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.



	June 30, 2013
(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		$	12,100		$	277		$	79		$	12,298
Mortgage- and asset-backed securities		624			30			1			653
Public utilities		2,793			74			112			2,755
Sovereign and supranational		1,047			70			1			1,116
Banks/financial institutions		3,064			126			370			2,820
Other corporate		4,193			110			303			4,000
Total yen-denominated		23,821			687			866			23,642
Dollar-denominated:
U.S. government and agencies		95			11			2			104
Municipalities		1,017			82			8			1,091
Mortgage- and asset-backed securities		189			53			0			242
Public utilities		4,887			392			168			5,111
Sovereign and supranational		468			81			4			545
Banks/financial institutions		3,592			328			46			3,874
Other corporate		21,309			999			1,107			21,201
Total dollar-denominated		31,557			1,946			1,335			32,168
Total fixed maturities		55,378			2,633			2,201			55,810
Perpetual securities:
Yen-denominated:
Banks/financial institutions		2,786			91			461			2,416
Other corporate		272			0			69			203
Dollar-denominated:
Banks/financial institutions		208			22			15			215
Total perpetual securities		3,266			113			545			2,834
Equity securities		17			5			0			22
Total securities available for sale		$	58,661		$	2,751		$	2,746		$	58,666



	June 30, 2013
(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		$	23,946		$	741		$	5		$	24,682
Municipalities		429			38			0			467
Mortgage- and asset-backed securities		67			3			0			70
Public utilities		4,323			127			258			4,192
Sovereign and supranational		2,817			127			100			2,844
Banks/financial institutions		7,222			101			691			6,632
Other corporate		3,914			185			225			3,874
Total yen-denominated		42,718			1,322			1,279			42,761
Total securities held to maturity		$	42,718		$	1,322		$	1,279		$	42,761



	December 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		$	12,612		$	349		$	81		$	12,880
Mortgage- and asset-backed securities		746			40			1			785
Public utilities		3,608			116			72			3,652
Sovereign and supranational		1,404			71			0			1,475
Banks/financial institutions		3,455			233			180			3,508
Other corporate		5,656			241			153			5,744
Total yen-denominated		27,481			1,050			487			28,044
Dollar-denominated:
U.S. government and agencies		93			24			0			117
Municipalities		1,045			156			6			1,195
Mortgage- and asset-backed securities		188			58			0			246
Public utilities		4,204			658			17			4,845
Sovereign and supranational		476			123			2			597
Banks/financial institutions		3,626			506			6			4,126
Other corporate		16,300			1,878			95			18,083
Total dollar-denominated		25,932			3,403			126			29,209
Total fixed maturities		53,413			4,453			613			57,253
Perpetual securities:
Yen-denominated:
Banks/financial institutions		3,635			193			161			3,667
Other corporate		309			43			0			352
Dollar-denominated:
Banks/financial institutions		269			23			9			283
Total perpetual securities		4,213			259			170			4,302
Equity securities		20			4			1			23
Total securities available for sale		$	57,646		$	4,716		$	784		$	61,578



	December 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		$	32,043		$	356		$	67		$	32,332
Municipalities		492			30			2			520
Mortgage- and asset-backed securities		90			4			0			94
Public utilities		4,924			233			106			5,051
Sovereign and supranational		3,209			192			84			3,317
Banks/financial institutions		9,211			211			431			8,991
Other corporate		4,457			187			108			4,536
Total yen-denominated		54,426			1,213			798			54,841
Total securities held to maturity		$	54,426		$	1,213		$	798		$	54,841

The methods of determining the fair values of our investments in fixed-maturity securities, perpetual securities and equity securities, including a change in valuation methodology for determining fair value of privately issued securities as of the first quarter of 2013, are described in Note 5.

During the second quarter of 2013, we reclassified one investment from the held-to-maturity portfolio to the available-for-sale portfolio as a result of the issuer being downgraded to below investment grade. At the time of transfer, the security had an amortized cost of $297 million and an unrealized loss of $108 million. During the first quarter of 2013, we did not reclassify any investments from the held-to-maturity portfolio to the available-for-sale portfolio.

During the second quarter of 2012, we reclassified five investments from the held-to-maturity portfolio to the available-for-sale portfolio as a result of the issuer being downgraded to below investment grade. At the time of transfer, the securities had an aggregate amortized cost of $842 million and an aggregate unrealized loss of $268 million. During the first quarter 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 creditworthiness. At the time of transfer, the security had an amortized cost of $122 million and an unrealized loss of $23 million.

Contractual and Economic Maturities

The contractual maturities of our investments in fixed maturities at June 30, 2013, 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		$	723		$	730		$	107		$	108
Due after one year through five years		1,987			2,075			393			448
Due after five years through 10 years		9,677			9,450			1,413			1,530
Due after 10 years		31,715			31,312			8,368			9,067
Mortgage- and asset-backed securities		765			839			39			48
Total fixed maturities available for sale		$	44,867		$	44,406		$	10,320		$	11,201
Held to maturity:
Due in one year or less		$	77		$	78		$	0		$	0
Due after one year through five years		1,224			1,289			0			0
Due after five years through 10 years		2,256			2,308			0			0
Due after 10 years		39,094			39,016			0			0
Mortgage- and asset-backed securities		67			70			0			0
Total fixed maturities held to maturity		$	42,718		$	42,761		$	0		$	0

At June 30, 2013, the Parent Company had a portfolio of investment-grade available-for-sale fixed-maturity securities totaling $191 million at amortized cost and $203 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 June 30, 2013, were as follows:



	Aflac Japan						Aflac U.S.
(In millions)	Amortized Cost			Fair Value			Amortized Cost			Fair Value
Due in one year or less		$	0		$	0		$	0		$	0
Due after one year through five years		1,098			948			5			5
Due after five years through 10 years		272			203			0			0
Due after 10 years		1,792			1,580			99			98
Total perpetual securities available for sale		$	3,162		$	2,731		$	104		$	103

Investment Concentrations

Our investment process begins with an independent approach to underwriting each issuer's fundamental credit quality. We evaluate independently those factors which we believe could influence an issuer's ability to make payments under the contractual terms of our instruments. This includes a thorough analysis of a variety of items including the issuer's country of domicile (including political, legal, and financial considerations); the industry in which the issuer competes (with an analysis of industry structure, end-market dynamics, and regulation); company specific issues (such as management, assets, earnings, cash generation, and capital needs); and contractual provisions of the instrument (such as financial covenants and position in the capital structure). We further determine the appropriateness of the investment considering broad business and portfolio management objectives, including asset/liability needs, portfolio diversification, and expected income.

Banks and Financial Institutions

One of our largest investment sector concentrations as of June 30, 2013, 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.

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



	June 30, 2013						December 31, 2012
	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		$	13,878		14	%		$	16,292		14	%
Fair value		13,326			13			16,625			14
Perpetual securities:
Upper Tier II:
Amortized cost		$	2,084		2	%		$	2,825		3	%
Fair value		1,877			2			2,919			3
Tier I:
Amortized cost		910			1			1,079			1
Fair value		754			1			1,031			1
Total:
Amortized cost		$	16,872		17	%		$	20,196		18	%
Fair value		15,957			16			20,575			18

Realized Investment Gains and Losses

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



	Three Months Ended June 30,						Six Months Ended June 30,
(In millions)	2013			2012			2013			2012
Realized investment gains (losses) on securities:
Fixed maturities:
Available for sale:
Gross gains from sales	$	73		$	19		$	192		$	33
Gross losses from sales	0			(35		)	(6		)	(36		)
Net gains (losses) from redemptions	15			2			21			2
Other-than-temporary impairment losses	0			(267		)	(54		)	(330		)
Held to maturity:
Net gains (losses) from redemptions	0			3			0			3
Total fixed maturities	88			(278		)	153			(328		)
Perpetual securities:
Available for sale:
Gross gains from sales	0			0			0			70
Gross losses from sales	(2		)	3			(2		)	(62		)
Net gains (losses) from redemptions	0			0			0			60
Other-than-temporary impairment losses	0			(76		)	0			(216		)
Total perpetual securities	(2		)	(73		)	(2		)	(148		)
Equity securities:
Other-than-temporary impairment losses	0			0			(1		)	0
Total equity securities	0			0			(1		)	0
Derivatives and other:
Derivative gains (losses)	111			(67		)	198			13
Other	4			0			9			0
Total derivatives and other	115			(67		)	207			13
Total realized investment gains (losses)	$	201		$	(418	)	$	357		$	(463	)

Other-than-temporary Impairment

The fair values of our debt and perpetual security investments fluctuate based on changes in interest rates, foreign exchange, and credit spreads in the global financial markets. Fair values can also be heavily influenced by the values of the assets of the issuer and expected ultimate recovery values upon default, bankruptcy or other financial restructuring. Credit spreads are most impacted by the general credit environment and global market liquidity. Interest rates are driven by numerous factors including, but not limited to, supply and demand, governmental monetary actions, expectations of inflation and economic growth. We believe that fluctuations in the fair value of our investment securities related to general changes in the level of credit spreads or interest rates have little bearing on underlying credit quality of the issuer, and whether our investment is ultimately recoverable. Generally, we consider such declines in fair values 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 or interest rates. In this event, we consider such a decline in the investment's fair value, to the extent it is below the investment's cost or amortized cost, to be an other-than-temporary impairment of the investment and reduce the book value of the investment to its fair value.

In addition to the usual investment risk associated with a debt instrument, our perpetual security holdings are largely issued by banks that are integral to the financial markets of the corresponding sovereign country of the issuer. As a result of the issuer's position within the economy of the sovereign country, our perpetual securities may be subject to a higher 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 preserve the issuer's capital. Beyond 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 result in a reduction of fair value of the securities and increase our regulatory capital requirements. We consider these factors 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, future cash flow needs and decisions to reposition our security portfolio. 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 selling any of our investments prior to their maturity.

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



	Three Months Ended June 30,						Six Months Ended June 30,
(In millions)	2013			2012			2013			2012
Perpetual securities	$	0		$	76		$	0		$	216
Corporate bonds	0			120			38			183
Mortgage- and asset-backed securities	0			3			0			3
Sovereign and supranational	0			144			16			144
Equity securities	0			0			1			0
Total other-than-temporary impairment losses realized	$	0	⁽¹⁾	$	343	⁽¹⁾	$	55	⁽¹⁾	$	546	⁽¹⁾

⁽¹⁾Includes $0 and $267 for the three-month periods and $0 and $295 for the six-month periods ended June 30, 2013 and 2012, respectively, for credit-related impairments; $0 for the three-month period and $1 for the six-month period ended June 30, 2013 for impairments due to severity and duration of decline in fair value; and $0 and $76 for the three-month periods and $54 and $251 for the six-month periods ended June 30, 2013 and 2012, respectively, from change in intent to sell securities

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)	June 30, 2013				December 31, 2012
Unrealized gains (losses) on securities available for sale		$	5			$	3,932
Unamortized unrealized gains on securities transferred to held to maturity		14				20
Deferred income taxes		(217		)		(1,382		)
Shareholders’ equity, unrealized gains (losses) on investment securities		$	(198	)		$	2,570

Gross Unrealized Loss Aging

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



	June 30, 2013
	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		$	4,723		$	84		$	4,723		$	84		$	0		$	0
Municipalities:
Dollar-denominated		121			8			86			4			35			4
Mortgage- and asset- backed securities:
Dollar-denominated		7			0			7			0			0			0
Yen-denominated		120			1			0			0			120			1
Public utilities:
Dollar-denominated		2,182			168			2,182			168			0			0
Yen-denominated		4,051			370			2,854			205			1,197			165
Sovereign and supranational:
Dollar-denominated		61			4			29			1			32			3
Yen-denominated		913			101			545			13			368			88
Banks/financial institutions:
Dollar-denominated		786			46			759			43			27			3
Yen-denominated		6,280			1,061			3,581			293			2,699			768
Other corporate:
Dollar-denominated		12,656			1,107			12,600			1,101			56			6
Yen-denominated		4,381			528			3,362			320			1,019			208
U.S. government and agencies:
Dollar-denominated		38			2			38			2			0			0
Total fixed maturities		36,319			3,480			30,766			2,234			5,553			1,246
Perpetual securities:
Dollar-denominated		69			15			49			11			20			4
Yen-denominated		1,834			530			1,308			289			526			241
Total perpetual securities		1,903			545			1,357			300			546			245
Equity securities		1			0			1			0			0			0
Total		$	38,223		$	4,025		$	32,124		$	2,534		$	6,099		$	1,491



	December 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		$	17,342		$	148		$	17,342		$	148		$	0		$	0
Municipalities:
Dollar-denominated		34			6			1			0			33			6
Yen-denominated		56			2			56			2			0			0
Mortgage- and asset- backed securities:
Dollar-denominated		10			0			10			0			0			0
Yen-denominated		136			1			0			0			136			1
Public utilities:
Dollar-denominated		736			17			736			17			0			0
Yen-denominated		3,920			178			1,339			31			2,581			147
Sovereign and supranational:
Dollar-denominated		31			2			0			0			31			2
Yen-denominated		1,244			84			507			13			737			71
Banks/financial institutions:
Dollar-denominated		276			6			180			3			96			3
Yen-denominated		6,918			611			1,935			28			4,983			583
Other corporate:
Dollar-denominated		4,534			95			4,404			86			130			9
Yen-denominated		4,013			261			1,635			40			2,378			221
Total fixed maturities		39,250			1,411			28,145			368			11,105			1,043
Perpetual securities:
Dollar-denominated		136			9			120			0			16			9
Yen-denominated		1,315			161			0			0			1,315			161
Total perpetual securities		1,451			170			120			0			1,331			170
Equity securities		6			1			3			0			3			1
Total		$	40,707		$	1,582		$	28,268		$	368		$	12,439		$	1,214

Analysis of Securities in Unrealized Loss Positions

The unrealized losses on our investments have been primarily related to general market changes in interest rates, foreign exchange rates, and/or the levels of credit spreads rather than specific concerns with the issuer's ability to pay interest and repay principal. In addition, in the first quarter of 2013, we refined our methodology for valuing certain privately issued securities (see Note 5).

For any significant declines in fair value, we perform a more focused review of the related issuers' credit profile. For corporate issuers, we evaluate their assets, business profile including industry dynamics and competitive positioning, financial statements and other available financial data. For non-corporate issuers, we analyze all sources of credit support, including issuer-specific factors. We utilize information available in the public domain and, for certain private placement issuers, from consultations with the issuers directly. We also consider ratings from the Nationally Recognized Statistical Rating Organizations (NRSROs). From these reviews, we evaluate the issuers' continued ability to service our investment through payment of interest and principal.

The following table provides more information on our unrealized loss positions.



		June 30, 2013									December 31, 2012
(In millions)	Percentage of Total Investments in an Unrealized Loss Position			Percentage of Gross Unrealized Losses			Percentage of Gross Unrealized Losses for Investment Grade Securities			Percentage of Total Investments in an Unrealized Loss Position			Percentage of Gross Unrealized Losses			Percentage of Gross Unrealized Losses for Investment Grade Securities
Fixed Maturities:
Japan government and agencies		12	%		2	%		100	%		43	%		9	%		100	%
Public utilities		16			13			87			11			12			69
Sovereign and supranational		3			3			97			3			6			96
Banks/financial institutions		19			27			72			18			39			76
Other corporate		45			41			94			21			23			72
Total fixed maturities		95	%		86	%					96	%		89	%
Perpetual securities		5			14			87			4			11			100
Total		100	%		100	%					100	%		100	%

The decline in the percentage of perpetual securities in an unrealized loss position that are investment grade is due primarily to a refinement in our methodology for valuing privately issued securities, including perpetual securities, that was implemented in the first quarter of 2013 and was not indicative of credit-related changes or downgrades.

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 the sectors shown in the table above have the ability to service their obligations to us.

Perpetual Securities

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



		June 30, 2013										December 31, 2012
(In millions)	Credit Rating	Amortized Cost			Fair Value			Unrealized Gain (Loss)				Amortized Cost			Fair Value			Unrealized Gain (Loss)
Upper Tier II:
	A		$	160		$	180		$	20			$	460		$	488		$	28
	BBB		1,671			1,503			(168		)		2,077			2,129			52
	BB or lower		253			194			(59		)		288			302			14
Total Upper Tier II			2,084			1,877			(207		)		2,825			2,919			94
Tier I:
	BBB		798			640			(158		)		966			904			(62		)
	BB or lower		112			114			2				113			127			14
Total Tier I			910			754			(156		)		1,079			1,031			(48		)
Other subordinated - non-banks	BBB		272			203			(69		)		309			352			43
Total			$	3,266		$	2,834		$	(432	)		$	4,213		$	4,302		$	89

During the first six months of 2013, our aggregate holdings in perpetual securities moved from an unrealized gain of $89 million to an unrealized loss of $432 million. This change is primarily due to a refinement in our methodology for valuing privately issued securities, including perpetual securities, that was implemented in the first quarter of 2013 (see Note 5).

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 these sectors have the ability to service their obligations to us.

Variable Interest Entities (VIEs)

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 are not, nor have we been, 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

The following table presents the amortized cost, fair value and balance sheet caption in which the assets and liabilities of consolidated VIEs are reported.

Investments in Consolidated Variable Interest Entities



	June 30, 2013						December 31, 2012
(In millions)	Amortized Cost			Fair Value			Amortized Cost			Fair Value
Assets:
Fixed maturities, available for sale		$	4,636		$	5,022		$	5,058		$	5,787
Perpetual securities, available for sale		500			450			559			574
Fixed maturities, held to maturity		254			240			289			287
Other assets		135			135			191			191
Total assets of consolidated VIEs		$	5,525		$	5,847		$	6,097		$	6,839
Liabilities:
Other liabilities		$	284		$	284		$	399		$	399
Total liabilities of consolidated VIEs		$	284		$	284		$	399		$	399

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 unit trust structures, 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 mezzanine CDO tranches. Based on our statistical analysis models and the current subordination levels in our CDOs, each of these VIEs can sustain a reasonable number of defaults in the underlying reference entities in the CDSs with no loss to our investment.

VIEs-Not Consolidated

The table below reflects the amortized cost, fair value and balance sheet caption in which our investment in VIEs not consolidated are reported.

Investments in Variable Interest Entities Not Consolidated



	June 30, 2013						December 31, 2012
(In millions)	Amortized Cost			Fair Value			Amortized Cost			Fair Value
Assets:
Fixed maturities, available for sale		$	6,854		$	6,815		$	7,738		$	8,350
Perpetual securities, available for sale		395			375			736			751
Fixed maturities, held to maturity		3,356			3,305			3,829			3,922
Total investments in VIEs not consolidated		$	10,605		$	10,495		$	12,303		$	13,023

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 vehicles 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 comprise securities from 160 separate issuers with an average credit rating of BBB.

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)	June 30, 2013			December 31, 2012
Security loans outstanding, fair value		$	1,470		$	6,122
Cash collateral on loaned securities		1,506			6,277

The balance of our security loans outstanding was significantly lower at June 30, 2013, compared with that at December 31, 2012, due to the conclusion of a six-month securities lending program that began in the third quarter of 2012. For this particular securities lending program, we invested the cash collateral in JGBs with maturities that corresponded with the conclusion of the program.