Reinsurance

12 Months Ended

Dec. 31, 2014

Reinsurance Disclosures [Abstract]

Reinsurance

Note 7― Reinsurance

The Company's insurance subsidiaries enter into agreements with other insurance companies to assume and cede reinsurance.  Reinsurance is ceded primarily to limit losses from large exposures and to permit recovery of a portion of direct or assumed losses.  Reinsurance is also used in acquisition and disposition transactions when the underwriting company is not being acquired. Reinsurance does not relieve the originating insurer of liability.  The Company regularly evaluates the financial condition of its reinsurers and monitors concentrations of its credit risk.

Effective Exit of GMDB and GMIB Business

On February 4, 2013, the Company entered into an agreement with Berkshire Hathaway Life Insurance Company of Nebraska (“Berkshire”) to effectively exit the GMDB and GMIB businesses via a reinsurance transaction. Berkshire reinsured 100% of the Company's future claim payments in these businesses, net of retrocessional arrangements existing at that time. The reinsurance agreement is subject to an overall limit with approximately $3.7 billion remaining.

This transaction resulted in an after-tax charge to shareholders' net income in the first quarter of 2013 of $507 million ($781 million pre-tax reported as follows: $727 million in other benefit expenses; $45 million in GMIB fair value loss; and $9 million in other operating expenses). The payment to Berkshire under the agreement was $2.2 billion and was funded from the sale of investment assets, tax benefits related to the transaction and available parent cash.

Because this effective exit was accomplished via a reinsurance contract, the amounts related to the reinsured GMDB and GMIB contracts cannot be netted, so the gross assets and liabilities must continue to be measured and reported. The following disclosures provide further context to the methods and assumptions used to determine these assets and liabilities.

GMDB

The Company estimates this liability with an internal model based on the Company's experience and future expectations over an extended period, consistent with the long-term nature of this product. Because the product is premium deficient, the Company records increases to the reserve if it is inadequate based on the model. Prior to the reinsurance transaction with Berkshire, any such reserve increases were recorded as a charge to shareholders' net income. Reserve increases after the reinsurance transaction are expected to have a corresponding increase in the recorded reinsurance recoverable, provided the increased recoverable is not capped due to the overall Berkshire limit (including the GMIB assets).

The Company's dynamic hedge programs were discontinued at the time of the Berkshire reinsurance transaction in 2013. These hedge programs generated losses (included in Other Revenues) of $32 million in 2013, and $105 million in 2012.

Activity in future policy benefit reserves for the GMDB business was as follows:

(In millions)	2014		2013		2012
Balance at January 1,	$	1,396	$	1,090	$	1,170
Add: Unpaid claims		18		24		40
Less: Reinsurance and other amounts recoverable		1,317		42		53
Balance at January 1, net		97		1,072		1,157
Add: Incurred benefits		3		699		17
Less: Paid benefits (including the $1,647 payment for Berkshire reinsurance transaction)		-		1,674		102
Ending balance, net		100		97		1,072
Less: Unpaid claims		16		18		24
Add: Reinsurance and other amounts recoverable		1,186		1,317		42
Balance at December 31,	$	1,270	$	1,396	$	1,090

Benefits paid and incurred are net of ceded amounts, including the impact of the 2013 reinsurance transaction with Berkshire. The ending net retained reserve as of December 31, 2014and December 31, 2013covers ongoing administrative expenses, as well as the few claims retained by the Company. Prior to 2013, incurred benefits reflected the favorable or unfavorable impact of a rising or falling equity market on the liability, and included reserve strengthening of $43 million in 2012.

The majority of the exposure arises under annuities that guarantee that the benefit received at death will be no less than the highest historical account value of the related mutual fund investments on a contractholder's anniversary date. Under this type of death benefit, the Company is liable to the extent the highest historical anniversary account value exceeds the fair value of the related mutual fund investments at the time of a contractholder's death.

The table below presents the account value, net amount at risk and average attained age of underlying contractholders for guarantees assumed by the Company in the event of death.The net amount at risk is the amount that the Company would have to pay if all contractholders died as of the specified date. Unless the Berkshire reinsurance limit is exceeded, the Company should be reimbursed in full for these payments.

(Dollars in millions, excludes impact of reinsurance ceded)	2014		2013
Account value	$	13,078	$	14,062
Net amount at risk	$	2,763	$	3,023
Average attained age of contractholders (weighted by exposure)		73		73
Number of contractholders		354,000		390,000

Effects of Reinsurance

The following table presents direct, assumed and ceded premiums for both short-duration and long-duration insurance contracts. It also presents reinsurance recoveries that have been netted against direct benefits and expenses in the Company's Consolidated Statements of Income.

(In millions)	2014		2013		2012
Premiums
Short-duration contracts:
Direct	$	24,294	$	23,056	$	20,792
Assumed		429		394		385
Ceded		(226)		(252)		(216)
		24,497		23,198		20,961
Long-duration contracts:
Direct		2,921		2,485		2,222
Assumed		173		183		86
Ceded:
Individual life insurance and annuity business sold		(254)		(176)		(186)
Other		(123)		(115)		(66)
		2,717		2,377		2,056
Total	$	27,214	$	25,575	$	23,017
Reinsurance recoveries
Individual life insurance and annuity business sold	$	366	$	335	$	316
Other		292		(18)		201
Total	$	658	$	317	$	517

Recoveries were higher in 2014 primarily due to the absence of the 2013 activity related to the Berkshire transaction, including the initial payment.The increase in long-duration assumed premiums in 2013 largely results from the acquisition of Great American Supplemental Benefits in 2012.

The effects of reinsurance on written premiums for short-duration contracts were not materially different from the recognized premium amounts shown in the table above

Reinsurance Recoverables

The majority of the Company's reinsurance recoverables resulted from acquisition and disposition transactions in which the underwriting company was not acquired. Components of the Company's reinsurance recoverables are presented below:

(In millions)
	Line of Business	Reinsurer(s)	December 31, 2014		December 31, 2013		Collateral and Other Terms at December 31, 2014
	GMDB	Berkshire	$	1,147	$	1,276	100% were secured by assets in a trust.
		Other		39		41	96% were secured by assets in a trust or letter of credit.
	Individual Life and Annuity (sold in 1998)	Lincoln National Life and Lincoln Life & Annuity of New York		3,817		3,905	Both companies' ratings were sufficient to avoid triggering a contractual obligation to fully secure the outstanding balance.
	Retirement Benefits Business (sold in 2004)	Prudential Retirement Insurance and Annuity		1,092		1,200	100% were secured by assets in a trust.
	Supplemental Benefits Business (2012 acquisition)	Great American Life		336		363	99% were secured by assets in a trust.
	Global Health Care, Global Supplemental Benefits, Group Disability and Life	Various		561		407	Recoverables were from more than 80 reinsurers used in the ordinary course of business. Balances ranged from less than $1 million up to $167 million, with 9% secured by assets in trusts or letters of credit.
	Other run-off reinsurance	Various		88		107	100% of this balance was secured by assets in a trust, and other deposits.
	Total reinsurance recoverables		$	7,080	$	7,299

Over 90% of the Company's reinsurance recoverables were from companies that are rated Aor higher by Standard & Poors at December 31, 2014.The Company reviews its reinsurance arrangements and establishes reserves against the recoverables in the event that recovery is not considered probable. As of December 31, 2014, the Company's recoverables were net of a reserve of $4 million.

The Company bears the risk of loss if its reinsurers and retrocessionaires do not meet or are unable to meet their reinsurance obligations to the Company.