Fair Values of Assets and Liabilities (Tables)

6 Months Ended

Jun. 30, 2012

Fair Values of Assets and Liabilities

Schedule of assets and liabilities measured at fair value on a recurring basis

	June 30, 2012
	Level 1		Level 2		Level 3		Total
	(in millions)
Assets
Cash equivalents	$	17	$	2,335	$	—	$	2,352
Available-for-Sale securities:
Corporate debt securities	—		16,940		1,485		18,425
Residential mortgage backed securities	—		7,012		222		7,234
Commercial mortgage backed securities	—		4,373		69		4,442
Asset backed securities	—		1,814		201		2,015
State and municipal obligations	—		2,172		—		2,172
U.S. government and agencies obligations	22		46		—		68
Foreign government bonds and obligations	—		216		—		216
Common stocks	2		3		5		10
Other debt obligations	—		8		—		8
Total Available-for-Sale securities	24		32,584		1,982		34,590
Trading securities	1		22		—		23
Separate account assets	—		69,303		—		69,303
Investments segregated for regulatory purposes	—		75		—		75
Other assets:
Interest rate derivative contracts	—		2,417		—		2,417
Equity derivative contracts	387		1,207		—		1,594
Foreign currency derivative contracts	—		2		—		2
Commodity derivative contracts	—		1		—		1
Total other assets	387		3,627		—		4,014
Total assets at fair value	$	429	$	107,946	$	1,982	$	110,357
Liabilities
Future policy benefits and claims:
EIA embedded derivatives	$	—	$	2	$	—	$	2
IUL embedded derivatives	—		22		—		22
GMWB and GMAB embedded derivatives	—		—		1,406		1,406
Total future policy benefits and claims	—		24		1,406		1,430		(1)
Customer deposits	—		8		—		8
Other liabilities:
Interest rate derivative contracts	—		1,589		—		1,589
Equity derivative contracts	286		1,330		—		1,616
Foreign currency derivative contracts	4		3		—		7
Other	—		9		—		9
Total other liabilities	290		2,931		—		3,221
Total liabilities at fair value	$	290	$	2,963	$	1,406	$	4,659

(1)The Company’s adjustment for nonperformance risk resulted in a $506 million cumulative decrease to the embedded derivative liability.

	December 31, 2011
	Level 1		Level 2		Level 3		Total
	(in millions)
Assets
Cash equivalents	$	20	$	2,287	$	—	$	2,307
Available-for-Sale securities:
Corporate debt securities	—		16,685		1,355		18,040
Residential mortgage backed securities	—		7,198		198		7,396
Commercial mortgage backed securities	—		4,669		50		4,719
Asset backed securities	—		1,779		206		1,985
State and municipal obligations	—		2,130		—		2,130
U.S. government and agencies obligations	22		49		—		71
Foreign government bonds and obligations	—		144		—		144
Common stocks	2		2		5		9
Other debt obligations	—		11		—		11
Total Available-for-Sale securities	24		32,667		1,814		34,505
Trading securities	1		30		—		31
Separate account assets	—		66,780		—		66,780
Investments segregated for regulatory purposes	—		293		—		293
Other assets:
Interest rate derivative contracts	—		1,958		—		1,958
Equity derivative contracts	274		1,077		—		1,351
Credit derivative contracts	—		1		—		1
Foreign currency derivative contracts	—		7		—		7
Commodity derivative contracts	—		2		—		2
Total other assets	274		3,045		—		3,319
Total assets at fair value	$	319	$	105,102	$	1,814	$	107,235
Liabilities
Future policy benefits and claims:
EIA embedded derivatives	$	—	$	2	$	—	$	2
IUL embedded derivatives	—		3		—		3
GMWB and GMAB embedded derivatives	—		—		1,585		1,585
Total future policy benefits and claims	—		5		1,585		1,590		(1)
Customer deposits	—		6		—		6
Other liabilities:
Interest rate derivative contracts	—		1,209		—		1,209
Equity derivative contracts	297		764		—		1,061
Foreign currency derivative contracts	3		10		—		13
Other	—		2		—		2
Total other liabilities	300		1,985		—		2,285
Total liabilities at fair value	$	300	$	1,996	$	1,585	$	3,881

(1)The Company’s adjustment for nonperformance risk resulted in a $506 million cumulative decrease to the embedded derivative liability.

Schedule of changes in level 3 assets and liabilities measured at fair value on a recurring basis

																			Future Policy
	Available-for-Sale Securities																		Benefits and
				Residential			Commercial												Claims: GMWB
	Corporate			Mortgage			Mortgage			Asset									and GMAB
	Debt			Backed			Backed			Backed			Common						Embedded
	Securities			Securities			Securities			Securities			Stocks			Total			Derivatives
	(in millions)
Balance, April 1, 2012	$	1,422		$	224		$	89		$	208		$	6		$	1,949		$	(840	)
Total gains (losses) included in:
Net income	—			(8		)	—			—			—			(8		)(1)	(528		)(2)
Other comprehensive income	1			11			—			1			—			13			—
Purchases	95			22			7			—			—			124			—
Sales	—			—			—			—			—			—			—
Issues	—			—			—			—			—			—			(43		)
Settlements	(43		)	(15		)	—			(8		)	—			(66		)	5
Transfers into Level 3	10			16			—			—			—			26			—
Transfers out of Level 3	—			(28		)	(27		)	—			(1		)	(56		)	—
Balance, June 30, 2012	$	1,485		$	222		$	69		$	201		$	5		$	1,982		$	(1,406	)
Changes in unrealized losses relating to assets and liabilities held at June 30, 2012 included in:
Net investment income	$	—		$	(8	)	$	—		$	—		$	—		$	(8	)	$	—
Benefits, claims, losses and settlement expenses	—			—			—			—			—			—			(535		)

(1)Included in net investment income in the Consolidated Statements of Operations.

(2)Included in benefits, claims, losses and settlement expenses in the Consolidated Statements of Operations.

																		Future Policy
	Available-for-Sale Securities																	Benefits and
				Residential			Commercial						Common					Claims: GMWB
	Corporate			Mortgage			Mortgage			Asset			and					and GMAB
	Debt			Backed			Backed			Backed			Preferred					Embedded
	Securities			Securities			Securities			Securities			Stocks		Total			Derivatives
	(in millions)
Balance, April 1, 2011	$	1,315		$	4,093		$	26		$	488		$	5	$	5,927		$	(190	)
Total gains (losses) included in:
Net income	7			—			—			1			—		8		(1)	(88		)(2)
Other comprehensive income	11			(11		)	—			(4		)	—		(4		)	—
Purchases	36			349			74			41			—		500			—
Sales	—			—			—			—			—		—			—
Issues	—			—			—			—			—		—			(36		)
Settlements	(93		)	(278		)	—			(28		)	—		(399		)	(2		)
Transfers into Level 3	—			—			—			—			—		—			—
Transfers out of Level 3	(2		)	(56		)	(36		)	—			—		(94		)	—
Balance, June 30, 2011	$	1,274		$	4,097		$	64		$	498		$	5	$	5,938		$	(316	)
Changes in unrealized gains (losses) relating to assets and liabilities held at June 30, 2011 included in:
Net investment income	$	—		$	(1	)	$	—		$	2		$	—	$	1		$	—
Benefits, claims, losses and settlement expenses	—			—			—			—			—		—			(90		)

(1)Included in net investment income in the Consolidated Statements of Operations.

(2)Included in benefits, claims, losses and settlement expenses in the Consolidated Statements of Operations.

																			Future Policy
	Available-for-Sale Securities																		Benefits and
				Residential			Commercial												Claims: GMWB
	Corporate			Mortgage			Mortgage			Asset									and GMAB
	Debt			Backed			Backed			Backed			Common						Embedded
	Securities			Securities			Securities			Securities			Stocks			Total			Derivatives
	(in millions)
Balance, January 1, 2012	$	1,355		$	198		$	50		$	206		$	5		$	1,814		$	(1,585	)
Total gains (losses) included in:
Net income	—			(13		)	—			—			—			(13		)(1)	256		(2)
Other comprehensive income	5			26			2			2			—			35			—
Purchases	210			45			9			—			1			265			—
Sales	—			—			—			—			—			—			—
Issues	—			—			—			—			—			—			(82		)
Settlements	(95		)	(28		)	(2		)	(14		)	—			(139		)	5
Transfers into Level 3	10			22			37			7			—			76			—
Transfers out of Level 3	—			(28		)	(27		)	—			(1		)	(56		)	—
Balance, June 30, 2012	$	1,485		$	222		$	69		$	201		$	5		$	1,982		$	(1,406	)
Changes in unrealized gains (losses) relating to assets and liabilities held at June 30, 2012 included in:
Net investment income	$	—		$	(13	)	$	—		$	—		$	—		$	(13	)	$	—
Benefits, claims, losses and settlement expenses	—			—			—			—			—			—			234

(1)Included in net investment income in the Consolidated Statements of Operations.

(2)Included in benefits, claims, losses and settlement expenses in the Consolidated Statements of Operations.

																		Future Policy
	Available-for-Sale Securities																	Benefits and
				Residential			Commercial						Common					Claims: GMWB
	Corporate			Mortgage			Mortgage			Asset			and					and GMAB
	Debt			Backed			Backed			Backed			Preferred					Embedded
	Securities			Securities			Securities			Securities			Stocks		Total			Derivatives
	(in millions)
Balance, January 1, 2011	$	1,325		$	4,247		$	51		$	476		$	5	$	6,104		$	(421	)
Total gains included in:
Net income	7			7			—			3			—		17		(1)	175		(2)
Other comprehensive income	12			2			—			1			—		15			—
Purchases	73			499			89			70			—		731			—
Sales	—			(3		)	—			—			—		(3		)	—
Issues	—			—			—			—			—		—			(68		)
Settlements	(131		)	(599		)	(1		)	(52		)	—		(783		)	(2		)
Transfers into Level 3	—			—			2			—			—		2			—
Transfers out of Level 3	(12		)	(56		)	(77		)	—			—		(145		)	—
Balance, June 30, 2011	$	1,274		$	4,097		$	64		$	498		$	5	$	5,938		$	(316	)
Changes in unrealized gains relating to assets and liabilities held at June 30, 2011 included in:
Net investment income	$	—		$	17		$	—		$	4		$	—	$	21		$	—
Benefits, claims, losses and settlement expenses	—			—			—			—			—		—			167

(1)Included in net investment income in the Consolidated Statements of Operations.

(2)Included in benefits, claims, losses and settlement expenses in the Consolidated Statements of Operations.

Significant unobservable inputs used in the fair value measurements

	Fair Value		Valuation Technique	Unobservable Input	Range (Weighted Average)
	(in millions)
Corporate debt securities	$	1,455	Discounted cash flow	Yield/spread to U.S. Treasuries	1.0% - 9.5% (2.5%)
(private placements)
Residential mortgage	$	200	Discounted cash flow	Constant prepayment rate	0.5% - 12.0% (2.9%)
backed securities				Annual default rate	1.2% - 19.7% (11.9%)
				Loss severity	34.0% - 75.0% (58.0%)
				Yield/spread to U.S. Treasuries	6.3% - 20.0% (8.8%)
Asset backed securities	$	16	Discounted cash flow	Constant prepayment rate	2.3% - 7.7% (3.0%)
(sub-prime residential				Annual default rate	3.2% - 12.5% (7.5%)
mortgage backed				Loss severity	65.0% - 100.0% (74.0%)
securities)				Yield/spread to U.S. Treasuries	6.6% - 12.9% (11.0%)
GMWB and GMAB	$	1,406	Discounted cash flow	Utilization of guaranteed	0% - 90%
embedded derivatives				withdrawals
				Surrender rate	0% - 56.3%
				Market volatility (1)	6.1% - 23.9%
				Nonperformance risk (2)	114 bps

(1)Market volatility is implied volatility of fund of funds.

(2)The nonperformance risk is the spread added to the observable interest rates used in the valuation of the embedded derivatives.

Schedule of carrying value and estimated fair value of financial instruments

	June 30, 2012										December 31, 2011
	Carrying		Fair Value								Carrying
	Value		Level 1		Level 2		Level 3		Total		Value		Fair Value
	(in millions)
Financial Assets
Commercial mortgage loans, net	$	2,551	$	—	$	—	$	2,758	$	2,758	$	2,589	$	2,772
Policy and certificate loans	750		—		2		723		725		742		715
Receivables	2,423		140		921		1,044		2,105		2,444		2,148
Restricted and segregated cash	1,688		1,688		—		—		1,688		1,500		1,500
Other investments and assets	376		—		341		37		378		390		388
Financial Liabilities
Future policy benefits and claims	$	14,960	$	—	$	—	$	16,100	$	16,100	$	15,064	$	16,116
Investment certificate reserves	2,715		—		—		2,712		2,712		2,766		2,752
Banking and brokerage customer deposits	7,356		2,273		5,085		—		7,358		7,078		7,091
Separate account liabilities	3,399		—		3,399		—		3,399		3,966		3,966
Debt and other liabilities	3,097		148		3,061		206		3,415		3,180		3,412