Variable Interest Entities ("VIE's")

9 Months Ended

Sep. 30, 2013

Variable Interest Entities [Abstract]

4. Variable Interest Entities (“VIEs”)

Consolidated VIEs

See Note 4 in our 2012 Form 10-K for a detailed discussion of our consolidated VIEs, which information is incorporated herein by reference.

The following summarizes information regarding the credit-linked note (“CLN”) structures (dollars in millions) as of September 30, 2013:



	Amount and Date of Issuance
		$400	$200
		December	April
		2006	2007
Original attachment point (subordination)		5.50%	2.05%
Current attachment point (subordination)		4.17%	1.48%
Maturity		12/20/2016	3/20/2017
Current rating of tranche		BB+	Ba2
Current rating of underlying collateral pool		Aa1-B1	Aaa-Caa2
Number of defaults in underlying collateral pool		2	2
Number of entities		123	99
Number of countries		20	21

The following summarizes the exposure of the CLN structures’ underlying collateral by industry and rating as of September 30, 2013:



	AAA	AA	A	BBB	BB	B	CCC	Total
Financial intermediaries	0.0%	2.1%	7.0%	1.4%	0.0%	0.0%	0.0%	10.5%
Telecommunications	0.0%	0.0%	3.5%	6.4%	0.5%	0.0%	0.0%	10.4%
Oil and gas	0.4%	2.1%	1.0%	4.6%	0.0%	0.0%	0.0%	8.1%
Utilities	0.0%	0.0%	2.6%	2.0%	0.0%	0.0%	0.0%	4.6%
Chemicals and plastics	0.0%	0.0%	2.3%	1.2%	0.4%	0.0%	0.0%	3.9%
Drugs	0.3%	2.2%	1.2%	0.0%	0.0%	0.0%	0.0%	3.7%
Retailers (except food
and drug)	0.0%	0.0%	2.1%	0.9%	0.5%	0.0%	0.0%	3.5%
Industrial equipment	0.0%	0.0%	2.6%	0.7%	0.0%	0.0%	0.0%	3.3%
Sovereign	0.0%	0.7%	1.2%	1.3%	0.0%	0.0%	0.0%	3.2%
Conglomerates	0.0%	2.3%	0.9%	0.0%	0.0%	0.0%	0.0%	3.2%
Forest products	0.0%	0.0%	0.0%	1.6%	1.4%	0.0%	0.0%	3.0%
Other	0.0%	4.1%	15.1%	18.2%	4.6%	0.3%	0.3%	42.6%
Total	0.7%	13.5%	39.5%	38.3%	7.4%	0.3%	0.3%	100.0%

Asset and liability information (dollars in millions) for the consolidated VIEs included on our Consolidated Balance Sheets was as follows:



		As of September 30, 2013							As of December 31, 2012
		Number							Number
		of		Notional		Carrying			of		Notional		Carrying
	Instruments			Amounts		Value		Instruments			Amounts		Value
Assets
Fixed maturity securities:
Asset-backed credit card loans			N/A	$	-	$	595			N/A	$	-	$	598
U.S. government bonds			N/A		-		104			N/A		-		110
Excess mortality swap			1		100		-			1		100		-
Total assets ⁽¹⁾			1	$	100	$	699			1	$	100	$	708

Liabilities
Non-qualifying hedges:
Credit default swaps			2	$	600	$	67			2	$	600	$	128
Contingent forwards			2		-		-			2		-		-
Total liabilities ⁽²⁾			4	$	600	$	67			4	$	600	$	128

⁽¹⁾	Reported in variable interest entities’ fixed maturity securities on our Consolidated Balance Sheets.

⁽²⁾	Reported in variable interest entities’ liabilities on our Consolidated Balance Sheets.

For details related to the fixed maturity available-for-sale (“AFS”) securities for these VIEs, see Note 5.

As described more fully in Note 1 of our 2012 Form 10-K, we regularly review our investment holdings for other-than-temporary impairment (“OTTI”). Based upon this review, we believe that the AFS fixed maturity securities were not other-than-temporarily impaired as of September 30, 2013.

The gains (losses) for the consolidated VIEs (in millions) recorded on our Consolidated Statements of Comprehensive Income (Loss) were as follows:



	For the Three				For the Nine
	Months Ended				Months Ended
	September 30,				September 30,
	2013		2012		2013		2012
Non-Qualifying Hedges
Credit default swaps	$	35	$	58	$	61	$	120
Contingent forwards		-		(1)		-		(3)
Total non-qualifying hedges ⁽¹⁾	$	35	$	57	$	61	$	117

⁽¹⁾	Reported in realized gain (loss) on our Consolidated Statements of Comprehensive Income (Loss).

Unconsolidated VIEs

See Note 4 in our 2012 Form 10-K for a detailed discussion of our unconsolidated VIEs, which information is incorporated herein by reference.

We invest in certain limited partnerships (“LPs”) that operate qualified affordable housing projects that we have concluded are VIEs. We receive returns from the LPs in the form of income tax credits that are guaranteed by creditworthy third parties, and our exposure to loss is limited to the capital we invest in the LPs. We are not the primary beneficiary of these VIEs as we do not have the power to direct the most significant activities of the LPs. Our maximum exposure to loss was $89 million and $92 million as of September 30, 2013, and December 31, 2012, respectively.

- Definition

Tabular disclosure of the significant judgments and assumptions made in determining whether a variable interest (as defined) held by the entity requires the variable interest entity (VIE) (as defined) to be consolidated and (or) disclose information about its involvement with the VIE, individually or in aggregate (as applicable); the nature of restrictions, if any, on the consolidated VIE's assets and on the settlement of its liabilities reported by an entity in its statement of financial position, including the carrying amounts of such assets and liabilities; the nature of, and changes in, the risks associated with involvement in the VIE; how involvement with the VIE affects the entity's financial position, financial performance, and cash flows; the lack of recourse if creditors (or beneficial interest holders) of the consolidated VIE have no recourse to the general credit of the primary beneficiary (if applicable); the terms of arrangements, giving consideration to both explicit arrangements and implicit variable interests, if any, that could require the entity to provide financial support to the VIE, including events or circumstances that could expose the entity to a loss; the methodology used by the entity for determining whether or not it is the primary beneficiary of the variable interest entity; the significant factors considered and judgments made in determining that the power to direct the activities of a VIE that most significantly impact the VIE's economic performance are shared (as defined); the carrying amounts and classification of assets and liabilities of the VIE included in the statement of financial position; the entity's maximum exposure to loss, if any, as a result of its involvement with the VIE, including how the maximum exposure is determined and significant sources of the entity's exposure to the VIE; a comparison of the carrying amounts of the assets and liabilities and the entity's maximum exposure to loss; information about any liquidity arrangements, guarantees, and (or) other commitments by third parties that may affect the fair value or risk of the entity's variable interest in the VIE; whether or not the entity has provided financial support or other support (explicitly or implicitly) to the VIE that it was not previously contractually required to provide or whether the entity intends to provide that support, including the type and amount of the support and the primary reasons for providing the support; and supplemental information the entity determines necessary to provide.

+ References

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+ Details