(Mark One) | ||
þ
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2011 | ||
OR
|
||
o
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
FOR THE TRANSITION PERIOD FROM TO |
Connecticut
|
06-0566090 | |
(State or other jurisdiction
of incorporation or organization) |
(I.R.S. Employer Identification No.) |
|
1300 Hall Boulevard, Bloomfield, Connecticut | 06002 | |
(Address of principal executive offices) | (Zip Code) |
Large accelerated filer o | Accelerated filer o | |
Non-accelerated filer þ (Do not check if a smaller reporting company) | Smaller reporting company o |
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E-1 | ||||||||
EX-31.1 | ||||||||
EX-31.2 | ||||||||
EX-32.1 | ||||||||
EX-32.2 | ||||||||
EX-101 INSTANCE DOCUMENT | ||||||||
EX-101 SCHEMA DOCUMENT | ||||||||
EX-101 CALCULATION LINKBASE DOCUMENT | ||||||||
EX-101 LABELS LINKBASE DOCUMENT | ||||||||
EX-101 PRESENTATION LINKBASE DOCUMENT | ||||||||
EX-101 DEFINITION LINKBASE DOCUMENT |
2
3
| should not in all instances be treated as categorical statements of fact, but rather as a way of allocating the risk to one of the parties if those statements prove to be inaccurate; | |
| have been qualified by disclosures that were made to the other party in connection with the negotiation of the applicable agreement, which disclosures are not necessarily reflected in the agreement; | |
| may apply standards of materiality in a way that is different from what may be viewed as material to investors; and | |
| were made only as of the date of the applicable agreement or such other date or dates as may be specified in the agreement and are subject to more recent developments. |
4
Item 1. | Financial Statements |
June 30, 2011 | December 31, 2010 | |||||||
Assets
|
||||||||
Investments:
|
||||||||
Fixed maturity securities
available-for-sale,
at estimated fair value (amortized cost: $45,548 and $44,132,
respectively)
|
$ | 46,837 | $ | 44,924 | ||||
Equity securities
available-for-sale,
at estimated fair value (cost: $293 and $427, respectively)
|
308 | 405 | ||||||
Other securities, at estimated fair value
|
3,089 | 2,247 | ||||||
Mortgage loans (net of valuation allowances of $70 and $87,
respectively; includes $6,697 and $6,840, respectively, at
estimated fair value, relating to variable interest entities)
|
12,645 | 12,730 | ||||||
Policy loans
|
1,190 | 1,190 | ||||||
Real estate and real estate joint ventures
|
519 | 501 | ||||||
Other limited partnership interests
|
1,610 | 1,538 | ||||||
Short-term investments, principally at estimated fair value
|
2,203 | 1,235 | ||||||
Other invested assets, principally at estimated fair value
|
1,673 | 1,716 | ||||||
Total investments
|
70,074 | 66,486 | ||||||
Cash and cash equivalents, principally at estimated fair value
|
1,220 | 1,928 | ||||||
Accrued investment income (includes $32 and $31, respectively,
relating to variable interest entities)
|
534 | 559 | ||||||
Premiums, reinsurance and other receivables
|
17,006 | 17,008 | ||||||
Deferred policy acquisition costs and value of business acquired
|
5,264 | 5,099 | ||||||
Current income tax recoverable
|
113 | 38 | ||||||
Deferred income tax assets
|
| 356 | ||||||
Goodwill
|
953 | 953 | ||||||
Other assets
|
851 | 839 | ||||||
Separate account assets
|
69,467 | 61,619 | ||||||
Total assets
|
$ | 165,482 | $ | 154,885 | ||||
Liabilities and Stockholders Equity
|
||||||||
Liabilities
|
||||||||
Future policy benefits
|
$ | 24,056 | $ | 23,198 | ||||
Policyholder account balances
|
40,659 | 39,291 | ||||||
Other policy-related balances
|
2,753 | 2,652 | ||||||
Payables for collateral under securities loaned and other
transactions
|
8,201 | 8,103 | ||||||
Long-term debt (includes $6,617 and $6,773, respectively, at
estimated fair value, relating to variable interest entities)
|
7,410 | 7,568 | ||||||
Deferred income tax liability
|
10 | | ||||||
Other liabilities (includes $31 and $31, respectively, relating
to variable interest entities)
|
4,357 | 4,503 | ||||||
Separate account liabilities
|
69,467 | 61,619 | ||||||
Total liabilities
|
156,913 | 146,934 | ||||||
Contingencies, Commitments and Guarantees (Note 5)
|
||||||||
Stockholders Equity
|
||||||||
Common stock, par value $2.50 per share; 40,000,000 shares
authorized; 34,595,317 shares issued and outstanding at
June 30, 2011 and December 31, 2010
|
86 | 86 | ||||||
Additional paid-in capital
|
6,667 | 6,719 | ||||||
Retained earnings
|
1,310 | 934 | ||||||
Accumulated other comprehensive income (loss)
|
506 | 212 | ||||||
Total stockholders equity
|
8,569 | 7,951 | ||||||
Total liabilities and stockholders equity
|
$ | 165,482 | $ | 154,885 | ||||
5
Three Months |
Six Months |
|||||||||||||||
Ended |
Ended |
|||||||||||||||
June 30, | June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Revenues
|
||||||||||||||||
Premiums
|
$ | 641 | $ | 256 | $ | 777 | $ | 711 | ||||||||
Universal life and investment-type product policy fees
|
493 | 407 | 948 | 776 | ||||||||||||
Net investment income
|
796 | 725 | 1,584 | 1,515 | ||||||||||||
Other revenues
|
131 | 103 | 261 | 213 | ||||||||||||
Net investment gains (losses):
|
||||||||||||||||
Other-than-temporary
impairments on fixed maturity securities
|
(21 | ) | (19 | ) | (30 | ) | (53 | ) | ||||||||
Other-than-temporary
impairments on fixed maturity securities transferred to other
comprehensive income (loss)
|
6 | 7 | 4 | 23 | ||||||||||||
Other net investment gains (losses)
|
(12 | ) | 62 | (15 | ) | 117 | ||||||||||
Total net investment gains (losses)
|
(27 | ) | 50 | (41 | ) | 87 | ||||||||||
Net derivative gains (losses)
|
133 | 563 | (23 | ) | 255 | |||||||||||
Total revenues
|
2,167 | 2,104 | 3,506 | 3,557 | ||||||||||||
Expenses
|
||||||||||||||||
Policyholder benefits and claims
|
818 | 504 | 1,145 | 1,198 | ||||||||||||
Interest credited to policyholder account balances
|
304 | 257 | 591 | 573 | ||||||||||||
Other expenses
|
729 | 839 | 1,233 | 1,258 | ||||||||||||
Total expenses
|
1,851 | 1,600 | 2,969 | 3,029 | ||||||||||||
Income (loss) before provision for income tax
|
316 | 504 | 537 | 528 | ||||||||||||
Provision for income tax expense (benefit)
|
100 | 162 | 161 | 154 | ||||||||||||
Net income
|
$ | 216 | $ | 342 | $ | 376 | $ | 374 | ||||||||
6
Accumulated Other |
||||||||||||||||||||||||||||
Comprehensive Income (Loss) | ||||||||||||||||||||||||||||
Net |
Foreign |
|||||||||||||||||||||||||||
Additional |
Unrealized |
Other-Than- |
Currency |
|||||||||||||||||||||||||
Common |
Paid-in |
Retained |
Investment |
Temporary |
Translation |
Total |
||||||||||||||||||||||
Stock | Capital | Earnings | Gains (Losses) | Impairments | Adjustments | Equity | ||||||||||||||||||||||
Balance at December 31, 2010
|
$ | 86 | $ | 6,719 | $ | 934 | $ | 388 | $ | (51 | ) | $ | (125 | ) | $ | 7,951 | ||||||||||||
Return of capital (Note 6)
|
(52 | ) | (52 | ) | ||||||||||||||||||||||||
Comprehensive income (loss):
|
||||||||||||||||||||||||||||
Net income
|
376 | 376 | ||||||||||||||||||||||||||
Other comprehensive income (loss):
|
||||||||||||||||||||||||||||
Unrealized gains (losses) on derivative instruments, net of
income tax
|
6 | 6 | ||||||||||||||||||||||||||
Unrealized investment gains (losses), net of related offsets and
income tax
|
275 | (7 | ) | 268 | ||||||||||||||||||||||||
Foreign currency translation adjustments, net of income tax
|
20 | 20 | ||||||||||||||||||||||||||
Other comprehensive income (loss)
|
294 | |||||||||||||||||||||||||||
Comprehensive income (loss)
|
670 | |||||||||||||||||||||||||||
Balance at June 30, 2011
|
$ | 86 | $ | 6,667 | $ | 1,310 | $ | 669 | $ | (58 | ) | $ | (105 | ) | $ | 8,569 | ||||||||||||
7
Accumulated Other |
||||||||||||||||||||||||||||
Comprehensive Income (Loss) | ||||||||||||||||||||||||||||
Net |
Foreign |
|||||||||||||||||||||||||||
Additional |
Unrealized |
Other-Than- |
Currency |
|||||||||||||||||||||||||
Common |
Paid-in |
Retained |
Investment |
Temporary |
Translation |
Total |
||||||||||||||||||||||
Stock | Capital | Earnings | Gains (Losses) | Impairments | Adjustments | Equity | ||||||||||||||||||||||
Balance at December 31, 2009
|
$ | 86 | $ | 6,719 | $ | 541 | $ | (593 | ) | $ | (83 | ) | $ | (109 | ) | $ | 6,561 | |||||||||||
Cumulative effect of change in accounting principle, net of
income tax
|
| | (34 | ) | 23 | 11 | | | ||||||||||||||||||||
Balance at January 1, 2010
|
86 | 6,719 | 507 | (570 | ) | (72 | ) | (109 | ) | 6,561 | ||||||||||||||||||
Comprehensive income (loss):
|
||||||||||||||||||||||||||||
Net income
|
374 | 374 | ||||||||||||||||||||||||||
Other comprehensive income (loss):
|
||||||||||||||||||||||||||||
Unrealized gains (losses) on derivative instruments, net of
income tax
|
16 | 16 | ||||||||||||||||||||||||||
Unrealized investment gains (losses), net of related offsets and
income tax
|
1,041 | 9 | 1,050 | |||||||||||||||||||||||||
Foreign currency translation adjustments, net of income tax
|
(52 | ) | (52 | ) | ||||||||||||||||||||||||
Other comprehensive income (loss)
|
1,014 | |||||||||||||||||||||||||||
Comprehensive income (loss)
|
1,388 | |||||||||||||||||||||||||||
Balance at June 30, 2010
|
$ | 86 | $ | 6,719 | $ | 881 | $ | 487 | $ | (63 | ) | $ | (161 | ) | $ | 7,949 | ||||||||||||
8
Six Months |
||||||||
Ended |
||||||||
June 30, | ||||||||
2011 | 2010 | |||||||
Net cash provided by operating activities
|
$ | 406 | $ | 519 | ||||
Cash flows from investing activities
|
||||||||
Sales, maturities and repayments of:
|
||||||||
Fixed maturity securities
|
8,910 | 8,500 | ||||||
Equity securities
|
131 | 109 | ||||||
Mortgage loans
|
517 | 437 | ||||||
Real estate and real estate joint ventures
|
6 | 9 | ||||||
Other limited partnership interests
|
171 | 56 | ||||||
Purchases of:
|
||||||||
Fixed maturity securities
|
(10,303 | ) | (9,145 | ) | ||||
Equity securities
|
(6 | ) | (46 | ) | ||||
Mortgage loans
|
(387 | ) | (395 | ) | ||||
Real estate and real estate joint ventures
|
(48 | ) | (57 | ) | ||||
Other limited partnership interests
|
(176 | ) | (163 | ) | ||||
Cash received in connection with freestanding derivatives
|
286 | 48 | ||||||
Cash paid in connection with freestanding derivatives
|
(250 | ) | (108 | ) | ||||
Net change in policy loans
|
| (1 | ) | |||||
Net change in short-term investments
|
(972 | ) | (202 | ) | ||||
Net change in other invested assets
|
(253 | ) | (39 | ) | ||||
Other, net
|
1 | | ||||||
Net cash used in investing activities
|
(2,373 | ) | (997 | ) | ||||
Cash flows from financing activities
|
||||||||
Policyholder account balances:
|
||||||||
Deposits
|
10,207 | 12,565 | ||||||
Withdrawals
|
(8,858 | ) | (12,604 | ) | ||||
Net change in payables for collateral under securities loaned
and other transactions
|
98 | 491 | ||||||
Long-term debt repaid
|
(170 | ) | (311 | ) | ||||
Financing element on certain derivative instruments
|
(23 | ) | (15 | ) | ||||
Net cash provided by financing activities
|
1,254 | 126 | ||||||
Effect of change in foreign currency exchange rates on cash and
cash equivalents balances
|
5 | (24 | ) | |||||
Change in cash and cash equivalents
|
(708 | ) | (376 | ) | ||||
Cash and cash equivalents, beginning of period
|
1,928 | 2,574 | ||||||
Cash and cash equivalents, end of period
|
$ | 1,220 | $ | 2,198 | ||||
Supplemental disclosures of cash flow information:
|
||||||||
Net cash paid during the period for:
|
||||||||
Interest
|
$ | 221 | $ | 245 | ||||
Income tax
|
$ | 20 | $ | 42 | ||||
9
1. | Business, Basis of Presentation and Summary of Significant Accounting Policies |
| Reclassification from other net investment gains (losses) of $563 million and $255 million to net derivative gains (losses) in the interim condensed consolidated statements of operations for the three months and six months ended June 30, 2010, respectively; | |
| Reclassifications related to operating revenues and expenses that affected results of operations on a segment and consolidated basis. See Note 8. |
10
11
12
2. | Investments |
June 30, 2011 | ||||||||||||||||||||||||
Cost or |
Gross Unrealized |
Estimated |
||||||||||||||||||||||
Amortized |
Temporary |
OTTI |
Fair |
% of |
||||||||||||||||||||
Cost | Gains | Losses | Losses | Value | Total | |||||||||||||||||||
(In millions) | ||||||||||||||||||||||||
Fixed Maturity Securities:
|
||||||||||||||||||||||||
U.S. corporate securities
|
$ | 15,125 | $ | 916 | $ | 220 | $ | | $ | 15,821 | 33.8 | % | ||||||||||||
Foreign corporate securities
|
8,409 | 561 | 70 | | 8,900 | 19.0 | ||||||||||||||||||
U.S. Treasury and agency securities
|
8,615 | 131 | 135 | | 8,611 | 18.4 | ||||||||||||||||||
Residential mortgage-backed securities (RMBS)
|
6,563 | 234 | 139 | 86 | 6,572 | 14.0 | ||||||||||||||||||
Commercial mortgage-backed securities (CMBS)
|
2,068 | 115 | 17 | | 2,166 | 4.6 | ||||||||||||||||||
Asset-backed securities (ABS)
|
1,937 | 43 | 72 | 11 | 1,897 | 4.0 | ||||||||||||||||||
State and political subdivision securities
|
1,903 | 63 | 108 | | 1,858 | 4.0 | ||||||||||||||||||
Foreign government securities
|
928 | 89 | 5 | | 1,012 | 2.2 | ||||||||||||||||||
Total fixed maturity securities (1), (2)
|
$ | 45,548 | $ | 2,152 | $ | 766 | $ | 97 | $ | 46,837 | 100.0 | % | ||||||||||||
Equity Securities:
|
||||||||||||||||||||||||
Non-redeemable preferred stock (1)
|
$ | 166 | $ | 11 | $ | 16 | $ | | $ | 161 | 52.3 | % | ||||||||||||
Common stock
|
127 | 21 | 1 | | 147 | 47.7 | ||||||||||||||||||
Total equity securities
|
$ | 293 | $ | 32 | $ | 17 | $ | | $ | 308 | 100.0 | % | ||||||||||||
13
December 31, 2010 | ||||||||||||||||||||||||
Cost or |
Gross Unrealized |
Estimated |
||||||||||||||||||||||
Amortized |
Temporary |
OTTI |
Fair |
% of |
||||||||||||||||||||
Cost | Gains | Losses | Losses | Value | Total | |||||||||||||||||||
(In millions) | ||||||||||||||||||||||||
Fixed Maturity Securities:
|
||||||||||||||||||||||||
U.S. corporate securities
|
$ | 14,860 | $ | 816 | $ | 302 | $ | | $ | 15,374 | 34.2 | % | ||||||||||||
Foreign corporate securities
|
8,095 | 502 | 127 | | 8,470 | 18.8 | ||||||||||||||||||
U.S. Treasury and agency securities
|
7,665 | 143 | 132 | | 7,676 | 17.1 | ||||||||||||||||||
RMBS
|
6,803 | 203 | 218 | 79 | 6,709 | 14.9 | ||||||||||||||||||
CMBS
|
2,203 | 113 | 39 | | 2,277 | 5.1 | ||||||||||||||||||
ABS
|
1,927 | 44 | 95 | 7 | 1,869 | 4.2 | ||||||||||||||||||
State and political subdivision securities
|
1,755 | 22 | 131 | | 1,646 | 3.7 | ||||||||||||||||||
Foreign government securities
|
824 | 81 | 2 | | 903 | 2.0 | ||||||||||||||||||
Total fixed maturity securities (1), (2)
|
$ | 44,132 | $ | 1,924 | $ | 1,046 | $ | 86 | $ | 44,924 | 100.0 | % | ||||||||||||
Equity Securities:
|
||||||||||||||||||||||||
Non-redeemable preferred stock (1)
|
$ | 306 | $ | 9 | $ | 47 | $ | | $ | 268 | 66.2 | % | ||||||||||||
Common stock
|
121 | 17 | 1 | | 137 | 33.8 | ||||||||||||||||||
Total equity securities
|
$ | 427 | $ | 26 | $ | 48 | $ | | $ | 405 | 100.0 | % | ||||||||||||
(1) | Upon acquisition, the Company classifies perpetual securities that have attributes of both debt and equity as fixed maturity securities if the security has an interest rate step-up feature which, when combined with other qualitative factors, indicates that the security has more debt-like characteristics; while those with more equity-like characteristics are classified as equity securities within non-redeemable preferred stock. Many of such securities have been issued by non-U.S. financial institutions that are accorded Tier 1 and Upper Tier 2 capital treatment by their respective regulatory bodies and are commonly referred to as perpetual hybrid securities. The following table presents the perpetual hybrid securities held by the Company at: |
June 30, 2011 | December 31, 2010 | |||||||||||
Estimated |
Estimated |
|||||||||||
Classification |
Fair |
Fair |
||||||||||
Consolidated Balance Sheets | Sector Table | Primary Issuers | Value | Value | ||||||||
(In millions) | ||||||||||||
Fixed maturity securities
|
Foreign corporate securities | Non-U.S. financial institutions | $ | 217 | $ | 450 | ||||||
Fixed maturity securities
|
U.S. corporate securities | U.S. financial institutions | $ | 10 | $ | 10 | ||||||
Equity securities
|
Non-redeemable preferred stock | Non-U.S. financial institutions | $ | 112 | $ | 202 | ||||||
Equity securities
|
Non-redeemable preferred stock | U.S. financial institutions | $ | 32 | $ | 35 |
(2) | The Companys holdings in redeemable preferred stock with stated maturity dates, commonly referred to as capital securities, were primarily issued by U.S. financial institutions and have cumulative interest deferral features. The Company held $510 million and $645 million at estimated fair value of such securities at June 30, 2011 and December 31, 2010, respectively, which are included in the U.S. and foreign corporate securities sectors within fixed maturity securities. |
14
June 30, 2011 | December 31, 2010 | |||||||
(In millions) | ||||||||
Below investment grade or non-rated fixed maturity securities:
|
||||||||
Estimated fair value
|
$ | 4,072 | $ | 4,027 | ||||
Net unrealized gains (losses)
|
$ | (57 | ) | $ | (125 | ) | ||
Non-income producing fixed maturity securities:
|
||||||||
Estimated fair value
|
$ | 5 | $ | 36 | ||||
Net unrealized gains (losses)
|
$ | (1 | ) | $ | 2 |
June 30, 2011 | December 31, 2010 | |||||||
Carrying Value (1) | ||||||||
(In millions) | ||||||||
U.S. Treasury and agency fixed maturity securities
|
$ | 8,611 | $ | 7,676 | ||||
U.S. Treasury and agency fixed-income securities included in:
|
||||||||
Short-term investments
|
$ | 1,841 | $ | 935 | ||||
Cash equivalents
|
$ | 494 | $ | 1,287 |
(1) | Represents estimated fair value for fixed maturity securities; amortized cost, which approximates estimated fair value or estimated fair value, if available, for short-term investments; and amortized cost, which approximates estimated fair value, for cash equivalents. |
15
June 30, 2011 | December 31, 2010 | |||||||||||||||
Estimated |
Estimated |
|||||||||||||||
Fair |
% of |
Fair |
% of |
|||||||||||||
Value | Total | Value | Total | |||||||||||||
(In millions) | ||||||||||||||||
Corporate fixed maturity securities by sector:
|
||||||||||||||||
Foreign corporate fixed maturity securities (1)
|
$ | 8,900 | 36.0 | % | $ | 8,470 | 35.5 | % | ||||||||
U.S. corporate fixed maturity securities by industry:
|
||||||||||||||||
Consumer
|
3,988 | 16.1 | 3,893 | 16.3 | ||||||||||||
Industrial
|
3,497 | 14.1 | 3,282 | 13.7 | ||||||||||||
Utility
|
3,372 | 13.6 | 3,379 | 14.2 | ||||||||||||
Finance
|
2,592 | 10.5 | 2,569 | 10.8 | ||||||||||||
Communications
|
1,544 | 6.3 | 1,444 | 6.1 | ||||||||||||
Other
|
828 | 3.4 | 807 | 3.4 | ||||||||||||
Total
|
$ | 24,721 | 100.0 | % | $ | 23,844 | 100.0 | % | ||||||||
(1) | Includes U.S. dollar-denominated debt obligations of foreign obligors and other foreign fixed maturity securities. |
June 30, 2011 | December 31, 2010 | |||||||||||||||
Estimated |
Estimated |
|||||||||||||||
Fair |
% of Total |
Fair |
% of Total |
|||||||||||||
Value | Investments | Value | Investments | |||||||||||||
(In millions) | ||||||||||||||||
Concentrations within corporate fixed maturity securities:
|
||||||||||||||||
Largest exposure to a single issuer
|
$ | 250 | 0.4 | % | $ | 252 | 0.4 | % | ||||||||
Holdings in ten issuers with the largest exposures
|
$ | 1,671 | 2.4 | % | $ | 1,683 | 2.5 | % |
June 30, 2011 | December 31, 2010 | |||||||||||||||
Estimated |
Estimated |
|||||||||||||||
Fair |
% of |
Fair |
% of |
|||||||||||||
Value | Total | Value | Total | |||||||||||||
(In millions) | ||||||||||||||||
By security type:
|
||||||||||||||||
Collateralized mortgage obligations
|
$ | 3,401 | 51.7 | % | $ | 3,243 | 48.3 | % | ||||||||
Pass-through securities
|
3,171 | 48.3 | 3,466 | 51.7 | ||||||||||||
Total RMBS
|
$ | 6,572 | 100.0 | % | $ | 6,709 | 100.0 | % | ||||||||
By risk profile:
|
||||||||||||||||
Agency
|
$ | 4,762 | 72.5 | % | $ | 5,080 | 75.7 | % | ||||||||
Prime
|
1,071 | 16.3 | 1,023 | 15.3 | ||||||||||||
Alternative residential mortgage loans
|
739 | 11.2 | 606 | 9.0 | ||||||||||||
Total RMBS
|
$ | 6,572 | 100.0 | % | $ | 6,709 | 100.0 | % | ||||||||
Rated Aaa/AAA
|
$ | 4,906 | 74.7 | % | $ | 5,254 | 78.3 | % | ||||||||
Rated NAIC 1
|
$ | 5,337 | 81.2 | % | $ | 5,618 | 83.7 | % | ||||||||
16
June 30, 2011 | December 31, 2010 | |||||||||||||||
Estimated |
Estimated |
|||||||||||||||
Fair |
% of |
Fair |
% of |
|||||||||||||
Value | Total | Value | Total | |||||||||||||
(In millions) | ||||||||||||||||
Vintage Year:
|
||||||||||||||||
2005 & Prior
|
$ | 361 | 48.8 | % | $ | 311 | 51.3 | % | ||||||||
2006
|
188 | 25.5 | 88 | 14.6 | ||||||||||||
2007
|
190 | 25.7 | 207 | 34.1 | ||||||||||||
2008 to 2011
|
| | | | ||||||||||||
Total
|
$ | 739 | 100.0 | % | $ | 606 | 100.0 | % | ||||||||
June 30, 2011 | December 31, 2010 | |||||||||||||||
% of |
% of |
|||||||||||||||
Amount | Total | Amount | Total | |||||||||||||
(In millions) | ||||||||||||||||
Net unrealized gains (losses)
|
$ | (129 | ) | $ | (141 | ) | ||||||||||
Rated Aa/AA or better
|
0.5 | % | 1.5 | % | ||||||||||||
Rated NAIC 1
|
17.4 | % | 14.9 | % | ||||||||||||
Distribution of holdings at estimated fair
value by collateral type:
|
||||||||||||||||
Fixed rate mortgage loans collateral
|
97.2 | % | 96.1 | % | ||||||||||||
Hybrid adjustable rate mortgage loans collateral
|
2.8 | 3.9 | ||||||||||||||
Total Alt-A RMBS
|
100.0 | % | 100.0 | % | ||||||||||||
17
June 30, 2011 | December 31, 2010 | |||||||||||||||
Estimated |
Estimated |
|||||||||||||||
Fair |
% of |
Fair |
% of |
|||||||||||||
Value | Total | Value | Total | |||||||||||||
(In millions) | ||||||||||||||||
Vintage Year:
|
||||||||||||||||
2003 & Prior
|
$ | 728 | 33.6 | % | $ | 947 | 41.6 | % | ||||||||
2004
|
455 | 21.0 | 442 | 19.4 | ||||||||||||
2005
|
430 | 19.9 | 431 | 18.9 | ||||||||||||
2006
|
455 | 21.0 | 442 | 19.4 | ||||||||||||
2007
|
16 | 0.7 | 15 | 0.7 | ||||||||||||
2008 to 2011
|
82 | 3.8 | | | ||||||||||||
Total
|
$ | 2,166 | 100.0 | % | $ | 2,277 | 100.0 | % | ||||||||
June 30, 2011 | December 31, 2010 | |||||||||||||||
% of |
% of |
|||||||||||||||
Amount | Total | Amount | Total | |||||||||||||
(In millions) | ||||||||||||||||
Net unrealized gains (losses)
|
$ | 98 | $ | 74 | ||||||||||||
Rated Aaa/AAA
|
89 | % | 88 | % | ||||||||||||
Rated NAIC 1
|
95 | % | 95 | % |
June 30, 2011 | December 31, 2010 | |||||||||||||||
Estimated |
Estimated |
|||||||||||||||
Fair |
% of |
Fair |
% of |
|||||||||||||
Value | Total | Value | Total | |||||||||||||
(In millions) | ||||||||||||||||
By collateral type:
|
||||||||||||||||
Credit card loans
|
$ | 565 | 29.8 | % | $ | 753 | 40.3 | % | ||||||||
Collateralized debt obligations
|
364 | 19.2 | 254 | 13.5 | ||||||||||||
RMBS backed by
sub-prime
mortgage loans
|
231 | 12.2 | 247 | 13.2 | ||||||||||||
Student loans
|
210 | 11.0 | 174 | 9.3 | ||||||||||||
Utility loans
|
155 | 8.2 | 157 | 8.4 | ||||||||||||
Automobile loans
|
145 | 7.6 | 98 | 5.3 | ||||||||||||
Other loans
|
227 | 12.0 | 186 | 10.0 | ||||||||||||
Total
|
$ | 1,897 | 100.0 | % | $ | 1,869 | 100.0 | % | ||||||||
Rated Aaa/AAA
|
$ | 1,083 | 57.1 | % | $ | 1,251 | 66.9 | % | ||||||||
Rated NAIC 1
|
$ | 1,722 | 90.8 | % | $ | 1,699 | 90.9 | % | ||||||||
18
June 30, 2011 | December 31, 2010 | |||||||||||||||
Estimated |
Estimated |
|||||||||||||||
Amortized |
Fair |
Amortized |
Fair |
|||||||||||||
Cost | Value | Cost | Value | |||||||||||||
(In millions) | ||||||||||||||||
Due in one year or less
|
$ | 1,816 | $ | 1,833 | $ | 1,874 | $ | 1,889 | ||||||||
Due after one year through five years
|
11,265 | 11,742 | 9,340 | 9,672 | ||||||||||||
Due after five years through ten years
|
7,595 | 8,173 | 7,829 | 8,333 | ||||||||||||
Due after ten years
|
14,304 | 14,454 | 14,156 | 14,175 | ||||||||||||
Subtotal
|
34,980 | 36,202 | 33,199 | 34,069 | ||||||||||||
RMBS, CMBS and ABS
|
10,568 | 10,635 | 10,933 | 10,855 | ||||||||||||
Total fixed maturity securities
|
$ | 45,548 | $ | 46,837 | $ | 44,132 | $ | 44,924 | ||||||||
19
June 30, 2011 | December 31, 2010 | |||||||
(In millions) | ||||||||
Fixed maturity securities
|
$ | 1,381 | $ | 878 | ||||
Fixed maturity securities with noncredit OTTI losses in
accumulated other comprehensive income (loss)
|
(97 | ) | (86 | ) | ||||
Total fixed maturity securities
|
1,284 | 792 | ||||||
Equity securities
|
18 | (21 | ) | |||||
Derivatives
|
(99 | ) | (109 | ) | ||||
Short-term investments
|
(2 | ) | (2 | ) | ||||
Other
|
(4 | ) | (3 | ) | ||||
Subtotal
|
1,197 | 657 | ||||||
Amounts allocated from:
|
||||||||
Insurance liability loss recognition
|
(65 | ) | (33 | ) | ||||
DAC and VOBA related to noncredit OTTI losses recognized in
accumulated other comprehensive income (loss)
|
6 | 5 | ||||||
DAC and VOBA
|
(213 | ) | (126 | ) | ||||
Subtotal
|
(272 | ) | (154 | ) | ||||
Deferred income tax benefit (expense) related to noncredit OTTI
losses recognized in accumulated other comprehensive income
(loss)
|
33 | 30 | ||||||
Deferred income tax benefit (expense)
|
(347 | ) | (196 | ) | ||||
Net unrealized investment gains (losses)
|
$ | 611 | $ | 337 | ||||
June 30, 2011 | December 31, 2010 | |||||||
(In millions) | ||||||||
Balance, beginning of period
|
$ | (86 | ) | $ | (141 | ) | ||
Noncredit OTTI losses recognized (1)
|
(4 | ) | (53 | ) | ||||
Transferred to retained earnings (2)
|
| 16 | ||||||
Securities sold with previous noncredit OTTI loss
|
18 | 28 | ||||||
Subsequent changes in estimated fair value
|
(25 | ) | 64 | |||||
Balance, end of period
|
$ | (97 | ) | $ | (86 | ) | ||
(1) | Noncredit OTTI losses recognized, net of deferred policy acquisition costs (DAC), were ($4) million and ($44) million for the periods ended June 30, 2011 and December 31, 2010, respectively. | |
(2) | Amounts transferred to retained earnings were in connection with the adoption of guidance related to the consolidation of VIEs as described in Note 1 of the Notes to the Consolidated Financial Statements included in the 2010 Annual Report. |
20
Six Months |
||||
Ended |
||||
June 30, 2011 | ||||
(In millions) | ||||
Balance, beginning of period
|
$ | 337 | ||
Fixed maturity securities on which noncredit OTTI losses have
been recognized
|
(11 | ) | ||
Unrealized investment gains (losses) during the period
|
551 | |||
Unrealized investment gains (losses) relating to:
|
||||
Insurance liability gain (loss) recognition
|
(32 | ) | ||
DAC and VOBA related to noncredit OTTI losses recognized in
accumulated other comprehensive income (loss)
|
1 | |||
DAC and VOBA
|
(87 | ) | ||
Deferred income tax benefit (expense) related to noncredit OTTI
losses recognized in accumulated other comprehensive income
(loss)
|
3 | |||
Deferred income tax benefit (expense)
|
(151 | ) | ||
Balance, end of period
|
$ | 611 | ||
Change in net unrealized investment gains (losses)
|
$ | 274 | ||
21
June 30, 2011 | ||||||||||||||||||||||||
Equal to or Greater |
||||||||||||||||||||||||
Less than 12 Months | than 12 Months | Total | ||||||||||||||||||||||
Estimated |
Gross |
Estimated |
Gross |
Estimated |
Gross |
|||||||||||||||||||
Fair |
Unrealized |
Fair |
Unrealized |
Fair |
Unrealized |
|||||||||||||||||||
Value | Losses | Value | Losses | Value | Losses | |||||||||||||||||||
(In millions, except number of securities) | ||||||||||||||||||||||||
Fixed Maturity Securities:
|
||||||||||||||||||||||||
U.S. corporate securities
|
$ | 1,850 | $ | 40 | $ | 1,320 | $ | 180 | $ | 3,170 | $ | 220 | ||||||||||||
Foreign corporate securities
|
1,143 | 24 | 274 | 46 | 1,417 | 70 | ||||||||||||||||||
U.S. Treasury and agency securities
|
2,396 | 115 | 84 | 20 | 2,480 | 135 | ||||||||||||||||||
RMBS
|
1,888 | 41 | 1,066 | 184 | 2,954 | 225 | ||||||||||||||||||
CMBS
|
140 | 1 | 116 | 16 | 256 | 17 | ||||||||||||||||||
ABS
|
325 | 4 | 531 | 79 | 856 | 83 | ||||||||||||||||||
State and political subdivision securities
|
324 | 16 | 371 | 92 | 695 | 108 | ||||||||||||||||||
Foreign government securities
|
198 | 5 | 3 | | 201 | 5 | ||||||||||||||||||
Total fixed maturity securities
|
$ | 8,264 | $ | 246 | $ | 3,765 | $ | 617 | $ | 12,029 | $ | 863 | ||||||||||||
Equity Securities:
|
||||||||||||||||||||||||
Non-redeemable preferred stock
|
$ | 20 | $ | 3 | $ | 68 | $ | 13 | $ | 88 | $ | 16 | ||||||||||||
Common stock
|
9 | 1 | | | 9 | 1 | ||||||||||||||||||
Total equity securities
|
$ | 29 | $ | 4 | $ | 68 | $ | 13 | $ | 97 | $ | 17 | ||||||||||||
Total number of securities in an unrealized loss position
|
818 | 441 | ||||||||||||||||||||||
22
December 31, 2010 | ||||||||||||||||||||||||
Equal to or Greater |
||||||||||||||||||||||||
Less than 12 Months | than 12 Months | Total | ||||||||||||||||||||||
Estimated |
Gross |
Estimated |
Gross |
Estimated |
Gross |
|||||||||||||||||||
Fair |
Unrealized |
Fair |
Unrealized |
Fair |
Unrealized |
|||||||||||||||||||
Value | Losses | Value | Losses | Value | Losses | |||||||||||||||||||
(In millions, except number of securities) | ||||||||||||||||||||||||
Fixed Maturity Securities:
|
||||||||||||||||||||||||
U.S. corporate securities
|
$ | 1,956 | $ | 56 | $ | 1,800 | $ | 246 | $ | 3,756 | $ | 302 | ||||||||||||
Foreign corporate securities
|
727 | 24 | 816 | 103 | 1,543 | 127 | ||||||||||||||||||
U.S. Treasury and agency securities
|
2,857 | 113 | 85 | 19 | 2,942 | 132 | ||||||||||||||||||
RMBS
|
2,228 | 59 | 1,368 | 238 | 3,596 | 297 | ||||||||||||||||||
CMBS
|
68 | 1 | 237 | 38 | 305 | 39 | ||||||||||||||||||
ABS
|
245 | 5 | 590 | 97 | 835 | 102 | ||||||||||||||||||
State and political subdivision securities
|
716 | 36 | 352 | 95 | 1,068 | 131 | ||||||||||||||||||
Foreign government securities
|
49 | 1 | 9 | 1 | 58 | 2 | ||||||||||||||||||
Total fixed maturity securities
|
$ | 8,846 | $ | 295 | $ | 5,257 | $ | 837 | $ | 14,103 | $ | 1,132 | ||||||||||||
Equity Securities:
|
||||||||||||||||||||||||
Non-redeemable preferred stock
|
$ | 26 | $ | 5 | $ | 187 | $ | 42 | $ | 213 | $ | 47 | ||||||||||||
Common stock
|
9 | 1 | | | 9 | 1 | ||||||||||||||||||
Total equity securities
|
$ | 35 | $ | 6 | $ | 187 | $ | 42 | $ | 222 | $ | 48 | ||||||||||||
Total number of securities in an unrealized loss position
|
759 | 637 | ||||||||||||||||||||||
23
June 30, 2011 | ||||||||||||||||||||||||
Cost or Amortized Cost | Gross Unrealized Losses | Number of Securities | ||||||||||||||||||||||
Less than |
20% or |
Less than |
20% or |
Less than |
20% or |
|||||||||||||||||||
20% | more | 20% | more | 20% | more | |||||||||||||||||||
(In millions, except number of securities) | ||||||||||||||||||||||||
Fixed Maturity Securities:
|
||||||||||||||||||||||||
Less than six months
|
$ | 4,795 | $ | 368 | $ | 70 | $ | 83 | 492 | 32 | ||||||||||||||
Six months or greater but less than nine months
|
3,333 | 203 | 143 | 51 | 180 | 16 | ||||||||||||||||||
Nine months or greater but less than twelve months
|
369 | 15 | 29 | 5 | 146 | 4 | ||||||||||||||||||
Twelve months or greater
|
3,295 | 514 | 305 | 177 | 340 | 48 | ||||||||||||||||||
Total
|
$ | 11,792 | $ | 1,100 | $ | 547 | $ | 316 | ||||||||||||||||
Percentage of amortized cost
|
5 | % | 29 | % | ||||||||||||||||||||
Equity Securities:
|
||||||||||||||||||||||||
Less than six months
|
$ | 9 | $ | 2 | $ | | $ | 1 | 3 | 4 | ||||||||||||||
Six months or greater but less than nine months
|
23 | | 3 | | 6 | 1 | ||||||||||||||||||
Nine months or greater but less than twelve months
|
| | | | | 2 | ||||||||||||||||||
Twelve months or greater
|
62 | 18 | 7 | 6 | 8 | 2 | ||||||||||||||||||
Total
|
$ | 94 | $ | 20 | $ | 10 | $ | 7 | ||||||||||||||||
Percentage of cost
|
11 | % | 35 | % | ||||||||||||||||||||
24
December 31, 2010 | ||||||||||||||||||||||||
Cost or Amortized Cost | Gross Unrealized Losses | Number of Securities | ||||||||||||||||||||||
Less than |
20% or |
Less than |
20% or |
Less than |
20% or |
|||||||||||||||||||
20% | more | 20% | more | 20% | more | |||||||||||||||||||
(In millions, except number of securities) | ||||||||||||||||||||||||
Fixed Maturity Securities:
|
||||||||||||||||||||||||
Less than six months
|
$ | 8,882 | $ | 439 | $ | 268 | $ | 109 | 686 | 43 | ||||||||||||||
Six months or greater but less than nine months
|
152 | 40 | 6 | 13 | 30 | 10 | ||||||||||||||||||
Nine months or greater but less than twelve months
|
48 | 25 | 2 | 11 | 11 | 3 | ||||||||||||||||||
Twelve months or greater
|
4,768 | 881 | 450 | 273 | 475 | 101 | ||||||||||||||||||
Total
|
$ | 13,850 | $ | 1,385 | $ | 726 | $ | 406 | ||||||||||||||||
Percentage of amortized cost
|
5 | % | 29 | % | ||||||||||||||||||||
Equity Securities:
|
||||||||||||||||||||||||
Less than six months
|
$ | 31 | $ | 30 | $ | 4 | $ | 7 | 8 | 12 | ||||||||||||||
Six months or greater but less than nine months
|
| 3 | | 1 | | 1 | ||||||||||||||||||
Nine months or greater but less than twelve months
|
5 | 7 | | 2 | 1 | 1 | ||||||||||||||||||
Twelve months or greater
|
150 | 44 | 18 | 16 | 12 | 5 | ||||||||||||||||||
Total
|
$ | 186 | $ | 84 | $ | 22 | $ | 26 | ||||||||||||||||
Percentage of cost
|
12 | % | 31 | % | ||||||||||||||||||||
25
June 30, 2011 | December 31, 2010 | |||||||
Sector:
|
||||||||
RMBS
|
26 | % | 25 | % | ||||
U.S. corporate securities
|
25 | 26 | ||||||
U.S. Treasury and agency securities
|
15 | 11 | ||||||
State and political subdivision securities
|
12 | 11 | ||||||
ABS
|
9 | 9 | ||||||
Foreign corporate securities
|
8 | 11 | ||||||
CMBS
|
2 | 3 | ||||||
Other
|
3 | 4 | ||||||
Total
|
100 | % | 100 | % | ||||
Industry:
|
||||||||
Mortgage-backed
|
28 | % | 28 | % | ||||
U.S. Treasury and agency securities
|
15 | 11 | ||||||
Finance
|
12 | 19 | ||||||
State and political subdivision securities
|
12 | 11 | ||||||
Asset-backed
|
9 | 9 | ||||||
Consumer
|
6 | 5 | ||||||
Utility
|
3 | 3 | ||||||
Communications
|
2 | 2 | ||||||
Transportation
|
2 | 1 | ||||||
Industrial
|
1 | 1 | ||||||
Other
|
10 | 10 | ||||||
Total
|
100 | % | 100 | % | ||||
June 30, 2011 | December 31, 2010 | |||||||||||||||
Fixed Maturity |
Equity |
Fixed Maturity |
Equity |
|||||||||||||
Securities | Securities | Securities | Securities | |||||||||||||
(In millions, except number of securities) | ||||||||||||||||
Number of securities
|
17 | | 15 | | ||||||||||||
Total gross unrealized losses
|
$ | 249 | $ | | $ | 210 | $ | | ||||||||
Percentage of total gross unrealized losses
|
29 | % | | % | 19 | % | | % |
26
Non-Redeemable Preferred Stock | ||||||||||||||||||||||||||||||||
All Types of |
||||||||||||||||||||||||||||||||
All Equity |
Non-Redeemable |
Investment Grade | ||||||||||||||||||||||||||||||
Securities | Preferred Stock | All Industries | Financial Services Industry | |||||||||||||||||||||||||||||
Gross |
Gross |
% of All |
Gross |
% of All |
Gross |
% A |
||||||||||||||||||||||||||
Unrealized |
Unrealized |
Equity |
Unrealized |
Non-Redeemable |
Unrealized |
% of All |
Rated or |
|||||||||||||||||||||||||
Losses | Losses | Securities | Losses | Preferred Stock | Losses | Industries | Better | |||||||||||||||||||||||||
(In millions) | ||||||||||||||||||||||||||||||||
Less than six months
|
$ | 1 | $ | | | % | $ | | | % | $ | | | % | | % | ||||||||||||||||
Six months or greater but less than twelve months
|
| | | % | | | % | | | % | | % | ||||||||||||||||||||
Twelve months or greater
|
6 | 6 | 100 | % | 6 | 100 | % | 6 | 100 | % | 33 | % | ||||||||||||||||||||
All equity securities with gross unrealized losses of 20% or more
|
$ | 7 | $ | 6 | 86 | % | $ | 6 | 100 | % | $ | 6 | 100 | % | 33 | % | ||||||||||||||||
27
Three Months |
Six Months |
|||||||||||||||
Ended |
Ended |
|||||||||||||||
June 30, | June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(In millions) | ||||||||||||||||
Total gains (losses) on fixed maturity securities:
|
||||||||||||||||
Total OTTI losses recognized
|
$ | (21 | ) | $ | (19 | ) | $ | (30 | ) | $ | (53 | ) | ||||
Less: Noncredit portion of OTTI losses transferred to and
recognized in other comprehensive income (loss)
|
6 | 7 | 4 | 23 | ||||||||||||
Net OTTI losses on fixed maturity securities recognized in
earnings
|
(15 | ) | (12 | ) | (26 | ) | (30 | ) | ||||||||
Fixed maturity securities net gains (losses) on
sales and disposals
|
2 | 58 | (18 | ) | 62 | |||||||||||
Total gains (losses) on fixed maturity securities
|
(13 | ) | 46 | (44 | ) | 32 | ||||||||||
Other net investment gains (losses):
|
||||||||||||||||
Equity securities
|
(24 | ) | 20 | (23 | ) | 19 | ||||||||||
Mortgage loans
|
14 | (7 | ) | 18 | (15 | ) | ||||||||||
Real estate and real estate joint ventures
|
| (3 | ) | | (19 | ) | ||||||||||
Other limited partnership interests
|
(4 | ) | (8 | ) | (2 | ) | (10 | ) | ||||||||
Other investment portfolio gains (losses)
|
(1 | ) | (4 | ) | (5 | ) | 7 | |||||||||
Subtotal investment portfolio gains (losses)
|
(28 | ) | 44 | (56 | ) | 14 | ||||||||||
Fair value option (FVO) consolidated securitization
entities changes in estimated fair value:
|
||||||||||||||||
Commercial mortgage loans
|
7 | 172 | 25 | 653 | ||||||||||||
Long-term debt related to commercial mortgage loans
|
(5 | ) | (162 | ) | (11 | ) | (647 | ) | ||||||||
Other gains (losses)
|
(1 | ) | (4 | ) | 1 | 67 | ||||||||||
Subtotal FVO consolidated securitization entities and other
gains (losses)
|
1 | 6 | 15 | 73 | ||||||||||||
Total net investment gains (losses)
|
$ | (27 | ) | $ | 50 | $ | (41 | ) | $ | 87 | ||||||
28
Three Months Ended June 30, | ||||||||||||||||||||||||
2011 | 2010 | 2011 | 2010 | 2011 | 2010 | |||||||||||||||||||
Fixed Maturity Securities | Equity Securities | Total | ||||||||||||||||||||||
(In millions) | ||||||||||||||||||||||||
Proceeds
|
$ | 2,529 | $ | 3,076 | $ | 128 | $ | 74 | $ | 2,657 | $ | 3,150 | ||||||||||||
Gross investment gains
|
$ | 33 | $ | 87 | $ | 2 | $ | 20 | $ | 35 | $ | 107 | ||||||||||||
Gross investment losses
|
(31 | ) | (29 | ) | (20 | ) | | (51 | ) | (29 | ) | |||||||||||||
Total OTTI losses recognized in earnings:
|
||||||||||||||||||||||||
Credit-related
|
(6 | ) | (12 | ) | | | (6 | ) | (12 | ) | ||||||||||||||
Other (1)
|
(9 | ) | | (6 | ) | | (15 | ) | | |||||||||||||||
Total OTTI losses recognized in earnings
|
(15 | ) | (12 | ) | (6 | ) | | (21 | ) | (12 | ) | |||||||||||||
Net investment gains (losses)
|
$ | (13 | ) | $ | 46 | $ | (24 | ) | $ | 20 | $ | (37 | ) | $ | 66 | |||||||||
Six Months Ended June 30, | ||||||||||||||||||||||||
2011 | 2010 | 2011 | 2010 | 2011 | 2010 | |||||||||||||||||||
Fixed Maturity Securities | Equity Securities | Total | ||||||||||||||||||||||
(In millions) | ||||||||||||||||||||||||
Proceeds
|
$ | 5,042 | $ | 5,264 | $ | 144 | $ | 79 | $ | 5,186 | $ | 5,343 | ||||||||||||
Gross investment gains
|
$ | 51 | $ | 131 | $ | 5 | $ | 20 | $ | 56 | $ | 151 | ||||||||||||
Gross investment losses
|
(69 | ) | (69 | ) | (22 | ) | (1 | ) | (91 | ) | (70 | ) | ||||||||||||
Total OTTI losses recognized in earnings:
|
||||||||||||||||||||||||
Credit-related
|
(17 | ) | (29 | ) | | | (17 | ) | (29 | ) | ||||||||||||||
Other (1)
|
(9 | ) | (1 | ) | (6 | ) | | (15 | ) | (1 | ) | |||||||||||||
Total OTTI losses recognized in earnings
|
(26 | ) | (30 | ) | (6 | ) | | (32 | ) | (30 | ) | |||||||||||||
Net investment gains (losses)
|
$ | (44 | ) | $ | 32 | $ | (23 | ) | $ | 19 | $ | (67 | ) | $ | 51 | |||||||||
(1) | Other OTTI losses recognized in earnings include impairments on equity securities, impairments on perpetual hybrid securities classified within fixed maturity securities where the primary reason for the impairment was the severity and/or the duration of an unrealized loss position and fixed maturity securities where there is an intent to sell or it is more likely than not that the Company will be required to sell the security before recovery of the decline in estimated fair value. |
29
Three Months |
Six Months |
|||||||||||||||
Ended |
Ended |
|||||||||||||||
June 30, | June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(In millions) | ||||||||||||||||
Sector:
|
||||||||||||||||
U.S. and foreign corporate securities by industry:
|
||||||||||||||||
Finance
|
$ | 9 | $ | 1 | $ | 9 | $ | 2 | ||||||||
Communications
|
| | 4 | 3 | ||||||||||||
Consumer
|
| | | 9 | ||||||||||||
Utility
|
| 2 | | 2 | ||||||||||||
Total U.S. and foreign corporate securities
|
9 | 3 | 13 | 16 | ||||||||||||
ABS
|
3 | | 5 | | ||||||||||||
RMBS
|
3 | 3 | 5 | 7 | ||||||||||||
CMBS
|
| 6 | 3 | 7 | ||||||||||||
Total
|
$ | 15 | $ | 12 | $ | 26 | $ | 30 | ||||||||
Three Months |
Six Months |
|||||||||||||||
Ended |
Ended |
|||||||||||||||
June 30, | June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(In millions) | ||||||||||||||||
Sector:
|
||||||||||||||||
Non-redeemable preferred stock
|
$ | 6 | $ | | $ | 6 | $ | | ||||||||
Total
|
$ | 6 | $ | | $ | 6 | $ | | ||||||||
Industry:
|
||||||||||||||||
Financial services industry perpetual hybrid
securities
|
$ | 6 | $ | | $ | 6 | $ | | ||||||||
Total
|
$ | 6 | $ | | $ | 6 | $ | | ||||||||
30
Three Months |
Six Months |
|||||||||||||||
Ended |
Ended |
|||||||||||||||
June 30, | June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(In millions) | ||||||||||||||||
Balance, beginning of period
|
$ | 43 | $ | 80 | $ | 63 | $ | 213 | ||||||||
Additions:
|
||||||||||||||||
Initial impairments credit loss OTTI recognized on
securities not previously impaired
|
4 | 1 | 4 | 3 | ||||||||||||
Additional impairments credit loss OTTI recognized
on securities previously impaired
|
1 | 4 | 4 | 6 | ||||||||||||
Reductions:
|
||||||||||||||||
Due to sales (maturities, pay downs or prepayments) during the
period of securities previously credit loss OTTI impaired
|
(2 | ) | (16 | ) | (4 | ) | (52 | ) | ||||||||
Due to securities de-recognized in connection with the adoption
of new guidance related to the consolidation of VIEs
|
| | | (100 | ) | |||||||||||
Due to securities impaired to net present value of expected
future cash flows
|
| | (20 | ) | | |||||||||||
Due to increases in cash flows accretion of previous
credit loss OTTI
|
| (1 | ) | (1 | ) | (2 | ) | |||||||||
Balance, end of period
|
$ | 46 | $ | 68 | $ | 46 | $ | 68 | ||||||||
31
Three Months |
Six Months |
|||||||||||||||
Ended |
Ended |
|||||||||||||||
June 30, | June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(In millions) | ||||||||||||||||
Investment income:
|
||||||||||||||||
Fixed maturity securities
|
$ | 538 | $ | 525 | $ | 1,073 | $ | 1,054 | ||||||||
Equity securities
|
5 | 7 | 7 | 9 | ||||||||||||
Other securities FVO general account securities (1)
|
1 | | 1 | | ||||||||||||
Mortgage loans
|
87 | 72 | 171 | 140 | ||||||||||||
Policy loans
|
15 | 17 | 31 | 33 | ||||||||||||
Real estate and real estate joint ventures
|
10 | 1 | 2 | (25 | ) | |||||||||||
Other limited partnership interests
|
40 | 34 | 120 | 102 | ||||||||||||
Cash, cash equivalents and short-term investments
|
1 | 1 | 3 | 3 | ||||||||||||
International joint ventures
|
2 | (1 | ) | 1 | (2 | ) | ||||||||||
Other
|
3 | 9 | 5 | 11 | ||||||||||||
Subtotal
|
702 | 665 | 1,414 | 1,325 | ||||||||||||
Less: Investment expenses
|
27 | 23 | 51 | 46 | ||||||||||||
Subtotal, net
|
675 | 642 | 1,363 | 1,279 | ||||||||||||
Other securities FVO contractholder-directed
unit-linked investments (1)
|
25 | (22 | ) | 30 | 26 | |||||||||||
FVO consolidated securitization entities Commercial
mortgage loans
|
96 | 105 | 191 | 210 | ||||||||||||
Subtotal
|
121 | 83 | 221 | 236 | ||||||||||||
Net investment income
|
$ | 796 | $ | 725 | $ | 1,584 | $ | 1,515 | ||||||||
(1) Changes in estimated fair value subsequent to purchase
included in net investment income were:
|
||||||||||||||||
Other securities FVO general account securities
|
$ | 1 | $ | | $ | 1 | $ | | ||||||||
Other securities FVO contractholder-directed
unit-linked
|
$ | 18 | $ | (38 | ) | $ | (7 | ) | $ | 3 |
32
June 30, 2011 | December 31, 2010 | |||||||
(In millions) | ||||||||
Securities on loan:
|
||||||||
Amortized cost
|
$ | 6,992 | $ | 6,992 | ||||
Estimated fair value
|
$ | 7,047 | $ | 7,054 | ||||
Aging of cash collateral liability:
|
||||||||
Open (1)
|
$ | 845 | $ | 1,292 | ||||
Less than thirty days
|
4,479 | 3,297 | ||||||
Thirty days or greater but less than sixty days
|
1,039 | 1,221 | ||||||
Sixty days or greater but less than ninety days
|
513 | 326 | ||||||
Ninety days or greater
|
340 | 1,002 | ||||||
Total cash collateral liability
|
$ | 7,216 | $ | 7,138 | ||||
Security collateral on deposit from counterparties
|
$ | 9 | $ | | ||||
Reinvestment portfolio estimated fair value
|
$ | 7,097 | $ | 6,916 | ||||
(1) | Open meaning that the related loaned security could be returned to the Company on the next business day requiring the Company to immediately return the cash collateral. |
33
June 30, 2011 | December 31, 2010 | |||||||
(In millions) | ||||||||
Invested assets on deposit:
|
||||||||
Regulatory agencies
|
$ | 55 | $ | 55 | ||||
Invested assets pledged as collateral:
|
||||||||
Funding agreements Federal Home Loan Bank of Boston
|
534 | 211 | ||||||
Funding agreements Federal Agricultural Mortgage
Corporation
|
231 | 231 | ||||||
Derivative transactions
|
82 | 83 | ||||||
Total invested assets on deposit and pledged as collateral
|
$ | 902 | $ | 580 | ||||
June 30, 2011 | December 31, 2010 | |||||||
(In millions) | ||||||||
FVO general account securities
|
$ | 48 | $ | 7 | ||||
FVO contractholder-directed unit-linked investments
|
3,041 | 2,240 | ||||||
Total other securities at estimated fair value
|
$ | 3,089 | $ | 2,247 | ||||
34
June 30, 2011 | December 31, 2010 | |||||||||||||||
Carrying |
% of |
Carrying |
% of |
|||||||||||||
Value | Total | Value | Total | |||||||||||||
(In millions) | ||||||||||||||||
Mortgage loans:
|
||||||||||||||||
Commercial
|
$ | 4,675 | 37.0 | % | $ | 4,635 | 36.4 | % | ||||||||
Agricultural
|
1,343 | 10.6 | 1,342 | 10.6 | ||||||||||||
Subtotal
|
6,018 | 47.6 | % | 5,977 | 47.0 | % | ||||||||||
Valuation allowances
|
(70 | ) | (0.6 | ) | (87 | ) | (0.7 | ) | ||||||||
Subtotal mortgage loans, net
|
5,948 | 47.0 | % | 5,890 | 46.3 | % | ||||||||||
Commercial mortgage loans held by consolidated securitization
entities FVO
|
6,697 | 53.0 | 6,840 | 53.7 | ||||||||||||
Total mortgage loans, net
|
$ | 12,645 | 100.0 | % | $ | 12,730 | 100.0 | % | ||||||||
35
Commercial | Agricultural | Total | ||||||||||
(In millions) | ||||||||||||
June 30, 2011:
|
||||||||||||
Mortgage loans:
|
||||||||||||
Evaluated individually for credit losses
|
$ | 23 | $ | | $ | 23 | ||||||
Evaluated collectively for credit losses
|
4,652 | 1,343 | 5,995 | |||||||||
Total mortgage loans
|
4,675 | 1,343 | 6,018 | |||||||||
Valuation allowances:
|
||||||||||||
Specific credit losses
|
15 | | 15 | |||||||||
Non-specifically identified credit losses
|
51 | 4 | 55 | |||||||||
Total valuation allowances
|
66 | 4 | 70 | |||||||||
Mortgage loans, net of valuation allowance
|
$ | 4,609 | $ | 1,339 | $ | 5,948 | ||||||
December 31, 2010:
|
||||||||||||
Mortgage loans:
|
||||||||||||
Evaluated individually for credit losses
|
$ | 23 | $ | | $ | 23 | ||||||
Evaluated collectively for credit losses
|
4,612 | 1,342 | 5,954 | |||||||||
Total mortgage loans
|
4,635 | 1,342 | 5,977 | |||||||||
Valuation allowances:
|
||||||||||||
Specific credit losses
|
23 | | 23 | |||||||||
Non-specifically identified credit losses
|
61 | 3 | 64 | |||||||||
Total valuation allowances
|
84 | 3 | 87 | |||||||||
Mortgage loans, net of valuation allowance
|
$ | 4,551 | $ | 1,339 | $ | 5,890 | ||||||
36
Mortgage Loan Valuation Allowances | ||||||||||||
Commercial | Agricultural | Total | ||||||||||
(In millions) | ||||||||||||
For the Three Months Ended June 30, 2011:
|
||||||||||||
Balance, beginning of period
|
$ | 80 | $ | 4 | $ | 84 | ||||||
Provision (release)
|
(14 | ) | | (14 | ) | |||||||
Charge-offs, net of recoveries
|
| | | |||||||||
Balance, end of period
|
$ | 66 | $ | 4 | $ | 70 | ||||||
For the Three Months Ended June 30, 2010:
|
||||||||||||
Balance, beginning of period
|
$ | 82 | $ | 3 | $ | 85 | ||||||
Provision (release)
|
8 | | 8 | |||||||||
Charge-offs, net of recoveries
|
| | | |||||||||
Balance, end of period
|
$ | 90 | $ | 3 | $ | 93 | ||||||
For the Six Months Ended June 30, 2011:
|
||||||||||||
Balance, beginning of period
|
$ | 84 | $ | 3 | $ | 87 | ||||||
Provision (release)
|
(18 | ) | 1 | (17 | ) | |||||||
Charge-offs, net of recoveries
|
| | | |||||||||
Balance, end of period
|
$ | 66 | $ | 4 | $ | 70 | ||||||
For the Six Months Ended June 30, 2010:
|
||||||||||||
Balance, beginning of period
|
$ | 74 | $ | 3 | $ | 77 | ||||||
Provision (release)
|
16 | | 16 | |||||||||
Charge-offs, net of recoveries
|
| | | |||||||||
Balance, end of period
|
$ | 90 | $ | 3 | $ | 93 | ||||||
37
Commercial | ||||||||||||||||||||||||||||
Recorded Investment | ||||||||||||||||||||||||||||
Debt Service Coverage Ratios |
Estimated |
|||||||||||||||||||||||||||
> 1.20x | 1.00x - 1.20x | < 1.00x | Total | % of Total | Fair Value | % of Total | ||||||||||||||||||||||
(In millions) | (In millions) | |||||||||||||||||||||||||||
June 30, 2011:
|
||||||||||||||||||||||||||||
Loan-to-value
ratios:
|
||||||||||||||||||||||||||||
Less than 65%
|
$ | 2,417 | $ | 35 | $ | 148 | $ | 2,600 | 55.6 | % | $ | 2,771 | 57.6 | % | ||||||||||||||
65% to 75%
|
680 | 43 | 137 | 860 | 18.4 | 900 | 18.8 | |||||||||||||||||||||
76% to 80%
|
315 | | | 315 | 6.7 | 314 | 6.5 | |||||||||||||||||||||
Greater than 80%
|
672 | 113 | 115 | 900 | 19.3 | 824 | 17.1 | |||||||||||||||||||||
Total
|
$ | 4,084 | $ | 191 | $ | 400 | $ | 4,675 | 100.0 | % | $ | 4,809 | 100.0 | % | ||||||||||||||
December 31, 2010:
|
||||||||||||||||||||||||||||
Loan-to-value
ratios:
|
||||||||||||||||||||||||||||
Less than 65%
|
$ | 2,051 | $ | 11 | $ | 34 | $ | 2,096 | 45.2 | % | $ | 2,196 | 47.1 | % | ||||||||||||||
65% to 75%
|
824 | 99 | 148 | 1,071 | 23.1 | 1,099 | 23.6 | |||||||||||||||||||||
76% to 80%
|
301 | 29 | 7 | 337 | 7.3 | 347 | 7.4 | |||||||||||||||||||||
Greater than 80%
|
828 | 163 | 140 | 1,131 | 24.4 | 1,018 | 21.9 | |||||||||||||||||||||
Total
|
$ | 4,004 | $ | 302 | $ | 329 | $ | 4,635 | 100.0 | % | $ | 4,660 | 100.0 | % | ||||||||||||||
Agricultural | ||||||||||||||||
June 30, 2011 | December 31, 2010 | |||||||||||||||
Recorded Investment | % of Total | Recorded Investment | % of Total | |||||||||||||
(In millions) | (In millions) | |||||||||||||||
Loan-to-value
ratios:
|
||||||||||||||||
Less than 65%
|
$ | 1,284 | 95.6 | % | $ | 1,289 | 96.0 | % | ||||||||
65% to 75%
|
59 | 4.4 | 53 | 4.0 | ||||||||||||
Total
|
$ | 1,343 | 100.0 | % | $ | 1,342 | 100.0 | % | ||||||||
38
Greater than 90 Days Past Due |
||||||||||||||||||||||||
Past Due | Still Accruing Interest | Nonaccrual Status | ||||||||||||||||||||||
June 30, 2011 | December 31, 2010 | June 30, 2011 | December 31, 2010 | June 30, 2011 | December 31, 2010 | |||||||||||||||||||
(In millions) | ||||||||||||||||||||||||
Commercial
|
$ | | $ | | $ | | $ | | $ | | $ | 1 | ||||||||||||
Agricultural
|
7 | 7 | 1 | | 6 | 6 | ||||||||||||||||||
Total
|
$ | 7 | $ | 7 | $ | 1 | $ | | $ | 6 | $ | 7 | ||||||||||||
Impaired Mortgage Loans | ||||||||||||||||||||||||||||||||
Loans without |
||||||||||||||||||||||||||||||||
Loans with a Valuation Allowance | a Valuation Allowance | All Impaired Loans | ||||||||||||||||||||||||||||||
Unpaid |
Unpaid |
Unpaid |
||||||||||||||||||||||||||||||
Principal |
Recorded |
Valuation |
Carrying |
Principal |
Recorded |
Principal |
Carrying |
|||||||||||||||||||||||||
Balance | Investment | Allowances | Value | Balance | Investment | Balance | Value | |||||||||||||||||||||||||
(In millions) | ||||||||||||||||||||||||||||||||
June 30, 2011:
|
||||||||||||||||||||||||||||||||
Commercial
|
$ | 23 | $ | 23 | $ | 15 | $ | 8 | $ | | $ | | $ | 23 | $ | 8 | ||||||||||||||||
Agricultural
|
| | | | 7 | 7 | 7 | 7 | ||||||||||||||||||||||||
Total
|
$ | 23 | $ | 23 | $ | 15 | $ | 8 | $ | 7 | $ | 7 | $ | 30 | $ | 15 | ||||||||||||||||
December 31, 2010:
|
||||||||||||||||||||||||||||||||
Commercial
|
$ | 23 | $ | 23 | $ | 23 | $ | | $ | | $ | | $ | 23 | $ | | ||||||||||||||||
Agricultural
|
| | | | 7 | 7 | 7 | 7 | ||||||||||||||||||||||||
Total
|
$ | 23 | $ | 23 | $ | 23 | $ | | $ | 7 | $ | 7 | $ | 30 | $ | 7 | ||||||||||||||||
39
Impaired Mortgage Loans | ||||||||||||
Average Investment | Interest Income Recognized | |||||||||||
Cash Basis | Accrual Basis | |||||||||||
(In millions) | ||||||||||||
For the Three Months Ended June 30, 2011:
|
||||||||||||
Commercial
|
$ | 23 | $ | | $ | | ||||||
Agricultural
|
7 | | | |||||||||
Total
|
$ | 30 | $ | | $ | | ||||||
For the Three Months Ended June 30, 2010:
|
||||||||||||
Commercial
|
$ | 54 | $ | 2 | $ | | ||||||
Agricultural
|
15 | | | |||||||||
Total
|
$ | 69 | $ | 2 | $ | | ||||||
For the Six Months Ended June 30, 2011:
|
||||||||||||
Commercial
|
$ | 23 | $ | 1 | $ | | ||||||
Agricultural
|
7 | | | |||||||||
Total
|
$ | 30 | $ | 1 | $ | | ||||||
For the Six Months Ended June 30, 2010:
|
||||||||||||
Commercial
|
$ | 44 | $ | 2 | $ | | ||||||
Agricultural
|
14 | | | |||||||||
Total
|
$ | 58 | $ | 2 | $ | | ||||||
40
June 30, 2011 | December 31, 2010 | |||||||
(In millions) | ||||||||
Outstanding principal and interest balance (1)
|
$ | 429 | $ | 20 | ||||
Carrying value (2)
|
$ | 333 | $ | 19 |
(1) | Represents the contractually required payments which is the sum of contractual principal, whether or not currently due, and accrued interest. | |
(2) | Estimated fair value plus accrued interest. |
Six Months |
||||||||
Ended |
||||||||
June 30, | ||||||||
2011 | 2010 | |||||||
(In millions) | ||||||||
Contractually required payments (including interest)
|
$ | 672 | $ | | ||||
Cash flows expected to be collected (1)
|
$ | 621 | $ | | ||||
Fair value of investments acquired
|
$ | 325 | $ | |
(1) | Represents undiscounted principal and interest cash flow expectations at the date of acquisition. |
Three Months |
Six Months |
|||||||||||||||
Ended |
Ended |
|||||||||||||||
June 30, | June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(In millions) | ||||||||||||||||
Accretable yield, beginning of period
|
$ | 30 | $ | | $ | 5 | $ | | ||||||||
Investments purchased
|
273 | | 296 | | ||||||||||||
Accretion recognized in net investment income
|
(3 | ) | | (3 | ) | | ||||||||||
Disposals
|
| | | | ||||||||||||
Reclassification (to) from nonaccretable difference
|
6 | | 8 | | ||||||||||||
Accretable yield, end of period
|
$ | 306 | $ | | $ | 306 | $ | | ||||||||
41
June 30, 2011 | December 31, 2010 | |||||||
(In millions) | ||||||||
Consolidated securitization entities: (1)
|
||||||||
Assets:
|
||||||||
Mortgage loans
held-for-investment
(commercial mortgage loans)
|
$ | 6,697 | $ | 6,840 | ||||
Accrued investment income
|
32 | 31 | ||||||
Total assets
|
$ | 6,729 | $ | 6,871 | ||||
Liabilities:
|
||||||||
Long-term debt
|
$ | 6,617 | $ | 6,773 | ||||
Other liabilities
|
31 | 31 | ||||||
Total liabilities
|
$ | 6,648 | $ | 6,804 | ||||
(1) | The Company consolidated former qualified special purpose entities (QSPEs) that are structured as CMBS. The assets of these entities can only be used to settle their respective liabilities, and under no circumstances is the Company or any of its subsidiaries or affiliates liable for any principal or interest shortfalls should any arise. The Companys exposure was limited to that of its remaining investment in the former QSPEs of $76 million and $64 million at estimated fair value at June 30, 2011 and December 31, 2010, respectively. The long-term debt referred to above bears interest at primarily fixed rates ranging from 2.25% to 5.57%, payable primarily on a monthly basis and is expected to be repaid over the next 7 years. Interest expense related to these obligations, included in other expenses, was $94 million and $187 million for the three months and six months ended June 30, 2011, respectively, and $101 million and $204 million for the three months and six months ended June 30, 2010, respectively. |
June 30, 2011 | December 31, 2010 | |||||||||||||||
Maximum |
Maximum |
|||||||||||||||
Carrying |
Exposure |
Carrying |
Exposure |
|||||||||||||
Amount | to Loss (1) | Amount | to Loss (1) | |||||||||||||
(In millions) | ||||||||||||||||
Fixed maturity securities
available-for-sale:
|
||||||||||||||||
RMBS (2)
|
$ | 6,572 | $ | 6,572 | $ | 6,709 | $ | 6,709 | ||||||||
CMBS (2)
|
2,166 | 2,166 | 2,277 | 2,277 | ||||||||||||
ABS (2)
|
1,897 | 1,897 | 1,869 | 1,869 | ||||||||||||
U.S. corporate securities
|
379 | 379 | 336 | 336 | ||||||||||||
Foreign corporate securities
|
333 | 333 | 348 | 348 | ||||||||||||
Other limited partnership interests
|
1,208 | 1,909 | 1,192 | 1,992 | ||||||||||||
Real estate joint ventures
|
26 | 30 | 10 | 35 | ||||||||||||
Total
|
$ | 12,581 | $ | 13,286 | $ | 12,741 | $ | 13,566 | ||||||||
(1) | The maximum exposure to loss relating to the fixed maturity securities is equal to the carrying amounts or carrying amounts of retained interests. The maximum exposure to loss relating to the other limited partnership |
42
interests and real estate joint ventures is equal to the carrying amounts plus any unfunded commitments of the Company. Such a maximum loss would be expected to occur only upon bankruptcy of the issuer or investee. | ||
(2) | For these variable interests, the Companys involvement is limited to that of a passive investor. |
Three Months |
Six Months |
|||||||||||||||
Ended |
Ended |
|||||||||||||||
June 30, | June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(In millions) | ||||||||||||||||
Estimated fair value of assets transferred to affiliates
|
$ | | $ | 445 | $ | | $ | 445 | ||||||||
Amortized cost of assets transferred to affiliates
|
$ | | $ | 406 | $ | | $ | 406 | ||||||||
Net investment gains (losses) recognized on transfers
|
$ | | $ | 39 | $ | | $ | 39 |
3. | Derivative Financial Instruments |
43
44
45
June 30, 2011 | December 31, 2010 | |||||||||||||||||||||||||
Estimated Fair |
Estimated Fair |
|||||||||||||||||||||||||
Primary Underlying |
Notional |
Value (1) |
Notional |
Value (1) | ||||||||||||||||||||||
Risk Exposure
|
Instrument Type | Amount | Assets | Liabilities | Amount | Assets | Liabilities | |||||||||||||||||||
(In millions) | ||||||||||||||||||||||||||
Interest rate
|
Interest rate swaps | $ | 10,912 | $ | 686 | $ | 244 | $ | 9,102 | $ | 658 | $ | 252 | |||||||||||||
Interest rate floors | 7,986 | 139 | 73 | 7,986 | 127 | 62 | ||||||||||||||||||||
Interest rate caps | 7,658 | 33 | | 7,158 | 29 | 1 | ||||||||||||||||||||
Interest rate futures | 2,135 | 5 | 5 | 1,966 | 5 | 7 | ||||||||||||||||||||
Interest rate forwards | 695 | | 67 | 695 | | 71 | ||||||||||||||||||||
Foreign currency
|
Foreign currency swaps | 2,019 | 384 | 92 | 2,561 | 585 | 68 | |||||||||||||||||||
Foreign currency forwards | 189 | 1 | 4 | 151 | 4 | 1 | ||||||||||||||||||||
Credit
|
Credit default swaps | 1,833 | 16 | 16 | 1,324 | 15 | 22 | |||||||||||||||||||
Equity market
|
Equity futures | 249 | 1 | 2 | 93 | | | |||||||||||||||||||
Equity options | 1,778 | 228 | | 733 | 77 | | ||||||||||||||||||||
Variance swaps | 1,807 | 15 | 13 | 1,081 | 20 | 8 | ||||||||||||||||||||
Total rate of return swaps | 150 | | | | | | ||||||||||||||||||||
Total | $ | 37,411 | $ | 1,508 | $ | 516 | $ | 32,850 | $ | 1,520 | $ | 492 | ||||||||||||||
(1) | The estimated fair value of all derivatives in an asset position is reported within other invested assets in the consolidated balance sheets and the estimated fair value of all derivatives in a liability position is reported within other liabilities in the consolidated balance sheets. |
46
47
48
June 30, 2011 | December 31, 2010 | |||||||||||||||||||||||
Notional |
Estimated Fair Value |
Notional |
Estimated Fair Value | |||||||||||||||||||||
Derivatives Designated as Hedging Instruments | Amount | Assets | Liabilities | Amount | Assets | Liabilities | ||||||||||||||||||
(In millions) | ||||||||||||||||||||||||
Fair value hedges:
|
||||||||||||||||||||||||
Foreign currency swaps
|
$ | 598 | $ | 272 | $ | 16 | $ | 787 | $ | 334 | $ | 18 | ||||||||||||
Interest rate swaps
|
330 | 11 | 16 | 193 | 11 | 15 | ||||||||||||||||||
Subtotal
|
928 | 283 | 32 | 980 | 345 | 33 | ||||||||||||||||||
Cash flow hedges:
|
||||||||||||||||||||||||
Foreign currency swaps
|
441 | 17 | 16 | 295 | 15 | 11 | ||||||||||||||||||
Interest rate swaps
|
415 | | 26 | 575 | 1 | 45 | ||||||||||||||||||
Interest rate forwards
|
695 | | 67 | 695 | | 71 | ||||||||||||||||||
Subtotal
|
1,551 | 17 | 109 | 1,565 | 16 | 127 | ||||||||||||||||||
Total qualifying hedges
|
$ | 2,479 | $ | 300 | $ | 141 | $ | 2,545 | $ | 361 | $ | 160 | ||||||||||||
June 30, 2011 | December 31, 2010 | |||||||||||||||||||||||
Derivatives Not Designated or Not |
Notional |
Estimated Fair Value |
Notional |
Estimated Fair Value | ||||||||||||||||||||
Qualifying as Hedging Instruments | Amount | Assets | Liabilities | Amount | Assets | Liabilities | ||||||||||||||||||
(In millions) | ||||||||||||||||||||||||
Interest rate swaps
|
$ | 10,167 | $ | 675 | $ | 202 | $ | 8,334 | $ | 646 | $ | 192 | ||||||||||||
Interest rate floors
|
7,986 | 139 | 73 | 7,986 | 127 | 62 | ||||||||||||||||||
Interest rate caps
|
7,658 | 33 | | 7,158 | 29 | 1 | ||||||||||||||||||
Interest rate futures
|
2,135 | 5 | 5 | 1,966 | 5 | 7 | ||||||||||||||||||
Foreign currency swaps
|
980 | 95 | 60 | 1,479 | 236 | 39 | ||||||||||||||||||
Foreign currency forwards
|
189 | 1 | 4 | 151 | 4 | 1 | ||||||||||||||||||
Credit default swaps
|
1,833 | 16 | 16 | 1,324 | 15 | 22 | ||||||||||||||||||
Equity futures
|
249 | 1 | 2 | 93 | | | ||||||||||||||||||
Equity options
|
1,778 | 228 | | 733 | 77 | | ||||||||||||||||||
Variance swaps
|
1,807 | 15 | 13 | 1,081 | 20 | 8 | ||||||||||||||||||
Total rate of return swaps
|
150 | | | | | | ||||||||||||||||||
Total non-designated or non-qualifying derivatives
|
$ | 34,932 | $ | 1,208 | $ | 375 | $ | 30,305 | $ | 1,159 | $ | 332 | ||||||||||||
49
Three Months |
Six Months |
|||||||||||||||
Ended |
Ended |
|||||||||||||||
June 30, | June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(In millions) | ||||||||||||||||
Derivatives and hedging gains (losses) (1)
|
$ | 9 | $ | 231 | $ | (94 | ) | $ | 134 | |||||||
Embedded derivatives
|
124 | 332 | 71 | 121 | ||||||||||||
Total net derivative gains (losses)
|
$ | 133 | $ | 563 | $ | (23 | ) | $ | 255 | |||||||
(1) | Includes foreign currency transaction gains (losses) on hedged items in cash flow and non-qualifying hedge relationships, which are not presented elsewhere in this note. |
Three Months |
Six Months |
|||||||||||||||
Ended |
Ended |
|||||||||||||||
June 30, | June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(In millions) | ||||||||||||||||
Qualifying hedges:
|
||||||||||||||||
Net investment income
|
$ | | $ | 1 | $ | 1 | $ | 1 | ||||||||
Interest credited to policyholder account balances
|
12 | 6 | 23 | 16 | ||||||||||||
Non-qualifying hedges:
|
||||||||||||||||
Net derivative gains (losses)
|
7 | (1 | ) | 17 | (7 | ) | ||||||||||
Total
|
$ | 19 | $ | 6 | $ | 41 | $ | 10 | ||||||||
50
Net Derivative |
Net Derivative |
Ineffectiveness |
||||||||||||
Gains (Losses) |
Gains (Losses) |
Recognized in |
||||||||||||
Derivatives in Fair Value |
Hedged Items in Fair Value |
Recognized |
Recognized for |
Net Derivative |
||||||||||
Hedging Relationships | Hedging Relationships | for Derivatives | Hedged Items | Gains (Losses) | ||||||||||
(In millions) | ||||||||||||||
For the Three Months Ended June 30, 2011:
|
||||||||||||||
Interest rate swaps:
|
Fixed maturity securities | $ | (4 | ) | $ | 3 | $ | (1 | ) | |||||
Policyholder account balances (1) | 5 | (5 | ) | | ||||||||||
Foreign currency swaps:
|
Foreign-denominated policyholder account balances (2) | 14 | (17 | ) | (3 | ) | ||||||||
Total
|
$ | 15 | $ | (19 | ) | $ | (4 | ) | ||||||
For the Three Months Ended June 30, 2010:
|
||||||||||||||
Interest rate swaps:
|
Fixed maturity securities | $ | (1 | ) | $ | 1 | $ | | ||||||
Policyholder account balances (1) | 4 | (1 | ) | 3 | ||||||||||
Foreign currency swaps:
|
Foreign-denominated policyholder account balances (2) | (65 | ) | 55 | (10 | ) | ||||||||
Total
|
$ | (62 | ) | $ | 55 | $ | (7 | ) | ||||||
For the Six Months Ended June 30, 2011:
|
||||||||||||||
Interest rate swaps:
|
Fixed maturity securities | $ | (3 | ) | $ | 2 | $ | (1 | ) | |||||
Policyholder account balances (1) | | (1 | ) | (1 | ) | |||||||||
Foreign currency swaps:
|
Foreign-denominated policyholder account balances (2) | 36 | (43 | ) | (7 | ) | ||||||||
Total
|
$ | 33 | $ | (42 | ) | $ | (9 | ) | ||||||
For the Six Months Ended June 30, 2010:
|
||||||||||||||
Interest rate swaps:
|
Fixed maturity securities | $ | (1 | ) | $ | 1 | $ | | ||||||
Policyholder account balances (1) | 5 | (5 | ) | | ||||||||||
Foreign currency swaps:
|
Foreign-denominated policyholder account balances (2) | (117 | ) | 99 | (18 | ) | ||||||||
Total
|
$ | (113 | ) | $ | 95 | $ | (18 | ) | ||||||
(1) | Fixed rate liabilities. | |
(2) | Fixed rate or floating rate liabilities. |
51
Three Months |
Six Months |
|||||||||||||||
Ended |
Ended |
|||||||||||||||
June 30, | June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(In millions) | ||||||||||||||||
Accumulated other comprehensive income (loss), balance at
beginning of period
|
$ | (132 | ) | $ | 4 | $ | (109 | ) | $ | (1 | ) | |||||
Gains (losses) deferred in other comprehensive income (loss) on
the effective portion of cash flow hedges
|
35 | 17 | 14 | 20 | ||||||||||||
Amounts reclassified to net derivative gains (losses)
|
(2 | ) | 2 | (4 | ) | 4 | ||||||||||
Accumulated other comprehensive income (loss), balance at end of
period
|
$ | (99 | ) | $ | 23 | $ | (99 | ) | $ | 23 | ||||||
52
Amount of Gains |
Amount and Location |
|||||||||||
(Losses) Deferred |
of Gains (Losses) |
Amount and Location |
||||||||||
in Accumulated Other |
Reclassified from |
of Gains (Losses) |
||||||||||
Derivatives in Cash Flow |
Comprehensive Income |
Accumulated Other Comprehensive |
Recognized in Income (loss) |
|||||||||
Hedging Relationships | (Loss) on Derivatives | Income (Loss) into Income (Loss) | on Derivatives | |||||||||
(Ineffective Portion and |
||||||||||||
Amount Excluded from |
||||||||||||
(Effective Portion) | (Effective Portion) | Ineffectiveness Testing) | ||||||||||
Net Derivative |
Net Derivative |
|||||||||||
Gains (Losses) | Gains (Losses) | |||||||||||
(In millions) | ||||||||||||
For the Three Months Ended June 30, 2011:
|
||||||||||||
Interest rate swaps
|
$ | 15 | $ | 1 | $ | | ||||||
Foreign currency swaps
|
| | | |||||||||
Interest rate forwards
|
20 | | (8 | ) | ||||||||
Credit forwards
|
| 1 | | |||||||||
Total
|
$ | 35 | $ | 2 | $ | (8 | ) | |||||
For the Three Months Ended June 30, 2010:
|
||||||||||||
Interest rate swaps
|
$ | 1 | $ | | $ | | ||||||
Foreign currency swaps
|
10 | (4 | ) | | ||||||||
Interest rate forwards
|
| 2 | | |||||||||
Credit forwards
|
6 | | | |||||||||
Total
|
$ | 17 | $ | (2 | ) | $ | | |||||
For the Six Months Ended June 30, 2011:
|
||||||||||||
Interest rate swaps
|
$ | 4 | $ | 1 | $ | | ||||||
Foreign currency swaps
|
(1 | ) | 2 | | ||||||||
Interest rate forwards
|
11 | | (8 | ) | ||||||||
Credit forwards
|
| 1 | | |||||||||
Total
|
$ | 14 | $ | 4 | $ | (8 | ) | |||||
For the Six Months Ended June 30, 2010:
|
||||||||||||
Interest rate swaps
|
$ | 1 | $ | | $ | | ||||||
Foreign currency swaps
|
10 | (6 | ) | | ||||||||
Interest rate forwards
|
| 2 | | |||||||||
Credit forwards
|
9 | | | |||||||||
Total
|
$ | 20 | $ | (4 | ) | $ | | |||||
53
Net |
Net |
Policyholder |
||||||||||
Derivative |
Investment |
Benefits |
||||||||||
Gains (Losses) | Income (1) | and Claims (2) | ||||||||||
(In millions) | ||||||||||||
For the Three Months Ended June 30, 2011:
|
||||||||||||
Interest rate swaps
|
$ | 28 | $ | | $ | | ||||||
Interest rate floors
|
18 | | | |||||||||
Interest rate caps
|
(16 | ) | | | ||||||||
Interest rate futures
|
(11 | ) | | | ||||||||
Equity futures
|
4 | | (1 | ) | ||||||||
Foreign currency swaps
|
(1 | ) | | | ||||||||
Foreign currency forwards
|
(5 | ) | | | ||||||||
Equity options
|
1 | (1 | ) | | ||||||||
Variance swaps
|
(4 | ) | | | ||||||||
Credit default swaps
|
2 | | | |||||||||
Total
|
$ | 16 | $ | (1 | ) | $ | (1 | ) | ||||
For the Three Months Ended June 30, 2010:
|
||||||||||||
Interest rate swaps
|
$ | 45 | $ | | $ | | ||||||
Interest rate floors
|
54 | | | |||||||||
Interest rate caps
|
(6 | ) | | | ||||||||
Interest rate futures
|
(23 | ) | | | ||||||||
Equity futures
|
4 | | | |||||||||
Foreign currency swaps
|
(13 | ) | | | ||||||||
Foreign currency forwards
|
9 | | | |||||||||
Equity options
|
66 | 5 | | |||||||||
Interest rate options
|
(3 | ) | | | ||||||||
Variance swaps
|
38 | | | |||||||||
Credit default swaps
|
1 | | | |||||||||
Total
|
$ | 172 | $ | 5 | $ | | ||||||
54
Net |
Net |
Policyholder |
||||||||||
Derivative |
Investment |
Benefits |
||||||||||
Gains (Losses) | Income (1) | and Claims (2) | ||||||||||
(In millions) | ||||||||||||
For the Six Months Ended June 30, 2011:
|
||||||||||||
Interest rate swaps
|
$ | 4 | $ | | $ | | ||||||
Interest rate floors
|
1 | | | |||||||||
Interest rate caps
|
(17 | ) | | | ||||||||
Interest rate futures
|
(12 | ) | | | ||||||||
Equity futures
|
4 | | (1 | ) | ||||||||
Foreign currency swaps
|
2 | | | |||||||||
Foreign currency forwards
|
(16 | ) | | | ||||||||
Equity options
|
(21 | ) | (2 | ) | | |||||||
Variance swaps
|
(10 | ) | | | ||||||||
Credit default swaps
|
2 | | | |||||||||
Total
|
$ | (63 | ) | $ | (2 | ) | $ | (1 | ) | |||
For the Six Months Ended June 30, 2010:
|
||||||||||||
Interest rate swaps
|
$ | 63 | $ | | $ | | ||||||
Interest rate floors
|
47 | | | |||||||||
Interest rate caps
|
(14 | ) | | | ||||||||
Interest rate futures
|
(28 | ) | | | ||||||||
Equity futures
|
(1 | ) | | | ||||||||
Foreign currency swaps
|
(57 | ) | | | ||||||||
Foreign currency forwards
|
13 | | | |||||||||
Equity options
|
43 | 4 | | |||||||||
Interest rate options
|
(3 | ) | | | ||||||||
Variance swaps
|
28 | | | |||||||||
Credit default swaps
|
1 | | | |||||||||
Total
|
$ | 92 | $ | 4 | $ | | ||||||
(1) | Changes in estimated fair value related to economic hedges of equity method investments in joint ventures. | |
(2) | Changes in estimated fair value related to economic hedges of variable annuity guarantees included in future policy benefits. |
55
June 30, 2011 | December 31, 2010 | |||||||||||||||||||||||
Maximum |
Maximum |
|||||||||||||||||||||||
Estimated |
Amount |
Estimated |
Amount |
|||||||||||||||||||||
Fair Value |
of Future |
Weighted |
Fair Value |
of Future |
Weighted |
|||||||||||||||||||
Rating Agency Designation of |
of Credit |
Payments under |
Average |
of Credit |
Payments under |
Average |
||||||||||||||||||
Referenced |
Default |
Credit Default |
Years to |
Default |
Credit Default |
Years to |
||||||||||||||||||
Credit Obligations (1) | Swaps | Swaps (2) | Maturity (3) | Swaps | Swaps (2) | Maturity (3) | ||||||||||||||||||
(In millions) | ||||||||||||||||||||||||
Aaa/Aa/A
|
||||||||||||||||||||||||
Single name credit default swaps (corporate)
|
$ | 1 | $ | 130 | 4.3 | $ | 1 | $ | 45 | 3.6 | ||||||||||||||
Credit default swaps referencing indices
|
10 | 661 | 3.6 | 11 | 679 | 3.7 | ||||||||||||||||||
Subtotal
|
11 | 791 | 3.7 | 12 | 724 | 3.7 | ||||||||||||||||||
Baa
|
||||||||||||||||||||||||
Single name credit default swaps (corporate)
|
1 | 255 | 4.9 | | 5 | 3.0 | ||||||||||||||||||
Credit default swaps referencing indices
|
2 | 423 | 5.0 | 1 | 183 | 5.0 | ||||||||||||||||||
Subtotal
|
3 | 678 | 5.0 | 1 | 188 | 5.0 | ||||||||||||||||||
Total
|
$ | 14 | $ | 1,469 | 4.3 | $ | 13 | $ | 912 | 4.0 | ||||||||||||||
(1) | The rating agency designations are based on availability and the midpoint of the applicable ratings among Moodys, S&P and Fitch. If no rating is available from a rating agency, then an internally developed rating is used. | |
(2) | Assumes the value of the referenced credit obligations is zero. | |
(3) | The weighted average years to maturity of the credit default swaps is calculated based on weighted average notional amounts. |
56
Estimated |
||||||||||||||||
Fair Value of |
||||||||||||||||
Collateral |
Fair Value of Incremental |
|||||||||||||||
Provided: | Collateral Provided Upon: | |||||||||||||||
Downgrade in the |
||||||||||||||||
One Notch |
Companys Credit Rating |
|||||||||||||||
Downgrade |
to a Level that Triggers |
|||||||||||||||
Estimated |
in the |
Full Overnight |
||||||||||||||
Fair Value (1) of |
Companys |
Collateralization or |
||||||||||||||
Derivatives in Net |
Fixed Maturity |
Credit |
Termination of |
|||||||||||||
Liability Position | Securities (2) | Rating | the Derivative Position | |||||||||||||
(In millions) | ||||||||||||||||
June 30, 2011
|
$ | 134 | $ | 48 | $ | 15 | $ | 71 | ||||||||
December 31, 2010
|
$ | 96 | $ | 58 | $ | 11 | $ | 62 |
(1) | After taking into consideration the existence of netting agreements. | |
(2) | Included in fixed maturity securities in the consolidated balance sheets. The counterparties are permitted by contract to sell or repledge this collateral. At both June 30, 2011 and December 31, 2010, the Company did not provide any cash collateral. |
57
June 30, 2011 | December 31, 2010 | |||||||
(In millions) | ||||||||
Net embedded derivatives within asset host contracts:
|
||||||||
Ceded guaranteed minimum benefits
|
$ | 824 | $ | 936 | ||||
Options embedded in debt or equity securities
|
| (2 | ) | |||||
Net embedded derivatives within asset host contracts
|
$ | 824 | $ | 934 | ||||
Net embedded derivatives within liability host contracts:
|
||||||||
Direct guaranteed minimum benefits
|
$ | 17 | $ | 254 | ||||
Assumed guaranteed minimum benefits
|
(5 | ) | | |||||
Funds withheld on ceded reinsurance
|
30 | 5 | ||||||
Net embedded derivatives within liability host contracts
|
$ | 42 | $ | 259 | ||||
Three Months |
Six Months |
|||||||||||||||
Ended |
Ended |
|||||||||||||||
June 30, | June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(In millions) | ||||||||||||||||
Net derivative gains (losses) (1), (2)
|
$ | 124 | $ | 332 | $ | 71 | $ | 121 |
(1) | The valuation of direct and assumed guaranteed minimum benefits includes an adjustment for nonperformance risk. The amounts included in net derivative gains (losses), in connection with this adjustment, were $1 million and ($28) million for the three months and six months ended June 30, 2011, respectively, and $125 million and $54 million for the three months and six months ended June 30, 2010, respectively. In addition, the valuation of ceded guaranteed minimum benefits includes an adjustment for nonperformance risk. The amounts included in net derivative gains (losses), in connection with this adjustment, were ($18) million and $23 million for the three months and six months ended June 30, 2011, respectively, and ($65) million and ($21) million for the three months and six months ended June 30, 2010, respectively. The net derivative gains (losses) for the three months and six months ended June 30, 2010 included $191 million relating to a refinement for estimating nonperformance risk in fair value measurements implemented at June 30, 2010. See Note 4. | |
(2) | See Note 9 for discussion of affiliated net derivative gains (losses) included in the table above. |
4. | Fair Value |
58
June 30, 2011 | ||||||||||||||||
Fair Value Measurements at Reporting Date Using | ||||||||||||||||
Quoted Prices in |
||||||||||||||||
Active Markets for |
Significant Other |
Significant |
Total |
|||||||||||||
Identical Assets |
Observable |
Unobservable |
Estimated |
|||||||||||||
and Liabilities |
Inputs |
Inputs |
Fair |
|||||||||||||
(Level 1) | (Level 2) | (Level 3) | Value | |||||||||||||
(In millions) | ||||||||||||||||
Assets:
|
||||||||||||||||
Fixed maturity securities:
|
||||||||||||||||
U.S. corporate securities
|
$ | | $ | 14,376 | $ | 1,445 | $ | 15,821 | ||||||||
Foreign corporate securities
|
| 8,144 | 756 | 8,900 | ||||||||||||
U.S. Treasury and agency securities
|
6,010 | 2,601 | | 8,611 | ||||||||||||
RMBS
|
| 6,553 | 19 | 6,572 | ||||||||||||
CMBS
|
| 2,011 | 155 | 2,166 | ||||||||||||
ABS
|
| 1,589 | 308 | 1,897 | ||||||||||||
State and political subdivision securities
|
| 1,833 | 25 | 1,858 | ||||||||||||
Foreign government securities
|
| 1,010 | 2 | 1,012 | ||||||||||||
Total fixed maturity securities
|
6,010 | 38,117 | 2,710 | 46,837 | ||||||||||||
Equity securities:
|
||||||||||||||||
Non-redeemable preferred stock
|
| 40 | 121 | 161 | ||||||||||||
Common stock
|
38 | 77 | 32 | 147 | ||||||||||||
Total equity securities
|
38 | 117 | 153 | 308 | ||||||||||||
Other securities:
|
||||||||||||||||
FVO general account securities
|
| 48 | | 48 | ||||||||||||
FVO contractholder-directed unit-linked investments
|
3,041 | | | 3,041 | ||||||||||||
Total other securities
|
3,041 | 48 | | 3,089 | ||||||||||||
Short-term investments (1)
|
765 | 1,264 | 92 | 2,121 | ||||||||||||
Mortgage loans held by consolidated securitization entities
|
| 6,697 | | 6,697 | ||||||||||||
Derivative assets: (2)
|
||||||||||||||||
Interest rate contracts
|
5 | 853 | 5 | 863 | ||||||||||||
Foreign currency contracts
|
| 385 | | 385 | ||||||||||||
Credit contracts
|
| 5 | 11 | 16 | ||||||||||||
Equity market contracts
|
1 | 228 | 15 | 244 | ||||||||||||
Total derivative assets
|
6 | 1,471 | 31 | 1,508 | ||||||||||||
Net embedded derivatives within asset host contracts (3)
|
| | 824 | 824 | ||||||||||||
Separate account assets (4)
|
199 | 69,138 | 130 | 69,467 | ||||||||||||
Total assets
|
$ | 10,059 | $ | 116,852 | $ | 3,940 | $ | 130,851 | ||||||||
Liabilities:
|
||||||||||||||||
Derivative liabilities: (2)
|
||||||||||||||||
Interest rate contracts
|
$ | 5 | $ | 317 | $ | 67 | $ | 389 | ||||||||
Foreign currency contracts
|
| 96 | | 96 | ||||||||||||
Credit contracts
|
| 15 | 1 | 16 | ||||||||||||
Equity market contracts
|
2 | | 13 | 15 | ||||||||||||
Total derivative liabilities
|
7 | 428 | 81 | 516 | ||||||||||||
Net embedded derivatives within liability host contracts (3)
|
| | 42 | 42 | ||||||||||||
Long-term debt of consolidated securitization entities
|
| 6,617 | | 6,617 | ||||||||||||
Total liabilities
|
$ | 7 | $ | 7,045 | $ | 123 | $ | 7,175 | ||||||||
59
December 31, 2010 | ||||||||||||||||
Fair Value Measurements at Reporting Date Using | ||||||||||||||||
Quoted Prices in |
||||||||||||||||
Active Markets for |
Significant Other |
Significant |
Total |
|||||||||||||
Identical Assets |
Observable |
Unobservable |
Estimated |
|||||||||||||
and Liabilities |
Inputs |
Inputs |
Fair |
|||||||||||||
(Level 1) | (Level 2) | (Level 3) | Value | |||||||||||||
(In millions) | ||||||||||||||||
Assets:
|
||||||||||||||||
Fixed maturity securities:
|
||||||||||||||||
U.S. corporate securities
|
$ | | $ | 13,864 | $ | 1,510 | $ | 15,374 | ||||||||
Foreign corporate securities
|
| 7,590 | 880 | 8,470 | ||||||||||||
U.S. Treasury and agency securities
|
4,616 | 3,026 | 34 | 7,676 | ||||||||||||
RMBS
|
| 6,674 | 35 | 6,709 | ||||||||||||
CMBS
|
| 2,147 | 130 | 2,277 | ||||||||||||
ABS
|
| 1,301 | 568 | 1,869 | ||||||||||||
State and political subdivision securities
|
| 1,614 | 32 | 1,646 | ||||||||||||
Foreign government securities
|
| 889 | 14 | 903 | ||||||||||||
Total fixed maturity securities
|
4,616 | 37,105 | 3,203 | 44,924 | ||||||||||||
Equity securities:
|
||||||||||||||||
Non-redeemable preferred stock
|
| 54 | 214 | 268 | ||||||||||||
Common stock
|
43 | 72 | 22 | 137 | ||||||||||||
Total equity securities
|
43 | 126 | 236 | 405 | ||||||||||||
Other securities:
|
||||||||||||||||
FVO general account securities
|
| 7 | | 7 | ||||||||||||
FVO contractholder-directed unit-linked investments
|
2,240 | | | 2,240 | ||||||||||||
Total other securities
|
2,240 | 7 | | 2,247 | ||||||||||||
Short-term investments (1)
|
390 | 584 | 173 | 1,147 | ||||||||||||
Mortgage loans held by consolidated securitization entities
|
| 6,840 | | 6,840 | ||||||||||||
Derivative assets: (2)
|
||||||||||||||||
Interest rate contracts
|
5 | 804 | 10 | 819 | ||||||||||||
Foreign currency contracts
|
| 589 | | 589 | ||||||||||||
Credit contracts
|
| 3 | 12 | 15 | ||||||||||||
Equity market contracts
|
| 77 | 20 | 97 | ||||||||||||
Total derivative assets
|
5 | 1,473 | 42 | 1,520 | ||||||||||||
Net embedded derivatives within asset host contracts (3)
|
| | 936 | 936 | ||||||||||||
Separate account assets (4)
|
76 | 61,410 | 133 | 61,619 | ||||||||||||
Total assets
|
$ | 7,370 | $ | 107,545 | $ | 4,723 | $ | 119,638 | ||||||||
Liabilities:
|
||||||||||||||||
Derivative liabilities: (2)
|
||||||||||||||||
Interest rate contracts
|
$ | 7 | $ | 315 | $ | 71 | $ | 393 | ||||||||
Foreign currency contracts
|
| 69 | | 69 | ||||||||||||
Credit contracts
|
| 21 | 1 | 22 | ||||||||||||
Equity market contracts
|
| | 8 | 8 | ||||||||||||
Total derivative liabilities
|
7 | 405 | 80 | 492 | ||||||||||||
Net embedded derivatives within liability host contracts (3)
|
| | 259 | 259 | ||||||||||||
Long-term debt of consolidated securitization entities
|
| 6,773 | | 6,773 | ||||||||||||
Total liabilities
|
$ | 7 | $ | 7,178 | $ | 339 | $ | 7,524 | ||||||||
60
(1) | Short-term investments as presented in the tables above differ from the amounts presented in the consolidated balance sheets because certain short-term investments are not measured at estimated fair value (e.g., time deposits, etc.), and therefore are excluded from the tables presented above. | |
(2) | Derivative assets are presented within other invested assets in the consolidated balance sheets and derivative liabilities are presented within other liabilities in the consolidated balance sheets. The amounts are presented gross in the tables above to reflect the presentation in the consolidated balance sheets, but are presented net for purposes of the rollforward in the Fair Value Measurements Using Significant Unobservable Inputs (Level 3) tables which follow. | |
(3) | Net embedded derivatives within asset host contracts are presented within premiums, reinsurance and other receivables in the consolidated balance sheets. Net embedded derivatives within liability host contracts are presented in the consolidated balance sheets within policyholder account balances and other liabilities. At June 30, 2011, fixed maturity securities and equity securities also included embedded derivatives of $5 million and ($5) million, respectively. At December 31, 2010, fixed maturity securities and equity securities included embedded derivatives of $3 million and ($5) million, respectively. | |
(4) | Separate account assets are measured at estimated fair value. Investment performance related to separate account assets is fully offset by corresponding amounts credited to contractholders whose liability is reflected within separate account liabilities. Separate account liabilities are set equal to the estimated fair value of separate account assets. |
61
62
63
64
65
66
67
68
69
70
Fair Value Measurements Using Significant Unobservable Inputs (Level 3) | ||||||||||||||||||||||||||||||||
Fixed Maturity Securities: | ||||||||||||||||||||||||||||||||
U.S. |
State and |
|||||||||||||||||||||||||||||||
U.S. |
Foreign |
Treasury |
Political |
Foreign |
||||||||||||||||||||||||||||
Corporate |
Corporate |
and Agency |
Subdivision |
Government |
||||||||||||||||||||||||||||
Securities | Securities | Securities | RMBS | CMBS | ABS | Securities | Securities | |||||||||||||||||||||||||
(In millions) | ||||||||||||||||||||||||||||||||
Three Months Ended June 30, 2011:
|
||||||||||||||||||||||||||||||||
Balance, beginning of period
|
$ | 1,428 | $ | 782 | $ | 32 | $ | 18 | $ | 152 | $ | 561 | $ | 32 | $ | 2 | ||||||||||||||||
Total realized/unrealized gains (losses) included in:
|
||||||||||||||||||||||||||||||||
Earnings: (1), (2)
|
||||||||||||||||||||||||||||||||
Net investment income
|
| 1 | | | | | | | ||||||||||||||||||||||||
Net investment gains (losses)
|
4 | (19 | ) | | | 2 | (2 | ) | | | ||||||||||||||||||||||
Net derivative gains (losses)
|
| | | | | | | | ||||||||||||||||||||||||
Other comprehensive income (loss)
|
12 | 18 | | | | (3 | ) | (7 | ) | | ||||||||||||||||||||||
Purchases (3)
|
64 | 293 | | 1 | 18 | 8 | | | ||||||||||||||||||||||||
Sales (3)
|
(42 | ) | (286 | ) | | | (9 | ) | (20 | ) | | | ||||||||||||||||||||
Issuances (3)
|
| | | | | | | | ||||||||||||||||||||||||
Settlements (3)
|
| | | | | | | | ||||||||||||||||||||||||
Transfers into Level 3 (4)
|
3 | 11 | | | | | | | ||||||||||||||||||||||||
Transfers out of Level 3 (4)
|
(24 | ) | (44 | ) | (32 | ) | | (8 | ) | (236 | ) | | | |||||||||||||||||||
Balance, end of period
|
$ | 1,445 | $ | 756 | $ | | $ | 19 | $ | 155 | $ | 308 | $ | 25 | $ | 2 | ||||||||||||||||
Changes in unrealized gains (losses) relating to assets and
liabilities still held at June 30, 2011 included in
earnings:
|
||||||||||||||||||||||||||||||||
Net investment income
|
$ | | $ | 1 | $ | | $ | | $ | | $ | | $ | | $ | | ||||||||||||||||
Net investment gains (losses)
|
$ | | $ | (6 | ) | $ | | $ | | $ | | $ | (3 | ) | $ | | $ | | ||||||||||||||
Net derivative gains (losses)
|
$ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | |
71
Fair Value Measurements Using Significant Unobservable Inputs (Level 3) | ||||||||||||||||||||||||||||||||||||
Equity Securities: | Net Derivatives: (5) | |||||||||||||||||||||||||||||||||||
Non- |
||||||||||||||||||||||||||||||||||||
redeemable |
Interest |
Foreign |
Equity |
Net |
Separate |
|||||||||||||||||||||||||||||||
Preferred |
Common |
Short-term |
Rate |
Currency |
Credit |
Market |
Embedded |
Account |
||||||||||||||||||||||||||||
Stock | Stock | Investments | Contracts | Contracts | Contracts | Contracts | Derivatives (6) | Assets (7) | ||||||||||||||||||||||||||||
(In millions) | ||||||||||||||||||||||||||||||||||||
Three Months Ended June 30, 2011:
|
||||||||||||||||||||||||||||||||||||
Balance, beginning of period
|
$ | 219 | $ | 31 | $ | 82 | $ | (75 | ) | $ | | $ | 11 | $ | 6 | $ | 647 | $ | 130 | |||||||||||||||||
Total realized/unrealized gains (losses) included in:
|
||||||||||||||||||||||||||||||||||||
Earnings: (1), (2)
|
||||||||||||||||||||||||||||||||||||
Net investment income
|
| | | | | | | | | |||||||||||||||||||||||||||
Net investment gains (losses)
|
(24 | ) | | | | | | | | (1 | ) | |||||||||||||||||||||||||
Net derivative gains (losses)
|
| | | 1 | | | (4 | ) | 126 | | ||||||||||||||||||||||||||
Other comprehensive income (loss)
|
24 | 1 | | 12 | | | | | | |||||||||||||||||||||||||||
Purchases (3)
|
| | 58 | | | | | | 2 | |||||||||||||||||||||||||||
Sales (3)
|
(98 | ) | | (48 | ) | | | | | | | |||||||||||||||||||||||||
Issuances (3)
|
| | | | | | | | | |||||||||||||||||||||||||||
Settlements (3)
|
| | | | | (1 | ) | | 9 | | ||||||||||||||||||||||||||
Transfers into Level 3 (4)
|
| | | | | | | | | |||||||||||||||||||||||||||
Transfers out of Level 3 (4)
|
| | | | | | | | (1 | ) | ||||||||||||||||||||||||||
Balance, end of period
|
$ | 121 | $ | 32 | $ | 92 | $ | (62 | ) | $ | | $ | 10 | $ | 2 | $ | 782 | $ | 130 | |||||||||||||||||
Changes in unrealized gains (losses) relating to assets and
liabilities still held at June 30, 2011 included in
earnings:
|
||||||||||||||||||||||||||||||||||||
Net investment income
|
$ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | | ||||||||||||||||||
Net investment gains (losses)
|
$ | (5 | ) | $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | | |||||||||||||||||
Net derivative gains (losses)
|
$ | | $ | | $ | | $ | 1 | $ | | $ | | $ | (4 | ) | $ | 126 | $ | |
72
Fair Value Measurements Using Significant Unobservable Inputs (Level 3) | ||||||||||||||||||||||||||||||||
Fixed Maturity Securities: | ||||||||||||||||||||||||||||||||
U.S. |
State and |
|||||||||||||||||||||||||||||||
U.S. |
Foreign |
Treasury |
Political |
Foreign |
||||||||||||||||||||||||||||
Corporate |
Corporate |
and Agency |
Subdivision |
Government |
||||||||||||||||||||||||||||
Securities | Securities | Securities | RMBS | CMBS | ABS | Securities | Securities | |||||||||||||||||||||||||
(In millions) | ||||||||||||||||||||||||||||||||
Three Months Ended June 30, 2010:
|
||||||||||||||||||||||||||||||||
Balance, beginning of period
|
$ | 1,510 | $ | 953 | $ | 32 | $ | 28 | $ | 48 | $ | 521 | $ | 48 | $ | 7 | ||||||||||||||||
Total realized/unrealized gains (losses) included in:
|
||||||||||||||||||||||||||||||||
Earnings: (1), (2)
|
||||||||||||||||||||||||||||||||
Net investment income
|
2 | (1 | ) | | | | | | | |||||||||||||||||||||||
Net investment gains (losses)
|
| 5 | | | 1 | (1 | ) | | | |||||||||||||||||||||||
Net derivative gains (losses)
|
| | | | | | | | ||||||||||||||||||||||||
Other comprehensive income (loss)
|
28 | (29 | ) | 2 | 1 | 7 | 14 | 1 | | |||||||||||||||||||||||
Purchases, sales, issuances and settlements (3)
|
38 | (100 | ) | | 17 | (5 | ) | 27 | (2 | ) | | |||||||||||||||||||||
Transfers into Level 3 (4)
|
54 | 66 | | 21 | 73 | 10 | | | ||||||||||||||||||||||||
Transfers out of Level 3 (4)
|
(23 | ) | (38 | ) | | | (24 | ) | (6 | ) | (8 | ) | | |||||||||||||||||||
Balance, end of period
|
$ | 1,609 | $ | 856 | $ | 34 | $ | 67 | $ | 100 | $ | 565 | $ | 39 | $ | 7 | ||||||||||||||||
Changes in unrealized gains (losses) relating to assets and
liabilities still held at June 30, 2010 included in
earnings:
|
||||||||||||||||||||||||||||||||
Net investment income
|
$ | 2 | $ | | $ | | $ | | $ | | $ | | $ | | $ | | ||||||||||||||||
Net investment gains (losses)
|
$ | (1 | ) | $ | | $ | | $ | | $ | 1 | $ | (1 | ) | $ | | $ | | ||||||||||||||
Net derivative gains (losses)
|
$ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | |
73
Fair Value Measurements Using Significant Unobservable Inputs (Level 3) | ||||||||||||||||||||||||||||||||||||
Equity Securities: | Net Derivatives: (5) | |||||||||||||||||||||||||||||||||||
Non- |
||||||||||||||||||||||||||||||||||||
redeemable |
Interest |
Foreign |
Equity |
Net |
Separate |
|||||||||||||||||||||||||||||||
Preferred |
Common |
Short-term |
Rate |
Currency |
Credit |
Market |
Embedded |
Account |
||||||||||||||||||||||||||||
Stock | Stock | Investments | Contracts | Contracts | Contracts | Contracts | Derivatives (6) | Assets (7) | ||||||||||||||||||||||||||||
(In millions) | ||||||||||||||||||||||||||||||||||||
Three Months Ended June 30, 2010:
|
||||||||||||||||||||||||||||||||||||
Balance, beginning of period
|
$ | 242 | $ | 34 | $ | 1 | $ | 6 | $ | 18 | $ | 7 | $ | 7 | $ | 258 | $ | 146 | ||||||||||||||||||
Total realized/unrealized gains (losses) included in:
|
||||||||||||||||||||||||||||||||||||
Earnings: (1), (2)
|
||||||||||||||||||||||||||||||||||||
Net investment income
|
| | | | | | | | | |||||||||||||||||||||||||||
Net investment gains (losses)
|
14 | 4 | | | | | | | (3 | ) | ||||||||||||||||||||||||||
Net derivative gains (losses)
|
| | | 5 | (10 | ) | (4 | ) | 39 | 333 | | |||||||||||||||||||||||||
Other comprehensive income (loss)
|
(12 | ) | (6 | ) | | | | 7 | | | | |||||||||||||||||||||||||
Purchases, sales, issuances and settlements (3)
|
(55 | ) | 12 | 12 | (2 | ) | | | | 21 | (3 | ) | ||||||||||||||||||||||||
Transfers into Level 3 (4)
|
| | | | | | | | | |||||||||||||||||||||||||||
Transfers out of Level 3 (4)
|
| | | | | | | | | |||||||||||||||||||||||||||
Balance, end of period
|
$ | 189 | $ | 44 | $ | 13 | $ | 9 | $ | 8 | $ | 10 | $ | 46 | $ | 612 | $ | 140 | ||||||||||||||||||
Changes in unrealized gains (losses) relating to assets and
liabilities still held at June 30, 2010 included in
earnings:
|
||||||||||||||||||||||||||||||||||||
Net investment income
|
$ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | | ||||||||||||||||||
Net investment gains (losses)
|
$ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | | ||||||||||||||||||
Net derivative gains (losses)
|
$ | | $ | | $ | | $ | 6 | $ | (10 | ) | $ | (5 | ) | $ | 38 | $ | 332 | $ | |
74
Fair Value Measurements Using Significant Unobservable Inputs (Level 3) | ||||||||||||||||||||||||||||||||
Fixed Maturity Securities: | ||||||||||||||||||||||||||||||||
U.S. |
State and |
|||||||||||||||||||||||||||||||
U.S. |
Foreign |
Treasury |
Political |
Foreign |
||||||||||||||||||||||||||||
Corporate |
Corporate |
and Agency |
Subdivision |
Government |
||||||||||||||||||||||||||||
Securities | Securities | Securities | RMBS | CMBS | ABS | Securities | Securities | |||||||||||||||||||||||||
(In millions) | ||||||||||||||||||||||||||||||||
Six Months Ended June 30, 2011:
|
||||||||||||||||||||||||||||||||
Balance, beginning of period
|
$ | 1,510 | $ | 880 | $ | 34 | $ | 35 | $ | 130 | $ | 568 | $ | 32 | $ | 14 | ||||||||||||||||
Total realized/unrealized gains (losses) included in:
|
||||||||||||||||||||||||||||||||
Earnings: (1), (2)
|
||||||||||||||||||||||||||||||||
Net investment income
|
2 | 1 | | | | | | | ||||||||||||||||||||||||
Net investment gains (losses)
|
3 | (17 | ) | | | | (8 | ) | | | ||||||||||||||||||||||
Net derivative gains (losses)
|
| | | | | | | | ||||||||||||||||||||||||
Other comprehensive income (loss)
|
21 | 35 | | | 17 | 8 | (7 | ) | | |||||||||||||||||||||||
Purchases (3)
|
88 | 296 | | | 18 | 16 | | | ||||||||||||||||||||||||
Sales (3)
|
(91 | ) | (392 | ) | (1 | ) | | (10 | ) | (49 | ) | | (12 | ) | ||||||||||||||||||
Issuances (3)
|
| | | | | | | | ||||||||||||||||||||||||
Settlements (3)
|
| | | | | | | | ||||||||||||||||||||||||
Transfers into Level 3 (4)
|
3 | 11 | | | | | | | ||||||||||||||||||||||||
Transfers out of Level 3 (4)
|
(91 | ) | (58 | ) | (33 | ) | (16 | ) | | (227 | ) | | | |||||||||||||||||||
Balance, end of period
|
$ | 1,445 | $ | 756 | $ | | $ | 19 | $ | 155 | $ | 308 | $ | 25 | $ | 2 | ||||||||||||||||
Changes in unrealized gains (losses) relating to assets and
liabilities still held at June 30, 2011 included in
earnings:
|
||||||||||||||||||||||||||||||||
Net investment income
|
$ | 2 | $ | 1 | $ | | $ | | $ | | $ | | $ | | $ | | ||||||||||||||||
Net investment gains (losses)
|
$ | | $ | (6 | ) | $ | | $ | | $ | | $ | (5 | ) | $ | | $ | | ||||||||||||||
Net derivative gains (losses)
|
$ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | |
75
Fair Value Measurements Using Significant Unobservable Inputs (Level 3) | ||||||||||||||||||||||||||||||||||||
Equity Securities: | Net Derivatives: (5) | |||||||||||||||||||||||||||||||||||
Non- |
||||||||||||||||||||||||||||||||||||
redeemable |
Interest |
Foreign |
Equity |
Net |
Separate |
|||||||||||||||||||||||||||||||
Preferred |
Common |
Short-term |
Rate |
Currency |
Credit |
Market |
Embedded |
Account |
||||||||||||||||||||||||||||
Stock | Stock | Investments | Contracts | Contracts | Contracts | Contracts | Derivatives (6) | Assets (7) | ||||||||||||||||||||||||||||
(In millions) | ||||||||||||||||||||||||||||||||||||
Six Months Ended June 30, 2011:
|
||||||||||||||||||||||||||||||||||||
Balance, beginning of period
|
$ | 214 | $ | 22 | $ | 173 | $ | (61 | ) | $ | | $ | 11 | $ | 12 | $ | 677 | $ | 133 | |||||||||||||||||
Total realized/unrealized gains (losses) included in:
|
||||||||||||||||||||||||||||||||||||
Earnings: (1), (2)
|
||||||||||||||||||||||||||||||||||||
Net investment income
|
| | | | | | | | | |||||||||||||||||||||||||||
Net investment gains (losses)
|
(24 | ) | 1 | (1 | ) | | | | | | (5 | ) | ||||||||||||||||||||||||
Net derivative gains (losses)
|
| | | 2 | | 1 | (10 | ) | 73 | | ||||||||||||||||||||||||||
Other comprehensive income (loss)
|
28 | 5 | | 4 | | | | | | |||||||||||||||||||||||||||
Purchases (3)
|
| 9 | 92 | | | | | | 3 | |||||||||||||||||||||||||||
Sales (3)
|
(97 | ) | (5 | ) | (172 | ) | | | | | | (1 | ) | |||||||||||||||||||||||
Issuances (3)
|
| | | | | (1 | ) | | | | ||||||||||||||||||||||||||
Settlements (3)
|
| | | | | (1 | ) | | 32 | | ||||||||||||||||||||||||||
Transfers into Level 3 (4)
|
| | | | | | | | | |||||||||||||||||||||||||||
Transfers out of Level 3 (4)
|
| | | (7 | ) | | | | | | ||||||||||||||||||||||||||
Balance, end of period
|
$ | 121 | $ | 32 | $ | 92 | $ | (62 | ) | $ | | $ | 10 | $ | 2 | $ | 782 | $ | 130 | |||||||||||||||||
Changes in unrealized gains (losses) relating to assets and
liabilities still held at June 30, 2011 included in
earnings:
|
||||||||||||||||||||||||||||||||||||
Net investment income
|
$ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | | ||||||||||||||||||
Net investment gains (losses)
|
$ | (5 | ) | $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | | |||||||||||||||||
Net derivative gains (losses)
|
$ | | $ | | $ | | $ | 2 | $ | | $ | 1 | $ | (10 | ) | $ | 75 | $ | |
76
Fair Value Measurements Using Significant Unobservable Inputs (Level 3) | ||||||||||||||||||||||||||||||||
Fixed Maturity Securities: | ||||||||||||||||||||||||||||||||
U.S. |
State and |
|||||||||||||||||||||||||||||||
U.S. |
Foreign |
Treasury |
Political |
Foreign |
||||||||||||||||||||||||||||
Corporate |
Corporate |
and Agency |
Subdivision |
Government |
||||||||||||||||||||||||||||
Securities | Securities | Securities | RMBS | CMBS | ABS | Securities | Securities | |||||||||||||||||||||||||
(In millions) | ||||||||||||||||||||||||||||||||
Six Months Ended June 30, 2010:
|
||||||||||||||||||||||||||||||||
Balance, beginning of period
|
$ | 1,605 | $ | 994 | $ | 33 | $ | 25 | $ | 45 | $ | 537 | $ | 32 | $ | 16 | ||||||||||||||||
Total realized/unrealized gains (losses) included in:
|
||||||||||||||||||||||||||||||||
Earnings: (1), (2)
|
||||||||||||||||||||||||||||||||
Net investment income
|
4 | (1 | ) | | | | | | | |||||||||||||||||||||||
Net investment gains (losses)
|
1 | (1 | ) | | | | | | | |||||||||||||||||||||||
Net derivative gains (losses)
|
| | | | | | | | ||||||||||||||||||||||||
Other comprehensive income (loss)
|
67 | 15 | 3 | 3 | 10 | 25 | 7 | | ||||||||||||||||||||||||
Purchases, sales, issuances and settlements (3)
|
(62 | ) | (158 | ) | (2 | ) | 17 | | 45 | | | |||||||||||||||||||||
Transfers into Level 3 (4)
|
76 | 77 | | 22 | 72 | 9 | | | ||||||||||||||||||||||||
Transfers out of Level 3 (4)
|
(82 | ) | (70 | ) | | | (27 | ) | (51 | ) | | (9 | ) | |||||||||||||||||||
Balance, end of period
|
$ | 1,609 | $ | 856 | $ | 34 | $ | 67 | $ | 100 | $ | 565 | $ | 39 | $ | 7 | ||||||||||||||||
Changes in unrealized gains (losses) relating to assets and
liabilities still held at June 30, 2010 included in
earnings:
|
||||||||||||||||||||||||||||||||
Net investment income
|
$ | 3 | $ | (1 | ) | $ | | $ | | $ | | $ | | $ | | $ | | |||||||||||||||
Net investment gains (losses)
|
$ | (4 | ) | $ | | $ | | $ | | $ | | $ | (1 | ) | $ | | $ | | ||||||||||||||
Net derivative gains (losses)
|
$ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | |
77
Fair Value Measurements Using Significant Unobservable Inputs (Level 3) | ||||||||||||||||||||||||||||||||||||
Equity Securities: | Net Derivatives: (5) | |||||||||||||||||||||||||||||||||||
Non- |
||||||||||||||||||||||||||||||||||||
redeemable |
Interest |
Foreign |
Equity |
Net |
Separate |
|||||||||||||||||||||||||||||||
Preferred |
Common |
Short-term |
Rate |
Currency |
Credit |
Market |
Embedded |
Account |
||||||||||||||||||||||||||||
Stock | Stock | Investments | Contracts | Contracts | Contracts | Contracts | Derivatives (6) | Assets (7) | ||||||||||||||||||||||||||||
(In millions) | ||||||||||||||||||||||||||||||||||||
Six Months Ended June 30, 2010:
|
||||||||||||||||||||||||||||||||||||
Balance, beginning of period
|
$ | 258 | $ | 11 | $ | 8 | $ | 2 | $ | 23 | $ | 4 | $ | 18 | $ | 445 | $ | 153 | ||||||||||||||||||
Total realized/unrealized gains (losses) included in:
|
||||||||||||||||||||||||||||||||||||
Earnings: (1), (2)
|
||||||||||||||||||||||||||||||||||||
Net investment income
|
| | | | | | | | | |||||||||||||||||||||||||||
Net investment gains (losses)
|
14 | 4 | | | | | | | (3 | ) | ||||||||||||||||||||||||||
Net derivative gains (losses)
|
| | | 9 | (15 | ) | (4 | ) | 28 | 123 | | |||||||||||||||||||||||||
Other comprehensive income (loss)
|
(6 | ) | 1 | | | | 9 | | | | ||||||||||||||||||||||||||
Purchases, sales, issuances and settlements (3)
|
(77 | ) | 30 | 5 | (2 | ) | | 1 | | 44 | (6 | ) | ||||||||||||||||||||||||
Transfers into Level 3 (4)
|
| | | | | | | | | |||||||||||||||||||||||||||
Transfers out of Level 3 (4)
|
| (2 | ) | | | | | | | (4 | ) | |||||||||||||||||||||||||
Balance, end of period
|
$ | 189 | $ | 44 | $ | 13 | $ | 9 | $ | 8 | $ | 10 | $ | 46 | $ | 612 | $ | 140 | ||||||||||||||||||
Changes in unrealized gains (losses) relating to assets and
liabilities still held at June 30, 2010 included in
earnings:
|
||||||||||||||||||||||||||||||||||||
Net investment income
|
$ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | | ||||||||||||||||||
Net investment gains (losses)
|
$ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | | $ | | ||||||||||||||||||
Net derivative gains (losses)
|
$ | | $ | | $ | | $ | 9 | $ | (15 | ) | $ | (4 | ) | $ | 28 | $ | 123 | $ | |
(1) | Amortization of premium/discount is included within net investment income. Impairments charged to earnings on securities are included within net investment gains (losses). Lapses associated with embedded derivatives are included within net derivative gains (losses). | |
(2) | Interest and dividend accruals, as well as cash interest coupons and dividends received, are excluded from the rollforward. | |
(3) | The amount reported within purchases, sales, issuances and settlements is the purchase or issuance price and the sales or settlement proceeds based upon the actual date purchased or issued and sold or settled, respectively. Items purchased/issued and sold/settled in the same period are excluded from the rollforward. For the three months and six months ended June 30, 2011, fees attributed to net embedded derivatives are included within settlements. For the three months and six months ended June 30, 2010, fees attributed to net embedded derivatives are included within purchases, sales, issuances and settlements. | |
(4) | Total gains and losses (in earnings and other comprehensive income (loss)) are calculated assuming transfers into and/or out of Level 3 occurred at the beginning of the period. Items transferred into and out of Level 3 in the same period are excluded from the rollforward. | |
(5) | Freestanding derivative assets and liabilities are presented net for purposes of the rollforward. | |
(6) | Embedded derivative assets and liabilities are presented net for purposes of the rollforward. | |
(7) | Investment performance related to separate account assets is fully offset by corresponding amounts credited to contractholders within separate account liabilities. Therefore, such changes in estimated fair value are not recorded in net income. For the purpose of this disclosure, these changes are presented within net investment gains (losses). |
78
June 30, 2011 | December 31, 2010 | |||||||
(In millions) | ||||||||
Unpaid principal balance
|
$ | 6,468 | $ | 6,636 | ||||
Excess of estimated fair value over unpaid principal balance
|
229 | 204 | ||||||
Carrying value at estimated fair value
|
$ | 6,697 | $ | 6,840 | ||||
June 30, 2011 | December 31, 2010 | |||||||
(In millions) | ||||||||
Contractual principal balance
|
$ | 6,373 | $ | 6,541 | ||||
Excess of estimated fair value over contractual principal balance
|
244 | 232 | ||||||
Carrying value at estimated fair value
|
$ | 6,617 | $ | 6,773 | ||||
Three Months Ended June 30, | ||||||||||||||||||||||||
2011 | 2010 | |||||||||||||||||||||||
Estimated |
Net |
Estimated |
Net |
|||||||||||||||||||||
Carrying |
Fair |
Investment |
Carrying |
Fair |
Investment |
|||||||||||||||||||
Value Prior to |
Value After |
Gains |
Value Prior to |
Value After |
Gains |
|||||||||||||||||||
Measurement | Measurement | (Losses) | Measurement | Measurement | (Losses) | |||||||||||||||||||
(In millions) | ||||||||||||||||||||||||
Mortgage loans, net (1)
|
$ | | $ | 8 | $ | 8 | $ | 23 | $ | 23 | $ | | ||||||||||||
Other limited partnership interests (2)
|
$ | 3 | $ | 2 | $ | (1 | ) | $ | 24 | $ | 17 | $ | (7 | ) | ||||||||||
Real estate joint ventures (3)
|
$ | | $ | | $ | | $ | 7 | $ | 3 | $ | (4 | ) |
Six Months Ended June 30, | ||||||||||||||||||||||||
2011 | 2010 | |||||||||||||||||||||||
Estimated |
Net |
Estimated |
Net |
|||||||||||||||||||||
Carrying |
Fair |
Investment |
Carrying |
Fair |
Investment |
|||||||||||||||||||
Value Prior to |
Value After |
Gains |
Value Prior to |
Value After |
Gains |
|||||||||||||||||||
Measurement | Measurement | (Losses) | Measurement | Measurement | (Losses) | |||||||||||||||||||
(In millions) | ||||||||||||||||||||||||
Mortgage loans, net (1)
|
$ | | $ | 8 | $ | 8 | $ | 31 | $ | 23 | $ | (8 | ) | |||||||||||
Other limited partnership interests (2)
|
$ | 3 | $ | 2 | $ | (1 | ) | $ | 24 | $ | 17 | $ | (7 | ) | ||||||||||
Real estate joint ventures (3)
|
$ | | $ | | $ | | $ | 25 | $ | 5 | $ | (20 | ) |
79
(1) | Mortgage loans The impaired mortgage loans presented above were written down to their estimated fair values at the date the impairments were recognized and are reported as losses above. Subsequent improvements in estimated fair value on previously impaired loans recorded through a reduction in the previously established valuation allowance are reported as gains above. Estimated fair values for impaired mortgage loans are based on observable market prices or, if the loans are in foreclosure or are otherwise determined to be collateral dependent, on the estimated fair value of the underlying collateral, or the present value of the expected future cash flows. Impairments to estimated fair value and decreases in previous impairments from subsequent improvements in estimated fair value represent non-recurring fair value measurements that have been categorized as Level 3 due to the lack of price transparency inherent in the limited markets for such mortgage loans. | |
(2) | Other limited partnership interests The impaired investments presented above were accounted for using the cost method. Impairments on these cost method investments were recognized at estimated fair value determined from information provided in the financial statements of the underlying entities in the period in which the impairment was incurred. These impairments to estimated fair value represent non-recurring fair value measurements that have been classified as Level 3 due to the limited activity and price transparency inherent in the market for such investments. This category includes several private equity and debt funds that typically invest primarily in a diversified pool of investments using certain investment strategies including domestic and international leveraged buyout funds; power, energy, timber and infrastructure development funds; venture capital funds; and below investment grade debt and mezzanine debt funds. The estimated fair values of these investments have been determined using the NAV of the Companys ownership interest in the partners capital. Distributions from these investments will be generated from investment gains, from operating income from the underlying investments of the funds and from liquidation of the underlying assets of the funds. It is estimated that the underlying assets of the funds will be liquidated over the next 2 to 10 years. Unfunded commitments for these investments were less than $1 million and $19 million at June 30, 2011 and 2010, respectively. | |
(3) | Real estate joint ventures The impaired investments presented above were accounted for using the cost method. Impairments on these cost method investments were recognized at estimated fair value determined from information provided in the financial statements of the underlying entities in the period in which the impairment was incurred. These impairments to estimated fair value represent non-recurring fair value measurements that have been classified as Level 3 due to the limited activity and price transparency inherent in the market for such investments. This category includes several real estate funds that typically invest primarily in commercial real estate. The estimated fair values of these investments have been determined using the NAV of the Companys ownership interest in the partners capital. Distributions from these investments will be generated from investment gains, from operating income from the underlying investments of the funds and from liquidation of the underlying assets of the funds. It is estimated that the underlying assets of the funds will be liquidated over the next 2 to 10 years. There were no unfunded commitments for these investments at June 30, 2011. Unfunded commitments for these investments were $8 million at June 30, 2010. |
80
June 30, 2011 | December 31, 2010 | |||||||||||||||||||||||
Estimated |
Estimated |
|||||||||||||||||||||||
Notional |
Carrying |
Fair |
Notional |
Carrying |
Fair |
|||||||||||||||||||
Amount | Value | Value | Amount | Value | Value | |||||||||||||||||||
(In millions) | ||||||||||||||||||||||||
Assets:
|
||||||||||||||||||||||||
Mortgage loans, net (1)
|
$ | 5,948 | $ | 6,188 | $ | 5,890 | $ | 6,022 | ||||||||||||||||
Policy loans
|
$ | 1,190 | $ | 1,260 | $ | 1,190 | $ | 1,260 | ||||||||||||||||
Real estate joint ventures (2)
|
$ | 87 | $ | 120 | $ | 79 | $ | 102 | ||||||||||||||||
Other limited partnership interests (2)
|
$ | 103 | $ | 129 | $ | 104 | $ | 116 | ||||||||||||||||
Short-term investments (3)
|
$ | 82 | $ | 82 | $ | 88 | $ | 88 | ||||||||||||||||
Cash and cash equivalents
|
$ | 1,220 | $ | 1,220 | $ | 1,928 | $ | 1,928 | ||||||||||||||||
Accrued investment income
|
$ | 534 | $ | 534 | $ | 559 | $ | 559 | ||||||||||||||||
Premiums, reinsurance and other receivables (2)
|
$ | 5,997 | $ | 6,332 | $ | 5,959 | $ | 6,164 | ||||||||||||||||
Liabilities:
|
||||||||||||||||||||||||
Policyholder account balances (2)
|
$ | 24,273 | $ | 25,952 | $ | 24,622 | $ | 26,061 | ||||||||||||||||
Payables for collateral under securities loaned and other
transactions
|
$ | 8,201 | $ | 8,201 | $ | 8,103 | $ | 8,103 | ||||||||||||||||
Long-term debt (4)
|
$ | 793 | $ | 965 | $ | 795 | $ | 930 | ||||||||||||||||
Other liabilities (2)
|
$ | 336 | $ | 336 | $ | 294 | $ | 294 | ||||||||||||||||
Separate account liabilities (2)
|
$ | 1,407 | $ | 1,407 | $ | 1,407 | $ | 1,407 | ||||||||||||||||
Commitments: (5)
|
||||||||||||||||||||||||
Mortgage loan commitments
|
$ | 255 | $ | | $ | (2 | ) | $ | 270 | $ | | $ | (2 | ) | ||||||||||
Commitments to fund bank credit facilities and private corporate
bond investments
|
$ | 234 | $ | | $ | (10 | ) | $ | 315 | $ | | $ | (12 | ) |
(1) | Mortgage loans as presented in the table above differs from the amounts presented in the consolidated balance sheets because this table does not include commercial mortgage loans held by CSEs, which are accounted for under the FVO. | |
(2) | Carrying values presented herein differ from those presented in the consolidated balance sheets because certain items within the respective financial statement caption are not considered financial instruments. Financial statement captions excluded from the table above are not considered financial instruments. | |
(3) | Short-term investments as presented in the table above differ from the amounts presented in the consolidated balance sheets because this table does not include short-term investments that meet the definition of a security, which are measured at estimated fair value on a recurring basis. | |
(4) | Long-term debt as presented in the table above differs from the amounts presented in the consolidated balance sheets because this table does not include long-term debt of CSEs, which are accounted for under the FVO. | |
(5) | Commitments are off-balance sheet obligations. Negative estimated fair values represent off-balance sheet liabilities. |
81
82
83
84
5. | Contingencies, Commitments and Guarantees |
85
86
6. | Equity |
87
7. | Other Expenses |
Three Months |
Six Months |
|||||||||||||||
Ended |
Ended |
|||||||||||||||
June 30, | June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(In millions) | ||||||||||||||||
Compensation
|
$ | 76 | $ | 47 | $ | 151 | $ | 91 | ||||||||
Commissions
|
368 | 243 | 674 | 463 | ||||||||||||
Volume-related costs
|
44 | 73 | 82 | 133 | ||||||||||||
Affiliated interest costs on ceded reinsurance
|
51 | 47 | 105 | 80 | ||||||||||||
Capitalization of DAC
|
(384 | ) | (268 | ) | (694 | ) | (498 | ) | ||||||||
Amortization of DAC and VOBA
|
327 | 460 | 444 | 524 | ||||||||||||
Interest expense on debt and debt issue costs
|
110 | 119 | 220 | 239 | ||||||||||||
Premium taxes, licenses & fees
|
13 | 12 | 28 | 22 | ||||||||||||
Professional services
|
20 | 6 | 29 | 10 | ||||||||||||
Rent
|
8 | | 15 | 1 | ||||||||||||
Other
|
96 | 100 | 179 | 193 | ||||||||||||
Total other expenses
|
$ | 729 | $ | 839 | $ | 1,233 | $ | 1,258 | ||||||||
8. | Business Segment Information |
88
| Universal life and investment-type product policy fees exclude the amortization of unearned revenue related to net investment gains (losses) and net derivative gains (losses) and certain variable annuity GMIB fees (GMIB Fees); and | |
| Net investment income: (i) includes amounts for scheduled periodic settlement payments and amortization of premium on derivatives that are hedges of investments but do not qualify for hedge accounting treatment, (ii) excludes certain amounts related to contractholder-directed unit-linked investments and (iii) excludes certain amounts related to securitization entities that are VIEs consolidated under GAAP. |
| Policyholder benefits and claims exclude: (i) amounts associated with periodic crediting rate adjustments based on the total return of a contractually referenced pool of assets, (ii) benefits and hedging costs related to GMIBs (GMIB Costs), and (iii) market value adjustments associated with surrenders or terminations of contracts (Market Value Adjustments); | |
| Interest credited to policyholder account balances includes adjustments for scheduled periodic settlement payments and amortization of premium on derivatives that are hedges of policyholder account balances but do not qualify for hedge accounting treatment and amounts related to net investment income earned on contractholder-directed unit-linked investments; | |
| Amortization of DAC and value of business acquired (VOBA) excludes amounts related to: (i) net investment gains (losses) and net derivative gains (losses), (ii) GMIB Fees and GMIB Costs, and (iii) Market Value Adjustments; | |
| Interest expense on debt excludes certain amounts related to securitization entities that are VIEs consolidated under GAAP; and | |
| Other expenses exclude costs related to business combinations. |
89
Operating Earnings | ||||||||||||||||||||||||||||
Corporate |
||||||||||||||||||||||||||||
Retirement |
Benefit |
Insurance |
Corporate |
Total |
||||||||||||||||||||||||
Three Months Ended June 30, 2011 | Products | Funding | Products | & Other | Total | Adjustments | Consolidated | |||||||||||||||||||||
(In millions) | ||||||||||||||||||||||||||||
Revenues
|
||||||||||||||||||||||||||||
Premiums
|
$ | 99 | $ | 475 | $ | 67 | $ | | $ | 641 | $ | | $ | 641 | ||||||||||||||
Universal life and investment-type product policy fees
|
290 | 6 | 163 | 13 | 472 | 21 | 493 | |||||||||||||||||||||
Net investment income
|
208 | 299 | 149 | 44 | 700 | 96 | 796 | |||||||||||||||||||||
Other revenues
|
87 | 2 | 42 | | 131 | | 131 | |||||||||||||||||||||
Net investment gains (losses)
|
| | | | | (27 | ) | (27 | ) | |||||||||||||||||||
Net derivative gains (losses)
|
| | | | | 133 | 133 | |||||||||||||||||||||
Total revenues
|
684 | 782 | 421 | 57 | 1,944 | 223 | 2,167 | |||||||||||||||||||||
Expenses
|
||||||||||||||||||||||||||||
Policyholder benefits and claims
|
133 | 595 | 67 | | 795 | 23 | 818 | |||||||||||||||||||||
Interest credited to policyholder account balances
|
181 | 45 | 63 | | 289 | 15 | 304 | |||||||||||||||||||||
Capitalization of DAC
|
(258 | ) | (1 | ) | (108 | ) | (17 | ) | (384 | ) | | (384 | ) | |||||||||||||||
Amortization of DAC and VOBA
|
134 | 1 | 69 | 1 | 205 | 122 | 327 | |||||||||||||||||||||
Interest expense on debt
|
| | | 16 | 16 | 94 | 110 | |||||||||||||||||||||
Other expenses
|
388 | 7 | 234 | 36 | 665 | 11 | 676 | |||||||||||||||||||||
Total expenses
|
578 | 647 | 325 | 36 | 1,586 | 265 | 1,851 | |||||||||||||||||||||
Provision for income tax expense (benefit)
|
37 | 47 | 33 | (5 | ) | 112 | (12 | ) | 100 | |||||||||||||||||||
Operating earnings
|
$ | 69 | $ | 88 | $ | 63 | $ | 26 | 246 | |||||||||||||||||||
Adjustments to:
|
||||||||||||||||||||||||||||
Total revenues
|
223 | |||||||||||||||||||||||||||
Total expenses
|
(265 | ) | ||||||||||||||||||||||||||
Provision for income tax (expense) benefit
|
12 | |||||||||||||||||||||||||||
Net income
|
$ | 216 | $ | 216 | ||||||||||||||||||||||||
90
Operating Earnings | ||||||||||||||||||||||||||||
Corporate |
||||||||||||||||||||||||||||
Retirement |
Benefit |
Insurance |
Corporate |
Total |
||||||||||||||||||||||||
Three Months Ended June 30, 2010 | Products | Funding | Products | & Other | Total | Adjustments | Consolidated | |||||||||||||||||||||
(In millions) | ||||||||||||||||||||||||||||
Revenues
|
||||||||||||||||||||||||||||
Premiums
|
$ | 90 | $ | 126 | $ | 38 | $ | 2 | $ | 256 | $ | | $ | 256 | ||||||||||||||
Universal life and investment-type product policy fees
|
236 | 7 | 136 | 2 | 381 | 26 | 407 | |||||||||||||||||||||
Net investment income
|
237 | 279 | 118 | | 634 | 91 | 725 | |||||||||||||||||||||
Other revenues
|
79 | 1 | 23 | | 103 | | 103 | |||||||||||||||||||||
Net investment gains (losses)
|
| | | | | 50 | 50 | |||||||||||||||||||||
Net derivative gains (losses)
|
| | | | | 563 | 563 | |||||||||||||||||||||
Total revenues
|
642 | 413 | 315 | 4 | 1,374 | 730 | 2,104 | |||||||||||||||||||||
Expenses
|
||||||||||||||||||||||||||||
Policyholder benefits and claims
|
123 | 256 | 89 | (1 | ) | 467 | 37 | 504 | ||||||||||||||||||||
Interest credited to policyholder account balances
|
182 | 48 | 59 | (21 | ) | 268 | (11 | ) | 257 | |||||||||||||||||||
Capitalization of DAC
|
(146 | ) | (1 | ) | (107 | ) | (14 | ) | (268 | ) | | (268 | ) | |||||||||||||||
Amortization of DAC and VOBA
|
157 | 1 | 68 | 1 | 227 | 233 | 460 | |||||||||||||||||||||
Interest expense on debt
|
| | | 18 | 18 | 101 | 119 | |||||||||||||||||||||
Other expenses
|
260 | 8 | 226 | 34 | 528 | | 528 | |||||||||||||||||||||
Total expenses
|
576 | 312 | 335 | 17 | 1,240 | 360 | 1,600 | |||||||||||||||||||||
Provision for income tax expense (benefit)
|
23 | 34 | (6 | ) | (20 | ) | 31 | 131 | 162 | |||||||||||||||||||
Operating earnings
|
$ | 43 | $ | 67 | $ | (14 | ) | $ | 7 | 103 | ||||||||||||||||||
Adjustments to:
|
||||||||||||||||||||||||||||
Total revenues
|
730 | |||||||||||||||||||||||||||
Total expenses
|
(360 | ) | ||||||||||||||||||||||||||
Provision for income tax (expense) benefit
|
(131 | ) | ||||||||||||||||||||||||||
Net income
|
$ | 342 | $ | 342 | ||||||||||||||||||||||||
91
Operating Earnings | ||||||||||||||||||||||||||||
Corporate |
||||||||||||||||||||||||||||
Retirement |
Benefit |
Insurance |
Corporate |
Total |
||||||||||||||||||||||||
Six Months Ended June 30, 2011 | Products | Funding | Products | & Other | Total | Adjustments | Consolidated | |||||||||||||||||||||
(In millions) | ||||||||||||||||||||||||||||
Revenues
|
||||||||||||||||||||||||||||
Premiums
|
$ | 129 | $ | 537 | $ | 111 | $ | | $ | 777 | $ | | $ | 777 | ||||||||||||||
Universal life and investment-type product policy fees
|
563 | 17 | 307 | 20 | 907 | 41 | 948 | |||||||||||||||||||||
Net investment income
|
414 | 597 | 305 | 92 | 1,408 | 176 | 1,584 | |||||||||||||||||||||
Other revenues
|
184 | 3 | 74 | | 261 | | 261 | |||||||||||||||||||||
Net investment gains (losses)
|
| | | | | (41 | ) | (41 | ) | |||||||||||||||||||
Net derivative gains (losses)
|
| | | | | (23 | ) | (23 | ) | |||||||||||||||||||
Total revenues
|
1,290 | 1,154 | 797 | 112 | 3,353 | 153 | 3,506 | |||||||||||||||||||||
Expenses
|
||||||||||||||||||||||||||||
Policyholder benefits and claims
|
196 | 783 | 136 | | 1,115 | 30 | 1,145 | |||||||||||||||||||||
Interest credited to policyholder account balances
|
361 | 95 | 123 | | 579 | 12 | 591 | |||||||||||||||||||||
Capitalization of DAC
|
(449 | ) | (6 | ) | (209 | ) | (30 | ) | (694 | ) | | (694 | ) | |||||||||||||||
Amortization of DAC and VOBA
|
244 | 2 | 140 | 3 | 389 | 55 | 444 | |||||||||||||||||||||
Interest expense on debt
|
| | | 33 | 33 | 187 | 220 | |||||||||||||||||||||
Other expenses
|
696 | 23 | 467 | 66 | 1,252 | 11 | 1,263 | |||||||||||||||||||||
Total expenses
|
1,048 | 897 | 657 | 72 | 2,674 | 295 | 2,969 | |||||||||||||||||||||
Provision for income tax expense (benefit)
|
84 | 90 | 49 | (16 | ) | 207 | (46 | ) | 161 | |||||||||||||||||||
Operating earnings
|
$ | 158 | $ | 167 | $ | 91 | $ | 56 | 472 | |||||||||||||||||||
Adjustments to:
|
||||||||||||||||||||||||||||
Total revenues
|
153 | |||||||||||||||||||||||||||
Total expenses
|
(295 | ) | ||||||||||||||||||||||||||
Provision for income tax (expense) benefit
|
46 | |||||||||||||||||||||||||||
Net income
|
$ | 376 | $ | 376 | ||||||||||||||||||||||||
92
Operating Earnings | ||||||||||||||||||||||||||||
Corporate |
||||||||||||||||||||||||||||
Retirement |
Benefit |
Insurance |
Corporate |
Total |
||||||||||||||||||||||||
Six Months Ended June 30, 2010 | Products | Funding | Products | & Other | Total | Adjustments | Consolidated | |||||||||||||||||||||
(In millions) | ||||||||||||||||||||||||||||
Revenues
|
||||||||||||||||||||||||||||
Premiums
|
$ | 148 | $ | 497 | $ | 66 | $ | | $ | 711 | $ | | $ | 711 | ||||||||||||||
Universal life and investment-type product policy fees
|
444 | 15 | 266 | 7 | 732 | 44 | 776 | |||||||||||||||||||||
Net investment income
|
466 | 548 | 232 | 83 | 1,329 | 186 | 1,515 | |||||||||||||||||||||
Other revenues
|
155 | 2 | 56 | | 213 | | 213 | |||||||||||||||||||||
Net investment gains (losses)
|
| | | | | 87 | 87 | |||||||||||||||||||||
Net derivative gains (losses)
|
| | | | | 255 | 255 | |||||||||||||||||||||
Total revenues
|
1,213 | 1,062 | 620 | 90 | 2,985 | 572 | 3,557 | |||||||||||||||||||||
Expenses
|
||||||||||||||||||||||||||||
Policyholder benefits and claims
|
209 | 755 | 173 | | 1,137 | 61 | 1,198 | |||||||||||||||||||||
Interest credited to policyholder account balances
|
364 | 93 | 117 | 24 | 598 | (25) | 573 | |||||||||||||||||||||
Capitalization of DAC
|
(266) | (2) | (205) | (25) | (498) | | (498) | |||||||||||||||||||||
Amortization of DAC and VOBA
|
249 | 1 | 139 | 2 | 391 | 133 | 524 | |||||||||||||||||||||
Interest expense on debt
|
| | | 35 | 35 | 204 | 239 | |||||||||||||||||||||
Other expenses
|
479 | 17 | 434 | 63 | 993 | | 993 | |||||||||||||||||||||
Total expenses
|
1,035 | 864 | 658 | 99 | 2,656 | 373 | 3,029 | |||||||||||||||||||||
Provision for income tax expense (benefit)
|
62 | 68 | (13) | (34) | 83 | 71 | 154 | |||||||||||||||||||||
Operating earnings
|
$ | 116 | $ | 130 | $ | (25) | $ | 25 | 246 | |||||||||||||||||||
Adjustments to:
|
||||||||||||||||||||||||||||
Total revenues
|
572 | |||||||||||||||||||||||||||
Total expenses
|
(373) | |||||||||||||||||||||||||||
Provision for income tax (expense) benefit
|
(71) | |||||||||||||||||||||||||||
Net income
|
$ | 374 | $ | 374 | ||||||||||||||||||||||||
June 30, 2011 | December 31, 2010 | |||||||
(In millions) | ||||||||
Retirement Products
|
$ | 94,498 | $ | 87,461 | ||||
Corporate Benefit Funding
|
30,966 | 30,491 | ||||||
Insurance Products
|
18,605 | 16,296 | ||||||
Corporate & Other
|
21,413 | 20,637 | ||||||
Total
|
$ | 165,482 | $ | 154,885 | ||||
93
9. | Related Party Transactions |
Three Months |
Six Months |
|||||||||||||||
Ended |
Ended |
|||||||||||||||
June 30, | June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(In millions) | ||||||||||||||||
Compensation
|
$ | 64 | $ | 38 | $ | 127 | $ | 74 | ||||||||
Commissions
|
241 | 134 | 426 | 257 | ||||||||||||
Volume-related costs
|
61 | 88 | 109 | 155 | ||||||||||||
Professional services
|
5 | | 9 | | ||||||||||||
Rent
|
6 | | 12 | | ||||||||||||
Other
|
80 | 80 | 151 | 152 | ||||||||||||
Total other expenses
|
$ | 457 | $ | 340 | $ | 834 | $ | 638 | ||||||||
Three Months |
Six Months |
|||||||||||||||
Ended |
Ended |
|||||||||||||||
June 30, | June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(In millions) | ||||||||||||||||
Universal life and investment-type product policy fees
|
$ | 36 | $ | 28 | $ | 69 | $ | 54 | ||||||||
Other revenues
|
$ | 34 | $ | 24 | $ | 65 | $ | 47 |
94
Three Months |
Six Months |
|||||||||||||||
Ended |
Ended |
|||||||||||||||
June 30, | June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(In millions) | ||||||||||||||||
Premiums:
|
||||||||||||||||
Reinsurance assumed
|
$ | 6 | $ | 3 | $ | 4 | $ | 7 | ||||||||
Reinsurance ceded
|
(55 | ) | (52 | ) | (109 | ) | (111 | ) | ||||||||
Net premiums
|
$ | (49 | ) | $ | (49 | ) | $ | (105 | ) | $ | (104 | ) | ||||
Universal life and investment-type product policy fees:
|
||||||||||||||||
Reinsurance assumed
|
$ | 23 | $ | 19 | $ | 43 | $ | 30 | ||||||||
Reinsurance ceded
|
(97 | ) | (72 | ) | (188 | ) | (133 | ) | ||||||||
Net universal life and investment-type product policy fees
|
$ | (74 | ) | $ | (53 | ) | $ | (145 | ) | $ | (103 | ) | ||||
Other revenues:
|
||||||||||||||||
Reinsurance assumed
|
$ | | $ | | $ | | $ | | ||||||||
Reinsurance ceded
|
78 | 65 | 158 | 139 | ||||||||||||
Net other revenues
|
$ | 78 | $ | 65 | $ | 158 | $ | 139 | ||||||||
Policyholder benefits and claims:
|
||||||||||||||||
Reinsurance assumed
|
$ | 9 | $ | 5 | $ | 12 | $ | 6 | ||||||||
Reinsurance ceded
|
(113 | ) | (89 | ) | (228 | ) | (173 | ) | ||||||||
Net policyholder benefits and claims
|
$ | (104 | ) | $ | (84 | ) | $ | (216 | ) | $ | (167 | ) | ||||
Interest credited to policyholder account balances:
|
||||||||||||||||
Reinsurance assumed
|
$ | 17 | $ | 16 | $ | 33 | $ | 31 | ||||||||
Reinsurance ceded
|
(19 | ) | (12 | ) | (37 | ) | (24 | ) | ||||||||
Net interest credited to policyholder account balances
|
$ | (2 | ) | $ | 4 | $ | (4 | ) | $ | 7 | ||||||
Other expenses:
|
||||||||||||||||
Reinsurance assumed
|
$ | 13 | $ | 13 | $ | 28 | $ | 25 | ||||||||
Reinsurance ceded
|
37 | 36 | 82 | 60 | ||||||||||||
Net other expenses
|
$ | 50 | $ | 49 | $ | 110 | $ | 85 | ||||||||
95
June 30, 2011 | December 31, 2010 | |||||||||||||||
Assumed | Ceded | Assumed | Ceded | |||||||||||||
(In millions) | ||||||||||||||||
Assets:
|
||||||||||||||||
Premiums, reinsurance and other receivables
|
$ | 72 | $ | 9,610 | $ | 40 | $ | 9,826 | ||||||||
Deferred policy acquisition costs and value of business acquired
|
150 | (492 | ) | 164 | (484 | ) | ||||||||||
Total assets
|
$ | 222 | $ | 9,118 | $ | 204 | $ | 9,342 | ||||||||
Liabilities:
|
||||||||||||||||
Future policy benefits
|
$ | 44 | $ | | $ | 41 | $ | | ||||||||
Other policy-related balances
|
1,470 | 570 | 1,435 | 508 | ||||||||||||
Other liabilities
|
29 | 3,007 | 12 | 3,200 | ||||||||||||
Total liabilities
|
$ | 1,543 | $ | 3,577 | $ | 1,488 | $ | 3,708 | ||||||||
96
Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations |
| Universal life and investment-type product policy fees exclude the amortization of unearned revenue related to net investment gains (losses) and net derivative gains (losses) and certain variable annuity guaranteed minimum income benefits (GMIB) fees (GMIB Fees); and | |
| Net investment income: (i) includes amounts for scheduled periodic settlement payments and amortization of premium on derivatives that are hedges of investments but do not qualify for hedge accounting treatment, (ii) excludes certain amounts related to contractholder-directed unit-linked investments, and (iii) excludes certain amounts related to securitization entities that are variable interest entities (VIEs) consolidated under GAAP. |
| Policyholder benefits and claims exclude: (i) amounts associated with periodic crediting rate adjustments based on the total return of a contractually referenced pool of assets, (ii) benefits and hedging costs related to GMIBs (GMIB Costs), and (iii) market value adjustments associated with surrenders or terminations of contracts (Market Value Adjustments); | |
| Interest credited to policyholder account balances includes adjustments for scheduled periodic settlement payments and amortization of premium on derivatives that are hedges of policyholder account balances but do not qualify for hedge accounting treatment and amounts related to net investment income earned on contractholder-directed unit-linked investments; |
97
| Amortization of deferred policy acquisition costs (DAC) and value of business acquired (VOBA) excludes amounts related to: (i) net investment gains (losses) and net derivative gains (losses), (ii) GMIB Fees and GMIB Costs, and (iii) Market Value Adjustments; | |
| Interest expense on debt excludes certain amounts related to securitization entities that are VIEs consolidated under GAAP; and | |
| Other expenses exclude costs related to business combinations. |
(i) | the estimated fair value of investments in the absence of quoted market values; | |
(ii) | investment impairments; | |
(iii) | the recognition of income on certain investment entities and the application of the consolidation rules to certain investments; | |
(iv) | the estimated fair value of and accounting for freestanding derivatives and the existence and estimated fair value of embedded derivatives requiring bifurcation; |
98
(v) | the capitalization and amortization of DAC and the establishment and amortization of VOBA; | |
(vi) | the measurement of goodwill and related impairment, if any; | |
(vii) | the liability for future policyholder benefits and the accounting for reinsurance contracts; | |
(viii) | accounting for income taxes and the valuation of deferred tax assets; and | |
(ix) | the liability for litigation and regulatory matters. |
99
Six Months |
||||||||||||||||
Ended |
||||||||||||||||
June 30, | ||||||||||||||||
2011 | 2010 | Change | % Change | |||||||||||||
(In millions) | ||||||||||||||||
Revenues
|
||||||||||||||||
Premiums
|
$ | 777 | $ | 711 | $ | 66 | 9.3 | % | ||||||||
Universal life and investment-type product policy fees
|
948 | 776 | 172 | 22.2 | % | |||||||||||
Net investment income
|
1,584 | 1,515 | 69 | 4.6 | % | |||||||||||
Other revenues
|
261 | 213 | 48 | 22.5 | % | |||||||||||
Net investment gains (losses)
|
(41 | ) | 87 | (128 | ) | (147.1 | )% | |||||||||
Net derivative gains (losses)
|
(23 | ) | 255 | (278 | ) | (109.0 | )% | |||||||||
Total revenues
|
3,506 | 3,557 | (51 | ) | (1.4 | )% | ||||||||||
Expenses
|
||||||||||||||||
Policyholder benefits and claims
|
1,145 | 1,198 | (53 | ) | (4.4 | )% | ||||||||||
Interest credited to policyholder account balances
|
591 | 573 | 18 | 3.1 | % | |||||||||||
Capitalization of DAC
|
(694 | ) | (498 | ) | (196 | ) | (39.4 | )% | ||||||||
Amortization of DAC and VOBA
|
444 | 524 | (80 | ) | (15.3 | )% | ||||||||||
Interest expense on debt
|
220 | 239 | (19 | ) | (7.9 | )% | ||||||||||
Other expenses
|
1,263 | 993 | 270 | 27.2 | % | |||||||||||
Total expenses
|
2,969 | 3,029 | (60 | ) | (2.0 | )% | ||||||||||
Income (loss) before provision for income tax
|
537 | 528 | 9 | 1.7 | % | |||||||||||
Provision for income tax expense (benefit)
|
161 | 154 | 7 | 4.5 | % | |||||||||||
Net income
|
$ | 376 | $ | 374 | $ | 2 | 0.5 | % | ||||||||
100
101
Six Months |
||||||||
Ended |
||||||||
June 30, | ||||||||
2011 | 2010 | |||||||
(In millions) | ||||||||
Net income
|
$ | 376 | $ | 374 | ||||
Less: Net investment gains (losses)
|
(41 | ) | 87 | |||||
Less: Net derivative gains (losses)
|
(23 | ) | 255 | |||||
Less: Other adjustments to net income (1)
|
(78 | ) | (143 | ) | ||||
Less: Provision for income tax (expense) benefit
|
46 | (71 | ) | |||||
Operating earnings
|
$ | 472 | $ | 246 | ||||
(1) | See definitions of operating revenues and operating expenses for the components of such adjustments. |
Six Months |
||||||||
Ended |
||||||||
June 30, | ||||||||
2011 | 2010 | |||||||
(In millions) | ||||||||
Total revenues
|
$ | 3,506 | $ | 3,557 | ||||
Less: Net investment gains (losses)
|
(41 | ) | 87 | |||||
Less: Net derivative gains (losses)
|
(23 | ) | 255 | |||||
Less: Adjustments related to net investment gains (losses) and
net derivative gains (losses)
|
(2 | ) | 3 | |||||
Less: Other adjustments to revenues (1)
|
219 | 227 | ||||||
Total operating revenues
|
$ | 3,353 | $ | 2,985 | ||||
Total expenses
|
$ | 2,969 | $ | 3,029 | ||||
Less: Adjustments related to net investment gains (losses) and
net derivative gains (losses)
|
53 | 129 | ||||||
Less: Other adjustments to expenses (1)
|
242 | 244 | ||||||
Total operating expenses
|
$ | 2,674 | $ | 2,656 | ||||
(1) | See definitions of operating revenues and operating expenses for the components of such adjustments. |
102
Item 4. | Controls and Procedures |
103
Item 1. | Legal Proceedings |
Item 1A. | Risk Factors |
104
105
106
107
108
109
110
111
Item 6. | Exhibits |
Exhibit |
||||
No. | Description | |||
31 | .1 | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | ||
31 | .2 | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | ||
32 | .1 | Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | ||
32 | .2 | Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | ||
101 | .INS | XBRL Instance Document. | ||
101 | .SCH | XBRL Taxonomy Extension Schema Document. | ||
101 | .CAL | XBRL Taxonomy Extension Calculation Linkbase Document. | ||
101 | .LAB | XBRL Taxonomy Extension Label Linkbase Document. | ||
101 | .PRE | XBRL Taxonomy Extension Presentation Linkbase Document. | ||
101 | .DEF | XBRL Taxonomy Extension Definition Linkbase Document. |
112
By: |
/s/ Peter
M. Carlson
|
Title: |
Executive Vice President, Finance Operations and Chief Accounting Officer |
113
Exhibit |
||||
No. | Description | |||
31 | .1 | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | ||
31 | .2 | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | ||
32 | .1 | Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | ||
32 | .2 | Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | ||
101 | .INS | XBRL Instance Document. | ||
101 | .SCH | XBRL Taxonomy Extension Schema Document. | ||
101 | .CAL | XBRL Taxonomy Extension Calculation Linkbase Document. | ||
101 | .LAB | XBRL Taxonomy Extension Label Linkbase Document. | ||
101 | .PRE | XBRL Taxonomy Extension Presentation Linkbase Document. | ||
101 | .DEF | XBRL Taxonomy Extension Definition Linkbase Document. |
E-1
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | ||
b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | ||
c) | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | ||
d) | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and | ||
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
/s/ Michael K. Farrell | ||||
Michael K. Farrell | ||||
Chairman, President and Chief Executive Officer |
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; | ||
b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | ||
c) | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | ||
d) | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and | ||
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
/s/ Stanley J. Talbi | ||||
Stanley J. Talbi | ||||
Executive Vice President and Chief Financial Officer |
/s/ Michael K. Farrell | ||||
Michael K. Farrell | ||||
Chairman, President and Chief Executive Officer | ||||
/s/ Stanley J. Talbi | ||||
Stanley J. Talbi | ||||
Executive Vice President and Chief Financial Officer | ||||
Document and Entity Information
|
6 Months Ended | |
---|---|---|
Jun. 30, 2011
|
Aug. 12, 2011
|
|
Document and Entity Information [Abstract] | Â | Â |
Entity Registrant Name | MetLife Insurance CO of Connecticut | Â |
Entity Central Index Key | 0000733076 | Â |
Document Type | 10-Q | Â |
Document Period End Date | Jun. 30, 2011 | |
Amendment Flag | false | Â |
Document Fiscal Year Focus | 2011 | Â |
Document Fiscal Period Focus | Q2 | Â |
Current Fiscal Year End Date | --12-31 | Â |
Entity Well-known Seasoned Issuer | No | Â |
Entity Voluntary Filers | No | Â |
Entity Current Reporting Status | Yes | Â |
Entity Filer Category | Non-accelerated Filer | Â |
Entity Common Stock, Shares Outstanding | Â | 34,595,317 |
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Equity
|
6 Months Ended |
---|---|
Jun. 30, 2011
|
|
Equity Abstract | Â |
Equity | 6. Equity
During the six months ended June 30, 2011, Sino-US MetLife Insurance Company Limited ("Sino"), an insurance underwriting joint venture of the Company accounted for under the equity method, merged with United MetLife Insurance Company Limited ("United"), another insurance underwriting joint venture of an affiliate of the Company. The Company's ownership interest in the merged entity, Sino-US United MetLife Insurance Company Limited ("Sino-United") was determined based on its contributed capital and share of undistributed earnings of Sino compared to the contributed capital and undistributed earnings of all other investees of Sino and United. Since both the joint ventures were under common ownership both prior to and subsequent to the merger, the Company's investment in Sino-United is based on the carrying value of its investment in Sino. Pursuant to the merger, the Company entered into an agreement to pay the affiliate an amount based on the relative fair value of their respective investment in Sino-United. Accordingly, $52 million was recorded as a liability representing a return of capital at June 30, 2011. Such amount, subject to completion of the estimation of fair value, is expected to be paid in the third quarter of 2011. The Company's investment in Sino-United is accounted for under equity method and is included in other invested assets.
|
Investments
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6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Investments [Abstract] | Â | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Investments | 2. Investments
Fixed Maturity and Equity Securities Available-for-Sale
The following tables present the cost or amortized cost, gross unrealized gains and losses, estimated fair value of the Company's fixed maturity and equity securities and the percentage that each sector represents by the respective total holdings for the periods shown. The unrealized loss amounts presented below include the noncredit loss component of other-than-temporary impairment (“OTTI”) losses:
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The below investment grade and non-income producing amounts presented below are based on rating agency designations and equivalent designations of the National Association of Insurance Commissioners (“NAIC”), with the exception of certain structured securities described below held by MetLife Insurance Company of Connecticut and its domestic insurance subsidiary. Non-agency RMBS, CMBS and ABS held by MetLife Insurance Company of Connecticut and its domestic insurance subsidiary, are presented based on final ratings from the revised NAIC rating methodologies for structured securities (which may not correspond to rating agency designations). All NAIC designation (e.g., NAIC 1 — 6) amounts and percentages presented herein are based on the revised NAIC methodologies. All rating agency designation (e.g., Aaa/AAA) amounts and percentages presented herein are based on rating agency designations without adjustment for the revised NAIC methodologies described above. Rating agency designations are based on availability of applicable ratings from rating agencies on the NAIC acceptable rating organization list, including Moody's Investors Service (“Moody's”), Standard & Poor's Ratings Services (“S&P”) and Fitch Ratings (“Fitch”). The following table presents selected information about certain fixed maturity securities held by the Company at:
Concentrations of Credit Risk (Fixed Maturity Securities) — Summary. The following section contains a summary of the concentrations of credit risk related to fixed maturity securities holdings.
The Company was not exposed to any concentrations of credit risk of any single issuer greater than 10% of the Company's stockholders' equity, other than the government securities summarized in the table below. Concentrations of Credit Risk (Government and Agency Securities). The following section contains a summary of the concentrations of credit risk related to government and agency fixed maturity and fixed-income securities holdings which were greater than 10% of the Company's equity at:
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Concentrations of Credit Risk (Fixed Maturity Securities) — U.S. and Foreign Corporate Securities. The Company maintains a diversified portfolio of corporate fixed maturity securities across industries and issuers. This portfolio does not have an exposure to any single issuer in excess of 1% of total investments. The tables below present information for U.S. and foreign corporate securities at:
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Concentrations of Credit Risk (Fixed Maturity Securities) — RMBS. The table below presents information on the Company's RMBS holdings at:
See Note 2 “— Investments — Concentrations of Credit Risk (Fixed Maturity Securities) — RMBS” of the Notes to the Consolidated Financial Statements included in the 2010 Annual Report for a description of the security types and risk profile.
The following tables present information on the Company's investment in alternative residential mortgage loans (“Alt-A”) RMBS at:
Concentrations of Credit Risk (Fixed Maturity Securities) — CMBS. The following tables present information about CMBS held by the Company at:
The tables above reflect rating agency designations assigned by nationally recognized rating agencies including Moody's, S&P, Fitch and Realpoint, LLC. Concentrations of Credit Risk (Fixed Maturity Securities) — ABS. The Company's ABS are diversified both by collateral type and by issuer. The following table presents information about ABS held by the Company at:
Concentrations of Credit Risk (Equity Securities). The Company was not exposed to any concentrations of credit risk in its equity securities holdings of any single issuer greater than 10% of the Company's stockholders' equity or 1% of total investments at June 30, 2011 and December 31, 2010. Maturities of Fixed Maturity Securities. The amortized cost and estimated fair value of fixed maturity securities, by contractual maturity date (excluding scheduled sinking funds), were as follows at:
Actual maturities may differ from contractual maturities due to the exercise of call or prepayment options. Fixed maturity securities not due at a single maturity date have been included in the above table in the year of final contractual maturity. RMBS, CMBS and ABS are shown separately in the table, as they are not due at a single maturity. Evaluating Available-for-Sale Securities for Other-Than-Temporary Impairment
As described more fully in Note 1 of the Notes to the Consolidated Financial Statements included in the 2010 Annual Report, the Company performs a regular evaluation, on a security-by-security basis, of its available-for-sale securities holdings, including fixed maturity securities, equity securities and perpetual hybrid securities, in accordance with its impairment policy in order to evaluate whether such investments are other-than-temporarily impaired. Net Unrealized Investment Gains (Losses)
The components of net unrealized investment gains (losses), included in accumulated other comprehensive income (loss), were as follows:
The changes in fixed maturity securities with noncredit OTTI losses in accumulated other comprehensive income (loss), were as follows:
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The changes in net unrealized investment gains (losses) were as follows:
Continuous Gross Unrealized Losses and OTTI Losses for Fixed Maturity and Equity Securities Available-for-Sale by Sector
The following tables present the estimated fair value and gross unrealized losses of the Company's fixed maturity and equity securities in an unrealized loss position, aggregated by sector and by length of time that the securities have been in a continuous unrealized loss position. The unrealized loss amounts presented below include the noncredit component of OTTI loss. Fixed maturity securities on which a noncredit OTTI loss has been recognized in accumulated other comprehensive income (loss) are categorized by length of time as being “less than 12 months” or “equal to or greater than 12 months” in a continuous unrealized loss position based on the point in time that the estimated fair value initially declined to below the amortized cost basis and not the period of time since the unrealized loss was deemed a noncredit OTTI loss.
Aging of Gross Unrealized Losses and OTTI Losses for Fixed Maturity and Equity Securities Available-for-Sale
The following tables present the cost or amortized cost, gross unrealized losses, including the portion of OTTI loss on fixed maturity securities recognized in accumulated other comprehensive income (loss), gross unrealized losses as a percentage of cost or amortized cost and number of securities for fixed maturity and equity securities where the estimated fair value had declined and remained below cost or amortized cost by less than 20%, or 20% or more at:
Equity securities with gross unrealized losses of 20% or more for twelve months or greater decreased from $16 million at December 31, 2010 to $6 million at June 30, 2011. As shown in the section “— Evaluating Temporarily Impaired Available-for-Sale Securities” below, all of the equity securities with gross unrealized losses of 20% or more for twelve months or greater at June 30, 2011 were financial services industry investment grade non-redeemable preferred stock, of which 33% were rated A or better. Concentration of Gross Unrealized Losses and OTTI Losses for Fixed Maturity and Equity Securities Available-for-Sale
The Company's gross unrealized losses related to its fixed maturity and equity securities, including the portion of OTTI losses on fixed maturity securities recognized in accumulated other comprehensive income (loss) were $880 million and $1.2 billion at June 30, 2011 and December 31, 2010, respectively. The concentration, calculated as a percentage of gross unrealized losses (including OTTI losses) by sector and industry was as follows at:
Evaluating Temporarily Impaired Available-for-Sale Securities
The following table presents the Company's fixed maturity and equity securities, each with gross unrealized losses of greater than $10 million, the number of securities, total gross unrealized losses and percentage of total gross unrealized losses at:
Fixed maturity and equity securities, each with gross unrealized losses greater than $10 million, increased $39 million during the six months ended June 30, 2011. The increase in gross unrealized losses for the six months ended June 30, 2011 was primarily attributable to an increase in 30-year interest rates on our longer-term U.S. Treasury securities. These securities were included in the Company's OTTI review process. Based upon the Company's current evaluation of these securities and other available-for-sale securities in an unrealized loss position in accordance with its impairment policy, and the Company's current intentions and assessments (as applicable to the type of security) about holding, selling and any requirements to sell these securities, the Company has concluded that these securities are not other-than-temporarily impaired.
In the Company's impairment review process, the duration and severity of an unrealized loss position for equity securities are given greater weight and consideration than for fixed maturity securities. An extended and severe unrealized loss position on a fixed maturity security may not have any impact on the ability of the issuer to service all scheduled interest and principal payments and the Company's evaluation of recoverability of all contractual cash flows or the ability to recover an amount at least equal to its amortized cost based on the present value of the expected future cash flows to be collected. In contrast, for an equity security, greater weight and consideration are given by the Company to a decline in market value and the likelihood such market value decline will recover.
The following table presents certain information about the Company's equity securities available-for-sale with gross unrealized losses of 20% or more at June 30, 2011:
In connection with the equity securities impairment review process, the Company evaluated its holdings in non-redeemable preferred stock, particularly those in the financial services industry. The Company considered several factors including whether there has been any deterioration in credit of the issuer and the likelihood of recovery in value of non-redeemable preferred stock with a severe or an extended unrealized loss. The Company also considered whether any issuers of non-redeemable preferred stock with an unrealized loss held by the Company, regardless of credit rating, have deferred any dividend payments. No such dividend payments had been deferred.
With respect to common stock holdings, the Company considered the duration and severity of the unrealized losses for securities in an unrealized loss position of 20% or more; and the duration of unrealized losses for securities in an unrealized loss position of less than 20% in an extended unrealized loss position (i.e., 12 months or greater).
Future OTTIs will depend primarily on economic fundamentals, issuer performance (including changes in the present value of future cash flows expected to be collected), changes in credit ratings, changes in collateral valuation, changes in interest rates and changes in credit spreads. If economic fundamentals and any of the above factors deteriorate, additional OTTIs may be incurred in upcoming quarters. Net Investment Gains (Losses)
The components of net investment gains (losses) were as follows:
See “— Variable Interest Entities” for discussion of consolidated securitization entities (“CSEs”) included in the table above.
See “— Related Party Investment Transactions” for discussion of affiliated net investment gains (losses) related to transfers of invested assets to affiliates.
Gains (losses) from foreign currency transactions included within net investment gains (losses) were ($2) million and ($3) million for the three months and six months ended June 30, 2011, respectively, and ($4) million and $76 million for the three months and six months ended June 30, 2010, respectively. Proceeds from sales or disposals of fixed maturity and equity securities and the components of fixed maturity and equity securities net investment gains (losses) were as shown below. Investment gains and losses on sales of securities are determined on a specific identification basis.
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Fixed maturity security OTTI losses recognized in earnings related to the following sectors and industries within the U.S. and foreign corporate securities sector:
Equity security OTTI losses recognized in earnings related to the following sectors and industries:
Credit Loss Rollforward — Rollforward of the Cumulative Credit Loss Component of OTTI Loss Recognized in Earnings on Fixed Maturity Securities Still Held for Which a Portion of the OTTI Loss Was Recognized in Other Comprehensive Income (Loss)
The table below presents a rollforward of the cumulative credit loss component of OTTI loss recognized in earnings on fixed maturity securities still held by the Company for which a portion of the OTTI loss was recognized in other comprehensive income (loss):
Net Investment Income
The components of net investment income were as follows:
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See “— Variable Interest Entities” for discussion of CSEs included in the table above.
Affiliated investment expenses, included in the table above, were $18 million and $33 million for the three months and six months ended June 30, 2011, respectively, and $14 million and $27 million for the three months and six months ended June 30, 2010, respectively. See “— Related Party Investment Transactions” for discussion of affiliated net investment income included in the table above. Securities Lending
The Company participates in a securities lending program whereby blocks of securities, which are included in fixed maturity securities and short-term investments, are loaned to third parties, primarily brokerage firms and commercial banks. The Company generally obtains collateral, generally cash, in an amount equal to 102% of the estimated fair value of the securities loaned, which is obtained at the inception of a loan and maintained at a level greater than or equal to 100% for the duration of the loan. Securities loaned under such transactions may be sold or repledged by the transferee. The Company is liable to return to its counterparties the cash collateral under its control. These transactions are treated as financing arrangements and the associated liability is recorded at the amount of the cash received. Elements of the securities lending program are presented below at:
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The estimated fair value of the securities on loan related to the cash collateral on open at June 30, 2011 was $825 million, of which $743 million were U.S. Treasury and agency securities which, if put to the Company, can be immediately sold to satisfy the cash requirements. The remainder of the securities on loan was primarily U.S. Treasury and agency securities, and very liquid RMBS. The U.S. Treasury securities on loan were primarily holdings of on-the-run U.S. Treasury securities, the most liquid U.S. Treasury securities available. If these high quality securities that are on loan are put back to the Company, the proceeds from immediately selling these securities can be used to satisfy the related cash requirements. The reinvestment portfolio acquired with the cash collateral consisted principally of fixed maturity securities (including RMBS, U.S. Treasury and agency securities, U.S. corporate securities and ABS). If the on loan securities or the reinvestment portfolio become less liquid, the Company has the liquidity resources of most of its general account available to meet any potential cash demands when securities are put back to the Company.
Security collateral on deposit from counterparties in connection with the securities lending transactions may not be sold or repledged, unless the counterparty is in default, and is not reflected in the consolidated financial statements. Invested Assets on Deposit and Pledged as Collateral
Invested assets on deposit and pledged as collateral are presented below at estimated fair value for cash and cash equivalents and fixed maturity securities and at carrying value for mortgage loans.
See Note 2 “ — Investments — Invested Assets on Deposit and Pledged as Collateral” of the Notes to the Consolidated Financial Statements included in the 2010 Annual Report for a description of the types of invested assets on deposit and pledged as collateral and selected other information about the related program or counterparty.
See also “— Securities Lending” for the amount of the Company's cash received from and due back to counterparties pursuant to the Company's securities lending program. See “— Variable Interest Entities” for assets of certain CSEs that can only be used to settle liabilities of such entities. Other Securities
The table below presents certain information about the Company's securities for which the FVO has been elected:
See Note 1 of the Notes to the Consolidated Financial Statements included in the 2010 Annual Report for discussion of FVO contractholder-directed unit-linked investments. See “— Net Investment Income” for the net investment income recognized on other securities and the related changes in estimated fair value subsequent to purchase included in net investment income. Mortgage Loans
Mortgage loans are summarized as follows at:
See “— Variable Interest Entities” for discussion of CSEs included in the table above.
See Note 2 of the Notes to the Consolidated Financial Statements in the 2010 Annual Report for discussion of affiliated mortgage loans included in the table above. The carrying values of such loans were $198 million and $199 million at June 30, 2011 and December 31, 2010, respectively. Concentration of Credit Risk. The Company diversifies its mortgage loan portfolio by both geographic region and property type to reduce the risk of concentration. The Company's commercial and agricultural mortgage loans are collateralized by properties primarily located in the United States (“U.S.”). The carrying values of the Company's commercial and agricultural mortgage loans located in California, New York and Illinois were 26%, 16% and 6%, respectively, of total mortgage loans (excluding commercial mortgage loans held by CSEs) at June 30, 2011. Additionally, the Company manages risk when originating commercial and agricultural mortgage loans by generally lending only up to 75% of the estimated fair value of the underlying real estate. The following tables present the recorded investment in mortgage loans, by portfolio segment, by method of evaluation of credit loss, and the related valuation allowances, by type of credit loss, at:
The following tables present the changes in the valuation allowance, by portfolio segment:
Commercial Mortgage Loans — by Credit Quality Indicators with Estimated Fair Value. Presented below for the commercial mortgage loans is the recorded investment, prior to valuation allowances, by the indicated loan-to-value ratio categories and debt service coverage ratio categories and estimated fair value of such mortgage loans by the indicated loan-to-value ratio categories at:
Agricultural Mortgage Loans — by Credit Quality Indicator. The recorded investment in agricultural mortgage loans, prior to valuation allowances, by credit quality indicator, is as shown below. The estimated fair value of agricultural mortgage loans was $1.4 billion at both June 30, 2011 and December 31, 2010.
Past Due and Interest Accrual Status of Mortgage Loans. The Company has a high quality, well performing, mortgage loan portfolio with approximately 99% of all mortgage loans classified as performing at both June 30, 2011 and December 31, 2010. The Company defines delinquent mortgage loans consistent with industry practice, when interest and principal payments are past due as follows: commercial mortgage loans — 60 days or more past due; and agricultural mortgage loans — 90 days or more past due. The recorded investment in mortgage loans, prior to valuation allowances, past due according to these aging categories, greater than 90 days past due and still accruing interest and in nonaccrual status, by portfolio segment, were as follows at:
Impaired Mortgage Loans. The unpaid principal balance, recorded investment, valuation allowances and carrying value, net of valuation allowances, for impaired mortgage loans, by portfolio segment, were as follows at:
Unpaid principal balance is generally prior to any charge-off.
The average investment in impaired mortgage loans, and the related interest income, by portfolio segment, was:
Cash Equivalents
Cash equivalents, which include investments with an original or remaining maturity of three months or less, at the time of purchase, were $1.1 billion and $1.8 billion at June 30, 2011 and December 31, 2010, respectively. Purchased Credit Impaired Investments
Investments acquired with evidence of credit quality deterioration since origination and for which it is probable at the acquisition date that the Company will be unable to collect all contractually required payments are classified as purchased credit impaired investments. For each investment, the excess of the cash flows expected to be collected as of the acquisition date over its acquisition date fair value is referred to as the accretable yield and is recognized as net investment income on an effective yield basis. If subsequently, based on current information and events, it is probable that there is a significant increase in cash flows previously expected to be collected or if actual cash flows are significantly greater than cash flows previously expected to be collected, the accretable yield is adjusted prospectively. The excess of the contractually required payments (including interest) as of the acquisition date over the cash flows expected to be collected as of the acquisition date is referred to as the nonaccretable difference, and this amount is not expected to be realized as net investment income. Decreases in cash flows expected to be collected can result in OTTI.
The table below presents the purchased credit impaired fixed maturity securities held at:
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The following table presents information about purchased credit impaired fixed maturity securities acquired during the periods, as of their respective acquisition dates:
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The following table presents activity for the accretable yield on purchased credit impaired fixed maturity securities for:
Variable Interest Entities
The Company holds investments in certain entities that are VIEs. In certain instances, the Company holds both the power to direct the most significant activities of the entity, as well as an economic interest in the entity and, as such, is deemed to be the primary beneficiary or consolidator of the entity. The following table presents the total assets and total liabilities relating to VIEs for which the Company has concluded that it is the primary beneficiary and which are consolidated at June 30, 2011 and December 31, 2010. Creditors or beneficial interest holders of VIEs where the Company is the primary beneficiary have no recourse to the general credit of the Company, as the Company's obligation to the VIEs is limited to the amount of its committed investment.
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The following table presents the carrying amount and maximum exposure to loss relating to VIEs for which the Company holds significant variable interests but is not the primary beneficiary and which have not been consolidated at:
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As described in Note 5, the Company makes commitments to fund partnership investments in the normal course of business. Excluding these commitments, the Company did not provide financial or other support to investees designated as VIEs during the six months ended June 30, 2011. Related Party Investment Transactions
At June 30, 2011 and December 31, 2010, the Company held $83 million and $63 million, respectively, in the Metropolitan Money Market Pool and the MetLife Intermediate Income Pool, which are affiliated partnerships. These amounts are included in short-term investments. Net investment income from these investments was less than $1 million for the three months and six months ended June 30, 2011, and for the three months and six months ended June 30, 2010. In the normal course of business, the Company transfers invested assets, primarily consisting of fixed maturity securities, to and from affiliates. There were no invested assets transferred from affiliates, inclusive of amounts related to reinsurance agreements, for the three months and six months ended June 30, 2011 and 2010. Invested assets transferred to affiliates, inclusive of amounts related to reinsurance agreements, were as follows:
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Business Segment Information
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Jun. 30, 2011
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Business Segment Information [Abstract] | Â | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Business Segment Information | 8. Business Segment Information
The Company's business is currently divided into three segments: Retirement Products, Corporate Benefit Funding and Insurance Products. In addition, the Company reports certain of its results of operations in Corporate & Other.
Retirement Products offers asset accumulation and income products, including a wide variety of annuities. Corporate Benefit Funding offers pension risk solutions, structured settlements, stable value and investment products and other benefit funding products. Insurance Products offers a broad range of protection products and services to individuals and corporations, as well as other institutions and their respective employees, and is organized into two distinct businesses: Individual Life and Non-Medical Health. Individual Life insurance products and services include variable life, universal life, term life and whole life products. Non-Medical Health includes individual disability insurance products.
Corporate & Other contains the excess capital not allocated to the segments, various domestic and international start-up entities and run-off business, the Company's ancillary international operations, interest expense related to the majority of the Company's outstanding debt and expenses associated with certain legal proceedings and income tax audit issues. Corporate & Other also includes the elimination of intersegment amounts.
Operating earnings is the measure of segment profit or loss the Company uses to evaluate segment performance and allocate resources and, consistent with GAAP accounting guidance for segment reporting, it is the Company's measure of segment performance and is reported below. Operating earnings should not be viewed as a substitute for GAAP net income (loss). The Company believes the presentation of operating earnings as the Company measures it for management purposes enhances the understanding of its performance by highlighting the results from operations and the underlying profitability drivers of the business.
Operating earnings is defined as operating revenues less operating expenses, both net of income tax.
Operating revenues exclude net investment gains (losses) and net derivative gains (losses). The following additional adjustments are made to GAAP revenues, in the line items indicated, in calculating operating revenues:
• Universal life and investment-type product policy fees exclude the amortization of unearned revenue related to net investment gains (losses) and net derivative gains (losses) and certain variable annuity GMIB fees (“GMIB Fees”); and
• Net investment income: (i) includes amounts for scheduled periodic settlement payments and amortization of premium on derivatives that are hedges of investments but do not qualify for hedge accounting treatment, (ii) excludes certain amounts related to contractholder-directed unit-linked investments and (iii) excludes certain amounts related to securitization entities that are VIEs consolidated under GAAP.
The following adjustments are made to GAAP expenses, in the line items indicated, in calculating operating expenses:
• Policyholder benefits and claims exclude: (i) amounts associated with periodic crediting rate adjustments based on the total return of a contractually referenced pool of assets, (ii) benefits and hedging costs related to GMIBs (“GMIB Costs”), and (iii) market value adjustments associated with surrenders or terminations of contracts (“Market Value Adjustments”);
• Interest credited to policyholder account balances includes adjustments for scheduled periodic settlement payments and amortization of premium on derivatives that are hedges of policyholder account balances but do not qualify for hedge accounting treatment and amounts related to net investment income earned on contractholder-directed unit-linked investments;
• Amortization of DAC and value of business acquired (“VOBA”) excludes amounts related to: (i) net investment gains (losses) and net derivative gains (losses), (ii) GMIB Fees and GMIB Costs, and (iii) Market Value Adjustments;
• Interest expense on debt excludes certain amounts related to securitization entities that are VIEs consolidated under GAAP; and
• Other expenses exclude costs related to business combinations.
In the first quarter of 2011, management modified its definition of operating earnings to exclude impacts related to certain variable annuity guarantees and Market Value Adjustments to better conform to the way it manages and assesses its business. Accordingly, such results are no longer reported in operating earnings. Consequently, prior period results for Retirement Products and total consolidated operating earnings have been increased by $3 million, net of $1 million of income tax and reduced by $3 million, net of $2 million of income tax, for the three months and six months ended June 30, 2010, respectively.
Set forth in the tables below is certain financial information with respect to the Company's segments, as well as Corporate & Other for the three months and six months ended June 30, 2011 and 2010. The accounting policies of the segments are the same as those of the Company, except for the method of capital allocation and the accounting for gains (losses) from intercompany sales, which are eliminated in consolidation.
Economic capital is an internally developed risk capital model, the purpose of which is to measure the risk in the business and to provide a basis upon which capital is deployed. The economic capital model accounts for the unique and specific nature of the risks inherent in MetLife's business.
Effective January 1, 2011, MetLife updated its economic capital model to align segment allocated equity with emerging standards and consistent risk principles. Such changes to MetLife's economic capital model are applied prospectively. Segment net investment income is also credited or charged based on the level of allocated equity; however, changes in allocated equity do not impact the Company's consolidated net investment income, operating earnings or net income.
The following table presents total assets with respect to the Company's segments, as well as Corporate & Other, at:
Net investment income is based upon the actual results of each segment's specifically identifiable asset portfolio adjusted for allocated equity. Other costs are allocated to each of the segments based upon: (i) a review of the nature of such costs; (ii) time studies analyzing the amount of employee compensation costs incurred by each segment; and (iii) cost estimates included in the Company's product pricing. |
Related Party Transactions
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Jun. 30, 2011
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Related Party Transactions [Abstract] | Â | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Related Party Transactions | 9. Related Party Transactions
Service Agreements
The Company has entered into various agreements with affiliates for services necessary to conduct its activities. Typical services provided under these agreements include management, policy administrative functions, personnel, investment advice and distribution services. For certain agreements, charges are based on various performance measures or activity-based costing. The bases for such charges are modified and adjusted by management when necessary or appropriate to reflect fairly and equitably the actual incidence of cost incurred by the Company and/or affiliate. Expenses and fees incurred with affiliates related to these agreements, recorded in other expenses, were $457 million and $834 million for the three months and six months ended June 30, 2011, respectively, and $340 million and $638 million for the three months and six months ended June 30, 2010, respectively. The aforementioned expenses and fees incurred with affiliates were comprised of the following:
Revenues received from affiliates related to these agreements were recorded as follows:
The Company had net receivables from affiliates of $40 million and $60 million at June 30, 2011 and December 31, 2010, respectively, related to the items discussed above. These amounts exclude affiliated reinsurance balances discussed below. See Note 2 for expenses related to investment advice under these agreements, recorded in net investment income. Reinsurance Transactions
The Company has reinsurance agreements with certain MetLife subsidiaries, including Metropolitan Life Insurance Company, MetLife Reinsurance Company of South Carolina, Exeter Reassurance Company, Ltd., General American Life Insurance Company, MetLife Investors Insurance Company and MetLife Reinsurance Company of Vermont, all of which are related parties.
Information regarding the effect of affiliated reinsurance included in the interim condensed consolidated statements of operations was as follows:
Information regarding the effect of affiliated reinsurance included in the interim condensed consolidated balance sheets was as follows at:
The Company ceded risks to affiliates related to guaranteed minimum benefit guarantees written directly by the Company through December 31, 2010. These ceded reinsurance agreements contain embedded derivatives and changes in their fair value are also included within net derivative gains (losses). The embedded derivatives associated with the cessions are included within premiums, reinsurance and other receivables and were assets of $824 million and $936 million at June 30, 2011 and December 31, 2010, respectively. Net derivative gains (losses) associated with the embedded derivatives were $195 million and ($248) million for the three months and six months ended June 30, 2011, respectively, and $1,413 million and $1,047 million for the three months and six months ended June 30, 2010, respectively.
MLI-USA cedes two blocks of business to an affiliate on a 90% coinsurance with funds withheld basis. Certain contractual features of this agreement qualify as embedded derivatives, which are separately accounted for at estimated fair value on the Company's consolidated balance sheet. The embedded derivative related to the funds withheld associated with this reinsurance agreement is included within other liabilities and increased the funds withheld balance by $30 million and $5 million at June 30, 2011 and December 31, 2010, respectively. Net derivative gains (losses) associated with the embedded derivatives were ($50) million and ($25) million for the three months and six months ended June 30, 2011, respectively, and ($81) million and ($90) million for the three months and six months ended June 30, 2010, respectively. The reinsurance agreement also includes an experience refund provision, whereby some or all of the profits on the underlying reinsurance agreement are returned to MLI-USA from the affiliated reinsurer during the first several years of the reinsurance agreement. The experience refund reduced the funds withheld by MLI-USA from the affiliated reinsurer by $49 million and $98 million for the three months and six months ended June 30, 2011, respectively, and $64 million and $117 million for the three months and six months ended June 30, 2010, respectively, and are considered unearned revenue, amortized over the life of the contract using the same assumptions as used for the DAC associated with the underlying policies. Amortization and interest of the unearned revenue associated with the experience refund was $21 million and $37 million for the three months and six months ended June 30, 2011, respectively, and $22 million and $45 million for the three months and six months ended June 30, 2010, respectively, and is included in premiums and universal life and investment-type product policy fees in the consolidated statements of operations. At June 30, 2011 and December 31, 2010, unearned revenue related to the experience refund was $621 million and $560 million, respectively, and is included in other policy-related balances in the interim condensed consolidated balance sheets. |
Other Expenses
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Jun. 30, 2011
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Other Expenses [Abstract] | Â | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other Expenses | 7. Other Expenses
Information on other expenses was as follows:
Affiliated Expenses
See Note 9 for a discussion of affiliated expenses included in the table above. |
Derivative Financial Instruments
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Jun. 30, 2011
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General Discussion of Derivative Instruments and Hedging Activities [Abstract] | Â | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Derivative Financial Instruments | 3. Derivative Financial Instruments
Accounting for Derivative Financial Instruments
Derivatives are financial instruments whose values are derived from interest rates, foreign currency exchange rates, credit spreads and/or other financial indices. Derivatives may be exchange-traded or contracted in the over-the-counter (“OTC”) market. The Company uses a variety of derivatives, including swaps, forwards, futures and option contracts, to manage various risks relating to its ongoing business. To a lesser extent, the Company uses credit derivatives, such as credit default swaps, to synthetically replicate investment risks and returns which are not readily available in the cash market. The Company also purchases certain securities, issues certain insurance policies and investment contracts and engages in certain reinsurance contracts that have embedded derivatives.
Freestanding derivatives are carried on the Company's consolidated balance sheets either as assets within other invested assets or as liabilities within other liabilities at estimated fair value as determined through the use of quoted market prices for exchange-traded derivatives or through the use of pricing models for OTC derivatives. The determination of estimated fair value, when quoted market values are not available, is based on market standard valuation methodologies and inputs that are assumed to be consistent with what other market participants would use when pricing the instruments. Derivative valuations can be affected by changes in interest rates, foreign currency exchange rates, financial indices, credit spreads, default risk (including the counterparties to the contract), volatility, liquidity and changes in estimates and assumptions used in the pricing models.
The Company does not offset the fair value amounts recognized for derivatives executed with the same counterparty under the same master netting agreement.
If a derivative is not designated as an accounting hedge or its use in managing risk does not qualify for hedge accounting, changes in the estimated fair value of the derivative are generally reported in net derivative gains (losses) except for those (i) in policyholder benefits and claims for economic hedges of variable annuity guarantees included in future policy benefits; and (ii) in net investment income for economic hedges of equity method investments in joint ventures. The fluctuations in estimated fair value of derivatives which have not been designated for hedge accounting can result in significant volatility in net income.
To qualify for hedge accounting, at the inception of the hedging relationship, the Company formally documents its risk management objective and strategy for undertaking the hedging transaction, as well as its designation of the hedge as either (i) a hedge of the estimated fair value of a recognized asset or liability (“fair value hedge”); or (ii) a hedge of a forecasted transaction or of the variability of cash flows to be received or paid related to a recognized asset or liability (“cash flow hedge”). In this documentation, the Company sets forth how the hedging instrument is expected to hedge the designated risks related to the hedged item and sets forth the method that will be used to retrospectively and prospectively assess the hedging instrument's effectiveness and the method which will be used to measure ineffectiveness. A derivative designated as a hedging instrument must be assessed as being highly effective in offsetting the designated risk of the hedged item. Hedge effectiveness is formally assessed at inception and periodically throughout the life of the designated hedging relationship. Assessments of hedge effectiveness and measurements of ineffectiveness are also subject to interpretation and estimation and different interpretations or estimates may have a material effect on the amount reported in net income.
The accounting for derivatives is complex and interpretations of the primary accounting guidance continue to evolve in practice. Judgment is applied in determining the availability and application of hedge accounting designations and the appropriate accounting treatment under such accounting guidance. If it was determined that hedge accounting designations were not appropriately applied, reported net income could be materially affected.
Under a fair value hedge, changes in the estimated fair value of the hedging derivative, including amounts measured as ineffectiveness, and changes in the estimated fair value of the hedged item related to the designated risk being hedged, are reported within net derivative gains (losses). The estimated fair values of the hedging derivatives are exclusive of any accruals that are separately reported in the consolidated statement of operations within interest income or interest expense to match the location of the hedged item. However, accruals that are not scheduled to settle until maturity are included in the estimated fair value of derivatives in the consolidated balance sheets.
Under a cash flow hedge, changes in the estimated fair value of the hedging derivative measured as effective are reported within other comprehensive income (loss), a separate component of stockholders' equity, and the deferred gains or losses on the derivative are reclassified into the consolidated statement of operations when the Company's earnings are affected by the variability in cash flows of the hedged item. Changes in the estimated fair value of the hedging instrument measured as ineffectiveness are reported within net derivative gains (losses). The estimated fair values of the hedging derivatives are exclusive of any accruals that are separately reported in the consolidated statement of operations within interest income or interest expense to match the location of the hedged item. However, accruals that are not scheduled to settle until maturity are included in the estimated fair value of derivatives in the consolidated balance sheets.
The Company discontinues hedge accounting prospectively when: (i) it is determined that the derivative is no longer highly effective in offsetting changes in the estimated fair value or cash flows of a hedged item; (ii) the derivative expires, is sold, terminated, or exercised; (iii) it is no longer probable that the hedged forecasted transaction will occur; or (iv) the derivative is de-designated as a hedging instrument.
When hedge accounting is discontinued because it is determined that the derivative is not highly effective in offsetting changes in the estimated fair value or cash flows of a hedged item, the derivative continues to be carried in the consolidated balance sheets at its estimated fair value, with changes in estimated fair value recognized currently in net derivative gains (losses). The carrying value of the hedged recognized asset or liability under a fair value hedge is no longer adjusted for changes in its estimated fair value due to the hedged risk, and the cumulative adjustment to its carrying value is amortized into income over the remaining life of the hedged item. Provided the hedged forecasted transaction is still probable of occurrence, the changes in estimated fair value of derivatives recorded in other comprehensive income (loss) related to discontinued cash flow hedges are released into the consolidated statement of operations when the Company's earnings are affected by the variability in cash flows of the hedged item.
When hedge accounting is discontinued because it is no longer probable that the forecasted transactions will occur on the anticipated date or within two months of that date, the derivative continues to be carried in the consolidated balance sheets at its estimated fair value, with changes in estimated fair value recognized currently in net derivative gains (losses). Deferred gains and losses of a derivative recorded in other comprehensive income (loss) pursuant to the discontinued cash flow hedge of a forecasted transaction that is no longer probable are recognized immediately in net derivative gains (losses).
In all other situations in which hedge accounting is discontinued, the derivative is carried at its estimated fair value in the consolidated balance sheets, with changes in its estimated fair value recognized in the current period as net derivative gains (losses).
The Company is also a party to financial instruments that contain terms which are deemed to be embedded derivatives. The Company assesses each identified embedded derivative to determine whether it is required to be bifurcated. If the instrument would not be accounted for in its entirety at estimated fair value and it is determined that the terms of the embedded derivative are not clearly and closely related to the economic characteristics of the host contract, and that a separate instrument with the same terms would qualify as a derivative instrument, the embedded derivative is bifurcated from the host contract and accounted for as a freestanding derivative. Such embedded derivatives are carried in the consolidated balance sheets at estimated fair value with the host contract and changes in their estimated fair value are generally reported in net derivative gains (losses). If the Company is unable to properly identify and measure an embedded derivative for separation from its host contract, the entire contract is carried on the balance sheet at estimated fair value, with changes in estimated fair value recognized in the current period in net investment gains (losses) or net investment income. Additionally, the Company may elect to carry an entire contract on the balance sheet at estimated fair value, with changes in estimated fair value recognized in the current period in net investment gains (losses) or net investment income if that contract contains an embedded derivative that requires bifurcation.
See Note 4 for information about the fair value hierarchy for derivatives. Primary Risks Managed by Derivative Financial Instruments
The Company is exposed to various risks relating to its ongoing business operations, including interest rate risk, foreign currency risk, credit risk and equity market risk. The Company uses a variety of strategies to manage these risks, including the use of derivative instruments. The following table presents the gross notional amount, estimated fair value and primary underlying risk exposure of the Company's derivative financial instruments, excluding embedded derivatives, held at:
____________
Interest rate swaps are used by the Company primarily to reduce market risks from changes in interest rates and to alter interest rate exposure arising from mismatches between assets and liabilities (duration mismatches). In an interest rate swap, the Company agrees with another party to exchange, at specified intervals, the difference between fixed rate and floating rate interest amounts as calculated by reference to an agreed notional principal amount. These transactions are entered into pursuant to master agreements that provide for a single net payment to be made by the counterparty at each due date. The Company utilizes interest rate swaps in fair value, cash flow and non-qualifying hedging relationships.
The Company also enters into basis swaps to better match the cash flows from assets and related liabilities. In a basis swap, both legs of the swap are floating with each based on a different index. Generally, no cash is exchanged at the outset of the contract and no principal payments are made by either party. A single net payment is usually made by one counterparty at each due date. Basis swaps are included in interest rate swaps in the preceding table. The Company utilizes basis swaps in non-qualifying hedging relationships.
Inflation swaps are used as an economic hedge to reduce inflation risk generated from inflation-indexed liabilities. Inflation swaps are included in interest rate swaps in the preceding table. The Company utilizes inflation swaps in non-qualifying hedging relationships.
Implied volatility swaps are used by the Company primarily as economic hedges of interest rate risk associated with the Company's investments in mortgage-backed securities. In an implied volatility swap, the Company exchanges fixed payments for floating payments that are linked to certain market volatility measures. If implied volatility rises, the floating payments that the Company receives will increase, and if implied volatility falls, the floating payments that the Company receives will decrease. Implied volatility swaps are included in interest rate swaps in the preceding table. The Company utilizes implied volatility swaps in non-qualifying hedging relationships.
The Company purchases interest rate caps and floors primarily to protect its floating rate liabilities against rises in interest rates above a specified level, and against interest rate exposure arising from mismatches between assets and liabilities (duration mismatches), as well as to protect its minimum rate guarantee liabilities against declines in interest rates below a specified level, respectively. In certain instances, the Company locks in the economic impact of existing purchased caps and floors by entering into offsetting written caps and floors. The Company utilizes interest rate caps and floors in non-qualifying hedging relationships.
In exchange-traded interest rate (Treasury and swap) futures transactions, the Company agrees to purchase or sell a specified number of contracts, the value of which is determined by the different classes of interest rate securities, and to post variation margin on a daily basis in an amount equal to the difference in the daily market values of those contracts. The Company enters into exchange-traded futures with regulated futures commission merchants that are members of the exchange. Exchange-traded interest rate (Treasury and swap) futures are used primarily to hedge mismatches between the duration of assets in a portfolio and the duration of liabilities supported by those assets, to hedge against changes in value of securities the Company owns or anticipates acquiring and to hedge against changes in interest rates on anticipated liability issuances by replicating Treasury or swap curve performance. The Company utilizes exchange-traded interest rate futures in non-qualifying hedging relationships.
The Company writes covered call options on its portfolio of U.S. Treasuries as an income generation strategy. In a covered call transaction, the Company receives a premium at the inception of the contract in exchange for giving the derivative counterparty the right to purchase the referenced security from the Company at a predetermined price. The call option is “covered” because the Company owns the referenced security over the term of the option. Covered call options are included in interest rate options. The Company utilizes covered call options in non-qualifying hedging relationships.
The Company enters into interest rate forwards to buy and sell securities. The price is agreed upon at the time of the contract and payment for such a contract is made at a specified future date. The Company utilizes interest rate forwards in cash flow and non-qualifying hedging relationships.
Foreign currency derivatives, including foreign currency swaps and foreign currency forwards, are used by the Company to reduce the risk from fluctuations in foreign currency exchange rates associated with its assets and liabilities denominated in foreign currencies.
In a foreign currency swap transaction, the Company agrees with another party to exchange, at specified intervals, the difference between one currency and another at a fixed exchange rate, generally set at inception, calculated by reference to an agreed upon principal amount. The principal amount of each currency is exchanged at the inception and termination of the currency swap by each party. The Company utilizes foreign currency swaps in fair value, cash flow and non-qualifying hedging relationships.
In a foreign currency forward transaction, the Company agrees with another party to deliver a specified amount of an identified currency at a specified future date. The price is agreed upon at the time of the contract and payment for such a contract is made in a different currency at the specified future date. The Company utilizes foreign currency forwards in non-qualifying hedging relationships.
Swap spreadlocks are used by the Company to hedge invested assets on an economic basis against the risk of changes in credit spreads. Swap spreadlocks are forward transactions between two parties whose underlying reference index is a forward starting interest rate swap where the Company agrees to pay a coupon based on a predetermined reference swap spread in exchange for receiving a coupon based on a floating rate. The Company has the option to cash settle with the counterparty in lieu of maintaining the swap after the effective date. The Company utilizes swap spreadlocks in non-qualifying hedging relationships.
Certain credit default swaps are used by the Company to hedge against credit-related changes in the value of its investments and to diversify its credit risk exposure in certain portfolios. In a credit default swap transaction, the Company agrees with another party, at specified intervals, to pay a premium to hedge credit risk. If a credit event, as defined by the contract, occurs, generally the contract will require the swap to be settled gross by the delivery of par quantities of the referenced investment equal to the specified swap notional in exchange for the payment of cash amounts by the counterparty equal to the par value of the investment surrendered. The Company utilizes credit default swaps in non-qualifying hedging relationships.
Credit default swaps are also used to synthetically create investments that are either more expensive to acquire or otherwise unavailable in the cash markets. These transactions are a combination of a derivative and a cash instrument such as a U.S. Treasury or agency security. These credit default swaps are not designated as hedging instruments.
The Company enters into forwards to lock in the price to be paid for forward purchases of certain securities. The price is agreed upon at the time of the contract and payment for the contract is made at a specified future date. When the primary purpose of entering into these transactions is to hedge against the risk of changes in purchase price due to changes in credit spreads, the Company designates these as credit forwards. The Company utilizes credit forwards in cash flow hedging relationships.
In exchange-traded equity futures transactions, the Company agrees to purchase or sell a specified number of contracts, the value of which is determined by the different classes of equity securities, and to post variation margin on a daily basis in an amount equal to the difference in the daily market values of those contracts. The Company enters into exchange-traded futures with regulated futures commission merchants that are members of the exchange. Exchange-traded equity futures are used primarily to hedge liabilities embedded in certain variable annuity products offered by the Company. The Company utilizes exchange-traded equity futures in non-qualifying hedging relationships.
Equity index options are used by the Company primarily to hedge minimum guarantees embedded in certain variable annuity products offered by the Company. To hedge against adverse changes in equity indices, the Company enters into contracts to sell the equity index within a limited time at a contracted price. The contracts will be net settled in cash based on differentials in the indices at the time of exercise and the strike price. In certain instances, the Company may enter into a combination of transactions to hedge adverse changes in equity indices within a pre-determined range through the purchase and sale of options. Equity index options are included in equity options in the preceding table. The Company utilizes equity index options in non-qualifying hedging relationships.
Equity variance swaps are used by the Company primarily to hedge minimum guarantees embedded in certain variable annuity products offered by the Company. In an equity variance swap, the Company agrees with another party to exchange amounts in the future, based on changes in equity volatility over a defined period. Equity variance swaps are included in variance swaps in the preceding table. The Company utilizes equity variance swaps in non-qualifying hedging relationships.
Total rate of return swaps (“TRRs”) are swaps whereby the Company agrees with another party to exchange, at specified intervals, the difference between the economic risk and reward of an asset or a market index and the London Inter-Bank Offer Rate (“LIBOR”), calculated by reference to an agreed notional principal amount. No cash is exchanged at the outset of the contract. Cash is paid and received over the life of the contract based on the terms of the swap. These transactions are entered into pursuant to master agreements that provide for a single net payment to be made by the counterparty at each due date. The Company uses TRRs to hedge its equity market guarantees in certain of its insurance products. TRRs can be used as hedges or to synthetically create investments. The Company utilizes TRRs in non-qualifying hedging relationships. Hedging
The following table presents the gross notional amount and estimated fair value of derivatives designated as hedging instruments by type of hedge designation at:
The following table presents the gross notional amount and estimated fair value of derivatives that were not designated or do not qualify as hedging instruments by derivative type at:
Net Derivative Gains (Losses)
The components of net derivative gains (losses) were as follows:
____________
The following table presents the settlement payments recorded in income for the:
Fair Value Hedges
The Company designates and accounts for the following as fair value hedges when they have met the requirements of fair value hedging: (i) interest rate swaps to convert fixed rate investments to floating rate investments; (ii) interest rate swaps to convert fixed rate liabilities to floating rate liabilities; and (iii) foreign currency swaps to hedge the foreign currency fair value exposure of foreign currency denominated liabilities.
The Company recognizes gains and losses on derivatives and the related hedged items in fair value hedges within net derivative gains (losses). The following table represents the amount of such net derivative gains (losses):
____________
All components of each derivative's gain or loss were included in the assessment of hedge effectiveness. Cash Flow Hedges
The Company designates and accounts for the following as cash flow hedges when they have met the requirements of cash flow hedging: (i) foreign currency swaps to hedge the foreign currency cash flow exposure of foreign currency denominated investments and liabilities; (ii) interest rate forwards and credit forwards to lock in the price to be paid for forward purchases of investments; (iii) interest rate swaps and interest rate forwards to hedge the forecasted purchases of fixed-rate investments; and (iv) interest rate swaps to convert floating rate investments to fixed rate investments.
In certain instances, the Company discontinued cash flow hedge accounting because the forecasted transactions did not occur on the anticipated date or within two months of that date. The net amounts reclassified into net derivative gains (losses) for both the three months and six months ended June 30, 2011 related to such discontinued cash flow hedges were $1 million. For the three months and six months ended June 30, 2010, there were no instances in which the Company discontinued cash flow hedge accounting because the forecasted transactions did not occur on the anticipated date or within two months of that date.
At both June 30, 2011 and December 31, 2010, the maximum length of time over which the Company was hedging its exposure to variability in future cash flows for forecasted transactions did not exceed six years.
The following table presents the components of accumulated other comprehensive income (loss), before income tax, related to cash flow hedges:
At June 30, 2011, ($2) million of deferred net gains (losses) on derivatives in accumulated other comprehensive income (loss) was expected to be reclassified to earnings within the next 12 months.
The following table presents the effects of derivatives in cash flow hedging relationships on the interim condensed consolidated statements of operations and the interim condensed consolidated statements of stockholders' equity
All components of each derivative's gain or loss were included in the assessment of hedge effectiveness. Non-Qualifying Derivatives and Derivatives for Purposes Other Than Hedging
The Company enters into the following derivatives that do not qualify for hedge accounting or for purposes other than hedging: (i) interest rate swaps, implied volatility swaps, caps and floors and interest rate futures to economically hedge its exposure to interest rates; (ii) foreign currency forwards and swaps to economically hedge its exposure to adverse movements in exchange rates; (iii) credit default swaps to economically hedge exposure to adverse movements in credit; (iv) equity futures, equity index options, interest rate futures, TRRs and equity variance swaps to economically hedge liabilities embedded in certain variable annuity products; (v) swap spreadlocks to economically hedge invested assets against the risk of changes in credit spreads; (vi) credit default swaps to synthetically create investments; (vii) interest rate forwards to buy and sell securities to economically hedge its exposure to interest rates; (viii) basis swaps to better match the cash flows of assets and related liabilities; (ix) inflation swaps to reduce risk generated from inflation-indexed liabilities; (x) covered call options for income generation; and (xi) equity options to economically hedge certain invested assets against adverse changes in equity indices.
The following tables present the amount and location of gains (losses) recognized in income for derivatives that were not designated or qualifying as hedging instruments:
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Credit Derivatives
In connection with synthetically created investment transactions, the Company writes credit default swaps for which it receives a premium to insure credit risk. Such credit derivatives are included within the non-qualifying derivatives and derivatives for purposes other than hedging table. If a credit event occurs, as defined by the contract, generally the contract will require the Company to pay the counterparty the specified swap notional amount in exchange for the delivery of par quantities of the referenced credit obligation. The Company's maximum amount at risk, assuming the value of all referenced credit obligations is zero, was $1,469 million and $912 million at June 30, 2011 and December 31, 2010, respectively. The Company can terminate these contracts at any time through cash settlement with the counterparty at an amount equal to the then current fair value of the credit default swaps. At June 30, 2011 and December 31, 2010, the Company would have received $14 million and $13 million, respectively, to terminate all of these contracts. The following table presents the estimated fair value, maximum amount of future payments and weighted average years to maturity of written credit default swaps at:
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Credit Risk on Freestanding Derivatives
The Company may be exposed to credit-related losses in the event of nonperformance by counterparties to derivative financial instruments. Generally, the current credit exposure of the Company's derivative contracts is limited to the net positive estimated fair value of derivative contracts at the reporting date after taking into consideration the existence of netting agreements and any collateral received pursuant to credit support annexes.
The Company manages its credit risk related to OTC derivatives by entering into transactions with creditworthy counterparties, maintaining collateral arrangements and through the use of master agreements that provide for a single net payment to be made by one counterparty to another at each due date and upon termination. Because exchange-traded futures are effected through regulated exchanges, and positions are marked to market on a daily basis, the Company has minimal exposure to credit-related losses in the event of nonperformance by counterparties to such derivative instruments. See Note 4 for a description of the impact of credit risk on the valuation of derivative instruments.
The Company enters into various collateral arrangements which require both the pledging and accepting of collateral in connection with its derivative instruments. At June 30, 2011 and December 31, 2010, the Company was obligated to return cash collateral under its control of $985 million and $965 million, respectively. This unrestricted cash collateral is included in cash and cash equivalents or in short-term investments and the obligation to return it is included in payables for collateral under securities loaned and other transactions in the consolidated balance sheets. At June 30, 2011 and December 31, 2010, the Company had also accepted collateral consisting of various securities with a fair market value of $33 million and $3 million, respectively, which were held in separate custodial accounts. The Company is permitted by contract to sell or repledge this collateral, but at June 30, 2011, none of the collateral had been sold or repledged.
The Company's collateral arrangements for its OTC derivatives generally require the counterparty in a net liability position, after considering the effect of netting agreements, to pledge collateral when the fair value of that counterparty's derivatives reaches a pre-determined threshold. Certain of these arrangements also include credit-contingent provisions that provide for a reduction of these thresholds (on a sliding scale that converges toward zero) in the event of downgrades in the credit ratings of the Company and/or the counterparty. In addition, certain of the Company's netting agreements for derivative instruments contain provisions that require the Company to maintain a specific investment grade credit rating from at least one of the major credit rating agencies. If the Company's credit ratings were to fall below that specific investment grade credit rating, it would be in violation of these provisions, and the counterparties to the derivative instruments could request immediate payment or demand immediate and ongoing full overnight collateralization on derivative instruments that are in a net liability position after considering the effect of netting agreements.
The following table presents the estimated fair value of the Company's OTC derivatives that are in a net liability position after considering the effect of netting agreements, together with the estimated fair value and balance sheet location of the collateral pledged. The table also presents the incremental collateral that the Company would be required to provide if there was a one notch downgrade in the Company's credit rating at the reporting date or if the Company's credit rating sustained a downgrade to a level that triggered full overnight collateralization or termination of the derivative position at the reporting date. Derivatives that are not subject to collateral agreements are not included in the scope of this table.
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Without considering the effect of netting agreements, the estimated fair value of the Company's OTC derivatives with credit-contingent provisions that were in a gross liability position at June 30, 2011 was $220 million. At June 30, 2011, the Company provided securities collateral of $48 million in connection with these derivatives. In the unlikely event that both: (i) the Company's credit rating was downgraded to a level that triggers full overnight collateralization or termination of all derivative positions; and (ii) the Company's netting agreements were deemed to be legally unenforceable, then the additional collateral that the Company would be required to provide to its counterparties in connection with its derivatives in a gross liability position at June 30, 2011 would be $172 million. This amount does not consider gross derivative assets of $86 million for which the Company has the contractual right of offset.
The Company also has exchange-traded futures, which may require the pledging of collateral. At both June 30, 2011 and December 31, 2010, the Company did not pledge any securities collateral for exchange-traded futures. At June 30, 2011 and December 31, 2010, the Company provided cash collateral for exchange-traded futures of $34 million and $25 million, respectively, which is included in premiums, reinsurance and other receivables. Embedded Derivatives
The Company has certain embedded derivatives that are required to be separated from their host contracts and accounted for as derivatives. These host contracts principally include: variable annuities with guaranteed minimum benefits, including guaranteed minimum withdrawal benefits (“GMWBs”), guaranteed minimum accumulation benefits (“GMABs”) and certain guaranteed minimum income benefits (“GMIBs”); affiliated ceded reinsurance contracts of guaranteed minimum benefits related to GMWBs, GMABs and certain GMIBs; affiliated assumed reinsurance contracts of guaranteed minimum benefits related to GMWBs and certain GMIBs; ceded reinsurance written on a funds withheld basis; and options embedded in debt or equity securities.
The following table presents the estimated fair value of the Company's embedded derivatives at:
The following table presents changes in estimated fair value related to embedded derivatives:
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Fair Value | 4. Fair Value
Considerable judgment is often required in interpreting market data to develop estimates of fair value, and the use of different assumptions or valuation methodologies may have a material effect on the estimated fair value amounts. Assets and Liabilities Measured at Fair Value
Recurring Fair Value Measurements
The assets and liabilities measured at estimated fair value on a recurring basis, including those items for which the Company has elected the FVO, were determined as described below. These estimated fair values and their corresponding placement in the fair value hierarchy are summarized as follows:
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See “— Variable Interest Entities” in Note 2 for discussion of CSEs included in the tables above.
The methods and assumptions used to estimate the fair value of financial instruments are summarized as follows:
Fixed Maturity Securities, Equity Securities, Other Securities and Short-term Investments
When available, the estimated fair value of the Company's fixed maturity securities, equity securities, other securities and short-term investments are based on quoted prices in active markets that are readily and regularly obtainable. Generally, these are the most liquid of the Company's securities holdings and valuation of these securities does not involve management's judgment.
When quoted prices in active markets are not available, the determination of estimated fair value is based on market standard valuation methodologies. The market standard valuation methodologies utilized include: discounted cash flow methodologies, matrix pricing or other similar techniques. The inputs in applying these market standard valuation methodologies include, but are not limited to: interest rates, credit standing of the issuer or counterparty, industry sector of the issuer, coupon rate, call provisions, sinking fund requirements, maturity and management's assumptions regarding estimated duration, liquidity and estimated future cash flows. Accordingly, the estimated fair values are based on available market information and management's judgments about financial instruments.
The significant inputs to the market standard valuation methodologies for certain types of securities with reasonable levels of price transparency are inputs that are observable in the market or can be derived principally from or corroborated by observable market data. Such observable inputs include benchmarking prices for similar assets in active markets, quoted prices in markets that are not active and observable yields and spreads in the market.
When observable inputs are not available, the market standard valuation methodologies for determining the estimated fair value of certain types of securities that trade infrequently, and therefore have little or no price transparency, rely on inputs that are significant to the estimated fair value that are not observable in the market or cannot be derived principally from or corroborated by observable market data. These unobservable inputs can be based in large part on management's judgment or estimation and cannot be supported by reference to market activity. Even though unobservable, these inputs are assumed to be consistent with what other market participants would use when pricing such securities and are considered appropriate given the circumstances.
The use of different methodologies, assumptions and inputs may have a material effect on the estimated fair values of the Company's securities holdings.
Mortgage Loans Held by CSEs
The Company consolidates certain securitization entities that hold commercial mortgage loans. These commercial mortgage loans held by CSEs, for which the Company has elected the FVO, are presented within mortgage loans in the consolidated balance sheets. See “— Valuation Techniques and Inputs by Level Within the Three-Level Fair Value Hierarchy by Major Classes of Assets and Liabilities” below for a discussion of the methods and assumptions used to estimate the fair value of these financial instruments.
Derivatives
The estimated fair value of derivatives is determined through the use of quoted market prices for exchange-traded derivatives or through the use of pricing models for OTC derivatives. The determination of estimated fair value, when quoted market values are not available, is based on market standard valuation methodologies and inputs that are assumed to be consistent with what other market participants would use when pricing the instruments. Derivative valuations can be affected by changes in interest rates, foreign currency exchange rates, financial indices, credit spreads, default risk (including the counterparties to the contract), volatility, liquidity and changes in estimates and assumptions used in the pricing models.
The significant inputs to the pricing models for most OTC derivatives are inputs that are observable in the market or can be derived principally from or corroborated by observable market data. Significant inputs that are observable generally include: interest rates, foreign currency exchange rates, interest rate curves, credit curves and volatility. However, certain OTC derivatives may rely on inputs that are significant to the estimated fair value that are not observable in the market or cannot be derived principally from or corroborated by observable market data. Significant inputs that are unobservable generally include: independent broker quotes, credit correlation assumptions, references to emerging market currencies and inputs that are outside the observable portion of the interest rate curve, credit curve, volatility or other relevant market measure. These unobservable inputs may involve significant management judgment or estimation. Even though unobservable, these inputs are based on assumptions deemed appropriate given the circumstances and are assumed to be consistent with what other market participants would use when pricing such instruments.
The credit risk of both the counterparty and the Company are considered in determining the estimated fair value for all OTC derivatives, and any potential credit adjustment is based on the net exposure by counterparty after taking into account the effects of netting agreements and collateral arrangements. The Company values its derivative positions using the standard swap curve which includes a spread to the risk free rate. This credit spread is appropriate for those parties that execute trades at pricing levels consistent with the standard swap curve. As the Company and its significant derivative counterparties consistently execute trades at such pricing levels, additional credit risk adjustments are not currently required in the valuation process. The Company's ability to consistently execute at such pricing levels is in part due to the netting agreements and collateral arrangements that are in place with all of its significant derivative counterparties. The evaluation of the requirement to make additional credit risk adjustments is performed by the Company each reporting period.
Most inputs for OTC derivatives are mid market inputs but, in certain cases, bid level inputs are used when they are deemed more representative of exit value. Market liquidity, as well as the use of different methodologies, assumptions and inputs, may have a material effect on the estimated fair values of the Company's derivatives and could materially affect net income.
Net Embedded Derivatives Within Asset and Liability Host Contracts
Embedded derivatives principally include certain direct, assumed and ceded variable annuity guarantees and embedded derivatives related to funds withheld on ceded reinsurance. Embedded derivatives are recorded at estimated fair value with changes in estimated fair value reported in net income.
The Company issues certain variable annuity products with guaranteed minimum benefits. GMWBs, GMABs and certain GMIBs are embedded derivatives, which are measured at estimated fair value separately from the host variable annuity contract, with changes in estimated fair value reported in net derivative gains (losses). These embedded derivatives are classified within policyholder account balances in the consolidated balance sheets.
The fair value of these guarantees is estimated using the present value of future benefits minus the present value of future fees using actuarial and capital market assumptions related to the projected cash flows over the expected lives of the contracts. A risk neutral valuation methodology is used under which the cash flows from the guarantees are projected under multiple capital market scenarios using observable risk free rates, currency exchange rates and observable and estimated implied volatilities.
The valuation of these guarantee liabilities includes adjustments for nonperformance risk and for a risk margin related to non-capital market inputs. Both of these adjustments are captured as components of the spread which, when combined with the risk free rate, is used to discount the cash flows of the liability for purposes of determining its fair value.
The nonperformance adjustment is determined by taking into consideration publicly available information relating to spreads in the secondary market for MetLife's debt, including related credit default swaps. These observable spreads are then adjusted, as necessary, to reflect the priority of these liabilities and the claims paying ability of the issuing insurance subsidiaries compared to MetLife.
Risk margins are established to capture the non-capital market risks of the instrument which represent the additional compensation a market participant would require to assume the risks related to the uncertainties of such actuarial assumptions as annuitization, premium persistency, partial withdrawal and surrenders. The establishment of risk margins requires the use of significant management judgment, including assumptions of the amount and cost of capital needed to cover the guarantees. These guarantees may be more costly than expected in volatile or declining equity markets. Market conditions including, but not limited to, changes in interest rates, equity indices, market volatility and foreign currency exchange rates; changes in nonperformance risk; and variations in actuarial assumptions regarding policyholder behavior, mortality and risk margins related to non-capital market inputs may result in significant fluctuations in the estimated fair value of the guarantees that could materially affect net income.
The Company assumed, from an affiliated insurance company, the risk associated with certain GMIBs and GMWBs. These embedded derivatives are included in other policy-related balances in the consolidated balance sheets with changes in estimated fair value reported in net derivative gains (losses). The value of the embedded derivatives on these assumed risks is determined using a methodology consistent with that described previously for the guarantees directly written by the Company.
The Company ceded, to an affiliated reinsurance company, the risk associated with certain of the GMIBs, GMABs and GMWBs described above that are also accounted for as embedded derivatives. In addition to ceding risks associated with guarantees that are accounted for as embedded derivatives, the Company also cedes, to the same affiliated reinsurance company, certain directly written GMIBs that are accounted for as insurance (i.e., not as embedded derivatives), but where the reinsurance contract contains an embedded derivative. These embedded derivatives are included within premiums, reinsurance and other receivables in the consolidated balance sheets with changes in estimated fair value reported in net derivative gains (losses). The value of the embedded derivatives on these ceded risks is determined using a methodology consistent with that described previously for the guarantees directly written by the Company. Because the direct guarantee is not accounted for at fair value, significant fluctuations in net income may occur as the change in fair value of the embedded derivative on the ceded risk is being recorded in net income without a corresponding and offsetting change in fair value of the direct guarantee.
As part of its regular review of critical accounting estimates, the Company periodically assesses inputs for estimating nonperformance risk (commonly referred to as “own credit”) in fair value measurements. During the second quarter of 2010, the Company completed a study that aggregated and evaluated data, including historical recovery rates of insurance companies, as well as policyholder behavior observed over the prior two years as the recent financial crisis evolved. As a result, at the end of the second quarter of 2010, the Company refined the way in which it incorporates expected recovery rates into the nonperformance risk adjustment for purposes of estimating the fair value of investment-type contracts and embedded derivatives within insurance contracts. For the three months ended June 30, 2010, the Company recognized income of $19 million, net of DAC and income tax, relating to the change in fair value associated with nonperformance risk for embedded derivatives within the above mentioned guaranteed minimum benefit guarantees and associated reinsurance. The Company recognized a gain of $60 million, net of DAC and income tax, relating to implementing the refinement at June 30, 2010.
The estimated fair value of the embedded derivatives within funds withheld related to certain ceded reinsurance is determined based on the change in estimated fair value of the underlying assets held by the Company in a reference portfolio backing the funds withheld liability. The estimated fair value of the underlying assets is determined as previously described in “— Fixed Maturity Securities, Equity Securities, Other Securities and Short-term Investments.” The estimated fair value of these embedded derivatives is included, along with their funds withheld hosts, in other liabilities in the consolidated balance sheets with changes in estimated fair value recorded in net derivative gains (losses). Changes in the credit spreads on the underlying assets, interest rates and market volatility may result in significant fluctuations in the estimated fair value of these embedded derivatives that could materially affect net income.
Separate Account Assets
Separate account assets are carried at estimated fair value and reported as a summarized total on the consolidated balance sheets. The estimated fair value of separate account assets is based on the estimated fair value of the underlying assets owned by the separate account. Assets within the Company's separate accounts include: mutual funds, fixed maturity securities, equity securities, derivatives, other limited partnership interests, short-term investments and cash and cash equivalents. See “— Valuation Techniques and Inputs by Level Within the Three-Level Fair Value Hierarchy by Major Classes of Assets and Liabilities” below for a discussion of the methods and assumptions used to estimate the fair value of these financial instruments.
Long-term Debt of CSEs
The Company has elected the FVO for the long-term debt of CSEs, which are carried at estimated fair value. See “— Valuation Techniques and Inputs by Level Within the Three-Level Fair Value Hierarchy by Major Classes of Assets and Liabilities” below for a discussion of the methods and assumptions used to estimate the fair value of these financial instruments.
Valuation Techniques and Inputs by Level Within the Three-Level Fair Value Hierarchy by Major Classes of Assets and Liabilities
A description of the significant valuation techniques and inputs to the determination of estimated fair value for the more significant asset and liability classes measured at fair value on a recurring basis is as follows:
The Company determines the estimated fair value of its investments using primarily the market approach and the income approach. The use of quoted prices for identical assets and matrix pricing or other similar techniques are examples of market approaches, while the use of discounted cash flow methodologies is an example of the income approach. The Company attempts to maximize the use of observable inputs and minimize the use of unobservable inputs in selecting whether the market or income approach is used.
While certain investments have been classified as Level 1 from the use of unadjusted quoted prices for identical investments supported by high volumes of trading activity and narrow bid/ask spreads, most investments have been classified as Level 2 because the significant inputs used to measure the fair value on a recurring basis of the same or similar investment are market observable or can be corroborated using market observable information for the full term of the investment. Level 3 investments include those where estimated fair values are based on significant unobservable inputs that are supported by little or no market activity and may reflect our own assumptions about what factors market participants would use in pricing these investments.
Level 1 Measurements:
Fixed Maturity Securities, Equity Securities, Other Securities and Short-term Investments
These securities are comprised of U.S. Treasury securities, exchange traded common stock, exchange traded registered mutual fund interests included in other securities and short-term money market securities, including U.S. Treasury bills. Valuation of these securities is based on unadjusted quoted prices in active markets that are readily and regularly available. Contractholder-directed unit-linked investments reported within other securities include certain registered mutual fund interests priced using daily net asset value (“NAV”) provided by the fund managers.
Derivative Assets and Derivative Liabilities
These assets and liabilities are comprised of exchange-traded derivatives. Valuation of these assets and liabilities is based on unadjusted quoted prices in active markets that are readily and regularly available.
Separate Account Assets
These assets are comprised of (i) securities that are similar in nature to the fixed maturity securities, equity securities and short-term investments referred to above; and (ii) certain exchange-traded derivatives, including financial futures. Valuation of these assets is based on unadjusted quoted prices in active markets that are readily and regularly available.
Level 2 Measurements:
Fixed Maturity Securities, Equity Securities, Other Securities and Short-term Investments
This level includes fixed maturity securities and equity securities priced principally by independent pricing services using observable inputs. Other securities and short-term investments within this level are of a similar nature and class to the Level 2 securities described below.
U.S. corporate and foreign corporate securities. These securities are principally valued using the market and income approaches. Valuation is based primarily on quoted prices in markets that are not active, or using matrix pricing or other similar techniques that use standard market observable inputs such as benchmark yields, spreads off benchmark yields, new issuances, issuer rating, duration, and trades of identical or comparable securities. Investment grade privately placed securities are valued using discounted cash flow methodologies using standard market observable inputs, and inputs derived from, or corroborated by, market observable data including market yield curve, duration, call provisions, observable prices and spreads for similar publicly traded or privately traded issues that incorporate the credit quality and industry sector of the issuer. This level also includes certain below investment grade privately placed fixed maturity securities priced by independent pricing services that use observable inputs.
Structured securities comprised of RMBS, CMBS and ABS. These securities are principally valued using the market approach. Valuation is based primarily on matrix pricing or other similar techniques using standard market inputs including spreads for actively traded securities, spreads off benchmark yields, expected prepayment speeds and volumes, current and forecasted loss severity, rating, weighted average coupon, weighted average maturity, average delinquency rates, geographic region, debt-service coverage ratios and issuance-specific information including, but not limited to: collateral type, payment terms of the underlying assets, payment priority within the tranche, structure of the security, deal performance and vintage of loans.
U.S. Treasury and agency securities. These securities are principally valued using the market approach. Valuation is based primarily on quoted prices in markets that are not active, or using matrix pricing or other similar techniques using standard market observable inputs such as benchmark U.S. Treasury yield curve, the spread off the U.S. Treasury curve for the identical security and comparable securities that are actively traded.
Foreign government and state and political subdivision securities. These securities are principally valued using the market approach. Valuation is based primarily on matrix pricing or other similar techniques using standard market observable inputs including benchmark U.S. Treasury or other yields, issuer ratings, broker-dealer quotes, issuer spreads and reported trades of similar securities, including those within the same sub-sector or with a similar maturity or credit rating.
Common and non-redeemable preferred stock. These securities are principally valued using the market approach where market quotes are available but are not considered actively traded. Valuation is based principally on observable inputs including quoted prices in markets that are not considered active.
Mortgage Loans Held by CSEs
These commercial mortgage loans are principally valued using the market approach. The principal market for these commercial loan portfolios is the securitization market. The Company uses the quoted securitization market price of the obligations of the CSEs to determine the estimated fair value of these commercial loan portfolios. These market prices are determined principally by independent pricing services using observable inputs.
Derivative Assets and Derivative Liabilities
This level includes all types of derivative instruments utilized by the Company with the exception of exchange-traded derivatives included within Level 1 and those derivative instruments with unobservable inputs as described in Level 3. These derivatives are principally valued using an income approach.
Interest rate contracts.
Non-option-based — Valuations are based on present value techniques, which utilize significant inputs that may include the swap yield curve, LIBOR basis curves and repurchase rates.
Option-based — Valuations are based on option pricing models, which utilize significant inputs that may include the swap yield curve, LIBOR basis curves and interest rate volatility.
Foreign currency contracts.
Non-option-based — Valuations are based on present value techniques, which utilize significant inputs that may include the swap yield curve, LIBOR basis curves, currency spot rates and cross currency basis curves.
Credit contracts.
Non-option-based — Valuations are based on present value techniques, which utilize significant inputs that may include the swap yield curve, credit curves and recovery rates.
Equity market contracts.
Non-option-based — Valuations are based on present value techniques, which utilize significant inputs that may include the swap yield curve, spot equity index levels and dividend yield curves.
Option-based — Valuations are based on option pricing models, which utilize significant inputs that may include the swap yield curve, spot equity index levels, dividend yield curves and equity volatility.
Separate Account Assets
These assets are comprised of investments that are similar in nature to the fixed maturity securities, equity securities and short-term investments referred to above. Also included are certain mutual funds without readily determinable fair values given prices are not published publicly. Valuation of the mutual funds is based upon quoted prices or reported NAV provided by the fund managers.
Long-term Debt of CSEs
The estimated fair value of the long-term debt of the Company's CSEs is based on quoted prices when traded as assets in active markets or, if not available, based on market standard valuation methodologies, consistent with the Company's methods and assumptions used to estimate the fair value of comparable fixed maturity securities.
Level 3 Measurements:
In general, investments classified within Level 3 use many of the same valuation techniques and inputs as described in Level 2 Measurements. However, if key inputs are unobservable, or if the investments are less liquid and there is very limited trading activity, the investments are generally classified as Level 3. The use of independent non-binding broker quotations to value investments generally indicates there is a lack of liquidity or a lack of transparency in the process to develop the valuation estimates generally causing these investments to be classified in Level 3.
Fixed Maturity Securities, Equity Securities and Short-term Investments
This level includes fixed maturity securities and equity securities priced principally by independent broker quotations or market standard valuation methodologies using inputs that are not market observable or cannot be derived principally from or corroborated by observable market data. Short-term investments within this level are of a similar nature and class to the Level 3 securities described below; accordingly, the valuation techniques and significant market standard observable inputs used in their valuation are also similar to those described below.
U.S. corporate and foreign corporate securities. These securities, including financial services industry hybrid securities classified within fixed maturity securities, are principally valued using the market and income approaches. Valuations are based primarily on matrix pricing or other similar techniques that utilize unobservable inputs or cannot be derived principally from, or corroborated by, observable market data, including illiquidity premiums and spread adjustments to reflect industry trends or specific credit-related issues. Valuations may be based on independent non-binding broker quotations. Generally, below investment grade privately placed or distressed securities included in this level are valued using discounted cash flow methodologies which rely upon significant, unobservable inputs and inputs that cannot be derived principally from, or corroborated by, observable market data.
Structured securities comprised of RMBS, CMBS and ABS. These securities are principally valued using the market approach. Valuation is based primarily on matrix pricing or other similar techniques that utilize inputs that are unobservable or cannot be derived principally from, or corroborated by, observable market data, or are based on independent non-binding broker quotations. Below investment grade securities and ABS supported by sub-prime mortgage loans included in this level are valued based on inputs including quoted prices for identical or similar securities that are less liquid and based on lower levels of trading activity than securities classified in Level 2, and certain of these securities are valued based on independent non-binding broker quotations.
Foreign government and state and political subdivision securities. These securities are principally valued using the market approach. Valuation is based primarily on matrix pricing or other similar techniques, however these securities are less liquid and certain of the inputs are based on very limited trading activity.
Common and non-redeemable preferred stock. These securities, including privately held securities and financial services industry hybrid securities classified within equity securities, are principally valued using the market and income approaches. Valuations are based primarily on matrix pricing or other similar techniques using inputs such as comparable credit rating and issuance structure. Equity securities valuations determined with discounted cash flow methodologies use inputs such as earnings multiples based on comparable public companies, and industry-specific non-earnings based multiples. Certain of these securities are valued based on independent non-binding broker quotations.
Derivative Assets and Derivative Liabilities
These derivatives are principally valued using an income approach. Valuations of non-option-based derivatives utilize present value techniques, whereas valuations of option-based derivatives utilize option pricing models. These valuation methodologies generally use the same inputs as described in the corresponding sections above for Level 2 measurements of derivatives. However, these derivatives result in Level 3 classification because one or more of the significant inputs are not observable in the market or cannot be derived principally from, or corroborated by, observable market data.
Interest rate contracts.
Non-option-based — Significant unobservable inputs may include the extrapolation beyond observable limits of the swap yield curve and LIBOR basis curves.
Option-based — Significant unobservable inputs may include the extrapolation beyond observable limits of the swap yield curve, LIBOR basis curves and interest rate volatility.
Foreign currency contracts.
Non-option-based — Significant unobservable inputs may include the extrapolation beyond observable limits of the swap yield curve, LIBOR basis curves and cross currency basis curves. Certain of these derivatives are valued based on independent non-binding broker quotations.
Credit contracts.
Non-option-based — Significant unobservable inputs may include credit correlation, repurchase rates, and the extrapolation beyond observable limits of the swap yield curve and credit curves. Certain of these derivatives are valued based on independent non-binding broker quotations.
Equity market contracts.
Non-option-based — Significant unobservable inputs may include the extrapolation beyond observable limits of dividend yield curves.
Option-based — Significant unobservable inputs may include the extrapolation beyond observable limits of dividend yield curves and equity volatility.
Direct and Assumed Guaranteed Minimum Benefits
These embedded derivatives are principally valued using an income approach. Valuations are based on option pricing techniques, which utilize significant inputs that may include swap yield curve, currency exchange rates and implied volatilities. These embedded derivatives result in Level 3 classification because one or more of the significant inputs are not observable in the market or cannot be derived principally from, or corroborated by, observable market data. Significant unobservable inputs generally include: the extrapolation beyond observable limits of the swap yield curve and implied volatilities, actuarial assumptions for policyholder behavior and mortality and the potential variability in policyholder behavior and mortality, nonperformance risk and cost of capital for purposes of calculating the risk margin.
Reinsurance Ceded on Certain Guaranteed Minimum Benefits
These embedded derivatives are principally valued using an income approach. The valuation techniques and significant market standard unobservable inputs used in their valuation are similar to those previously described for Direct and Assumed Guaranteed Minimum Benefits and also include counterparty credit spreads.
Embedded Derivatives Within Funds Withheld Related to Certain Ceded Reinsurance
These embedded derivatives are principally valued using an income approach. Valuations are based on present value techniques, which utilize significant inputs that may include the swap yield curve and the fair value of assets within the reference portfolio. These embedded derivatives result in Level 3 classification because one or more of the significant inputs are not observable in the market or cannot be derived principally from, or corroborated by, observable market data. Significant unobservable inputs generally include: the fair value of certain assets within the reference portfolio which are not observable in the market and cannot be derived principally from, or corroborated by, observable market data.
Separate Account Assets
These assets are comprised of investments that are similar in nature to the fixed maturity securities and equity securities referred to above. Separate account assets within this level also include other limited partnership interests. Other limited partnership interests are valued giving consideration to the value of the underlying holdings of the partnerships and by applying a premium or discount, if appropriate, for factors such as liquidity, bid/ask spreads, the performance record of the fund manager or other relevant variables which may impact the exit value of the particular partnership interest.
Transfers between Levels 1 and 2:
During the three months and six months ended June 30, 2011 and 2010, transfers between Levels 1 and 2 were not significant.
Transfers into or out of Level 3:
Overall, transfers into and/or out of Level 3 are attributable to a change in the observability of inputs. Assets and liabilities are transferred into Level 3 when a significant input cannot be corroborated with market observable data. This occurs when market activity decreases significantly and underlying inputs cannot be observed, current prices are not available, and/or when there are significant variances in quoted prices, thereby affecting transparency. Assets and liabilities are transferred out of Level 3 when circumstances change such that a significant input can be corroborated with market observable data. This may be due to a significant increase in market activity, a specific event, or one or more significant input(s) becoming observable. Transfers into and/or out of any level are assumed to occur at the beginning of the period. Significant transfers into and/or out of Level 3 assets and liabilities for the three months and six months ended June 30, 2011 and 2010 are summarized below.
Transfers into Level 3 resulted primarily from current market conditions characterized by a lack of trading activity, decreased liquidity and credit ratings downgrades (e.g., from investment grade to below investment grade) which have resulted in decreased transparency of valuations and an increased use of broker quotations and unobservable inputs to determine estimated fair value.
During both the three months and six months ended June 30, 2011, transfers into Level 3 for fixed maturity securities of $14 million were principally comprised of certain foreign corporate securities. During the three months and six months ended June 30, 2010, transfers into Level 3 for fixed maturity securities of $224 million and $256 million, respectively, were principally comprised of certain CMBS and U.S. and foreign corporate securities.
Transfers out of Level 3 resulted primarily from increased transparency of both new issuances that subsequent to issuance and establishment of trading activity, became priced by independent pricing services and existing issuances that, over time, the Company was able to obtain pricing from, or corroborate pricing received from, independent pricing services with observable inputs or increases in market activity and upgraded credit ratings. With respect to derivatives, transfers out of Level 3 resulted primarily from increased transparency related to the observable portion of the swap yield curve or the observable portion of the equity volatility surface.
During the three months and six months ended June 30, 2011, transfers out of Level 3 for fixed maturity securities of $344 million and $425 million, respectively, were principally comprised of certain ABS, U.S. and foreign corporate securities. During the three months and six months ended June 30, 2010, transfers out of Level 3 for fixed maturity securities of $99 million and $239 million, respectively, and transfers out of Level 3 for separate account assets of less than $1 million and $4 million, respectively, were principally comprised of certain U.S. and foreign corporate securities, ABS and CMBS.
The following tables summarize the change of all assets and (liabilities) measured at estimated fair value on a recurring basis using significant unobservable inputs (Level 3), including realized and unrealized gains (losses) of all assets and (liabilities) and realized and unrealized gains (losses) of all assets and (liabilities) still held at the end of the respective time periods:
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FVO — Consolidated Securitization Entities
The Company has elected the FVO for the following assets and liabilities held by CSEs: commercial mortgage loans and long-term debt. The following table presents these commercial mortgage loans carried under the FVO at:
The following table presents the long-term debt carried under the FVO related to commercial mortgage loans at:
Interest income on commercial mortgage loans held by CSEs is recorded in net investment income. Interest expense on long-term debt of CSEs is recorded in other expenses. Gains and losses from initial measurement, subsequent changes in estimated fair value and gains or losses on sales of both the commercial mortgage loans and long-term debt are recognized in net investment gains (losses), which is summarized in Note 2. Non-Recurring Fair Value Measurements
Certain investments are measured at estimated fair value on a non-recurring basis and are not included in the tables presented above. The amounts below relate to certain investments measured at estimated fair value during the period and still held at the reporting dates.
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Fair Value of Financial Instruments
Amounts related to the Company's financial instruments that were not measured at fair value on a recurring basis were as follows:
____________
The methods and assumptions used to estimate the fair value of financial instruments are summarized as follows:
The assets and liabilities measured at estimated fair value on a recurring basis include: fixed maturity securities, equity securities, other securities, certain short-term investments, mortgage loans held by CSEs, derivative assets and liabilities, net embedded derivatives within asset and liability host contracts, separate account assets and long-term debt of CSEs. These assets and liabilities are described in the section “— Recurring Fair Value Measurements” and, therefore, are excluded from the table above. The estimated fair value for these financial instruments approximates carrying value. Mortgage Loans
The Company originates mortgage loans principally for investment purposes. These loans are principally carried at amortized cost. The estimated fair value of mortgage loans is primarily determined by estimating expected future cash flows and discounting them using current interest rates for similar mortgage loans with similar credit risk.
Policy Loans
For policy loans with fixed interest rates, estimated fair values are determined using a discounted cash flow model applied to groups of similar policy loans determined by the nature of the underlying insurance liabilities. Cash flow estimates are developed applying a weighted-average interest rate to the outstanding principal balance of the respective group of policy loans and an estimated average maturity determined through experience studies of the past performance of policyholder repayment behavior for similar loans. These cash flows are discounted using current risk-free interest rates with no adjustment for borrower credit risk as these loans are fully collateralized by the cash surrender value of the underlying insurance policy. The estimated fair value for policy loans with variable interest rates approximates carrying value due to the absence of borrower credit risk and the short time period between interest rate resets, which presents minimal risk of a material change in estimated fair value due to changes in market interest rates.
Real Estate Joint Ventures and Other Limited Partnership Interests
Real estate joint ventures and other limited partnership interests included in the preceding table consist of those investments accounted for using the cost method. The remaining carrying value recognized in the consolidated balance sheets represents investments in real estate carried at cost less accumulated depreciation, or real estate joint ventures and other limited partnership interests accounted for using the equity method, which do not meet the definition of financial instruments for which fair value is required to be disclosed.
The estimated fair values for real estate joint ventures and other limited partnership interests accounted for under the cost method are generally based on the Company's share of the NAV as provided in the financial statements of the investees. In certain circumstances, management may adjust the NAV by a premium or discount when it has sufficient evidence to support applying such adjustments.
Short-term Investments
Certain short-term investments do not qualify as securities and are recognized at amortized cost in the consolidated balance sheets. For these instruments, the Company believes that there is minimal risk of material changes in interest rates or credit of the issuer such that estimated fair value approximates carrying value. In light of recent market conditions, short-term investments have been monitored to ensure there is sufficient demand and maintenance of issuer credit quality and the Company has determined additional adjustment is not required.
Cash and Cash Equivalents
Due to the short-term maturities of cash and cash equivalents, the Company believes there is minimal risk of material changes in interest rates or credit of the issuer such that estimated fair value generally approximates carrying value. In light of recent market conditions, cash and cash equivalent instruments have been monitored to ensure there is sufficient demand and maintenance of issuer credit quality, or sufficient solvency in the case of depository institutions, and the Company has determined additional adjustment is not required.
Accrued Investment Income
Due to the short term until settlement of accrued investment income, the Company believes there is minimal risk of material changes in interest rates or credit of the issuer such that estimated fair value approximates carrying value. In light of recent market conditions, the Company has monitored the credit quality of the issuers and has determined additional adjustment is not required. Premiums, Reinsurance and Other Receivables
Premiums, reinsurance and other receivables in the preceding table are principally comprised of certain amounts recoverable under reinsurance contracts, amounts on deposit with financial institutions to facilitate daily settlements related to certain derivative positions and amounts receivable for securities sold but not yet settled.
Premiums receivable and those amounts recoverable under reinsurance treaties determined to transfer sufficient risk are not financial instruments subject to disclosure and thus have been excluded from the amounts presented in the preceding table. Amounts recoverable under ceded reinsurance contracts, which the Company has determined do not transfer sufficient risk such that they are accounted for using the deposit method of accounting, have been included in the preceding table. The estimated fair value is determined as the present value of expected future cash flows under the related contracts, which were discounted using an interest rate determined to reflect the appropriate credit standing of the assuming counterparty.
The amounts on deposit for derivative settlements essentially represent the equivalent of demand deposit balances and amounts due for securities sold are generally received over short periods such that the estimated fair value approximates carrying value. In light of recent market conditions, the Company has monitored the solvency position of the financial institutions and has determined additional adjustments are not required.
Policyholder Account Balances
Policyholder account balances in the table above include investment contracts. Embedded derivatives on investment contracts and certain variable annuity guarantees accounted for as embedded derivatives are included in this caption in the consolidated financial statements but excluded from this caption in the table above as they are separately presented in “— Recurring Fair Value Measurements.” The remaining difference between the amounts reflected as policyholder account balances in the preceding table and those recognized in the consolidated balance sheets represents those amounts due under contracts that satisfy the definition of insurance contracts and are not considered financial instruments.
The investment contracts primarily include certain funding agreements, fixed deferred annuities, modified guaranteed annuities, fixed term payout annuities and total control accounts. The fair values for these investment contracts are estimated by discounting best estimate future cash flows using current market risk-free interest rates and adding a spread to reflect the nonperformance risk in the liability.
Payables for Collateral Under Securities Loaned and Other Transactions
The estimated fair value for payables for collateral under securities loaned and other transactions approximates carrying value. The related agreements to loan securities are short-term in nature such that the Company believes there is limited risk of a material change in market interest rates. Additionally, because borrowers are cross-collateralized by the borrowed securities, the Company believes no additional consideration for changes in nonperformance risk are necessary.
Long-term Debt
The estimated fair value of long-term debt is generally determined by discounting expected future cash flows using market rates currently available for debt with similar remaining maturities and reflecting the credit risk of the Company, including inputs when available, from actively traded debt of other companies with similar types of borrowing arrangements. Risk-adjusted discount rates applied to the expected future cash flows can vary significantly based upon the specific terms of each individual arrangement, including, but not limited to: contractual interest rates in relation to current market rates; the structuring of the arrangement; and the nature and observability of the applicable valuation inputs. Use of different risk-adjusted discount rates could result in different estimated fair values.
Other Liabilities
Other liabilities included in the table above reflect those other liabilities that satisfy the definition of financial instruments subject to disclosure. These items consist primarily of interest payable; amounts due for securities purchased but not yet settled; and funds withheld under reinsurance treaties accounted for as deposit type treaties. The Company evaluates the specific terms, facts and circumstances of each instrument to determine the appropriate estimated fair values, which were not materially different from the carrying values.
Separate Account Liabilities
Separate account liabilities included in the preceding table represents those balances due to policyholders under contracts that are classified as investment contracts. The remaining amounts presented in the consolidated balance sheets represent those contracts classified as insurance contracts, which do not satisfy the definition of financial instruments.
Separate account liabilities classified as investment contracts primarily represent variable annuities with no significant mortality risk to the Company such that the death benefit is equal to the account balance and certain contracts that provide for benefit funding.
Separate account liabilities are recognized in the consolidated balance sheets at an equivalent value of the related separate account assets. Separate account assets, which equal net deposits, net investment income and realized and unrealized investment gains and losses, are fully offset by corresponding amounts credited to the contractholders' liability which is reflected in separate account liabilities. Since separate account liabilities are fully funded by cash flows from the separate account assets which are recognized at estimated fair value as described in the section “— Recurring Fair Value Measurements,” the Company believes the value of those assets approximates the estimated fair value of the related separate account liabilities.
Mortgage Loan Commitments and Commitments to Fund Bank Credit Facilities and Private Corporate Bond Investments
The estimated fair values for mortgage loan commitments that will be held for investment and commitments to fund bank credit facilities and private corporate bonds that will be held for investment reflected in the above table represents the difference between the discounted expected future cash flows using interest rates that incorporate current credit risk for similar instruments on the reporting date and the principal amounts of the commitments. |
Contingencies, Commitments and Guarantees
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6 Months Ended |
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Jun. 30, 2011
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Contingencies, Commitments And Guarantees [Abstract] | Â |
Contingencies, Commitments and Guarantees | 5. Contingencies, Commitments and Guarantees
Contingencies
Litigation
The Company is a defendant in a number of litigation matters. In some of the matters, large and/or indeterminate amounts, including punitive and treble damages, are sought. Modern pleading practice in the U.S. permits considerable variation in the assertion of monetary damages or other relief. Jurisdictions may permit claimants not to specify the monetary damages sought or may permit claimants to state only that the amount sought is sufficient to invoke the jurisdiction of the trial court. In addition, jurisdictions may permit plaintiffs to allege monetary damages in amounts well exceeding reasonably possible verdicts in the jurisdiction for similar matters. This variability in pleadings, together with the actual experience of the Company in litigating or resolving through settlement numerous claims over an extended period of time, demonstrates to management that the monetary relief which may be specified in a lawsuit or claim bears little relevance to its merits or disposition value.
Due to the vagaries of litigation, the outcome of a litigation matter and the amount or range of potential loss at particular points in time may normally be difficult to ascertain. Uncertainties can include how fact finders will evaluate documentary evidence and the credibility and effectiveness of witness testimony, and how trial and appellate courts will apply the law in the context of the pleadings or evidence presented, whether by motion practice, or at trial or on appeal. Disposition valuations are also subject to the uncertainty of how opposing parties and their counsel will themselves view the relevant evidence and applicable law.
The Company establishes liabilities for litigation and regulatory loss contingencies when it is probable that a loss has been incurred and the amount of the loss can be reasonably estimated. Liabilities have been established for some of the matters below. It is possible that some of the matters could require the Company to pay damages or make other expenditures or establish accruals in amounts that could not be estimated at June 30, 2011. Matters as to Which an Estimate Can Be Made
For some of the matters discussed below, the Company is able to estimate a reasonably possible range of loss. For such matters where a loss is believed to be reasonably possible, but not probable, no accrual has been made. As of June 30, 2011, the Company estimates the aggregate range of reasonably possible losses in excess of amounts accrued for these matters is not material for the Company.
Matters as to Which an Estimate Cannot Be Made
For other matters disclosed below, the Company is not currently able to estimate the reasonably possible loss or range of loss. The Company is often unable to estimate the possible loss or range of loss until developments in such matters have provided sufficient information to support an assessment of the range of possible loss, such as quantification of a damage demand from plaintiffs, discovery from other parties and investigation of factual allegations, rulings by the court on motions or appeals, analysis by experts, and the progress of settlement negotiations. On a quarterly and annual basis, the Company reviews relevant information with respect to litigation contingencies and updates its accruals, disclosures and estimates of reasonably possible losses or ranges of loss based on such reviews.
Sales Practices Claims
Over the past several years, the Company has faced claims, including class action lawsuits, alleging improper marketing or sales of individual life insurance policies, annuities, mutual funds or other products. Some of the current cases seek substantial damages, including punitive and treble damages and attorneys' fees. The Company continues to vigorously defend against the claims in all pending matters. The Company believes adequate provision has been made in its financial statements for all probable and reasonably estimable losses for sales practices matters.
Connecticut General Life Insurance Company and MetLife Insurance Company of Connecticut are engaged in an arbitration proceeding to determine whether MetLife Insurance Company of Connecticut is owed money from Connecticut General Life Insurance Company or is required to refund several million dollars it collected and/or should stop submitting certain claims under reinsurance contracts in which Connecticut General Life Insurance Company reinsured death benefits payable under certain MetLife Insurance Company of Connecticut annuities.
A former Tower Square financial services representative is alleged to have misappropriated funds from customers. The Illinois Securities Division, the U.S. Postal Inspector, the Internal Revenue Service, FINRA and the U.S. Attorney's Office have conducted inquiries. Tower Square has made remediation to all the affected customers. The Illinois Securities Division has issued a Statement of Violations to Tower Square, and Tower Square is conducting discussions with the Illinois Securities Division.
Unclaimed Property Inquiries
More than 30 U.S. jurisdictions are auditing MetLife Insurance Company of Connecticut and certain of its affiliates for compliance with unclaimed property laws. Additionally, MetLife Insurance Company of Connecticut and certain of its affiliates have received subpoenas and other regulatory inquiries from certain regulators and other officials relating to claims-payment practices and compliance with unclaimed property laws. On July 5, 2011, the New York Insurance Department issued a letter requiring life insurers doing business in New York to use data available on the U.S. Social Security Administration's Death Master File or a similar database to identify instances where death benefits under life insurance policies, annuities, and retained asset accounts are payable, to locate and pay beneficiaries under such contracts, and to report the results of the use of the data. It is possible that other jurisdictions may pursue similar investigations or inquiries, or issue directives similar to the New York Insurance Department's letter. It is possible that the audits and related activity may result in additional payments to beneficiaries, additional escheatment of funds deemed abandoned under state laws, administrative penalties, and changes to the Company's procedures for the identification and escheatment of abandoned property. The Company is not currently able to estimate the reasonably possible amount of any such additional payments or the reasonably possible cost of any such changes in procedures, but it is possible that such costs may be substantial.
Summary
Various litigation, claims and assessments against the Company, in addition to those discussed previously and those otherwise provided for in the Company's consolidated financial statements, have arisen in the course of the Company's business, including, but not limited to, in connection with its activities as an insurer, employer, investor, investment advisor and taxpayer. Further, state insurance regulatory authorities and other federal and state authorities regularly make inquiries and conduct investigations concerning the Company's compliance with applicable insurance and other laws and regulations.
It is not possible to predict the ultimate outcome of all pending investigations and legal proceedings. In some of the matters referred to previously, large and/or indeterminate amounts, including punitive and treble damages, are sought. Although in light of these considerations it is possible that an adverse outcome in certain cases could have a material adverse effect upon the Company's financial position, based on information currently known by the Company's management, in its opinion, the outcomes of such pending investigations and legal proceedings are not likely to have such an effect. However, given the large and/or indeterminate amounts sought in certain of these matters and the inherent unpredictability of litigation, it is possible that an adverse outcome in certain matters could, from time to time, have a material adverse effect on the Company's consolidated net income or cash flows in particular quarterly or annual periods. Commitments
Commitments to Fund Partnership Investments
The Company makes commitments to fund partnership investments in the normal course of business. The amounts of these unfunded commitments were $1.2 billion at both June 30, 2011 and December 31, 2010. The Company anticipates that these amounts will be invested in partnerships over the next five years. Mortgage Loan Commitments
The Company commits to lend funds under mortgage loan commitments. The amounts of these mortgage loan commitments were $255 million and $270 million at June 30, 2011 and December 31, 2010, respectively. Commitments to Fund Bank Credit Facilities and Private Corporate Bond Investments
The Company commits to lend funds under bank credit facilities and private corporate bond investments. The amounts of these unfunded commitments were $234 million and $315 million at June 30, 2011 and December 31, 2010, respectively. Other Commitments
The Company has entered into collateral arrangements with affiliates, which require the transfer of collateral in connection with secured demand notes. At June 30, 2011 and December 31, 2010, the Company had agreed to fund up to $90 million and $114 million, respectively, of cash upon the request by these affiliates and had transferred collateral consisting of various securities with a fair market value of $105 million and $144 million, respectively, to custody accounts to secure the notes. Each of these affiliates is permitted by contract to sell or repledge this collateral. Guarantees
The Company has provided a guarantee on behalf of MetLife International Insurance Company, Ltd. (“MLII”), a former affiliate, that is triggered if MLII cannot pay claims because of insolvency, liquidation or rehabilitation. Life insurance coverage in-force, representing the maximum potential obligation under this guarantee, was $297 million at both June 30, 2011 and December 31, 2010. The Company does not hold any collateral related to this guarantee, but has a recorded liability of $1 million that was based on the total account value of the guaranteed policies plus the amounts retained per policy at both June 30, 2011 and December 31, 2010. The remainder of the risk was ceded to external reinsurers. |
Business, Basis of Presentation and Summary of Significant Accounting Policies
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Jun. 30, 2011
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Business, Basis of Presentation and Summary of Significant Accounting Policies [Abstract] | Â |
Business, Basis of Presentation and Summary of Significant Accounting Policies | 1. Business, Basis of Presentation and Summary of Significant Accounting Policies
Business
“MICC” or the “Company” refers to MetLife Insurance Company of Connecticut, a Connecticut corporation incorporated in 1863, and its subsidiaries, including MetLife Investors USA Insurance Company (“MLI-USA”). MetLife Insurance Company of Connecticut is a subsidiary of MetLife, Inc. (“MetLife”). The Company offers individual annuities, individual life insurance, and institutional protection and asset accumulation products.
Basis of Presentation
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to adopt accounting policies and make estimates and assumptions that affect amounts reported in the interim condensed consolidated financial statements.
In applying the Company's accounting policies, management makes subjective and complex judgments that frequently require estimates about matters that are inherently uncertain. Many of these policies, estimates and related judgments are common in the insurance and financial services industries; others are specific to the Company's businesses and operations. Actual results could differ from these estimates.
The accompanying interim condensed consolidated financial statements include the accounts of MetLife Insurance Company of Connecticut and its subsidiaries, as well as partnerships and joint ventures in which the Company has control, and variable interest entities (“VIEs”) for which the Company is the primary beneficiary. Intercompany accounts and transactions have been eliminated.
The Company uses the equity method of accounting for investments in equity securities in which it has a significant influence or more than a 20% interest and for real estate joint ventures and other limited partnership interests in which it has more than a minor equity interest or more than a minor influence over the joint venture's or partnership's operations, but does not have a controlling interest and is not the primary beneficiary. The Company uses the cost method of accounting for investments in real estate joint ventures and other limited partnership interests in which it has a minor equity investment and virtually no influence over the joint venture's or the partnership's operations.
Certain amounts in the prior year periods' interim condensed consolidated financial statements have been reclassified to conform with the 2011 presentation. Such reclassifications include:
• Reclassification from other net investment gains (losses) of $563 million and $255 million to net derivative gains (losses) in the interim condensed consolidated statements of operations for the three months and six months ended June 30, 2010, respectively;
• Reclassifications related to operating revenues and expenses that affected results of operations on a segment and consolidated basis. See Note 8.
Since the Company is a member of a controlled group of affiliated companies, its results may not be indicative of those of a stand-alone entity.
The accompanying interim condensed consolidated financial statements reflect all adjustments (including normal recurring adjustments) necessary to present fairly the consolidated financial position of the Company at June 30, 2011, its consolidated results of operations for the three months and six months ended June 30, 2011 and 2010, its consolidated statements of stockholders' equity for the six months ended June 30, 2011 and 2010, and its consolidated statements of cash flows for the six months ended June 30, 2011 and 2010, in conformity with GAAP. Interim results are not necessarily indicative of full year performance. The December 31, 2010 consolidated balance sheet data was derived from audited consolidated financial statements included in MetLife Insurance Company of Connecticut's Annual Report on Form 10-K for the year ended December 31, 2010 (the “2010 Annual Report”), filed with the U.S. Securities and Exchange Commission, which include all disclosures required by GAAP. Therefore, these interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements of the Company included in the 2010 Annual Report.
Adoption of New Accounting Pronouncements
Effective January 1, 2011, the Company adopted new guidance that addresses when a business combination should be assumed to have occurred for the purpose of providing pro forma disclosure. Under the new guidance, if an entity presents comparative financial statements, the entity should disclose revenue and earnings of the combined entity as though the business combination that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period. The guidance also expands the supplemental pro forma disclosures to include additional narratives. The adoption did not have an impact on the Company's consolidated financial statements.
Effective January 1, 2011, the Company adopted new guidance regarding goodwill impairment testing. This guidance modifies Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts. For those reporting units, an entity would be required to perform Step 2 of the test if qualitative factors indicate that it is more likely than not that goodwill impairment exists. The adoption did not have an impact on the Company's consolidated financial statements.
Effective January 1, 2011, the Company adopted new guidance regarding accounting for investment funds determined to be VIEs. Under this guidance, an insurance entity would not be required to consolidate a voting-interest investment fund when it holds the majority of the voting interests of the fund through its separate accounts. In addition, an insurance entity would not consider the interests held through separate accounts for the benefit of policyholders in the insurer's evaluation of its economics in a VIE, unless the separate account contractholder is a related party. The adoption did not have a material impact on the Company's consolidated financial statements.
Future Adoption of New Accounting Pronouncements
In June 2011, the Financial Accounting Standards Board (“FASB”) issued new guidance regarding comprehensive income (Accounting Standards Update (“ASU”) 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income), effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. The guidance should be applied retrospectively and early adoption is permitted. The new guidance provides companies with the option to present the total of comprehensive income, components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The objective of the standard is to increase the prominence of items reported in other comprehensive income and to facilitate convergence of GAAP and International Financial Reporting Standards (“IFRS”). The standard eliminates the option to present components of other comprehensive income as part of the statement of changes in stockholders' equity. The Company is currently evaluating the impact of this guidance on its consolidated financial statements.
In May 2011, the FASB issued new guidance regarding fair value measurement (ASU 2011- 04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs), effective for the first interim or annual period beginning after December 15, 2011. The guidance should be applied prospectively. The amendments in this ASU are intended to establish common requirements for measuring fair value and for disclosing information about fair value measurements in accordance with GAAP and IFRS. Some of the amendments clarify the FASB's intent on the application of existing fair value measurement requirements. Other amendments change a particular principle or requirement for measuring fair value or for disclosing information about fair value measurements. The Company is currently evaluating the impact of this guidance on its consolidated financial statements.
In April 2011, the FASB issued new guidance regarding effective control in repurchase agreements (ASU 2011-03, Transfers and Servicing (Topic 860): Reconsideration of Effective Control for Repurchase Agreements), effective for the first interim or annual period beginning on or after December 15, 2011. The guidance should be applied prospectively to transactions or modifications of existing transactions that occur on or after the effective date. The amendments in this ASU remove from the assessment of effective control the criterion requiring the transferor to have the ability to repurchase or redeem the financial assets. The Company is currently evaluating the impact of this guidance on its consolidated financial statements.
In April 2011, the FASB issued new guidance regarding accounting for troubled debt restructuring (ASU 2011-02, Receivables (Topic 310): A Creditor's Determination of Whether a Restructuring Is a Troubled Debt Restructuring), effective for the first interim or annual period beginning on or after June 15, 2011 and which should be applied retrospectively to the beginning of the annual period of adoption. This guidance clarifies whether a creditor has granted a concession and whether a debtor is experiencing financial difficulties for the purpose of determining when a restructuring constitutes a troubled debt restructuring. The Company does not expect the adoption of this guidance to have a material impact on its consolidated financial statements and related disclosures.
In October 2010, the FASB issued new guidance regarding accounting for deferred acquisition costs (ASU 2010-26, Financial Services— Insurance (Topic 944): Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts) effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2011. The guidance should be applied prospectively upon adoption. Retrospective application to all prior periods presented upon the date of adoption also is permitted, but not required. This guidance clarifies the costs that should be deferred by insurance entities when issuing and renewing insurance contracts. The guidance also specifies that only costs related directly to successful acquisition of new or renewal contracts can be capitalized. All other acquisition-related costs should be expensed as incurred. The Company is currently evaluating the impact of this guidance on its consolidated financial statements and related disclosures.
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