Realized investment gains (losses) on securities:
Fixed maturities:
Available for sale:
Gross gains from sales	$	14		$	26
Gross losses from sales	(1		)	(187		)
Net gains (losses) from redemptions	0			7
Other-than-temporary impairment losses	(63		)	(404		)
Total fixed maturities	(50		)	(558		)
Perpetual securities:
Available for sale:
Gross gains from sales	70			6
Gross losses from sales	(65		)	(2		)
Net gains (losses) from redemptions	60			0
Other-than-temporary impairment losses	(140		)	0
Total perpetual securities	(75		)	4
Equity securities:
Other-than-temporary impairment losses	0			(1		)
Total equity securities	0			(1		)
Derivatives and other:
Derivative gains (losses)	80			(30		)
Other	0			6
Total derivatives and other	80			(24		)
Total realized investment gains (losses)	$	(45	)	$	(579	)

During the three-month period ended March 31, 2012, sales and redemptions of securities generated a net realized investment gain. This net gain primarily resulted from both the redemption of a previously impaired perpetual security and sales related to our implemented plan to reduce the risk exposure in our investment portfolio (see the Investment Concentrations section above for more information). The other-than-temporary losses that we recognized were largely composed of impairments for two Tier I securities that were sold subsequent to the end of the quarter.

During the three-month period ended March 31, 2011, we recognized other-than-temporary impairment losses and realized investment losses from the sale of securities, primarily a result of an implemented plan to reduce the risk exposure in our investment portfolio coupled with the continued decline in the credit worthiness of certain issuers.

Other-than-temporary Impairment

The fair value of our debt and perpetual security investments fluctuates based on changes in credit spreads in the global financial markets. Credit spreads are most impacted by market rates of interest, the general and specific credit environment and global market liquidity. We believe that fluctuations in the fair value of our investment securities related to changes in credit spreads have little bearing on whether our investment is ultimately recoverable. Generally, we consider such declines in fair value to be temporary even in situations where an investment remains in an unrealized loss position for a year or more.

However, in the course of our credit review process, we may determine that it is unlikely that we will recover our investment in an issuer due to factors specific to an individual issuer, as opposed to general changes in global credit spreads. In this event, we consider such a decline in the investment's fair value, to the extent below the investment's cost or amortized cost, to be an other-than-temporary impairment of the investment and write the investment down to its fair value.

In addition to the usual investment risk associated with a debt instrument, our perpetual security holdings may be subject to the risk of nationalization of their issuers in connection with capital injections from an issuer's sovereign government. We cannot be assured that such capital support will extend to all levels of an issuer's capital structure. In addition, certain governments or regulators may consider imposing interest and principal payment restrictions on issuers of hybrid securities to preserve cash and build capital. In addition to the cash flow impact that additional deferrals would have on our portfolio, such deferrals could result in ratings downgrades of the affected securities, which in turn could impair the fair value of the securities and increase our regulatory capital requirements. We take factors such as these into account in our credit review process.

When determining our intention to sell a security prior to recovery of its fair value to amortized cost, we evaluate facts and circumstances such as, but not limited to, decisions to reposition our security portfolio and sales of securities to meet cash flow needs. We perform ongoing analyses of our liquidity needs, which includes cash flow testing of our policy liabilities, debt maturities, projected dividend payments and other cash flow and liquidity needs. Our cash flow testing includes extensive duration matching of our investment portfolio and policy liabilities. Based on our analyses, we have concluded that we have sufficient excess cash flows to meet our liquidity needs without liquidating any of our investments prior to their maturity. In years prior to 2011, provided that our credit review process resulted in a conclusion that we would collect all of our cash flows and recover our investment in an issuer and the investment was within our investment risk exposure guidelines, we generally did not sell investments prior to their maturity. However, starting in the fourth quarter of 2011, we determined that certain securities were no longer within our investment risk exposure guidelines and have started to reposition our security portfolio in an effort to enhance diversification and our credit profile by reducing our risk exposure through opportunistic investment transactions.

The following table details our pretax other-than-temporary impairment losses by investment category that resulted from our impairment evaluation process.



	Three Months Ended March 31,
(In millions)	2012			2011
Perpetual securities	$	140		$	0
Corporate bonds	63			397
Mortgage- and asset-backed securities	0			6
Municipalities	0			1
Equity securities	0			1
Total other-than-temporary impairment losses realized	$	203	⁽¹⁾	$	405	⁽²⁾

⁽¹⁾Includes $28 for credit-related impairments and $175 from change in intent to sell securities

⁽²⁾Consisted completely of credit-related impairments

Unrealized Investment Gains and Losses

Effect on Shareholders’ Equity

The net effect on shareholders’ equity of unrealized gains and losses from investment securities was as follows:



(In millions)	March 31, 2012			December 31, 2011
Unrealized gains (losses) on securities available for sale	$	2,219		$	1,761
Unamortized unrealized gains on securities transferred to held to maturity	29			34
Deferred income taxes	(800		)	(652		)
Shareholders’ equity, unrealized gains (losses) on investment securities	$	1,448		$	1,143

Gross Unrealized Loss Aging

The following tables show the fair value and gross unrealized losses of our available-for-sale and held-to-maturity investments, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position.



	March 31, 2012
	Total				Less than 12 months				12 months or longer
(In millions)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Fixed maturities:
Japan government and agencies:
Yen-denominated	$	3,674	$	3	$	3,597	$	2	$	77	$	1
Municipalities:
Dollar-denominated	60		8		29		1		31		7
Yen-denominated	58		3		0		0		58		3
Mortgage- and asset- backed securities:
Yen-denominated	143		1		0		0		143		1
Public utilities:
Dollar-denominated	439		25		284		11		155		14
Yen-denominated	4,779		377		2,094		131		2,685		246
Sovereign and supranational:
Dollar-denominated	68		4		17		0		51		4
Yen-denominated	2,589		185		592		17		1,997		168
Banks/financial institutions:
Dollar-denominated	593		45		219		9		374		36
Yen-denominated	9,247		1,142		926		11		8,321		1,131
Other corporate:
Dollar-denominated	1,286		52		1,112		28		174		24
Yen-denominated	5,523		533		1,606		69		3,917		464
Total fixed maturities	28,459		2,378		10,476		279		17,983		2,099
Perpetual securities:
Dollar-denominated	116		17		60		0		56		17
Yen-denominated	2,036		301		619		42		1,417		259
Total perpetual securities	2,152		318		679		42		1,473		276
Equity securities	4		0		2		0		2		0
Total	$	30,615	$	2,696	$	11,157	$	321	$	19,458	$	2,375



	December 31, 2011
	Total				Less than 12 months				12 months or longer
(In millions)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Fixed maturities:
Japan government and agencies:
Yen-denominated	$	940	$	1	$	859	$	1	$	81	$	0
Municipalities:
Dollar-denominated	54		8		22		1		32		7
Yen-denominated	60		4		0		0		60		4
Mortgage- and asset- backed securities:
Yen-denominated	151		1		0		0		151		1
Public utilities:
Dollar-denominated	295		27		110		3		185		24
Yen-denominated	4,995		392		2,404		141		2,591		251
Sovereign and supranational:
Dollar-denominated	66		5		34		2		32		3
Yen-denominated	2,349		199		749		62		1,600		137
Banks/financial institutions:
Dollar-denominated	770		121		391		56		379		65
Yen-denominated	10,175		1,438		1,639		46		8,536		1,392
Other corporate:
Dollar-denominated	834		62		639		27		195		35
Yen-denominated	6,106		644		2,523		110		3,583		534
Total fixed maturities	26,795		2,902		9,370		449		17,425		2,453
Perpetual securities:
Dollar-denominated	217		29		109		4		108		25
Yen-denominated	2,290		604		630		69		1,660		535
Total perpetual securities	2,507		633		739		73		1,768		560
Equity securities	8		1		6		1		2		0
Total	$	29,310	$	3,536	$	10,115	$	523	$	19,195	$	3,013

Analysis of Securities in Unrealized Loss Positions

The unrealized losses on our investments have been primarily related to changes in risk-free interest rates, foreign exchange rates or the general widening of credit spreads rather than specific issuer credit-related events. In addition, because we do not intend to sell and do not believe it is likely that we will be required to sell these investments before a recovery of fair value to amortized cost, we do not consider any of these investments to be other-than-temporarily impaired as of and for the three-month period ended March 31, 2012. The following summarizes our evaluation of investment categories with significant unrealized losses and securities that were rated below investment grade as of March 31, 2012.

Public Utilities

As of March 31, 2012, 69% of the unrealized losses on investments in the public utilities sector was related to investments that were investment grade, compared with 77% at December 31, 2011. For any credit-related declines in fair value, we perform a more focused review of the related issuer's credit ratings, financial statements and other available financial data, timeliness of payment, competitive environment and any other significant data related to the issuer. From those reviews, we evaluate the issuer's continued ability to service our investment. We have determined that the majority of the unrealized losses on the investments in the public utilities sector was caused by a decline in creditworthiness of a couple issuers in this sector. Also impacting the unrealized losses in the public utilities sector was widening credit spreads. Based on our credit analysis, we believe that the issuers of our investments in this sector have the ability to service their obligations to us.

Sovereign and Supranational

As of March 31, 2012, 94% of the unrealized losses on investment securities in the sovereign and supranational sector were related to investments that were investment grade, compared with 100% at December 31, 2011. For any credit-related declines in fair value, we perform a more focused review of the related issuers' credit ratings, financial statements and other available financial data, timeliness of payment, gross domestic product growth projections, balance of payments, foreign currency reserves, and any other significant data related to the issuers. From those reviews, we evaluate the issuers' continued ability to service our investments. We have determined that the majority of the unrealized losses on the investments in the sovereign and supranational sector was caused by a decline in creditworthiness of certain issuers in this sector. Also impacting the unrealized losses in the sovereign and supranational sector was widening credit spreads. Based on our credit analysis, we believe that the issuers of our investments in this sector have the ability to service their obligations to us.

Bank and Financial Institution Investments

Our efforts during 2011 and the three-month period ended March 31, 2012 to reduce risk in our investment portfolio included sales and impairments of certain investments in banks and financial institutions, with an emphasis on reducing our exposure to European financial institutions. The following table shows the composition of our investments in an unrealized loss position in the bank and financial institution sector by fixed-maturity securities and perpetual securities. The table reflects those securities in that sector that were in an unrealized loss position as a percentage of our total investment portfolio in an unrealized loss position and their respective unrealized losses as a percentage of total unrealized losses.



	March 31, 2012						December 31, 2011
	Percentage of Total Investments in an Unrealized Loss Position			Percentage of Total Unrealized Losses			Percentage of Total Investments in an Unrealized Loss Position			Percentage of Total Unrealized Losses
Fixed maturities		32	%		44	%		37	%		44	%
Perpetual securities:
Upper Tier II		4			5			4			6
Tier I		3			6			5			12
Total perpetual securities		7			11			9			18
Total		39	%		55	%		46	%		62	%

As of March 31, 2012, 85% of the $1.5 billion in unrealized losses on investments in the bank and financial institution sector, including perpetual securities, was related to investments that were investment grade, compared with 80% at December 31, 2011. Of the $12.0 billion in total investments, at fair value, in this sector in an unrealized loss position at March 31, 2012, only $629 million ($227 million in unrealized losses) was below investment grade. Three issuers of investments comprised nearly 99% of the $227 million unrealized loss. The remaining unrealized loss comprised one investment with an unrealized loss of less than $3 million .

We conduct our own independent credit analysis for investments in the bank and financial institution sector. Our assessment includes analysis of financial information, as well as consultation with the issuers from time to time. Based on our credit analysis, we have determined that the majority of the unrealized losses on the investments in this sector was caused by widening credit spreads, the downturn in the global economic environment and, to a lesser extent, changes in foreign exchange rates. Unrealized gains or losses related to prevailing interest rate environments are impacted by the remaining time to maturity of an investment. Assuming no credit-related factors develop, as investments near maturity, the unrealized gains or losses can be expected to diminish. Based on our credit analysis, we believe that the issuers of our investments in this sector have the ability to service their obligations to us.

Other Corporate Investments

As of March 31, 2012, 75% of the unrealized losses on investments in the other corporate sector was related to investments that were investment grade, compared with 73% at December 31, 2011. For any credit-related declines in fair value, we perform a more focused review of the related issuer's credit ratings, financial statements and other available financial data, timeliness of payment, competitive environment and any other significant data related to the issuer. From that review, we evaluate the issuer's continued ability to service our investment. We have determined that the majority of the unrealized losses on the investments in the other corporate sector were caused by widening credit spreads. Also impacting the unrealized losses in this sector is the decline in creditworthiness of certain issuers in the other corporate sector. Based on our credit analysis, we believe that the issuers of our investments in this sector have the ability to service their obligations to us.

Perpetual Securities

As of March 31, 2012, 91% of the unrealized losses on investments in perpetual securities was related to investments that were investment grade, compared with 73% at December 31, 2011. The majority of our investments in Upper Tier II and Tier I perpetual securities were in highly rated global financial institutions. Upper Tier II securities have more debt-like characteristics than Tier I securities and are senior to Tier I securities, preferred stock, and common equity of the issuer. Conversely, Tier I securities have more equity-like characteristics, but are senior to the common equity of the issuer. They may also be senior to certain preferred shares, depending on the individual security, the issuer's capital structure and the regulatory jurisdiction of the issuer.

Details of our holdings of perpetual securities were as follows:

Perpetual Securities



		March 31, 2012							December 31, 2011
(In millions)	Credit Rating	Amortized Cost		Fair Value		Unrealized Gain (Loss)			Amortized Cost		Fair Value		Unrealized Gain (Loss)
Upper Tier II:
	AA	$	80	$	81	$	1		$	196	$	204	$	8
	A	530		544		14			2,108		2,046		(62		)
	BBB	2,641		2,569		(72		)	1,791		1,804		13
	BB or lower	0		0		0			190		190		0
Total Upper Tier II		3,251		3,194		(57		)	4,285		4,244		(41		)
Tier I:
	A	60		60		0			0		0		0
	BBB	1,350		1,238		(112		)	1,684		1,417		(267		)
	BB or lower	535		509		(26		)	584		417		(167		)
Total Tier I		1,945		1,807		(138		)	2,268		1,834		(434		)
Other subordinated - non-banks	BBB	326		351		25			344		361		17
Total		$	5,522	$	5,352	$	(170	)	$	6,897	$	6,439	$	(458	)

An aspect of our efforts during 2011 and the three-month period ended March 31, 2012 to reduce risk in our investment portfolio included sales and impairments of certain investments in perpetual securities. With the exception of the Icelandic bank securities that we completely impaired in 2008, none of the perpetual securities we own were in default on interest and principal payments at March 31, 2012. During the second quarter of 2011, we wrote off accrued interest income and stopped accruing further interest income for the Dexia S.A. Upper Tier II perpetual securities, which had a deferred coupon and were impaired during that quarter, and we recognized additional impairments on those securities in the third and fourth quarters of 2011. We collected the deferred coupon upon the sale of those securities as part of our derisking investment activities in the first quarter of 2012. Based on amortized cost as of March 31, 2012, the geographic breakdown of our perpetual securities by issuer was as follows: European countries, excluding the United Kingdom, (69%); the United Kingdom (11%); Japan (12%); and other (8%). To determine any credit-related declines in fair value, we perform a more focused review of the related issuer's credit ratings, financial statements and other available financial data, timeliness of payment, competitive environment and any other significant data related to the issuer. From that review, we evaluate the issuer's continued ability to service our investment.

We have determined that the majority of our unrealized losses in the perpetual security category was principally due to widening credit spreads, largely as the result of the contraction of liquidity in the capital markets. Based on our reviews, we concluded that the ability of the issuers to service our investments has not been compromised by these factors. Unrealized gains or losses related to prevailing interest rate environments are impacted by the remaining time to maturity of an investment. Assuming no credit-related factors develop, as the investments near economic maturity, the unrealized gains or losses can be expected to diminish. Based on our credit analyses, we believe that the issuers of our investments in this sector have the ability to service their obligations to us.

Variable Interest Entities (VIEs)

The following table details our investments in VIEs.

Investments in Variable Interest Entities



	March 31, 2012				December 31, 2011
(In millions)	Amortized Cost		Fair Value		Amortized Cost		Fair Value
VIEs:
VIEs consolidated	$	6,545	$	6,940	$	6,997	$	7,206
VIEs not consolidated	12,795		12,832		13,753		13,714
Total VIEs	$	19,340	$	19,772	$	20,750	$	20,920

As a condition to our involvement or investment in a VIE, we enter into certain protective rights and covenants that preclude changes in the structure of the VIE that would alter the creditworthiness of our investment or our beneficial interest in the VIE.

Our involvement with all of the VIEs in which we have an interest is passive in nature, and we are not the arranger of these entities. We have not been involved in establishing these entities, except as it relates to our review and evaluation of the structure of these VIEs in the normal course of our investment decision-making process. Further, we have not been nor are we required to purchase any securities issued in the future by these VIEs.

Our ownership interest in the VIEs is limited to holding the obligations issued by them. All of the VIEs in which we invest are static with respect to funding and have no ongoing forms of funding after the initial funding date. We have no direct or contingent obligations to fund the limited activities of these VIEs, nor do we have any direct or indirect financial guarantees related to the limited activities of these VIEs. We have not provided any assistance or any other type of financing support to any of the VIEs we invest in, nor do we have any intention to do so in the future. The weighted-average lives of our notes are very similar to the underlying collateral held by these VIEs where applicable.

Our risk of loss related to our interests in any of our VIEs is limited to our investment in the debt securities issued by them.

VIEs-Consolidated

We are substantively the only investor in the consolidated VIEs listed in the table above. As the sole investor in these VIEs, we have the power to direct the activities of a variable interest entity that most significantly impact the entity's economic performance and are therefore considered to be the primary beneficiary of the VIEs that we consolidate. We also participate in substantially all of the variability created by these VIEs. The activities of these VIEs are limited to holding debt and perpetual securities and interest rate, foreign currency, and/or credit default swaps (CDSs), as appropriate, and utilizing the cash flows from these securities to service our investment. Neither we nor any of our creditors are able to obtain the underlying collateral of the VIEs unless there is an event of default or other specified event. For those VIEs that contain a swap, we are not a direct counterparty to the swap contracts and have no control over them. Our loss exposure to these VIEs is limited to our original investment. Our consolidated VIEs do not rely on outside or ongoing sources of funding to support their activities beyond the underlying collateral and swap contracts, if applicable. With the exception of our investment in senior secured bank loans through a unit trust structure that we began investing in during the second quarter of 2011, the underlying collateral assets and funding of our consolidated VIEs are generally static in nature and the underlying collateral and the reference corporate entities covered by any CDS contracts were all investment grade at the time of issuance.

We are exposed to credit losses within any consolidated collateralized debt obligations (CDOs) that could result in principal losses to our investments. We have mitigated our risk of credit loss through the structure of the VIE, which contractually requires the subordinated tranches within these VIEs to absorb the majority of the expected losses from the underlying credit default swaps. We currently own only senior CDO tranches. Based on our statistical analysis models, each of these VIEs can sustain a reasonable number of defaults in the underlying reference corporate entities in the CDSs with no loss to our investment.

VIEs-Not Consolidated

The VIEs that we are not required to consolidate are investments that are limited to loans in the form of debt obligations from the VIEs that are irrevocably and unconditionally guaranteed by their corporate parents. These VIEs are the primary financing vehicle used by their corporate sponsors to raise financing in the international capital markets. The variable interests created by these VIEs are principally or solely a result of the debt instruments issued by them. We do not have the power to direct the activities that most significantly impact the entity's economic performance, nor do we have (1) the obligation to absorb losses of the entity or (2) the right to receive benefits from the entity. As such, we are not the primary beneficiary of these VIEs and are therefore not required to consolidate them. These VIE investments are comprised of securities from 161 separate issuers which have an average credit rating of A.

Securities Lending

We lend fixed-maturity securities to financial institutions in short-term security-lending transactions. These short-term security-lending arrangements increase investment income with minimal risk. Our security lending policy requires that the fair value of the securities and/or unrestricted cash received as collateral be 102% or more of the fair value of the loaned securities. The following table presents our security loans outstanding and the corresponding collateral held:



(In millions)	March 31, 2012		December 31, 2011
Security loans outstanding, fair value	$	188	$	812
Cash collateral on loaned securities	193		838