Investments and Derivative Instruments

12 Months Ended

Dec. 31, 2012

Investments and Derivative Instruments [Abstract]

Investments and Derivative Instruments

Investments and Derivative Instruments

Net Investment Income (Loss)

	For the years ended December 31,
(Before-tax)	2012			2011			2010
Fixed maturities [1]	$	3,363		$	3,396		$	3,489
Equity securities, AFS	37			36			53
Mortgage loans	337			281			260
Policy loans	119			131			132
Limited partnerships and other alternative investments	196			243			216
Other investments [2]	296			301			329
Investment expenses	(111		)	(116		)	(115		)
Total securities AFS and other	4,237			4,272			4,364
Equity securities, trading	4,565			(1,359		)	(774		)
Total net investment income (loss)	$	8,802		$	2,913		$	3,590

[1] Includes net investment income on short-term investments.

[2] Includes income from derivatives that qualify for hedge accounting and hedge fixed maturities.

The net unrealized gain (loss) on equity securities, trading, included in net investment income during the years ended December 31, 2012, 2011 and 2010, was $4.6 billion, $(1.3) billion and $(68), respectively, substantially all of which have corresponding amounts credited to policyholders. These amounts were not included in gross unrealized gains (losses).

Net Realized Capital Gains (Losses)

	For the years ended December 31,
(Before-tax)	2012			2011			2010
Gross gains on sales	$	877		$	693		$	836
Gross losses on sales	(441		)	(384		)	(522		)
Net OTTI losses recognized in earnings [1]	(349		)	(174		)	(434		)
Valuation allowances on mortgage loans	14			24			(154		)
Japanese fixed annuity contract hedges, net [2]	(36		)	3			27
Periodic net coupon settlements on credit derivatives/Japan	(10		)	(10		)	(17		)
Results of variable annuity hedge program
GMWB derivatives, net	519			(397		)	89
U.S. macro hedge program	(340		)	(216		)	(445		)
Total U.S. program	179			(613		)	(356		)
International program	(1,490		)	775			11
Total results of variable annuity hedge program	(1,311		)	162			(345		)
Other, net [3]	545			(459		)	(2		)
Net realized capital gains (losses)	$	(711	)	$	(145	)	$	(611	)

[1] Includes $177 of intent-to-sell impairments relating to the sales of the Retirement Plans and Individual Life businesses.

[2] Relates to the Japanese fixed annuity products (adjustment ofproduct liability for changes in spot currency exchange rates, related derivative hedging instruments, excluding net period coupon settlements, and Japan FVO securities).

[3] Primarily consists of non-qualifying derivatives, transactional foreign currency re-valuation associated with the internal reinsurance of the Japan variable annuity business, which is offset in AOCI, and Japan 3Win related foreign currency swaps.

Net realized capital gains and losses from investment sales, after deducting the life and pension policyholders' share for certain products, are reported as a component of revenues and are determined on a specific identification basis. Gross gains and losses on sales and impairments previously reported as unrealized gains or (losses) in AOCI were $87, $135 and $(120) for the years ended December 31, 2012, 2011 and 2010, respectively.

Sales of Available-for-Sale Securities

	For the years ended December 31,
	2012			2011			2010
Fixed maturities, AFS
Sale proceeds	$	41,442		$	36,956		$	46,482
Gross gains	845			617			706
Gross losses	(416		)	(381		)	(452		)
Equity securities, AFS
Sale proceeds	$	295		$	239		$	325
Gross gains	34			59			24
Gross losses	(20		)	—			(16		)

Sales of AFS securities in 2012 were the result of the reinvestment into spread product well-positioned for modest economic growth, as well as the purposeful reduction of certain exposures.

Other-Than-Temporary Impairment Losses

The following table presents a roll-forward of the Company’s cumulative credit impairments on debt securities held as of December 31, 2012, 2011 and 2010.

	For the years ended December 31,
(Before-tax)	2012			2011			2010
Balance as of beginning of period	$	(1,676	)	$	(2,072	)	$	(2,200	)
Additions for credit impairments recognized on [1]:
Securities not previously impaired	(28		)	(56		)	(211		)
Securities previously impaired	(20		)	(69		)	(161		)
Reductions for credit impairments previously recognized on:
Securities that matured or were sold during the period	700			505			468
Securities due to an increase in expected cash flows	11			16			32
Balance as of end of period	$	(1,013	)	$	(1,676	)	$	(2,072	)

[1] These additions are included in the net OTTI losses recognized in earnings in the Consolidated Statements of Operations.

Available-for-Sale Securities

The following table presents the Company’s AFS securities by type.

	December 31, 2012												December 31, 2011
	Cost or Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Non- Credit OTTI [1]			Cost or Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Non- Credit OTTI [1]
ABS	$	2,883	$	63	$	(183	)	$	2,763	$	(4	)	$	3,430	$	55	$	(332	)	$	3,153	$	(7	)
CDOs [2]	3,170		60		(159		)	3,040		(14		)	2,819		16		(348		)	2,487		(44		)
CMBS	6,083		417		(179		)	6,321		(11		)	7,192		271		(512		)	6,951		(31		)
Corporate [2]	39,694		4,631		(276		)	44,049		(19		)	41,161		3,661		(739		)	44,011		—
Foreign govt./govt. agencies	3,985		191		(40		)	4,136		—			2,030		141		(10		)	2,161		—
Municipal	13,001		1,379		(19		)	14,361		—			12,557		775		(72		)	13,260		—
RMBS	7,318		295		(133		)	7,480		(32		)	5,961		252		(456		)	5,757		(105		)
U.S. Treasuries	3,613		175		(16		)	3,772		—			3,828		203		(2		)	4,029		—
Total fixed maturities, AFS	79,747		7,211		(1,005		)	85,922		(80		)	78,978		5,374		(2,471		)	81,809		(187		)
Equity securities, AFS	866		81		(57		)	890		—			1,056		68		(203		)	921		—
Total AFS securities [3]	$	80,613	$	7,292	$	(1,062	)	$	86,812	$	(80	)	$	80,034	$	5,442	$	(2,674	)	$	82,730	$	(187	)

[1] Represents the amount of cumulative non-credit OTTI losses recognized in OCI on securities that also had credit impairments. These losses are included in gross unrealized losses as of December 31, 2012 and 2011.

[2] Gross unrealized gains (losses) exclude the fair value of bifurcated embedded derivative features of certain securities. Subsequent changes in value will be recorded in net realized capital gains (losses).

[3] Includes fixed maturities, AFS and equity securities, AFS relating to the sales of the Retirement Plans and Individual Life businesses; see Note 2 - Business Dispositions of the Notes to Consolidated Financial Statements for further discussion of this transaction.

The following table presents the Company’s fixed maturities, AFS, by contractual maturity year.

	December 31, 2012
Contractual Maturity	Amortized Cost		Fair Value
One year or less	$	1,689	$	1,710
Over one year through five years	14,664		15,556
Over five years through ten years	15,542		17,038
Over ten years	28,398		32,014
Subtotal	60,293		66,318
Mortgage-backed and asset-backed securities	19,454		19,604
Total fixed maturities, AFS [1]	$	79,747	$	85,922

[1] Includes fixed maturities, AFS relating to the sales of the Retirement Plans and Individual Life businesses; see Note 2 - Business Dispositions of the Notes to Consolidated Financial Statements for further discussion of this transaction.

Estimated maturities may differ from contractual maturities due to security call or prepayment provisions. Due to the potential for variability in payment spreads (i.e. prepayments or extensions), mortgage-backed and asset-backed securities are not categorized by contractual maturity.

Concentration of Credit Risk

The Company aims to maintain a diversified investment portfolio including issuer, sector and geographic stratification, where applicable, and has established certain exposure limits, diversification standards and review procedures to mitigate credit risk.

As of December 31, 2012, the Company's only exposure to any credit concentration risk of a single issuer greater than 10% of the Company's stockholders' equity, other than the U.S. government and certain U.S. government securities, was the Government of Japan, which represents $2.7 billion, or 12% of stockholders' equity, and 2% of total invested assets. As of December 31, 2011, the Company was not exposed to any concentration of credit risk of a single issuer greater than 10% of the Company’s stockholders’ equity other than U.S. government and certain U.S. government agencies. As of December 31, 2012, other than U.S. government and certain U.S. government agencies, the Company’s three largest exposures by issuer were the Government of Japan, State of California, and National Grid PLC. which each comprised less than 3% of total invested assets. As of December 31, 2011, other than U.S. government and certain U.S. government agencies, the Company’s three largest exposures by issuer were the Government of Japan, Government of the United Kingdom and AT&T Inc. which each comprised less than 0.8% of total invested assets.

The Company’s three largest exposures by sector as of December 31, 2012 were municipal investments, utilities, and financial services which comprised approximately 7%, 6% and 5%, respectively, of total invested assets. The Company’s three largest exposures by sector as of December 31, 2011 were commercial real estate, municipal investments and U.S. Treasuries which comprised approximately 10%, 10% and 7%, respectively, of total invested assets.

Security Unrealized Loss Aging

The following tables present the Company’s unrealized loss aging for AFS securities by type and length of time the security was in a continuous unrealized loss position.

	December 31, 2012
	Less Than 12 Months							12 Months or More							Total
	Amortized Cost		Fair Value		Unrealized Losses			Amortized Cost		Fair Value		Unrealized Losses			Amortized Cost		Fair Value		Unrealized Losses
ABS	$	163	$	161	$	(2	)	$	886	$	705	$	(181	)	$	1,049	$	866	$	(183	)
CDOs [1]	5		4		(1		)	2,567		2,389		(158		)	2,572		2,393		(159		)
CMBS	339		322		(17		)	1,248		1,086		(162		)	1,587		1,408		(179		)
Corporate	1,261		1,218		(43		)	1,823		1,590		(233		)	3,084		2,808		(276		)
Foreign govt./govt. agencies	1,380		1,343		(37		)	20		17		(3		)	1,400		1,360		(40		)
Municipal	271		265		(6		)	157		144		(13		)	428		409		(19		)
RMBS	910		908		(2		)	869		738		(131		)	1,779		1,646		(133		)
U.S. Treasuries	583		567		(16		)	—		—		—			583		567		(16		)
Total fixed maturities, AFS	4,912		4,788		(124		)	7,570		6,669		(881		)	12,482		11,457		(1,005		)
Equity securities, AFS	69		67		(2		)	280		225		(55		)	349		292		(57		)
Total securities in an unrealized loss	$	4,981	$	4,855	$	(126	)	$	7,850	$	6,894	$	(936	)	$	12,831	$	11,749	$	(1,062	)

	December 31, 2011
	Less Than 12 Months							12 Months or More							Total
	Amortized Cost		Fair Value		Unrealized Losses			Amortized Cost		Fair Value		Unrealized Losses			Amortized Cost		Fair Value		Unrealized Losses
ABS	$	629	$	594	$	(35	)	$	1,169	$	872	$	(297	)	$	1,798	$	1,466	$	(332	)
CDOs [1]	81		59		(22		)	2,709		2,383		(326		)	2,790		2,442		(348		)
CMBS	1,297		1,194		(103		)	2,144		1,735		(409		)	3,441		2,929		(512		)
Corporate	4,388		4,219		(169		)	3,268		2,627		(570		)	7,656		6,846		(739		)
Foreign govt./govt. agencies	218		212		(6		)	51		47		(4		)	269		259		(10		)
Municipal	299		294		(5		)	627		560		(67		)	926		854		(72		)
RMBS	415		330		(85		)	1,206		835		(371		)	1,621		1,165		(456		)
U.S. Treasuries	343		341		(2		)	—		—		—			343		341		(2		)
Total fixed maturities, AFS	7,670		7,243		(427		)	11,174		9,059		(2,044		)	18,844		16,302		(2,471		)
Equity securities, AFS	167		138		(29		)	439		265		(174		)	606		403		(203		)
Total securities in an unrealized loss	$	7,837	$	7,381	$	(456	)	$	11,613	$	9,324	$	(2,218	)	$	19,450	$	16,705	$	(2,674	)

[1] Unrealized losses exclude the change in fair value of bifurcated embedded derivative features of certain securities. Subsequent changes in fair value are recorded in net realized capital gains (losses).

As of December 31, 2012, AFS securities in an unrealized loss position, comprised of 2,011 securities, primarily related to corporate securities within the financial services sector, ABS, CMBS, CDOs, and RMBS which have experienced price deterioration. As of December 31, 2012, 86% of these securities were depressed less than 20% of cost or amortized cost. The decline in the total unrealized loss of $1.6 billion in 2012 was primarily attributable to credit spread tightening and a decline in interest rates.

Most of the securities depressed for twelve months or more relate to structured securities with exposure to commercial and residential real estate, ABS backed by student loans, as well as certain floating rate corporate securities or those securities with greater than 10 years to maturity, concentrated in the financial services sector. Current market spreads continue to be significantly wider for structured securities with exposure to commercial and residential real estate, as compared to spreads at the security’s respective purchase date, largely due to the economic and market uncertainties regarding future performance of commercial and residential real estate. In addition, the majority of securities have a floating-rate coupon referenced to a market index where rates have declined substantially. In addition equity securities include investment grade perpetual preferred securities that contain "debt-like" characteristics where the decline in fair value is not attributable to issuer-specific credit deterioration, none of which have, nor are expected to, miss a periodic dividend payment. These securities have been depressed due to the securities' floating-rate coupon in the current low interest rate environment, general market credit spread widening since the date of purchase and the long-dated nature of the securities. The Company neither has an intention to sell nor does it expect to be required to sell the securities outlined above.

Mortgage Loans

	December 31, 2012							December 31, 2011
	Amortized Cost [1]		Valuation Allowance			Carrying Value		Amortized Cost [1]		Valuation Allowance			Carrying Value
Commercial	$	6,779	$	(68	)	$	6,711	$	5,830	$	(102	)	$	5,728
Total mortgage loans [2]	$	6,779	$	(68	)	$	6,711	$	5,830	$	(102	)	$	5,728

[1] Amortized cost represents carrying value prior to valuation allowances, if any.

[2] Includes commercial mortgage loans relating to the sales of the Retirement Plans and Individual Life businesses; see Note 2 - Business Dispositions of the Notes to Consolidated Financial Statements for further discussion of this transaction.

As of December 31, 2012 and 2011, the carrying value of mortgage loans associated with the valuation allowance was $291 and $621, respectively. Included in the table above are mortgage loans held-for-sale with a carrying value and valuation allowance of $47 and $3, respectively, as of December 31, 2012, and $74 and $4, respectively, as of December 31, 2011. The carrying value of these loans is included in mortgage loans in the Company’s Consolidated Balance Sheets. As of December 31, 2012, loans within the Company’s mortgage loan portfolio that have had extensions or restructurings other than what is allowable under the original terms of the contract are immaterial.

The following table presents the activity within the Company’s valuation allowance for mortgage loans. These loans have been evaluated both individually and collectively for impairment. Loans evaluated collectively for impairment are immaterial.

	For the years ended December 31,
	2012			2011			2010
Balance as of January 1	$	(102	)	$	(155	)	$	(366	)
(Additions)/Reversals	14			(26		)	(157		)
Deductions	20			79			368
Balance as of December 31	$	(68	)	$	(102	)	$	(155	)

The current weighted-average LTV ratio of the Company’s commercial mortgage loan portfolio was 62% as of December 31, 2012, while the weighted-average LTV ratio at origination of these loans was 63%. LTV ratios compare the loan amount to the value of the underlying property collateralizing the loan. The loan values are updated no less than annually through property level reviews of the portfolio. Factors considered in the property valuation include, but are not limited to, actual and expected property cash flows, geographic market data and capitalization rates. DSCRs compare a property’s net operating income to the borrower’s principal and interest payments. The current weighted average DSCR of the Company’s commercial mortgage loan portfolio was 2.24x as of December 31, 2012. The Company held only two delinquent commercial mortgage loans past due by 90 days or more. The total carrying value and valuation allowance of these loans totaled $32 and $50, respectively, as of December 31, 2012, and are not accruing income.

The following table presents the carrying value of the Company’s commercial mortgage loans by LTV and DSCR.

Commercial Mortgage Loans Credit Quality
	December 31, 2012			December 31, 2011
Loan-to-value	Carrying Value		Avg. Debt-Service Coverage Ratio	Carrying Value		Avg. Debt-Service Coverage Ratio
Greater than 80%	$	253	0.95x	$	707	1.45x
65% - 80%	2,220		2.12x	2,384		1.60x
Less than 65%	4,238		2.40x	2,637		2.40x
Total commercial mortgage loans	$	6,711	2.24x	$	5,728	1.94x

The following tables present the carrying value of the Company’s mortgage loans by region and property type.

Mortgage Loans by Region
	December 31, 2012				December 31, 2011
	Carrying Value		Percent of Total		Carrying Value		Percent of Total
East North Central	$	145	2.2	%	$	94	1.6	%
Middle Atlantic	477		7.1	%	508		8.9	%
Mountain	99		1.5	%	125		2.2	%
New England	350		5.2	%	294		5.1	%
Pacific	1,978		29.5	%	1,690		29.5	%
South Atlantic	1,378		20.5	%	1,149		20.1	%
West North Central	16		0.2	%	30		0.5	%
West South Central	398		5.9	%	224		3.9	%
Other [1]	1,870		27.9	%	1,614		28.2	%
Total mortgage loans	$	6,711	100.0	%	$	5,728	100.0	%

[1] Primarily represents loans collateralized by multiple properties in various regions.

Mortgage Loans by Property Type
	December 31, 2012				December 31, 2011
	Carrying Value		Percent of Total		Carrying Value		Percent of Total
Commercial
Agricultural	$	142	2.1	%	$	249	4.3	%
Industrial	2,079		30.9	%	1,747		30.5	%
Lodging	81		1.2	%	93		1.6	%
Multifamily	1,200		17.9	%	1,070		18.7	%
Office	1,510		22.5	%	1,078		18.8	%
Retail	1,460		21.8	%	1,234		21.5	%
Other	239		3.6	%	257		4.6	%
Total mortgage loans	$	6,711	100.0	%	$	5,728	100.0	%

Variable Interest Entities

The Company is involved with various special purpose entities and other entities that are deemed to be VIEs primarily as a collateral or investment manager and as an investor through normal investment activities, as well as a means of accessing capital. A VIE is an entity that either has investors that lack certain essential characteristics of a controlling financial interest or lacks sufficient funds to finance its own activities without financial support provided by other entities.

The Company performs ongoing qualitative assessments of its VIEs to determine whether the Company has a controlling financial interest in the VIE and therefore is the primary beneficiary. The Company is deemed to have a controlling financial interest when it has both the ability to direct the activities that most significantly impact the economic performance of the VIE and the obligation to absorb losses or right to receive benefits from the VIE that could potentially be significant to the VIE. Based on the Company’s assessment, if it determines it is the primary beneficiary, the Company consolidates the VIE in the Company’s Consolidated Financial Statements.

Consolidated VIEs

The following table presents the carrying value of assets and liabilities, and the maximum exposure to loss relating to the VIEs for which the Company is the primary beneficiary. Creditors have no recourse against the Company in the event of default by these VIEs nor does the Company have any implied or unfunded commitments to these VIEs. The Company’s financial or other support provided to these VIEs is limited to its investment management services and original investment.

	December 31, 2012						December 31, 2011
	Total Assets		Total Liabilities [1]		Maximum Exposure to Loss [2]		Total Assets		Total Liabilities [1]		Maximum Exposure to Loss [2]
CDOs [3]	$	89	$	88	$	7	$	491	$	471	$	29
Investment funds [4]	163		—		162		—		—		—
Limited partnerships	6		1		5		7		—		7
Total	$	258	$	89	$	174	$	498	$	471	$	36

[1] Included in other liabilities in the Company’s Consolidated Balance Sheets.

[2] The maximum exposure to loss represents the maximum loss amount that the Company could recognize as a reduction in net investment income or as a realized capital loss and is the cost basis of the Company’s investment.

[3] Total assets included in fixed maturities, AFS in the Company’s Consolidated Balance Sheets.

[4] Total assets included in fixed maturities, FVO in the Company's Consolidated Balance Sheets.

CDOs represent structured investment vehicles for which the Company has a controlling financial interest as it provides collateral management services, earns a fee for those services and also holds investments in the securities issued by these vehicles. Investment funds represent wholly-owned fixed income funds established in 2012 for which the Company has management and control of the investments which is the activity that most significantly impacts its economic performance. Limited partnerships represent one hedge fund for which the Company holds a majority interest in the fund as an investment.

In 2012, the Company disposed of substantially all of its interest in a consolidated VIE. Upon disposition, the Company determined that it was no longer the primary beneficiary of the VIE. Therefore, the investment was deconsolidated as of the disposition date in the fourth quarter of 2012. The deconsolidation of the VIE resulted in a decrease in assets of $344, liabilities of $319, and a maximum exposure to loss of $7 at the time of disposal. The deconsolidation did not have a significant impact on the Company's results from operations.

Non-Consolidated VIEs

The Company holds a significant variable interest for one VIE for which it is not the primary beneficiary and, therefore, was not consolidated on the Company’s Consolidated Balance Sheets. This VIE represents a contingent capital facility (“facility”) that has been held by the Company since February 2007 for which the Company has no implied or unfunded commitments. Assets and liabilities recorded for the facility were $23 and $23 as of December 31, 2012 , respectively and $28 and $28, respectively as of December 31, 2011. Additionally, the Company has a maximum exposure to loss of $3 and $3, respectively, as of December 31, 2012 and December 31, 2011, which represents the issuance costs that were incurred to establish the facility. The Company does not have a controlling financial interest as it does not manage the assets of the facility nor does it have the obligation to absorb losses or the right to receive benefits that could potentially be significant to the facility, as the asset manager has significant variable interest in the vehicle. The Company’s financial or other support provided to the facility is limited to providing ongoing support to cover the facility’s operating expenses. For further information on the facility, see Note 15.

In addition, the Company, through normal investment activities, makes passive investments in structured securities issued by VIEs for which the Company is not the manager which are included in ABS, CDOs, CMBS and RMBS in the Available-for-Sale Securities table and fixed maturities, FVO, in the Company’s Consolidated Balance Sheets. The Company has not provided financial or other support with respect to these investments other than its original investment. For these investments, the Company determined it is not the primary beneficiary due to the relative size of the Company’s investment in comparison to the principal amount of the structured securities issued by the VIEs, the level of credit subordination which reduces the Company’s obligation to absorb losses or right to receive benefits and the Company’s inability to direct the activities that most significantly impact the economic performance of the VIEs. The Company’s maximum exposure to loss on these investments is limited to the amount of the Company’s investment.

Repurchase Agreements and Dollar Roll Agreements

The Company enters into repurchase agreements and dollar roll transactions to earn incremental income. A repurchase agreement is a transaction in which one party (transferor) agrees to sell securities to another party (transferee) in return for cash (or securities), with a simultaneous agreement to repurchase the same securities at a specified price at a later date. A dollar roll is a type of repurchase transaction where a mortgage backed security is sold with an agreement to repurchase substantially the same security at a specified time in the future. These transactions are generally short-term in nature, and therefore, the carrying amounts of these instruments approximate fair value.

As part of repurchase agreements and dollar roll transactions, the Company transfers U.S. government and government agency securities and receives cash. For the repurchase agreements, the Company obtains collateral in an amount equal to at least 95% of the fair value of the securities transferred, and the agreements with third parties contain contractual provisions to allow for additional collateral to be obtained when necessary. The cash received from the repurchase program is typically invested in short-term investments or fixed maturities. The Company accounts for the repurchase agreements and dollar roll transactions as collateralized borrowings. The securities transferred under repurchase agreements and dollar roll transactions are included in fixed maturities, available-for-sale with the obligation to repurchase those securities recorded in Other Liabilities on the Company's Consolidated Balance Sheets. The fair value of the securities transferred was $1.9 billion with a corresponding agreement to repurchase $1.9 billion as of December 31, 2012. The obligation for securities transferred under agreement to repurchase was $1.9 billion as of December 31, 2012.

Equity Method Investments

The Company has investments in limited partnerships and other alternative investments which include hedge funds, mortgage and real estate funds, mezzanine debt funds, and private equity and other funds (collectively, “limited partnerships”). These investments are accounted for under the equity method and the Company’s maximum exposure to loss as of December 31, 2012 is limited to the total carrying value of $3.0 billion. In addition, the Company has outstanding commitments totaling $562 to fund limited partnership and other alternative investments as of December 31, 2012. The Company’s investments in limited partnerships are generally of a passive nature in that the Company does not take an active role in the management of the limited partnerships. In 2012, aggregate investment income from limited partnerships and other alternative investments exceeded 10% of the Company’s pre-tax consolidated net income. Accordingly, the Company is disclosing aggregated summarized financial data for the Company’s limited partnership investments. This aggregated summarized financial data does not represent the Company’s proportionate share of limited partnership assets or earnings. Aggregate total assets of the limited partnerships in which the Company invested totaled $90.5 billion and $91.3 billion as of December 31, 2012 and 2011, respectively. Aggregate total liabilities of the limited partnerships in which the Company invested totaled $12.8 billion and $20.6 billion as of December 31, 2012 and 2011, respectively. Aggregate net investment income of the limited partnerships in which the Company invested totaled $1.0 billion, $1.3 billion and $857 for the periods ended December 31, 2012, 2011 and 2010, respectively. Aggregate net income of the limited partnerships in which the Company invested totaled $7.2 billion, $9.1 billion and $10.3 billion for the periods ended December 31, 2012, 2011 and 2010, respectively. As of, and for the period ended, December 31, 2012, the aggregated summarized financial data reflects the latest available financial information.

Derivative Instruments

The Company utilizes a variety of over-the-counter and exchange traded derivative instruments as a part of its overall risk management strategy, as well as to enter into replication transactions. Derivative instruments are used to manage risk associated with interest rate, equity market, credit spread, issuer default, price, and currency exchange rate risk or volatility. Replication transactions are used as an economical means to synthetically replicate the characteristics and performance of assets that would be permissible investments under the Company's investment policies. The Company also purchases and issues financial instruments and products that either are accounted for as free-standing derivatives, such as certain reinsurance contracts, or may contain features that are deemed to be embedded derivative instruments, such as the GMWB rider included with certain variable annuity products.

Strategies that qualify for hedge accounting

Certain derivatives the Company enters into satisfy the hedge accounting requirements as outlined in Note 1 of these financial statements. Typically, these hedge relationships include interest rate and foreign currency swaps where the terms or expected cash flows of the securities closely match the “pay” leg terms of the swap. The swaps are typically used to manage interest rate duration of certain fixed maturity securities, or liability contracts, or convert securities, or liabilities, denominated in a foreign currency to US dollars. The hedge strategies by hedge accounting designation include:

Cash flow hedges

Interest rate swaps are predominantly used to manage portfolio duration and better match cash receipts from assets with cash disbursements required to fund liabilities. These derivatives convert interest receipts on floating-rate fixed maturity securities or interest payments on floating-rate guaranteed investment contracts to fixed rates. The Company also enters into forward starting swap agreements primarily to hedge interest rate risk inherent in the assumptions used to price certain liabilities.

Foreign currency swaps are used to convert foreign currency-denominated cash flows related to certain investment receipts and liability payments to U.S. dollars in order to reduce cash flow fluctuations due to changes in currency rates.

Fair value hedges

Interest rate swaps are used to hedge the changes in fair value of certain fixed rate liabilities and fixed maturity securities due to fluctuations in interest rates. Foreign currency swaps are used to hedge the changes in fair value of certain foreign currency-denominated fixed rate liabilities due to changes in foreign currency rates by swapping the fixed foreign payments to floating rate U.S. dollar denominated payments.

Non-qualifying strategies

Derivative relationships that do not qualify for hedge accounting or “non-qualifying strategies” primarily include the hedge programs for our U.S. and international variable annuity products, as well as the hedging and replication strategies through the use of credit default swaps. In addition, hedges of interest rate and foreign currency risk of certain fixed maturities and liabilities do not qualify for hedge accounting. These non-qualifying strategies include:

Interest rate swaps, swaptions, caps, floors, and futures

The Company uses interest rate swaps, swaptions, caps, floors, and futures to manage duration between assets and liabilities in certain investment portfolios. In addition, the Company enters into interest rate swaps to terminate existing swaps, thereby offsetting the changes in value of the original swap. As of December 31, 2012 and 2011, the notional amount of interest rate swaps in offsetting relationships was $7.5 billion and $7.8 billion, respectively.

Foreign currency swaps and forwards

The Company enters into foreign currency swaps and forwards to convert the foreign currency exposures of certain foreign currency-denominated fixed maturity investments to U.S. dollars.

Japan 3Win foreign currency swaps

Prior to the second quarter of 2009, the Company offered a yen denominated fixed annuity product through a wholly-owned Japanese subsidiary and reinsured to a wholly-owned U.S. subsidiary. The U.S. subsidiary invests in U.S. dollar denominated securities to support the yen denominated fixed liability payments and entered into currency rate swaps to hedge the foreign currency exchange rate and yen interest rate exposures that exist as a result of U.S. dollar assets backing the yen denominated liability.

Japanese fixed annuity hedging instruments

Prior to the second quarter of 2009, the Company offered a yen denominated fixed annuity product through a wholly-owned Japanese subsidiary and reinsured to a wholly-owned U.S. subsidiary. The U.S. subsidiary invests in U.S. dollar denominated securities to support the yen denominated fixed liability payments and entered into currency rate swaps to hedge the foreign currency exchange rate and yen interest rate exposures that exist as a result of U.S. dollar assets backing the yen denominated liability.

Credit derivatives

Credit default swaps are used to purchase credit protection on an individual entity or referenced index to economically hedge against default risk and credit-related changes in value on fixed maturity securities. Credit default swaps are also used to assume credit risk related to an individual entity, referenced index, or asset pool, as a part of replication transactions. These contracts require the Company to pay or receive a periodic fee in exchange for compensation from the counterparty should the referenced security issuers experience a credit event, as defined in the contract. The Company is also exposed to credit risk related to credit derivatives embedded within certain fixed maturity securities. These securities are primarily comprised of structured securities that contain credit derivatives that reference a standard index of corporate securities. In addition, the Company enters into credit default swaps to terminate existing credit default swaps, thereby offsetting the changes in value of the original swap going forward.

Equity index swaps and options

The Company formerly offered certain equity indexed products, which may contain an embedded derivative that requires bifurcation. The Company enters into S&P index swaps and options to economically hedge the equity volatility risk associated with these embedded derivatives. The Company also enters into equity index options and futures with the purpose of hedging the impact of an adverse equity market environment on the investment portfolio.

U.S GMWB derivatives, net

The Company formerly offered certain variable annuity products with GMWB riders in the U.S. The GMWB product is a bifurcated embedded derivative (“U.S. GMWB product derivative”) that has a notional value equal to the GRB. The Company uses reinsurance contracts to transfer a portion of its risk of loss due to U.S GMWB. The reinsurance contracts covering U.S. GMWB (“U.S. GMWB reinsurance contracts”) are accounted for as free-standing derivatives with a notional amount equal to the GRB amount.

The Company utilizes derivatives (“ U.S. GMWB hedging derivatives”) as part of an actively managed program designed to hedge a portion of the capital market risk exposures of the un-reinsured GMWB due to changes in interest rates, equity market levels, and equity volatility. These derivatives include customized swaps, interest rate swaps and futures, and equity swaps, options, and futures, on certain indices including the S&P 500 index, EAFE index, and NASDAQ index. The following table represents notional and fair value for U.S. GMWB hedging instruments.

	Notional Amount				Fair Value
	December 31, 2012		December 31, 2011		December 31, 2012		December 31, 2011
Customized swaps	$	7,787	$	8,389	$	238	$	385
Equity swaps, options, and futures	5,130		5,320		267		498
Interest rate swaps and futures	5,705		2,697		67		11
Total	$	18,622	$	16,406	$	572	$	894

U.S. macro hedge program

The Company utilizes equity options and futures contracts to partially hedge against a decline in the equity markets and the resulting statutory surplus and capital impact primarily arising from GMDB and GMWB obligations. The following table represents notional and fair value for the U.S. macro hedge program.

	Notional Amount				Fair Value
	December 31, 2012		December 31, 2011		December 31, 2012		December 31, 2011
Equity futures	$	—	$	59	$	—	$	—
Equity options	7,442		6,760		286		357
Total	$	7,442	$	6,819	$	286	$	357

International program

The Company formerly offered certain variable annuity products in the U.K. and Japan with GMWB or GMAB riders, which are bifurcated embedded derivatives (“International program product derivatives”). The GMWB provides the policyholder with a GRB if the account value is reduced to zero through a combination of market declines and withdrawals. The GRB is generally equal to premiums less withdrawals. Certain contract provisions can increase the GRB at contractholder election or after the passage of time. The GMAB provides the policyholder with their initial deposit in a lump sum after a specified waiting period. The notional amount of the International program product derivatives are the foreign currency denominated GRBs converted to U.S. dollars at the current foreign spot exchange rate as of the reporting period date.

The Company enters into derivative contracts (“International program hedging instruments”) to hedge a portion of the capital market risk exposures associated with the guaranteed benefits associated with the international variable annuity contracts. The hedging derivatives are comprised of equity futures, options, and swaps and currency forwards and options to partially hedge against a decline in the debt and equity markets or changes in foreign currency exchange rates and the resulting statutory surplus and capital impact primarily arising from GMDB, GMIB and GMWB obligations issued in the U.K. and Japan. The Company also enters into foreign currency denominated interest rate swaps and swaptions to hedge the interest rate exposure related to the potential annuitization of certain benefit obligations. The following table represents notional and fair value for the international program hedging instruments.

	Notional Amount				Fair Value
	December 31, 2012		December 31, 2011		December 31, 2012			December 31, 2011
Credit derivatives	$	350	$	—	$	28		$	—
Currency forwards [1]	9,327		8,622		(87		)	446
Currency options	10,342		7,357		(24		)	127
Equity futures	2,332		3,835		—			—
Equity options	3,952		1,565		47			74
Equity swaps	2,617		392		(12		)	(8		)
Customized swaps	899		—		(11		)	—
Interest rate futures	634		739		—			—
Interest rate swaps and swaptions	32,632		11,216		228			111
Total	$	63,085	$	33,726	$	169		$	750

[1] As of December 31, 2012 and December 31, 2011 net notional amounts are $0.1 billion and $7.2 billion, respectively, which include $4.7 billion and $7.9 billion, respectively, related to long positions and $4.6 billion and $0.7 billion, respectively, related to short positions.

Contingent capital facility put option

The Company entered into a put option agreement that provides the Company the right to require a third-party trust to purchase, at any time, The Hartford’s junior subordinated notes in a maximum aggregate principal amount of $500. Under the put option agreement, The Hartford will pay premiums on a periodic basis and will reimburse the trust for certain fees and ordinary expenses.

Derivative Balance Sheet Classification

The table below summarizes the balance sheet classification of the Company’s derivative related fair value amounts, as well as the gross asset and liability fair value amounts. For reporting purposes, the Company offsets the fair value amounts, income accruals, and cash collateral held related to derivative instruments executed in a legal entity and with the same counterparty under a master netting agreement, which provides the Company with the legal right of offset. The fair value amounts presented below do not include income accruals or cash collateral held amounts, which are netted with derivative fair value amounts to determine balance sheet presentation. Derivative fair value reported as liabilities after taking into account the master netting agreements, is $1.5 billion and $3.2 billion as of December 31, 2012, and December 31, 2011, respectively. Derivatives in the Company’s separate accounts are not included because the associated gains and losses accrue directly to policyholders. The Company’s derivative instruments are held for risk management purposes, unless otherwise noted in the table below. The notional amount of derivative contracts represents the basis upon which pay or receive amounts are calculated and is presented in the table to quantify the volume of the Company’s derivative activity. Notional amounts are not necessarily reflective of credit risk.

	Net Derivatives										Asset Derivatives				Liability Derivatives
	Notional Amount				Fair Value						Fair Value				Fair Value
Hedge Designation/ Derivative Type	Dec 31, 2012		Dec 31, 2011		Dec 31, 2012			Dec 31, 2011			Dec 31, 2012		Dec 31, 2011		Dec 31, 2012			Dec 31, 2011
Cash flow hedges
Interest rate swaps	$	6,063	$	8,652	$	271		$	329		$	271	$	329	$	—		$	—
Foreign currency swaps	163		291		(17		)	6			3		30		(20		)	(24		)
Total cash flow hedges	6,226		8,943		254			335			274		359		(20		)	(24		)
Fair value hedges
Interest rate swaps	753		1,007		(55		)	(78		)	—		—		(55		)	(78		)
Foreign currency swaps	40		677		16			(39		)	16		63		—			(102		)
Total fair value hedges	793		1,684		(39		)	(117		)	16		63		(55		)	(180		)
Non-qualifying strategies
Interest rate contracts
Interest rate swaps, caps, floors, and futures	17,117		10,144		(497		)	(583		)	556		531		(1,053		)	(1,114		)
Foreign exchange contracts
Foreign currency swaps and forwards	355		380		(16		)	(12		)	5		6		(21		)	(18		)
Japan 3Win foreign currency swaps	1,816		2,054		(127		)	184			—		184		(127		)	—
Japanese fixed annuity hedging instruments	1,652		1,945		224			514			228		540		(4		)	(26		)
Credit contracts
Credit derivatives that purchase credit protection	1,823		1,721		(8		)	36			5		56		(13		)	(20		)
Credit derivatives that assume credit risk [1]	2,745		2,952		(29		)	(648		)	19		2		(48		)	(650		)
Credit derivatives in offsetting positions	9,497		8,189		(32		)	(57		)	94		164		(126		)	(221		)
Equity contracts
Equity index swaps and options	994		1,501		47			27			57		40		(10		)	(13		)
Variable annuity hedge program
U.S. GMWB product derivative [2]	28,868		34,569		(1,249		)	(2,538		)	—		—		(1,249		)	(2,538		)
U.S. GMWB reinsurance contracts	5,773		7,193		191			443			191		443		—			—
U.S. GMWB hedging instruments	18,622		16,406		572			894			743		1,022		(171		)	(128		)
U.S. macro hedge program	7,442		6,819		286			357			356		357		(70		)	—
International program product derivatives [2]	2,454		2,710		(48		)	(71		)	—		—		(48		)	(71		)
International program hedging instruments	63,085		33,726		169			750			1,020		887		(851		)	(137		)
Other
Contingent capital facility put option	500		500		23			28			23		28		—			—
Total non-qualifying strategies	162,743		130,809		(494		)	(676		)	3,297		4,260		(3,791		)	(4,936		)
Total cash flow hedges, fair value hedges, and non-qualifying strategies	$	169,762	$	141,436	$	(279	)	$	(458	)	$	3,587	$	4,682	$	(3,866	)	$	(5,140	)
Balance Sheet Location
Fixed maturities, available-for-sale	$	703	$	703	$	(32	)	$	(72	)	$	—	$	—	$	(32	)	$	(72	)
Other investments	54,504		60,227		1,045			2,331			1,581		3,165		(536		)	(834		)
Other liabilities	77,384		35,944		(177		)	(538		)	1,815		1,074		(1,992		)	(1,612		)
Consumer notes	26		35		(2		)	(4		)	—		—		(2		)	(4		)
Reinsurance recoverables	5,773		7,193		191			443			191		443		—			—
Other policyholder funds and benefits payable	31,372		37,334		(1,304		)	(2,618		)	—		—		(1,304		)	(2,618		)
Total derivatives	$	169,762	$	141,436	$	(279	)	$	(458	)	$	3,587	$	4,682	$	(3,866	)	$	(5,140	)

[1] The derivative instruments related to this strategy are held for other investment purposes.

[2] These derivatives are embedded within liabilities and are not held for risk management purposes.

Change in Notional Amount

The net increase in notional amount of derivatives since December 31, 2011, was primarily due to the following:

• $63.1 billion notional amount related to the international program hedging instruments as of December 31, 2012 consisted of $58.5 billion of long positions and $4.6 billion of offsetting short positions, resulting in a net notional amount of $53.9 billion. The $33.7 billion notional amount as of December 31, 2011 consisted of $33.0 billion of long positions and $0.7 billion of offsetting short positions, resulting in a net notional amount of $32.3 billion. The increase in net notional of $21.6 billion primarily resulted from the Company increasing its hedging of interest rate exposure.

Change in Fair Value

The improvement in the total fair value of derivative instruments since December 31, 2011, was primarily related to the following:

• The increase in fair value related to the combined GMWB hedging program, which includes the GMWB product, reinsurance, and hedging derivatives, was primarily due to a liability model assumption update, outperformance of the underlying actively managed funds as compared to their respective indices and lower equity market volatility.

• The increase in fair value related to credit derivatives that assume credit risk was primarily due to credit spread tightening and to the disposition of substantially all of the Company's interest in a consolidated VIE that contained a credit derivative. For more information on the disposition, see the Variable Interest Entity section of this footnote.

• The fair value related to the international program hedging instruments decreased as a result of the improvement in global equity markets and the depreciation of the Japanese yen in relation to the euro and the U.S. dollar.

• The fair value related to the Japanese fixed annuity hedging instruments and Japan 3Win foreign currency swaps decreased primarily due to the strengthening of the currency basis swap spread between U.S. dollar and Japanese yen, a decline in U.S. interest rates, and depreciation of the Japanese yen in relation to the U.S. dollar.

Cash Flow Hedges

For derivative instruments that are designated and qualify as cash flow hedges, the effective portion of the gain or loss on the derivative is reported as a component of OCI and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. Gains and losses on the derivative representing hedge ineffectiveness are recognized in current period earnings. All components of each derivative’s gain or loss were included in the assessment of hedge effectiveness.

The following table presents the components of the gain or loss on derivatives that qualify as cash flow hedges:

Derivatives in Cash Flow Hedging Relationships
	Gain (Loss) Recognized in OCI on Derivative (Effective Portion)								Net Realized Capital Gains(Losses) Recognized in Income on Derivative (Ineffective Portion)
	2012			2011			2010		2012		2011			2010
Interest rate swaps	$	120		$	337		$	294	$	—	$	(4	)	$	2
Foreign currency swaps	(31		)	(3		)	8		—		—			(1		)
Total	$	89		$	334		$	302	$	—	$	(4	)	$	1

Derivatives in Cash Flow Hedging Relationships
		Gain (Loss) Reclassified from AOCI into Income (Effective Portion)
	Location	2012			2011			2010
Interest rate swaps	Net realized capital gain/(loss)	$	90		$	9		$	18
Interest rate swaps	Net investment income	140			126			94
Foreign currency swaps	Net realized capital gain/(loss)	(6		)	(3		)	(7		)
Total		$	224		$	132		$	105

As of December 31, 2012, the before-tax deferred net gains on derivative instruments recorded in AOCI that are expected to be reclassified to earnings during the next twelve months are $180. This expectation is based on the anticipated interest payments on hedged investments in fixed maturity securities that will occur over the next twelve months, at which time the Company will recognize the deferred net gains (losses) as an adjustment to interest income over the term of the investment cash flows. The maximum term over which the Company is hedging its exposure to the variability of future cash flows (for forecasted transactions, excluding interest payments on existing variable-rate financial instruments) is approximately three years. Also included are deferred gains related to cash flow hedges associated with fixed-rate bonds sold as part of the Retirement Plans and Individual Life business dispositions completed January 1, 2013 and January 2, 2013, respectively. For further information on the business dispositions, see Note 2.

During the year ended December 31, 2012, the before-tax deferred net gains on derivative instruments reclassified from AOCI to earnings totaled $99. This primarily resulted from the discontinuance of cash flow hedges due to forecasted transactions no longer probable of occurring associated with variable rate bonds sold as part of the Individual Life and Retirement Plans business dispositions. For further information on the business dispositions, see Note 2. For the years ended December 31, 2011 and 2010, the Company had no net reclassifications and less than $1 of net reclassifications, respectively, from AOCI to earnings resulting from the discontinuance of cash-flow hedges due to forecasted transactions that were no longer probable of occurring.

Fair Value Hedges

For derivative instruments that are designated and qualify as a fair value hedge, the gain or loss on the derivative, as well as the offsetting loss or gain on the hedged item attributable to the hedged risk are recognized in current earnings. The Company includes the gain or loss on the derivative in the same line item as the offsetting loss or gain on the hedged item. All components of each derivative’s gain or loss were included in the assessment of hedge effectiveness.

The Company recognized in income gains (losses) representing the ineffective portion of fair value hedges as follows:

Derivatives in Fair Value Hedging Relationships
	Gain (Loss) Recognized in Income [1]
	2012						2011					2010
	Derivative			Hedged Item			Derivative			Hedged Item		Derivative			Hedged Item
Interest rate swaps
Net realized capital gains (losses)	$	(3	)	$	(3	)	$	(73	)	$	70	$	(43	)	$	36
Benefits, losses and loss adjustment expenses	—			—			(1		)	—		(1		)	3
Foreign currency swaps
Net realized capital gains (losses)	(7		)	7			(1		)	1		8			(8		)
Benefits, losses and loss adjustment expenses	(6		)	6			(22		)	22		(12		)	12
Total	$	(16	)	$	10		$	(96	)	$	93	$	(48	)	$	43

[1] The amounts presented do not include the periodic net coupon settlements of the derivative or the coupon income (expense) related to the hedged item. The net of the amounts presented represents the ineffective portion of the hedge.

Non-qualifying Strategies

For non-qualifying strategies, including embedded derivatives that are required to be bifurcated from their host contracts and accounted for as derivatives, the gain or loss on the derivative is recognized currently in earnings within net realized capital gains (losses). The following table presents the gain or loss recognized in income on non-qualifying strategies:

Non-qualifying Strategies
Gain (Loss) Recognized within Net Realized Capital Gains (Losses)
	December 31,
	2012			2011			2010
Interest rate contracts
Interest rate swaps, caps, floors, and forwards	$	21		$	(22	)	$	45
Foreign exchange contracts
Foreign currency swaps and forwards	19			3			(1		)
Japan 3Win foreign currency swaps [1]	(300		)	31			215
Japanese fixed annuity hedging instruments [2]	(178		)	109			385
Credit contracts
Credit derivatives that purchase credit protection	(64		)	(10		)	(23		)
Credit derivatives that assume credit risk	293			(174		)	196
Equity contracts
Equity index swaps and options	(39		)	(89		)	5
Variable annuity hedge program
U.S. GMWB product derivative	1,430			(780		)	486
U.S. GMWB reinsurance contracts	(280		)	131			(102		)
U.S. GMWB hedging instruments	(631		)	252			(295		)
U.S. macro hedge program	(340		)	(216		)	(445		)
International program product derivatives	36			(25		)	26
International program hedging instruments	(1,526		)	800			(15		)
Other
Contingent capital facility put option	(6		)	(5		)	(6		)
Total	$	(1,565	)	$	5		$	471

[1] The associated liability is adjusted for changes in spot rates through realized capital gains and was $189, $(100) and $(273) for the years ended December 31, 2012, 2011 and 2010, respectively.

[2] The associated liability is adjusted for changes in spot rates through realized capital gains and losses and was $245, $(129) and $(332) for the years ended December 31, 2012, 2011 and 2010, respectively.

For the year ended December 31, 2012, the net realized capital gain (loss) related to derivatives used in non-qualifying strategies was primarily comprised of the following:

• The net loss associated with the international program hedging instruments was primarily driven by an improvement in global equity markets and depreciation of the Japanese yen in relation to the euro and the U.S. dollar.

• The net gain related to the combined GMWB hedging program, which includes the GMWB product, reinsurance, and hedging derivatives, was primarily driven by liability model assumption updates, outperformance of underlying actively managed funds compared to their respective indices, and lower equity volatility.

• The net loss on the U.S. macro hedge program was primarily due to the passage of time, an improvement in domestic equity markets, and a decrease in equity volatility.

• The net loss related to the Japan 3Win foreign currency swaps and Japanese fixed annuity hedging instruments was primarily due to the depreciation of the Japanese yen in relation to the U.S. dollar, the strengthening of the currency basis swap spread between the U.S. dollar and the Japanese yen, and a decline in U.S. interest rates.

• The gain on credit derivatives that assume credit risk as a part of replication transactions resulted from credit spread tightening.

For the year ended December 31, 2011, the net realized capital gain (loss) related to derivatives used in non-qualifying strategies was primarily comprised of the following:

• The net gain associated with the international program hedging instruments was primarily driven by strengthening of the Japanese yen, a decline in global equity markets, and a decrease in interest rates.

• The loss related to the combined GMWB hedging program, which includes the GMWB product, reinsurance, and hedging derivatives, was primarily a result of a decrease in long-term interest rates and higher interest rate volatility.

• The net loss on the U.S. macro hedge program was primarily driven by time decay and a decrease in equity market volatility since the purchase date of certain options during the fourth quarter.

• The loss on credit derivatives that assume credit risk as a part of replication transactions resulted from credit spread widening.

For the year ended December 31, 2010, the net realized capital gain (loss) related to derivatives used in non-qualifying strategies was primarily due to the following:

• The net loss on the U.S. macro hedge program was primarily the result of a higher equity market valuation, time decay, and lower implied market volatility.

• The net gain on the Japanese fixed annuity hedging instruments was primarily due to the strengthening of the Japanese yen in comparison to the U.S. dollar.

• The net gain related to the Japan 3Win foreign currency swaps was primarily due to the strengthening of the Japanese yen in comparison to the U.S. dollar, partially offset by the decrease in long-term U.S. interest rates.

• The net gain associated with credit derivatives that assume credit risk as a part of replication transactions resulted from credit spread tightening.

• The gain related to the combined GMWB hedging program, which includes the GMWB product, reinsurance, and hedging derivatives, was primarily a result of liability model assumption updates during third quarter, lower implied market volatility, and outperformance of the underlying actively managed funds as compared to their respective indices, partially offset by a decrease in long-term interest rates and rising equity markets.

Refer to Note 13 for additional disclosures regarding contingent credit related features in derivative agreements.

Credit Risk Assumed through Credit Derivatives

The Company enters into credit default swaps that assume credit risk of a single entity, referenced index, or asset pool in order to synthetically replicate investment transactions. The Company will receive periodic payments based on an agreed upon rate and notional amount and will only make a payment if there is a credit event. A credit event payment will typically be equal to the notional value of the swap contract less the value of the referenced security issuer’s debt obligation after the occurrence of the credit event. A credit event is generally defined as a default on contractually obligated interest or principal payments or bankruptcy of the referenced entity. The credit default swaps in which the Company assumes credit risk primarily reference investment grade single corporate issuers and baskets, which include standard and customized diversified portfolios of corporate issuers. The diversified portfolios of corporate issuers are established within sector concentration limits and may be divided into tranches that possess different credit ratings.

The following tables present the notional amount, fair value, weighted average years to maturity, underlying referenced credit obligation type and average credit ratings, and offsetting notional amounts and fair value for credit derivatives in which the Company is assuming credit risk as of December 31, 2012 and 2011.

As of December 31, 2012
							Underlying Referenced Credit Obligation(s) [1]
Credit Derivative type by derivative risk exposure	Notional Amount [2]		Fair Value			Weighted Average Years to Maturity	Type	Average Credit Rating	Offsetting Notional Amount [3]		Offsetting Fair Value [3]
Single name credit default swaps
Investment grade risk exposure	$	2,321	$	7		3 years	Corporate Credit/ Foreign Gov.	A	$	1,367	$	(26	)
Below investment grade risk exposure	145		(1		)	1 year	Corporate Credit	B+	145		(3		)
Basket credit default swaps [4]
Investment grade risk exposure	3,978		7			3 years	Corporate Credit	BBB+	2,712		(13		)
Investment grade risk exposure	330		(17		)	4 years	CMBS Credit	A	330		17
Below investment grade risk exposure	195		(46		)	4 years	CMBS Credit	B+	195		46
Embedded credit derivatives
Investment grade risk exposure	525		478			4 years	Corporate Credit	BBB-	—		—
Total	$	7,494	$	428					$	4,749	$	21

December 31, 2011
							Unifying Refernced Credit Obligation(s) [1]
Credit Derivative type by derivative risk exposure	Notional Amount [2]		Fair Value			Weighted Average Years to Maturity	Type	Average Credit Rating	Offsetting Notional Amount [3]		Offsetting Fair Value [3]
Single name credit default swaps
Investment grade risk exposure	$	1,628	$	(34	)	3 years	Corporate Credit/ Foreign Gov.	A+	$	1,424	$	(15	)
Below investment grade risk exposure	170		(7		)	2 years	Corporate Credit	BB-	144		(5		)
Basket credit default swaps [4]
Investment grade risk exposure	3,645		(92		)	3 years	Corporate Credit	BBB+	2,001		29
Investment grade risk exposure	525		(98		)	5 years	CMBS Credit	BBB+	525		98
Below investment grade risk exposure	553		(509		)	3 years	Corporate Credit	BBB+	—		—
Embedded credit derivatives
Investment grade risk exposure	25		24			3 years	Corporate Credit	BBB-	—		—
Below investment grade risk exposure	500		411			5 years	Corporate Credit	BB+	—		—
Total	$	7,046	$	(305	)				$	4,094	$	107

[1] The average credit ratings are based on availability and the midpoint of the applicable ratings among Moody’s, S&P, and Fitch. If no rating is available from a rating agency, then an internally developed rating is used.

[2] Notional amount is equal to the maximum potential future loss amount. There is no specific collateral related to these contracts or recourse provisions included in the contracts to offset losses.

[3] The Company has entered into offsetting credit default swaps to terminate certain existing credit default swaps, thereby offsetting the future changes in value of, or losses paid related to, the original swap.

[4] Includes $4.5 billion and $4.2 billion as of December 31, 2012 and December 31, 2011, respectively, of standard market indices of diversified portfolios of corporate issuers referenced through credit default swaps. These swaps are subsequently valued based upon the observable standard market index. As of December 31, 2012, The Company did not hold customized diversified portfolios of corporate issuers referenced through credit default swaps. As of December 31, 2011 the Company held $553 of customized diversified portfolios of corporate issuers referenced through credit default swaps.

Collateral Arrangements

The Company enters into various collateral arrangements in connection with its derivative instruments, which require both the pledging and accepting of collateral. As of December 31, 2012 and 2011, collateral pledged having a fair value of $630 and $1.1 billion, respectively, was included in fixed maturities, AFS, in the Consolidated Balance Sheets.

From time to time, the Company enters into secured borrowing arrangements as a means to increase net investment income. The Company received cash collateral of $33 as of December 31, 2012 and 2011.

The following table presents the classification and carrying amount of derivative instruments collateral pledged.

	December 31, 2012		December 31, 2011
Fixed maturities, AFS	$	663	$	1,086
Short-term investments	208		199
Total collateral pledged	$	871	$	1,285

As of December 31, 2012 and 2011, the Company had accepted collateral with a fair value of $3.3 billion and $2.6 billion, respectively, of which $2.6 billion and $2.0 billion, respectively, was cash collateral which was invested and recorded in the Consolidated Balance Sheets in fixed maturities and short-term investments with corresponding amounts recorded in other assets and other liabilities. Included in the $2.6 billion of cash collateral, as of December 31, 2012, was $1.9 billion which relates to repurchase agreements and dollar roll transactions. The Company is only permitted by contract to sell or repledge the noncash collateral in the event of a default by the counterparty. As of December 31, 2012 and 2011, noncash collateral accepted was held in separate custodial accounts and was not included in the Company’s Consolidated Balance Sheets.

Securities on Deposit with States

The Company is required by law to deposit securities with government agencies in states where it conducts business. As of December 31, 2012 and 2011, the fair value of securities on deposit was approximately $1.7 billion and $1.6 billion, respectively.