Financing Receivables

6 Months Ended

Jun. 30, 2011

Financing Receivables

Financing Receivables

5.  Financing Receivables

The Company’s financing receivables include commercial mortgage loans, syndicated loans, consumer bank loans, policy loans and margin loans. The Company does not hold any loans acquired with deteriorated credit quality. Commercial mortgage loans, syndicated loans and policy loans are reflected in investments. Consumer bank loans and margin loans are reflected in receivables. Policy loans do not exceed the cash surrender value of the policy at origination. As there is minimal risk of loss related to policy loans, the Company does not record an allowance for loan losses for policy loans. The Company monitors collateral supporting margin loans and requests additional collateral when necessary in order to mitigate the risk of loss. As there is minimal risk of loss related to margin loans, the allowance for loan losses is immaterial.

Allowance for Loan Losses

The following tables present a rollforward of the allowance for loan losses for the six months ended and the ending balance of the allowance for loan losses by impairment method and type of loan:

	June 30, 2011
	Commercial						Consumer
	Mortgage			Syndicated			Bank
	Loans			Loans			Loans			Total
	(in millions)
Beginning balance	$	38		$	10		$	16		$	64
Charge-offs	(2		)	—			(6		)	(8		)
Provisions	—			(1		)	7			6
Ending balance	$	36		$	9		$	17		$	62
Ending balance: Individually evaluated for impairment	$	10		$	1		$	2		$	13
Ending balance: Collectively evaluated for impairment	26			8			15			49

	June 30, 2010
	Commercial						Consumer
	Mortgage			Syndicated			Bank
	Loans			Loans			Loans			Total
	(in millions)
Beginning balance	$	32		$	26		$	13		$	71
Charge-offs	(1		)	(2		)	(5		)	(8		)
Provisions	8			(10		)	8			6
Ending balance	$	39		$	14		$	16		$	69
Ending balance: Individually evaluated for impairment	$	7		$	1		$	2		$	10
Ending balance: Collectively evaluated for impairment	32			13			14			59

The recorded investment in financing receivables by impairment method and type of loan was as follows:

	June 30, 2011
	Commercial				Consumer
	Mortgage		Syndicated		Bank
	Loans		Loans		Loans		Total
	(in millions)
Ending balance: Individually evaluated for impairment	$	76	$	2	$	12	$	90
Ending balance: Collectively evaluated for impairment	2,484		332		1,243		4,059
Ending balance	$	2,560	$	334	$	1,255	$	4,149

	December 31, 2010
	Commercial				Consumer
	Mortgage		Syndicated		Bank
	Loans		Loans		Loans		Total
	(in millions)
Ending balance: Individually evaluated for impairment	$	75	$	1	$	12	$	88
Ending balance: Collectively evaluated for impairment	2,540		310		1,054		3,904
Ending balance	$	2,615	$	311	$	1,066	$	3,992

As of June 30, 2011 and December 31, 2010, the Company’s recorded investment in financing receivables individually evaluated for impairment for which there was no related allowance for loan losses was $16 million and $19 million, respectively. Unearned income, unamortized premiums and discounts, and net unamortized deferred fees and costs are not material to the Company’s total loan balance. During the three months and six months ended June 30, 2011, the Company purchased $108 million and $221 million, respectively, and sold $46 million and $140 million, respectively, of consumer bank loans. During the three months and six months ended June 30, 2010, the Company purchased $92 million and $149 million, respectively, and sold $82 million and $185 million, respectively, of consumer bank loans. During the three months and six months ended June 30, 2011, the Company purchased $40 million and $103 million, respectively, and sold $1 million and $2 million, respectively, of syndicated loans. During the three months and six months ended June 30, 2010, the Company purchased $6 million and sold $18 million and $22 million, respectively, of syndicated loans.

Credit Quality Information

Nonperforming loans, which are generally loans 90 days or more past due, were $8 million and $15 million as of June 30, 2011 and December 31, 2010, respectively. All other loans were considered to be performing.

Commercial Mortgage Loans

The Company reviews the credit worthiness of the borrower and the performance of the underlying properties in order to determine the risk of loss on commercial mortgage loans. Based on this review, the commercial mortgage loans are assigned an internal risk rating, which management updates as necessary. Commercial mortgage loans which management has assigned its highest risk rating were 3% of commercial mortgage loans as of both June 30, 2011 and December 31, 2010. Loans with the highest risk rating represent distressed loans which the Company has identified as impaired or expects to become delinquent or enter into foreclosure in the next six months. In addition, the Company reviews the concentrations of credit risk by region and property type.

Concentrations of credit risk of commercial mortgage loans by U.S. region were as follows:

	Loans				Percentage
	June 30, 2011		December 31, 2010		June 30, 2011		December 31, 2010
	(in millions)
East North Central	$	232	$	242	9	%	9	%
East South Central	63		66		2		3
Middle Atlantic	219		215		9		8
Mountain	288		301		11		11
New England	143		156		6		6
Pacific	559		541		22		21
South Atlantic	619		625		24		24
West North Central	258		271		10		10
West South Central	179		198		7		8
	2,560		2,615		100	%	100	%
Less: allowance for loan losses	36		38
Total	$	2,524	$	2,577

Concentrations of credit risk of commercial mortgage loans by property type were as follows:

	Loans				Percentage
	June 30, 2011		December 31, 2010		June 30, 2011		December 31, 2010
	(in millions)
Apartments	$	347	$	351	13	%	13	%
Hotel	55		57		2		2
Industrial	476		475		19		18
Mixed Use	41		43		2		2
Office	700		747		27		29
Retail	837		843		33		32
Other	104		99		4		4
	2,560		2,615		100	%	100	%
Less: allowance for loan losses	36		38
Total	$	2,524	$	2,577

Syndicated Loans

The Company’s syndicated loan portfolio is diversified across industries and issuers. The primary credit indicator for syndicated loans is whether the loans are performing in accordance with the contractual terms of the syndication. Total nonperforming syndicated loans at June 30, 2011 and December 31, 2010 were $2 million and $3 million, respectively.

Consumer Bank Loans

The Company considers the credit worthiness of borrowers (FICO score), collateral characteristics such as loan-to-value (“LTV”) and geographic concentration in determining the allowance for loan losses for residential mortgage loans, credit cards and other consumer bank loans. At a minimum, management updates FICO scores and LTV ratios semiannually.

As of June 30, 2011 and December 31, 2010, approximately 5% and 7%, respectively, of residential mortgage loans and credit cards and other consumer bank loans had FICO scores below 640. At June 30, 2011 and December 31, 2010, approximately 2% and 3%, respectively, of the Company’s residential mortgage loans had LTV ratios greater than 90%. The Company’s most significant geographic concentration for the consumer bank loans is in California representing 37% and 33% of the portfolio as of June 30, 2011 and December 31, 2010, respectively. No other state represents more than 10% of the total consumer bank loan portfolio.