Assumed life reinsurance programs involving minimum benefit guarantees under annuity contracts

3 Months Ended

Mar. 31, 2015

Reinsurance Disclosures [Abstract]

Assumed life reinsurance programs involving minimum benefit guarantees under annuity contracts

Assumed life reinsurance programs involving minimum benefit guarantees under variable annuity contracts

The following table presents income and expenses relating to GMDB and GLB reinsurance. GLBs include GMIBs as well as some GMABs originating in Japan.

	Three Months Ended
	March 31
(in millions of U.S. dollars)	2015			2014
GMDB
Net premiums earned	$	16		$	19
Policy benefits and other reserve adjustments	$	9		$	15
GLB
Net premiums earned	$	32		$	36
Policy benefits and other reserve adjustments	12			9
Net realized gains (losses)	(45		)	(50		)
Loss recognized in Net income	$	(25	)	$	(23	)
Less: Net cash received	28			33
Net increase in liability	$	(53	)	$	(56	)

Net realized gains (losses) in the table above include gains (losses) related to foreign exchange and fair value adjustments on insurance derivatives and exclude gains (losses) on S&P put options and futures held to partially offset the risk in the GLB reinsurance portfolio. Refer to Note 7 for additional information.

At March 31, 2015 and December 31, 2014, the reported liability for GMDB reinsurance was $112 million and $111 million, respectively. At March 31, 2015 and December 31, 2014, the reported liability for GLB reinsurance was $716 million and $663 million, respectively, which includes a fair value derivative adjustment of $451 million and $406 million, respectively. Reported liabilities for both GMDB and GLB reinsurance are determined using internal valuation models. Such valuations require considerable judgment and are subject to significant uncertainty. The valuation of these products is subject to fluctuations arising from, among other factors, changes in interest rates, changes in equity markets, changes in credit markets, changes in the allocation of the investments underlying annuitants’ account values, and assumptions regarding future policyholder behavior. These models and the related assumptions are regularly reviewed by management and enhanced, as appropriate, based upon improvements in modeling assumptions and availability of updated information, such as market conditions and demographics of in-force annuities.