Policyholder Account Balances, Future Policy Benefits and Claims and Separate Account Liabilities

Policyholder account balances, future policy benefits and claims consisted of the following:



	December 31,
	2015		2014
	(in millions)
Policyholder account balances
Fixed annuities	$	11,239	$	12,700
Variable annuity fixed sub-accounts	4,912		4,860
VUL/UL insurance	2,897		2,856
IUL insurance	808		534
Other life insurance	794		840
Total policyholder account balances	20,650		21,790

Future policy benefits
Variable annuity GMWB	1,057		693
Variable annuity GMAB	—		(41		)	⁽¹⁾
Other annuity liabilities	31		115
Fixed annuities life contingent liabilities	1,501		1,511
EIA	27		29
Life, DI and LTC insurance	5,112		5,106
VUL/UL and other life insurance additional liabilities	452		437
Total future policy benefits	8,180		7,850
Policy claims and other policyholders’ funds	869		710
Total policyholder account balances, future policy benefits and claims	$	29,699	$	30,350

⁽¹⁾ Includes the fair value of GMAB embedded derivatives that was a net asset at December 31, 2014 reported as a contra liability.

Fixed Annuities

Fixed annuities include both deferred and payout contracts. Deferred contracts offer a guaranteed minimum rate of interest and security of the principal invested. Payout contracts guarantee a fixed income payment for life or the term of the contract. The Company generally invests the proceeds from the annuity contracts in fixed rate securities.

The Company’s EIA product is a single premium deferred fixed annuity. The contract is issued with an initial term of seven years and interest earnings are linked to the performance of the S&P 500 Index^®. This annuity has a minimum interest rate guarantee of 3% on 90% of the initial premium, adjusted for any surrenders. The Company generally invests the proceeds from the annuity contracts in fixed rate securities and hedges the equity risk with derivative instruments. See Note 16 for additional information regarding the Company’s derivative instruments used to hedge the risk related to EIA. In 2007, the Company discontinued new sales of EIA.

Variable Annuities

Purchasers of variable annuities can select from a variety of investment options and can elect to allocate a portion to a fixed account. A vast majority of the premiums received for variable annuity contracts are held in separate accounts where the assets are held for the exclusive benefit of those contractholders.

Most of the variable annuity contracts currently issued by the Company contain one or more guaranteed benefits, including GMWB, GMAB, GMDB and GGU provisions. The Company previously offered contracts with GMIB provisions. See Note 2 and Note 11 for additional information regarding the Company’s variable annuity guarantees. The Company does not currently hedge its risk under the GGU and GMIB provisions. See Note 14 and Note 16 for additional information regarding the Company’s derivative instruments used to hedge risks related to GMWB, GMAB and GMDB provisions.

Insurance Liabilities

VUL/UL is the largest group of insurance policies written by the Company. Purchasers of VUL can select from a variety of investment options and can elect to allocate a portion to a fixed account or a separate account. A vast majority of the premiums received for VUL policies are held in separate accounts where the assets are held for the exclusive benefit of those policyholders.

IUL insurance is similar to UL in many regards, although the rate of credited interest above the minimum guarantee for funds allocated to an indexed account is linked to the performance of the specific index for the indexed account (subject to a cap and floor). The Company offers an S&P 500 Index account option and a blended multi-index account option comprised of the S&P 500 Index, the MSCI® EAFE Index and MSCI EM Index. Both options offer two crediting durations, one-year and two-year. The policyholder may allocate all or a portion of the policy value to a fixed or any available indexed account.

The Company also offers term life insurance as well as disability products. The Company no longer offers standalone LTC products and whole life insurance but has in force policies from prior years.

Insurance liabilities include accumulation values, incurred but not reported claims, obligations for anticipated future claims, unpaid reported claims and claim adjustment expenses.

The balance of insurance liabilities related to unpaid reported claims and claim adjustment expenses for auto and home was $640 million and $518 million as of December 31, 2015 and 2014, respectively. The balance of insurance liabilities related to unpaid reported claims and claim adjustment expenses for life, DI and LTC policies was $1.1 billion and $1.0 billion as of December 31, 2015 and 2014, respectively.

The change in the liability for prior year incurred unpaid reported claims and claim adjustment expenses related to auto and home, life, DI and LTC policies was a decrease of $2 million, an increase of $9 million and an increase of $2 million for the years 2015, 2014 and 2013, respectively.

•

In 2015, there was a $60 million decrease primarily reflecting favorable closed claim trends of DI and LTC policies and from an update to assumptions related to life rider benefits partially offset by an increase of $58 million related to elevated frequency and severity experience for auto injury claims for 2014 and prior accident years as well as a more gradual than anticipated improvement of 2014 and prior years existing claims and unfavorable prior year catastrophe reserve development associated with 2014 hail storms.


•	In 2014, there was a $42 million decrease related to favorable closed claim trends primarily related to DI and LTC policies more than offset by a $54 million increase primarily reflecting adverse development in the 2013 and prior accident years auto liability coverage.


•	In 2013, there was a $38 million decrease related to favorable closed claim trends primarily related to DI and LTC policies more than offset by a $42 million increase reflecting the unfavorable prior year reserve development for 2009 through 2012 auto liability claims and prior year catastrophe reserve development related to Superstorm Sandy.

Portions of the Company’s fixed and variable universal life policies have product features that result in profits followed by losses from the insurance component of the policy. These profits followed by losses can be generated by the cost structure of the product or secondary guarantees in the policy. The secondary guarantee ensures that, subject to specified conditions, the policy will not terminate and will continue to provide a death benefit even if there is insufficient policy value to cover the monthly deductions and charges.

Threadneedle Investment Liabilities

Threadneedle provides a range of unitized pooled pension funds, which invest in property, stocks, bonds and cash. The investments are selected by the clients and are based on the level of risk they are willing to assume. All investment performance, net of fees, is passed through to the investors. The value of the liabilities represents the fair value of the pooled pension funds.

Separate Account Liabilities

Separate account liabilities consisted of the following:



	December 31,
	2015		2014
	(in millions)
Variable annuity	$	69,333	$	72,125
VUL insurance	6,637		7,016
Other insurance	34		37
Threadneedle investment liabilities	4,345		4,078
Total	$	80,349	$	83,256