Derivative Financial Instruments (Tables)

9 Months Ended

Sep. 30, 2013

Derivative Financial Instruments

Volume and fair value positions of derivative instruments and location in the Condensed Consolidated Statement of Financial Position

The following table provides a summary of the volume and fair value positions of derivative instruments as well as their reporting location in the Condensed Consolidated Statement of Financial Position as of September 30, 2013.

($ in millions, except number of contracts)			Volume (1)
	Balance sheet location		Notional amount	Number of contracts		Fair value, net		Gross asset		Gross liability
Asset derivatives
Derivatives designated as accounting hedging instruments
Foreign currency swap agreements	Other investments	$	16	n/a	$	2	$	2	$	--
Derivatives not designated as accounting hedging instruments
Interest rate contracts
Interest rate swap agreements	Other investments		700	n/a		3		4		(1)
Interest rate cap agreements	Other investments		122	n/a		2		2		--
Equity and index contracts
Options and warrants (2)	Other investments		3	10,570		208		208		--
Foreign currency contracts
Foreign currency forwards	Other investments		355	n/a		11		12		(1)
Embedded derivative financial instruments
Conversion options	Fixed income securities		5	n/a		--		--		--
Credit default swaps	Fixed income securities		12	n/a		(12)		--		(12)
Other embedded derivative financial instruments	Other investments		1,000	n/a		--		--		--
Credit default contracts
Credit default swaps - buying protection	Other investments		101	n/a		(1)		1		(2)
Credit default swaps - selling protection	Other investments		155	n/a		2		2		--
Other contracts
Other contracts	Other assets		3	n/a		1		1		--
Subtotal			2,456	10,570		214		230		(16)
Total asset derivatives		$	2,472	10,570	$	216	$	232	$	(16)
Liability derivatives
Derivatives designated as accounting hedging instruments
Foreign currency swap agreements	Other liabilities & accrued expenses	$	132	n/a	$	(16)	$	--	$	(16)
Derivatives not designated as accounting hedging instruments
Interest rate contracts
Interest rate swap agreements	Other liabilities & accrued expenses		685	n/a		8		8		--
Interest rate cap agreements	Other liabilities & accrued expenses		234	n/a		3		3		--
Financial futures contracts	Other liabilities & accrued expenses		--	400		--		--		--
Equity and index contracts
Options and futures	Other liabilities & accrued expenses		81	11,723		(126)		1		(127)
Embedded derivative financial instruments
Guaranteed accumulation benefits	Contractholder funds		734	n/a		(54)		--		(54)
Guaranteed withdrawal benefits	Contractholder funds		505	n/a		(19)		--		(19)
Equity-indexed and forward starting options in life and annuity product contracts	Contractholder funds		1,463	n/a		(205)		--		(205)
	Liabilities held for sale		2,493	n/a		(249)		--		(249)
Other embedded derivative financial instruments	Contractholder funds		85	n/a		(5)		--		(5)
Credit default contracts
Credit default swaps – buying protection	Other liabilities & accrued expenses		355	n/a		(7)		--		(7)
Credit default swaps – selling protection	Other liabilities & accrued expenses		140	n/a		(15)		--		(15)
Subtotal			6,775	12,123		(669)		12		(681)
Total liability derivatives		$	6,907	12,123	$	(685)	$	12	$	(697)
Total derivatives		$	9,379	22,693	$	(469)

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(1) Volume for OTC derivative contracts is represented by their notional amounts.  Volume for exchange traded derivatives is represented by the number of contracts, which is the basis on which they are traded.  (n/a = not applicable)

(2) In addition to the number of contracts presented in the table, the Company held 2,860 stock rights and 887,964 stock warrants.  Stock rights and warrants can be converted to cash upon sale of those instruments or exercised for shares of common stock.

The following table provides a summary of the volume and fair value positions of derivative instruments as well as their reporting location in the Consolidated Statement of Financial Position as of December 31, 2012.

($ in millions, except number of contracts)			Volume (1)
	Balance sheet location		Notional amount	Number of contracts		Fair value, net		Gross asset		Gross liability
Asset derivatives
Derivatives designated as accounting hedging instruments
Foreign currency swap agreements	Other investments	$	16	n/a	$	2	$	2	$	--
Derivatives not designated as accounting hedging instruments
Interest rate contracts
Interest rate swap agreements	Other investments		5,541	n/a		19		28		(9)
Interest rate cap agreements	Other investments		372	n/a		1		1		--
Financial futures contracts	Other assets		n/a	2		--		--		--
Equity and index contracts
Options and warrants (2)	Other investments		146	12,400		125		125		--
Financial futures contracts	Other assets		n/a	1,087		5		5		--
Foreign currency contracts
Foreign currency forwards and options	Other investments		258	n/a		6		6		--
Embedded derivative financial instruments
Conversion options	Fixed income securities		5	n/a		--		--		--
Equity-indexed call options	Fixed income securities		90	n/a		9		9		--
Credit default swaps	Fixed income securities		12	n/a		(12)		--		(12)
Other embedded derivative financial instruments	Other investments		1,000	n/a		--		--		--
Credit default contracts
Credit default swaps - buying protection	Other investments		209	n/a		--		2		(2)
Credit default swaps - selling protection	Other investments		308	n/a		2		3		(1)
Other contracts
Other contracts	Other assets		4	n/a		1		1		--
Subtotal			7,945	13,489		156		180		(24)
Total asset derivatives		$	7,961	13,489	$	158	$	182	$	(24)
Liability derivatives
Derivatives designated as accounting hedging instruments
Foreign currency swap agreements	Other liabilities & accrued expenses	$	135	n/a	$	(19)	$	--	$	(19)
Derivatives not designated as accounting hedging instruments
Interest rate contracts
Interest rate swap agreements	Other liabilities & accrued expenses		1,185	n/a		16		18		(2)
Interest rate swaption agreements	Other liabilities & accrued expenses		250	n/a		--		--		--
Interest rate cap agreements	Other liabilities & accrued expenses		429	n/a		1		1		--
Financial futures contracts	Other liabilities & accrued expenses		--	357		--		--		--
Equity and index contracts
Options and futures	Other liabilities & accrued expenses		--	12,262		(58)		--		(58)
Foreign currency contracts
Foreign currency forwards and options	Other liabilities & accrued expenses		139	n/a		(1)		1		(2)
Embedded derivative financial instruments
Guaranteed accumulation benefits	Contractholder funds		820	n/a		(86)		--		(86)
Guaranteed withdrawal benefits	Contractholder funds		554	n/a		(39)		--		(39)
Equity-indexed and forward starting options in life and annuity product contracts	Contractholder funds		3,916	n/a		(419)		--		(419)
Other embedded derivative financial instruments	Contractholder funds		85	n/a		(9)		--		(9)
Credit default contracts
Credit default swaps – buying protection	Other liabilities & accrued expenses		420	n/a		(3)		2		(5)
Credit default swaps – selling protection	Other liabilities & accrued expenses		285	n/a		(29)		1		(30)
Subtotal			8,083	12,619		(627)		23		(650)
Total liability derivatives		$	8,218	12,619	$	(646)	$	23	$	(669)
Total derivatives		$	16,179	26,108	$	(488)

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(1) Volume for OTC derivative contracts is represented by their notional amounts.  Volume for exchange traded derivatives is represented by the number of contracts, which is the basis on which they are traded.  (n/a = not applicable)

(2) In addition to the number of contracts presented in the table, the Company held 34,634 stock rights and 879,158 stock warrants.  Stock rights and warrants can be converted to cash upon sale of those instruments or exercised for shares of common stock.

Schedule of gross and net amount for the Company's OTC derivatives subject to enforceable master netting arrangements

($ in millions)				Offsets
		Gross amount		Counter- party netting		Cash collateral (received) pledged		Net amount on balance sheet		Securities collateral (received) pledged		Net amount
September 30, 2013
Asset derivatives	$	34	$	(16)	$	(10)	$	8	$	(2)	$	6
Liability derivatives		(40)		16		(2)		(26)		24		(2)
December 31, 2012
Asset derivatives	$	66	$	(35)	$	(22)	$	9	$	(4)	$	5
Liability derivatives		(70)		35		(2)		(37)		25		(12)

Impacts on operations and AOCI from foreign currency contracts, cash flow hedges

($ in millions)		Three months ended September 30,				Nine months ended September 30,
		2013		2012		2013		2012
(Loss) gain recognized in OCI on derivatives during the period	$	(7)	$	(3)	$	2	$	(3)
Loss recognized in OCI on derivatives during the term of the hedging relationship		(19)		(19)		(19)		(19)
Loss reclassified from AOCI into income (net investment income)		--		--		(1)		--
Loss reclassified from AOCI into income (realized capital gains and losses)		--		--		--		(1)

Gains and losses from valuation, settlements, and hedge ineffectiveness, fair value hedges and derivatives not designated as hedges

($ in millions)		Realized capital gains and losses		Life and annuity contract benefits		Interest credited to contractholder funds		Operating costs and expenses		Total gain (loss) recognized in net income on derivatives
Three months ended September 30, 2013
Interest rate contracts	$	(1)	$	--	$	--	$	--	$	(1)
Equity and index contracts		(4)		--		16		10		22
Embedded derivative financial instruments		--		10		(9)		--		1
Foreign currency contracts		--		--		--		11		11
Credit default contracts		(7)		--		--		--		(7)
Other contracts		--		--		--		--		--
Total	$	(12)	$	10	$	7	$	21	$	26
Nine months ended September 30, 2013
Interest rate contracts	$	2	$	--	$	--	$	--	$	2
Equity and index contracts		(9)		--		63		23		77
Embedded derivative financial instruments		(1)		56		(35)		--		20
Foreign currency contracts		(4)		--		--		4		--
Credit default contracts		10		--		--		--		10
Other contracts		--		--		(3)		--		(3)
Total	$	(2)	$	56	$	25	$	27	$	106

($ in millions)		Net investment income		Realized capital gains and losses		Life and annuity contract benefits		Interest credited to contractholder funds		Operating costs and expenses		Total gain (loss) recognized in net income on derivatives
Three months ended September 30, 2012
Derivatives in fair value accounting hedging relationships
Interest rate contracts	$	--	$	--	$	--	$	--	$	--	$	--
Derivatives not designated as accounting hedging instruments
Interest rate contracts		--		(2)		--		--		--		(2)
Equity and index contracts		--		(6)		--		19		6		19
Embedded derivative financial instruments		--		2		18		138		--		158
Foreign currency contracts		--		1		--		--		5		6
Credit default contracts		--		3		--		--		--		3
Other contracts		--		--		--		1		--		1
Total	$	--	$	(2)	$	18	$	158	$	11	$	185
Nine months ended September 30, 2012
Derivatives in fair value accounting hedging relationships
Interest rate contracts	$	(1)	$	--	$	--	$	--	$	--	$	(1)
Derivatives not designated as accounting hedging instruments
Interest rate contracts		--		(1)		--		--		--		(1)
Equity and index contracts		--		(5)		--		56		15		66
Embedded derivative financial instruments		--		21		32		140		--		193
Foreign currency contracts		--		1		--		--		7		8
Credit default contracts		--		11		--		--		--		11
Other contracts		--		--		--		3		--		3
Subtotal		--		27		32		199		22		280
Total	$	(1)	$	27	$	32	$	199	$	22	$	279

Impact on operations, changes in fair value, fair value hedges

($ in millions)		Gain (loss) on derivatives		Gain (loss) on hedged risk
Location of gain or (loss) recognized in net income on derivatives		Interest rate contracts		Investments
Three months ended September 30, 2012
Net investment income	$	1	$	(1)
Nine months ended September 30, 2012
Net investment income	$	3	$	(3)

Counterparty credit exposure by counterparty credit rating

($ in millions)	September 30, 2013							December 31, 2012
Rating (1)	Number of counter- parties		Notional amount (2)		Credit exposure (2)		Exposure, net of collateral (2)	Number of counter- parties		Notional amount (2)		Credit exposure (2)		Exposure, net of collateral (2)
A+	2	$	101	$	1	$	1	2	$	29	$	1	$	1
A	3		32		2		--	4		2,450		13		2
A-	4		514		11		4	3		797		8		2
BBB+	1		776		4		1	1		3,617		11		--
Total	10	$	1,423	$	18	$	6	10	$	6,893	$	33	$	5

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(1)  Rating is the lower of S&P or Moody’s ratings.

(2)  Only OTC derivatives with a net positive fair value are included for each counterparty.

Derivative instruments with credit features in a liability position, including fair value of assets and collateral netted against the liability

($ in millions)		September 30, 2013		December 31, 2012
Gross liability fair value of contracts containing credit-risk-contingent features	$	29	$	65
Gross asset fair value of contracts containing credit-risk-contingent features and subject to MNAs		(14)		(31)
Collateral posted under MNAs for contracts containing credit-risk-contingent features		(13)		(25)
Maximum amount of additional exposure for contracts with credit-risk-contingent features if all features were triggered concurrently	$	2	$	9

CDS notional amounts by credit rating and fair value of protection sold

($ in millions)		Notional amount
		AAA		AA		A		BBB		BB and lower		Total		Fair value
September 30, 2013
Single name
Investment grade corporate debt (1)	$	--	$	20	$	30	$	65	$	--	$	115	$	2
Baskets
First-to-default
Municipal		--		--		100		--		--		100		(16)
Index
Investment grade corporate debt (1)		--		1		20		55		4		80		1
Total	$	--	$	21	$	150	$	120	$	4	$	295	$	(13)
December 31, 2012
Single name
Investment grade corporate debt (1)	$	5	$	20	$	53	$	80	$	10	$	168	$	--
Municipal		--		25		--		--		--		25		(3)
Subtotal		5		45		53		80		10		193		(3)
Baskets
First-to-default
Municipal		--		--		100		--		--		100		(26)
Index
Investment grade corporate debt (1)		--		3		79		204		14		300		2
Total	$	5	$	48	$	232	$	284	$	24	$	593	$	(27)

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(1) Investment grade corporate debt categorization is based on the rating of the underlying name(s) at initial purchase.