INSURANCE LIABILITIES

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 without a no-lapse guarantee rider (“NLG”) feature 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, 2018	$	4,054		$	4,754		$	8,808
Paid guarantee benefits	(291		)	(108		)	(399		)
Other changes in reserve	755			(1,041		)	(286		)
Balance at September 30, 2018	$	4,518		$	3,605		$	8,123

Balance at January 1, 2017	$	3,159		$	3,808		$	6,967
Paid guarantee benefits	(272		)	(102		)	(374		)
Other changes in reserve	1,058			749			1,807
Balance at September 30, 2017	$	3,945		$	4,455		$	8,400

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



	Nine Months Ended September 30,
	2018			2017
	(in millions)
Balance, beginning of year	$	2,030		$	1,558
Paid guarantee benefits	(67		)	(132		)
Other changes in reserve	(1,860		)	555
Balance, end of period	$	103		$	1,981

The GMIB reinsurance contract asset is considered to be an insurance derivative and is reported at fair value. The fair value of the GMIB reinsurance contract asset at September 30, 2018 and December 31, 2017 is $1,571 million and $10,488 million, respectively.

The September 30, 2018 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 annuitization 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:

Direct Variable Annuity Contract Values



	September 30, 2018
	Return of Premium			Ratchet			Roll-Up			Combo			Total
	(Dollars in millions)
GMDB:
Account values invested in:
General Account	$	14,046		$	102		$	62		$	188		$	14,398
Separate Accounts	$	47,293		$	9,522		$	3,418		$	35,066		$	95,299
Net amount at risk, gross	$	162		$	53		$	1,892		$	16,098		$	18,205
Net amount at risk, net of amounts reinsured	$	162		$	50		$	1,305		$	16,098		$	17,615
Average attained age of policyholders	51.6			66.8			73.4			68.8			55.5
Percentage of policyholders over age 70	9.9		%	42.2		%	64.9		%	49.1		%	18.7		%
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			$	21		$	274		$	295
Separate Accounts	N/A			N/A			$	21,549		$	39,729		$	61,278
Net amount at risk, gross	N/A			N/A			$	753		$	5,793		$	6,546
Net amount at risk, net of amounts reinsured	N/A			N/A			$	236		$	5,272		$	5,508
Average attained age of policyholders	N/A			N/A			70.5			69.1			69.2
Weighted average years remaining until annuitization	N/A			N/A			1.6			0.5			0.6
Range of contractually specified interest rates	N/A			N/A			3% - 6%			3% - 6.5%			3% - 6.5%

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 backed by the assets in 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 Separate Account Investment Options



	September 30, 2018		December 31, 2017 ⁽¹⁾
	(in millions)
GMDB:
Equity	$	42,675	$	41,658
Fixed income	5,274		5,469
Balanced	46,504		46,577
Other	846		968
Total	$	95,299	$	94,672



	September 30, 2018		December 31, 2017 ⁽¹⁾
	(in millions)
GMIB:
Equity	$	19,512	$	19,928
Fixed income	2,924		3,150
Balanced	38,540		38,890
Other	302		318
Total	$	61,278	$	62,286

_______________


(1)	Amounts previously reported were as follows in millions: (a) GMDB: Equity $78,069, Fixed Income $2,234, Balanced $14,084, and Other $283; (b) GMIB: Equity $50,429, Fixed Income $1,568, Balanced $10,165, and Other $124.

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 September 30, 2018, the total account value and net amount at risk of the hedged variable annuity contracts were $69,997 million and $ 16,706 million, respectively, with the GMDB feature and $59,052 million and $6,602 million, respectively, with the GMIB and GIB feature. A hedge program is also used to manage certain capital markets risks associated with the products the Company has assumed that have GMDB and GMIB features.

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 (losses) in the period in which they occur, and may contribute to income (loss) volatility.

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, 2018	$	692		$	(664	)	$	28
Paid Guaranteed Benefits	(13		)	—			(13		)
Other changes in reserves	76			(53		)	23
Balance at September 30, 2018	$	755		$	(717	)	$	38



	Direct Liability		Reinsurance Ceded			Net
	(in millions)
Balance at January 1, 2017	$	1,182	$	(606	)	$	576
Other changes in reserves	218		(68		)	150
Balance at September 30, 2017	$	1,400	$	(674	)	$	726