Reinsurance

3 Months Ended

Mar. 31, 2014

Reinsurance Disclosures [Abstract]

Reinsurance

Note 5 ― 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 its concentrations of 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 business 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 of approximately $3.8 billion.

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 benefits expense; $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 contractscannot 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 remains within the overall Berkshire limit (including the GMIB assets).

The Company's dynamic hedge programs were discontinued during the first quarter of 2013 due to the Berkshire reinsurance transaction. These hedge programs generated losses (included in other revenues) of $32 million for the three months ended March 31, 2013.

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

	For the period ended
	March 31,		December 31,
(In millions)	2014		2013
Balance at January 1	$	1,396	$	1,090
Add: Unpaid claims		18		24
Less: Reinsurance and other amounts recoverable		1,317		42
Balance at January 1, net		97		1,072
Add: Incurred benefits		1		699
Less: Paid benefits (including the $1,647 payment in 2013 for the Berkshire reinsurance transaction)		-		1,674
Ending balance, net		98		97
Less: Unpaid claims		19		18
Add: Reinsurance and other amounts recoverable		1,292		1,317
Ending balance	$	1,371	$	1,396

Benefits paid and incurred are net of ceded amounts. The ending net retained reserve is to cover ongoing administrative expenses, as well as claims retained by the Company.

The death benefit coverage in force for GMDB contracts assumed by the Companywas $2.9 billion as of March 31, 2014 and $3.0 billion as of December 31, 2013 assuming no reinsurance.  The death benefit coverage in force is the amount the Company would have to pay if all contractholders (approximately 382,000 as of March 31, 2014 and 390,000 as of December 31, 2013) died as of the specified date. Unless the Berkshire reinsurance limit is exceeded, the Company would be reimbursed in full for these payments. The aggregate value of the underlying mutual fund investments for these GMDB contracts was $13.8 billion as of March 31, 2014 and $14.1 billion as of December 31, 2013.

GMIB

As discussed further in Note 7, because GMIB contracts are without significant life insurance risk, they are not accounted for as insurance products. Instead, the Company reports GMIB liabilities and assets as derivatives at fair value. The GMIB assetsare classified in other assets, including other intangibles, and the GMIB liabilitiesare classified in accounts payable, accrued expenses and other liabilities in the Consolidated Balance Sheet. Disclosures related to fair value are included in Note 7 and derivatives are further described in Note 9.

GMIB assets included $384 million as of March 31, 2014 and $352 million as of December 31, 2013 from Berkshire, and were 100% secured by assets in a trust. GMIB assets also included $431 million as of March 31, 2014 and $399 million as of December 31, 2013 from two other retrocessionaires, and40% were secured by assets in a trust.

Effects of reinsurance

In the Company's Consolidated Statements of Income, Premiums and fees were net of ceded premiums, and Total benefits and expenses were net of reinsurance recoveries, in the following amounts:

	Three Months Ended
	March 31,
(In millions)	2014		2013
Ceded premiums and fees
Individual life insurance and annuity business sold	$	45	$	46
Other		96		79
Total	$	141	$	125
Reinsurance recoveries
Individual life insurance and annuity business sold	$	99	$	88
Other		82		(262)
Total	$	181	$	(174)

As noted in the GMDB section above, recoveries for the three months ended March 31, 2013 are net of a decrease in reinsurance recoverables from a change in the growth rate assumption, due to discontinuing the hedge programs after the reinsurance transaction with Berkshire.

Reinsurance Recoverables

Components of the Company's reinsurance recoverablesare presented below:

(In millions)
	Line of Business	Reinsurer(s)	March 31, 2014		December 31, 2013		Collateral and Other Terms at March 31, 2014
	GMDB	Berkshire	$	1,251	$	1,276	100% secured by assets in a trust.
		Other		41		41	98% secured by assets in a trust or letter of credit.
	Individual Life and Annuity (sold)	Lincoln National Life and Lincoln Life &Annuity of New York		3,881		3,905	Both companies' ratings are sufficient to avoid triggering a contractual obligation to fully secure the outstanding balance.
	Retirement Benefits Business (sold)	Prudential Retirement Insurance and Annuity		1,179		1,200	100% secured by assets in a trust.
	Supplemental Benefits business (resulting from the acquisition )	Great American Life		352		363	98% secured by assets in a trust.
	Ongoing operations (Global Health Care, Global Supplemental Benefits, Group Disability and Life)	Various		403		407	Recoverables from more than 80 reinsurers used in the ordinary course of business. Balances range from less than $1 million up to $68 million, with 14% secured by assets in trusts or letters of credit.
	Other run-off reinsurance	Various		106		107	90% of this balance is secured by assets in a trust.
	Total reinsurance recoverables		$	7,213	$	7,299

Reserves for underlying reinsurance exposures assumed by the Company, as well as those for amounts recoverable from reinsurers and retrocessionaires for both ongoing operations and the run-off reinsurance operation, are considered appropriate as of March 31, 2014, based on current information.  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.