XML 97 R20.htm IDEA: XBRL DOCUMENT v2.4.0.8
Fair Value of Financial Instruments
 9 Months Ended
Sep. 30, 2013
Fair Value Of Financial Instruments [Abstract]  
Fair Value of Financial Instruments

13.  Fair Value of Financial Instruments

 

The carrying values and estimated fair values of our financial instruments (in millions) were as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of September 30, 2013

 

As of December 31, 2012

 

 

Carrying

 

Fair

 

Carrying

 

Fair

 

 

Value

 

Value

 

Value

 

Value

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

AFS securities:

 

 

 

 

 

 

 

 

 

 

 

 

Fixed maturity securities

$
80,135 

 

$
80,135 

 

$
82,036 

 

$
82,036 

 

VIEs' fixed maturity securities

 
699 

 

 
699 

 

 
708 

 

 
708 

 

Equity securities

 
185 

 

 
185 

 

 
157 

 

 
157 

 

Trading securities

 
2,354 

 

 
2,354 

 

 
2,554 

 

 
2,554 

 

Mortgage loans on real estate

 
7,127 

 

 
7,456 

 

 
7,029 

 

 
7,704 

 

Derivative investments

 
1,114 

 

 
1,114 

 

 
2,652 

 

 
2,652 

 

Other investments

 
1,219 

 

 
1,219 

 

 
1,098 

 

 
1,098 

 

Cash and invested cash

 
2,650 

 

 
2,650 

 

 
4,230 

 

 
4,230 

 

Future contract benefits – GLB reserves

 

 

 

 

 

 

 

 

 

 

 

 

embedded derivatives

 
711 

 

 
711 

 

 

 -

 

 

 -

 

Separate account assets

 
109,376 

 

 
109,376 

 

 
95,373 

 

 
95,373 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

Future contract benefits:

 

 

 

 

 

 

 

 

 

 

 

 

Indexed annuity and universal life contracts

 

 

 

 

 

 

 

 

 

 

 

 

embedded derivatives

 
(924)

 

 
(924)

 

 
(732)

 

 
(732)

 

GLB reserves embedded derivatives

 

 -

 

 

 -

 

 
(909)

 

 
(909)

 

Other contract holder funds:

 

 

 

 

 

 

 

 

 

 

 

 

Remaining guaranteed interest and similar contracts

 
(846)

 

 
(846)

 

 
(867)

 

 
(867)

 

Account values of certain investment contracts

 
(28,936)

 

 
(30,519)

 

 
(28,540)

 

 
(32,688)

 

Short-term debt (1)

 
(503)

 

 
(507)

 

 
(200)

 

 
(204)

 

Long-term debt

 
(5,365)

 

 
(5,775)

 

 
(5,439)

 

 
(5,824)

 

Reinsurance related embedded derivatives

 
(121)

 

 
(121)

 

 
(215)

 

 
(215)

 

VIEs' liabilities – derivative instruments

 
(67)

 

 
(67)

 

 
(128)

 

 
(128)

 

Other liabilities – credit default swaps

 
(5)

 

 
(5)

 

 
(11)

 

 
(11)

 

 

(1)

The difference between the carrying value and fair value of short-term debt as of September 30, 2013, and December 31, 2012, related to current maturities of long-term debt.

 

Valuation Methodologies and Associated Inputs for Financial Instruments Not Carried at Fair Value

 

The following discussion outlines the methodologies and assumptions used to determine the fair value of our financial instruments not carried at fair value on our Consolidated Balance Sheets.  Considerable judgment is required to develop these assumptions used to measure fair value.  Accordingly, the estimates shown are not necessarily indicative of the amounts that would be realized in a one-time, current market exchange of all of our financial instruments.

 

Mortgage Loans on Real Estate

 

The fair value of mortgage loans on real estate is established using a discounted cash flow method based on credit rating, maturity and future income.  The ratings for mortgages in good standing are based on property type, location, market conditions, occupancy, debt-service coverage, loan-to-value, quality of tenancy, borrower and payment record.  The fair value for impaired mortgage loans is based on the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s market price or the fair value of the collateral if the loan is collateral dependent.  The inputs used to measure the fair value of our mortgage loans on real estate are classified as Level 2 within the fair value hierarchy.

 

Other Investments

 

The carrying value of our assets classified as other investments approximates fair value.  Other investments include LPs and other privately held investments that are accounted for using the equity method of accounting and the carrying value is based on our proportional share of the net assets of the LPs.  The inputs used to measure the fair value of our other investments are classified as Level 3 within the fair value hierarchy.

 

Other Contract Holder Funds

 

Other contract holder funds include remaining guaranteed interest and similar contracts and account values of certain investment contracts.  The fair value for the remaining guaranteed interest and similar contracts is estimated using discounted cash flow calculations as of the balance sheet date.  These calculations are based on interest rates currently offered on similar contracts with maturities that are consistent with those remaining for the contracts being valued.  As of September 30, 2013, and December 31, 2012, the remaining guaranteed interest and similar contracts carrying value approximated fair value.  The fair value of the account values of certain investment contracts is based on their approximate surrender value as of the balance sheet date.  The inputs used to measure the fair value of our other contract holder funds are classified as Level 3 within the fair value hierarchy.

 

Short-Term and Long-Term Debt    

 

The fair value of long-term debt is based on quoted market prices.  For short-term debt, excluding current maturities of long-term debt, the carrying value approximates fair value.  The inputs used to measure the fair value of our short-term and long-term debt are classified as Level 2 within the fair value hierarchy.   

 

Financial Instruments Carried at Fair Value

 

We did not have any assets or liabilities measured at fair value on a nonrecurring basis as of September 30, 2013, or December 31, 2012, and we noted no changes in our valuation methodologies between these periods.

 

 

The following summarizes our financial instruments carried at fair value (in millions) on a recurring basis by the fair value hierarchy levels described  in “Summary of Significant Accounting Policies” in Note 1 of our 2012 Form 10-K:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of September 30, 2013

 

 

 

Quoted

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Prices

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

in Active

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Markets for

Significant

Significant

 

 

 

 

 

 

Identical

 

Observable

Unobservable

 

Total

 

 

 

Assets

 

 

Inputs

 

 

Inputs

 

 

Fair

 

 

 

(Level 1)

 

 

(Level 2)

 

 

(Level 3)

 

 

Value

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed maturity AFS securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate bonds

 

$
60 

 

 

$
66,785 

 

 

$
1,680 

 

 

$
68,525 

 

U.S. government bonds

 

 
345 

 

 

 
23 

 

 

 

 -

 

 

 
368 

 

Foreign government bonds

 

 

 -

 

 

 
480 

 

 

 
96 

 

 

 
576 

 

RMBS

 

 

 -

 

 

 
4,649 

 

 

 
1 

 

 

 
4,650 

 

CMBS

 

 

 -

 

 

 
776 

 

 

 
19 

 

 

 
795 

 

CDOs

 

 

 -

 

 

 
21 

 

 

 
173 

 

 

 
194 

 

State and municipal bonds

 

 

 -

 

 

 
3,947 

 

 

 
29 

 

 

 
3,976 

 

Hybrid and redeemable preferred securities

 

 
40 

 

 

 
945 

 

 

 
66 

 

 

 
1,051 

 

VIEs' fixed maturity securities

 

 
105 

 

 

 
594 

 

 

 

 -

 

 

 
699 

 

Equity AFS securities

 

 
4 

 

 

 
34 

 

 

 
147 

 

 

 
185 

 

Trading securities

 

 

 -

 

 

 
2,299 

 

 

 
55 

 

 

 
2,354 

 

Derivative investments

 

 

 -

 

 

 
(292)

 

 

 
1,406 

 

 

 
1,114 

 

Cash and invested cash

 

 

 -

 

 

 
2,650 

 

 

 

 -

 

 

 
2,650 

 

Future contract benefits – GLB reserves

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

embedded derivatives

 

 

 -

 

 

 

 -

 

 

 
711 

 

 

 
711 

 

Separate account assets

 

 
1,672 

 

 

 
107,704 

 

 

 

 -

 

 

 
109,376 

 

Total assets

 

$
2,226 

 

 

$
190,615 

 

 

$
4,383 

 

 

$
197,224 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Future contract benefits – indexed annuity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

and universal life contracts embedded derivatives

 

$

 -

 

 

$

 -

 

 

$
(924)

 

 

$
(924)

 

Long-term debt

 

 

 -

 

 

 
(1,203)

 

 

 

 -

 

 

 
(1,203)

 

Reinsurance related embedded derivatives

 

 

 -

 

 

 
(121)

 

 

 

 -

 

 

 
(121)

 

VIEs' liabilities – derivative instruments

 

 

 -

 

 

 

 -

 

 

 
(67)

 

 

 
(67)

 

Other liabilities – credit default swaps

 

 

 -

 

 

 

 -

 

 

 
(5)

 

 

 
(5)

 

Total liabilities

 

$

 -

 

 

$
(1,324)

 

 

$
(996)

 

 

$
(2,320)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of December 31, 2012

 

 

 

Quoted

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Prices

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

in Active

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Markets for

Significant

Significant

 

 

 

 

 

 

Identical

 

Observable

Unobservable

 

Total

 

 

 

Assets

 

 

Inputs

 

 

Inputs

 

 

Fair

 

 

 

(Level 1)

 

 

(Level 2)

 

 

(Level 3)

 

 

Value

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed maturity AFS securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate bonds

 

$
65 

 

 

$
66,446 

 

 

$
1,505 

 

 

$
68,016 

 

U.S. government bonds

 

 
411 

 

 

 
30 

 

 

 
1 

 

 

 
442 

 

Foreign government bonds

 

 

 -

 

 

 
608 

 

 

 
46 

 

 

 
654 

 

RMBS

 

 

 -

 

 

 
6,168 

 

 

 
3 

 

 

 
6,171 

 

CMBS

 

 

 -

 

 

 
976 

 

 

 
27 

 

 

 
1,003 

 

CDOs

 

 

 -

 

 

 
26 

 

 

 
154 

 

 

 
180 

 

State and municipal bonds

 

 

 -

 

 

 
4,321 

 

 

 
32 

 

 

 
4,353 

 

Hybrid and redeemable preferred securities

 

 
30 

 

 

 
1,069 

 

 

 
118 

 

 

 
1,217 

 

VIEs' fixed maturity securities

 

 
110 

 

 

 
598 

 

 

 

 -

 

 

 
708 

 

Equity AFS securities

 

 
44 

 

 

 
26 

 

 

 
87 

 

 

 
157 

 

Trading securities

 

 
2 

 

 

 
2,496 

 

 

 
56 

 

 

 
2,554 

 

Derivative investments

 

 

 -

 

 

 
626 

 

 

 
2,026 

 

 

 
2,652 

 

Cash and invested cash

 

 

 -

 

 

 
4,230 

 

 

 

 -

 

 

 
4,230 

 

Separate account assets

 

 
1,519 

 

 

 
93,854 

 

 

 

 -

 

 

 
95,373 

 

Total assets

 

$
2,181 

 

 

$
181,474 

 

 

$
4,055 

 

 

$
187,710 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Future contract benefits:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Indexed annuity and universal life contracts

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

embedded derivatives

 

$

 -

 

 

$

 -

 

 

$
(732)

 

 

$
(732)

 

GLB reserves embedded derivatives

 

 

 -

 

 

 

 -

 

 

 
(909)

 

 

 
(909)

 

Long-term debt

 

 

 -

 

 

 
(1,203)

 

 

 

 -

 

 

 
(1,203)

 

Reinsurance related embedded derivatives

 

 

 -

 

 

 
(215)

 

 

 

 -

 

 

 
(215)

 

VIEs' liabilities – derivative instruments

 

 

 -

 

 

 

 -

 

 

 
(128)

 

 

 
(128)

 

Other liabilities – credit default swaps

 

 

 -

 

 

 

 -

 

 

 
(11)

 

 

 
(11)

 

Total liabilities

 

$

 -

 

 

$
(1,418)

 

 

$
(1,780)

 

 

$
(3,198)

 

 

 

The following summarizes changes to our financial instruments carried at fair value (in millions) and classified within Level 3 of the fair value hierarchy.  This summary excludes any effect of amortization of DAC, VOBA, DSI and DFEL.  The gains and losses below may include changes in fair value due in part to observable inputs that are a component of the valuation methodology.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended September 30, 2013

 

 

 

 

 

 

 

Gains

Issuances,

Transfers

 

 

 

 

 

 

 

Items

 

(Losses)

 

Sales,

 

In or

 

 

 

 

 

 

 

Included

 

in

Maturities,

Out

 

 

 

 

Beginning

 

in

 

OCI

Settlements,

of

 

Ending

 

Fair

 

Net

 

and

 

Calls,

 

Level 3,

 

Fair

 

Value

 

Income

 

Other (1)

 

Net

 

Net (2)

 

Value

Investments: (3)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed maturity AFS securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate bonds

$
1,792 

 

$
2 

 

$
(2)

 

$
14 

 

$
(126)

 

$
1,680 

Foreign government bonds

 
75 

 

 

 -

 

 
1 

 

 
20 

 

 

 -

 

 
96 

RMBS

 
1 

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 
1 

CMBS

 
28 

 

 
1 

 

 
(1)

 

 
(1)

 

 
(8)

 

 
19 

CDOs

 
143 

 

 

 -

 

 
1 

 

 
29 

 

 

 -

 

 
173 

State and municipal bonds

 
30 

 

 

 -

 

 
(1)

 

 

 -

 

 

 -

 

 
29 

Hybrid and redeemable

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

preferred securities

 
93 

 

 

 -

 

 
2 

 

 
(11)

 

 
(18)

 

 
66 

Equity AFS securities

 
147 

 

 
(1)

 

 
1 

 

 

 -

 

 

 -

 

 
147 

Trading securities

 
53 

 

 

 -

 

 
(3)

 

 
(2)

 

 
7 

 

 
55 

Derivative investments

 
1,823 

 

 
(368)

 

 
24 

 

 
(73)

 

 

 -

 

 
1,406 

Future contract benefits: (4)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Indexed annuity and universal life

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

contracts embedded derivatives

 
(875)

 

 
(63)

 

 

 -

 

 
14 

 

 

 -

 

 
(924)

GLB reserves embedded derivatives

 
292 

 

 
419 

 

 

 -

 

 

 -

 

 

 -

 

 
711 

VIEs' liabilities – derivative instruments (5)

 
(101)

 

 
34 

 

 

 -

 

 

 -

 

 

 -

 

 
(67)

Other liabilities – credit default swaps (6)

 
(8)

 

 
3 

 

 

 -

 

 

 -

 

 

 -

 

 
(5)

Total, net

$
3,493 

 

$
27 

 

$
22 

 

$
(10)

 

$
(145)

 

$
3,387 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended September 30, 2012

 

 

 

 

 

 

 

Gains

Issuances,

Transfers

 

 

 

 

 

 

 

Items

 

(Losses)

 

Sales

 

In or

 

 

 

 

 

 

 

Included

 

in

Maturities,

Out

 

 

 

 

Beginning

 

in

 

OCI

Settlements,

of

 

Ending

 

Fair

 

Net

 

and

 

Calls,

 

Level 3,

 

Fair

 

Value

 

Income

 

Other (1)

 

Net

 

Net (2)

 

Value

Investments: (3)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed maturity AFS securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate bonds

$
1,678 

 

$
1 

 

$
24 

 

$
225 

 

$
(73)

 

$
1,855 

U.S. government bonds

 
1 

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 
1 

Foreign government bonds

 
102 

 

 

 -

 

 

 -

 

 
(2)

 

 
(24)

 

 
76 

RMBS

 
184 

 

 

 -

 

 

 -

 

 

 -

 

 
(181)

 

 
3 

CMBS

 
39 

 

 
(2)

 

 
4 

 

 
(2)

 

 
4 

 

 
43 

CDOs

 
120 

 

 
(2)

 

 
2 

 

 
27 

 

 

 -

 

 
147 

State and municipal bonds

 
32 

 

 

 -

 

 
1 

 

 

 -

 

 

 -

 

 
33 

Hybrid and redeemable

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

preferred securities

 
129 

 

 

 -

 

 
13 

 

 

 -

 

 
(29)

 

 
113 

Equity AFS securities

 
85 

 

 

 -

 

 
1 

 

 

 -

 

 

 -

 

 
86 

Trading securities

 
72 

 

 

 -

 

 
4 

 

 
(2)

 

 
(14)

 

 
60 

Derivative investments

 
2,517 

 

 
(268)

 

 
47 

 

 
(63)

 

 

 -

 

 
2,233 

Future contract benefits: (4)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Indexed annuity and universal life

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

contracts embedded derivatives

 
(431)

 

 
(63)

 

 

 -

 

 
(239)

 

 

 -

 

 
(733)

GLB reserves embedded derivatives

 
(1,926)

 

 
570 

 

 

 -

 

 

 -

 

 

 -

 

 
(1,356)

VIEs' liabilities – derivative instruments (5)

 
(231)

 

 
57 

 

 

 -

 

 

 -

 

 

 -

 

 
(174)

Other liabilities – credit default swaps (6)

 
(11)

 

 
(5)

 

 

 -

 

 

 -

 

 

 -

 

 
(16)

Total, net

$
2,360 

 

$
288 

 

$
96 

 

$
(56)

 

$
(317)

 

$
2,371 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Nine Months Ended September 30, 2013

 

 

 

 

 

 

 

 

 

Purchases,

 

 

 

 

 

 

 

 

 

 

 

 

Gains

Issuances,

Transfers

 

 

 

 

 

 

 

Items

 

(Losses)

Sales,

In or

 

 

 

 

 

 

 

Included

 

in

Maturities,

Out

 

 

 

 

Beginning

 

in

 

OCI

Settlements,

of

 

Ending

 

Fair

 

Net

 

and

 

Calls,

 

Level 3,

 

Fair

 

Value

 

Income

 

Other (1)

 

Net

 

Net (2)

 

Value

Investments: (3)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed maturity AFS securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate bonds

$
1,505 

 

$
(1)

 

$
(12)

 

$
(26)

 

$
214 

 

$
1,680 

U.S. government bonds

 
1 

 

 

 -

 

 

 -

 

 
(1)

 

 

 -

 

 

 -

Foreign government bonds

 
46 

 

 

 -

 

 

 -

 

 
50 

 

 

 -

 

 
96 

RMBS

 
3 

 

 

 -

 

 

 -

 

 
(2)

 

 

 -

 

 
1 

CMBS

 
27 

 

 
1 

 

 
4 

 

 
(5)

 

 
(8)

 

 
19 

CDOs

 
154 

 

 
(1)

 

 
2 

 

 
18 

 

 

 -

 

 
173 

State and municipal bonds

 
32 

 

 

 -

 

 
(3)

 

 

 -

 

 

 -

 

 
29 

Hybrid and redeemable

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

preferred securities

 
118 

 

 

 -

 

 
2 

 

 
(11)

 

 
(43)

 

 
66 

Equity AFS securities

 
87 

 

 
(1)

 

 
3 

 

 
58 

 

 

 -

 

 
147 

Trading securities

 
56 

 

 
1 

 

 
(8)

 

 
(3)

 

 
9 

 

 
55 

Derivative investments

 
2,026 

 

 
(616)

 

 
93 

 

 
(97)

 

 

 -

 

 
1,406 

Future contract benefits: (4)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Indexed annuity and universal life

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

contracts embedded derivatives

 
(732)

 

 
(225)

 

 

 -

 

 
33 

 

 

 -

 

 
(924)

GLB reserves embedded derivatives

 
(909)

 

 
1,620 

 

 

 -

 

 

 -

 

 

 -

 

 
711 

VIEs' liabilities – derivative instruments (5)

 
(128)

 

 
61 

 

 

 -

 

 

 -

 

 

 -

 

 
(67)

Other liabilities – credit default swaps (6)

 
(11)

 

 
6 

 

 

 -

 

 

 -

 

 

 -

 

 
(5)

Total, net

$
2,275 

 

$
845 

 

$
81 

 

$
14 

 

$
172 

 

$
3,387 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Nine Months Ended September 30, 2012

 

 

 

 

 

 

 

 

 

Purchases,

 

 

 

 

 

 

 

 

 

 

 

 

Gains

Issuances,

Transfers

 

 

 

 

 

 

 

Items

 

(Losses)

Sales,

In or

 

 

 

 

 

 

 

Included

 

in

Maturities,

Out

 

 

 

 

Beginning

 

in

 

OCI

Settlements,

of

 

Ending

 

Fair

 

Net

 

and

 

Calls,

 

Level 3,

 

Fair

 

Value

 

Income

 

Other (1)

 

Net

 

Net (2)

 

Value

Investments: (3)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed maturity AFS securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate bonds

$
1,888 

 

$
(16)

 

$
14 

 

$
327 

 

$
(358)

 

$
1,855 

U.S. government bonds

 
1 

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 
1 

Foreign government bonds

 
97 

 

 

 -

 

 

 -

 

 
(4)

 

 
(17)

 

 
76 

RMBS

 
158 

 

 
(3)

 

 
3 

 

 
(8)

 

 
(147)

 

 
3 

CMBS

 
34 

 

 
(9)

 

 
15 

 

 
(10)

 

 
13 

 

 
43 

CDOs

 
102 

 

 
(2)

 

 
7 

 

 
34 

 

 
6 

 

 
147 

State and municipal bonds

 

 -

 

 

 -

 

 
1 

 

 
32 

 

 

 -

 

 
33 

Hybrid and redeemable

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

preferred securities

 
100 

 

 
(1)

 

 
19 

 

 

 -

 

 
(5)

 

 
113 

Equity AFS securities

 
56 

 

 

 -

 

 
5 

 

 
25 

 

 

 -

 

 
86 

Trading securities

 
68 

 

 
2 

 

 
3 

 

 
(2)

 

 
(11)

 

 
60 

Derivative investments

 
2,470 

 

 
(557)

 

 
114 

 

 
206 

 

 

 -

 

 
2,233 

Future contract benefits: (4)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Indexed annuity and universal life

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

contracts embedded derivatives

 
(399)

 

 
(143)

 

 

 -

 

 
(191)

 

 

 -

 

 
(733)

GLB reserves embedded derivatives

 
(2,217)

 

 
861 

 

 

 -

 

 

 -

 

 

 -

 

 
(1,356)

VIEs' liabilities – derivative instruments (5)

 
(291)

 

 
117 

 

 

 -

 

 

 -

 

 

 -

 

 
(174)

Other liabilities – credit default swaps (6)

 
(16)

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 
(16)

Total, net

$
2,051 

 

$
249 

 

$
181 

 

$
409 

 

$
(519)

 

$
2,371 

 

(1)

The changes in fair value of the interest rate swaps are offset by an adjustment to derivative investments (see Note 6).

(2)

Transfers in or out of Level 3 for AFS and trading securities are displayed at amortized cost as of the beginning-of-period.  For AFS and trading securities, the difference between beginning-of-period amortized cost and beginning-of-period fair value was included in OCI and earnings, respectively, in prior periods.

(3)

Amortization and accretion of premiums and discounts are included in net investment income on our Consolidated Statements of Comprehensive Income (Loss).  Gains (losses) from sales, maturities, settlements and calls and OTTI are included in realized gain (loss) on our Consolidated Statements of Comprehensive Income (Loss).

(4)

Gains (losses) from sales, maturities, settlements and calls are included in realized gain (loss) on our Consolidated Statements of Comprehensive Income (Loss).

(5)

The changes in fair value of the credit default swaps and contingency forwards are included in realized gain (loss) on our Consolidated Statements of Comprehensive Income (Loss).

(6)

Gains (losses) from sales, maturities, settlements and calls are included in net investment income on our Consolidated Statements of Comprehensive Income (Loss).

 

 

The following provides the components of the items included in issuances, sales, maturities, settlements and calls, net, excluding any effect of amortization of DAC, VOBA, DSI and DFEL and changes in future contract benefits, (in millions) as reported above:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended September 30, 2013

 

Issuances

 

Sales

 

Maturities

Settlements

Calls

 

Total

Investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed maturity AFS securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate bonds

$
51 

 

$
(6)

 

$

 -

 

$
(9)

 

$
(22)

 

$
14 

Foreign government bonds

 
20 

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 
20 

CMBS

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 
(1)

 

 
(1)

CDOs

 
34 

 

 

 -

 

 

 -

 

 
(5)

 

 

 -

 

 
29 

Hybrid and redeemable

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

preferred securities

 

 -

 

 
(11)

 

 

 -

 

 

 -

 

 

 -

 

 
(11)

Trading securities

 

 -

 

 
(1)

 

 

 -

 

 
(1)

 

 

 -

 

 
(2)

Derivative investments

 
45 

 

 
(27)

 

 
(91)

 

 

 -

 

 

 -

 

 
(73)

Future contract benefits – indexed annuity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

and universal life contracts embedded

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

derivatives

 
(14)

 

 

 -

 

 

 -

 

 
28 

 

 

 -

 

 
14 

Total, net

$
136 

 

$
(45)

 

$
(91)

 

$
13 

 

$
(23)

 

$
(10)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended September 30, 2012

 

Issuances

 

Sales

 

Maturities

Settlements

Calls

 

Total

Investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed maturity AFS securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate bonds

$
247 

 

$

 -

 

$
(7)

 

$
(14)

 

$
(1)

 

$
225 

Foreign government bonds

 

 -

 

 

 -

 

 

 -

 

 
(2)

 

 

 -

 

 
(2)

CMBS

 

 -

 

 

 -

 

 

 -

 

 
(2)

 

 

 -

 

 
(2)

CDOs

 
30 

 

 

 -

 

 

 -

 

 
(3)

 

 

 -

 

 
27 

Trading securities

 

 -

 

 
(1)

 

 

 -

 

 
(1)

 

 

 -

 

 
(2)

Derivative investments

 
55 

 

 
(43)

 

 
(75)

 

 

 -

 

 

 -

 

 
(63)

Future contract benefits – indexed annuity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

and universal life contracts embedded

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

derivatives

 
(31)

 

 

 -

 

 

 -

 

 
(208)

 

 

 -

 

 
(239)

Total, net

$
301 

 

$
(44)

 

$
(82)

 

$
(230)

 

$
(1)

 

$
(56)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Nine Months Ended September 30, 2013

 

Issuances

 

Sales

 

Maturities

Settlements

Calls

 

Total

Investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed maturity AFS securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate bonds

$
113 

 

$
(41)

 

$
(4)

 

$
(40)

 

$
(54)

 

$
(26)

U.S. government bonds

 

 -

 

 

 -

 

 

 -

 

 
(1)

 

 

 -

 

 
(1)

Foreign government bonds

 
50 

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 
50 

RMBS

 

 -

 

 

 -

 

 

 -

 

 
(2)

 

 

 -

 

 
(2)

CMBS

 

 -

 

 

 -

 

 

 -

 

 
(3)

 

 
(2)

 

 
(5)

CDOs

 
35 

 

 

 -

 

 

 -

 

 
(17)

 

 

 -

 

 
18 

Hybrid and redeemable preferred

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

securities

 

 -

 

 
(11)

 

 

 -

 

 

 -

 

 

 -

 

 
(11)

Equity AFS securities

 
63 

 

 
(5)

 

 

 -

 

 

 -

 

 

 -

 

 
58 

Trading securities

 

 -

 

 
(1)

 

 

 -

 

 
(2)

 

 

 -

 

 
(3)

Derivative investments

 
119 

 

 
17 

 

 
(233)

 

 

 -

 

 

 -

 

 
(97)

Future contract benefits – indexed annuity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

and universal life contracts embedded

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

derivatives

 
(53)

 

 

 -

 

 

 -

 

 
86 

 

 

 -

 

 
33 

Total, net

$
327 

 

$
(41)

 

$
(237)

 

$
21 

 

$
(56)

 

$
14 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Nine Months Ended September 30, 2012

 

Issuances

 

Sales

 

Maturities

Settlements

Calls

 

Total

Investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed maturity AFS securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate bonds

$
404 

 

$
(27)

 

$
(5)

 

$
(41)

 

$
(4)

 

$
327 

Foreign government bonds

 

 -

 

 

 -

 

 

 -

 

 
(4)

 

 

 -

 

 
(4)

RMBS

 

 -

 

 

 -

 

 
(7)

 

 
(1)

 

 

 -

 

 
(8)

CMBS

 

 -

 

 

 -

 

 

 -

 

 
(10)

 

 

 -

 

 
(10)

CDOs

 
47 

 

 

 -

 

 

 -

 

 
(13)

 

 

 -

 

 
34 

State and municipal bonds

 
32 

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 
32 

Equity AFS securities

 
25 

 

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 
25 

Trading securities

 

 -

 

 

 -

 

 

 -

 

 
(2)

 

 

 -

 

 
(2)

Derivative investments

 
428 

 

 
(40)

 

 
(182)

 

 

 -

 

 

 -

 

 
206 

Future contract benefits – indexed annuity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

and universal life contracts embedded

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

derivatives

 
(66)

 

 

 -

 

 

 -

 

 
(125)

 

 

 -

 

 
(191)

Total, net

$
870 

 

$
(67)

 

$
(194)

 

$
(196)

 

$
(4)

 

$
409 

 

The following summarizes changes in unrealized gains (losses) included in net income, excluding any effect of amortization of DAC, VOBA, DSI and DFEL and changes in future contract benefits, related to financial instruments carried at fair value classified within Level 3 that we still held (in millions):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three

 

For the Nine

 

Months Ended

 

Months Ended

 

September 30,

 

September 30,

 

2013

 

2012

 

2013

 

2012

Investments: (1)

 

 

 

 

 

 

 

 

 

 

 

Derivative investments

$
(343)

 

$
(279)

 

$
(533)

 

$
(618)

Future contract benefits: (1)

 

 

 

 

 

 

 

 

 

 

 

Indexed annuity and universal life contracts

 

 

 

 

 

 

 

 

 

 

 

embedded derivatives

 
5 

 

 
4 

 

 
25 

 

 
22 

GLB reserves embedded derivatives

 
508 

 

 
556 

 

 
1,825 

 

 
924 

VIEs' liabilities – derivative instruments (1)

 
35 

 

 
57 

 

 
61 

 

 
117 

Other liabilities – credit default swaps (2)

 
4 

 

 
(5)

 

 
6 

 

 

 -

Total, net

$
209 

 

$
333 

 

$
1,384 

 

$
445 

 

(1)

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

(2)

Included in net investment income on our Consolidated Statements of Comprehensive Income (Loss). 

 

The following provides the components of the transfers in and out of Level 3 (in millions) as reported above:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three

 

For the Three

 

Months Ended

 

Months Ended

 

September 30, 2013

 

September 30, 2012

 

Transfers

 

Transfers

 

 

 

 

Transfers

 

Transfers

 

 

 

 

In to

 

Out of

 

 

 

 

In to

 

Out of

 

 

 

 

Level 3

 

Level 3

 

Total

 

Level 3

 

Level 3

 

Total

Investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed maturity AFS securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate bonds

$
71 

 

$
(197)

 

$
(126)

 

$
241 

 

$
(314)

 

$
(73)

Foreign government bonds

 

 -

 

 

 -

 

 

 -

 

 
27 

 

 
(51)

 

 
(24)

RMBS

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 
(181)

 

 
(181)

CMBS

 

 -

 

 
(8)

 

 
(8)

 

 
4 

 

 

 -

 

 
4 

Hybrid and redeemable

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

preferred securities

 

 -

 

 
(18)

 

 
(18)

 

 

 -

 

 
(29)

 

 
(29)

Trading securities

 
7 

 

 

 -

 

 
7 

 

 
3 

 

 
(17)

 

 
(14)

Total, net

$
78 

 

$
(223)

 

$
(145)

 

$
275 

 

$
(592)

 

$
(317)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Nine

 

For the Nine

 

Months Ended

 

Months Ended

 

September 30, 2013

 

September 30, 2012

 

Transfers

 

Transfers

 

 

 

 

Transfers

 

Transfers

 

 

 

 

In to

 

Out of

 

 

 

 

In to

 

Out of

 

 

 

 

Level 3

 

Level 3

 

Total

 

Level 3

 

Level 3

 

Total

Investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed maturity AFS securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate bonds

$
257 

 

$
(43)

 

$
214 

 

$
163 

 

$
(521)

 

$
(358)

Foreign government bonds

 

 -

 

 

 -

 

 

 -

 

 
29 

 

 
(46)

 

 
(17)

RMBS

 

 -

 

 

 -

 

 

 -

 

 

 -

 

 
(147)

 

 
(147)

CMBS

 

 -

 

 
(8)

 

 
(8)

 

 
13 

 

 

 -

 

 
13 

CDOs

 

 -

 

 

 -

 

 

 -

 

 
6 

 

 

 -

 

 
6 

Hybrid and redeemable

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

preferred securities

 
5 

 

 
(48)

 

 
(43)

 

 
35 

 

 
(40)

 

 
(5)

Trading securities

 
9 

 

 

 -

 

 
9 

 

 
5 

 

 
(16)

 

 
(11)

Total, net

$
271 

 

$
(99)

 

$
172 

 

$
251 

 

$
(770)

 

$
(519)

 

Transfers in and out of Level 3 are generally the result of observable market information on a security no longer being available or becoming available to our pricing vendors.  For the three and nine months ended September 30, 2013 and 2012, our corporate bonds and RMBS transfers in and out were attributable primarily to the securities’ observable market information no longer being available or becoming available.  Transfers in and out of Levels 1 and 2 are generally the result of a change in the type of input used to measure the fair value of an asset or liability at the end of the reporting period.  When quoted prices in active markets become available, transfers from Level 2 to Level 1 will result.  When quoted prices in active markets become unavailable, but we are able to employ a valuation methodology using significant observable inputs, transfers from Level 1 to Level 2 will result.  For the three and nine months ended September 30, 2013 and 2012, the transfers between Levels 1 and 2 of the fair value hierarchy were less than $1 million for our financial instruments carried at fair value.

 

 

The following summarizes the fair value (in millions), valuation techniques and significant unobservable inputs of the Level 3 fair value measurements as of September 30, 2013:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair

 

Valuation

 

Significant

 

Assumption or

 

Value

 

Technique

 

Unobservable Inputs

 

Input Ranges

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed maturity AFS and trading

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate bonds

$
1,031 

 

Discounted cash flow

 

Liquidity/duration adjustment (1)

 
0.6 

%

 

-
15.3 

%

Foreign government bonds

 
97 

 

Discounted cash flow

 

Liquidity/duration adjustment (1)

 
2.1 

%

 

-
4.1 

%

Hybrid and redeemable

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

preferred securities

 
21 

 

Discounted cash flow

 

Liquidity/duration adjustment (1)

 
1.6 

%

 

-
2.0 

%

Equity AFS and trading

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

securities

 
13 

 

Discounted cash flow

 

Liquidity/duration adjustment (1)

 
4.3 

%

 

-
4.5 

%

Future contract benefits – GLB

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

reserves embedded derivatives

 
711 

 

Monte Carlo simulation

 

Long-term lapse rate (2)

 
1.0 

%

 

-
27.0 

%

 

 

 

 

 

 

 

Utilization of guaranteed

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

withdrawal (3)

 
90.0 

%

 

-
100.0 

%

 

 

 

 

 

 

 

NPR (4)

 
0.0 

%

 

-
0.51 

%

 

 

 

 

 

 

 

Mortality rate (5)

 

 

 

 

 

(7)

 

 

 

 

 

 

 

 

Volatility (6)

 
1.0 

%

 

-
28.0 

%

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Future contract benefits – indexed

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

annuity and universal life

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

contracts embedded derivatives

 
(924)

 

Discounted cash flow

 

Lapse rate (2)

 
1.0 

%

 

-
15.0 

%

 

 

 

 

 

 

 

Mortality rate (5)

 

 

 

 

 

(8)

 

 

(1)

The liquidity/duration adjustment input represents an estimated market participant composite of adjustments attributable to liquidity premiums, expected durations, structures and credit quality that would be applied to the market observable information of an investment.

(2)

The lapse rate input represents the estimated probability of a contract surrendering during a year, and thereby forgoing any future benefits.  The range for indexed annuity and universal life contracts represents the lapse rates during the surrender charge period. 

(3)

The utilization of guaranteed withdrawals input represents the estimated percentage of contract holders that utilize the guaranteed withdrawal feature.

(4)

The NPR input represents the estimated additional credit spread that market participants would apply to the market observable discount rate when pricing a contract.

(5)

The mortality rate input represents the estimated probability of when an individual belonging to a particular group, categorized according to age or some other factor such as gender, will die.

(6)

The volatility input represents overall volatilities assumed for the underlying variable annuity funds, which include a mixture of equity and fixed income assets.  Fair value of the variable annuity GLB embedded derivatives would increase if higher volatilities were used for valuation. 

(7)

The mortality rate is based on a combination of company and industry experience, adjusted for improvement factors.

(8)

Based on the “Annuity 2000 Mortality Table” developed by the Society of Actuaries Committee on Life Insurance Research that was adopted by the National Association of Insurance Commissioners in 1996 for our mortality input.

 

From the table above, we have excluded Level 3 fair value measurements obtained from independent, third-party pricing sources.  We do not develop the significant inputs used to measure the fair value of these assets and liabilities, and the information regarding the significant inputs is not readily available to us.  Independent broker-quoted fair values are non-binding quotes developed by market makers or broker-dealers obtained from third-party sources recognized as market participants.  The fair value of a broker-quoted asset or liability is based solely on the receipt of an updated quote from a single market maker or a broker-dealer recognized as a market participant as we do not adjust broker quotes when used as the fair value measurement for an asset or liability.  Significant increases or decreases in any of the quotes received from a third-party broker-dealer may result in a significantly higher or lower fair value measurement. 

 

Changes in any of the significant inputs presented in the table above may result in a significant change in the fair value measurement of the asset or liability as follows:

 

·

Investments – An increase in the liquidity/duration adjustment input would result in a decrease in the fair value measurement. 

·

Indexed annuity and universal life contracts – An increase in the lapse rate or mortality rate inputs would result in a decrease in the fair value measurement. 

·

GLB reserves embedded derivatives –  Assuming our GLB reserves embedded derivatives are in a liability position:  an increase in our lapse rate, NPR or mortality rate inputs would result in a decrease in the fair value measurement; and an increase in the utilization of guarantee withdrawal or volatility inputs would result in an increase in the fair value measurement.

 

For each category discussed above, the unobservable inputs are not inter-related; therefore, a directional change in one input will not affect the other inputs. 

 

As part of our on-going valuation process, we assess the reasonableness of our valuation techniques or models and make adjustments as necessary.  For more information, see “Summary of Significant Accounting Policies” in Note 1 of our 2012 Form 10-K.