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 forwards and options 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) and futures used to hedge interest rate risk for certain 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

We enter into foreign currency swaps pursuant to which we exchange an initial principal amount in one currency for an initial principal amount of another currency, with an agreement 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 and options with short-term maturities are executed for the Aflac Japan segment in order to hedge the currency risk on the fair value of certain fixed-maturity dollar-denominated securities. In forward 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. In option transactions, Aflac Japan agrees with another party to simultaneously purchase a fixed amount of U.S. dollar call options and sell U.S. dollar put options. The combination of these two actions results in no net premium being paid (i.e. a costless or zero-cost collar). The foreign currency forwards and options 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 also 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 yen call options (options that limit exposure to increasing foreign exchange rates) and selling yen put options (options that limit exposure to decreasing foreign exchange rates). The combination of these two actions results in no net premium being 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 specified future dates at contracted prices.

Our CDSs are used to assume credit risk related to an individual security or an index. The only CDS derivatives that we have entered into relate to components of certain of our investments in VIEs. These CDS contracts entitle the consolidated VIE to receive periodic fees in exchange for an obligation to compensate the derivative counterparties should the reference security issuers experience a credit event, as defined in the contract.

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. 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’.

Periodically, depending on general economic conditions, we may enter into other derivative transactions.

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 entered into in connection with certain of our senior notes, subordinated debentures, and Samurai notes; foreign currency forwards; foreign currency options; and interest rate swaptions, and 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 counterparties to those transactions must meet. As of June 30, 2014, there were 13 counterparties to our derivative agreements, with five comprising approximately 85% of the aggregate notional amount. The counterparties to these derivatives are financial institutions with the following credit ratings:



	June 30, 2014										December 31, 2013
(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		$	3		$	(4	)		$	161		$	1		$	(7	)
A		23,782			588			(236		)		22,314			487			(830		)
Total		$	23,943		$	591		$	(240	)		$	22,475		$	488		$	(837	)

We engage in derivative transactions directly with unaffiliated third parties under International Swaps and Derivatives Association, Inc. (ISDA) agreements and other documentation. Most of the ISDA agreements also include Credit Support Annex (CSA) provisions, which generally provide for two-way collateral postings, in certain cases at the first dollar of exposure and in other cases once various rating and exposure threshold levels are triggered. We mitigate 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 $62 million at June 30, 2014, which consisted of $55 million of pledged JGBs and $7 million of cash, compared with $8 million at December 31, 2013, which consisted of $7 million of pledged JGBs and $1 million of cash. 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 $73 million and $18 million as of June 30, 2014 and December 31, 2013, respectively. If the credit-risk-related contingent features underlying these agreements had been triggered on June 30, 2014, we estimate that we would be required to post a maximum of $11 million of additional collateral to these derivative counterparties. Collateral obtained by us from third parties for derivative transactions was $273 million and $295 million at June 30, 2014 and December 31, 2013, respectively. 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.



June 30, 2014
		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	$	(17	)	$	0	$	0	$	0	$	0		$	0	$	0	$	0	$	(17	)	$	0
	BBB	0			0		0		0		(99		)	0		0		0		(99		)	0
Total		$	(17	)	$	0	$	0	$	0	$	(99	)	$	0	$	0	$	0	$	(116	)	$	0



December 31, 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	$	(112	)	$	1	$	0	$	0	$	0		$	0		$	(112	)	$	1
	BBB	0		0		0			0		0		0		(95		)	(4		)	(95		)	(4		)
Total		$	0	$	0	$	(112	)	$	1	$	0	$	0	$	(95	)	$	(4	)	$	(207	)	$	(3	)

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 fair value 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 and options as derivative hedging instruments. We make our net investment hedge designation at the beginning of each quarter. 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 forward contracts and the time value of foreign currency options, are reported in the unrealized foreign currency component of other comprehensive income. Should these designated net investment hedge positions exceed our net investment in Aflac Japan, the foreign exchange effect on the portion that exceeds our investment in Aflac Japan would be recognized in current earnings within derivative and other gains (losses).

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.



		June 30, 2014
(In millions)	Net Derivatives							Asset Derivatives			Liability Derivatives
Hedge Designation/ Derivative Type	Notional Amount			Fair Value				Fair Value			Fair Value
Cash flow hedges:
Foreign currency swaps		$	75		$	4			$	4		$	0
Interest rate swaps		54			0				0			0
Total cash flow hedges		129			4				4			0
Fair value hedges:
Foreign currency forwards		13,837			104				104			0
Foreign currency options		750			1				2			(1		)
Interest rate swaptions		3,265			(65		)		11			(76		)
Total fair value hedges		17,852			40				117			(77		)
Net investment hedge:
Foreign currency forwards		99			3				3			0
Foreign currency options		518			1				7			(6		)
Total net investment hedge		617			4				10			(6		)
Non-qualifying strategies:
Foreign currency swaps		5,212			304				460			(156		)
Credit default swaps		116			0				0			0
Interest rate swaps		17			(1		)		0			(1		)
Total non-qualifying strategies		5,345			303				460			(157		)
Total derivatives		$	23,943		$	351			$	591		$	(240	)
Balance Sheet Location
Other assets		$	18,881		$	591			$	591		$	0
Other liabilities		5,062			(240		)		0			(240		)
Total derivatives		$	23,943		$	351			$	591		$	(240	)



		December 31, 2013
(In millions)	Net Derivatives							Asset Derivatives			Liability Derivatives
Hedge Designation/ Derivative Type	Notional Amount			Fair Value				Fair Value			Fair Value
Cash flow hedges:
Foreign currency swaps		$	75		$	3			$	3		$	0
Interest rate swaps		52			0				0			0
Total cash flow hedges		127			3				3			0
Fair value hedges:
Foreign currency forwards		11,249			(582		)		0			(582		)
Interest rate swaptions		4,500			(12		)		20			(32		)
Total fair value hedges		15,749			(594		)		20			(614		)
Net investment hedge:
Foreign currency forwards		356			17				17			0
Foreign currency options		95			3				4			(1		)
Total net investment hedge		451			20				21			(1		)
Non-qualifying strategies:
Foreign currency swaps		5,829			224				442			(218		)
Credit default swaps		207			(3		)		1			(4		)
Interest rate swaps		112			1				1			0
Total non-qualifying strategies		6,148			222				444			(222		)
Total derivatives		$	22,475		$	(349	)		$	488		$	(837	)
Balance Sheet Location
Other assets		$	5,308		$	488			$	488		$	0
Other liabilities		17,167			(837		)		0			(837		)
Total derivatives		$	22,475		$	(349	)		$	488		$	(837	)

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 effectively 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 long 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 certain foreign currency forwards and options as fair value hedges when they meet the requirements for hedge accounting. These foreign currency forwards and options 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. The change in fair value of the foreign currency option related to the time value of the option 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 the time value of the option 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 June 30, 2014:
Foreign currency forwards	Fixed-maturity securities	$	199		$	(25	)	$	224		$	(204	)	$	20
Foreign currency options	Fixed-maturity securities	1			1			0			0			0
Interest rate swaptions	Fixed-maturity securities	(81		)	2			(83		)	90			7
Six Months Ended June 30, 2014:
Foreign currency forwards	Fixed-maturity securities	$	463		$	(35	)	$	498		$	(473	)	$	25
Foreign currency options	Fixed-maturity securities	1			1			0			0			0
Interest rate swaptions	Fixed-maturity securities	(135		)	(22		)	(113		)	122			9
Three Months Ended June 30, 2013:
Foreign currency forwards	Fixed-maturity securities	$	(384	)	$	(6	)	$	(378	)	$	371		$	(7	)
Six Months Ended June 30, 2013:
Foreign currency forwards	Fixed-maturity securities	$	(993	)	$	(11	)	$	(982	)	$	974		$	(8	)

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 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 forwards and options as derivative hedges of the foreign currency exposure of our net investment in Aflac Japan. As of June 30, 2014, we had foreign exchange forwards and options as an economic hedge on 52.5 billion yen of profit repatriation received in July 2014 and 10.0 billion yen of the profit repatriation expected to be received in July 2015.

Our net investment hedge was effective during the three- and six-month periods ended June 30, 2014 and 2013, 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.

We have 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. Changes in the values of these swaps are recorded through current period earnings. For additional information regarding these swaps, see Note 7.

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 June 30,																Six Months Ended June 30,
	2014								2013								2014								2013
(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		$	0			$	2			$	(1	)		$	0			$	(1	)		$	1			$	(2	)		$	(7	)
Total cash flow hedges		0				2				(1		)		0				(1		)		1				(2		)		(7		)
Fair value hedges:
Foreign currency forwards⁽²⁾		(5		)		0				(13		)		0				(10		)		0				(19		)		0
Foreign currency options ⁽²⁾		1				0				0				0				1				0				0				0
Interest rate swaptions⁽²⁾		9				0				0				0				(13		)		0				0				0
Total fair value hedges		5				0				(13		)		0				(22		)		0				(19		)		0
Net investment hedge:
Non- derivative hedging instruments		0				(11		)		0				37				0				(28		)		0				106
Foreign currency swaps		0				0				0				(82		)		0				0				0				(82		)
Foreign currency forwards		0				(7		)		0				(4		)		0				(13		)		0				(4		)
Foreign currency options		0				(2		)		0				3				0				(3		)		0				3
Total net investment hedge		0				(20		)		0				(46		)		0				(44		)		0				23
Non-qualifying strategies:
Foreign currency swaps		24				0				111				0				4				0				195				0
Foreign currency options		0				0				9				0				0				0				11				0
Credit default swaps		1				0				9				0				3				0				21				0
Interest rate swaps		2				0				(4		)		0				1				0				(8		)		0
Futures		1				0				0				0				(35		)		0				0				0
Total non- qualifying strategies		28				0				125				0				(27		)		0				219				0
Total		$	33			$	(18	)		$	111			$	(46	)		$	(50	)		$	(43	)		$	198			$	16

⁽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 six-month periods ended June 30, 2014 and 2013, respectively. As of June 30, 2014, 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 were 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.

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



June 30, 2014
										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:
Foreign currency swaps		$	464		$	0		$	464		$	0		$	(250	)			$	214
Foreign currency forwards		107			0			107			0			(16		)			91
Foreign currency options		9			0			9			0			(7		)			2
Interest rate swaptions		11			0			11			0			0					11
Total derivative assets, subject to a master netting arrangement or offsetting arrangement		591			0			591			0			(273		)	⁽¹⁾		318
Securities lending and similar arrangements		2,907			0			2,907			0			(2,907		)			0
Total		$	3,498		$	0		$	3,498		$	0		$	(3,180	)			$	318

⁽¹⁾ Consists of $82 of securities and $191 of cash



December 31, 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:
Foreign currency swaps		$	445		$	0		$	445		$	0		$	(276	)			$	169
Foreign currency forwards		17			0			17			0			(16		)			1
Foreign currency options		4			0			4			0			(3		)			1
Credit default swaps		1			0			1			0			0					1
Interest rate swaps		1			0			1			0			0					1
Interest rate swaptions		20			0			20			0			0					20
Total derivative assets, subject to a master netting arrangement or offsetting arrangement		488			0			488			0			(295		)	⁽¹⁾		193
Securities lending and similar arrangements		5,656			0			5,656			0			(5,656		)			0
Total		$	6,144		$	0		$	6,144		$	0		$	(5,951	)			$	193

⁽¹⁾ Consists entirely of cash.

Offsetting of Financial Liabilities and Derivative Liabilities



June 30, 2014
												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:
Foreign currency swaps		$	(156	)		$	0		$	(156	)		$	0		$	5			$	(151	)
Foreign currency options		(7		)		0			(7		)		0			2				(5		)
Interest rate swaps		(1		)		0			(1		)		0			0				(1		)
Interest rate swaptions		(76		)		0			(76		)		0			55				(21		)
Total derivative liabilities, subject to a master netting arrangement or offsetting arrangement		(240		)		0			(240		)		0			62		⁽¹⁾		(178		)
Securities lending and similar arrangements		(2,972		)		0			(2,972		)		2,907			0				(65		)
Total		$	(3,212	)		$	0		$	(3,212	)		$	2,907		$	62			$	(243	)

⁽¹⁾ Consists of $55 of pledged JGBs and $7 of cash.



December 31, 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:
Foreign currency swaps		$	(218	)		$	0		$	(218	)		$	0		$	1			$	(217	)
Foreign currency forwards		(582		)		0			(582		)		0			0				(582		)
Foreign currency options		(1		)		0			(1		)		0			0				(1		)
Credit default swaps		(4		)		0			(4		)		0			0				(4		)
Interest rate swaptions		(32		)		0			(32		)		0			7				(25		)
Total derivative liabilities, subject to a master netting arrangement or offsetting arrangement		(837		)		0			(837		)		0			8		⁽¹⁾		(829		)
Securities lending and similar arrangements		(5,820		)		0			(5,820		)		5,656			0				(164		)
Total		$	(6,657	)		$	0		$	(6,657	)		$	5,656		$	8			$	(993	)

⁽¹⁾ Consists of $7 of pledged JGBs and $1 of cash.

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, 2013.