INSURANCE LIABILITIES

A) Variable Annuity Contracts – GMDB, GMIB, GIB and GWBL and Other Features

The Company has certain variable annuity contracts with GMDB, GMIB, GIB and GWBL and other features in-force that guarantee one of the following:


•	Return of Premium: the benefit is the greater of current account value or premiums paid (adjusted for withdrawals);


•	Ratchet: the benefit is the greatest of current account value, premiums paid (adjusted for withdrawals), or the highest account value on any anniversary up to contractually specified ages (adjusted for withdrawals);


•	Roll-Up: the benefit is the greater of current account value or premiums paid (adjusted for withdrawals) accumulated at contractually specified interest rates up to specified ages;


•	Combo: the benefit is the greater of the ratchet benefit or the roll-up benefit, which may include either a five year or an annual reset; or


•	Withdrawal: the withdrawal is guaranteed up to a maximum amount per year for life.

The following table summarizes the direct GMDB and GMIB with no NLG features liabilities, before reinsurance ceded, reflected in the consolidated balance sheets in future policy benefits and other policyholders’ liabilities:



	GMDB			GMIB			Total
	(in millions)
Balance at January 1, 2015	$	1,725		$	4,702		$	6,427
Paid guarantee benefits	(313		)	(89		)	(402		)
Other changes in reserve	1,579			(727		)	852
Balance at December 31, 2015	2,991			3,886			6,877
Paid guarantee benefits	(357		)	(281		)	(638		)
Other changes in reserve	531			265			796
Balance at December 31, 2016	3,165			3,870			7,035
Paid guarantee benefits	(354		)	(151		)	(505		)
Other changes in reserve	1,269			1,083			2,352
Balance at December 31, 2017	$	4,080		$	4,802		$	8,882

The following table summarizes the ceded GMDB liabilities, reflected in the consolidated balance sheets in amounts due from reinsurers:



	GMDB
	(in millions)
Balance at January 1, 2015	$	833
Paid guarantee benefits	(148		)
Other changes in reserve	745
Balance at December 31, 2015	1,430
Paid guarantee benefits	(174		)
Other changes in reserve	302
Balance at December 31, 2016	1,558
Paid guarantee benefits	(171		)
Other changes in reserve	643
Balance at December 31, 2017	$	2,030

The liability for the GMxB derivative features liability, the liability for SCS, SIO, MSO and IUL indexed features and the GMIB reinsurance contracts are considered embedded or freestanding insurance derivatives and are reported at fair value. Summarized in the table below is a summary of the fair value of these liabilities at December 31, 2017 and 2016:



	December 31,
	2017			2016
	(In millions)

GMIBNLG ⁽¹⁾	$	4,056		$	5,155
SCS, MSO, IUL features⁽²⁾	1,698			887
GWBL/GMWB⁽¹⁾	130			114
GIB⁽¹⁾	(27		)	30
GMAB⁽¹⁾	5			20
Total Embedded and Freestanding derivative liability	$	5,862		$	6,206

GMIB reinsurance contract asset ⁽³⁾	$	10,488		$	10,314


(1)	Reported in future policyholders' benefits and other policyholders' liabilities in the consolidated balance sheets.


(2)	Reported in policyholders' account balances in the consolidated balance sheets.


(3)	Reported in GMIB reinsurance contract asset, at fair value in the consolidated balance sheets.

The December 31, 2017 values for direct variable annuity contracts in force on such date with GMDB and GMIB features are presented in the following table. For contracts with the GMDB feature, the net amount at risk in the event of death is the amount by which the GMDB exceed related account values. For contracts with the GMIB feature, the net amount at risk in the event of utilization is the amount by which the present value of the GMIB benefits exceeds related account values, taking into account the relationship between current annuity purchase rates and the GMIB guaranteed annuity purchase rates. Since variable annuity contracts with GMDB guarantees may also offer GMIB guarantees in the same contract, the GMDB and GMIB amounts listed are not mutually exclusive:



	Return of Premium			Ratchet			Roll-Up			Combo			Total
	(Dollars In millions)
GMDB:
Account values invested in:
General Account	$	13,820		$	109		$	65		$	200		$	14,194
Separate Accounts	$	45,816		$	9,556		$	3,516		$	35,784		$	94,672
Net amount at risk, gross	$	169		$	57		$	1,961		$	15,340		$	17,527
Net amount at risk, net of amounts reinsured	$	169		$	39		$	1,344		$	6,294		$	7,846
Average attained age of contractholders’	51.3			66.3			72.9			68.2			55.1
Percentage of contractholders’ over age 70	9.6		%	40.2		%	63.1		%	46.5		%	18.1		%
Range of contractually specified interest rates	N.A.			N.A.			3% - 6%			3% - 6.5%			3% - 6.5%
GMIB:
Account values invested in:
General Account	N.A.			N.A.			$	23		$	293		$	316
Separate Accounts	N.A.			N.A.			$	21,195		$	41,091		$	62,286
Net amount at risk, gross	N.A.			N.A.			$	917		$	6,337		$	7,254
Net amount at risk, net of amounts reinsured	N.A.			N.A.			$	287		$	1,561		$	1,848
Weighted average years remaining until utilization	N.A.			N.A.			1.6			0.7			0.8
Range of contractually specified interest rates	N.A.			N.A.			3% - 6%			3% - 6.5%			3% - 6.5%

For more information about the reinsurance programs of the Company’s GMDB and GMIB exposure, see “Reinsurance Agreements” in Note 9.

•

Variable Annuity In-force management. The Company proactively manages its variable annuity in-force business. Since in 2012, the Company has initiated several programs to purchase from certain policyholders the GMDB and GMIB riders contained in their Accumulator contracts. In March 2016, a program to give policyholders an option to elect a full buyout of their rider or a new partial (50)% buyout of their rider expired. The Company believes that buyout programs are mutually beneficial to both the Company and policyholders who no longer need or want all or part of the GMDB or GMIB rider. To reflect the actual payments from the buyout program that expired in March 2016 the Company recognized a $4 million increase to Net income in 2016.

B) Separate Account Investments by Investment Category Underlying GMDB and GMIB Features

The total account values of variable annuity contracts with GMDB and GMIB features include amounts allocated to the guaranteed interest option, which is part of the General Account and variable investment options that invest through Separate Accounts in variable insurance trusts. The following table presents the aggregate fair value of assets, by major investment category, held by Separate Accounts that support variable annuity contracts with GMDB and GMIB guarantees. The investment performance of the assets impacts the related account values and, consequently, the net amount of risk associated with the GMDB and GMIB benefits and guarantees. Because variable annuity contracts offer both GMDB and GMIB features, GMDB and GMIB amounts are not mutually exclusive:

Investment in Variable Insurance Trust Mutual Funds



	December 31,
	2017		2016
	(in millions)
GMDB:
Equity	$	78,069	$	69,625
Fixed income	2,234		2,483
Balanced	14,084		14,434
Other	285		348
Total	$	94,672	$	86,890
GMIB:
Equity	$	50,429	$	45,931
Fixed income	1,568		1,671
Balanced	10,165		10,097
Other	124		149
Total	$	62,286	$	57,848

C) Hedging Programs for GMDB, GMIB, GIB and Other Features

Beginning in 2003, the Company established a program intended to hedge certain risks associated first with the GMDB feature and, beginning in 2004, with the GMIB feature of the Accumulator series of variable annuity products. The program has also been extended to cover other guaranteed benefits as they have been made available. This program utilizes derivative contracts, such as exchange-traded equity, currency and interest rate futures contracts, total return and/or equity swaps, interest rate swap and floor contracts, swaptions, variance swaps as well as equity options, that collectively are managed in an effort to reduce the economic impact of unfavorable changes in guaranteed benefits’ exposures attributable to movements in the capital markets. At the present time, this program hedges certain economic risks on products sold from 2001 forward, to the extent such risks are not externally reinsured. At December 31, 2017, the total account value and net amount at risk of the hedged variable annuity contracts were $55,771 million and $6,893 million, respectively, with the GMDB feature and $42,077 million and $2,613 million, respectively, with the GMIB and GIB feature.

These programs do not qualify for hedge accounting treatment. Therefore, gains (losses) on the derivatives contracts used in these programs, including current period changes in fair value, are recognized in net derivative gains (loss) in the period in which they occur, and may contribute to income (loss) volatility.

D) Variable and Interest-Sensitive Life Insurance Policies - NLG

The NLG feature contained in variable and interest-sensitive life insurance policies keeps them in force in situations where the policy value is not sufficient to cover monthly charges then due. The NLG remains in effect so long as the policy meets a contractually specified premium funding test and certain other requirements.

The following table summarizes the NLG liabilities, reflected in the General Account in Future policy benefits and other policyholders’ liabilities, the related reinsurance reserve ceded, reflected in Amounts due from reinsurers and deferred cost of reinsurance, reflected in Other assets in the Consolidated balance sheets:



	Direct Liability			Reinsurance Ceded			Net
	(in millions)
Balance at January 1, 2015	$	979		$	(526	)	$	453
Other changes in reserves	165			16			181
Balance at December 31, 2015	1,144			(510		)	634
Other changes in reserves	53			(99		)	(46		)
Balance at December 31, 2016	1,197			(609		)	588
Paid Guaranteed Benefits	(24		)	—			(24		)
Other changes in reserves	(487		)	(55		)	(542		)
Balance at December 31, 2017	$	686		$	(664	)	$	22