DERIVATIVE INSTRUMENTS

Our freestanding derivative financial instruments consist of: (1) foreign currency swaps, credit default swaps, and interest rate swaps that are associated with investments in special-purpose entities, including VIEs where we are the primary beneficiary; (2) foreign currency forward contracts used in hedging foreign exchange risk on U.S. dollar-denominated securities in Aflac Japan's portfolio; (3) foreign currency forwards and options used to hedge certain portions of forecasted cash flows denominated in yen; (4) swaps associated with our notes payable, consisting of an interest rate swap for our variable interest rate yen-denominated debt and cross-currency interest rate swaps, also referred to as foreign currency swaps, associated with certain senior notes and our subordinated debentures; and (5) options on interest rate swaps (or interest rate swaptions) used to hedge interest rate risk for certain U.S. dollar-denominated available-for-sale securities. We do not use derivative financial instruments for trading purposes, nor do we engage in leveraged derivative transactions. Some of our derivatives are designated as cash flow hedges, fair value hedges or net investment hedges; however, other derivatives do not qualify for hedge accounting. We utilize a net investment hedge to mitigate foreign exchange exposure resulting from our net investment in Aflac Japan. In addition to designating derivatives as hedging instruments, we have designated the majority of our yen-denominated Samurai and Uridashi notes and yen-denominated loans as nonderivative hedging instruments for this net investment hedge.

Derivative Types

Foreign currency swaps exchange an initial principal amount in two currencies, agreeing to re-exchange the currencies at a future date, at an agreed upon exchange rate. There may also be periodic exchanges of payments at specified intervals based on the agreed upon rates and notional amounts. Foreign currency swaps are used primarily in the consolidated VIEs in our Aflac Japan portfolio to convert foreign-denominated cash flows to yen, the functional currency of Aflac Japan, in order to minimize cash flow fluctuations. We also use foreign currency swaps to economically convert certain of our dollar-denominated senior note and subordinated debenture principal and interest obligations into yen-denominated obligations.

Foreign currency forwards with short-term maturities are executed for the Aflac Japan segment in order to economically convert certain fixed-maturity dollar-denominated securities into yen. In these transactions, Aflac Japan agrees with another party to buy a fixed amount of yen and sell a corresponding amount of U.S. dollars at a specified future date. The foreign currency forwards are used in fair value hedging relationships to mitigate the foreign exchange risk associated with dollar-denominated investments supporting yen-denominated liabilities. Aflac also utilizes foreign currency forwards to hedge the currency risk associated with the net investment in Aflac Japan. In these transactions, Aflac agrees with another party to buy a fixed amount of U.S. dollars and sell a corresponding amount of yen at a specified future date.

Foreign currency options are executed in order to hedge certain portions of forecasted cash flows that are denominated in yen, i.e. primarily profit repatriation from Aflac Japan. We use a combination of options to protect expected future cash flows by simultaneously purchasing a call option (an option that limits exposure to increasing foreign exchange rates) and selling a put option (an option that limits exposure to decreasing foreign exchange rates). The combination of these two actions results in no net premium paid (i.e. a costless or zero-cost collar). Aflac also enters into foreign currency options that give it the right, but not the obligation, to sell yen and buy U.S. dollars at a specified future date at a contracted price.

Credit default swaps (CDSs) are used to assume credit risk related to an individual security or an index. The only CDS derivatives that we have are components of certain of our investments in VIEs. These CDS contracts entitle the consolidated VIE to receive a periodic fee in exchange for an obligation to compensate the derivative counterparty should the referenced security issuers experience a credit event, as defined in the contract. The consolidated VIE is also exposed to credit risk due to embedded derivatives associated with credit-linked notes.

Interest rate swaps involve the periodic exchange of cash flows with other parties, at specified intervals, calculated using agreed upon rates or other financial variables and notional principal amounts. Typically, at the time a swap is entered into, the cash flow streams exchanged by the counterparties are equal in value and no cash or principal payments are exchanged at the inception of the contract. Interest rate swaps are primarily used to convert interest receipts on floating-rate fixed-maturity securities contracts to fixed rates. These derivatives are predominantly used to better match cash receipts from assets with cash disbursements required to fund liabilities.

Interest rate swaptions are options on interest rate swaps. Interest rate collars are combinations of two swaption positions and are executed in order to hedge certain dollar-denominated available-for-sale securities that are held in the Aflac Japan segment. We use collars to protect against significant changes in the fair value associated with interest rate changes of our dollar-denominated available-for-sale securities. In order to maximize the efficiency of the collars while minimizing cost, we set the strike price on each collar so that the premium paid for the ‘payer leg’ is offset by the premium received for having sold the ‘receiver leg’.

Credit Risk Assumed through Derivatives

For the interest rate, foreign currency, and credit default swaps associated with our VIE investments for which we are the primary beneficiary, we bear the risk of foreign exchange or interest rate loss due to counterparty default even though we are not a direct counterparty to those contracts. We are a direct counterparty to the interest rate and foreign currency swaps that we have on certain of our senior notes, subordinated debentures, and Samurai notes; foreign currency forwards; foreign currency options; and interest rate swaptions, therefore we are exposed to credit risk in the event of nonperformance by the counterparties in those contracts. The risk of counterparty default for our VIE swaps, foreign currency swaps, certain foreign currency forwards, foreign currency options, and interest rate swaptions is mitigated by collateral posting requirements the counterparty must meet. As of September 30, 2013, there were 11 counterparties to our derivative agreements, with five comprising almost 85% of the aggregate notional amount. The counterparties to these derivatives are financial institutions with the following credit ratings.



	September 30, 2013										December 31, 2012
(In millions)	Notional Amount of Derivatives			Asset Derivatives Fair Value			Liability Derivatives Fair Value				Notional Amount of Derivatives			Asset Derivatives Fair Value			Liability Derivatives Fair Value
Counterparties' credit rating:
AA		$	161		$	4		$	(4	)		$	161		$	6		$	(7	)
A		22,640			594			(431		)		13,209			339			(927		)
Total		$	22,801		$	598		$	(435	)		$	13,370		$	345		$	(934	)

We engage in derivative transactions directly with unaffiliated third parties under International Swaps and Derivative Association, Inc. (ISDA) agreements and other documentation. Many of the ISDA agreements also include Credit Support Annex (CSA) provisions which generally provide for collateral postings, in certain cases at the first dollar of exposure and in other cases at various rating and threshold levels. We mitigate our risk to certain counterparties by entering into agreements that enable collateral to be obtained from a counterparty, either at the outset of the transaction or on an upfront or contingent basis. We minimize the risk that counterparties to transactions might be unable to fulfill their contractual obligations by monitoring counterparty credit exposure and collateral value while generally requiring that collateral be posted at the outset of the transaction or that additional collateral be posted upon the occurrence of certain events or circumstances. In addition, a significant portion of the derivative transactions have provisions that require collateral to be posted upon a downgrade of our long-term debt ratings or give the counterparty the right to terminate the transaction upon a downgrade of Aflac’s financial strength rating. The actual amount of collateral required to be posted to counterparties in the event of such downgrades, or the aggregate amount of payments that we could be required to make, depends on market conditions, the fair value of outstanding affected transactions, and other factors prevailing at and after the time of the downgrade.

Collateral posted by us to third parties for derivative transactions was $88 million at September 30, 2013, which consisted of $70 million of pledged JGBs and $18 million of cash. There was no collateral posted to third parties for derivative transactions at December 31, 2012. This collateral can generally be repledged or resold by the counterparties. The aggregate fair value of all derivative instruments with credit-risk-related contingent features that were in a net liability position by counterparty was $104 million as of September 30, 2013. There were no derivative instruments with credit-risk related contingent features in a net liability position by counterparty as of December 31, 2012. If the credit-risk-related contingent features underlying these agreements had been triggered on September 30, 2013, we estimate that we would be required to post a maximum of $16 million of additional collateral to these derivative counterparties. Collateral obtained by us from third parties for derivative transactions was $104 million at September 30, 2013. There was no collateral obtained from third parties at December 31, 2012. We generally can repledge or resell collateral obtained by us, although we do not typically exercise such rights.

Certain of our consolidated VIEs have credit default swap contracts that require them to assume credit risk from an asset pool. Those consolidated VIEs will receive periodic payments based on an agreed upon rate and notional amount and will only make a payment by delivery of associated collateral, which consists of highly rated asset-backed securities, if there is a credit event. A credit event payment will typically be equal to the notional value of the swap contract less the value of the referenced obligations. A credit event is generally defined as a default on contractually obligated interest or principal payments or bankruptcy of the referenced entity. The diversified portfolios of corporate issuers are established within sector concentration limits.

The following tables present the maximum potential risk, fair value, weighted-average years to maturity, and underlying referenced credit obligation type for credit default swaps within consolidated VIE structures.



September 30, 2013
		Less than one year				One to three years					Three to five years				Five to ten years						Total
(In millions)	Credit Rating	Maximum potential risk		Estimated fair value		Maximum potential risk			Estimated fair value		Maximum potential risk		Estimated fair value		Maximum potential risk			Estimated fair value			Maximum potential risk			Estimated fair value
Index exposure:
Corporate bonds:
	A	$	0	$	0	$	(120	)	$	2	$	0	$	0	$	0		$	0		$	(120	)	$	2
	BB or lower	0		0		0			0		0		0		(102		)	(9		)	(102		)	(9		)
Total		$	0	$	0	$	(120	)	$	2	$	0	$	0	$	(102	)	$	(9	)	$	(222	)	$	(7	)



December 31, 2012
		Less than one year				One to three years					Three to five years						Five to ten years						Total
(In millions)	Credit Rating	Maximum potential risk		Estimated fair value		Maximum potential risk			Estimated fair value		Maximum potential risk			Estimated fair value			Maximum potential risk			Estimated fair value			Maximum potential risk			Estimated fair value
Index exposure:
Corporate bonds:
	A	$	0	$	0	$	(133	)	$	2	$	0		$	0		$	0		$	0		$	(133	)	$	2
	BB or lower	0		0		0			0		(106		)	(47		)	(116		)	(20		)	(222		)	(67		)
Total		$	0	$	0	$	(133	)	$	2	$	(106	)	$	(47	)	$	(116	)	$	(20	)	$	(355	)	$	(65	)

Accounting for Derivative Financial Instruments

Freestanding derivatives are carried in our consolidated balance sheets either as assets within other assets or as liabilities within other liabilities at estimated fair value. See Note 5 for a discussion on how we determine the fair value of our derivatives. Accruals on derivatives are recorded in accrued investment income or within other liabilities in the consolidated balance sheets.

If a derivative is not designated as an accounting hedge or its use in managing risk does not qualify for hedge accounting, changes in the estimated fair value of the derivative are generally reported within derivative and other gains(losses), which is a component of realized investment gains (losses). The fluctuations in estimated fair value of derivatives that have not been designated for hedge accounting can result in volatility in net earnings.

Hedge Documentation and Effectiveness Testing

To qualify for hedge accounting treatment, a derivative must be highly effective in mitigating the designated risk of the hedged item. At the inception of the hedging relationship, we formally document all relationships between hedging instruments and hedged items, as well as our risk-management objective and strategy for undertaking each hedge transaction. We document the designation of each hedge as either (i) a hedge of the variability of cash flows to be received or paid related to a recognized asset or liability or the hedge of a forecasted transaction ("cash flow hedge"); (ii) a hedge of the estimated fair value of a recognized asset or liability ("fair value hedge"); or (iii) a hedge of a net investment in a foreign operation. The documentation process includes linking derivatives and nonderivatives that are designated as hedges to specific assets or groups of assets or liabilities on the statement of financial position or to specific forecasted transactions and defining the effectiveness and ineffectiveness testing methods to be used. At the hedge's inception and on an ongoing quarterly basis, we also formally assess whether the derivatives that are used in hedging transactions have been, and are expected to continue to be, highly effective in offsetting their designated risk. Hedge effectiveness is assessed using qualitative and quantitative methods.

For assessing hedge effectiveness of cash flow hedges, qualitative methods may include the comparison of critical terms of the derivative to the hedged item, and quantitative methods include regression or other statistical analysis of changes in cash flows associated with the hedge relationship. Hedge ineffectiveness of the hedge relationships is measured each reporting period using the “Hypothetical Derivative Method.” For derivative instruments that are designated and qualify as cash flow hedges, the effective portion of the gain or loss on the derivative is reported as a component of other comprehensive income (loss) and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. Gains and losses on the derivative representing hedge ineffectiveness are recognized in current earnings within derivative and other gains (losses). All components of each derivative's gain or loss are included in the assessment of hedge effectiveness.

For assessing hedge effectiveness of fair value hedges, qualitative methods may include the comparison of critical terms of the derivative to the hedged item, and quantitative methods include regression or other statistical analysis of changes in cash flows associated with the hedge relationship. Hedge ineffectiveness of the hedge relationships is measured each reporting period using the dollar offset method. For derivative instruments that are designated and qualify as fair value hedges, changes in the estimated fair value of the derivative, including amounts measured as ineffectiveness, and changes in the estimated fair value of the hedged item related to the designated risk being hedged, are reported in current earnings within derivative and other gains (losses).

For the hedge of our net investment in Aflac Japan, we have designated Parent Company yen-denominated liabilities as non-derivative hedging instruments and have designated certain foreign currency forwards, options, and swaps as derivative hedging instruments. For assessing hedge effectiveness of net investment hedges, if the total of the designated Parent Company non-derivative and derivatives notional is equal to or less than our net investment in Aflac Japan, the hedge is deemed to be effective. If the hedge is effective, the related exchange effect on the yen-denominated liabilities is reported in the unrealized foreign currency component of other comprehensive income. For derivatives designated as net investment hedges, Aflac follows the forward-rate method. According to that method, all changes in fair value, including changes related to the forward-rate component of foreign currency swap and forward contracts and the time value of foreign currency options, are reported in the unrealized foreign currency component of other comprehensive income.

Discontinuance of Hedge Accounting

We discontinue hedge accounting prospectively when (1) it is determined that the derivative is no longer highly effective in offsetting changes in the estimated cash flows or fair value of a hedged item; (2) the derivative is de-designated as a hedging instrument; or (3) the derivative expires or is sold, terminated or exercised.

When hedge accounting is discontinued on a cash flow hedge or fair value hedge, the derivative is carried in the consolidated balance sheets at its estimated fair value, with changes in estimated fair value recognized in current period earnings. For discontinued cash flow hedges, including those where the derivative is sold, terminated or exercised, amounts previously deferred in other comprehensive income (loss) are reclassified into earnings when earnings are impacted by the cash flow of the hedged item.

Derivative Balance Sheet Classification

The tables below summarize the balance sheet classification of our derivative fair value amounts, as well as the gross asset and liability fair value amounts. The fair value amounts presented do not include income accruals. The notional amount of derivative contracts represents the basis upon which pay or receive amounts are calculated. Notional amounts are not reflective of credit risk.



		September 30, 2013
(In millions)	Net Derivatives							Asset Derivatives			Liability Derivatives
Hedge Designation/ Derivative Type	Notional Amount			Fair Value				Fair Value			Fair Value
Cash flow hedges:
Interest rate swaps		$	56		$	0			$	0		$	0
Foreign currency swaps		75			9				9			0
Total cash flow hedges		131			9				9			0
Fair value hedges:
Foreign currency forwards		11,266			125				129			(4		)
Interest rate swaptions		4,500			(70		)		38			(108		)
Total fair value hedges		15,766			55				167			(112		)
Net investment hedge:
Foreign currency swaps		1,950			201				264			(63		)
Foreign currency forwards		384			(9		)		0			(9		)
Foreign currency options		102			(2		)		2			(4		)
Total net investment hedge		2,436			190				266			(76		)
Non-qualifying strategies:
Interest rate swaps		222			0				1			(1		)
Foreign currency swaps		4,024			(84		)		153			(237		)
Credit default swaps		222			(7		)		2			(9		)
Total non-qualifying strategies		4,468			(91		)		156			(247		)
Total derivatives		$	22,801		$	163			$	598		$	(435	)
Balance Sheet Location
Other assets		$	15,334		$	598			$	598		$	0
Other liabilities		7,467			(435		)		0			(435		)
Total derivatives		$	22,801		$	163			$	598		$	(435	)



		December 31, 2012
(In millions)	Net Derivatives							Asset Derivatives			Liability Derivatives
Hedge Designation/ Derivative Type	Notional Amount			Fair Value				Fair Value			Fair Value
Cash flow hedges:
Interest rate swaps		$	64		$	0			$	0		$	0
Foreign currency swaps		75			14				14			0
Total cash flow hedges		139			14				14			0
Fair value hedges:
Foreign currency forwards		6,944			(535		)		0			(535		)
Total fair value hedges		6,944			(535		)		0			(535		)
Non-qualifying strategies:
Interest rate swaps		355			29				32			(3		)
Foreign currency swaps		5,577			(32		)		297			(329		)
Credit default swaps		355			(65		)		2			(67		)
Total non-qualifying strategies		6,287			(68		)		331			(399		)
Total derivatives		$	13,370		$	(589	)		$	345		$	(934	)
Balance Sheet Location
Other assets		$	2,585		$	345			$	345		$	0
Other liabilities		10,785			(934		)		0			(934		)
Total derivatives		$	13,370		$	(589	)		$	345		$	(934	)

Cash Flow Hedges

Certain of our consolidated VIEs have foreign currency swaps that qualify for hedge accounting treatment. For those that have qualified, we have designated the derivative as a hedge of the variability in cash flows of a forecasted transaction or of amounts to be received or paid related to a recognized asset (“cash flow” hedge). We expect to continue this hedging activity for a weighted-average period of approximately 12 years. The remaining derivatives in our consolidated VIEs that have not qualified for hedge accounting have been designated as held for other investment purposes (“non-qualifying strategies”).

We have an interest rate swap agreement related to 5.5 billion yen variable interest rate Samurai notes that we issued in July 2011 (see Note 7). By entering into this contract, we swapped the variable interest rate to a fixed interest rate of 1.475%. We have designated this interest rate swap as a hedge of the variability in our interest cash flows associated with the variable interest rate Samurai notes. The notional amount and terms of the swap match the principal amount and terms of the variable interest rate Samurai notes, and the swap had no value at inception. Changes in the fair value of the swap contract are recorded in other comprehensive income (loss) as the hedge is deemed effective. Should any portion of the hedge be deemed ineffective, that ineffective portion would be reported in net earnings.

Fair Value Hedges

We designate and account for foreign currency forwards as fair value hedges when they meet the requirements for hedge accounting. These foreign currency forwards hedge the foreign currency exposure of certain dollar-denominated fixed maturity securities within the investment portfolio of our Aflac Japan segment. We recognize gains and losses on these derivatives and the related hedged items in current earnings within derivative and other gains (losses). The change in the fair value of the foreign currency forwards related to the changes in the difference between the spot rate and the forward price is excluded from the assessment of hedge effectiveness.

We designate and account for interest rate swaptions as fair value hedges when they meet the requirements for hedge accounting. These interest rate swaptions hedge the interest rate exposure of certain dollar-denominated fixed maturity securities within the investment portfolio of our Aflac Japan segment. We recognize gains and losses on these derivatives and the related hedged items in current earnings within derivative and other gains (losses). The change in the fair value of the interest rate swaptions related to time to expiry is excluded from the assessment of hedge effectiveness.

The following table presents the gains and losses on derivatives and the related hedged items in fair value hedges.

Fair Value Hedging Relationships



(In millions)		Hedging Derivatives									Hedged Items
Hedging Derivatives	Hedged Items	Total Gains (Losses)			Gains (Losses) Excluded from Effectiveness Testing			Gains (Losses) Included in Effectiveness Testing			Gains (Losses)			Ineffectiveness Recognized for Fair Value Hedge
Three Months Ended September 30, 2013:
Foreign currency forwards	Fixed-maturity securities	$	102		$	(6	)	$	108		$	(104	)	$	4
Interest rate swaptions	Fixed-maturity securities	(41		)	(41		)	0			0			0
Nine Months Ended September 30, 2013:
Foreign currency forwards	Fixed-maturity securities	$	(891	)	$	(17	)	$	(874	)	$	870		$	(4	)
Interest rate swaptions	Fixed-maturity securities	(41		)	(41		)	0			0			0
Three and Nine Months Ended September 30, 2012:
Foreign currency forwards	Fixed-maturity securities	$	17		$	(3	)	$	20		$	(20	)	$	0

Net Investment Hedge

Our primary exposure to be hedged is our net investment in Aflac Japan, which is affected by changes in the yen/dollar exchange rate. To mitigate this exposure, we have taken the following courses of action. First, Aflac Japan maintains certain investments in dollar-denominated securities, which serve as an economic currency hedge of a portion of our investment in Aflac Japan. The functional currency for these investments is the U.S. dollar. The related investment income and realized/unrealized investment gains and losses are also denominated in U.S. dollars. The foreign exchange gains and losses related to these investments are taxable in Japan and the U.S. when the securities mature or are sold. Until maturity or sale, deferred tax expense or benefit associated with the foreign exchange gains or losses are recognized in other comprehensive income. As of October 1, 2013, these investments were transferred into the Aflac Japan investment portfolio comprising one foreign operation. These investments will begin to have translation effects recorded on a prospective basis. There was no translation impact for the nine-month period ended September 30, 2013 for these investments.

Secondly, we have designated a majority of the Parent Company's yen-denominated liabilities (Samurai and Uridashi notes and yen-denominated loans - see Note 7) as nonderivative hedges and designated foreign currency swaps, forwards, and options, as described below, as derivative hedges of the foreign currency exposure of our investment in Aflac Japan.

The designated foreign currency swaps consist of cross-currency interest rate swap agreements related to our $700 million senior notes due June 2023, $400 million senior notes due February 2017, $350 million senior notes due February 2022, and $500 million subordinated debentures due September 2052. For additional information regarding these swaps, see the accompanying Note 7 and also Note 8 of the Notes to the Consolidated Financial Statements in our annual report to shareholders for the year ended December 31, 2012.

The designated foreign currency forwards and options are derivatives that are hedging foreign exchange risk for certain expected profit repatriation in yen from Aflac Japan. We had foreign exchange forwards and options as part of a hedging strategy on 65 billion yen of the 2013 repatriation received in July 2013, and we have entered into foreign exchange forwards and options as part of a hedging strategy on 47.5 billion yen of the profit repatriation expected to be received in July 2014.

Our net investment hedge was effective during the three- and nine-month periods ended September 30, 2013 and 2012, respectively.

Non-qualifying Strategies

For our derivative instruments in consolidated VIEs that do not qualify for hedge accounting treatment, all changes in their fair value are reported in current period earnings within derivative and other gains (losses). The amount of gain or loss recognized in earnings for our VIEs is attributable to the derivatives in those investment structures. While the change in value of the swaps is recorded through current period earnings, the change in value of the available-for-sale fixed income or perpetual securities associated with these swaps is recorded through other comprehensive income.

Impact of Derivatives and Hedging Instruments

The following table summarizes the impact to realized investment gains (losses) and other comprehensive income (loss) from all derivatives and hedging instruments.



	Three Months Ended September 30,																Nine Months Ended September 30,
	2013								2012								2013								2012
(In millions)	Realized Investment Gains (Losses)				Other Comprehensive Income (Loss)⁽¹⁾				Realized Investment Gains (Losses)				Other Comprehensive Income (Loss)⁽¹⁾				Realized Investment Gains (Losses)				Other Comprehensive Income (Loss)⁽¹⁾				Realized Investment Gains (Losses)				Other Comprehensive Income (Loss)⁽¹⁾
Qualifying hedges:
Cash flow hedges:
Foreign currency swaps		$	1			$	2			$	0			$	2			$	(1	)		$	(5	)		$	0			$	(6	)
Total cash flow hedges		1				2				0				2				(1		)		(5		)		0				(6		)
Fair value hedges:
Foreign currency forwards⁽²⁾		(2		)		0				(3		)		0				(21		)		0				(3		)		0
Interest rate swaptions		(41		)		0				0				0				(41		)		0				0				0
Total fair value hedges		(43		)		0				(3		)		0				(62		)		0				(3		)		0
Net investment hedge:
Non- derivative hedging instruments		0				(6		)		0				(21		)		0				100				0				(4		)
Foreign currency swaps		0				(22		)		0				0				0				(104		)		0				0
Foreign currency forwards		0				2				0				0				0				(2		)		0				0
Foreign currency options		0				(4		)		0				0				0				(1		)		0				0
Total net investment hedge		0				(30		)		0				(21		)		0				(7		)		0				(4		)
Non-qualifying strategies:
Interest rate swaps		(1		)		0				7				0				(9		)		0				4				0
Foreign currency swaps		34				0				66				0				229				0				59				0
Foreign currency options		0				0				0				0				11				0				0				0
Credit default swaps		4				0				25				0				25				0				48				0
Interest rate swaptions		(29		)		0				0				0				(29		)		0				0				0
Other		(7		)		0				0				0				(7		)		0				0				0
Total non- qualifying strategies		1				0				98				0				220				0				111				0
Total		$	(41	)		$	(28	)		$	95			$	(19	)		$	157			$	(12	)		$	108			$	(10	)

⁽¹⁾Cash flow hedge items are recorded as unrealized gains (losses) on derivatives and net investment hedge items are recorded in the unrealized

foreign currency translation gains (losses) line in the consolidated statement of comprehensive income (loss).

⁽²⁾ Impact shown net of effect of hedged items (see Fair Value Hedges section of this Note 4 for further detail)

There was no gain or loss reclassified from accumulated other comprehensive income (loss) into earnings related to our designated cash flow hedges and net investment hedge for the three- and nine-month periods ended September 30, 2013 and 2012. As of September 30, 2013, deferred gains and losses on derivative instruments recorded in accumulated other comprehensive income that are expected to be reclassified to earnings during the next twelve months are immaterial.

Offsetting of Financial Instruments and Derivatives

Certain of the Company's derivative instruments are subject to enforceable master netting arrangements that provide for the net settlement of all derivative contracts between the Company and a counterparty in the event of default or upon the occurrence of certain termination events. Collateral support agreements with certain of the master netting arrangements provide that the Company will receive or pledge financial collateral in the event either minimum thresholds, or in certain cases ratings levels, have been reached.

We have securities lending agreements with unaffiliated financial institutions that post collateral to us in return for the use of our fixed maturity securities (see Note 3). When we have entered into securities lending agreements with the same counterparty, the agreements generally provide for net settlement in the event of default by the counterparty. This right of set-off would allow us to keep and apply collateral received if the counterparty failed to return the securities borrowed from us as contractually agreed. For additional information on the Company's accounting policy for securities lending, see Note 1 of the Notes to the Consolidated Financial Statements in our annual report to shareholders for the year ended December 31, 2012.

The tables below summarize our derivatives and securities lending transactions, and as reflected in the tables, in accordance with GAAP, our policy is to not offset these financial instruments in the Consolidated Balance Sheets.

Offsetting of Financial Assets and Derivative Assets



September 30, 2013
										Gross Amounts Not Offset in Balance Sheet
(in millions)	Gross Amount of Recognized Assets			Gross Amount Offset in Balance Sheet			Net Amount of Assets Presented in Balance Sheet			Carrying Value of Financial Instruments			Collateral Received					Net Amount
Derivative assets:
Interest rate swaps		$	1		$	0		$	1		$	0		$	0				$	1
Foreign currency swaps		426			0			426			0			(104		)			322
Foreign currency forwards		129			0			129			0			0					129
Foreign currency options		2			0			2			0			0					2
Credit default swaps		2			0			2			0			0					2
Interest rate swaptions		38			0			38			0			0					38
Total derivative assets, subject to a master netting arrangement or offsetting arrangement		598			0			598			0			(104		)	⁽¹⁾		494
Securities lending and similar arrangements		613			0			613			0			(613		)			0
Total		$	1,211		$	0		$	1,211		$	0		$	(717	)			$	494

⁽¹⁾ Consists entirely of cash.



December 31, 2012
										Gross Amounts Not Offset in Balance Sheet
(In millions)	Gross Amount of Recognized Assets			Gross Amount Offset in Balance Sheet			Net Amount of Assets Presented in Balance Sheet			Carrying Value of Financial Instruments			Collateral Received				Net Amount
Derivative assets:
Interest rate swaps		$	32		$	0		$	32		$	0		$	0			$	32
Foreign currency swaps		311			0			311			0			0				311
Credit default swaps		2			0			2			0			0				2
Total derivative assets, subject to a master netting arrangement or offsetting arrangement		345			0			345			0			0				345
Securities lending and similar arrangements		6,122			0			6,122			0			(6,122		)		0
Total		$	6,467		$	0		$	6,467		$	0		$	(6,122	)		$	345

Offsetting of Financial Liabilities and Derivative Liabilities



September 30, 2013
												Gross Amounts Not Offset in Balance Sheet
(In millions)	Gross Amount of Recognized Liabilities				Gross Amount Offset in Balance Sheet			Net Amount of Liabilities Presented in Balance Sheet				Carrying Value of Financial Instruments			Collateral Pledged				Net Amount
Derivative liabilities:
Interest rate swaps		$	(1	)		$	0		$	(1	)		$	0		$	0			$	(1	)
Foreign currency swaps		(300		)		0			(300		)		0			7				(293		)
Foreign currency forwards		(13		)		0			(13		)		0			9				(4		)
Foreign currency options		(4		)		0			(4		)		0			2				(2		)
Credit default swaps		(9		)		0			(9		)		0			0				(9		)
Interest rate swaptions		(108		)		0			(108		)		0			70				(38		)
Total derivative liabilities, subject to a master netting arrangement or offsetting arrangement		(435		)		0			(435		)		0			88		⁽¹⁾		(347		)
Securities lending and similar arrangements		(628		)		0			(628		)		613			0				(15		)
Total		$	(1,063	)		$	0		$	(1,063	)		$	613		$	88			$	(362	)

⁽¹⁾ Consists of $70 of pledged JGBs and $18 of cash.



December 31, 2012
												Gross Amounts Not Offset in Balance Sheet
(In millions)	Gross Amount of Recognized Liabilities				Gross Amount Offset in Balance Sheet			Net Amount of Liabilities Presented in Balance Sheet				Carrying Value of Financial Instruments			Collateral Pledged			Net Amount
Derivative liabilities:
Interest rate swaps		$	(3	)		$	0		$	(3	)		$	0		$	0		$	(3	)
Foreign currency swaps		(329		)		0			(329		)		0			0			(329		)
Foreign currency forwards		(535		)		0			(535		)		0			0			(535		)
Credit default swaps		(67		)		0			(67		)		0			0			(67		)
Total derivative liabilities, subject to a master netting arrangement or offsetting arrangement		(934		)		0			(934		)		0			0			(934		)
Securities lending and similar arrangements		(6,277		)		0			(6,277		)		6,122			0			(155		)
Total		$	(7,211	)		$	0		$	(7,211	)		$	6,122		$	0		$	(1,089	)

For additional information on our financial instruments, see the accompanying Notes 1, 3 and 5 and Notes 1, 3 and 5 of the Notes to the Consolidated Financial Statements in our annual report to shareholders for the year ended December 31, 2012.