UNITED STATES
SECURITIES EXCHANGE ACT OF 1934
2014
SECURITIES EXCHANGE ACT OF 1934
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| Illinois | 36-2554642 | ||
| (State or Other Jurisdiction of | (I.R.S. Employer | ||
Incorporation or Organization) | Identification No.) | ||
Smaller reporting company TABLE OF CONTENTS Item 1. Unresolved Staff Comments Item 2. Properties Item 3. Legal Proceedings Item 4. Mine Safety Disclosures PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Item 6. Selected Financial Data Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations Item 7A. Quantitative and Qualitative Disclosures About Market Risk Item 8. Financial Statements and Supplementary Data Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Item 9A. Controls and Procedures Item 9B. Other Information PART III Item 10. Directors, Executive Officers and Corporate Governance * N/A Item 11. Executive Compensation * N/A Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters * N/A Item 13. Certain Relationships and Related Transactions, and Director Independence * N/A Item 14. Principal Accounting Fees and Services PART IV Item 15. Exhibits and Financial Statement Schedules Signatures Financial Statement Schedules * Omitted pursuant to General Instruction I(2) of Form 10-K Part I Workplace enrolling independent agents Middle market consumers in New York with family financial protection needs employed by small, medium, and large size firms We compete on a wide variety of factors, including The market for life insurance Rico. Texas These risks and uncertainties include, but are not limited to, those described in Part 1, “Item 1A. Risk Factors” and elsewhere in this report and those described from time to time in our other reports filed with the Securities and Exchange Commission. account rating agencies and regulatory requirements. We monitor and manage our pricing and overall sales mix to achieve target new business returns on a portfolio basis, which could result in the discontinuation or de-emphasis of products levels. It may also complicate settlement of We plan to outsource the administration of our annuity business to a third party administration company in 2015 following the successful transition of the servicing of the LBL business that was sold. If our efforts are unsuccessful, our cost structure may be less competitive. assumed in pricing original levels assumed in pricing. related to investments in real estate, loans and securities collateralized by real estate. Some of our investment strategies target individual investments with unique risks that are not highly correlated with broad market risks. Although we expect these investments to increase total portfolio returns over time, their performance may vary from and under-perform relative to the market in some periods. financial condition. The determination of the amount of realized capital losses recorded for impairments of our investments is subjective and could materially impact our operating results and financial condition Because of the competitive nature of the insurance industry, there can be no assurance that we will continue to effectively compete with our industry rivals, or that competitive pressures will not have a material effect on our business, operating results or financial condition. This includes competition for producers such as exclusive agents and their licensed sales professionals. In the event we are unable to attract and retain these producers or they are unable to attract customers for our products, growth could be materially affected. Furthermore, certain competitors operate using a mutual insurance company structure and therefore may have dissimilar profitability and return targets. Additionally, monetary policies among major central banks have begun to diverge. The United States Federal Reserve and the Bank of England continue to evaluate the timing and pace of normalizing their respective policies. In contrast, the European Central Bank has recently launched a quantitative easing program and several central banks have lowered their benchmark interest rates to stimulate economic activity. The diverging policies are likely to result in higher volatility and less certainty in capital markets. ability to grow or to achieve targeted profitability. Moreover, laws and regulations are administered and enforced by a number of different governmental authorities, each of which exercises a degree of interpretive latitude, including state insurance regulators; state securities administrators; state attorneys Loss of key vendor relationships or failure of a vendor to protect our data or personal information of our customers facilities around the world.Yes No X Yes No X Yes X No Yes X No Large accelerated filer ____ Accelerated filer ____ Yes No X 8, 2013,4, 2015, the registrant had 23,800 common shares, $227 par value, outstanding, all of which are held by Allstate Insurance Company.PagePART IItem 1.Business1Item 1A.Risk Factors4Business Item 1A. Risk Factors Item 1B. 111111111212134546103103103104105109retirement and investment products.voluntary accident and health insurance. It conducts substantially all of its operations directly or through wholly owned United States subsidiaries. In this document, we refer to Allstate Life Insurance Company as “Allstate Life” or “ALIC” and to Allstate Life and its wholly owned subsidiaries as the “Allstate Life Group” or the “Company”.AllstateAllstate’s strategy is reinventingto reinvent protection and retirement to help individuals in approximately 16 million householdsconsumers protect what they have today and better prepare for tomorrow. Customers can access Allstate products and services such as auto and homeowners insurance through 11,200 exclusive Allstate agencies and financial representatives in the United States and Canada, as well as through independent agencies, call centers and the internet. Allstate is the 2nd largest personal property and casualty insurer in the United States on the basis of 20112013 statutory direct premiums earned.earned according to A.M. Best. In addition, according to A.M. Best, it is the nation’s 16th largest issuer of life insurance business on the basis of 20112013 ordinary life insurance in force and 2329rdth largest on the basis of 20112013 statutory admitted assets.providessells traditional, interest-sensitive and variable life insurance retirementthrough Allstate exclusive agencies and investment products,exclusive financial specialists. The majority of life insurance business written involves exclusive financial specialists, including referrals from exclusive agencies and licensed sales professionals. We also sell voluntary accident and health insurance. Our principal products are interest-sensitive, traditionalinsurance through workplace enrolling independent agents in New York. We previously offered and variable life insurance, andcontinue to have in force fixed annuities includingsuch as deferred and immediate. Ourimmediate annuities, and institutional products which we most recently offered in 2008, consistconsisting of funding agreements sold to unaffiliated trusts that use them to back medium-term notes issued to institutional and individual investors.notes. The table below lists our majorcurrent distribution channels with the associated products and targetedtarget customers.As the table indicates, we sell products to individuals through multiple intermediary distribution channels, including Allstate exclusive agencies and exclusive financial specialists, independent master brokerage agencies, workplace enrolling independent agents in New York, directly through call centers and the internet, and through March 22, 2013, specialized structured settlement brokers.Distribution Channels, Products and Target CustomersDistribution ChannelProprietary ProductsTarget CustomersAllstate exclusive agencies (Allstate Exclusive Agents and Allstate Exclusive Financial Specialists)exclusive financial specialistsDeferred fixed annuities (including indexedmarket value adjusted “MVA”)Immediate fixed annuitiesMiddle market (1), emerging affluent (2)service and mass affluent consumers (3) with retirement and family financial protection needsIndependent master brokerage agenciesTerm life insuranceInterest-sensitive life insuranceVariable life insuranceDeferred fixed annuities (including indexed and MVA)Immediate fixed annuitiesEmerging affluent and mass affluent consumers with retirement and family financial protection needs (4) in New YorkStructured settlement annuity brokersStructured settlement annuitiesTypically used to fund or annuitize large claims or litigation settlementsBroker-dealers(Funding agreements)Funding agreements backing medium-term notesInstitutional and individual investorsDirect(includes call centers and the internet) (5)Term life insuranceWhole life insuranceInterest-sensitive life insuranceMiddle market (1), emerging affluent (2) and mass affluent consumers (3) with family financial protection needs(1) Consumers with $35,000-$75,000 in household income.(2) Consumers with $75,000-$150,000 in household income.(3) Consumers with greater than $150,000 in household income.(4) Interest-sensitive and term life insurance; disability income insurance; and cancer, accident and critical illness insurance.(5) Internet sales are not available in all states.Competitionthe type and level of service provided by distribution systems, product offerings, the positioning of brands,brand recognition, financial strength and ratings, pricesprice, distribution and the level of customer service. With regard to funding agreements, which we most recently offered in 2008, we compete principally on the basis of our financial strength and ratings. retirement and investment products continues to be highly fragmented and competitive. As of December 31, 2012,2013, there were approximately 430400 groups of life insurance companies in the United States, most of which offered one or more similar products. According to A.M. Best, as of December 31, 2011,2013, the Allstate Life Group is the nation’s 16th largest issuer of life insurance and related business on the basis of 20112013 ordinary life insurance in force and 2429th largest on the basis of 20112013 statutory admitted assets. In addition, because many of these products include a savings or investment component, our competition includes domestic and foreign securities firms, investment advisors, mutual funds, banks and other financial institutions. Competitive pressure continues to grow due to several factors, including cross marketing alliances between unaffiliated businesses, as well as consolidation activity in the financial services industry.retirement and investment productsthroughout the United States and voluntary accident and health insurance throughout the United States.in New York. The Allstate Life Group is authorized to sell various types of these products in all 50 states, the District of Columbia and Puerto Rico, the U.S. Virgin Islands and Guam. We also have sold funding agreements in the United States.2012,2014, based on information contained in statements filed with state insurance departments. No other jurisdiction accounted for more than 5 percent of the statutory premiums and annuity considerations.California12.7 %Texas7.6Florida13.4 7.1% 9.2 New York 8.9 5.9Florida 7.1 Illinois 5.3 In general, such regulation is intended for the protection of those who purchase or use insurance products. These rules have a substantial effect on our business and relate to a wide variety of matters, including insurer solvency, reserve adequacy, insurance company licensing and examination, agent licensing, policy forms, rate setting, the nature and amount of investments, claims practices, participation in guaranty funds, transactions with affiliates, the payment of dividends, underwriting standards, statutory accounting methods, trade practices, and corporate governance. Some of these matters are discussed in more detail below. For a discussion of statutory financial information, see Note 1415 of the consolidated financial statements. For a discussion of regulatory contingencies, see Note 1112 of the consolidated financial statements. Notes 1112 and 1415 are incorporated in this Part I, Item 1 by reference.Hundreds ofSome regulations required pursuant to this law must still be finalized, and we cannot predict what the final regulations will require but do not expect a material impact on the Allstate Life Group’s operations. The lawDodd-Frank also created the Federal Insurance Office (“FIO”) within the Treasury Department. The FIO monitors the insurance industry, provides advice to the Financial Stability Oversight Council (“FSOC”), represents the U.S. on international insurance matters, and studies the current regulatory system, and is expected to submit a reportsystem. FIO submitted reports to Congress in 2013.2013 and 2014 addressing how to improve and modernize the system of insurance regulation. In addition, state legislators and insurance regulators continue to examine the appropriate nature and scope of state insurance regulation. We cannot predict whether any specific state or federal measures will be adopted to change the nature or scope of the regulation of insurance or what effect any such measures would have on the Allstate Life Group.1415 of the consolidated financial statements.namesname “Allstate” and “Lincoln Benefit Life®” extensively in our business, along with related service marks, logos, and slogans, such as “Good Hands®.” Our rights in the United States to these names, service marks, logos, and slogans continue so long as we continue to use them in commerce. TheseMany service marks and many others used by Allstate are the subject of renewable U.S. and/or foreign service mark registrations. We believe that these service marks are important to our business and we intend to maintain our rights to them through continued use.Item 1A. Risk Factorsdocumentreport contains “forward-looking statements” that anticipate results based on our estimates, assumptions and plans that are subject to uncertainty. These statements are made subject to the safe-harbor provisions of the Private Securities Litigation Reform Act of 1995. We assume no obligation to update any forward-looking statements as a result of new information or future events or developments.These forward-lookingForward-looking statements do not relate strictly to historical or current facts and may be identified by their use of words like “plans,” “seeks,” “expects,” “will,” “should,” “anticipates,” “estimates,” “intends,” “believes,” “likely,” “targets” and other words with similar meanings. These statements may address, among other things, our strategy for growth, product development, investment results, regulatory approvals, market position, expenses, financial results, litigation and reserves. We believe that these statements are based on reasonable estimates, assumptions and plans. However, ifForward-looking statements speak only as of the estimates, assumptions or plans underlying thedate on which they are made, and we assume no obligation to update any forward-looking statements prove inaccurateas a result of new information or if otherfuture events or developments. In addition, forward-looking statements are subject to certain risks or uncertainties arise,that could cause actual results couldto differ materially from those communicated in these forward-looking statements.risks constitute our cautionary statements under the Private Securities Litigation Reform Act of 1995 and readers should carefully review such cautionary statements as they identify certain important factors that could cause actual results to differ materially from those in the forward-looking statements and historical trends. These cautionary statements are not exclusive and are in addition to other factors discussed elsewhere in this document, in our filings with the SEC or in materials incorporated therein by reference. or distribution relationships and a decline in sales. Profitability from new business emerges over a period of years depending on the nature and life of the product and is subject to variability as actual results may differ from pricing assumptions. Additionally, many of our products have fixed or guaranteed terms that limit our ability to increase revenues or reduce benefits, including credited interest, once the product has been issued. the adequacy of investment spreads, the management of market and credit risks associated with investments, the sufficiency of premiums and contract charges to cover mortality and morbidity benefits, the persistency of policies to ensure recovery of acquisition expenses, the adequacy of investment spreads, the management of market and credit risks associated with investments, and the management of operating costs and expenses within anticipated pricing allowances. Legislation and regulation of the insurance marketplace and products could also affect our profitability and financial condition.whichthat could have a material effect on our operating results.sales and profitability of spread-based products and institutional products, is dependent upon maintaining profitable spreads between investment yields and interest crediting rates. When market interest rates decrease or remain at relatively low levels, proceeds from investments that have matured or have been prepaid or sold may be reinvested at lower yields, reducing investment spread. Lowering interest crediting rates on some products in such an environment can partially offset decreases in investment yield. However, these changes could be limited by market conditions, regulatory minimum rates or contractual minimum rate guarantees on many contracts and may not match the timing or magnitude of changes in investment yields. Decreases in the interest crediting rates offered on products could make those products less attractive, leading to lower sales and/or changes in the level of policy loans, surrenders and withdrawals. Non-parallel shifts in interest rates, such as increases in short-term rates without accompanying increases in medium- and long-term rates, can influence customer demand for fixed annuities, which could impact the level and profitability of new customer deposits. Increases in market interest rates can also have negative effects, for example by increasing the attractiveness of other investments to our customers, which can lead to increased surrenders at a time when our fixed income investment asset values are lower as a result of the increase in interest rates. This could lead to the sale of fixed income securities at a loss. For certain products, principally fixed annuity and interest-sensitive life products, the earned rate on assets could lag behind rising market yields. We may react to market conditions by increasing crediting rates, which could narrow spreads and reduce profitability. Unanticipated surrenders could result in accelerated amortization of DAC or affect the recoverability of DAC and thereby increase expenses and reduce profitability. In addition, changes in market interest rates impact the valuation of derivatives embedded in equity-indexed annuity contracts that are not hedged, which could lead to volatility in net income. fixed annuities and other investment products may adversely affect our profitability and financial condition through the amortization of DAC fixed annuities and other investment contracts is amortized in proportion to actual historical gross profits and estimated future gross profits (“EGP”) over the estimated lives of the contracts. The principal assumptions for determining the amount of EGP are mortality, persistency, expenses, investment returns, including capital gains and losses on assets supporting contract liabilities, interest crediting rates to contractholders, and the effects of any hedges. Updates to these assumptions (commonly referred to as “DAC unlocking”) could result in accelerated amortization of DAC and thereby adversely affect our profitability and financial condition.may take additional operationaldiscontinued offering fixed annuities effective January 1, 2014. We also exited the independent master brokerage agencies and financial actions. Lower newstructured settlement annuity brokers distribution channels in 2013 and sold Lincoln Benefit Life Company (“LBL”) on April 1, 2014. The reduction in sales of these products could negatively impacthas and may continue to reduce investment portfolio levels,expiring contractscontract benefits including forced sales of assets with unrealized capital losses, and affect insurance reserves deficiency testing. and annuities, receive favorable tax treatment. This favorable treatment may give certain of our products a competitive advantage over noninsurance products. Congress and various state legislatures from time to time consider legislation that would reduce or eliminate the favorable policyholder tax treatment currently applicable to life insurance and annuities.insurance. Congress and various state legislatures also consider proposals to reduce the taxation of certain products or investments that may compete with life insurance or annuities.insurance. Legislation that increases the taxation on insurance products or reduces the taxation on competing products could lessen the advantage or create a disadvantage for certain of our products making them less competitive. Such proposals, if adopted, could have a material effect on our profitability and financial condition or ability to sell such products and could result in the surrender of some existing contracts and policies. In addition, changes in the federal estate tax laws could negatively affect the demand for the types of life insurance used in estate planning.pricedoriginal levelspriced levels.or currency exchange rates.rates, economic conditions for the overall economy or specific industry sectors or idiosyncratic risk on the operating performance of individual investments. Adverse changes toin these rates, spreads and prices may occur due to changes in fiscalmonetary policy and the economic climate, the liquidity of a market or market segment, investor return expectations and/or risk tolerance, insolvency or financial distress of key market makers or participants, or changes in market perceptions of credit worthiness and/orworthiness. We are also subject to market risk tolerance.is subject to the same risks. A declinevaries with liquidity and other conditions that may impact derivative and bond markets. Adverse economic conditions or other factors could cause declines in the quality and valuation of our investment portfolio as athat could result of adverse economic conditions or otherwise could cause additionalin realized and unrealized losseslosses. The concentration of our investment portfolios in any particular issuer, industry, collateral type, group of related industries, geographic sector or risk type could have an adverse effect on securities, including realizedour investment portfolios and unrealized losses relating to equityconsequently on our results of operations and derivative strategies.Deteriorating financial performance impacting securities collateralized by residential and commercial mortgage loans, collateralized corporate loans, and commercial mortgage loans may lead to write-downs and impact our results of operations and financial conditionChanges in residential or commercial mortgage delinquencies, loss severities or recovery rates, declining residential or commercial real estate prices, corporate loan delinquencies or recovery rates, changes in credit or bond insurer strength ratings and the quality of service provided by service providers on securities in our portfolio could lead us to determine that write-downs are necessary in the future.The impact of our investment strategies may be adversely affected by developments in the financial marketsThe impact of our investment management strategies may be adversely affected by unexpected developments in the financial markets. For example, derivative contracts may result in coverage that is not as effective as intended thereby leading to the recognition of losses without the recognition of gains expected to mitigate the losses.Concentration of our investment portfolio in any particular segment of the economy may have adverse effects on our operating results and financial conditionThe concentration of our investment portfolio in any particular industry, collateral type, group of related industries, geographic sector or risk type could have an adverse effect on our investment portfolio and consequently on our results of operations and financial condition. Events or developments that have a negative impact on any particular industry, group of related industries or geographic region may have a greater adverse effect on the investment portfolio to the extent that the portfolio is concentrated rather than diversified. management judgment involved in determining fair values is inversely related to the availability of market observable information. The fair value of assets may differ from the actual amount received upon sale of an asset in an orderly transaction between market participants at the measurement date. Moreover, the use of different valuation assumptions may have a material effect on the assets’ fair values. The difference between amortized cost or cost and fair value, net of deferred income taxes, certain DAC, certain deferred sales inducement costs, and certain reserves for life-contingent contract benefits, is reflected as a component of accumulated other comprehensive income in shareholder’s equity. Changing market conditions could materially affect the determination of the fair value of securities and unrealized net capital gains and losses could vary significantly.Our competitors include other insurers and, because someMany of our products include a savings or investment component, securities firms, investment advisers, mutual funds, banks and other financial institutions. Many of ourprimary insurance competitors have well-established national reputations and market similar products.filling critical leadership positions, in developing the talent and skills of our human resources, inattracting and assimilating new executive talent into our organization, or in deploying human resource talent consistently with our business goals.operatinginvestment results and these conditions may not improve in the near futureThere can be no assurance that actions of the U.S. federal government, Federal Reserve and other regulatory bodies for the purpose of stabilizing the financial markets and stimulating the economy will achieve the intended effectIn response to the financial crises affecting the banking system, the financial markets and the broader economy in recent years, the U.S. federal government, the Federal Reserve and other regulatory bodies have taken actions such as purchasing mortgage-backed and other securities from financial institutions; investing directly in banks, thrifts, and bank and savings and loan holding companies; and increasing federal spending to stimulate the economy. There can be no assurance as to the long term impact such actions will have on the financial markets or on economic conditions, including potential inflationary effects. Continued volatility and any further economic deterioration could materially and adversely affect our business, financial condition and results of operations.general;general and federal agencies including the SEC, the FINRA and the U.S. Department of Justice. Consequently, we are subject to the risk that compliance with any particular regulator’s or enforcement authority’s interpretation of a legal issue may not result in compliance with another’s interpretation of the same issue, particularly when compliance is judged in hindsight. In addition, there is risk that any particular regulator’s or enforcement authority’s interpretation of a legal issue may change over time to our detriment, or that changes in the overall legal environment may, even absent any particular regulator’s or enforcement authority’s interpretation of a legal issue changing, cause us to change our views regarding the actions we need to take from a legal risk management perspective, thus necessitating changes to our practices that may, in some cases, limit our ability to grow or to improve the profitability of our business. Furthermore, in some cases, these laws and regulations are designed to protect or benefit the interests of a specific constituency rather than a range of constituencies. For example, state insurance laws and regulations are generally intended to protect or benefit purchasers or users of insurance products. In many respects, these laws and regulations limit our ability to grow or to improve the profitability of our business.A large scale pandemic, the continued threat of terrorism or military actions may have an adverse effect on the level of claim losses we incur, the value of our investment portfolio, our competitive position, marketability of product offerings, liquidity and operating resultsA large scale pandemic, the continued threat of terrorism, within the United States and abroad, or military and other actions, and heightened security measures in response to these types of threats, may cause significant volatility and losses in our investment portfolio from declines in the equity markets and from interest rate changes in the United States, Europe and elsewhere, and result in loss of life, property damage, disruptions to commerce andreduced economic activity. Some of the assets in our investment portfolio may be adversely affected by declines in the equity markets and reduced economic activity caused by a large scale pandemic or the continued threat of terrorism. Additionally, a large scale pandemic or terrorist act could have a material effect on the sales, profitability, competitiveness, marketability of product offerings, liquidity, and operating results.change in our unrecognizedrealization of deferred tax benefit during the next 12 monthsassets is subject to uncertaintyWe have disclosedestimatedeferred tax assets, net of net unrecognizedvaluation allowance, if any, is based on our assumption that we will be able to fully utilize the deductions that are ultimately recognized for tax benefits and the reasonably possible increase or decrease in its balance during the next 12 months in Note 12 of the consolidated financial statements.purposes. However, actual results may differ from our estimate for reasons such as changes in our position on specific issues, developments with respect to the governments’ interpretationsassumptions if adequate levels of taxable income tax laws or changes in judgment resulting from new information obtained in audits or the appeals process.The occurrence of events unanticipated in our disaster recovery systems and management continuity planning or a support failure from external providers during a disaster could impair our ability to conduct business effectivelyThe occurrence of a disaster such as a natural catastrophe, an industrial accident, a terrorist attack or war, cyber attack, events unanticipated in our disaster recovery systems, or a support failure from external providers, could have an adverse effect on our ability to conduct business and on our results of operations and financial condition, particularly if those events affect our computer-based data processing, transmission, storage, and retrieval systems or destroy data. If a significant number of our managers were unavailable in the event of a disaster, our ability to effectively conduct our business could be severely compromised.We depend heavily upon computer systems to perform necessary business functions. Despite our implementation of a variety of security measures, our computer systems could be subject to cyber attacks and unauthorized access, such as physical and electronic break-ins or unauthorized tampering. Like other global companies, we have experienced threats to our data and systems, including malware and computer virus attacks, unauthorized access, system failures and disruptions. If one or more of these events occurs, it could potentially jeopardize the confidential, proprietary and other information processed and stored in, and transmitted through, our computer systems and networks, or otherwise cause interruptions or malfunctions in our operations, which could result in damage to our reputation, financial losses, litigation, increased costs, regulatory penalties and/or customer dissatisfaction or loss. claimants or employees could affect our operationssoftware.software and vendors of investment management services. In the event that one or more of our vendors suffers a bankruptcy or otherwise becomes unable to continue to provide products or services, or fails to protect our data or personal information of our customers claimants or employees, we may suffer operational impairments and financial losses.2012,2014, the Home Officehome office complex consists of several buildings totaling 2.3 million square feet of office space on a 278-acre282-acre site. In addition, the Parent Group operates various administrative, data processing, claims handling and other support facilities.AIC, except for office space in Lincoln, Nebraska that is leased by Lincoln Benefit Life Company, a wholly owned subsidiary of ALIC, for general operations, file storage and information technology.AIC. Expenses associated with facilities owned or leased by AIC are allocated to us on both a direct and an indirect basis, depending on the nature and use of each particular facility. We believe that these facilities are suitable and adequate for our current operations.1112 of the consolidated financial statements.11
5-YEAR SUMMARY OF SELECTED FINANCIAL DATA |
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($ in millions) |
| 2012 |
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| 2011 |
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| 2010 |
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| 2008 |
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Consolidated Operating Results |
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Premiums | $ | 593 |
| $ |
| 624 |
| $ |
| 592 |
| $ |
| 581 |
| $ |
| 585 |
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Contract charges |
| 1,029 |
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| 1,008 |
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| 991 |
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| 952 |
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| 911 |
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Net investment income |
| 2,597 |
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| 2,637 |
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| 2,760 |
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| 2,974 |
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| 3,720 |
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Realized capital gains and losses |
| (16 | ) |
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| 390 |
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| (513 | ) |
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| (420 | ) |
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| (3,052 | ) |
Total revenues |
| 4,203 |
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| 4,659 |
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| 3,830 |
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| 4,087 |
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| 2,164 |
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Net income (loss) |
| 426 |
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| 469 |
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| (40 | ) |
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| (514 | ) |
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| (1,549 | ) |
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Consolidated Financial Position |
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Investments | $ | 55,866 |
| $ |
| 56,277 |
| $ |
| 59,442 |
| $ |
| 60,217 |
| $ |
| 59,772 |
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Total assets |
| 70,111 |
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| 71,119 |
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| 75,981 |
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| 78,459 |
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| 81,581 |
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Reserve for life-contingent contract benefits |
| 52,751 |
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| 55,335 |
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| 59,178 |
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| 63,106 |
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| 69,036 |
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Notes due to related parties |
| 496 |
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| 700 |
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| 677 |
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| 675 |
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| 650 |
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Shareholder’s equity |
| 7,313 |
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| 6,067 |
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| 5,319 |
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| 3,960 |
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| 1,771 |
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12
| 5-YEAR SUMMARY OF SELECTED FINANCIAL DATA | |||||||||||||||||||
| ($ in millions) | 2014 | 2013 | 2012 | 2011 | 2010 | ||||||||||||||
| Consolidated Operating Results | |||||||||||||||||||
| Premiums | $ | 589 | $ | 613 | $ | 593 | $ | 624 | $ | 592 | |||||||||
| Contract charges | 847 | 1,054 | 1,029 | 1,008 | 991 | ||||||||||||||
| Net investment income | 2,081 | 2,485 | 2,597 | 2,637 | 2,760 | ||||||||||||||
| Realized capital gains and losses | 143 | 76 | (16 | ) | 390 | (513 | ) | ||||||||||||
| Total revenues | 3,660 | 4,228 | 4,203 | 4,659 | 3,830 | ||||||||||||||
| Net income (loss) | 526 | (38 | ) | 426 | 469 | (40 | ) | ||||||||||||
| Consolidated Financial Position | |||||||||||||||||||
Investments (1) | $ | 37,466 | $ | 37,944 | $ | 55,866 | $ | 56,277 | $ | 59,442 | |||||||||
| Total assets | 46,735 | 63,368 | 70,111 | 71,119 | 75,981 | ||||||||||||||
Reserve for life-contingent contract benefits and contractholder funds (1) | 33,382 | 35,193 | 52,751 | 55,335 | 59,178 | ||||||||||||||
| Notes due to related parties | 275 | 282 | 496 | 700 | 677 | ||||||||||||||
| Shareholder’s equity | 6,347 | 6,070 | 7,313 | 6,067 | 5,319 | ||||||||||||||
(1) | As of December 31, 2013, $11.98 billion of investments and $12.84 billion of reserves for life-contingent contract benefits and contractholder funds were classified as held for sale relating to the sale of Lincoln Benefit Life Company (see Note 3 of the consolidated financial statements). |
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
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Investments 2014 Highlights |
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·
Fair value of financial assets Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. We are responsible for the determination of fair value of financial assets and the supporting assumptions and methodologies. We use independent third-party valuation service providers, broker quotes and internal pricing methods to determine fair values. We obtain or calculate only one single quote or price for each financial instrument.
There is one primary situation where a discounted cash flow model utilizes a significant input that is not market observable, and it relates to the determination of fair value for our ARS backed by student loans. The significant input utilized is the anticipated date liquidity will return to this market (that is, when auction failures will cease). Determination of this assumption allows for matching to market observable inputs when performing these valuations.
The fair value of our ARS backed by student loans is $202 million as of December 31, 2012. We performed a sensitivity analysis of reasonably likely changes in the anticipated date liquidity will return to the student loan ARS market as of December 31, 2012. If the anticipated date liquidity will return to this market increased or decreased
by six months, the fair value of our ARS backed by student loans would decrease or increase by 2.0%, respectively. The selection of these hypothetical scenarios represents an illustration of the estimated potential proportional effect of alternate assumptions and should not be construed as either a prediction of future events or an indication that it would be reasonably likely that all securities would be similarly affected.
We gain assurance that our financial assets are appropriately valued through the execution of various processes and controls designed to ensure the overall reasonableness and consistent application of valuation methodologies, including inputs and assumptions, and compliance with accounting standards. For fair values received from third parties or internally estimated, our processes and controls are designed to ensure that the valuation methodologies are appropriate and consistently applied, the inputs and assumptions are reasonable and consistent with the objective of determining fair value, and the fair values are accurately recorded. For example, on a continuing basis, we assess the reasonableness of individual fair values that have stale security prices or that exceed certain thresholds as compared to previous fair values received from valuation service providers or brokers or derived from internal models. We perform procedures to understand and assess the methodologies, processes and controls of valuation service providers. In addition, we may validate the reasonableness of fair values by comparing information obtained from valuation service providers or brokers to other third party valuation sources for selected securities. We perform ongoing price validation procedures such as back-testing of actual sales, which corroborate the various inputs used in internal models to market observable data. When fair value determinations are expected to be more variable, we validate them through reviews by members of management who have relevant expertise and who are independent of those charged with executing investment transactions.
($ in millions) |
| Fair |
| Percent |
|
Fair value based on internal sources | $ | 5,679 |
| 12.3 | % |
Fair value based on external sources (1) |
| 40,417 |
| 87.7 |
|
Total | $ | 46,096 |
| 100.0 | % |
_____________
(1)determination. Includes $3.05 billion that are valued using broker quotes.
| ($ in millions) | Fair value | Percent to total | ||||
| Fair value based on internal sources | $ | 3,272 | 10.9 | % | ||
Fair value based on external sources (1) | 26,672 | 89.1 | ||||
| Total | $ | 29,944 | 100.0 | % | ||
(1). | Includes $1.24 billion that are valued using broker quotes. |
If we have not made the decision to sell the fixed income security and it is not more likely than not we will be required to sell the fixed income security before recovery of its amortized cost basis, we evaluate whether we expect to receive cash flows sufficient to recover the entire amortized cost basis of the security. We use our best estimate of future cash flows expected to be collected from the fixed income security, discounted at the security’s original or current effective rate, as appropriate, to calculate a recovery value and determine whether a credit loss exists. The determination of cash flow estimates is inherently subjective and methodologies may vary depending on facts and circumstances specific to the security. All reasonably available information relevant to the collectability of the security, including past events, current conditions, and reasonable and supportable assumptions and forecasts, are considered when developing the estimate of cash flows expected to be collected. That information generally includes, but is not limited to, the remaining payment terms of the security, prepayment speeds, foreign exchange rates, the financial condition and future earnings potential of the issue or issuer, expected defaults, expected recoveries, the value of underlying collateral, vintage, geographic concentration, available reserves or escrows, current subordination levels, third party guarantees and other credit enhancements. Other information, such as industry analyst reports and forecasts, sector credit ratings, financial condition of the bond insurer for insured fixed income securities, and other market data relevant to the realizability of contractual cash flows, may also be considered. The estimated fair value of collateral will be used to estimate recovery value if we determine that the security is dependent on the liquidation of collateral for ultimate settlement. If the estimated recovery value is less than the amortized cost of the security, a credit loss exists and an other-than-temporary impairment for the difference between the estimated recovery value and amortized cost is recorded in earnings. The portion of the unrealized loss related to factors other than credit remains classified in accumulated other comprehensive income. If we determine that the fixed income security does not have sufficient cash flow or other information to estimate a recovery value for the security, we may conclude that the entire decline in fair value is deemed to be credit related and the loss is recorded in earnings.
liquidity; and 4) the length of time and extent to which the fair value has been less than cost.
Deferred policy acquisition costs amortization We incur significant costs in connection with acquiring insurance policies and investment contracts. In accordance with GAAP, costs that are related directly to the successful acquisition of new or renewal insurance policies and investment contracts are deferred and recorded as an asset on the Consolidated Statements of Financial Position.
temporarily negative, EGP and AGP utilized in DAC amortization may be modified to exclude the excess capital losses.
($ in millions) |
| 2012 |
|
|
| 2011 |
|
|
| 2010 |
|
Investment margin | $ | 3 |
| $ |
| (3 | ) | $ |
| (9 | ) |
Benefit margin |
| 33 |
|
|
| (6 | ) |
|
| 22 |
|
Expense margin |
| (2 | ) |
|
| 18 |
|
|
| (30 | ) |
Net acceleration (deceleration) | $ | 34 |
| $ |
| 9 |
| $ |
| (17 | ) |
| ($ in millions) | 2014 | 2013 | 2012 | ||||||||
| Investment margin | $ | 5 | $ | (22 | ) | $ | 3 | ||||
| Benefit margin | 29 | 13 | 33 | ||||||||
| Expense margin | (41 | ) | 27 | (2 | ) | ||||||
| Net (deceleration) acceleration | $ | (7 | ) | $ | 18 | $ | 34 | ||||
($ in millions) |
| Increase/(reduction) in DAC |
Increase in future investment margins of 25 basis points | $ | 68 |
Decrease in future investment margins of 25 basis points | $ | (76) |
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|
|
Decrease in future life mortality by 1% | $ | 15 |
Increase in future life mortality by 1% | $ | (16) |
2014.
| ($ in millions) | Increase/(reduction) in DAC | ||
| Increase in future investment margins of 25 basis points | $ | 52 | |
| Decrease in future investment margins of 25 basis points | $ | (57 | ) |
| Decrease in future life mortality by 1% | $ | 13 | |
| Increase in future life mortality by 1% | $ | (14 | ) |
investment yields, mortality, morbidity, policy terminations and expenses are used when establishing the reserve for life-contingent contract benefits payable under these insurance policies. These assumptions, which for traditional life insurance are applied using the net level premium method, include provisions for adverse deviation and generally vary by characteristics such as type of coverage, year of issue and policy duration. Future investment yield assumptions are determined based upon prevailing investment yields as well as estimated reinvestment yields. Mortality, morbidity and policy termination assumptions are based on our experience and industry experience. Expense
| ($ in millions) | Weighted average guaranteed crediting rates | Weighted average current crediting rates | Contractholder funds | ||||||
| Annuities with annual crediting rate resets | 2.99 | % | 3.00 | % | $ | 6,112 | |||
Annuities with multi-year rate guarantees (1): | |||||||||
| Resettable in next 12 months | 1.24 | 3.90 | 690 | ||||||
| Resettable after 12 months | 1.36 | 3.24 | 1,881 | ||||||
| Interest-sensitive life insurance | 4.03 | 4.09 | 6,920 | ||||||
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These contracts include interest rate guarantee periods which are typically 5, 7 or 10 years.
institutional product line consists of funding agreements sold to unaffiliated trusts that use them to back medium-term notes issued to institutional and individual investors.
We continue to shiftwith an emphasis on our mix of products in force by decreasing our lower returning spread-based products, principally fixed annuities and institutional products, and through growth of our higher returning underwritten products having mortality risk, principallymore complex offerings, such as universal life insurance products. In additionSales
Based upon Allstate’s strong financial position and brand, we have a unique opportunity to cross-sell to our customer base. We will enhance trusted customer relationships through Allstate exclusive agencies to serve those who are looking for assistance in meetingencourage interaction with their protection and retirement needs by providing them with the information, products and services that they need. To further strengthen our value proposition to Allstate exclusive agencies and drive further engagement in selling our products, the new agent compensation structure incorporates sales of our products. During 2012, we introduced a new deferred annuity product that allows Allstate exclusive agents to continue to offer a full range of products that meet customer retirement needs while providing us an attractive risk adjusted return profile.
local agencies.
Outlook
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Summary analysis Summarized financial data for the years ended December 31 is presented in the following table.
($ in millions) |
| 2012 |
|
|
| 2011 |
|
|
| 2010 |
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
Premiums | $ | 593 |
| $ |
| 624 |
| $ |
| 592 |
|
Contract charges |
| 1,029 |
|
|
| 1,008 |
|
|
| 991 |
|
Net investment income |
| 2,597 |
|
|
| 2,637 |
|
|
| 2,760 |
|
Realized capital gains and losses |
| (16 | ) |
|
| 390 |
|
|
| (513 | ) |
Total revenues |
| 4,203 |
|
|
| 4,659 |
|
|
| 3,830 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses |
|
|
|
|
|
|
|
|
|
|
|
Contract benefits |
| (1,521 | ) |
|
| (1,502 | ) |
|
| (1,496 | ) |
Interest credited to contractholder funds |
| (1,289 | ) |
|
| (1,608 | ) |
|
| (1,764 | ) |
Amortization of DAC |
| (324 | ) |
|
| (430 | ) |
|
| (220 | ) |
Operating costs and expenses |
| (437 | ) |
|
| (394 | ) |
|
| (408 | ) |
Restructuring and related charges |
| -- |
|
|
| (1 | ) |
|
| 3 |
|
Interest expense |
| (45 | ) |
|
| (45 | ) |
|
| (44 | ) |
Total costs and expenses |
| (3,616 | ) |
|
| (3,980 | ) |
|
| (3,929 | ) |
|
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|
|
|
|
|
|
|
|
Gain on disposition of operations |
| 18 |
|
|
| 15 |
|
|
| 14 |
|
Income tax (expense) benefit |
| (179 | ) |
|
| (225 | ) |
|
| 45 |
|
Net income (loss) | $ | 426 |
| $ |
| 469 |
| $ |
| (40 | ) |
|
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|
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|
|
|
|
|
|
Investments as of December 31 | $ | 55,866 |
| $ |
| 56,277 |
| $ |
| 59,442 |
|
| ($ in millions) | 2014 | 2013 | 2012 | ||||||||
| Revenues | |||||||||||
| Premiums | $ | 589 | $ | 613 | $ | 593 | |||||
| Contract charges | 847 | 1,054 | 1,029 | ||||||||
| Net investment income | 2,081 | 2,485 | 2,597 | ||||||||
| Realized capital gains and losses | 143 | 76 | (16 | ) | |||||||
| Total revenues | 3,660 | 4,228 | 4,203 | ||||||||
| Costs and expenses | |||||||||||
| Contract benefits | (1,452 | ) | (1,606 | ) | (1,521 | ) | |||||
| Interest credited to contractholder funds | (891 | ) | (1,251 | ) | (1,289 | ) | |||||
| Amortization of DAC | (162 | ) | (240 | ) | (324 | ) | |||||
| Operating costs and expenses | (310 | ) | (434 | ) | (437 | ) | |||||
| Restructuring and related charges | (2 | ) | (6 | ) | — | ||||||
| Interest expense | (16 | ) | (23 | ) | (45 | ) | |||||
| Total costs and expenses | (2,833 | ) | (3,560 | ) | (3,616 | ) | |||||
| (Loss) gain on disposition of operations | (68 | ) | (687 | ) | 18 | ||||||
| Income tax expense | (233 | ) | (19 | ) | (179 | ) | |||||
| Net income (loss) | $ | 526 | $ | (38 | ) | $ | 426 | ||||
Net income in 2011 was $469 millioncompared to a net loss of $40 million in 2010. The improvement was primarily due to net realized capital gains in 2011 compared to net realized capital losses in 2010, decreased interest credited to contractholder funds and higher premiums and contract charges, partially offset by higher amortization of DAC and lower net investment income.
Analysis of revenues Total revenues decreased 9.8% or $456 million in 2012 compared to 2011 due to net realized capital losses in 2012 compared to net realized capital gains in 2011 and lower net investment income. Total revenues increased 21.6% or $829 million in 2011 compared to 2010 due to net realized capital gains in 2011 compared to net realized capital losses in 2010 and higher premiums and contract charges, partially offset by lower net investment income. Total revenues increased 0.6% or $25 million in 2013 compared to 2012, primarily due to net realized capital gains in 2013 compared to net realized capital losses in 2012 and higher premiums and contract charges, partially offset by lower net investment income.
The following table summarizes premiums and contract charges by product for the years ended December 31.
($ in millions) |
| 2012 |
|
|
| 2011 |
|
|
| 2010 |
|
Underwritten products |
|
|
|
|
|
|
|
|
|
|
|
Traditional life insurance premiums | $ | 449 |
| $ |
| 420 |
| $ |
| 399 |
|
Accident and health insurance premiums |
| 99 |
|
|
| 98 |
|
|
| 96 |
|
Interest-sensitive life insurance contract charges |
| 1,011 |
|
|
| 975 |
|
|
| 952 |
|
Subtotal |
| 1,559 |
|
|
| 1,493 |
|
|
| 1,447 |
|
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Annuities |
|
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|
|
|
|
|
|
Immediate annuities with life contingencies premiums |
| 45 |
|
|
| 106 |
|
|
| 97 |
|
Other fixed annuity contract charges |
| 18 |
|
|
| 33 |
|
|
| 39 |
|
Subtotal |
| 63 |
|
|
| 139 |
|
|
| 136 |
|
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Premiums and contract charges (1) | $ | 1,622 |
| $ |
| 1,632 |
| $ |
| 1,583 |
|
_______________
(1) Contract charges related to the cost of insurance totaled $685 million, $648 million and $627 million in 2012, 2011 and 2010, respectively.
| ($ in millions) | 2014 | 2013 | 2012 | ||||||||
| Underwritten products | |||||||||||
| Traditional life insurance premiums | $ | 492 | $ | 471 | $ | 449 | |||||
| Accident and health insurance premiums | 93 | 105 | 99 | ||||||||
| Interest-sensitive life insurance contract charges | 828 | 1,036 | 1,011 | ||||||||
| Subtotal | 1,413 | 1,612 | 1,559 | ||||||||
| Annuities | |||||||||||
| Immediate annuities with life contingencies premiums | 4 | 37 | 45 | ||||||||
| Other fixed annuity contract charges | 19 | 18 | 18 | ||||||||
| Subtotal | 23 | 55 | 63 | ||||||||
Premiums and contract charges (1) | $ | 1,436 | $ | 1,667 | $ | 1,622 | |||||
(1) | Contract charges related to the cost of insurance totaled $582 million, $714 million and $685 million in 2014, 2013 and 2012, respectively. |
discontinuing new sales January 1, 2014.
($ in millions) |
| 2012 |
|
|
| 2011 |
|
|
| 2010 |
|
Contractholder funds, beginning balance | $ | 41,669 |
| $ |
| 46,458 |
| $ |
| 50,850 |
|
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Deposits |
|
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Fixed annuities |
| 927 |
|
|
| 666 |
|
|
| 931 |
|
Interest-sensitive life insurance |
| 1,253 |
|
|
| 1,203 |
|
|
| 1,432 |
|
Total deposits |
| 2,180 |
|
|
| 1,869 |
|
|
| 2,363 |
|
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Interest credited |
| 1,296 |
|
|
| 1,592 |
|
|
| 1,752 |
|
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Benefits, withdrawals, maturities and other adjustments |
|
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Benefits |
| (1,454 | ) |
|
| (1,454 | ) |
|
| (1,537 | ) |
Surrenders and partial withdrawals |
| (3,969 | ) |
|
| (4,908 | ) |
|
| (4,166 | ) |
Maturities of and interest payments on institutional products |
| (138 | ) |
|
| (867 | ) |
|
| (1,833 | ) |
Contract charges |
| (995 | ) |
|
| (962 | ) |
|
| (921 | ) |
Net transfers from separate accounts |
| 11 |
|
|
| 12 |
|
|
| 11 |
|
Fair value hedge adjustments for institutional products |
| -- |
|
|
| (34 | ) |
|
| (196 | ) |
Other adjustments (1) |
| 34 |
|
|
| (37 | ) |
|
| 135 |
|
Total benefits, withdrawals, maturities and other adjustments |
| (6,511 | ) |
|
| (8,250 | ) |
|
| (8,507 | ) |
Contractholder funds, ending balance | $ | 38,634 |
| $ |
| 41,669 |
| $ |
| 46,458 |
|
____________________
| ($ in millions) | 2014 | 2013 | 2012 | ||||||||
| Contractholder funds, beginning balance | $ | 23,604 | $ | 38,634 | $ | 41,669 | |||||
| Contractholder funds classified as held for sale, beginning | 10,945 | — | — | ||||||||
| Total contractholder funds, including those classified as held for sale | 34,549 | 38,634 | 41,669 | ||||||||
| Deposits | |||||||||||
| Interest-sensitive life insurance | 953 | 1,276 | 1,253 | ||||||||
| Fixed annuities | 274 | 1,062 | 927 | ||||||||
| Total deposits | 1,227 | 2,338 | 2,180 | ||||||||
| Interest credited | 892 | 1,268 | 1,296 | ||||||||
| Benefits, withdrawals, maturities and other adjustments | |||||||||||
| Benefits | (1,178 | ) | (1,521 | ) | (1,454 | ) | |||||
| Surrenders and partial withdrawals | (2,253 | ) | (3,279 | ) | (3,969 | ) | |||||
| Maturities of and interest payments on institutional products | (2 | ) | (1,799 | ) | (138 | ) | |||||
| Contract charges | (798 | ) | (1,032 | ) | (995 | ) | |||||
| Net transfers from separate accounts | 7 | 12 | 11 | ||||||||
Other adjustments (1) | 34 | (72 | ) | 34 | |||||||
| Total benefits, withdrawals, maturities and other adjustments | (4,190 | ) | (7,691 | ) | (6,511 | ) | |||||
| Contractholder funds sold in LBL disposition | (10,662 | ) | — | — | |||||||
| Contractholder funds classified as held for sale | — | (10,945 | ) | — | |||||||
| Contractholder funds, ending balance | $ | 21,816 | $ | 23,604 | $ | 38,634 | |||||
| |
(1) | The table above illustrates the changes in contractholder funds, which are presented gross of reinsurance recoverables on the Consolidated Statements of Financial Position. The table above is intended to supplement our discussion and analysis of revenues, which are presented net of reinsurance on the Consolidated Statements of Operations and Comprehensive Income. As a result, the net change in contractholder funds associated with products reinsured to third parties is reflected as a component of the other adjustments line. |
no longer offering fixed annuity products beginning January 1, 2014, as well as lower deposits on interest-sensitive life insurance due to the LBL sale. Contractholder deposits increased 16.6%7.2% in 20122013 compared to 20112012, primarily due to increased fixed annuity deposits driven by the new equity-indexed annuity products launched in second quarter 2012. Contractholder deposits decreased 20.9% in 2011 compared to 2010 primarily due to lowerand higher deposits on fixed annuities.
immediate annuities, as well as higher deposits on interest-sensitive life insurance.
2012.
institutional products outstanding as of December 31, 2014.
Contract benefits decreased 9.6% or $154 million in 2014 compared to 2013. Excluding results of the LBL business for second through fourth quarter 2013 of $173 million, contract benefits increased 1.3% or $19 million in 20122014 compared to 20112013, primarily due to worse mortality experience on life insurance, partially offset by lower sales of immediate annuities with life contingencies and the reduction in reserves for secondary guarantees on interest-sensitive life insurance. Our 20122014 annual review of assumptions resulted in a $13an $11 million decreaseincrease in the reserves primarily for secondary guarantees on interest-sensitive life insurance due to favorableincreased projected mortality.exposure to secondary guarantees.
secondary guarantees.
($ in millions) |
| 2012 |
|
|
| 2011 |
|
|
| 2010 |
|
Life insurance | $ | 334 |
| $ |
| 342 |
| $ |
| 267 |
|
Accident and health insurance |
| 27 |
|
|
| 24 |
|
|
| 30 |
|
Annuities |
| (66 | ) |
|
| (55 | ) |
|
| (25 | ) |
Total benefit spread | $ | 295 |
| $ |
| 311 |
| $ |
| 272 |
|
| ($ in millions) | 2014 | 2013 | 2012 | ||||||||
| Life insurance | $ | 293 | $ | 310 | $ | 334 | |||||
| Accident and health insurance | 32 | 15 | 27 | ||||||||
| Annuities | (85 | ) | (77 | ) | (66 | ) | |||||
| Total benefit spread | $ | 240 | $ | 248 | $ | 295 | |||||
Benefit spread increased 14.3% or $39 million in 2011 compared to 2010 primarily due to reestimations of reserves that increased contract benefits for interest-sensitive life insurance and decreased contract benefits for immediate annuities with life contingencies in 2010, higher contract charges on interest-sensitive life and increased premiums on traditional life, partially offset by worse mortality experience on life insurance.
Interest credited to contractholder fundsdecreased 8.8% or $156 million in 2011 compared to 2010 primarily due to lower average contractholder funds and lower interest crediting rates on deferred fixed annuities, interest-sensitive life insurance and immediate fixed annuities. Additionally, valuation changes on derivatives embedded in equity-indexed annuity contracts that are not hedged increased interest credited to contractholder funds by $18 million in 2011. Amortization of deferred sales inducement costs was $23 million in 2011 compared to $27 million in 2010.
($ in millions) |
| 2012 |
|
|
| 2011 |
|
|
| 2010 |
|
Annuities and institutional products | $ | 290 |
| $ |
| 188 |
| $ |
| 179 |
|
Life insurance |
| 86 |
|
|
| 59 |
|
|
| 38 |
|
Accident and health insurance |
| 14 |
|
|
| 8 |
|
|
| 8 |
|
Net investment income on investments supporting capital |
| 254 |
|
|
| 251 |
|
|
| 222 |
|
Investment spread before valuation changes on embedded derivatives that are not hedged |
| 644 |
|
|
| 506 |
|
|
| 447 |
|
Valuation changes on derivatives embedded in equity-indexed annuity contracts that are not hedged |
| 126 |
|
|
| (18 | ) |
|
| -- |
|
Total investment spread | $ | 770 |
| $ |
| 488 |
| $ |
| 447 |
|
| ($ in millions) | 2014 | 2013 | 2012 | ||||||||
| Annuities and institutional products | $ | 319 | $ | 338 | $ | 290 | |||||
| Life insurance | 108 | 107 | 86 | ||||||||
| Accident and health insurance | 8 | 14 | 14 | ||||||||
| Net investment income on investments supporting capital | 256 | 272 | 254 | ||||||||
Investment spread before valuation changes on embedded derivatives that are not hedged | 691 | 731 | 644 | ||||||||
| Valuation changes on derivatives embedded in equity-indexed annuity contracts that are not hedged | (22 | ) | (24 | ) | 126 | ||||||
| Total investment spread | $ | 669 | $ | 707 | $ | 770 | |||||
|
| Weighted average |
| Weighted average |
| Weighted average |
| ||||||||||||
|
| 2012 |
| 2011 |
| 2010 |
| 2012 |
| 2011 |
| 2010 |
| 2012 |
| 2011 |
| 2010 |
|
Interest-sensitive life insurance |
| 5.3 | % | 5.4 | % | 5.5 | % | 4.0 | % | 4.2 | % | 4.4 | % | 1.3 | % | 1.2 | % | 1.1 | % |
Deferred fixed annuities and institutional products |
| 4.6 |
| 4.6 |
| 4.4 |
| 3.2 |
| 3.3 |
| 3.3 |
| 1.4 |
| 1.3 |
| 1.1 |
|
Immediate fixed annuities with and without life contingencies |
| 6.9 |
| 6.3 |
| 6.4 |
| 6.1 |
| 6.2 |
| 6.4 |
| 0.8 |
| 0.1 |
| -- |
|
Investments supporting capital, traditional life and other products |
| 4.1 |
| 4.0 |
| 3.9 |
| n/a |
| n/a |
| n/a |
| n/a |
| n/a |
| n/a |
|
For purposes of these calculations, investments, reserves and contractholder funds classified as held for sale were included for periods prior to April 1, 2014.
Weighted average investment yield | Weighted average interest crediting rate | Weighted average investment spreads | ||||||||||||||||||||||||
| 2014 | 2013 | 2012 | 2014 | 2013 | 2012 | 2014 | 2013 | 2012 | ||||||||||||||||||
| Interest-sensitive life insurance | 5.3 | % | 5.3 | % | 5.3 | % | 3.9 | % | 3.9 | % | 4.0 | % | 1.4 | % | 1.4 | % | 1.3 | % | ||||||||
| Deferred fixed annuities and institutional products | 4.5 | 4.5 | 4.6 | 2.9 | 2.9 | 3.2 | 1.6 | 1.6 | 1.4 | |||||||||||||||||
| Immediate fixed annuities with and without life contingencies | 7.3 | 6.9 | 6.9 | 6.0 | 6.0 | 6.1 | 1.3 | 0.9 | 0.8 | |||||||||||||||||
| Investments supporting capital, traditional life and other products | 4.6 | 4.1 | 4.1 | n/a | n/a | n/a | n/a | n/a | n/a | |||||||||||||||||
($ in millions) |
| 2012 |
|
|
| 2011 |
|
|
| 2010 |
|
Immediate fixed annuities with life contingencies | $ | 8,885 |
| $ |
| 8,827 |
| $ |
| 8,692 |
|
Other life contingent contracts and other |
| 5,232 |
|
|
| 4,839 |
|
|
| 4,028 |
|
Reserve for life-contingent contract benefits | $ | 14,117 |
| $ |
| 13,666 |
| $ |
| 12,720 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-sensitive life insurance | $ | 10,356 |
| $ |
| 10,195 |
| $ |
| 10,061 |
|
Deferred fixed annuities |
| 22,038 |
|
|
| 25,198 |
|
|
| 29,337 |
|
Immediate fixed annuities without life contingencies |
| 3,813 |
|
|
| 3,819 |
|
|
| 3,797 |
|
Institutional products |
| 1,851 |
|
|
| 1,891 |
|
|
| 2,650 |
|
Other |
| 576 |
|
|
| 566 |
|
|
| 613 |
|
Contractholder funds | $ | 38,634 |
| $ |
| 41,669 |
| $ |
| 46,458 |
|
| ($ in millions) | 2014 | 2013 | 2012 | ||||||||
| Immediate fixed annuities with life contingencies | $ | 8,900 | $ | 8,924 | $ | 8,885 | |||||
| Other life contingent contracts and other | 2,666 | 2,665 | 5,232 | ||||||||
| Reserve for life-contingent contract benefits | $ | 11,566 | $ | 11,589 | $ | 14,117 | |||||
| Interest-sensitive life insurance | $ | 7,193 | $ | 7,104 | $ | 10,356 | |||||
| Deferred fixed annuities | 10,836 | 12,499 | 22,038 | ||||||||
| Immediate fixed annuities without life contingencies | 3,448 | 3,673 | 3,813 | ||||||||
| Institutional products | 85 | 85 | 1,851 | ||||||||
| Other | 254 | 243 | 576 | ||||||||
| Contractholder funds | $ | 21,816 | $ | 23,604 | $ | 38,634 | |||||
| Traditional life insurance | $ | — | $ | 570 | $ | — | |||||
| Accident and health insurance | — | 1,324 | — | ||||||||
| Interest-sensitive life insurance | — | 3,529 | — | ||||||||
| Deferred fixed annuities | — | 7,416 | — | ||||||||
| Liabilities held for sale | $ | — | $ | 12,839 | $ | — | |||||
The following table summarizes the weighted average guaranteed crediting rates and weighted average current crediting rates as of December 31, 2012 for certain fixed annuities and interest-sensitive life contracts where management has the ability to change the crediting rate, subject to a contractual minimum. Other products, including equity-indexed, variable and immediate annuities, equity-indexed and variable life, and institutional products totaling $10.72 billion of contractholder funds, have been excluded from the analysis because management does not have the ability to change the crediting rate or the minimum crediting rate is not considered meaningful in this context.
($ in millions) |
| Weighted |
|
| Weighted |
|
| Contractholder |
|
|
|
|
|
|
|
|
|
|
|
Annuities with annual crediting rate resets |
| 3.15 | % |
| 3.16 | % |
| $ 10,626 |
|
Annuities with multi-year rate guarantees (1): |
|
|
|
|
|
|
|
|
|
Resettable in next 12 months |
| 2.05 |
|
| 3.93 |
|
| 1,610 |
|
Resettable after 12 months |
| 1.56 |
|
| 3.54 |
|
| 5,434 |
|
Interest-sensitive life insurance |
| 3.90 |
|
| 4.16 |
|
| 10,249 |
|
_______________
(1) These contracts include interest rate guarantee periods which are typically 5 or 6 years.
($ in millions) |
| 2012 |
|
| 2011 |
|
| 2010 |
|
Amortization of DAC before amortization relating to | $ | 233 |
| $ | 265 |
| $ | 201 |
|
Amortization relating to realized capital gains and losses (1) |
| 57 |
|
| 156 |
|
| 36 |
|
Amortization acceleration (deceleration) for changes in |
| 34 |
|
| 9 |
|
| (17 | ) |
Total amortization of DAC | $ | 324 |
| $ | 430 |
| $ | 220 |
|
_______________
(1)
| ($ in millions) | 2014 | 2013 | 2012 | ||||||||
| Amortization of DAC before amortization relating to realized capital gains and losses, valuation changes on embedded derivatives that are not hedged and changes in assumptions | $ | 164 | $ | 215 | $ | 233 | |||||
Amortization relating to realized capital gains and losses (1) and valuation changes on embedded derivatives that are not hedged | 5 | 7 | 57 | ||||||||
| Amortization (deceleration) acceleration for changes in assumptions (“DAC unlocking”) | (7 | ) | 18 | 34 | |||||||
| Total amortization of DAC | $ | 162 | $ | 240 | $ | 324 | |||||
(1) | The impact of realized capital gains and losses on amortization of DAC is dependent upon the relationship between the assets that give rise to the gain or loss and the product liability supported by the assets. Fluctuations result from changes in the impact of realized capital gains and losses on actual and expected gross profits. |
The decrease in DAC amortization in 20122014 compared to 2011 was2013, primarily due to decreased amortization relating to realized capital gains and losses and decreased amortization on fixed annuity products due to the DAC balance for contracts issued prior to 2010 being fully amortized, partially offset by increased amortization accelerationdeceleration for changes in assumptions and increasedin 2014 compared to amortization relatingacceleration in 2013.
The increase in DAC amortization in 2011 compared to 2010 was primarily due to increased amortization relating to realized capital gains,a large valuation change in 2012, lower amortization in 2010on interest-sensitive life insurance resulting from decreased benefit spread, on interest-sensitive life insurance due to the reestimation of reserves, and an unfavorable change inlower amortization acceleration/decelerationacceleration for changes in assumptions.
annuities and was primarily due to lower projected investment returns. Amortization deceleration of $8 million related to interest-sensitive life insurance and was primarily due to an increase in projected persistency.
In 2011, the review resulted in an acceleration of DAC amortization of $9 million. Amortization acceleration of $15 million related to interest-sensitive life insurance and was primarily due to an increase in projected expenses. Amortization deceleration of $6 million related to equity-indexed annuities and was primarily due to an increase in projected investment margins.
In 2010, the review resulted in a deceleration of DAC amortization (credit to income) of $17 million. Amortization deceleration of $37 million related to variable life insurance and was primarily due to appreciation in the underlying separate account valuations. Amortization acceleration of $19 million related to interest-sensitive life insurance and was primarily due to an increase in projected realized capital losses and lower projected renewal premium (which is also expected to reduce persistency), partially offset by lower expenses.
($ in millions) |
| Traditional life |
|
|
| Interest- |
|
|
| Fixed |
|
|
| Total |
| ||||||||||||||||
|
| 2012 |
|
|
| 2011 |
|
|
| 2012 |
|
|
| 2011 |
|
|
| 2012 |
|
|
| 2011 |
|
|
| 2012 |
|
|
| 2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance | $ | 384 |
| $ |
| 365 |
| $ |
| 1,572 |
| $ |
| 1,793 |
| $ |
| 209 |
| $ |
| 368 |
| $ |
| 2,165 |
| $ |
| 2,526 |
|
Acquisition costs deferred |
| 65 |
|
|
| 58 |
|
|
| 172 |
|
|
| 160 |
|
|
| 25 |
|
|
| 23 |
|
|
| 262 |
|
|
| 241 |
|
Amortization of DAC before amortization relating to realized capital gains and losses, valuation changes on embedded derivatives that are not hedged and changes in assumptions (1) |
| (39 | ) |
|
| (39 | ) |
|
| (169 | ) |
|
| (170 | ) |
|
| (25 | ) |
|
| (56 | ) |
|
| (233 | ) |
|
| (265 | ) |
Amortization relating to realized capital gains and losses and valuation changes on embedded derivatives that are not hedged (1) |
| -- |
|
|
| -- |
|
|
| (18 | ) |
|
| (21 | ) |
|
| (39 | ) |
|
| (135 | ) |
|
| (57 | ) |
|
| (156 | ) |
Amortization (acceleration) deceleration for changes in assumptions (“DAC unlocking”) (1) |
| -- |
|
|
| -- |
|
|
| (30 | ) |
|
| (15 | ) |
|
| (4 | ) |
|
| 6 |
|
|
| (34 | ) |
|
| (9 | ) |
Effect of unrealized capital gains and losses (2) |
| -- |
|
|
| -- |
|
|
| (128 | ) |
|
| (175 | ) |
|
| (141 | ) |
|
| 3 |
|
|
| (269 | ) |
|
| (172 | ) |
Ending balance | $ | 410 |
| $ |
| 384 |
| $ |
| 1,399 |
| $ |
| 1,572 |
| $ |
| 25 |
| $ |
| 209 |
| $ |
| 1,834 |
| $ |
| 2,165 |
|
___________________
(1) Included as a component of amortization of DAC on the Consolidated Statements of Operations and Comprehensive Income.
(2) Represents the change in the DAC adjustment for unrealized capital gains and losses. The DAC adjustment balance was $(376) million and $(107) million as of December 31, 2012 and 2011, respectively, and represents the amount by which the amortization of DAC would increase or decrease if the unrealized gains and losses in the respective product portfolios were realized.
| ($ in millions) | Traditional life and accident and health | Interest-sensitive life insurance | Fixed annuities | Total | |||||||||||||||||||||||||||
| 2014 | 2013 | 2014 | 2013 | 2014 | 2013 | 2014 | 2013 | ||||||||||||||||||||||||
| Beginning balance | $ | 429 | $ | 410 | $ | 857 | $ | 1,399 | $ | 45 | $ | 25 | $ | 1,331 | $ | 1,834 | |||||||||||||||
| Classified as held for sale, beginning balance | 13 | — | 700 | — | 30 | — | 743 | — | |||||||||||||||||||||||
| Total, including those classified as held for sale | 442 | 410 | 1,557 | 1,399 | 75 | 25 | 2,074 | 1,834 | |||||||||||||||||||||||
| Acquisition costs deferred | 71 | 76 | 92 | 154 | — | 24 | 163 | 254 | |||||||||||||||||||||||
Amortization of DAC before amortization relating to realized capital gains and losses, valuation changes on embedded derivatives that are not hedged and changes in assumptions (1) | (45 | ) | (44 | ) | (111 | ) | (158 | ) | (8 | ) | (13 | ) | (164 | ) | (215 | ) | |||||||||||||||
Amortization relating to realized capital gains and losses and valuation changes on embedded derivatives that are not hedged (1) | — | — | (8 | ) | (6 | ) | 3 | (1 | ) | (5 | ) | (7 | ) | ||||||||||||||||||
Amortization (acceleration) deceleration for changes in assumptions (“DAC unlocking”) (1) | — | — | 9 | (30 | ) | (2 | ) | 12 | 7 | (18 | ) | ||||||||||||||||||||
Effect of unrealized capital gains and losses (2) | — | — | (96 | ) | 198 | (1 | ) | 28 | (97 | ) | 226 | ||||||||||||||||||||
| Sold in LBL disposition | (13 | ) | — | (674 | ) | — | (20 | ) | — | (707 | ) | — | |||||||||||||||||||
| DAC classified as held for sale | — | (13 | ) | — | (700 | ) | — | (30 | ) | — | (743 | ) | |||||||||||||||||||
| Ending balance | $ | 455 | $ | 429 | $ | 769 | $ | 857 | $ | 47 | $ | 45 | $ | 1,271 | $ | 1,331 | |||||||||||||||
(1) | Included as a component of amortization of DAC on the Consolidated Statements of Operations and Comprehensive Income. |
(2) | Represents the change in the DAC adjustment for unrealized capital gains and losses. The DAC adjustment represents the amount by which the amortization of DAC would increase or decrease if the unrealized gains and losses in the respective product portfolios were realized. |
($ in millions) |
| 2012 |
|
|
| 2011 |
|
|
| 2010 |
|
Non-deferrable commissions | $ | 33 |
| $ |
| 39 |
| $ |
| 37 |
|
General and administrative expenses |
| 370 |
|
|
| 313 |
|
|
| 323 |
|
Taxes and licenses |
| 34 |
|
|
| 42 |
|
|
| 48 |
|
Total operating costs and expenses | $ | 437 |
| $ |
| 394 |
| $ |
| 408 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring and related charges | $ | -- |
| $ |
| 1 |
| $ |
| (3 | ) |
General and administrative expenses increased 18.2% or $57 million in 2012 compared to 2011 primarily due to higher employee related expenses, lower reinsurance expense allowances and increased marketing costs, partially offset by a charge in 2011 related to the liquidation plan for Executive Life Insurance Company of New York.
| ($ in millions) | 2014 | 2013 | 2012 | ||||||||
| Non-deferrable commissions | $ | 15 | $ | 27 | $ | 33 | |||||
| General and administrative expenses | 261 | 363 | 370 | ||||||||
| Taxes and licenses | 34 | 44 | 34 | ||||||||
| Total operating costs and expenses | $ | 310 | $ | 434 | $ | 437 | |||||
| Restructuring and related charges | $ | 2 | $ | 6 | $ | — | |||||
General and administrative expenses decreased 3.1%28.1% or $10$102 million in 20112014 compared to 20102013, primarily due to actions to improve strategic focus and modernize the operating model. This included the sale of LBL, exiting the master brokerage agency distribution channel, discontinuing sales of proprietary annuity products, and other rightsizing and profitability actions.
LBL sale, respectively. Gain on disposition of $18 million in 2012 relatesrelated to the amortization of the deferred gain from the disposition through reinsurance of substantially all of our variable annuity business in 2006, and the sale of Surety Life Insurance Company, which was not used for new business, in third quarter 2012.
($ in millions) |
| Standard & Poor’s |
| Reinsurance |
| ||
|
|
|
| 2012 |
| 2011 |
|
Prudential Insurance Company of America |
| AA- | $ | 1,691 | $ | 1,681 |
|
Employers Reassurance Corporation |
| A+ |
| 1,059 |
| 960 |
|
Transamerica Life Group |
| AA- |
| 447 |
| 454 |
|
RGA Reinsurance Company |
| AA- |
| 359 |
| 357 |
|
Swiss Re Life and Health America, Inc. (1) |
| AA- |
| 216 |
| 211 |
|
Scottish Re Group (2) |
| N/A |
| 131 |
| 134 |
|
Munich American Reassurance |
| AA- |
| 131 |
| 126 |
|
Paul Revere Life Insurance Company |
| A |
| 127 |
| 132 |
|
Security Life of Denver |
| A- |
| 83 |
| 71 |
|
Manulife Insurance Company |
| AA- |
| 62 |
| 64 |
|
Lincoln National Life Insurance |
| AA- |
| 60 |
| 63 |
|
Triton Insurance Company |
| N/A |
| 55 |
| 56 |
|
American Health & Life Insurance Co. |
| N/A |
| 45 |
| 48 |
|
Other (3) |
|
|
| 104 |
| 100 |
|
Total |
|
| $ | 4,570 | $ | 4,457 |
|
________________________
(1)The Company has extensive reinsurance contracts directly with Swiss Re and its affiliates and indirectly through Swiss Re’s acquisition of other companies with whom we had reinsurance or retrocession contracts.
(2)The reinsurance recoverable on paid and unpaid benefits related to the Scottish Re Group as of December 31, 2012 comprised $71 million related to Scottish Re Life Corporation and $60 million related to Scottish Re (U.S.), Inc. The reinsurance recoverable on paid and unpaid benefits related to the Scottish Re Group as of December 31, 2011 comprised $73 million related to Scottish Re Life Corporation and $61 million related to Scottish Re (U.S.), Inc.
(3)As of December 31, 2012 and 2011,the other category includes $87 million and $84 million, respectively, of recoverables due from reinsurers with an investment grade credit rating from Standard & Poor’s (“S&P”).
(4)N/A reflects no rating available.
| ($ in millions) | Standard & Poor’s financial strength rating (4) | Reinsurance recoverable on paid and unpaid benefits | ||||||||
| 2014 | 2013 | |||||||||
| Prudential Insurance Company of America | AA- | $ | 1,461 | $ | 1,510 | |||||
| RGA Reinsurance Company | AA- | 258 | 302 | |||||||
Swiss Re Life and Health America, Inc. (1) | AA- | 154 | 185 | |||||||
| Paul Revere Life Insurance Company | A | 116 | 121 | |||||||
| Munich American Reassurance | AA- | 96 | 108 | |||||||
| Scottish Re Group | N/A | 94 | 104 | |||||||
| Transamerica Life Group | AA- | 84 | 88 | |||||||
| John Hancock Life & Health Insurance Company | AA- | 57 | 59 | |||||||
| Security Life of Denver | A- | 53 | 48 | |||||||
| Triton Insurance Company | N/A | 53 | 54 | |||||||
| American Health & Life Insurance Company | N/A | 50 | 44 | |||||||
| Lincoln National Life Insurance | AA- | 37 | 39 | |||||||
| SCOR Global Life | A+ | 17 | 21 | |||||||
| American United Life Insurance Company | AA- | 15 | 18 | |||||||
Other (2) | 41 | 53 | ||||||||
Total (3) | $ | 2,586 | $ | 2,754 | ||||||
(1) | The Company has extensive reinsurance contracts directly with Swiss Re and its affiliates and indirectly through Swiss Re’s acquisition of other companies with whom we had reinsurance or retrocession contracts. |
(2) | As of December 31, 2014 and 2013, the other category includes $31 million and $39 million, respectively, of recoverables due from reinsurers with an investment grade credit rating from Standard & Poor’s (“S&P”). |
(3) | Reinsurance recoverables classified as held for sale were $1.66 billion as of December 31, 2013. |
(4) | N/A reflects no rating available. |
282014.
INVESTMENTS 20122014 HIGHLIGHTS
·
·2013.
·2013.
·2013.
2013.
We expect to more actively manage the portfolio and are developing strategies focused on refining the segmentation of the portfolio. Strategies may include opportunities arising from market dislocations, event driven changes in valuation, and distressed credit. We expect these strategies to perform well across market conditions, including periods of increased market volatility. We are continuing to build our capabilities and investments in private equity, real estate and limited partnerships which have returns less correlated to the public markets. These investments typically have a longer term return horizon, generally five to twelve years.
|
|
|
|
|
|
portfolio mix over time to have less reliance on investments whose returns come primarily from interest payments to investments in which we have ownership interests and a greater proportion of return is derived from idiosyncratic operating or market performance, including limited partnerships, equities and real estate. While we anticipate higher returns on these investments over time, the investment income will be more volatile than interest-bearing investments.
($ in millions) |
|
|
| Percent |
| |
Fixed income securities (1) | $ | 44,876 |
| 80.3 | % |
|
Mortgage loans |
| 5,943 |
| 10.6 |
|
|
Equity securities (2) |
| 345 |
| 0.6 |
|
|
Limited partnership interests (3) |
| 1,924 |
| 3.5 |
|
|
Short-term investments (4) |
| 875 |
| 1.6 |
|
|
Policy loans |
| 836 |
| 1.5 |
|
|
Other |
| 1,067 |
| 1.9 |
|
|
Total | $ | 55,866 |
| 100.0 | % |
|
______________________
(1) Fixed income securities are carried at fair value. Amortized cost basis for these securities was $41.19 billion.
(2) Equity securities are carried at fair value. Cost basis for these securities was $310 million.
(3) We have commitments to invest in additional limited partnership interests totaling $947 million.
(4) Short-term investments are carried at fair value. Amortized cost basis for these investments was $875 million.
($ in millions) $ 28,117 75.0 % Mortgage loans 3,686 9.8 970 2.6 2,024 5.4 857 2.3 Policy loans 616 1.7 Other 1,196 3.2 Total $ 37,466 100.0 %
(1) | Fixed income securities are carried at fair value. Amortized cost basis for these securities was $25.82 billion. |
(2) | Equity securities are carried at fair value. Cost basis for these securities was $927 million. |
(3) | We have commitments to invest in additional limited partnership interests totaling $1.22 billion. |
(4) | Short-term investments are carried at fair value. Amortized cost basis for these investments was $857 million. |
assets and equity investments. Limited partnerships and other equity investments will continue to be allocated primarily to the longer-duration immediate annuity liabilities to improve returns on those products. Shorter-duration annuity and life insurance liabilities will continue to be invested primarily in interest-bearing investments, such as fixed income securities and commercial mortgage loans.
($ in millions) |
| Fair value as of |
| Percent to |
| Fair value as of |
| Percent to |
| ||||
U.S. government and agencies | $ | 2,379 |
|
| 4.3 | % | $ | 2,743 |
|
| 4.9 | % |
|
Municipal |
| 4,704 |
|
| 8.4 |
|
| 4,692 |
|
| 8.3 |
|
|
Corporate |
| 31,531 |
|
| 56.5 |
|
| 30,404 |
|
| 54.0 |
|
|
Foreign government |
| 1,180 |
|
| 2.1 |
|
| 1,068 |
|
| 1.9 |
|
|
ABS |
| 1,865 |
|
| 3.3 |
|
| 2,108 |
|
| 3.8 |
|
|
RMBS |
| 1,791 |
|
| 3.2 |
|
| 2,714 |
|
| 4.8 |
|
|
CMBS |
| 1,408 |
|
| 2.5 |
|
| 1,683 |
|
| 3.0 |
|
|
Redeemable preferred stock |
| 18 |
|
| -- |
|
| 16 |
|
| -- |
|
|
Total fixed income securities | $ | 44,876 |
|
| 80.3 | % | $ | 45,428 |
|
| 80.7 | % |
|
| ($ in millions) | Fair value as of December 31, 2014 | Percent to total investments | Fair value as of December 31, 2013 | Percent to total investments | |||||||||
| U.S. government and agencies | $ | 770 | 2.1 | % | $ | 766 | 2.0 | % | |||||
| Municipal | 3,662 | 9.8 | 3,304 | 8.7 | |||||||||
| Corporate | 20,985 | 56.0 | 21,316 | 56.2 | |||||||||
| Foreign government | 735 | 2.0 | 792 | 2.1 | |||||||||
| ABS | 765 | 2.0 | 1,007 | 2.7 | |||||||||
| RMBS | 605 | 1.6 | 790 | 2.1 | |||||||||
| CMBS | 579 | 1.5 | 764 | 2.0 | |||||||||
| Redeemable preferred stock | 16 | — | 17 | — | |||||||||
| Total fixed income securities | $ | 28,117 | 75.0 | % | $ | 28,756 | 75.8 | % | |||||
The following table summarizes the fair value and unrealized net capital gains and losses for fixed income securities by credit rating as of December 31, 2012.
($ in millions) |
| Aaa |
| Aa |
| A | ||||||||||||
|
| Fair |
|
| Unrealized |
|
| Fair |
|
| Unrealized |
|
| Fair |
|
| Unrealized |
|
U.S. government and agencies | $ | 2,379 |
| $ | 242 |
| $ | -- |
| $ | -- |
| $ | -- |
| $ | -- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable and tax exempt |
| 272 |
|
| 32 |
|
| 2,758 |
|
| 423 |
|
| 1,054 |
|
| 137 |
|
ARS |
| 84 |
|
| (8 | ) |
| 93 |
|
| (13 | ) |
| 12 |
|
| (2 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Public |
| 679 |
|
| 58 |
|
| 1,574 |
|
| 143 |
|
| 7,834 |
|
| 806 |
|
Privately placed |
| 593 |
|
| 47 |
|
| 990 |
|
| 91 |
|
| 3,234 |
|
| 332 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign government |
| 496 |
|
| 95 |
|
| 232 |
|
| 12 |
|
| 176 |
|
| 20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ABS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateralized debt obligations (“CDO”) |
| 125 |
|
| 5 |
|
| 558 |
|
| 1 |
|
| 251 |
|
| (25 | ) |
Consumer and other asset-backed securities (“Consumer and other ABS”) |
| 353 |
|
| 12 |
|
| 125 |
|
| 3 |
|
| 99 |
|
| 2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RMBS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government sponsored entities (“U.S. Agency”) |
| 728 |
|
| 37 |
|
| -- |
|
| -- |
|
| -- |
|
| -- |
|
Prime residential mortgage-backed securities (“Prime”) |
| 52 |
|
| 2 |
|
| 41 |
|
| 1 |
|
| 41 |
|
| 1 |
|
Alt-A residential mortgage-backed securities |
| -- |
|
| -- |
|
| -- |
|
| -- |
|
| 25 |
|
| 1 |
|
Subprime residential mortgage-backed securities (“Subprime”) |
| -- |
|
| -- |
|
| 24 |
|
| -- |
|
| 17 |
|
| -- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CMBS |
| 745 |
|
| 35 |
|
| 99 |
|
| 3 |
|
| 153 |
|
| 5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redeemable preferred stock |
| -- |
|
| -- |
|
| -- |
|
| -- |
|
| -- |
|
| -- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed income securities | $ | 6,506 |
| $ | 557 |
| $ | 6,494 |
| $ | 664 |
| $ | 12,896 |
| $ | 1,277 |
|
|
| Baa |
|
| Ba or lower |
|
| Total |
| |||||||||
|
| Fair |
|
| Unrealized |
|
| Fair |
|
| Unrealized |
|
| Fair |
|
| Unrealized |
|
U.S. government and agencies | $ | -- |
| $ | -- |
| $ | -- |
| $ | -- |
| $ | 2,379 |
| $ | 242 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxable and tax exempt |
| 339 |
|
| (7 | ) |
| 79 |
|
| (8 | ) |
| 4,502 |
|
| 577 |
|
ARS |
| 13 |
|
| (3 | ) |
| -- |
|
| -- |
|
| 202 |
|
| (26 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Public |
| 9,245 |
|
| 867 |
|
| 1,380 |
|
| 73 |
|
| 20,712 |
|
| 1,947 |
|
Privately placed |
| 5,203 |
|
| 348 |
|
| 799 |
|
| 18 |
|
| 10,819 |
|
| 836 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign government |
| 276 |
|
| 36 |
|
| -- |
|
| -- |
|
| 1,180 |
|
| 163 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ABS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CDO |
| 194 |
|
| (28 | ) |
| 115 |
|
| (26 | ) |
| 1,243 |
|
| (73 | ) |
Consumer and other ABS |
| 39 |
|
| 3 |
|
| 6 |
|
| (3 | ) |
| 622 |
|
| 17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RMBS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Agency |
| -- |
|
| -- |
|
| -- |
|
| -- |
|
| 728 |
|
| 37 |
|
Prime |
| 115 |
|
| 2 |
|
| 201 |
|
| 21 |
|
| 450 |
|
| 27 |
|
Alt-A |
| 44 |
|
| 1 |
|
| 256 |
|
| (7 | ) |
| 325 |
|
| (5 | ) |
Subprime |
| 9 |
|
| (1 | ) |
| 238 |
|
| (45 | ) |
| 288 |
|
| (46 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CMBS |
| 141 |
|
| (4 | ) |
| 270 |
|
| (56 | ) |
| 1,408 |
|
| (17 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redeemable preferred stock |
| 17 |
|
| 3 |
|
| 1 |
|
| -- |
|
| 18 |
|
| 3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed income securities | $ | 15,635 |
| $ | 1,217 |
| $ | 3,345 |
| $ | (33 | ) | $ | 44,876 |
| $ | 3,682 |
|
2014.
| ($ in millions) | Investment grade | Below investment grade | Total | ||||||||||||||||||||
Fair value | Unrealized gain/(loss) | Fair value | Unrealized gain/(loss) | Fair value | Unrealized gain/(loss) | ||||||||||||||||||
| U.S. government and agencies | $ | 770 | $ | 102 | $ | — | $ | — | $ | 770 | $ | 102 | |||||||||||
| Municipal | 3,606 | 499 | 56 | 7 | 3,662 | 506 | |||||||||||||||||
| Corporate | |||||||||||||||||||||||
| Public | 12,789 | 1,078 | 1,890 | 5 | 14,679 | 1,083 | |||||||||||||||||
| Privately placed | 5,672 | 438 | 634 | (1 | ) | 6,306 | 437 | ||||||||||||||||
| Foreign government | 735 | 81 | — | — | 735 | 81 | |||||||||||||||||
| ABS | |||||||||||||||||||||||
| Collateralized debt obligations (“CDO”) | 306 | (5 | ) | 84 | (7 | ) | 390 | (12 | ) | ||||||||||||||
| Consumer and other asset-backed securities (“Consumer and other ABS”) | 369 | 5 | 6 | (1 | ) | 375 | 4 | ||||||||||||||||
| RMBS | |||||||||||||||||||||||
| U.S. government sponsored entities (“U.S. Agency”) | 142 | 9 | — | — | 142 | 9 | |||||||||||||||||
| Prime residential mortgage-backed securities (“Prime”) | 56 | 1 | 119 | 18 | 175 | 19 | |||||||||||||||||
| Alt-A residential mortgage-backed securities (“Alt-A”) | 10 | — | 155 | 12 | 165 | 12 | |||||||||||||||||
| Subprime residential mortgage-backed securities (“Subprime”) | 4 | — | 119 | 11 | 123 | 11 | |||||||||||||||||
| CMBS | 334 | 15 | 245 | 26 | 579 | 41 | |||||||||||||||||
| Redeemable preferred stock | 16 | 2 | — | — | 16 | 2 | |||||||||||||||||
| Total fixed income securities | $ | 24,809 | $ | 2,225 | $ | 3,308 | $ | 70 | $ | 28,117 | $ | 2,295 | |||||||||||
The following table summarizes by state the fair value, amortized cost and credit rating of our municipal bonds, excluding $37$35 million of pre-refunded bonds, as of December 31, 2012.
($ in millions) |
|
| State |
|
| Local general |
|
| Revenue (1) |
|
| Fair value |
|
| Amortized |
| Average |
|
California |
| $ | 79 |
| $ | 272 |
| $ | 307 |
| $ | 658 |
| $ | 592 |
| A |
|
Texas |
|
| -- |
|
| 269 |
|
| 281 |
|
| 550 |
|
| 471 |
| Aa |
|
New York |
|
| 17 |
|
| -- |
|
| 314 |
|
| 331 |
|
| 304 |
| Aa |
|
Delaware |
|
| -- |
|
| -- |
|
| 225 |
|
| 225 |
|
| 231 |
| Aa |
|
Oregon |
|
| -- |
|
| 193 |
|
| 28 |
|
| 221 |
|
| 183 |
| A |
|
New Jersey |
|
| 104 |
|
| 25 |
|
| 79 |
|
| 208 |
|
| 177 |
| Aa |
|
Illinois |
|
| -- |
|
| 68 |
|
| 134 |
|
| 202 |
|
| 168 |
| Aa |
|
Ohio |
|
| -- |
|
| 81 |
|
| 92 |
|
| 173 |
|
| 148 |
| Aa |
|
Florida |
|
| 29 |
|
| 41 |
|
| 102 |
|
| 172 |
|
| 150 |
| Aa |
|
Michigan |
|
| 24 |
|
| 61 |
|
| 76 |
|
| 161 |
|
| 135 |
| Aa |
|
All others |
|
| 243 |
|
| 274 |
|
| 1,249 |
|
| 1,766 |
|
| 1,562 |
| A |
|
Total |
| $ | 496 |
| $ | 1,284 |
| $ | 2,887 |
| $ | 4,667 |
| $ | 4,121 |
| Aa |
|
_______________
(1) 2014.The nature of the activities supporting revenue bonds is highly diversified and includes transportation, health care, industrial development, housing,higher education, utilities, recreation/convention centers and other activities.
($ in millions) State | State general obligation | Local general obligation | Revenue (1) | Fair value | Amortized cost | Average credit rating | ||||||||||||||||
| California | $ | 85 | $ | 196 | $ | 335 | $ | 616 | $ | 528 | A | |||||||||||
| Texas | — | 309 | 185 | 494 | 419 | Aa | ||||||||||||||||
| Oregon | — | 177 | 31 | 208 | 172 | Aa | ||||||||||||||||
| Illinois | — | 56 | 137 | 193 | 166 | Aa | ||||||||||||||||
| New Jersey | 110 | 19 | 57 | 186 | 160 | A | ||||||||||||||||
| New York | 9 | — | 169 | 178 | 159 | Aa | ||||||||||||||||
| Michigan | 89 | — | 66 | 155 | 139 | A | ||||||||||||||||
| Ohio | — | 38 | 99 | 137 | 116 | Aa | ||||||||||||||||
| Florida | 28 | 41 | 59 | 128 | 115 | Aa | ||||||||||||||||
| Washington | — | — | 102 | 102 | 90 | Aa | ||||||||||||||||
| All others | 219 | 202 | 809 | 1,230 | 1,059 | A | ||||||||||||||||
| Total | $ | 540 | $ | 1,038 | $ | 2,049 | $ | 3,627 | $ | 3,123 | Aa | |||||||||||
(1) | The nature of the activities supporting revenue bonds is diversified and includes transportation, health care, industrial development, housing, higher education, utilities, recreation/convention centers and other activities. |
ARS totaled $202 million as of December 31, 2012 with an unrealized net capital loss of $26 million, and all were ARS backed by student loans. Our holdings primarily have a credit rating of Aaa and Aa, and were 78% to 100% insured by the U.S. Department of Education as of December 31, 2012. All of our ARS holdings are experiencing failed auctions and we receive the failed auction rate or, for those which contain maximum reset rate formulas, we receive the contractual maximum rate. We anticipate that failed auctions may persist and most of our holdings will continue to pay the failed auction rate or, for those that contain maximum rate reset formulas, the maximum rate. Auctions continue to be conducted as scheduled for each of the securities.
paid in full. In a sequential structure, underlying collateral principal repayments are directed to the most senior rated Aaa class in the structure until paid in full, after which principal repayments are directed to the next most senior Aaa class in the structure until it is paid in full. Senior Aaa classes generally share any losses from the underlying collateral on a pro-rata basis after losses are absorbed by classes with lower original ratings. The payment priority and class subordination included in these securities serves as credit enhancement for holders of the senior or top portions of the structures. These securities continue to retain the payment priority features that existed at the origination of the securitization trust. Other forms of credit enhancement may include structural features embedded in the securitization trust, such as overcollateralization, excess spread and bond insurance. The underlying collateral can have fixed interest rates, variable interest rates (such as adjustable rate mortgages) or may contain features of both fixed and variable rate mortgages.
Consumer and other ABS totaled $622$375 million as of December 31, 2012,2014, with 99.0%98.4% rated investment grade. Consumer and other ABS consists of $146 million of consumer auto and $476 million of other ABS with unrealized net capital gains of $1 million and $16 million, respectively.
CMBS totaled $1.41 billion as of December 31, 2012, with 80.8%15.1% rated investment grade and an unrealized net capital lossgain of $17$42 million.
Equity securitiesEquity securities primarily include common stocks, exchange traded and mutual funds, non-redeemable preferred stocks and real estate investment trust equity investments. The equity securities portfolio was $345$970 million as of December 31, 2012 compared to $179 million as of December 31, 2011. The2014, with an unrealized net capital gain totaled $35 million as of December 31, 2012 compared to $36 million as of December 31, 2011.$43 million.
($ in millions) |
|
| Private |
|
| Real estate |
|
| Hedge |
|
| Tax credit |
|
| Total |
| |
Cost method of accounting (“Cost”) |
| $ | 473 |
|
| $ | 144 |
| $ | -- |
| $ | -- |
| $ | 617 |
|
Equity method of accounting (“EMA”) |
|
| 706 |
|
|
| 269 |
|
| 2 |
|
| 330 |
|
| 1,307 |
|
Total |
| $ | 1,179 | (1) |
| $ | 413 |
| $ | 2 |
| $ | 330 |
| $ | 1,924 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of managers |
|
| 94 |
|
|
| 27 |
|
| 1 |
|
| 11 |
|
|
|
|
Number of individual funds |
|
| 153 |
|
|
| 51 |
|
| 2 |
|
| 20 |
|
|
|
|
Largest exposure to single fund |
| $ | 36 |
|
| $ | 36 |
| $ | 2 |
| $ | 28 |
|
|
|
|
________________
(1) Includes $165 million of infrastructure and real asset funds.
| ($ in millions) | Private equity/debt funds (1) | Real estate funds | Other funds | Total | |||||||||||
| Cost method of accounting (“Cost”) | $ | 420 | $ | 88 | $ | — | $ | 508 | |||||||
| Equity method of accounting (“EMA”) | 1,009 | 389 | 118 | 1,516 | |||||||||||
| Total | $ | 1,429 | $ | 477 | $ | 118 | $ | 2,024 | |||||||
| Number of managers | 97 | 23 | 3 | 123 | |||||||||||
| Number of individual funds | 169 | 43 | 3 | 215 | |||||||||||
| Largest exposure to single fund | $ | 82 | $ | 41 | $ | 55 | $ | 82 | |||||||
(1) | Includes $291 million of infrastructure and real asset funds. |
($ in millions) |
|
| 2012 |
|
| 2011 | ||||||||||||||||||||||||
|
|
| Cost |
|
| EMA (1) |
|
| Total |
|
| Impairment |
|
| Cost |
|
| EMA (1) |
|
| Total |
|
| Impairment | ||||||
Private equity/debt funds |
| $ | 52 |
| $ | 88 |
|
| $ | 140 |
|
| $ | (1 | ) |
| $ | 44 |
| $ | 50 |
|
| $ | 94 |
|
| $ | (2 | ) |
Real estate funds |
|
| 3 |
|
| 31 |
|
|
| 34 |
|
|
| (2 | ) |
|
| 5 |
|
| 18 |
|
|
| 23 |
|
|
| (1 | ) |
Hedge funds |
|
| -- |
|
| (1 | ) |
|
| (1 | ) |
|
| -- |
|
|
| -- |
|
| (1 | ) |
|
| (1 | ) |
|
| -- |
|
Tax credit funds |
|
| -- |
|
| (14 | ) |
|
| (14 | ) |
|
| -- |
|
|
| -- |
|
| (5 | ) |
|
| (5 | ) |
|
| -- |
|
Total |
| $ | 55 |
| $ | 104 |
|
| $ | 159 |
|
| $ | (3 | ) |
| $ | 49 |
| $ | 62 |
|
| $ | 111 |
|
| $ | (3 | ) |
_______________
(1) Income from EMA limited partnerships is reported in net investment income in 2012 and realized capital gains and losses in 2011.
| ($ in millions) | 2014 | 2013 | |||||||||||||||||||||||||||||
| Cost | EMA | Total income | Impairment write-downs | Cost | EMA | Total income | Impairment write-downs | ||||||||||||||||||||||||
| Private equity/debt funds | $ | 77 | $ | 136 | $ | 213 | $ | (13 | ) | $ | 89 | $ | 57 | $ | 146 | $ | (8 | ) | |||||||||||||
| Real estate funds | 25 | 28 | 53 | 5 | 13 | 29 | 42 | (1 | ) | ||||||||||||||||||||||
| Other funds | — | 1 | 1 | — | — | (13 | ) | (13 | ) | — | |||||||||||||||||||||
| Total | $ | 102 | $ | 165 | $ | 267 | $ | (8 | ) | $ | 102 | $ | 73 | $ | 175 | $ | (9 | ) | |||||||||||||
($ in millions) |
| 2012 |
| 2011 | ||
U.S. government and agencies | $ | 242 |
| $ | 241 |
|
Municipal |
| 551 |
|
| 312 |
|
Corporate |
| 2,783 |
|
| 1,908 |
|
Foreign government |
| 163 |
|
| 141 |
|
ABS |
| (56 | ) |
| (237 | ) |
RMBS |
| 13 |
|
| (240 | ) |
CMBS |
| (17 | ) |
| (179 | ) |
Redeemable preferred stock |
| 3 |
|
| 1 |
|
Fixed income securities |
| 3,682 |
|
| 1,947 |
|
Equity securities |
| 35 |
|
| 36 |
|
EMA limited partnerships |
| 1 |
|
| 1 |
|
Derivatives |
| (17 | ) |
| (12 | ) |
Unrealized net capital gains and losses, pre-tax | $ | 3,701 |
| $ | 1,972 |
|
| ($ in millions) | 2014 | 2013 | |||||
| U.S. government and agencies | $ | 102 | $ | 88 | |||
| Municipal | 506 | 169 | |||||
| Corporate | 1,520 | 919 | |||||
| Foreign government | 81 | 77 | |||||
| ABS | (8 | ) | (4 | ) | |||
| RMBS | 51 | 38 | |||||
| CMBS | 41 | 40 | |||||
| Redeemable preferred stock | 2 | 2 | |||||
| Fixed income securities | 2,295 | 1,329 | |||||
| Equity securities | 43 | 85 | |||||
| Derivatives | 2 | (13 | ) | ||||
| EMA limited partnerships | (2 | ) | (2 | ) | |||
| Investments classified as held for sale | — | 190 | |||||
| Unrealized net capital gains and losses, pre-tax | $ | 2,338 | $ | 1,589 | |||
2013.
($ in millions) |
| Amortized |
| Gross unrealized |
|
| Fair |
| ||
|
| cost |
| Gains |
| Losses |
|
| value |
|
Corporate: |
|
|
|
|
|
|
|
|
|
|
Banking | $ | 1,950 | $ | 119 | $ | (53 | ) | $ | 2,016 |
|
Utilities |
| 6,202 |
| 775 |
| (16 | ) |
| 6,961 |
|
Capital goods |
| 3,253 |
| 322 |
| (13 | ) |
| 3,562 |
|
Consumer goods (cyclical and non-cyclical) |
| 5,982 |
| 554 |
| (8 | ) |
| 6,528 |
|
Transportation |
| 1,538 |
| 178 |
| (8 | ) |
| 1,708 |
|
Financial services |
| 1,889 |
| 175 |
| (8 | ) |
| 2,056 |
|
Basic industry |
| 1,746 |
| 147 |
| (2 | ) |
| 1,891 |
|
Technology |
| 1,314 |
| 101 |
| (2 | ) |
| 1,413 |
|
Communications |
| 1,756 |
| 192 |
| (1 | ) |
| 1,947 |
|
Energy |
| 2,406 |
| 265 |
| -- |
|
| 2,671 |
|
Other |
| 712 |
| 68 |
| (2 | ) |
| 778 |
|
Total corporate fixed income portfolio |
| 28,748 |
| 2,896 |
| (113 | ) |
| 31,531 |
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and agencies |
| 2,137 |
| 242 |
| -- |
|
| 2,379 |
|
Municipal |
| 4,153 |
| 612 |
| (61 | ) |
| 4,704 |
|
Foreign government |
| 1,017 |
| 164 |
| (1 | ) |
| 1,180 |
|
ABS |
| 1,921 |
| 49 |
| (105 | ) |
| 1,865 |
|
RMBS |
| 1,778 |
| 82 |
| (69 | ) |
| 1,791 |
|
CMBS |
| 1,425 |
| 60 |
| (77 | ) |
| 1,408 |
|
Redeemable preferred stock |
| 15 |
| 3 |
| -- |
|
| 18 |
|
Total fixed income securities | $ | 41,194 | $ | 4,108 | $ | (426 | ) | $ | 44,876 |
|
| ($ in millions) | Amortized | Gross unrealized | Fair | ||||||||||||
| cost | Gains | Losses | value | ||||||||||||
| Corporate: | |||||||||||||||
| Energy | $ | 2,518 | $ | 155 | $ | (42 | ) | $ | 2,631 | ||||||
| Banking | 1,060 | 42 | (30 | ) | 1,072 | ||||||||||
| Basic industry | 1,237 | 63 | (18 | ) | 1,282 | ||||||||||
| Consumer goods (cyclical and non-cyclical) | 3,865 | 298 | (15 | ) | 4,148 | ||||||||||
| Capital goods | 2,028 | 178 | (12 | ) | 2,194 | ||||||||||
| Utilities | 3,736 | 510 | (11 | ) | 4,235 | ||||||||||
| Transportation | 1,030 | 116 | (8 | ) | 1,138 | ||||||||||
| Technology | 982 | 54 | (6 | ) | 1,030 | ||||||||||
| Communications | 1,503 | 121 | (5 | ) | 1,619 | ||||||||||
| Financial services | 1,084 | 95 | (1 | ) | 1,178 | ||||||||||
| Other | 422 | 38 | (2 | ) | 458 | ||||||||||
| Total corporate fixed income portfolio | 19,465 | 1,670 | (150 | ) | 20,985 | ||||||||||
| U.S. government and agencies | 668 | 102 | — | 770 | |||||||||||
| Municipal | 3,156 | 520 | (14 | ) | 3,662 | ||||||||||
| Foreign government | 654 | 81 | — | 735 | |||||||||||
| ABS | 773 | 13 | (21 | ) | 765 | ||||||||||
| RMBS | 554 | 55 | (4 | ) | 605 | ||||||||||
| CMBS | 538 | 43 | (2 | ) | 579 | ||||||||||
| Redeemable preferred stock | 14 | 2 | — | 16 | |||||||||||
| Total fixed income securities | $ | 25,822 | $ | 2,486 | $ | (191 | ) | $ | 28,117 | ||||||
recent months. Within the energy sector outlined above, we continue to monitor the impact to our investment portfolio for those companies that may be adversely affected, both directly and indirectly. If oil prices continue to decline or remain at depressed levels for an extended period, certain issuers and investments may come under pressure.
As of December 31, 2012, the total fair value of our direct investments in fixed income securities in the Eurozone (European Union member states using the Euro currency) is $1.03 billion, with net unrealized capital gains of $45 million, comprised of $64 million of gross unrealized gains and $19 million of gross unrealized losses. The following table summarizes our total direct exposure related to the Eurozone and the “GIIPS” group of countries, including Greece, Ireland, Italy, Portugal and Spain. As of December 31, 2012, we do not have any direct exposure to Greece. We have no equity securities or sovereign debt investments in the Eurozone.
($ in millions) |
| Financials (1) |
| Non-financials (2) |
| Total | |||||||||
|
| Fair |
| Gross |
|
| Fair |
| Gross |
|
| Fair |
| Gross |
|
GIIPS | $ | 21 | $ | (6 | ) | $ | 322 | $ | (9 | ) | $ | 343 | $ | (15 | ) |
Eurozone non-GIIPS |
| 150 |
| (4 | ) |
| 541 |
| -- |
|
| 691 |
| (4 | ) |
Total Eurozone | $ | 171 | $ | (10 | ) | $ | 863 | $ | (9 | ) | $ | 1,034 | $ | (19 | ) |
________________
(1) Financials primarily includes banking and financial services.
(2) Non-financials primarily includes energy, capital goods, consumer goods, communication, technology and basic industries.
Other direct exposure to investments in fixed income securities in European Union (“EU”) member states that do not use the Euro currency is $1.53 billion, with net unrealized capital gains of $135 million. Remaining direct exposure to non-EU countries total $571 million, with net unrealized capital gains of $51 million. The large majority of these investments are in multinational public companies with global revenue sources that are well diversified across region and sector, including a higher allocation to energy, capital goods, non-cyclical consumer goods and communications sectors. We also have additional indirect and diversified exposures through investments in multinational equity funds and limited partnership interests that invest in Europe.
Net investment income The following table presents net investment income for the years ended December 31.
($ in millions) |
| 2012 |
|
| 2011 |
|
| 2010 |
|
Fixed income securities | $ | 2,084 |
| $ | 2,264 |
| $ | 2,476 |
|
Mortgage loans |
| 345 |
|
| 345 |
|
| 377 |
|
Equity securities |
| 9 |
|
| 7 |
|
| 5 |
|
Limited partnership interests (1) |
| 159 |
|
| 49 |
|
| 21 |
|
Short-term investments |
| 2 |
|
| 3 |
|
| 3 |
|
Policy loans |
| 51 |
|
| 53 |
|
| 54 |
|
Other |
| 61 |
|
| 18 |
|
| (70 | ) |
Investment income, before expense |
| 2,711 |
|
| 2,739 |
|
| 2,866 |
|
Investment expense |
| (114 | ) |
| (102 | ) |
| (106 | ) |
Net investment income | $ | 2,597 |
| $ | 2,637 |
| $ | 2,760 |
|
_______________
|
| ($ in millions) | 2014 | 2013 | 2012 | ||||||||
| Fixed income securities | $ | 1,522 | $ | 1,947 | $ | 2,084 | |||||
| Mortgage loans | 242 | 345 | 345 | ||||||||
| Equity securities | 20 | 12 | 9 | ||||||||
| Limited partnership interests | 267 | 175 | 159 | ||||||||
| Short-term investments | 2 | 2 | 2 | ||||||||
| Policy loans | 39 | 49 | 51 | ||||||||
| Other | 59 | 63 | 61 | ||||||||
| Investment income, before expense | 2,151 | 2,593 | 2,711 | ||||||||
| Investment expense | (70 | ) | (108 | ) | (114 | ) | |||||
| Net investment income | $ | 2,081 | $ | 2,485 | $ | 2,597 | |||||
Realized capital gains and losses The following table presents the components of realized capital gains and losses and the related tax effect for the years ended December 31.
($ in millions) |
|
| 2012 |
| 2011 |
| 2010 | |||
Impairment write-downs |
| $ | (51 | ) | $ | (242 | ) | $ | (494 | ) |
Change in intent write-downs |
|
| (17 | ) |
| (51 | ) |
| (142 | ) |
Net other-than-temporary impairment losses |
|
| (68 | ) |
| (293 | ) |
| (636 | ) |
Sales |
|
| 17 |
|
| 823 |
|
| 215 |
|
Valuation of derivative instruments |
|
| (16 | ) |
| (224 | ) |
| (94 | ) |
Settlements of derivative instruments |
|
| 51 |
|
| 22 |
|
| (31 | ) |
EMA limited partnership income (1) |
|
| -- |
|
| 62 |
|
| 33 |
|
Realized capital gains and losses, pre-tax |
|
| (16 | ) |
| 390 |
|
| (513 | ) |
Income tax benefit (expense) |
|
| 6 |
|
| (139 | ) |
| 179 |
|
Realized capital gains and losses, after-tax |
| $ | (10 | ) | $ | 251 |
| $ | (334 | ) |
_______________
|
| ($ in millions) | 2014 | 2013 | 2012 | ||||||||
| Impairment write-downs | $ | (11 | ) | $ | (33 | ) | $ | (51 | ) | ||
| Change in intent write-downs | (44 | ) | (19 | ) | (17 | ) | |||||
| Net other-than-temporary impairment losses recognized in earnings | (55 | ) | (52 | ) | (68 | ) | |||||
| Sales | 184 | 114 | 17 | ||||||||
| Valuation and settlements of derivative instruments | 14 | 14 | 35 | ||||||||
| Realized capital gains and losses, pre-tax | 143 | 76 | (16 | ) | |||||||
| Income tax (expense) benefit | (50 | ) | (29 | ) | 6 | ||||||
| Realized capital gains and losses, after-tax | $ | 93 | $ | 47 | $ | (10 | ) | ||||
($ in millions) |
| 2012 |
|
| 2011 |
|
| 2010 |
|
Fixed income securities | $ | (53 | ) | $ | (190 | ) | $ | (403 | ) |
Mortgage loans |
| 5 |
|
| (33 | ) |
| (65 | ) |
Equity securities |
| -- |
|
| (5 | ) |
| -- |
|
Limited partnership interests |
| (3 | ) |
| (3 | ) |
| (23 | ) |
Other investments |
| -- |
|
| (11 | ) |
| (3 | ) |
Impairment write-downs | $ | (51 | ) | $ | (242 | ) | $ | (494 | ) |
| ($ in millions) | 2014 | 2013 | 2012 | ||||||||
| Fixed income securities | $ | (8 | ) | $ | (32 | ) | $ | (53 | ) | ||
| Mortgage loans | 5 | 11 | 5 | ||||||||
| Limited partnership interests | (8 | ) | (9 | ) | (3 | ) | |||||
| Other investments | — | (3 | ) | — | |||||||
| Impairment write-downs | $ | (11 | ) | $ | (33 | ) | $ | (51 | ) | ||
Impairment write-downs in 2011 were primarily driven by RMBS, which experienced deterioration in expected cash flows; investments with commercial real estate exposure, including CMBS, mortgage loans and municipal bonds, which were impacted by lower real estate valuations or experienced deterioration in expected cash flows; and corporate fixed income securities impacted by issuer specific circumstances.
with the unrealized gains and lossescredit spreads on the fixed income portfolio. This approach mitigates the impacts of general interest rate changes to our overall financial condition.
underlying credit names.
liability cash flows and calculate their net present value using a risk-free market interest rate adjusted for credit quality, sector attributes, liquidity and other specific risks. Duration is calculated by revaluing these cash flows at alternative interest rates and determining the percentage change in aggregate fair value. The cash flows used in this calculation include the expected maturity and repricing characteristics of our derivative financial instruments, all other financial instruments, and certain other items including annuity liabilities and other interest-sensitive liabilities. The projections include assumptions (based upon historical market experience and our experience) that reflect the effect of changing interest rates on the prepayment, lapse, leverage and/or option features of instruments, where applicable. The preceding assumptions relate primarily to mortgage-backed securities, municipal housing bonds, callable municipal and corporate obligations, andbonds, fixed rate single and flexible premium deferred annuities.
annuities, mortgage-backed securities and municipal housing bonds
investments.
2013.
Equity price risk is the risk that we will incur losses due to adverse changes in the general levels of the equity markets. As of December 31, 2012,2014, we held $2.27$2.99 billion in securities with equity risk (including primarily limited partnership interests, equity securities and non-redeemable preferred securities and equity-linked notes)securities), compared to $1.79$2.71 billion as of December 31, 2011.2013.
The decline in separate accounts was the result of the LBL sale.
$2.26 billion of the December 31, 2013 balance was a component of the LBL sale during 2014.
As of December 31, 2012,2014, we had $187$484 million in foreign currency denominated investments, compared to $160$226 million as of December 31, 2011.
2013.
($ in millions) |
| 2012 |
| 2011 |
| 2010 |
|
Common stock, retained income and additional capital paid-in | $ | 5,680 | $ | 5,255 | $ | 4,781 |
|
Accumulated other comprehensive income |
| 1,633 |
| 812 |
| 538 |
|
Total shareholder’s equity |
| 7,313 |
| 6,067 |
| 5,319 |
|
Notes due to related parties |
| 496 |
| 700 |
| 677 |
|
Total capital resources | $ | 7,809 | $ | 6,767 | $ | 5,996 |
|
| ($ in millions) | 2014 | 2013 | 2012 | ||||||||
| Common stock, retained income and additional capital paid-in | $ | 4,968 | $ | 5,142 | $ | 5,680 | |||||
| Accumulated other comprehensive income | 1,379 | 928 | 1,633 | ||||||||
| Total shareholder’s equity | 6,347 | 6,070 | 7,313 | ||||||||
| Notes due to related parties | 275 | 282 | 496 | ||||||||
| Total capital resources | $ | 6,622 | $ | 6,352 | $ | 7,809 | |||||
|
| ||
| Rating agency | Rating | ||
| A.M. Best Company, Inc. | A+ | ||
Standard & Poor’s Ratings Services | A+ | ||
Moody’s Investors Service, Inc. | A1 | ||
On January 31, 2013,
remained stable.
State laws specify regulatory actions if an insurer’s risk-based capital (“RBC”), a measureThe National Association of an insurer’s solvency, falls below certain levels. The NAIC has a standard formula for annually assessing RBC. The formula for calculating RBC for life insurance companies takes into account factors relating to insurance, business, asset and interest rate risks. As of December 31, 2012, the statutory capital and surplus for each of our insurance companies exceeds its company action level RBC.
The NAICInsurance Commissioners (“NAIC”) has also developed a set of financial relationships or tests known as the Insurance Regulatory Information System to assist state insurance regulators in monitoring the financial condition of insurance companies and identifying companies that require special attention or actions by state insurance regulatory authorities.regulators. The NAIC analyzes financial data provided by insurance companies using prescribed ratios, each with defined “usual ranges”. Generally, regulators will begin to monitor an insurance companyAdditional regulatory scrutiny may occur if itsa company’s ratios fall outside the usual ranges for four or more of the ratios. If an insurance company has insufficient capital, regulators may act to reduce the amount of insurance it can issue. The ratios of our insurance companies are within these ranges.
·
·
·
·
·
·
·
·
·
·
·
·
·
·
·
·
·
·
2012.
·follows. The amount available to the Company is at the discretion of the Corporation.
·A $1.00 billion unsecured revolving credit facility is available for short-term liquidity requirements and backs the commercial paper facility. The $1.00 billion unsecured revolving creditIn April 2014, the Corporation amended the maturity date of this facility has an initial term of five years expiring into April 2017. The facility is fully subscribed among 12 lenders with the largest commitment being $115 million. The Corporation has2019 and also amended the option to extend the expiration by one year at the first and second anniversary of the facility,amendment, upon approval of existing or replacement lenders. The facility is fully subscribed among 12 lenders with the largest commitment being $115 million. The commitments of the lenders are several and no lender is responsible for any other lender’s commitment if such lender fails to make a loan under the facility. This facility contains an increase provision that would allow up to an additional $500 million of borrowing. This facility has a financial covenant requiring that the Corporation not exceed a 37.5% debt to capitalization ratio as defined in the agreement. This ratio was 19.8%11.6% as of December 31, 2012.2014. Although the right to borrow under the facility is not subject to a minimum rating requirement, the costs of maintaining the facility and borrowing under it are based on the ratings of the Corporation’s senior unsecured, unguaranteed long-term debt. There were no borrowings under the credit facility during 2012.2014. The total amount outstanding at any point in time under the combination of the commercial paper program and the credit facility cannot exceed the amount that can be borrowed under the credit facility.
·
($ in millions) |
|
|
| Percent | |
Not subject to discretionary withdrawal | $ | 5,962 |
| 15.5 | % |
Subject to discretionary withdrawal with adjustments: |
|
|
|
|
|
Specified surrender charges (1) |
| 13,023 |
| 33.7 |
|
Market value adjustments (2) |
| 5,382 |
| 13.9 |
|
Subject to discretionary withdrawal without adjustments (3) |
| 14,267 |
| 36.9 |
|
Total contractholder funds (4) | $ | 38,634 |
| 100.0 | % |
______________
| ($ in millions) | Percent to total | |||||
| Not subject to discretionary withdrawal | $ | 3,606 | 16.5 | % | ||
| Subject to discretionary withdrawal with adjustments: | ||||||
Specified surrender charges (1) | 6,100 | 28.0 | ||||
Market value adjustments (2) | 2,348 | 10.8 | ||||
Subject to discretionary withdrawal without adjustments (3) | 9,762 | 44.7 | ||||
Total contractholder funds (4) | $ | 21,816 | 100.0 | % | ||
| |
(1) | Includes |
(2) | $ |
(3) |
|
(4) | Includes |
While we are able to quantify remaining scheduled maturities for our institutional products, anticipating retail product surrenders is less precise.
Our institutional products are primarily funding agreements sold to unaffiliated trusts used to back medium-term notes. As of December 31, 2012, total institutional products outstanding were $1.84 billion, with scheduled maturities of $1.75 billion in April of 2013 and $85 million in 2016.
Our asset-liability management practices limitenable us to manage the differences between the cash flows generated by our investment portfolio and the expected cash flow requirements of our life insurance annuity and institutionalannuity product obligations.
institutional product maturities.
product maturity.
($ in millions) |
| Total |
| Less than |
| 1-3 years |
| 4-5 years |
| Over 5 |
| ||||||||||
Liabilities for collateral (1) |
| $ |
| 561 |
| $ | 561 |
| $ | -- |
| $ | -- |
| $ | -- |
| ||||
Contractholder funds (2) |
| 53,445 |
| 7,858 |
| 9,796 |
| 6,860 |
| 28,931 |
| ||||||||||
Reserve for life-contingent contract benefits (2) |
| 32,944 |
| 956 |
| 1,872 |
| 1,831 |
| 28,285 |
| ||||||||||
Notes due to related parties (3) |
| 1,310 |
| 46 |
| 89 |
| 90 |
| 1,085 |
| ||||||||||
Payable to affiliates, net |
| 111 |
| 111 |
| -- |
| -- |
| -- |
| ||||||||||
Other liabilities and accrued expenses (4)(5) |
|
| 642 |
|
| 533 |
|
| 51 |
|
| 46 |
|
| 12 |
| |||||
Total contractual cash obligations |
| $ |
| 89,013 |
| $ | 10,065 |
| $ | 11,808 |
| $ | 8,827 |
| $ | 58,313 |
| ||||
________________
| ($ in millions) | Total | Less than 1 year | 1-3 years | 4-5 years | Over 5 years | ||||||||||||||
Liabilities for collateral (1) | $ | 510 | $ | 510 | $ | — | $ | — | $ | — | |||||||||
Contractholder funds (2) | 36,123 | 2,905 | 5,005 | 4,230 | 23,983 | ||||||||||||||
Reserve for life-contingent contract benefits (2) | 32,764 | 987 | 1,938 | 1,897 | 27,942 | ||||||||||||||
Notes due to related parties (3) | 605 | 16 | 31 | 31 | 527 | ||||||||||||||
| Payable to affiliates, net | 96 | 96 | — | — | — | ||||||||||||||
Other liabilities and accrued expenses (4)(5) | 241 | 211 | 13 | 7 | 10 | ||||||||||||||
| Total contractual cash obligations | $ | 70,339 | $ | 4,725 | $ | 6,987 | $ | 6,165 | $ | 52,462 | |||||||||
(1) | Liabilities for collateral are typically fully secured with cash or short-term investments. We manage our short-term liquidity position to ensure the availability of a sufficient amount of liquid assets to extinguish short-term liabilities as they come due in the normal course of business, including utilizing potential sources of liquidity as disclosed previously. |
(2)
| Contractholder funds represent interest-bearing liabilities arising from the sale of products such as interest-sensitive life, fixed annuities, including immediate annuities without life contingencies, and institutional products. The reserve for life-contingent contract benefits relates primarily to traditional life insurance, immediate annuities with life contingencies and voluntary accident and health insurance. These amounts reflect the present value of estimated cash payments to be made to contractholders and policyholders. Certain of these contracts, such as immediate annuities without life contingencies and institutional products, involve payment obligations where the amount and timing of the payment is essentially fixed and determinable. These amounts relate to (i) policies or contracts where we are currently making payments and will continue to do so and (ii) contracts where the timing of a portion or all of the payments has been determined by the contract. Other contracts, such as interest-sensitive life, fixed deferred annuities, traditional life insurance, immediate annuities with life contingencies and voluntary accident and health insurance, involve payment obligations where a portion or all of the amount and timing of future payments is uncertain. For these contracts, we are not currently making payments and will not make payments until (i) the occurrence of an insurable event such as death or illness or (ii) the occurrence of a payment triggering event such as the surrender or partial withdrawal on a policy or deposit contract, which is outside of our control. We have estimated the timing of payments related to these contracts based on historical experience and our expectation of future payment patterns. Uncertainties relating to these liabilities include mortality, morbidity, expenses, customer lapse and withdrawal activity, estimated additional deposits for interest-sensitive life contracts, and renewal premium for life policies, which may significantly impact both the timing and amount of future payments. Such cash outflows reflect adjustments for the estimated timing of mortality, retirement, and other appropriate factors, but are undiscounted with respect to interest. As a result, the sum of the cash outflows shown for all years in the table exceeds the corresponding liabilities of |
Financial Position as of December 31, |
(3) | Amount differs from the balance presented on the Consolidated Statements of Financial Position as of December 31, |
(4)
| Other liabilities primarily include accrued expenses, claim payments and other checks outstanding. |
(5)
| Balance sheet liabilities not included in the table above include unearned and advance premiums of |
($ in millions) |
| Total |
| Less than |
| 1-3 |
| 4-5 |
| Over 5 |
|
Other commitments – conditional | $ | 80 | $ | 74 | $ | -- | $ | 6 | $ | -- |
|
Other commitments – unconditional |
| 947 |
| 120 |
| 170 |
| 575 |
| 82 |
|
Total commitments | $ | 1,027 | $ | 194 | $ | 170 | $ | 581 | $ | 82 |
|
| ($ in millions) | Total | Less than 1 year | 1-3 years | 4-5 years | Over 5 years | ||||||||||||||
| Other commitments - conditional | $ | 115 | $ | 46 | $ | 44 | $ | 25 | $ | — | |||||||||
| Other commitments - unconditional | 1,223 | 49 | 70 | 84 | 1,020 | ||||||||||||||
| Total commitments | $ | 1,338 | $ | 95 | $ | 114 | $ | 109 | $ | 1,020 | |||||||||
Limited partnership interests are typically funded over the commitment period which is shorter than the contractual expiration date of the partnership and as a result, the actual timing of the funding may vary.
($ in millions) |
| Year Ended December 31, | |||||||
|
| 2012 |
| 2011 |
| 2010 | |||
|
|
|
|
|
|
|
|
|
|
Revenues |
|
|
|
|
|
|
|
|
|
Premiums (net of reinsurance ceded of $402, $447 and $485) | $ | 593 |
| $ | 624 |
| $ | 592 |
|
Contract charges (net of reinsurance ceded of $252, $283 and $291) |
| 1,029 |
|
| 1,008 |
|
| 991 |
|
Net investment income |
| 2,597 |
|
| 2,637 |
|
| 2,760 |
|
Realized capital gains and losses: |
|
|
|
|
|
|
|
|
|
Total other-than-temporary impairment losses |
| (60 | ) |
| (279 | ) |
| (591 | ) |
Portion of loss recognized in other comprehensive income |
| (8 | ) |
| (14 | ) |
| (45 | ) |
Net other-than-temporary impairment losses recognized in earnings |
| (68 | ) |
| (293 | ) |
| (636 | ) |
Sales and other realized capital gains and losses |
| 52 |
|
| 683 |
|
| 123 |
|
Total realized capital gains and losses |
| (16 | ) |
| 390 |
|
| (513 | ) |
|
| 4,203 |
|
| 4,659 |
|
| 3,830 |
|
Costs and expenses |
|
|
|
|
|
|
|
|
|
Contract benefits (net of reinsurance ceded of $644, $631 and $673) |
| 1,521 |
|
| 1,502 |
|
| 1,496 |
|
Interest credited to contractholder funds (net of reinsurance ceded of $28, $27 and $32) |
| 1,289 |
|
| 1,608 |
|
| 1,764 |
|
Amortization of deferred policy acquisition costs |
| 324 |
|
| 430 |
|
| 220 |
|
Operating costs and expenses |
| 437 |
|
| 394 |
|
| 408 |
|
Restructuring and related charges |
| -- |
|
| 1 |
|
| (3 | ) |
Interest expense |
| 45 |
|
| 45 |
|
| 44 |
|
|
| 3,616 |
|
| 3,980 |
|
| 3,929 |
|
|
|
|
|
|
|
|
|
|
|
Gain on disposition of operations |
| 18 |
|
| 15 |
|
| 14 |
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations before income tax expense (benefit) |
| 605 |
|
| 694 |
|
| (85 | ) |
|
|
|
|
|
|
|
|
|
|
Income tax expense (benefit) |
| 179 |
|
| 225 |
|
| (45 | ) |
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
| 426 |
|
| 469 |
|
| (40 | ) |
|
|
|
|
|
|
|
|
|
|
Other comprehensive income, after-tax |
|
|
|
|
|
|
|
|
|
Change in unrealized net capital gains and losses |
| 821 |
|
| 275 |
|
| 1,408 |
|
Change in unrealized foreign currency translation adjustments |
| -- |
|
| (1 | ) |
| -- |
|
Other comprehensive income, after-tax |
| 821 |
|
| 274 |
|
| 1,408 |
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income | $ | 1,247 |
| $ | 743 |
| $ | 1,368 |
|
| ($ in millions) | Year Ended December 31, | ||||||||||
| 2014 | 2013 | 2012 | |||||||||
| Revenues | |||||||||||
| Premiums (net of reinsurance ceded of $216, $367 and $402) | $ | 589 | $ | 613 | $ | 593 | |||||
| Contract charges (net of reinsurance ceded of $176, $251 and $252) | 847 | 1,054 | 1,029 | ||||||||
| Net investment income | 2,081 | 2,485 | 2,597 | ||||||||
| Realized capital gains and losses: | |||||||||||
| Total other-than-temporary impairment (“OTTI”) losses | (54 | ) | (49 | ) | (60 | ) | |||||
| OTTI losses reclassified to (from) other comprehensive income | (1 | ) | (3 | ) | (8 | ) | |||||
| Net OTTI losses recognized in earnings | (55 | ) | (52 | ) | (68 | ) | |||||
| Sales and other realized capital gains and losses | 198 | 128 | 52 | ||||||||
| Total realized capital gains and losses | 143 | 76 | (16 | ) | |||||||
| 3,660 | 4,228 | 4,203 | |||||||||
| Costs and expenses | |||||||||||
| Contract benefits (net of reinsurance ceded of $329, $331 and $644) | 1,452 | 1,606 | 1,521 | ||||||||
| Interest credited to contractholder funds (net of reinsurance ceded of $27, $27 and $28) | 891 | 1,251 | 1,289 | ||||||||
| Amortization of deferred policy acquisition costs | 162 | 240 | 324 | ||||||||
| Operating costs and expenses | 310 | 434 | 437 | ||||||||
| Restructuring and related charges | 2 | 6 | — | ||||||||
| Interest expense | 16 | 23 | 45 | ||||||||
| 2,833 | 3,560 | 3,616 | |||||||||
| (Loss) gain on disposition of operations | (68 | ) | (687 | ) | 18 | ||||||
| Income (loss) from operations before income tax expense | 759 | (19 | ) | 605 | |||||||
| Income tax expense | 233 | 19 | 179 | ||||||||
| Net income (loss) | 526 | (38 | ) | 426 | |||||||
| Other comprehensive income (loss), after-tax | |||||||||||
| Change in unrealized net capital gains and losses | 455 | (707 | ) | 821 | |||||||
| Change in unrealized foreign currency translation adjustments | (4 | ) | 2 | — | |||||||
| Other comprehensive income (loss), after-tax | 451 | (705 | ) | 821 | |||||||
| Comprehensive income (loss) | $ | 977 | $ | (743 | ) | $ | 1,247 | ||||
($ in millions, except par value data) |
| December 31, | ||||
|
| 2012 |
| 2011 | ||
Assets |
|
|
|
|
|
|
Investments |
|
|
|
|
|
|
Fixed income securities, at fair value (amortized cost $41,194 and $43,481) | $ | 44,876 |
| $ | 45,428 |
|
Mortgage loans |
| 5,943 |
|
| 6,546 |
|
Equity securities, at fair value (cost $310 and $143) |
| 345 |
|
| 179 |
|
Limited partnership interests |
| 1,924 |
|
| 1,612 |
|
Short-term, at fair value (amortized cost $875 and $593) |
| 875 |
|
| 593 |
|
Policy loans |
| 836 |
|
| 833 |
|
Other |
| 1,067 |
|
| 1,086 |
|
Total investments |
| 55,866 |
|
| 56,277 |
|
Cash |
| 341 |
|
| 310 |
|
Deferred policy acquisition costs |
| 1,834 |
|
| 2,165 |
|
Reinsurance recoverables |
| 4,570 |
|
| 4,457 |
|
Accrued investment income |
| 489 |
|
| 520 |
|
Other assets |
| 401 |
|
| 406 |
|
Separate Accounts |
| 6,610 |
|
| 6,984 |
|
Total assets | $ | 70,111 |
| $ | 71,119 |
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
Contractholder funds | $ | 38,634 |
| $ | 41,669 |
|
Reserve for life-contingent contract benefits |
| 14,117 |
|
| 13,666 |
|
Unearned premiums |
| 20 |
|
| 23 |
|
Payable to affiliates, net |
| 111 |
|
| 97 |
|
Other liabilities and accrued expenses |
| 1,286 |
|
| 1,092 |
|
Deferred income taxes |
| 1,524 |
|
| 821 |
|
Notes due to related parties |
| 496 |
|
| 700 |
|
Separate Accounts |
| 6,610 |
|
| 6,984 |
|
Total liabilities |
| 62,798 |
|
| 65,052 |
|
|
|
|
|
|
|
|
Commitments and Contingent Liabilities (Notes 7 and 11) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholder’s Equity |
|
|
|
|
|
|
Redeemable preferred stock - series A, $100 par value, 1,500,000 shares authorized, none issued |
| -- |
|
| -- |
|
Redeemable preferred stock - series B, $100 par value, 1,500,000 shares authorized, none issued |
| -- |
|
| -- |
|
Common stock, $227 par value, 23,800 shares authorized and outstanding |
| 5 |
|
| 5 |
|
Additional capital paid-in |
| 3,190 |
|
| 3,190 |
|
Retained income |
| 2,485 |
|
| 2,060 |
|
Accumulated other comprehensive income: |
|
|
|
|
|
|
Unrealized net capital gains and losses: |
|
|
|
|
|
|
Unrealized net capital losses on fixed income securities with OTTI |
| (5 | ) |
| (103 | ) |
Other unrealized net capital gains and losses |
| 2,405 |
|
| 1,380 |
|
Unrealized adjustment to DAC, DSI and insurance reserves |
| (766 | ) |
| (464 | ) |
Total unrealized net capital gains and losses |
| 1,634 |
|
| 813 |
|
Unrealized foreign currency translation adjustments |
| (1 | ) |
| (1 | ) |
Total accumulated other comprehensive income |
| 1,633 |
|
| 812 |
|
Total shareholder’s equity |
| 7,313 |
|
| 6,067 |
|
Total liabilities and shareholder’s equity | $ | 70,111 |
| $ | 71,119 |
|
| ($ in millions, except par value data) | December 31, | ||||||
| 2014 | 2013 | ||||||
| Assets | |||||||
| Investments | |||||||
| Fixed income securities, at fair value (amortized cost $25,822 and $27,427) | $ | 28,117 | $ | 28,756 | |||
| Mortgage loans | 3,686 | 4,173 | |||||
| Equity securities, at fair value (cost $927 and $565) | 970 | 650 | |||||
| Limited partnership interests | 2,024 | 2,064 | |||||
| Short-term, at fair value (amortized cost $857 and $590) | 857 | 590 | |||||
| Policy loans | 616 | 623 | |||||
| Other | 1,196 | 1,088 | |||||
| Total investments | 37,466 | 37,944 | |||||
| Cash | 146 | 93 | |||||
| Deferred policy acquisition costs | 1,271 | 1,331 | |||||
| Reinsurance recoverables | 2,586 | 2,754 | |||||
| Accrued investment income | 333 | 358 | |||||
| Other assets | 537 | 256 | |||||
| Separate Accounts | 4,396 | 5,039 | |||||
| Assets held for sale | — | 15,593 | |||||
| Total assets | $ | 46,735 | $ | 63,368 | |||
| Liabilities | |||||||
| Contractholder funds | $ | 21,816 | $ | 23,604 | |||
| Reserve for life-contingent contract benefits | 11,566 | 11,589 | |||||
| Unearned premiums | 6 | 6 | |||||
| Payable to affiliates, net | 96 | 100 | |||||
| Other liabilities and accrued expenses | 826 | 838 | |||||
| Deferred income taxes | 1,407 | 941 | |||||
| Notes due to related parties | 275 | 282 | |||||
| Separate Accounts | 4,396 | 5,039 | |||||
| Liabilities held for sale | — | 14,899 | |||||
| Total liabilities | 40,388 | 57,298 | |||||
| Commitments and Contingent Liabilities (Notes 8 and 12) | |||||||
| Shareholder’s Equity | |||||||
| Redeemable preferred stock - series A, $100 par value, 1,500,000 shares authorized, none issued | — | — | |||||
| Redeemable preferred stock - series B, $100 par value, 1,500,000 shares authorized, none issued | — | — | |||||
| Common stock, $227 par value, 23,800 shares authorized and outstanding | 5 | 5 | |||||
| Additional capital paid-in | 1,990 | 2,690 | |||||
| Retained income | 2,973 | 2,447 | |||||
| Accumulated other comprehensive income: | |||||||
| Unrealized net capital gains and losses: | |||||||
| Unrealized net capital gains and losses on fixed income securities with OTTI | 47 | 31 | |||||
| Other unrealized net capital gains and losses | 1,468 | 997 | |||||
| Unrealized adjustment to DAC, DSI and insurance reserves | (133 | ) | (101 | ) | |||
| Total unrealized net capital gains and losses | 1,382 | 927 | |||||
| Unrealized foreign currency translation adjustments | (3 | ) | 1 | ||||
| Total accumulated other comprehensive income | 1,379 | 928 | |||||
| Total shareholder’s equity | 6,347 | 6,070 | |||||
| Total liabilities and shareholder’s equity | $ | 46,735 | $ | 63,368 | |||
($ in millions) |
| Year Ended December 31, | |||||||
|
| 2012 |
| 2011 |
| 2010 | |||
|
|
|
|
|
|
|
|
|
|
Common stock | $ | 5 |
| $ | 5 |
| $ | 5 |
|
|
|
|
|
|
|
|
|
|
|
Additional capital paid-in |
|
|
|
|
|
|
|
|
|
Balance, beginning of year |
| 3,190 |
|
| 3,189 |
|
| 3,189 |
|
Gain on purchase of investments from affiliate |
| -- |
|
| 1 |
|
| -- |
|
Balance, end of year |
| 3,190 |
|
| 3,190 |
|
| 3,189 |
|
|
|
|
|
|
|
|
|
|
|
Retained income |
|
|
|
|
|
|
|
|
|
Balance, beginning of year |
| 2,060 |
|
| 1,587 |
|
| 1,655 |
|
Net income (loss) |
| 426 |
|
| 469 |
|
| (40 | ) |
Loss on reinsurance agreement with an affiliate |
| (1 | ) |
| -- |
|
| -- |
|
Forgiveness of payable due to parent |
| -- |
|
| 4 |
|
| -- |
|
Cumulative effect of change in accounting principle |
| -- |
|
| -- |
|
| (28 | ) |
Balance, end of year |
| 2,485 |
|
| 2,060 |
|
| 1,587 |
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive income |
|
|
|
|
|
|
|
|
|
Balance, beginning of year |
| 812 |
|
| 538 |
|
| (889 | ) |
Change in unrealized net capital gains and losses |
| 821 |
|
| 275 |
|
| 1,408 |
|
Change in unrealized foreign currency translation adjustments |
| -- |
|
| (1 | ) |
| -- |
|
Cumulative effect of change in accounting principle |
| -- |
|
| -- |
|
| 19 |
|
Balance, end of year |
| 1,633 |
|
| 812 |
|
| 538 |
|
|
|
|
|
|
|
|
|
|
|
Total shareholder’s equity | $ | 7,313 |
| $ | 6,067 |
| $ | 5,319 |
|
| ($ in millions) | Year Ended December 31, | ||||||||||
| 2014 | 2013 | 2012 | |||||||||
| Common stock | $ | 5 | $ | 5 | $ | 5 | |||||
| Additional capital paid-in | |||||||||||
| Balance, beginning of year | 2,690 | 3,190 | 3,190 | ||||||||
| Return of capital | (700 | ) | (500 | ) | — | ||||||
| Balance, end of year | 1,990 | 2,690 | 3,190 | ||||||||
| Retained income | |||||||||||
| Balance, beginning of year | 2,447 | 2,485 | 2,060 | ||||||||
| Net income (loss) | 526 | (38 | ) | 426 | |||||||
| Loss on reinsurance agreement with an affiliate | — | — | (1 | ) | |||||||
| Balance, end of year | 2,973 | 2,447 | 2,485 | ||||||||
| Accumulated other comprehensive income | |||||||||||
| Balance, beginning of year | 928 | 1,633 | 812 | ||||||||
| Change in unrealized net capital gains and losses | 455 | (707 | ) | 821 | |||||||
| Change in unrealized foreign currency translation adjustments | (4 | ) | 2 | — | |||||||
| Balance, end of year | 1,379 | 928 | 1,633 | ||||||||
| Total shareholder’s equity | $ | 6,347 | $ | 6,070 | $ | 7,313 | |||||
($ in millions) |
| Year Ended December 31, | |||||||
|
| 2012 |
|
| 2011 |
|
| 2010 |
|
Cash flows from operating activities |
|
|
|
|
|
|
|
|
|
Net income (loss) | $ | 426 |
| $ | 469 |
| $ | (40 | ) |
Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
Amortization and other non-cash items |
| (25 | ) |
| (61 | ) |
| (144 | ) |
Realized capital gains and losses |
| 16 |
|
| (390 | ) |
| 513 |
|
Gain on disposition of operations |
| (18 | ) |
| (15 | ) |
| (14 | ) |
Interest credited to contractholder funds |
| 1,289 |
|
| 1,608 |
|
| 1,764 |
|
Changes in: |
|
|
|
|
|
|
|
|
|
Policy benefits and other insurance reserves |
| (656 | ) |
| (568 | ) |
| (343 | ) |
Unearned premiums |
| (3 | ) |
| (4 | ) |
| (3 | ) |
Deferred policy acquisition costs |
| 62 |
|
| 189 |
|
| (84 | ) |
Reinsurance recoverables, net |
| (157 | ) |
| (259 | ) |
| (365 | ) |
Income taxes |
| 248 |
|
| 164 |
|
| 594 |
|
Other operating assets and liabilities |
| (35 | ) |
| (46 | ) |
| 74 |
|
Net cash provided by operating activities |
| 1,147 |
|
| 1,087 |
|
| 1,952 |
|
Cash flows from investing activities |
|
|
|
|
|
|
|
|
|
Proceeds from sales |
|
|
|
|
|
|
|
|
|
Fixed income securities |
| 6,674 |
|
| 11,490 |
|
| 10,666 |
|
Equity securities |
| 22 |
|
| 70 |
|
| 92 |
|
Limited partnership interests |
| 201 |
|
| 175 |
|
| 110 |
|
Mortgage loans |
| 15 |
|
| 97 |
|
| 112 |
|
Other investments |
| 111 |
|
| 153 |
|
| 82 |
|
Investment collections |
|
|
|
|
|
|
|
|
|
Fixed income securities |
| 3,077 |
|
| 3,072 |
|
| 2,800 |
|
Mortgage loans |
| 1,022 |
|
| 692 |
|
| 1,051 |
|
Other investments |
| 84 |
|
| 93 |
|
| 109 |
|
Investment purchases |
|
|
|
|
|
|
|
|
|
Fixed income securities |
| (7,458 | ) |
| (10,002 | ) |
| (11,361 | ) |
Equity securities |
| (201 | ) |
| (14 | ) |
| (54 | ) |
Limited partnership interests |
| (507 | ) |
| (397 | ) |
| (276 | ) |
Mortgage loans |
| (449 | ) |
| (820 | ) |
| (98 | ) |
Other investments |
| (159 | ) |
| (340 | ) |
| (133 | ) |
Change in short-term investments, net |
| 16 |
|
| 463 |
|
| 266 |
|
Change in policy loans and other investments, net |
| 56 |
|
| (280 | ) |
| (159 | ) |
Disposition of operations |
| 13 |
|
| -- |
|
| -- |
|
Net cash provided by investing activities |
| 2,517 |
|
| 4,452 |
|
| 3,207 |
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities |
|
|
|
|
|
|
|
|
|
Contractholder fund deposits |
| 2,061 |
|
| 1,871 |
|
| 2,343 |
|
Contractholder fund withdrawals |
| (5,490 | ) |
| (7,218 | ) |
| (7,525 | ) |
Repayment of notes due to related parties |
| (204 | ) |
| -- |
|
| (4 | ) |
Net cash used in financing activities |
| (3,633 | ) |
| (5,347 | ) |
| (5,186 | ) |
Net increase (decrease) in cash |
| 31 |
|
| 192 |
|
| (27 | ) |
Cash at beginning of year |
| 310 |
|
| 118 |
|
| 145 |
|
Cash at end of year | $ | 341 |
| $ | 310 |
| $ | 118 |
|
| ($ in millions) | Year Ended December 31, | ||||||||||
| 2014 | 2013 | 2012 | |||||||||
| Cash flows from operating activities | |||||||||||
| Net income (loss) | $ | 526 | $ | (38 | ) | $ | 426 | ||||
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | |||||||||||
| Amortization and other non-cash items | (86 | ) | (73 | ) | (25 | ) | |||||
| Realized capital gains and losses | (143 | ) | (76 | ) | 16 | ||||||
| Loss (gain) on disposition of operations | 68 | 687 | (18 | ) | |||||||
| Interest credited to contractholder funds | 891 | 1,251 | 1,289 | ||||||||
| Changes in: | |||||||||||
| Policy benefits and other insurance reserves | (553 | ) | (634 | ) | (656 | ) | |||||
| Unearned premiums | (1 | ) | (2 | ) | (3 | ) | |||||
| Deferred policy acquisition costs | (1 | ) | (14 | ) | 62 | ||||||
| Reinsurance recoverables, net | (25 | ) | (54 | ) | (157 | ) | |||||
| Income taxes | 121 | 33 | 248 | ||||||||
| Other operating assets and liabilities | (134 | ) | (65 | ) | (35 | ) | |||||
| Net cash provided by operating activities | 663 | 1,015 | 1,147 | ||||||||
| Cash flows from investing activities | |||||||||||
| Proceeds from sales | |||||||||||
| Fixed income securities | 3,353 | 4,046 | 6,674 | ||||||||
| Equity securities | 1,383 | 265 | 22 | ||||||||
| Limited partnership interests | 521 | 387 | 201 | ||||||||
| Mortgage loans | 10 | 24 | 15 | ||||||||
| Other investments | 35 | 38 | 111 | ||||||||
| Investment collections | |||||||||||
| Fixed income securities | 1,909 | 4,168 | 3,077 | ||||||||
| Mortgage loans | 1,027 | 926 | 1,022 | ||||||||
| Other investments | 46 | 88 | 84 | ||||||||
| Investment purchases | |||||||||||
| Fixed income securities | (3,232 | ) | (4,348 | ) | (7,458 | ) | |||||
| Equity securities | (1,612 | ) | (453 | ) | (201 | ) | |||||
| Limited partnership interests | (711 | ) | (597 | ) | (507 | ) | |||||
| Mortgage loans | (468 | ) | (522 | ) | (449 | ) | |||||
| Other investments | (306 | ) | (81 | ) | (159 | ) | |||||
| Change in short-term investments, net | 79 | (108 | ) | 16 | |||||||
| Change in policy loans and other investments, net | 60 | 76 | 56 | ||||||||
| Disposition of operations | 345 | — | 13 | ||||||||
| Net cash provided by investing activities | 2,439 | 3,909 | 2,517 | ||||||||
| Cash flows from financing activities | |||||||||||
| Contractholder fund deposits | 1,065 | 2,062 | 2,061 | ||||||||
| Contractholder fund withdrawals | (3,407 | ) | (6,520 | ) | (5,490 | ) | |||||
| Return of capital | (700 | ) | (500 | ) | — | ||||||
| Repayment of notes due to related parties | (7 | ) | (214 | ) | (204 | ) | |||||
| Net cash used in financing activities | (3,049 | ) | (5,172 | ) | (3,633 | ) | |||||
| Net increase (decrease) in cash | 53 | (248 | ) | 31 | |||||||
| Cash at beginning of year | 93 | 341 | 310 | ||||||||
| Cash at end of year | $ | 146 | $ | 93 | $ | 341 | |||||
49
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ in millions) |
| 2012 |
| 2011 |
| 2010 |
|
Premiums |
|
|
|
|
|
|
|
Traditional life insurance | $ | 449 | $ | 420 | $ | 399 |
|
Immediate annuities with life contingencies |
| 45 |
| 106 |
| 97 |
|
Accident and health insurance |
| 99 |
| 98 |
| 96 |
|
Total premiums |
| 593 |
| 624 |
| 592 |
|
|
|
|
|
|
|
|
|
Contract charges |
|
|
|
|
|
|
|
Interest-sensitive life insurance |
| 1,011 |
| 975 |
| 952 |
|
Fixed annuities |
| 18 |
| 33 |
| 39 |
|
Total contract charges |
| 1,029 |
| 1,008 |
| 991 |
|
Total premiums and contract charges | $ | 1,622 | $ | 1,632 | $ | 1,583 |
|
| ($ in millions) | 2014 | 2013 | 2012 | ||||||||
| Premiums | |||||||||||
| Traditional life insurance | $ | 492 | $ | 471 | $ | 449 | |||||
| Immediate annuities with life contingencies | 4 | 37 | 45 | ||||||||
| Accident and health insurance | 93 | 105 | 99 | ||||||||
| Total premiums | 589 | 613 | 593 | ||||||||
| Contract charges | |||||||||||
| Interest-sensitive life insurance | 828 | 1,036 | 1,011 | ||||||||
| Fixed annuities | 19 | 18 | 18 | ||||||||
| Total contract charges | 847 | 1,054 | 1,029 | ||||||||
| Total premiums and contract charges | $ | 1,436 | $ | 1,667 | $ | 1,622 | |||||
The Company monitors economic and regulatory developments that have the potential to impact its business. Federal and state laws and regulations affect the taxation of insurance companies and life insurance and annuity products. Congress and various state legislatures from time to time consider legislation that would reduce or eliminate the favorable policyholder tax treatment currently applicable to life insurance and annuities.insurance. Congress and various state legislatures also consider proposals to reduce the taxation of certain products or investments that may compete with life insurance or annuities.insurance. Legislation that increases the taxation on insurance products or reduces the taxation on competing products could lessen the advantage or create a disadvantage for certain of the Company’s
bank loans and agent loans that are in default or when full and timely collection of principal and interest payments is not probable. Cash receipts on investments on nonaccrual status are generally recorded as a reduction of carrying value. Income from cost method limited partnership interests is recognized upon receipt of amounts distributed by the partnerships. Income from EMA limited partnership interests is recognized based on the Company’s share of the overall earnings of the partnerships,partnerships’ net income, including unrealized gains and losses, and is recognized on a delay due to the availability of the related financial statements. Income recognition on hedgeprivate equity/debt funds and real estate funds is generally on a three month delay and income recognition on other funds is generally on a one month delay and income recognition on private equity/debt funds, real estate funds and tax credit funds is generally on a three month delay.
transaction affects income. Accrued periodic settlements on derivatives used in cash flow hedges are reported in net investment income. The amount reported in accumulated other comprehensive income for a hedged transaction is limited to the lesser of the cumulative gain or loss on the derivative less the amount reclassified to income, or the cumulative gain or loss on the derivative needed to offset the cumulative change in the expected future cash flows on the hedged transaction from inception of the hedge less the derivative gain or loss previously reclassified from accumulated other comprehensive income to income. If the Company expects at any time that the loss reported in accumulated other comprehensive income would lead to a net loss on the combination of the hedging instrument and the hedged transaction which may not be recoverable, a loss is recognized immediately in realized capital gains and losses. If an impairment loss is recognized on an asset or an additional obligation is incurred on a liability involved in a hedge transaction, any offsetting gain in accumulated other comprehensive income is reclassified and reported together with the impairment loss or recognition of the obligation.
��
Recognition of premium revenues and contract charges, and related benefits and interest credited
For traditional life insurance, DAC is amortized over the premium paying period of the related policies in proportion to the estimated revenues on such business. Assumptions used in the amortization of DAC and reserve calculations are established at the time the policy is issued and are generally not revised during the life of the policy. Any deviations from projected business in force resulting from actual policy terminations differing from expected levels and any estimated premium deficiencies may result in a change to the rate of amortization in the period such events occur. Generally, the amortization periods for these policies approximates the estimated lives of the policies.
The Company periodically reviews the recoverability of DAC for these policies on an aggregate basis using actual experience. The Company aggregates all traditional life insurance products and immediate annuities with life contingencies in the analysis. If actual experience is significantly adverse compared to the original assumptions and a premium deficiency is determined to exist, any remaining unamortized DAC balance would be expensed to the extent not recoverable and the establishment of a premium deficiency reserve may be required.
replaced contracts are eliminated with a corresponding charge to amortization of deferred policy acquisition costs or interest credited to contractholder funds, respectively.
2013.
include reserves for secondary guarantees on interest-sensitive life insurance and certain fixed annuity contracts and reserves for certain guarantees on reinsured variable annuity contracts.
Criteria
Investments in Qualified Affordable Housing Projects
Amendments to Fair Value Measurement and Disclosure Requirements
In May 2011, the FASB issued guidance that clarifies the application of existing fair value measurement and disclosure requirements and amendsinvest in certain fair value measurement principles, requirements and disclosures. Changes were made to improve consistency in global application. The guidance is to be applied prospectively for reporting periods beginning after December 15, 2011. The adoption of this guidance as of January 1, 2012 had no impact on the Company’s results of operations or financial position.
Presentation of Comprehensive Income
In June and December 2011, the FASB issued guidance amending the presentation of comprehensive income and its components. Under the new guidance, a reporting entity hasqualified affordable housing projects through limited liability entities the option to present comprehensive incomeaccount for these investments using the proportional amortization method if certain conditions are met. Under the proportional amortization method, the entity amortizes the initial cost of the investment in a single continuous statement or in two separate but consecutive statements. The Company adoptedproportion to the new guidancetax credits and other tax benefits received and recognizes the net investment performance in the first quarterincome statement as a component of 2012. The new guidance affects presentation only and therefore had no impact on the Company’s results of operationsincome tax expense or financial position.
Pending accounting standards
Disclosures about Offsetting Assets and Liabilities
In December 2011 and January 2013, the FASB issued guidance requiring expanded disclosures, including both gross and net information, for derivatives, repurchase agreements and securities lending transactions that are either offset in the reporting entity’s financial statements or those that are subject to an enforceable master netting arrangement or similar agreement.benefit. The guidance is effective for reporting periods beginning on or after January 1, 2013December 15, 2014 and is to be applied retrospectively. The new guidance affects disclosures only and will have no impact onof adoption is not expected to be material to the Company’s results of operations orand financial position.
57
ReportingThe following table summarizes the assets and liabilities classified as held for sale as of Amounts Reclassified Out of Accumulated Other Comprehensive Income
In February 2013, the FASB issued guidance requiring expanded disclosures about the amounts reclassified outDecember 31, 2013.
| ($ in millions) | |||
| Assets | |||
| Investments | |||
| Fixed income securities | $ | 10,167 | |
| Mortgage loans | 1,367 | ||
| Short-term investments | 160 | ||
| Policy loans | 198 | ||
| Other investments | 91 | ||
| Total investments | 11,983 | ||
| Cash | — | ||
| Deferred policy acquisition costs | 743 | ||
| Reinsurance recoverables, net | 1,660 | ||
| Accrued investment income | 109 | ||
| Other assets | 79 | ||
| Separate Accounts | 1,701 | ||
| Assets held for sale | 16,275 | ||
| Less: Loss accrual | (682 | ) | |
| Total assets held for sale | $ | 15,593 | |
| Liabilities | |||
| Reserve for life-contingent contract benefits | $ | 1,894 | |
| Contractholder funds | 10,945 | ||
| Unearned premiums | 12 | ||
| Deferred income taxes | 151 | ||
| Other liabilities and accrued expenses | 196 | ||
| Separate Accounts | 1,701 | ||
| Total liabilities held for sale | $ | 14,899 | |
3.31, 2013.
($ in millions) |
| 2012 |
|
| 2011 |
|
| 2010 |
|
Net change in proceeds managed |
|
|
|
|
|
|
|
|
|
Net change in short-term investments | $ | (298 | ) | $ | 202 |
| $ | 152 |
|
Operating cash flow (used) provided | $ | (298 | ) | $ | 202 |
| $ | 152 |
|
|
|
|
|
|
|
|
|
|
|
Net change in liabilities |
|
|
|
|
|
|
|
|
|
Liabilities for collateral, beginning of year | $ | (263 | ) | $ | (465 | ) | $ | (617 | ) |
Liabilities for collateral, end of year |
| (561 | ) |
| (263 | ) |
| (465 | ) |
Operating cash flow provided (used) | $ | 298 |
| $ | (202 | ) | $ | (152 | ) |
In 2011, a payable associated with the pension benefit obligations due to AIC totaling $4 million was forgiven. The forgiveness of the payable reflects a non-cash financing activity.
4.
| ($ in millions) | 2014 | 2013 | 2012 | ||||||||
| Net change in proceeds managed | |||||||||||
| Net change in short-term investments | $ | (182 | ) | $ | 235 | $ | (298 | ) | |||
| Operating cash flow (used) provided | (182 | ) | 235 | (298 | ) | ||||||
| Net change in cash | — | (2 | ) | — | |||||||
| Net change in proceeds managed | $ | (182 | ) | $ | 233 | $ | (298 | ) | |||
| Net change in liabilities | |||||||||||
| Liabilities for collateral, beginning of year | $ | (328 | ) | $ | (561 | ) | $ | (263 | ) | ||
| Liabilities for collateral, end of year | (510 | ) | (328 | ) | (561 | ) | |||||
| Operating cash flow provided (used) | $ | 182 | $ | (233 | ) | $ | 298 | ||||
Effective March 22, 2013, the Company no longer offers structured settlement annuities.
AIC issued surety bonds to guarantee the payment of structured settlement benefits assumed by ASC (from both AIC and non-related parties) and funded by certain annuity contracts issued by the Company through June 30, 2001. ASC entered into a General Indemnity Agreement pursuant to which it indemnified AIC for any liabilities associated with the surety bonds and gave AIC certain collateral security rights with respect to the annuities and certain other rights in the event of any defaults covered by the surety bonds. For contracts written on or after July 1, 2001, AIC no longer issues surety bonds to guarantee the payment of structured settlement benefits. Alternatively, ALIC guaranteesguaranteed the payment of structured settlement benefits on all contracts issued on or after July 1, 2001. Reserves recorded by the Company for annuities that are guaranteed by the surety bonds of AIC were $4.77$4.68 billion and $4.79$4.72 billion as of December 31, 20122014 and 2011,2013, respectively.
10.
($ in millions) |
| 2012 |
| 2011 |
|
7.00% Note, due 2017, to AHL | $ | -- | $ | 1 |
|
5.80% Note, due 2018, to AHL |
| -- |
| 3 |
|
5.75% Note, due 2018, to AIC |
| 10 |
| 10 |
|
5.75% Note, due 2018, to AIC |
| 4 |
| 4 |
|
6.35% Note, due 2018, to AIC |
| 7 |
| 7 |
|
7.00% Surplus Note, due 2028, to AIC (1) |
| 200 |
| 400 |
|
6.74% Surplus Note, due 2029, to Kennett (1) |
| 25 |
| 25 |
|
5.06% Surplus Note, due 2035, to Kennett (1) |
| 100 |
| 100 |
|
6.18% Surplus Note, due 2036, to Kennett (1) |
| 100 |
| 100 |
|
5.93% Surplus Note, due 2038, to Kennett (1) |
| 50 |
| 50 |
|
Total notes due to related parties | $ | 496 | $ | 700 |
|
______________
(1)No payment of principal or interest is permitted on the surplus notes without the written approval from the proper regulatory authority. The regulatory authority could prohibit the payment of interest and principal on the surplus notes if certain statutory capital requirements are not met. Permission to pay interest on the surplus notes was granted in both 2012 and 2011.
($ in millions) 2014 2013 6.35% Note, due 2018, to AIC $ — $ 7 25 25 100 100 100 100 50 50 Total notes due to related parties $ 275 $ 282
(1) | No payment of principal or interest is permitted on the surplus notes without the written approval from the proper regulatory authority. The regulatory authority could prohibit the payment of interest and principal on the surplus notes if certain statutory capital requirements are not met. Permission to pay interest on the surplus notes was granted in both 2014 and 2013. |
In March 2011, in accordance with an asset purchase agreement between RBI and AIC, RBI purchased from AIC real estate with a fair value of $10 million on the date of sale and issued a 5.75% note due March 24, 2018 to AIC for the same amount. In 2013, RBI repaid the entire principal of this note. In April 2011, RBI purchased from AIC mortgage loans with a fair value of $4 million on the date of sale and issued a 5.75% note due April 19, 2018 to AIC for the same amount. In 2013, RBI repaid the entire principal of this note. In August 2011, RBI purchased from AIC fixed income securities with a fair value of $7 million on the date of sale and issued a 6.35% note due August 23, 2018 to AIC for the same amount. In 2014, RBI repaid the entire principal of this note. Since the transactions were between affiliates under common control, the purchased investments were recorded by RBI at AIC’s carrying value on the date of sale. The investments that were purchased were impaired; therefore, the carrying value on the date of sale equaled fair value. In 20122014, 2013 and 2011,2012, the Company incurred interest expense on these notes of $84 thousand, $1 million and $745 thousand,$1 million respectively.
advance funds on the part of any party. The Company and AIC each serve as a lender and borrower and the Corporation serves only as a lender. The maximum amount of advances
2013.
On December 20, 2010, AHL entered into2013.
2013.
Investment purchases and sales
In November 2011, Allstate Finance Company, LLC (“AFC”), a consolidated subsidiary of ALIC, paid $176 million in cash to purchase loans issued to exclusive Allstate agents (“agent loans”) with a fair value of $175 millionadditional capital paid-in on the dateConsolidated Statements of sale and $1 million of accrued investment income from Allstate Bank, an unconsolidated affiliate of ALIC. Since the transaction was between affiliates under common control, the agent loans were recorded by AFC at Allstate Bank’s carrying value on the date of sale, which was the outstanding unpaid principal balance, net of valuation allowance and deferred fees, of $176 million and $1 million of accrued investment income. The $1 million difference between the fair value of assets received and Allstate Bank’s carrying value was recorded as an increase to additional capital paid-in.
Pension benefit plans
Effective November 30, 2011, the Corporation became the sponsor of the defined benefit pension plans that cover most full-time employees, certain part-time employees and employee-agents. Prior to November 30, 2011, AIC was the sponsor of these plans. In connection with the change in sponsorship, amounts payable by the Company to the previous plan sponsor, AIC, totaling $4 million were forgiven which was recorded as an increase to retained income.
61Financial Position.
5.6. Investments
($ in millions) |
| Amortized |
| Gross unrealized |
|
| Fair |
| |||
|
| cost |
| Gains |
| Losses |
|
| value |
| |
December 31, 2012 |
|
|
|
|
|
|
|
|
|
| |
U.S. government and agencies | $ | 2,137 | $ | 242 | $ | -- |
|
| $ | 2,379 |
|
Municipal |
| 4,153 |
| 612 |
| (61 | ) |
|
| 4,704 |
|
Corporate |
| 28,748 |
| 2,896 |
| (113 | ) |
|
| 31,531 |
|
Foreign government |
| 1,017 |
| 164 |
| (1 | ) |
|
| 1,180 |
|
ABS |
| 1,921 |
| 49 |
| (105 | ) |
|
| 1,865 |
|
RMBS |
| 1,778 |
| 82 |
| (69 | ) |
|
| 1,791 |
|
CMBS |
| 1,425 |
| 60 |
| (77 | ) |
|
| 1,408 |
|
Redeemable preferred stock |
| 15 |
| 3 |
| -- |
|
|
| 18 |
|
Total fixed income securities | $ | 41,194 | $ | 4,108 | $ | (426 | ) |
| $ | 44,876 |
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2011 |
|
|
|
|
|
|
|
|
|
|
|
U.S. government and agencies | $ | 2,502 | $ | 241 | $ | -- |
|
| $ | 2,743 |
|
Municipal |
| 4,380 |
| 426 |
| (114 | ) |
|
| 4,692 |
|
Corporate |
| 28,496 |
| 2,234 |
| (326 | ) |
|
| 30,404 |
|
Foreign government |
| 927 |
| 142 |
| (1 | ) |
|
| 1,068 |
|
ABS |
| 2,345 |
| 44 |
| (281 | ) |
|
| 2,108 |
|
RMBS |
| 2,954 |
| 74 |
| (314 | ) |
|
| 2,714 |
|
CMBS |
| 1,862 |
| 45 |
| (224 | ) |
|
| 1,683 |
|
Redeemable preferred stock |
| 15 |
| 1 |
| -- |
|
|
| 16 |
|
Total fixed income securities | $ | 43,481 | $ | 3,207 | $ | (1,260 | ) |
| $ | 45,428 |
|
| ($ in millions) | Amortized cost | Gross unrealized | Fair value | ||||||||||||
| Gains | Losses | ||||||||||||||
| December 31, 2014 | |||||||||||||||
| U.S. government and agencies | $ | 668 | $ | 102 | $ | — | $ | 770 | |||||||
| Municipal | 3,156 | 520 | (14 | ) | 3,662 | ||||||||||
| Corporate | 19,465 | 1,670 | (150 | ) | 20,985 | ||||||||||
| Foreign government | 654 | 81 | — | 735 | |||||||||||
| ABS | 773 | 13 | (21 | ) | 765 | ||||||||||
| RMBS | 554 | 55 | (4 | ) | 605 | ||||||||||
| CMBS | 538 | 43 | (2 | ) | 579 | ||||||||||
| Redeemable preferred stock | 14 | 2 | — | 16 | |||||||||||
| Total fixed income securities | $ | 25,822 | $ | 2,486 | $ | (191 | ) | $ | 28,117 | ||||||
| December 31, 2013 | |||||||||||||||
| U.S. government and agencies | $ | 678 | $ | 90 | $ | (2 | ) | $ | 766 | ||||||
| Municipal | 3,135 | 231 | (62 | ) | 3,304 | ||||||||||
| Corporate | 20,397 | 1,214 | (295 | ) | 21,316 | ||||||||||
| Foreign government | 715 | 83 | (6 | ) | 792 | ||||||||||
| ABS | 1,011 | 30 | (34 | ) | 1,007 | ||||||||||
| RMBS | 752 | 50 | (12 | ) | 790 | ||||||||||
| CMBS | 724 | 47 | (7 | ) | 764 | ||||||||||
| Redeemable preferred stock | 15 | 2 | — | 17 | |||||||||||
| Total fixed income securities | $ | 27,427 | $ | 1,747 | $ | (418 | ) | $ | 28,756 | ||||||
($ in millions) |
| Amortized |
| Fair |
|
Due in one year or less | $ | 2,710 | $ | 2,746 |
|
Due after one year through five years |
| 8,750 |
| 9,412 |
|
Due after five years through ten years |
| 14,906 |
| 16,436 |
|
Due after ten years |
| 9,704 |
| 11,218 |
|
|
| 36,070 |
| 39,812 |
|
ABS, RMBS and CMBS |
| 5,124 |
| 5,064 |
|
Total | $ | 41,194 | $ | 44,876 |
|
2014:
| ($ in millions) | Amortized cost | Fair value | |||||
| Due in one year or less | $ | 1,338 | $ | 1,359 | |||
| Due after one year through five years | 5,196 | 5,614 | |||||
| Due after five years through ten years | 9,950 | 10,475 | |||||
| Due after ten years | 7,473 | 8,720 | |||||
| 23,957 | 26,168 | ||||||
| ABS, RMBS and CMBS | 1,865 | 1,949 | |||||
| Total | $ | 25,822 | $ | 28,117 | |||
Net investment income
($ in millions) |
| 2012 |
| 2011 |
| 2010 |
| |||
Fixed income securities | $ | 2,084 |
| $ | 2,264 |
| $ | 2,476 |
|
|
Mortgage loans |
| 345 |
|
| 345 |
|
| 377 |
|
|
Equity securities |
| 9 |
|
| 7 |
|
| 5 |
|
|
Limited partnership interests (1) |
| 159 |
|
| 49 |
|
| 21 |
|
|
Short-term investments |
| 2 |
|
| 3 |
|
| 3 |
|
|
Policy loans |
| 51 |
|
| 53 |
|
| 54 |
|
|
Other |
| 61 |
|
| 18 |
|
| (70 | ) |
|
Investment income, before expense |
| 2,711 |
|
| 2,739 |
|
| 2,866 |
|
|
Investment expense |
| (114 | ) |
| (102 | ) |
| (106 | ) |
|
Net investment income | $ | 2,597 |
| $ | 2,637 |
| $ | 2,760 |
|
|
_______________
(1)Income from EMA limited partnerships is reported in net investment income in 2012 and realized capital gains and losses in 2011 and 2010.
| ($ in millions) | 2014 | 2013 | 2012 | ||||||||
| Fixed income securities | $ | 1,522 | $ | 1,947 | $ | 2,084 | |||||
| Mortgage loans | 242 | 345 | 345 | ||||||||
| Equity securities | 20 | 12 | 9 | ||||||||
| Limited partnership interests | 267 | 175 | 159 | ||||||||
| Short-term investments | 2 | 2 | 2 | ||||||||
| Policy loans | 39 | 49 | 51 | ||||||||
| Other | 59 | 63 | 61 | ||||||||
| Investment income, before expense | 2,151 | 2,593 | 2,711 | ||||||||
| Investment expense | (70 | ) | (108 | ) | (114 | ) | |||||
| Net investment income | $ | 2,081 | $ | 2,485 | $ | 2,597 | |||||
($ in millions) |
| 2012 |
| 2011 |
| 2010 |
| |||
Fixed income securities | $ | (62 | ) | $ | 539 |
| $ | (370 | ) |
|
Mortgage loans |
| 8 |
|
| (23 | ) |
| (71 | ) |
|
Equity securities |
| -- |
|
| 14 |
|
| 36 |
|
|
Limited partnership interests (1) |
| -- |
|
| 62 |
|
| 17 |
|
|
Derivatives |
| 34 |
|
| (203 | ) |
| (124 | ) |
|
Other |
| 4 |
|
| 1 |
|
| (1 | ) |
|
Realized capital gains and losses | $ | (16 | ) | $ | 390 |
| $ | (513 | ) |
|
_______________
(1)
| ($ in millions) | 2014 | 2013 | 2012 | ||||||||
| Fixed income securities | $ | (4 | ) | $ | 3 | $ | (62 | ) | |||
| Mortgage loans | 2 | 20 | 8 | ||||||||
| Equity securities | 134 | 45 | — | ||||||||
| Limited partnership interests | (4 | ) | (6 | ) | — | ||||||
| Derivatives | 12 | 14 | 34 | ||||||||
| Other | 3 | — | 4 | ||||||||
| Realized capital gains and losses | $ | 143 | $ | 76 | $ | (16 | ) | ||||
Realized capital gains and losses by transaction type for the years ended December 31 are as follows:
($ in millions) |
| 2012 |
| 2011 |
| 2010 |
| |||
Impairment write-downs | $ | (51 | ) | $ | (242 | ) | $ | (494 | ) |
|
Change in intent write-downs |
| (17 | ) |
| (51 | ) |
| (142 | ) |
|
Net other-than-temporary impairment losses |
| (68 | ) |
| (293 | ) |
| (636 | ) |
|
Sales |
| 17 |
|
| 823 |
|
| 215 |
|
|
Valuation of derivative instruments |
| (16 | ) |
| (224 | ) |
| (94 | ) |
|
Settlements of derivative instruments |
| 51 |
|
| 22 |
|
| (31 | ) |
|
EMA limited partnership income |
| -- |
|
| 62 |
|
| 33 |
|
|
Realized capital gains and losses | $ | (16 | ) | $ | 390 |
| $ | (513 | ) |
|
| ($ in millions) | 2014 | 2013 | 2012 | ||||||||
| Impairment write-downs | $ | (11 | ) | $ | (33 | ) | $ | (51 | ) | ||
| Change in intent write-downs | (44 | ) | (19 | ) | (17 | ) | |||||
| Net other-than-temporary impairment losses recognized in earnings | (55 | ) | (52 | ) | (68 | ) | |||||
| Sales | 184 | 114 | 17 | ||||||||
| Valuation and settlements of derivative instruments | 14 | 14 | 35 | ||||||||
| Realized capital gains and losses | $ | 143 | $ | 76 | $ | (16 | ) | ||||
Other-than-temporary impairment losses by asset type for the years ended December 31 are as follows:
($ in millions) |
| 2012 |
| 2011 |
| 2010 | |||||||||||||||||||||
|
| Gross |
|
| Included |
|
| Net |
|
| Gross |
|
| Included |
|
| Net |
|
| Gross |
|
| Included |
|
| Net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed income securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal | $ | -- |
| $ | -- |
| $ | -- |
| $ | (14 | ) | $ | (3 | ) | $ | (17 | ) | $ | (101 | ) | $ | 17 |
| $ | (84 | ) |
Corporate |
| (16 | ) |
| (2 | ) |
| (18 | ) |
| (28 | ) |
| 6 |
|
| (22 | ) |
| (51 | ) |
| 1 |
|
| (50 | ) |
ABS |
| -- |
|
| -- |
|
| -- |
|
| (8 | ) |
| 2 |
|
| (6 | ) |
| (13 | ) |
| (16 | ) |
| (29 | ) |
RMBS |
| (23 | ) |
| (9 | ) |
| (32 | ) |
| (111 | ) |
| (20 | ) |
| (131 | ) |
| (236 | ) |
| (20 | ) |
| (256 | ) |
CMBS |
| (22 | ) |
| 3 |
|
| (19 | ) |
| (66 | ) |
| 1 |
|
| (65 | ) |
| (93 | ) |
| (27 | ) |
| (120 | ) |
Total fixed income securities |
| (61 | ) |
| (8 | ) |
| (69 | ) |
| (227 | ) |
| (14 | ) |
| (241 | ) |
| (494 | ) |
| (45 | ) |
| (539 | ) |
Mortgage loans |
| 5 |
|
| -- |
|
| 5 |
|
| (33 | ) |
| -- |
|
| (33 | ) |
| (71 | ) |
| -- |
|
| (71 | ) |
Equity securities |
| (1 | ) |
| -- |
|
| (1 | ) |
| (5 | ) |
| -- |
|
| (5 | ) |
| -- |
|
| -- |
|
| -- |
|
Limited partnership interests |
| (3 | ) |
| -- |
|
| (3 | ) |
| (3 | ) |
| -- |
|
| (3 | ) |
| (23 | ) |
| -- |
|
| (23 | ) |
Other |
| -- |
|
| -- |
|
| -- |
|
| (11 | ) |
| -- |
|
| (11 | ) |
| (3 | ) |
| -- |
|
| (3 | ) |
Other-than-temporary impairment losses | $ | (60 | ) | $ | (8 | ) | $ | (68 | ) | $ | (279 | ) | $ | (14 | ) | $ | (293 | ) | $ | (591 | ) | $ | (45 | ) | $ | (636 | ) |
| ($ in millions) | 2014 | 2013 | 2012 | ||||||||||||||||||||||||||||||||
Included in OCI | Included in OCI | Included in OCI | |||||||||||||||||||||||||||||||||
| Gross | Net | Gross | Net | Gross | Net | ||||||||||||||||||||||||||||||
| Fixed income securities: | |||||||||||||||||||||||||||||||||||
| Municipal | $ | (1 | ) | $ | — | $ | (1 | ) | $ | (8 | ) | $ | — | $ | (8 | ) | $ | — | $ | — | $ | — | |||||||||||||
| Corporate | (4 | ) | — | (4 | ) | — | — | — | (16 | ) | (2 | ) | (18 | ) | |||||||||||||||||||||
| ABS | (5 | ) | — | (5 | ) | — | (2 | ) | (2 | ) | — | — | — | ||||||||||||||||||||||
| RMBS | 2 | (1 | ) | 1 | (2 | ) | 2 | — | (23 | ) | (9 | ) | (32 | ) | |||||||||||||||||||||
| CMBS | (1 | ) | — | (1 | ) | (32 | ) | (3 | ) | (35 | ) | (22 | ) | 3 | (19 | ) | |||||||||||||||||||
| Total fixed income securities | (9 | ) | (1 | ) | (10 | ) | (42 | ) | (3 | ) | (45 | ) | (61 | ) | (8 | ) | (69 | ) | |||||||||||||||||
| Mortgage loans | 5 | — | 5 | 11 | — | 11 | 5 | — | 5 | ||||||||||||||||||||||||||
| Equity securities | (32 | ) | — | (32 | ) | (6 | ) | — | (6 | ) | (1 | ) | — | (1 | ) | ||||||||||||||||||||
| Limited partnership interests | (18 | ) | — | (18 | ) | (9 | ) | — | (9 | ) | (3 | ) | — | (3 | ) | ||||||||||||||||||||
| Other | — | — | — | (3 | ) | — | (3 | ) | — | — | — | ||||||||||||||||||||||||
| Other-than-temporary impairment losses | $ | (54 | ) | $ | (1 | ) | $ | (55 | ) | $ | (49 | ) | $ | (3 | ) | $ | (52 | ) | $ | (60 | ) | $ | (8 | ) | $ | (68 | ) | ||||||||
($ in millions) |
| December 31, |
|
| December 31, |
| ||
Municipal | $ | (5 | ) |
| $ | (5 | ) |
|
Corporate |
| (1 | ) |
|
| (6 | ) |
|
ABS |
| (14 | ) |
|
| (21 | ) |
|
RMBS |
| (103 | ) |
|
| (198 | ) |
|
CMBS |
| (19 | ) |
|
| (19 | ) |
|
Total | $ | (142 | ) |
| $ | (249 | ) |
|
| ($ in millions) | December 31, 2014 | December 31, 2013 | |||||
| Municipal | $ | (5 | ) | $ | (5 | ) | |
| ABS | (1 | ) | (10 | ) | |||
| RMBS | (55 | ) | (90 | ) | |||
| CMBS | (5 | ) | (12 | ) | |||
| Total | $ | (66 | ) | $ | (117 | ) | |
($ in millions) |
| 2012 |
| 2011 |
| 2010 |
| |||
Beginning balance | $ | (581 | ) | $ | (701 | ) | $ | (808 | ) |
|
Cumulative effect of change in accounting principle |
| -- |
|
| -- |
|
| 81 |
|
|
Additional credit loss for securities previously other- |
| (33 | ) |
| (76 | ) |
| (221 | ) |
|
Additional credit loss for securities not previously |
| (20 | ) |
| (114 | ) |
| (183 | ) |
|
Reduction in credit loss for securities disposed or |
| 288 |
|
| 288 |
|
| 399 |
|
|
Reduction in credit loss for securities the Company |
| -- |
|
| 13 |
|
| 27 |
|
|
Change in credit loss due to accretion of increase in |
| 1 |
|
| 9 |
|
| 4 |
|
|
Ending balance | $ | (345 | ) | $ | (581 | ) | $ | (701 | ) |
|
| ($ in millions) | 2014 | 2013 | 2012 | ||||||||
| Beginning balance | $ | (299 | ) | $ | (345 | ) | $ | (581 | ) | ||
| Additional credit loss for securities previously other-than-temporarily impaired | (6 | ) | (13 | ) | (33 | ) | |||||
| Additional credit loss for securities not previously other-than-temporarily impaired | (9 | ) | (19 | ) | (20 | ) | |||||
| Reduction in credit loss for securities disposed or collected | 44 | 75 | 288 | ||||||||
| Reduction in credit loss for securities the Company has made the decision to sell or more likely than not will be required to sell | — | 2 | — | ||||||||
| Change in credit loss due to accretion of increase in cash flows | 2 | 1 | 1 | ||||||||
| Reduction in credit loss for securities sold in LBL disposition | 59 | — | — | ||||||||
Ending balance (1) | $ | (209 | ) | $ | (299 | ) | $ | (345 | ) | ||
prepayment speeds, foreign exchange rates, the financial condition and future earnings potential of the issue or issuer, expected defaults, expected recoveries, the value of underlying collateral, vintage, geographic concentration, available reserves or escrows, current subordination levels, third party guarantees and other credit enhancements. Other information, such as industry analyst reports and forecasts, sector credit ratings, financial condition of the bond insurer for insured fixed income securities, and other market data relevant to the realizability of contractual cash flows, may also be considered. The estimated fair value of collateral will be used to estimate recovery value if the Company determines that the security is dependent on the liquidation of collateral for ultimate settlement. If the estimated recovery value is less than the amortized cost of the security, a credit loss exists and an other-than-temporary impairment for the difference between the estimated recovery value and amortized cost is recorded in earnings. The portion of the unrealized loss related to factors other than credit remains classified in accumulated other comprehensive income. If the Company determines that the fixed income security does not have sufficient cash flow or other information to estimate a recovery value for the security, the Company may conclude that the entire decline in fair value is deemed to be credit related and the loss is recorded in earnings.
($ in millions) |
| Fair |
| Gross unrealized |
| Unrealized net |
| ||||||
December 31, 2012 |
| value |
| Gains |
| Losses |
| gains (losses) |
| ||||
Fixed income securities | $ | 44,876 |
| $ | 4,108 | $ | (426 | ) |
| $ | 3,682 |
|
|
Equity securities |
| 345 |
|
| 36 |
| (1 | ) |
|
| 35 |
|
|
Short-term investments |
| 875 |
|
| -- |
| -- |
|
|
| -- |
|
|
Derivative instruments (1) |
| (17 | ) |
| 2 |
| (19 | ) |
|
| (17 | ) |
|
EMA limited partnerships (2) |
|
|
|
|
|
|
|
|
|
| 1 |
|
|
Unrealized net capital gains and losses, pre-tax |
|
|
|
|
|
|
|
|
|
| 3,701 |
|
|
Amounts recognized for: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance reserves (3) |
|
|
|
|
|
|
|
|
|
| (771 | ) |
|
DAC and DSI (4) |
|
|
|
|
|
|
|
|
|
| (408 | ) |
|
Amounts recognized |
|
|
|
|
|
|
|
|
|
| (1,179 | ) |
|
Deferred income taxes |
|
|
|
|
|
|
|
|
|
| (888 | ) |
|
Unrealized net capital gains and losses, after-tax |
|
|
|
|
|
|
|
|
| $ | 1,634 |
|
|
________________
(1) Included in the fair value of derivative instruments are $2 million classified as assets and $19 million classified as liabilities.
(2)Unrealized net capital gains and losses for limited partnership interests represent the Company’s share of EMA limited partnerships’ other comprehensive income. Fair value and gross gains and losses are not applicable.
(3) The insurance reserves adjustment represents the amount by which the reserve balance would increase if the net unrealized gains in the applicable product portfolios were realized and reinvested at current lower interest rates, resulting in a premium deficiency. Although the Company evaluates premium deficiencies on the combined performance of life insurance and immediate annuities with life contingencies, the adjustment primarily relates to structured settlement annuities with life contingencies, in addition to annuity buy-outs and certain payout annuities with life contingencies.
(4)The DAC and DSI adjustment balance represents the amount by which the amortization of DAC and DSI would increase or decrease if the unrealized gains or losses in the respective product portfolios were realized.
| ($ in millions) | Fair value | Gross unrealized | Unrealized net gains (losses) | ||||||||||||
| December 31, 2014 | Gains | Losses | |||||||||||||
| Fixed income securities | $ | 28,117 | $ | 2,486 | $ | (191 | ) | $ | 2,295 | ||||||
| Equity securities | 970 | 57 | (14 | ) | 43 | ||||||||||
Short-term investments | 857 | — | — | — | |||||||||||
Derivative instruments (1) | 2 | 3 | (1 | ) | 2 | ||||||||||
EMA limited partnerships (2) | (2 | ) | |||||||||||||
| Unrealized net capital gains and losses, pre-tax | 2,338 | ||||||||||||||
| Amounts recognized for: | |||||||||||||||
Insurance reserves (3) | (28 | ) | |||||||||||||
DAC and DSI (4) | (176 | ) | |||||||||||||
| Amounts recognized | (204 | ) | |||||||||||||
| Deferred income taxes | (752 | ) | |||||||||||||
| Unrealized net capital gains and losses, after-tax | $ | 1,382 | |||||||||||||
(1) | Included in the fair value of derivative instruments are $3 million classified as assets and $1 million classified as liabilities. |
(2) | Unrealized net capital gains and losses for limited partnership interests represent the Company’s share of EMA limited partnerships’ other comprehensive income. Fair value and gross unrealized gains and losses are not applicable. |
(3) | The insurance reserves adjustment represents the amount by which the reserve balance would increase if the net unrealized gains in the applicable product portfolios were realized and reinvested at current lower interest rates, resulting in a premium deficiency. Although the Company evaluates premium deficiencies on the combined performance of life insurance and immediate annuities with life contingencies, the adjustment primarily relates to structured settlement annuities with life contingencies, in addition to annuity buy-outs and certain payout annuities with life contingencies. |
(4) | The DAC and DSI adjustment balance represents the amount by which the amortization of DAC and DSI would increase or decrease if the unrealized gains or losses in the respective product portfolios were realized. |
| ($ in millions) | Fair value | Gross unrealized | Unrealized net gains (losses) | ||||||||||||
| December 31, 2013 | Gains | Losses | |||||||||||||
| Fixed income securities | $ | 28,756 | $ | 1,747 | $ | (418 | ) | $ | 1,329 | ||||||
| Equity securities | 650 | 90 | (5 | ) | 85 | ||||||||||
| Short-term investments | 590 | — | — | — | |||||||||||
Derivative instruments (1) | (13 | ) | 1 | (14 | ) | (13 | ) | ||||||||
| EMA limited partnerships | (2 | ) | |||||||||||||
| Investments classified as held for sale | 190 | ||||||||||||||
| Unrealized net capital gains and losses, pre-tax | 1,589 | ||||||||||||||
| Amounts recognized for: | |||||||||||||||
| Insurance reserves | — | ||||||||||||||
| DAC and DSI | (156 | ) | |||||||||||||
| Amounts recognized | (156 | ) | |||||||||||||
| Deferred income taxes | (506 | ) | |||||||||||||
| Unrealized net capital gains and losses, after-tax | $ | 927 | |||||||||||||
(1) | Included in the fair value of derivative instruments are $1 million classified as assets and $14 million classified as liabilities. |
|
| Fair |
| Gross unrealized |
| Unrealized net |
| ||||||
December 31, 2011 |
| value |
| Gains |
| Losses |
| gains (losses) |
| ||||
Fixed income securities | $ | 45,428 |
| $ | 3,207 | $ | (1,260 | ) |
| $ | 1,947 |
|
|
Equity securities |
| 179 |
|
| 38 |
| (2 | ) |
|
| 36 |
|
|
Short-term investments |
| 593 |
|
| -- |
| -- |
|
|
| -- |
|
|
Derivative instruments (1) |
| (12 | ) |
| 3 |
| (15 | ) |
|
| (12 | ) |
|
EMA limited partnerships |
|
|
|
|
|
|
|
|
|
| 1 |
|
|
Unrealized net capital gains and losses, pre-tax |
|
|
|
|
|
|
|
|
|
| 1,972 |
|
|
Amounts recognized for: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance reserves |
|
|
|
|
|
|
|
|
|
| (594 | ) |
|
DAC and DSI |
|
|
|
|
|
|
|
|
|
| (120 | ) |
|
Amounts recognized |
|
|
|
|
|
|
|
|
|
| (714 | ) |
|
Deferred income taxes |
|
|
|
|
|
|
|
|
|
| (445 | ) |
|
Unrealized net capital gains and losses, after-tax |
|
|
|
|
|
|
|
|
| $ | 813 |
|
|
________________
(1)Included in the fair value of derivative instruments are $(5) million classified as assets and $7 million classified as liabilities.
Change in unrealized net capital gains and losses
($ in millions) |
| 2012 |
| 2011 |
| 2010 |
| |||
Fixed income securities | $ | 1,735 |
| $ | 1,219 |
| $ | 2,912 |
|
|
Equity securities |
| (1 | ) |
| (11 | ) |
| 23 |
|
|
Derivative instruments |
| (5 | ) |
| 5 |
|
| 1 |
|
|
EMA limited partnerships |
| -- |
|
| 1 |
|
| -- |
|
|
Total |
| 1,729 |
|
| 1,214 |
|
| 2,936 |
|
|
Amounts recognized for: |
|
|
|
|
|
|
|
|
|
|
Insurance reserves |
| (177 | ) |
| (585 | ) |
| (9 | ) |
|
DAC and DSI |
| (288 | ) |
| (207 | ) |
| (730 | ) |
|
Amounts recognized |
| (465 | ) |
| (792 | ) |
| (739 | ) |
|
Deferred income taxes |
| (443 | ) |
| (147 | ) |
| (770 | ) |
|
Increase in unrealized net capital gains and losses | $ | 821 |
| $ | 275 |
| $ | 1,427 |
|
|
| ($ in millions) | 2014 | 2013 | 2012 | ||||||||
| Fixed income securities | $ | 966 | $ | (2,353 | ) | $ | 1,735 | ||||
| Equity securities | (42 | ) | 50 | (1 | ) | ||||||
| Derivative instruments | 15 | 4 | (5 | ) | |||||||
| EMA limited partnerships | — | (3 | ) | — | |||||||
| Investments classified as held for sale | (190 | ) | 190 | — | |||||||
| Total | 749 | (2,112 | ) | 1,729 | |||||||
| Amounts recognized for: | |||||||||||
| Insurance reserves | (28 | ) | 771 | (177 | ) | ||||||
| DAC and DSI | (20 | ) | 252 | (288 | ) | ||||||
| Amounts recognized | (48 | ) | 1,023 | (465 | ) | ||||||
| Deferred income taxes | (246 | ) | 382 | (443 | ) | ||||||
| Increase (decrease) in unrealized net capital gains and losses, after-tax | $ | 455 | $ | (707 | ) | $ | 821 | ||||
The Company’s portfolio monitoring process includes a quarterly review of all securities to identify instances where the fair value of a security compared to its amortized cost (for fixed income securities) or cost (for equity securities) is below established thresholds. The process also includes the monitoring of other impairment indicators such as ratings, ratings downgrades and payment defaults. The securities identified, in addition to other securities for which the Company may have a concern, are evaluated for potential other-than-temporary impairment using all reasonably available information relevant to the collectability or recovery of the security. Inherent in the Company’s evaluation of other-than-temporary impairment for these fixed income and equity securities are assumptions and estimates about the financial condition and future earnings potential of the issue or issuer. Some of the factors that may be considered in evaluating whether a decline in fair value is other than temporary are: 1) the financial condition, near-term and long-term prospects of the issue or issuer, including relevant industry specific market conditions and trends, geographic location and implications of rating agency actions and offering prices; 2) the specific reasons that a security is in an unrealized loss position, including overall market conditions which could affect liquidity; and 3) the length of time and extent to which the fair value has been less than amortized cost or cost.
($ in millions) |
| Less than 12 months |
| 12 months or more |
| Total |
| |||||||||||||||
|
| Number |
| Fair |
| Unrealized |
| Number |
| Fair |
| Unrealized |
| unrealized |
| |||||||
|
| of issues |
| value |
| losses |
| of issues |
| value |
| losses |
| losses |
| |||||||
December 31, 2012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed income securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and agencies |
| 1 |
| $ | 15 |
| $ | -- |
|
| -- |
| $ | -- |
| $ | -- |
| $ | -- |
|
|
Municipal |
| 11 |
|
| 101 |
|
| (7 | ) |
| 50 |
|
| 395 |
|
| (54 | ) |
| (61 | ) |
|
Corporate |
| 79 |
|
| 1,086 |
|
| (27 | ) |
| 66 |
|
| 829 |
|
| (86 | ) |
| (113 | ) |
|
Foreign government |
| 2 |
|
| 121 |
|
| (1 | ) |
| -- |
|
| -- |
|
| -- |
|
| (1 | ) |
|
ABS |
| 5 |
|
| 38 |
|
| -- |
|
| 76 |
|
| 763 |
|
| (105 | ) |
| (105 | ) |
|
RMBS |
| 49 |
|
| 30 |
|
| -- |
|
| 164 |
|
| 442 |
|
| (69 | ) |
| (69 | ) |
|
CMBS |
| 10 |
|
| 65 |
|
| -- |
|
| 43 |
|
| 358 |
|
| (77 | ) |
| (77 | ) |
|
Redeemable preferred stock |
| -- |
|
| -- |
|
| -- |
|
| 1 |
|
| -- |
|
| -- |
|
| -- |
|
|
Total fixed income securities |
| 157 |
|
| 1,456 |
|
| (35 | ) |
| 400 |
|
| 2,787 |
|
| (391 | ) |
| (426 | ) |
|
Equity securities |
| 3 |
|
| 57 |
|
| (1 | ) |
| 1 |
|
| -- |
|
| -- |
|
| (1 | ) |
|
Total fixed income and equity securities |
| 160 |
| $ | 1,513 |
| $ | (36 | ) |
| 401 |
| $ | 2,787 |
| $ | (391 | ) | $ | (427 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment grade fixed income securities |
| 132 |
| $ | 1,244 |
| $ | (29 | ) |
| 262 |
| $ | 1,919 |
| $ | (195 | ) | $ | (224 | ) |
|
Below investment grade fixed income securities |
| 25 |
|
| 212 |
|
| (6 | ) |
| 138 |
|
| 868 |
|
| (196 | ) |
| (202 | ) |
|
Total fixed income securities |
| 157 |
| $ | 1,456 |
| $ | (35 | ) |
| 400 |
| $ | 2,787 |
| $ | (391 | ) | $ | (426 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed income securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal |
| 8 |
| $ | 67 |
| $ | (7 | ) |
| 97 |
| $ | 624 |
| $ | (107 | ) | $ | (114 | ) |
|
Corporate |
| 226 |
|
| 2,025 |
|
| (72 | ) |
| 100 |
|
| 1,207 |
|
| (254 | ) |
| (326 | ) |
|
Foreign government |
| 7 |
|
| 41 |
|
| (1 | ) |
| 1 |
|
| 1 |
|
| -- |
|
| (1 | ) |
|
ABS |
| 32 |
|
| 255 |
|
| (13 | ) |
| 107 |
|
| 1,010 |
|
| (268 | ) |
| (281 | ) |
|
RMBS |
| 140 |
|
| 152 |
|
| (4 | ) |
| 161 |
|
| 809 |
|
| (310 | ) |
| (314 | ) |
|
CMBS |
| 42 |
|
| 361 |
|
| (47 | ) |
| 68 |
|
| 488 |
|
| (177 | ) |
| (224 | ) |
|
Redeemable preferred stock |
| 1 |
|
| -- |
|
| -- |
|
| -- |
|
| -- |
|
| -- |
|
| -- |
|
|
Total fixed income securities |
| 456 |
|
| 2,901 |
|
| (144 | ) |
| 534 |
|
| 4,139 |
|
| (1,116 | ) |
| (1,260 | ) |
|
Equity securities |
| 3 |
|
| 35 |
|
| (2 | ) |
| -- |
|
| -- |
|
| -- |
|
| (2 | ) |
|
Total fixed income and equity securities |
| 459 |
| $ | 2,936 |
| $ | (146 | ) |
| 534 |
| $ | 4,139 |
| $ | (1,116 | ) | $ | (1,262 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment grade fixed income securities |
| 351 |
| $ | 2,439 |
| $ | (111 | ) |
| 328 |
| $ | 2,869 |
| $ | (626 | ) | $ | (737 | ) |
|
Below investment grade fixed income securities |
| 105 |
|
| 462 |
|
| (33 | ) |
| 206 |
|
| 1,270 |
|
| (490 | ) |
| (523 | ) |
|
Total fixed income securities |
| 456 |
| $ | 2,901 |
| $ | (144 | ) |
| 534 |
| $ | 4,139 |
| $ | (1,116 | ) | $ | (1,260 | ) |
|
| ($ in millions) | Less than 12 months | 12 months or more | Total unrealized losses | ||||||||||||||||||||||
Number of issues | Fair value | Unrealized losses | Number of issues | Fair value | Unrealized losses | ||||||||||||||||||||
| December 31, 2014 | |||||||||||||||||||||||||
| Fixed income securities | |||||||||||||||||||||||||
| U.S. government and agencies | 1 | $ | 1 | $ | — | — | $ | — | $ | — | $ | — | |||||||||||||
| Municipal | 17 | 90 | (1 | ) | 10 | 47 | (13 | ) | (14 | ) | |||||||||||||||
| Corporate | 281 | 1,780 | (69 | ) | 91 | 875 | (81 | ) | (150 | ) | |||||||||||||||
| Foreign government | — | — | — | 1 | 15 | — | — | ||||||||||||||||||
| ABS | 19 | 168 | (2 | ) | 23 | 217 | (19 | ) | (21 | ) | |||||||||||||||
| RMBS | 19 | 3 | — | 45 | 73 | (4 | ) | (4 | ) | ||||||||||||||||
| CMBS | 8 | 33 | — | 3 | 32 | (2 | ) | (2 | ) | ||||||||||||||||
| Redeemable preferred stock | — | — | — | — | — | — | — | ||||||||||||||||||
| Total fixed income securities | 345 | 2,075 | (72 | ) | 173 | 1,259 | (119 | ) | (191 | ) | |||||||||||||||
| Equity securities | 294 | 327 | (13 | ) | 1 | 6 | (1 | ) | (14 | ) | |||||||||||||||
| Total fixed income and equity securities | 639 | $ | 2,402 | $ | (85 | ) | 174 | $ | 1,265 | $ | (120 | ) | $ | (205 | ) | ||||||||||
| Investment grade fixed income securities | 167 | $ | 1,275 | $ | (28 | ) | 127 | $ | 989 | $ | (79 | ) | $ | (107 | ) | ||||||||||
| Below investment grade fixed income securities | 178 | 800 | (44 | ) | 46 | 270 | (40 | ) | (84 | ) | |||||||||||||||
| Total fixed income securities | 345 | $ | 2,075 | $ | (72 | ) | 173 | $ | 1,259 | $ | (119 | ) | $ | (191 | ) | ||||||||||
| December 31, 2013 | |||||||||||||||||||||||||
| Fixed income securities | |||||||||||||||||||||||||
| U.S. government and agencies | 4 | $ | 76 | $ | (2 | ) | — | $ | — | $ | — | $ | (2 | ) | |||||||||||
| Municipal | 63 | 347 | (24 | ) | 21 | 99 | (38 | ) | (62 | ) | |||||||||||||||
| Corporate | 530 | 5,191 | (224 | ) | 48 | 467 | (71 | ) | (295 | ) | |||||||||||||||
| Foreign government | 7 | 76 | (4 | ) | 1 | 13 | (2 | ) | (6 | ) | |||||||||||||||
| ABS | 17 | 162 | (1 | ) | 42 | 400 | (33 | ) | (34 | ) | |||||||||||||||
| RMBS | 35 | 42 | (2 | ) | 47 | 129 | (10 | ) | (12 | ) | |||||||||||||||
| CMBS | 5 | 14 | — | 6 | 52 | (7 | ) | (7 | ) | ||||||||||||||||
| Redeemable preferred stock | — | — | — | — | — | — | — | ||||||||||||||||||
| Total fixed income securities | 661 | 5,908 | (257 | ) | 165 | 1,160 | (161 | ) | (418 | ) | |||||||||||||||
| Equity securities | 25 | 80 | (5 | ) | — | — | — | (5 | ) | ||||||||||||||||
| Total fixed income and equity securities | 686 | $ | 5,988 | $ | (262 | ) | 165 | $ | 1,160 | $ | (161 | ) | $ | (423 | ) | ||||||||||
| Investment grade fixed income securities | 526 | $ | 5,272 | $ | (236 | ) | 110 | $ | 834 | $ | (112 | ) | $ | (348 | ) | ||||||||||
| Below investment grade fixed income securities | 135 | 636 | (21 | ) | 55 | 326 | (49 | ) | (70 | ) | |||||||||||||||
| Total fixed income securities | 661 | $ | 5,908 | $ | (257 | ) | 165 | $ | 1,160 | $ | (161 | ) | $ | (418 | ) | ||||||||||
rising interest rates since the time of initial purchase.
2014.
as of December 31, 2014.
are non-recourse to the borrower. The following table shows the principal geographic distribution of commercial real estate represented in the Company’s mortgage loan portfolio. No other state represented more than 5% of the portfolio as of December 31.
(% of mortgage loan portfolio carrying value) |
| 2012 |
| 2011 |
|
California |
| 24.2 | % | 22.8 | % |
Illinois |
| 7.8 |
| 8.9 |
|
New York |
| 6.6 |
| 6.3 |
|
New Jersey |
| 6.5 |
| 7.0 |
|
Texas |
| 6.0 |
| 5.7 |
|
Pennsylvania |
| 5.1 |
| 5.6 |
|
Massachusetts |
| 4.5 |
| 5.0 |
|
| (% of mortgage loan portfolio carrying value) | 2014 | 2013 | |||
| California | 24.8 | % | 24.0 | % | |
| Illinois | 9.2 | 9.7 | |||
| New Jersey | 8.3 | 7.2 | |||
| Texas | 7.7 | 6.3 | |||
| New York | 6.0 | 6.2 | |||
| Florida | 4.7 | 5.2 | |||
| District of Columbia | 2.0 | 5.4 | |||
(% of mortgage loan portfolio carrying value) |
| 2012 |
| 2011 |
|
Office buildings |
| 28.0 | % | 29.0 | % |
Retail |
| 24.0 |
| 26.0 |
|
Warehouse |
| 20.4 |
| 20.1 |
|
Apartment complex |
| 17.4 |
| 16.6 |
|
Other |
| 10.2 |
| 8.3 |
|
Total |
| 100.0 | % | 100.0 | % |
| (% of mortgage loan portfolio carrying value) | 2014 | 2013 | |||
| Office buildings | 25.6 | % | 28.3 | % | |
| Retail | 24.1 | 22.9 | |||
| Apartment complex | 20.0 | 19.2 | |||
| Warehouse | 18.1 | 18.6 | |||
| Other | 12.2 | 11.0 | |||
| Total | 100.0 | % | 100.0 | % | |
($ in millions) |
| Number |
| Carrying |
| Percent |
|
2013 |
| 39 | $ | 317 |
| 5.4 | % |
2014 |
| 63 |
| 737 |
| 12.4 |
|
2015 |
| 67 |
| 953 |
| 16.0 |
|
2016 |
| 60 |
| 566 |
| 9.5 |
|
Thereafter |
| 317 |
| 3,366 |
| 56.7 |
|
Total |
| 546 | $ | 5,939 |
| 100.0 | % |
| ($ in millions) | Number of loans | Carrying value | Percent | ||||||
| 2015 | 21 | $ | 236 | 6.4 | % | ||||
| 2016 | 27 | 217 | 5.9 | ||||||
| 2017 | 35 | 395 | 10.7 | ||||||
| 2018 | 30 | 345 | 9.4 | ||||||
| Thereafter | 185 | 2,493 | 67.6 | ||||||
| Total | 298 | $ | 3,686 | 100.0 | % | ||||
2014.
The following table reflects the carrying value of non-impaired fixed rate and variable rate mortgage loans summarized by debt service coverage ratio distribution as of December 31:
($ in millions) |
| 2012 |
| 2011 |
| ||||||||
Debt service coverage |
| Fixed rate |
| Variable rate |
| Total |
| Fixed rate |
| Variable rate |
| Total |
|
Below 1.0 | $ | 266 | $ | -- | $ | 266 | $ | 345 | $ | -- | $ | 345 |
|
1.0 - 1.25 |
| 1,158 |
| -- |
| 1,158 |
| 1,488 |
| -- |
| 1,488 |
|
1.26 - 1.50 |
| 1,364 |
| 17 |
| 1,381 |
| 1,475 |
| 19 |
| 1,494 |
|
Above 1.50 |
| 2,854 |
| 129 |
| 2,983 |
| 2,847 |
| 128 |
| 2,975 |
|
Total non-impaired mortgage loans | $ | 5,642 | $ | 146 | $ | 5,788 | $ | 6,155 | $ | 147 | $ | 6,302 |
|
31.
| ($ in millions) | 2014 | 2013 | |||||||||||||||||||||
Debt service coverage ratio distribution | Fixed rate mortgage loans | Variable rate mortgage loans | Total | Fixed rate mortgage loans | Variable rate mortgage loans | Total | |||||||||||||||||
| Below 1.0 | $ | 110 | $ | — | $ | 110 | $ | 153 | $ | — | $ | 153 | |||||||||||
| 1.0 - 1.25 | 387 | — | 387 | 560 | — | 560 | |||||||||||||||||
| 1.26 - 1.50 | 1,118 | 1 | 1,119 | 1,167 | 2 | 1,169 | |||||||||||||||||
| Above 1.50 | 2,054 | — | 2,054 | 2,176 | 38 | 2,214 | |||||||||||||||||
| Total non-impaired mortgage loans | $ | 3,669 | $ | 1 | $ | 3,670 | $ | 4,056 | $ | 40 | $ | 4,096 | |||||||||||
($ in millions) |
| 2012 |
| 2011 |
|
Impaired mortgage loans with a valuation allowance | $ | 147 | $ | 244 |
|
Impaired mortgage loans without a valuation allowance |
| 8 |
| -- |
|
Total impaired mortgage loans | $ | 155 | $ | 244 |
|
Valuation allowance on impaired mortgage loans | $ | 42 | $ | 63 |
|
| ($ in millions) | 2014 | 2013 | |||||
| Impaired mortgage loans with a valuation allowance | $ | 16 | $ | 77 | |||
| Impaired mortgage loans without a valuation allowance | — | — | |||||
| Total impaired mortgage loans | $ | 16 | $ | 77 | |||
| Valuation allowance on impaired mortgage loans | $ | 8 | $ | 21 | |||
($ in millions) |
| 2012 |
| 2011 |
| 2010 |
| |||
Beginning balance | $ | 63 |
| $ | 84 |
| $ | 94 |
|
|
Net (decrease) increase in valuation allowance |
| (5 | ) |
| 33 |
|
| 65 |
|
|
Charge offs |
| (16 | ) |
| (54 | ) |
| (75 | ) |
|
Ending balance | $ | 42 |
| $ | 63 |
| $ | 84 |
|
|
The carrying value of past due
| ($ in millions) | 2014 | 2013 | 2012 | ||||||||
| Beginning balance | $ | 21 | $ | 42 | $ | 63 | |||||
| Net decrease in valuation allowance | (5 | ) | (11 | ) | (5 | ) | |||||
| Charge offs | (8 | ) | (8 | ) | (16 | ) | |||||
| Mortgage loans classified as held for sale | — | (2 | ) | — | |||||||
| Ending balance | $ | 8 | $ | 21 | $ | 42 | |||||
($ in millions) |
| 2012 |
| 2011 |
|
Less than 90 days past due | $ | 20 | $ | -- |
|
90 days or greater past due |
| 4 |
| 43 |
|
Total past due |
| 24 |
| 43 |
|
Current loans |
| 5,919 |
| 6,503 |
|
Total mortgage loans | $ | 5,943 | $ | 6,546 |
|
2014 and 2013.
(% of municipal bond portfolio carrying value) |
| 2012 |
| 2011 |
|
California |
| 14.1 | % | 14.1 | % |
Texas |
| 11.8 |
| 11.1 |
|
New York |
| 7.1 |
| 7.7 |
|
Delaware |
| 4.8 |
| 5.2 |
|
(% of municipal bond portfolio carrying value) 2014 2013 California 17.0 % 15.9 % Texas 13.6 13.5 Oregon 5.8 5.4 Illinois 5.3 5.1 New Jersey 5.1 5.2 New York 4.9 5.2
2012.
6.
| |
| (a) | Quoted prices for similar assets or liabilities in active markets; |
(b) | Quoted prices for identical or similar assets or liabilities in markets that are not active; or |
(c) | Valuation models whose inputs are observable, directly or indirectly, for substantially the full term of the asset or |
stale security prices or that exceed certain thresholds as compared to previous fair values received from valuation service providers or brokers or derived from internal models. The Company performs procedures to understand and assess the methodologies, processes and controls of valuation service providers. In addition, the Company may validate the reasonableness of fair values by comparing information obtained from valuation service providers or brokers to other third party valuation sources for selected securities. The Company performs ongoing price validation procedures such as back-testing of actual sales, which corroborate the various inputs used in internal models to market observable data. When fair value determinations are expected to be more variable, the Company validates them through reviews by members of management who have relevant expertise and who are independent of those charged with executing investment transactions. Corporate, including privately placed: The primary inputs to the valuation include quoted prices for identical or similar assets in markets that are not active, contractual cash flows, benchmark yields and credit spreads. Also included are privately placed securities valued using a discounted cash flow model that is widely accepted in the financial services industry and uses market observable inputs and inputs derived principally from, or corroborated by, observable market data. The primary inputs to the discounted cash flow model include an interest rate yield curve, as well as published credit spreads for similar assets in markets that are not active that incorporate the credit quality and industry sector of the issuer. The carrying value of the LBL business was written-down to fair value in connection with being classified as held for sale. ($ in millions) Quoted prices Significant Significant Counterparty Balance Assets Fixed income securities: U.S. government and agencies $ 1,074 $ 1,305 $ -- $ 2,379 Municipal -- 4,366 338 4,704 Corporate -- 30,030 1,501 31,531 Foreign government -- 1,180 -- 1,180 ABS -- 1,666 199 1,865 RMBS -- 1,791 -- 1,791 CMBS -- 1,387 21 1,408 Redeemable preferred stock -- 17 1 18 Total fixed income securities 1,074 41,742 2,060 44,876 Equity securities 338 -- 7 345 Short-term investments 220 655 -- 875 Other investments: Free-standing derivatives -- 173 3 $ (47) 129 Separate account assets 6,610 -- -- 6,610 Other assets 2 -- 1 3 Total recurring basis assets 8,244 42,570 2,071 (47) 52,838 Non-recurring basis (1) -- -- 6 6 Total assets at fair value $ 8,244 $ 42,570 $ 2,077 $ (47) $ 52,844 % of total assets at fair value 15.6 % 80.6 % 3.9 % (0.1) % 100.0 % Liabilities Contractholder funds: Derivatives embedded in life and $ -- $ -- $ (553) $ (553) Other liabilities: Free-standing derivatives -- (91) (30) $ 29 (92) Total liabilities at fair value $ -- $ (91) $ (583) $ 29 $ (645) % of total liabilities at fair value -- % 14.1 % 90.4 % (4.5) % 100.0 % 2014. ($ in millions) Fair value Valuation Unobservable Range Weighted ARS backed by $ 202 Discounted cash flow model Anticipated date liquidity will return to the market 18 - 60 months 32 - 44 months Derivatives $ (419) Stochastic cash flow model Projected option cost 1.0 - 2.0 % 1.92 % ($ in millions) Quoted prices Significant Significant Counterparty Balance Assets Fixed income securities: U.S. government and agencies $ 1,614 $ 1,129 $ -- $ 2,743 Municipal -- 4,305 387 4,692 Corporate -- 29,085 1,319 30,404 Foreign government -- 1,068 -- 1,068 ABS -- 1,854 254 2,108 RMBS -- 2,667 47 2,714 CMBS -- 1,653 30 1,683 Redeemable preferred stock -- 15 1 16 Total fixed income securities 1,614 41,776 2,038 45,428 Equity securities 127 38 14 179 Short-term investments 46 547 -- 593 Other investments: Free-standing derivatives -- 268 1 $ (103) 166 Separate account assets 6,984 -- -- 6,984 Other assets -- -- 1 1 Total recurring basis assets 8,771 42,629 2,054 (103) 53,351 Non-recurring basis (1) -- -- 24 24 Total assets at fair value $ 8,771 $ 42,629 $ 2,078 $ (103) $ 53,375 % of total assets at fair value 16.4 % 79.9 % 3.9 % (0.2) % 100.0 % Liabilities Contractholder funds: Derivatives embedded in life and $ -- $ -- $ (723) $ (723) Other liabilities: Free-standing derivatives -- (96) (89) $ 60 (125) Total liabilities at fair value $ -- $ (96) $ (812) $ 60 $ (848) % of total liabilities at fair value -- % 11.3 % 95.8 % (7.1) % 100.0 % ($ in millions) Total gains (losses) Balance as of Net OCI Transfers Transfers Assets Fixed income securities: Municipal $ 387 $ (5) $ 22 $ 53 $ (10) Corporate 1,319 20 63 381 (64) ABS 254 24 59 42 (7) RMBS 47 -- -- -- (47) CMBS 30 (4) 10 -- -- Redeemable preferred stock 1 -- -- -- -- Total fixed income securities 2,038 35 154 476 (128) Equity securities 14 -- -- -- -- Other investments: Free-standing derivatives, net (88) 25 -- -- -- Other assets 1 -- -- -- -- Total recurring Level 3 assets $ 1,965 $ 60 $ 154 $ 476 $ (128) Liabilities Contractholder funds: Derivatives embedded in life and annuity contracts $ (723) $ 168 $ -- $ -- $ -- Total recurring Level 3 liabilities $ (723) $ 168 $ -- $ -- $ -- Purchases Sales Issues Settlements Balance as of Assets Fixed income securities: Municipal $ -- $ (107) $ -- $ (2) $ 338 Corporate 125 (223) -- (120) 1,501 ABS 11 (165) -- (19) 199 RMBS -- -- -- -- -- CMBS -- -- -- (15) 21 Redeemable preferred stock 1 (1) -- -- 1 Total fixed income securities 137 (496) -- (156) 2,060 Equity securities 5 (12) -- -- 7 Other investments: Free-standing derivatives, net 27 -- -- 9 (27) (2) Other assets -- -- -- -- 1 Total recurring Level 3 assets $ 169 $ (508) $ -- $ (147) $ 2,041 Liabilities Contractholder funds: Derivatives embedded in life and $ -- $ -- $ (79) $ 81 $ (553) Total recurring Level 3 liabilities $ -- $ -- $ (79) $ 81 $ (553) The effect to net income totals $228 million and is reported in the Consolidated Statements of Operations and Comprehensive Income as follows: Comprises $3 million of assets and $30 million of liabilities.The second situation where the Company classifies securities in Level 3 is where specific inputs significant to the fair value estimation models are not market observable. This primarily occurs in the Company’s use of broker quotes to value certain securities where the inputs have not been corroborated to be market observable, and the use of valuation models that use significant non-market observable inputs.·Treasuries.Treasury fixed income securities. Valuation is based on unadjusted quoted prices for identical assets in active markets that the Company can access.········ARS primarily backed by student loans that have become illiquid due to failures in the auction market are valued using a discounted cash flow model that is widely accepted in the financial services industry and uses significant non-market observable inputs, including the anticipated date liquidity will return to the market. Also included areComprise municipal bonds that are not rated by third party credit rating agencies but are rated by the National Association of Insurance Commissioners (“NAIC”). The primary inputs to the valuation of these municipal bonds include quoted prices for identical or similar assets in markets that exhibit less liquidity relative to those markets supporting Level 2 fair value measurements, contractual cash flows, benchmark yields and credit spreads. Also included are municipal bonds valued based on non-binding broker quotes where the inputs have not been corroborated to be market observable. Also includes auction rate securities (“ARS”) primarily backed by student loans that have become illiquid due to failures in the auction market and are valued using a discounted cash flow model that is widely accepted in the financial services industry and uses significant non-market observable inputs, including the anticipated date liquidity will return to the market.·Equity securities: The primary inputs to the valuation include quoted prices or quoted net asset values for identical or similar assets in markets that exhibit less liquidity relative to those markets supporting Level 2 fair value measurements.· and floors, certain credit default swaps and certain options (including swaptions), are valued using models that are widely accepted in the financial services industry. These are categorized as Level 3 as a result of the significance of non-market observable inputs such as volatility. Other primary inputs include interest rate yield curves and credit spreads.·Assets held for sale: Comprise municipal, corporate, ABS and CMBS fixed income securities that were classified as held for sale as of December 31, 2013. The valuation is based on the respective asset type as described above.2012:
in active
markets for
identical assets
(Level 1)
other
observable
inputs
(Level 2)
unobservable
inputs
(Level 3)
and cash
collateral
netting
as of
December 31,
2012
annuity contracts______________($ in millions) Balance as of December 31, 2014 Assets Fixed income securities: U.S. government and agencies $ 147 $ 623 $ — $ 770 Municipal — 3,556 106 3,662 Corporate — 20,193 792 20,985 Foreign government — 735 — 735 ABS — 636 129 765 RMBS — 605 — 605 CMBS — 578 1 579 Redeemable preferred stock — 16 — 16 Total fixed income securities 147 26,942 1,028 28,117 Equity securities 927 6 37 970 Short-term investments 90 767 — 857 Other investments: Free-standing derivatives — 90 2 $ (2 ) 90 Separate account assets 4,396 — — 4,396 Other assets 1 — 1 2 Total recurring basis assets 5,561 27,805 1,068 (2 ) 34,432 — — 9 9 Total assets at fair value $ 5,561 $ 27,805 $ 1,077 $ (2 ) $ 34,441 % of total assets at fair value 16.2 % 80.7 % 3.1 % — % 100 % Liabilities $ — $ — $ (323 ) $ (323 ) Other liabilities: Free-standing derivatives — (24 ) (9 ) $ 2 (31 ) Total liabilities at fair value $ — $ (24 ) $ (332 ) $ 2 $ (354 ) % of total liabilities at fair value — % 6.8 % 93.8 % (0.6 )% 100 % $4$6 million of mortgage loans $1and $3 million of limited partnership interests and $1 million of other investments written-down to fair value in connection with recognizing other-than-temporary impairments.($ in millions) Balance as of December 31, 2013 Assets Fixed income securities: U.S. government and agencies $ 145 $ 621 $ — $ 766 Municipal — 3,185 119 3,304 Corporate — 20,308 1,008 21,316 Foreign government — 792 — 792 ABS — 895 112 1,007 RMBS — 790 — 790 CMBS — 763 1 764 Redeemable preferred stock — 16 1 17 Total fixed income securities 145 27,370 1,241 28,756 Equity securities 593 51 6 650 Short-term investments 129 461 — 590 Other investments: Free-standing derivatives — 268 9 $ (11 ) 266 Separate account assets 5,039 — — 5,039 Assets held for sale 1,854 9,812 362 12,028 Total recurring basis assets 7,760 37,962 1,618 (11 ) 47,329 — — 17 17 Total assets at fair value $ 7,760 $ 37,962 $ 1,635 $ (11 ) $ 47,346 % of total assets at fair value 16.4 % 80.2 % 3.4 % — % 100 % Liabilities Contractholder funds: Derivatives embedded in life and annuity contracts $ — $ — $ (307 ) $ (307 ) Other liabilities: Free-standing derivatives — (185 ) (14 ) $ 7 (192 ) Liabilities held for sale — — (246 ) (246 ) Total recurring basis liabilities — (185 ) (567 ) 7 (745 ) — — (11,088 ) (11,088 ) Total liabilities at fair value $ — $ (185 ) $ (11,655 ) $ 7 $ (11,833 ) % of total liabilities at fair value — % 1.6 % 98.5 % (0.1 )% 100 % Relates to LBL business held for sale (see Note 3). The total fair value measurement includes $15,593 million of assets held for sale and $(14,899) million of liabilities held for sale, less $12,028 million of assets and $(246) million of liabilities measured at fair value on a recurring basis. measurements as of December 31, 2012.
technique
input
average
student loans
embedded in life
and annuity
contracts -
Equity-indexed
and forward
starting optionsIf the anticipated date liquidity will return to the market is sooner (later), it would result in a higher (lower) fair value. measurements.($ in millions) Fair value Range December 31, 2014 Derivatives embedded in life and annuity contracts – Equity-indexed and forward starting options $ (278 ) Stochastic cash flow model Projected option cost 1.0 - 2.0 % 1.76 % December 31, 2013 Derivatives embedded in life and annuity contracts – Equity-indexed and forward starting options $ (247 ) Stochastic cash flow model Projected option cost 1.0 - 2.0 % 1.75 % Liabilities held for sale – Equity-indexed and forward starting options $ (246 ) Stochastic cash flow model Projected option cost 1.0 - 2.0 % 1.91 % 2012,2014 and 2013, Level 3 fair value measurements include $1.72$914 million and $1.15 billion, respectively, of fixed income securities valued based on non-binding broker quotes where the inputs have not been corroborated to be market observable. As of December 31, 2013, Level 3 fair value measurements for assets held for sale include $319 million of fixed income securities valued based on non-binding broker quotes where the inputs have not been corroborated to be market observable. The Company does not develop the unobservable inputs used in measuring fair value; therefore, these are not included in the table above. However, an increase (decrease) in credit spreads for fixed income securities valued based on non-binding broker quotes would result in a lower (higher) fair value.summarizespresents the Company’srollforward of Level 3 assets and liabilities measuredheld at fair value on a recurring and non-recurring basis as ofduring the year ended December 31, 2011:
in active
markets for
identical assets
(Level 1)
other
observable
inputs
(Level 2)
unobservable
inputs
(Level 3)
and cash
collateral
netting
as of
December 31,
2011
annuity contracts_______________(1)2014. Includes $19($ in millions) Balance as of December 31, 2013 OCI Assets Fixed income securities: Municipal $ 119 $ — $ 18 $ — $ (17 ) Corporate 1,008 20 (14 ) 85 (114 ) ABS 112 — 3 16 (12 ) CMBS 1 — — — (4 ) Redeemable preferred stock 1 — — — — Total fixed income securities 1,241 20 7 101 (147 ) Equity securities 6 — (1 ) — (1 ) Free-standing derivatives, net (5 ) — — — — Other assets — 1 — — — Assets held for sale 362 (1 ) 2 4 (2 ) Total recurring Level 3 assets $ 1,604 $ 20 $ 8 $ 105 $ (150 ) Liabilities Contractholder funds: Derivatives embedded in life and annuity contracts $ (307 ) $ (8 ) $ — $ — $ — Liabilities held for sale (246 ) 17 — — — Total recurring Level 3 liabilities $ (553 ) $ 9 $ — $ — $ — Sales Settlements Balance as of December 31, 2014 Assets Fixed income securities: Municipal $ — $ — $ (11 ) $ (3 ) $ 106 Corporate — 20 (109 ) (104 ) 792 ABS — 21 — (11 ) 129 CMBS 4 — — — 1 Redeemable preferred stock — — (1 ) — — Total fixed income securities 4 41 (121 ) (118 ) 1,028 Equity securities — 39 (6 ) — 37 Free-standing derivatives, net — 2 — (4 ) (7 ) Other assets — — — — 1 Assets held for sale (351 ) — (8 ) (6 ) — Total recurring Level 3 assets $ (347 ) $ 82 $ (135 ) $ (128 ) $ 1,059 Liabilities Contractholder funds: Derivatives embedded in life and annuity contracts $ — $ (14 ) $ — $ 6 $ (323 ) Liabilities held for sale 230 (4 ) — 3 — Total recurring Level 3 liabilities $ 230 $ (18 ) $ — $ 9 $ (323 ) The effect to net income totals $29 million and is reported in the Consolidated Statements of Operations and Comprehensive Income as follows: $11 million in realized capital gains and losses, $12 million in net investment income, $(5) million in interest credited to contractholder funds, $15 million in contract benefits and $(4) million in loss on disposition of operations. Comprises $2 million of assets and $9 million of liabilities. Includes transfers from held for sale that took place in first quarter 2014 of $4 million for CMBS and $(4) million for Assets held for sale. Represents purchases for assets and issues for liabilities. mortgage loansLevel 3 assets and $5 million of other investments written-down toliabilities held at fair value in connection with recognizing other-than-temporary impairments.on a recurring basis during the year ended December 31, 2013.($ in millions) Balance as of December 31, 2012 OCI Assets Fixed income securities: Municipal $ 338 $ (12 ) $ 19 $ — $ — Corporate 1,501 32 (32 ) 84 (172 ) ABS 199 (2 ) 30 17 (16 ) RMBS — — — — — CMBS 21 (1 ) 3 — — Redeemable preferred stock 1 — — — — Total fixed income securities 2,060 17 20 101 (188 ) Equity securities 7 — — — — Free-standing derivatives, net (27 ) 19 — — — Other assets 1 (1 ) — — — Assets held for sale — (2 ) (6 ) 13 (13 ) Total recurring Level 3 assets $ 2,041 $ 33 $ 14 $ 114 $ (201 ) Liabilities Contractholder funds: Derivatives embedded in life and annuity contracts $ (553 ) $ 89 $ — $ — $ — Liabilities held for sale — 20 — — — Total recurring Level 3 liabilities $ (553 ) $ 109 $ — $ — $ — Sales Settlements Balance as of December 31, 2013 Assets Fixed income securities: Municipal $ (51 ) $ — $ (173 ) $ (2 ) $ 119 Corporate (244 ) 145 (173 ) (133 ) 1,008 ABS (85 ) — (8 ) (23 ) 112 RMBS — — — — — CMBS (5 ) — (17 ) — 1 Redeemable preferred stock — — — — 1 Total fixed income securities (385 ) 145 (371 ) (158 ) 1,241 Equity securities — — (1 ) — 6 Free-standing derivatives, net — 9 — (6 ) (5 ) (3 ) Other assets — — — — — Assets held for sale 385 — (10 ) (5 ) 362 Total recurring Level 3 assets $ — $ 154 $ (382 ) $ (169 ) $ 1,604 Liabilities Contractholder funds: Derivatives embedded in life and annuity contracts $ 265 $ (111 ) $ — $ 3 $ (307 ) Liabilities held for sale (265 ) (6 ) — 5 (246 ) Total recurring Level 3 liabilities $ — $ (117 ) $ — $ 8 $ (553 ) The effect to net income totals $142 million and is reported in the Consolidated Statements of Operations and Comprehensive Income as follows: $20 million in realized capital gains and losses, $14 million in net investment income, $40 million in interest credited to contractholder funds, $74 million in contract benefits and $(6) million in loss on disposition of operations. Represents purchases for assets and issues for liabilities. Comprises $9 million of assets and $14 million of liabilities.
included in:
December 31,
2011
income (1)
into
Level 3
out of
Level 3
December 31,
2012
annuity contracts_____________($ in millions) OCI Assets Fixed income securities: Municipal $ 387 $ (5 ) $ 22 $ 53 $ (10 ) Corporate 1,319 20 63 381 (64 ) ABS 254 24 59 42 (7 ) RMBS 47 — — — (47 ) CMBS 30 (4 ) 10 — — Redeemable preferred stock 1 — — — — Total fixed income securities 2,038 35 154 476 (128 ) Equity securities 14 — — — — Free-standing derivatives, net (88 ) 25 — — — Other assets 1 — — — — Total recurring Level 3 assets $ 1,965 $ 60 $ 154 $ 476 $ (128 ) Liabilities Contractholder funds: Derivatives embedded in life and annuity contracts $ (723 ) $ 168 $ — $ — $ — Total recurring Level 3 liabilities $ (723 ) $ 168 $ — $ — $ — Purchases Sales Issues Settlements Balance as of December 31, 2012 Assets Fixed income securities: Municipal $ — $ (107 ) $ — $ (2 ) $ 338 Corporate 125 (223 ) — (120 ) 1,501 ABS 11 (165 ) — (19 ) 199 RMBS — — — — — CMBS — — — (15 ) 21 Redeemable preferred stock 1 (1 ) — — 1 Total fixed income securities 137 (496 ) — (156 ) 2,060 Equity securities 5 (12 ) — — 7 Free-standing derivatives, net 27 — — 9 (27 ) Other assets — — — — 1 Total recurring Level 3 assets $ 169 $ (508 ) $ — $ (147 ) $ 2,041 Liabilities Contractholder funds: Derivatives embedded in life and annuity contracts $ — $ — $ (79 ) $ 81 $ (553 ) Total recurring Level 3 liabilities $ — $ — $ (79 ) $ 81 $ (553 ) (1) $38$38 million in realized capital gains and losses, $22 million in net investment income, $132 million in interest credited to contractholder funds and $36 million in contract benefits.(2)
The following table presents the rollforward of Level 3 assets and liabilities held at fair value on a recurring basis during the year ended December 31, 2011.
($ in millions) |
|
|
|
|
| Total gains (losses) |
|
|
|
|
|
|
| |||
|
|
| Balance as of |
|
| Net |
|
| OCI |
|
| Transfers |
|
| Transfers |
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed income securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal |
| $ | 601 |
| $ | (2) |
| $ | 7 |
| $ | 48 |
| $ | (34) |
|
Corporate |
|
| 1,760 |
|
| 52 |
|
| (35) |
|
| 237 |
|
| (410) |
|
ABS |
|
| 1,974 |
|
| 21 |
|
| (65) |
|
| -- |
|
| (1,470) |
|
RMBS |
|
| 1,189 |
|
| (57) |
|
| 77 |
|
| -- |
|
| (853) |
|
CMBS |
|
| 844 |
|
| (43) |
|
| 111 |
|
| 65 |
|
| (878) |
|
Redeemable preferred stock |
|
| 1 |
|
| -- |
|
| -- |
|
| -- |
|
| -- |
|
Total fixed income securities |
|
| 6,369 |
|
| (29) |
|
| 95 |
|
| 350 |
|
| (3,645) |
|
Equity securities |
|
| 29 |
|
| (5) |
|
| -- |
|
| -- |
|
| (10) |
|
Other investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Free-standing derivatives, net |
|
| (77) |
|
| (37) |
|
| -- |
|
| -- |
|
| -- |
|
Other assets |
|
| 1 |
|
| -- |
|
| -- |
|
| -- |
|
| -- |
|
Total recurring Level 3 assets |
| $ | 6,322 |
| $ | (71) |
| $ | 95 |
| $ | 350 |
| $ | (3,655) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contractholder funds: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives embedded in life and annuity contracts |
| $ | (653) |
| $ | (134) |
| $ | -- |
| $ | -- |
| $ | -- |
|
Total recurring Level 3 liabilities |
| $ | (653) |
| $ | (134) |
| $ | -- |
| $ | -- |
| $ | -- |
|
|
|
| Purchases |
|
| Sales |
|
| Issues |
|
| Settlements |
|
| Balance as of |
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed income securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal |
| $ | 10 |
| $ | (241) |
| $ | -- |
| $ | (2) |
| $ | 387 |
|
Corporate |
|
| 266 |
|
| (473) |
|
| -- |
|
| (78) |
|
| 1,319 |
|
ABS |
|
| 146 |
|
| (136) |
|
| -- |
|
| (216) |
|
| 254 |
|
RMBS |
|
| -- |
|
| (222) |
|
| -- |
|
| (87) |
|
| 47 |
|
CMBS |
|
| -- |
|
| (66) |
|
| -- |
|
| (3) |
|
| 30 |
|
Redeemable preferred stock |
|
| -- | �� |
| -- |
|
| -- |
|
| -- |
|
| 1 |
|
Total fixed income securities |
|
| 422 |
|
| (1,138) |
|
| -- |
|
| (386) |
|
| 2,038 |
|
Equity securities |
|
| 1 |
|
| (1) |
|
| -- |
|
| -- |
|
| 14 |
|
Other investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Free-standing derivatives, net |
|
| 18 |
|
| -- |
|
| -- |
|
| 8 |
|
| (88) | (2) |
Other assets |
|
| -- |
|
| -- |
|
| -- |
|
| -- |
|
| 1 |
|
Total recurring Level 3 assets |
| $ | 441 |
| $ | (1,139) |
| $ | -- |
| $ | (378) |
| $ | 1,965 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contractholder funds: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives embedded in life and |
| $ | -- |
| $ | -- |
| $ | (100) |
| $ | 164 |
| $ | (723) |
|
Total recurring Level 3 liabilities |
| $ | -- |
| $ | -- |
| $ | (100) |
| $ | 164 |
| $ | (723) |
|
_____________
|
The following table presents the rollforward of Level 3 assets and liabilities held at fair value on a recurring basis during the year ended December 31, 2010.
($ in millions) |
|
|
| Total gains (losses) |
|
|
|
|
|
|
|
|
| ||
|
| Balance as of |
| Net |
| OCI |
| Purchases, sales, |
| Transfers |
| Transfers |
| Balance as of |
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed income securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal | $ | 746 | $ | (10) | $ | 8 | $ | (95) | $ | 19 | $ | (67) | $ | 601 |
|
Corporate |
| 2,020 |
| 23 |
| 128 |
| (285) |
| 403 |
| (529) |
| 1,760 |
|
Foreign government |
| 20 |
| -- |
| -- |
| (20) |
| -- |
| -- |
| -- |
|
ABS |
| 1,710 |
| 60 |
| 236 |
| 205 |
| -- |
| (237) |
| 1,974 |
|
RMBS |
| 1,052 |
| (268) |
| 475 |
| (41) |
| -- |
| (29) |
| 1,189 |
|
CMBS |
| 1,322 |
| (235) |
| 589 |
| (525) |
| 108 |
| (415) |
| 844 |
|
Redeemable preferred stock |
| 1 |
| -- |
| -- |
| -- |
| -- |
| -- |
| 1 |
|
Total fixed income securities |
| 6,871 |
| (430) |
| 1,436 |
| (761) |
| 530 |
| (1,277) |
| 6,369 |
|
Equity securities |
| 27 |
| 15 |
| 2 |
| (13) |
| -- |
| (2) |
| 29 |
|
Other investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Free-standing derivatives, net |
| (53) |
| (43) |
| -- |
| 19 |
| -- |
| -- |
| (77) | (2) |
Other assets |
| 2 |
| (1) |
| -- |
| -- |
| -- |
| -- |
| 1 |
|
Total recurring Level 3 assets | $ | 6,847 | $ | (459) | $ | 1,438 | $ | (755) | $ | 530 | $ | (1,279) | $ | 6,322 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contractholder funds: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives embedded in life and | $ | (110) | $ | (31) | $ | -- | $ | 3 | $ | (515) | $ | -- | $ | (653) |
|
Total recurring Level 3 liabilities | $ | (110) | $ | (31) | $ | -- | $ | 3 | $ | (515) | $ | -- | $ | (653) |
|
____________
(1) The effect to net income totals $(490) million and is reported in the Consolidated Statements of Operations and Comprehensive Income as follows: $(522) million in realized capital gains and losses, $64 million in net investment income, $(1) million in interest credited to contractholder funds and $(31) million in contract benefits.
(2) Comprises $10 million of assets and $87 million of liabilities.
Transfers between level categorizations may occur due to changes in the availability of market observable inputs, which generally are caused by changes in market conditions such as liquidity, trading volume or bid-ask spreads. Transfers between level categorizations may also occur due to changes in the valuation source. For example, in situations where a fair value quote is not provided by the Company’s independent third-party valuation service provider and as a result the price is stale or has been replaced with a broker quote whose inputs have not been corroborated to be market observable, the security is transferred into Level 3. Transfers in and out of level categorizations are reported as having occurred at the beginning of the quarter in which the
During 2011, certain ABS, RMBS and CMBS were transferred into Level 2 from Level 3 as a result of increased liquidity in the market and a sustained increase in the market activity for these assets. Additionally, in 2011 certain ABS that were valued based on non-binding broker quotes were transferred into Level 2 from Level 3 since the inputs were corroborated to be market observable. During 2010, certain ABS and CMBS were transferred into Level 2 from Level 3 as a result of increased liquidity in the market and a sustained increase in market activity for these assets. When transferring these securities into Level 2, the Company did not change the source of fair value estimates or modify the estimates received from independent third-party valuation service providers or the internal valuation approach. Accordingly, for securities included within this group, there was no change in fair value in conjunction with the transfer resulting in a realized or unrealized gain or loss.
pricing source was not available as of the prior period, and any gains or losses related to the change in valuation source for individual securities were not significant.
Transfers into Level 3 during 2010 also included derivatives embedded in equity-indexed life and annuity contracts due to refinements in the valuation modeling resulting in an increase in significance of non-market observable inputs.
($ in millions) |
| 2012 |
| 2011 |
| 2010 |
Assets |
|
|
|
|
|
|
Fixed income securities: |
|
|
|
|
|
|
Municipal | $ | -- | $ | (2) | $ | (7) |
Corporate |
| 15 |
| 19 |
| 37 |
ABS |
| -- |
| (35) |
| 52 |
RMBS |
| -- |
| -- |
| (203) |
CMBS |
| (3) |
| (12) |
| (28) |
Total fixed income securities |
| 12 |
| (30) |
| (149) |
Equity securities |
| -- |
| (4) |
| -- |
Other investments: |
|
|
|
|
|
|
Free-standing derivatives, net |
| 6 |
| (29) |
| (26) |
Other assets |
| -- |
| -- |
| (1) |
Total recurring Level 3 assets | $ | 18 | $ | (63) | $ | (176) |
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
Contractholder funds: |
|
|
|
|
|
|
Derivatives embedded in life and annuity contracts | $ | 168 | $ | (134) | $ | (31) |
Total recurring Level 3 liabilities | $ | 168 | $ | (134) | $ | (31) |
| ($ in millions) | 2014 | 2013 | 2012 | ||||||||
| Assets | |||||||||||
| Fixed income securities: | |||||||||||
| Municipal | $ | (1 | ) | $ | (4 | ) | $ | — | |||
| Corporate | 11 | 13 | 15 | ||||||||
| ABS | — | (2 | ) | — | |||||||
| CMBS | 1 | (2 | ) | (3 | ) | ||||||
| Total fixed income securities | 11 | 5 | 12 | ||||||||
| Equity securities | — | — | — | ||||||||
| Free-standing derivatives, net | 5 | 10 | 6 | ||||||||
| Other assets | 1 | (1 | ) | — | |||||||
| Assets held for sale | — | (2 | ) | — | |||||||
| Total recurring Level 3 assets | $ | 17 | $ | 12 | $ | 18 | |||||
| Liabilities | |||||||||||
| Contractholder funds: Derivatives embedded in life and annuity contracts | $ | (8 | ) | $ | 89 | $ | 168 | ||||
| Liabilities held for sale | 17 | 20 | — | ||||||||
| Total recurring Level 3 liabilities | $ | 9 | $ | 109 | $ | 168 | |||||
($ in millions) |
| December 31, 2012 |
| December 31, 2011 | ||||
|
| Carrying |
| Fair |
| Carrying |
| Fair |
Mortgage loans | $ | 5,943 | $ | 6,223 | $ | 6,546 | $ | 6,739 |
Cost method limited partnerships |
| 617 |
| 778 |
| 754 |
| 882 |
Agent loans |
| 319 |
| 314 |
| 279 |
| 279 |
Bank loans |
| 282 |
| 282 |
| 299 |
| 290 |
Notes due from related party |
| 275 |
| 275 |
| 275 |
| 235 |
| ($ in millions) | December 31, 2014 | December 31, 2013 | |||||||||||||
Carrying value | Fair value | Carrying value | Fair value | ||||||||||||
| Mortgage loans | $ | 3,686 | $ | 3,922 | $ | 4,173 | $ | 4,300 | |||||||
| Cost method limited partnerships | 508 | 686 | 605 | 799 | |||||||||||
| Bank loans | 431 | 427 | 160 | 161 | |||||||||||
| Agent loans | 368 | 361 | 341 | 325 | |||||||||||
| Notes due from related party | 275 | 275 | 275 | 275 | |||||||||||
| Assets held for sale | — | — | 1,458 | 1,532 | |||||||||||
discounted cash flow calculations that use discount rates with a spread over U.S. Treasury rates that consider the loan’s credit risk and underlying collateral. The fair value of bank loans, which are reported in other investments,or assets held for sale, is based on broker quotes from brokers familiar with the loans and current market conditions. The fair value of agent loans, which are reported in other investments, is based on discounted cash flow calculations that use discount rates with a spread over U.S. Treasury rates. Assumptions used in developing estimated cash flows and discount rates consider the loan’s credit and liquidity risks. The fair value of notes due from related party, which are reported in other investments, is based on discounted cash flow calculations using current interest rates for instruments with comparable terms. The fair value measurements for mortgage loans, cost method limited partnerships, agent loans, bank loans, andagent loans, notes due from related party and assets held for sale are categorized as Level 3.
($ in millions) |
|
| December 31, 2012 |
|
| December 31, 2011 | ||||||
|
|
| Carrying value |
|
| Fair value |
|
| Carrying value |
|
| Fair value |
Contractholder funds on investment contracts |
| $ | 26,984 |
| $ | 27,989 |
| $ | 30,161 |
| $ | 30,468 |
Notes due to related parties |
|
| 496 |
|
| 496 |
|
| 700 |
|
| 659 |
Liability for collateral |
|
| 561 |
|
| 561 |
|
| 263 |
|
| 263 |
| ($ in millions) | December 31, 2014 | December 31, 2013 | |||||||||||||
Carrying value | Fair value | Carrying value | Fair value | ||||||||||||
| Contractholder funds on investment contracts | $ | 13,708 | $ | 14,364 | $ | 15,542 | $ | 16,198 | |||||||
| Notes due to related parties | 275 | 275 | 282 | 282 | |||||||||||
| Liability for collateral | 510 | 510 | 328 | 328 | |||||||||||
| Liabilities held for sale | — | — | 7,417 | 7,298 | |||||||||||
7.
which provide a coupon payout that is determined using one or more equity-based indices; credit default swaps in synthetic collateralized debt obligations, which provide enhanced coupon rates as a result of selling credit protection; andcontractholders; conversion options in fixed income securities, which provide the Company with the right to convert the instrument into a predetermined number of shares of common stock.
stock; credit default swaps in synthetic collateralized debt obligations, which provide enhanced coupon rates as a result of selling credit protection; and equity-indexed notes containing equity call options, which provide a coupon payout that is determined using one or more equity-based indices.
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) |
| Asset derivatives | |||||||||||||||
|
|
|
|
| Volume (1) |
|
|
|
|
|
|
|
|
| |||
|
| Balance sheet location |
|
| Notional |
|
| Number |
|
| Fair |
|
| Gross |
|
| Gross |
Derivatives designated as accounting |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency swap agreements |
| Other investments |
| $ | 16 |
|
| n/a |
| $ | 2 |
| $ | 2 |
| $ | -- |
Total |
|
|
|
| 16 |
|
| n/a |
|
| 2 |
|
| 2 |
|
| -- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as accounting |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap agreements |
| Other investments |
|
| 5,541 |
|
| n/a |
|
| 19 |
|
| 28 |
|
| (9) |
Interest rate cap and floor agreements |
| Other investments |
|
| 372 |
|
| n/a |
|
| 1 |
|
| 1 |
|
| -- |
Financial futures contracts and options |
| Other assets |
|
| n/a |
|
| 2 |
|
| -- |
|
| -- |
|
| -- |
Equity and index contracts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options, futures and warrants (2) |
| Other investments |
|
| 146 |
|
| 12,400 |
|
| 125 |
|
| 125 |
|
| -- |
Options, futures and warrants |
| Other assets |
|
| n/a |
|
| 249 |
|
| 2 |
|
| 2 |
|
| -- |
Foreign currency contracts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency forwards |
| Other investments |
|
| 44 |
|
| n/a |
|
| -- |
|
| -- |
|
| -- |
Embedded derivative financial |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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) |
Credit default contracts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit default swaps – buying protection |
| Other investments |
|
| 32 |
|
| n/a |
|
| (1) |
|
| -- |
|
| (1) |
Credit default swaps – selling protection |
| Other investments |
|
| 100 |
|
| n/a |
|
| 1 |
|
| 1 |
|
| -- |
Other contracts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other contracts |
| Other assets |
|
| 4 |
|
| n/a |
|
| 1 |
|
| 1 |
|
| -- |
Total |
|
|
|
| 6,346 |
|
| 12,651 |
|
| 145 |
|
| 167 |
|
| (22) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total asset derivatives |
|
|
| $ | 6,362 |
|
| 12,651 |
| $ | 147 |
| $ | 169 |
| $ | (22) |
|
| |
|
| |
2014.
| ($ 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 | $ | 85 | n/a | $ | 3 | $ | 3 | $ | — | ||||||||||
| Derivatives not designated as accounting hedging instruments | ||||||||||||||||||||
| Interest rate contracts | ||||||||||||||||||||
| Interest rate cap agreements | Other investments | 163 | n/a | 2 | 2 | — | ||||||||||||||
| Equity and index contracts | ||||||||||||||||||||
| Options | Other investments | — | 3,225 | 83 | 83 | — | ||||||||||||||
| Financial futures contracts | Other assets | — | 704 | 1 | 1 | — | ||||||||||||||
| Foreign currency contracts | ||||||||||||||||||||
| Foreign currency forwards | Other investments | 57 | n/a | — | — | — | ||||||||||||||
| Credit default contracts | ||||||||||||||||||||
| Credit default swaps – buying protection | Other investments | 19 | n/a | — | — | — | ||||||||||||||
| Credit default swaps – selling protection | Other investments | 80 | n/a | 2 | 2 | — | ||||||||||||||
| Other contracts | ||||||||||||||||||||
| Other contracts | Other assets | 3 | n/a | 1 | 1 | — | ||||||||||||||
| Subtotal | 322 | 3,929 | 89 | 89 | — | |||||||||||||||
| Total asset derivatives | $ | 407 | 3,929 | $ | 92 | $ | 92 | $ | — | |||||||||||
| Liability derivatives | ||||||||||||||||||||
| Derivatives designated as accounting hedging instruments | ||||||||||||||||||||
| Foreign currency swap agreements | Other liabilities & accrued expenses | $ | 50 | n/a | $ | (1 | ) | $ | — | $ | (1 | ) | ||||||||
| Derivatives not designated as accounting hedging instruments | ||||||||||||||||||||
| Interest rate contracts | ||||||||||||||||||||
| Interest rate swap agreements | Other liabilities & accrued expenses | 85 | n/a | 1 | 1 | — | ||||||||||||||
| Interest rate cap agreements | Other liabilities & accrued expenses | 11 | n/a | — | — | — | ||||||||||||||
| Financial futures contract | Other liabilities & accrued expenses | — | 200 | — | — | — | ||||||||||||||
| Equity and index contracts | ||||||||||||||||||||
| Options and futures | Other liabilities & accrued expenses | — | 3,131 | (22 | ) | — | (22 | ) | ||||||||||||
| Foreign currency contracts | ||||||||||||||||||||
| Foreign currency forwards | Other liabilities & accrued expenses | 36 | n/a | 1 | 1 | — | ||||||||||||||
| Embedded derivative financial instruments | ||||||||||||||||||||
| Guaranteed accumulation benefits | Contractholder funds | 615 | n/a | (32 | ) | — | (32 | ) | ||||||||||||
| Guaranteed withdrawal benefits | Contractholder funds | 425 | n/a | (13 | ) | — | (13 | ) | ||||||||||||
| Equity-indexed and forward starting options in life and annuity product contracts | Contractholder funds | 1,786 | n/a | (278 | ) | — | (278 | ) | ||||||||||||
| Other embedded derivative financial instruments | Contractholder funds | 85 | n/a | — | — | — | ||||||||||||||
| Credit default contracts | ||||||||||||||||||||
| Credit default swaps – buying protection | Other liabilities & accrued expenses | 49 | n/a | (1 | ) | — | (1 | ) | ||||||||||||
| Credit default swaps – selling protection | Other liabilities & accrued expenses | 100 | n/a | (9 | ) | — | (9 | ) | ||||||||||||
| Subtotal | 3,192 | 3,331 | (353 | ) | 2 | (355 | ) | |||||||||||||
| Total liability derivatives | 3,242 | 3,331 | (354 | ) | $ | 2 | $ | (356 | ) | |||||||||||
| Total derivatives | $ | 3,649 | 7,260 | $ | (262 | ) | ||||||||||||||
|
| Liability derivatives | |||||||||||||||
|
|
|
|
| Volume (1) |
|
|
|
|
|
|
|
|
| |||
|
| Balance sheet location |
|
| Notional |
|
| Number |
|
| Fair |
|
| Gross |
|
| Gross |
Derivatives designated as accounting |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency swap agreements |
| Other liabilities & accrued expenses |
| $ | 135 |
|
| n/a |
| $ | (19) |
| $ | -- |
| $ | (19) |
Total |
|
|
|
| 135 |
|
| n/a |
|
| (19) |
|
| -- |
|
| (19) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as accounting |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 and floor agreements |
| Other liabilities & accrued expenses |
|
| 429 |
|
| n/a |
|
| 1 |
|
| 1 |
|
| -- |
Financial futures contracts and options |
| Other liabilities & accrued expenses |
|
| -- |
|
| 357 |
|
| -- |
|
| -- |
|
| -- |
Equity and index contracts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options and futures |
| Other liabilities & accrued expenses |
|
| -- |
|
| 12,262 |
|
| (58) |
|
| -- |
|
| (58) |
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 |
| Contractholder funds |
|
| 3,916 |
|
| n/a |
|
| (419) |
|
| -- |
|
| (419) |
Other embedded derivative financial |
| Contractholder funds |
|
| 85 |
|
| n/a |
|
| (9) |
|
| -- |
|
| (9) |
Credit default contracts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit default swaps – buying protection |
| Other liabilities & accrued expenses |
|
| 193 |
|
| n/a |
|
| (2) |
|
| -- |
|
| (2) |
Credit default swaps – selling protection |
| Other liabilities & accrued expenses |
|
| 130 |
|
| n/a |
|
| (30) |
|
| -- |
|
| (30) |
Total |
|
|
|
| 7,562 |
|
| 12,619 |
|
| (626) |
|
| 19 |
|
| (645) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liability derivatives |
|
|
|
| 7,697 |
|
| 12,619 |
|
| (645) |
| $ | 19 |
| $ | (664) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives |
|
|
| $ | 14,059 |
|
| 25,270 |
| $ | (498) |
|
|
|
|
|
|
_____________________
|
|
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, 2011.
($ in millions, except number of contracts) |
| Asset derivatives | |||||||||||||||
|
|
|
|
| Volume (1) |
|
|
|
|
|
|
|
|
| |||
|
| Balance sheet location |
|
| Notional |
|
| Number |
|
| Fair |
|
| Gross |
|
| Gross |
Derivatives designated as accounting |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap agreements |
| Other investments |
| $ | 144 |
|
| n/a |
| $ | (8) |
| $ | -- |
| $ | (8) |
Foreign currency swap agreements |
| Other investments |
|
| 127 |
|
| n/a |
|
| (5) |
|
| 3 |
|
| (8) |
Total |
|
|
|
| 271 |
|
| n/a |
|
| (13) |
|
| 3 |
|
| (16) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as accounting |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap agreements |
| Other investments |
|
| 8,028 |
|
| n/a |
|
| 122 |
|
| 137 |
|
| (15) |
Interest rate swaption agreements |
| Other investments |
|
| 500 |
|
| n/a |
|
| -- |
|
| -- |
|
| -- |
Interest rate cap and floor agreements |
| Other investments |
|
| 1,591 |
|
| n/a |
|
| (12) |
|
| -- |
|
| (12) |
Financial futures contracts and options |
| Other assets |
|
| n/a |
|
| 40 |
|
| -- |
|
| -- |
|
| -- |
Equity and index contracts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options, futures and warrants (2) |
| Other investments |
|
| 163 |
|
| 15,180 |
|
| 104 |
|
| 104 |
|
| -- |
Options, futures and warrants |
| Other assets |
|
| n/a |
|
| 1,011 |
|
| -- |
|
| -- |
|
| -- |
Foreign currency contracts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency swap agreements |
| Other investments |
|
| 50 |
|
| n/a |
|
| 6 |
|
| 6 |
|
| -- |
Embedded derivative financial instruments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion options |
| Fixed income securities |
|
| 5 |
|
| n/a |
|
| -- |
|
| -- |
|
| -- |
Equity-indexed call options |
| Fixed income securities |
|
| 150 |
|
| n/a |
|
| 11 |
|
| 11 |
|
| -- |
Credit default swaps |
| Fixed income securities |
|
| 170 |
|
| n/a |
|
| (113) |
|
| -- |
|
| (113) |
Credit default contracts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit default swaps – buying protection |
| Other investments |
|
| 110 |
|
| n/a |
|
| 2 |
|
| 4 |
|
| (2) |
Credit default swaps – selling protection |
| Other investments |
|
| 32 |
|
| n/a |
|
| -- |
|
| -- |
|
| -- |
Other contracts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other contracts |
| Other investments |
|
| 5 |
|
| n/a |
|
| -- |
|
| -- |
|
| -- |
Other contracts |
| Other assets |
|
| 4 |
|
| n/a |
|
| 1 |
|
| 1 |
|
| -- |
Total |
|
|
|
| 10,808 |
|
| 16,231 |
|
| 121 |
|
| 263 |
|
| (142) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total asset derivatives |
|
|
| $ | 11,079 |
|
| 16,231 |
| $ | 108 |
| $ | 266 |
| $ | (158) |
|
| |
|
| |
2013.
| ($ in millions, except number of contracts) | Volume (1) | |||||||||||||||||||
| Asset derivatives | Balance sheet location | Notional amount | Number of contracts | Fair value, net | Gross asset | Gross liability | ||||||||||||||
| Derivatives designated as accounting hedging instruments | ||||||||||||||||||||
| Foreign currency swap agreements | Other investments | $ | 16 | n/a | $ | 1 | $ | 1 | $ | — | ||||||||||
| Derivatives not designated as accounting hedging instruments | ||||||||||||||||||||
| Interest rate contracts | ||||||||||||||||||||
| Interest rate swaption agreements | Other investments | 1,420 | n/a | — | — | — | ||||||||||||||
| Interest rate cap agreements | Other investments | 61 | n/a | 2 | 2 | — | ||||||||||||||
| Equity and index contracts | ||||||||||||||||||||
Options and warrants (2) | Other investments | 3 | 10,035 | 261 | 261 | — | ||||||||||||||
| Financial futures contracts | Other assets | — | 627 | — | — | — | ||||||||||||||
| Foreign currency contracts | ||||||||||||||||||||
| Foreign currency forwards | Other investments | 47 | n/a | — | — | — | ||||||||||||||
| Embedded derivative financial instruments | ||||||||||||||||||||
| Credit default swaps | Fixed income securities | 12 | n/a | (12 | ) | — | (12 | ) | ||||||||||||
| Credit default contracts | ||||||||||||||||||||
| Credit default swaps – buying protection | Other investments | 1 | n/a | — | — | — | ||||||||||||||
| Credit default swaps – selling protection | Other investments | 85 | n/a | 2 | 2 | — | ||||||||||||||
| Other contracts | ||||||||||||||||||||
| Other contracts | Other assets | 4 | n/a | — | — | — | ||||||||||||||
| Subtotal | 1,633 | 10,662 | 253 | 265 | (12 | ) | ||||||||||||||
| Total asset derivatives | $ | 1,649 | 10,662 | $ | 254 | $ | 266 | $ | (12 | ) | ||||||||||
| Liability derivatives | ||||||||||||||||||||
| Derivatives designated as accounting hedging instruments | ||||||||||||||||||||
| Foreign currency swap agreements | Other liabilities & accrued expenses | $ | 132 | n/a | $ | (15 | ) | $ | — | $ | (15 | ) | ||||||||
| Derivatives not designated as accounting hedging instruments | ||||||||||||||||||||
| Interest rate contracts | ||||||||||||||||||||
| Interest rate swap agreements | Other liabilities & accrued expenses | 85 | n/a | 4 | 4 | — | ||||||||||||||
| Interest rate swaption agreements | Other liabilities & accrued expenses | 4,570 | n/a | 1 | 1 | — | ||||||||||||||
| Interest rate cap agreements | Other liabilities & accrued expenses | 262 | n/a | 4 | 4 | — | ||||||||||||||
| Equity and index contracts | ||||||||||||||||||||
| Options | Other liabilities & accrued expenses | 55 | 10,035 | (165 | ) | 2 | (167 | ) | ||||||||||||
| Embedded derivative financial instruments | ||||||||||||||||||||
| Guaranteed accumulation benefits | Contractholder funds | 738 | n/a | (43 | ) | — | (43 | ) | ||||||||||||
| Guaranteed withdrawal benefits | Contractholder funds | 506 | n/a | (13 | ) | — | (13 | ) | ||||||||||||
| Equity-indexed and forward starting options in life and annuity product contracts | Contractholder funds | 1,693 | n/a | (247 | ) | — | (247 | ) | ||||||||||||
| Liabilities held for sale | 2,363 | n/a | (246 | ) | — | (246 | ) | |||||||||||||
| Other embedded derivative financial instruments | Contractholder funds | 85 | n/a | (4 | ) | — | (4 | ) | ||||||||||||
| Credit default contracts | ||||||||||||||||||||
| Credit default swaps – buying protection | Other liabilities & accrued expenses | 171 | n/a | (2 | ) | — | (2 | ) | ||||||||||||
| Credit default swaps – selling protection | Other liabilities & accrued expenses | 100 | n/a | (15 | ) | — | (15 | ) | ||||||||||||
| Subtotal | 10,628 | 10,035 | (726 | ) | 11 | (737 | ) | |||||||||||||
| Total liability derivatives | 10,760 | 10,035 | (741 | ) | $ | 11 | $ | (752 | ) | |||||||||||
| Total derivatives | $ | 12,409 | 20,697 | $ | (487 | ) | ||||||||||||||
|
| Liability derivatives | |||||||||||||||
|
|
|
|
| Volume (1) |
|
|
|
|
|
|
|
|
| |||
|
| Balance sheet location |
|
| Notional |
|
| Number of |
|
| Fair |
|
| Gross |
|
| Gross |
Derivatives designated as accounting |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap agreements |
| Other liabilities & accrued expenses |
| $ | 28 |
|
| n/a |
| $ | (5) |
| $ | -- |
| $ | (5) |
Foreign currency swap agreements |
| Other liabilities & accrued expenses |
|
| 50 |
|
| n/a |
|
| (7) |
|
| -- |
|
| (7) |
Total |
|
|
|
| 78 |
|
| n/a |
|
| (12) |
|
| -- |
|
| (12) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as accounting |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap agreements |
| Other liabilities & accrued expenses |
|
| 85 |
|
| n/a |
|
| 8 |
|
| 8 |
|
| -- |
Interest rate cap and floor agreements |
| Other liabilities & accrued expenses |
|
| 914 |
|
| n/a |
|
| (9) |
|
| -- |
|
| (9) |
Equity and index contracts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options and futures |
| Other liabilities & accrued expenses |
|
| -- |
|
| 14,985 |
|
| (49) |
|
| -- |
|
| (49) |
Embedded derivative financial instruments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Guaranteed accumulation benefits |
| Contractholder funds |
|
| 917 |
|
| n/a |
|
| (105) |
|
| -- |
|
| (105) |
Guaranteed withdrawal benefits |
| Contractholder funds |
|
| 613 |
|
| n/a |
|
| (57) |
|
| -- |
|
| (57) |
Equity-indexed and forward starting |
| Contractholder funds |
|
| 3,996 |
|
| n/a |
|
| (553) |
|
| -- |
|
| (553) |
Other embedded derivative financial |
| Contractholder funds |
|
| 85 |
|
| n/a |
|
| (8) |
|
| -- |
|
| (8) |
Credit default contracts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit default swaps – buying protection |
| Other liabilities & accrued expenses |
|
| 127 |
|
| n/a |
|
| 5 |
|
| 6 |
|
| (1) |
Credit default swaps – selling protection |
| Other liabilities & accrued expenses |
|
| 270 |
|
| n/a |
|
| (68) |
|
| 1 |
|
| (69) |
Total |
|
|
|
| 7,007 |
|
| 14,985 |
|
| (836) |
|
| 15 |
|
| (851) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liability derivatives |
|
|
|
| 7,085 |
|
| 14,985 |
|
| (848) |
| $ | 15 |
| $ | (863) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives |
|
|
| $ | 18,164 |
|
| 31,216 |
| $ | (740) |
|
|
|
|
|
|
|
| |
The following table provides gross and net amounts for the Company’s OTC derivatives, all of which are subject to enforceable master netting agreements.
| ($ in millions) | Offsets | ||||||||||||||||||||||
Gross amount | Counter- party netting | Cash collateral (received) pledged | Net amount on balance sheet | Securities collateral (received) pledged | Net amount | ||||||||||||||||||
| December 31, 2014 | |||||||||||||||||||||||
| Asset derivatives | $ | 7 | $ | (2 | ) | $ | — | $ | 5 | $ | (4 | ) | $ | 1 | |||||||||
| Liability derivatives | (11 | ) | 2 | — | (9 | ) | 7 | (2 | ) | ||||||||||||||
| December 31, 2013 | |||||||||||||||||||||||
| Asset derivatives | $ | 14 | $ | (11 | ) | $ | — | $ | 3 | $ | (3 | ) | $ | — | |||||||||
| Liability derivatives | (33 | ) | 11 | (4 | ) | (26 | ) | 22 | (4 | ) | |||||||||||||
($ in millions) |
|
| 2012 |
|
| 2011 |
|
| 2010 |
Effective portion |
|
|
|
|
|
|
|
|
|
(Loss) gain recognized in OCI on derivatives during the period |
| $ | (6) |
| $ | 4 |
| $ | 3 |
Loss recognized in OCI on derivatives during the term of the hedging relationship |
|
| (17) |
|
| (12) |
|
| (17) |
(Loss) gain reclassified from AOCI into income (realized capital gains and losses) |
|
| (1) |
|
| (1) |
|
| 2 |
Amortization of net lossesgains from accumulated other comprehensive income related to cash flow hedges is expected to be less than $1a gain of $2 million during the next twelve months. There was no hedge ineffectiveness reported in realized gains and losses in 2012, 20112014, 2013 or 2010.
| ($ in millions) | 2014 | 2013 | 2012 | ||||||||
| Gain (loss) recognized in OCI on derivatives during the period | $ | 12 | $ | 3 | $ | (6 | ) | ||||
| Gain (loss) recognized in OCI on derivatives during the term of the hedging relationship | 2 | (13 | ) | (17 | ) | ||||||
| Loss reclassified from AOCI into income (net investment income) | (1 | ) | (1 | ) | — | ||||||
| Loss reclassified from AOCI into income (realized capital gains and losses) | (2 | ) | — | (1 | ) | ||||||
The following tables present gains and losses from valuation, settlements and hedge ineffectiveness reported on derivatives used in fair value hedging relationships and derivatives not designated as accounting hedging instruments in the Consolidated Statements of Operations and Comprehensive Income for the years ended December 31.
($ in millions) |
|
| 2012 | |||||||||||||
|
|
| Net |
|
| Realized |
|
| Contract |
|
| Interest |
|
| Total gain | |
Derivatives in fair value accounting |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts |
| $ | (1) |
| $ | -- |
| $ | -- |
| $ | -- |
| $ | (1 | ) |
Subtotal |
|
| (1) |
|
| -- |
|
| -- |
|
| -- |
|
| (1 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as accounting |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts |
|
| -- |
|
| 2 |
|
| -- |
|
| -- |
|
| 2 |
|
Equity and index contracts |
|
| -- |
|
| -- |
|
| -- |
|
| 56 |
|
| 56 |
|
Embedded derivative financial instruments |
|
| -- |
|
| 20 |
|
| 36 |
|
| 134 |
|
| 190 |
|
Foreign currency contracts |
|
| -- |
|
| (2) |
|
| -- |
|
| -- |
|
| (2 | ) |
Credit default contracts |
|
| -- |
|
| 15 |
|
| -- |
|
| -- |
|
| 15 |
|
Other contracts |
|
| -- |
|
| -- |
|
| -- |
|
| 3 |
|
| 3 |
|
Subtotal |
|
| -- |
|
| 35 |
|
| 36 |
|
| 193 |
|
| 264 |
|
Total |
| $ | (1) |
| $ | 35 |
| $ | 36 |
| $ | 193 |
| $ | 263 |
|
|
|
| 2011 | |||||||||||||
|
|
| Net |
|
| Realized |
|
| Contract |
|
| Interest |
|
| Total gain | |
Derivatives in fair value accounting |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts |
| $ | (2) |
| $ | (8) |
| $ | -- |
| $ | (5) |
| $ | (15 | ) |
Foreign currency and interest rate contracts |
|
| -- |
|
| -- |
|
| -- |
|
| (32) |
|
| (32 | ) |
Subtotal |
|
| (2) |
|
| (8) |
|
| -- |
|
| (37) |
|
| (47 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as accounting |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts |
|
| -- |
|
| (151) |
|
| -- |
|
| -- |
|
| (151 | ) |
Equity and index contracts |
|
| -- |
|
| -- |
|
| -- |
|
| (2) |
|
| (2 | ) |
Embedded derivative financial instruments |
|
| -- |
|
| (45) |
|
| (32) |
|
| (38) |
|
| (115 | ) |
Credit default contracts |
|
| -- |
|
| 2 |
|
| -- |
|
| -- |
|
| 2 |
|
Other contracts |
|
| -- |
|
| -- |
|
| -- |
|
| 7 |
|
| 7 |
|
Subtotal |
|
| -- |
|
| (194) |
|
| (32) |
|
| (33) |
|
| (259 | ) |
Total |
| $ | (2) |
| $ | (202) |
| $ | (32) |
| $ | (70) |
| $ | (306 | ) |
|
|
| 2010 | |||||||||||||
|
|
| Net |
|
| Realized |
|
| Contract |
|
| Interest |
|
| Total gain | |
Derivatives in fair value accounting |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts |
| $ | (139) |
| $ | 9 |
| $ | -- |
| $ | 11 |
| $ | (119 | ) |
Foreign currency and interest rate contracts |
|
| -- |
|
| (2) |
|
| -- |
|
| (18) |
|
| (20 | ) |
Subtotal |
|
| (139) |
|
| 7 |
|
| -- |
|
| (7) |
|
| (139 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as accounting |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts |
|
| -- |
|
| (138) |
|
| -- |
|
| -- |
|
| (138 | ) |
Equity and index contracts |
|
| -- |
|
| -- |
|
| -- |
|
| 113 |
|
| 113 |
|
Embedded derivative financial instruments |
|
| -- |
|
| 8 |
|
| (28) |
|
| 34 |
|
| 14 |
|
Foreign currency contracts |
|
| -- |
|
| 4 |
|
| -- |
|
| -- |
|
| 4 |
|
Credit default contracts |
|
| -- |
|
| (6) |
|
| -- |
|
| -- |
|
| (6 | ) |
Other contracts |
|
| -- |
|
| -- |
|
| -- |
|
| 3 |
|
| 3 |
|
Subtotal |
|
| -- |
|
| (132) |
|
| (28) |
|
| 150 |
|
| (10 | ) |
Total |
| $ | (139) |
| $ | (125) |
| $ | (28) |
| $ | 143 |
| $ | (149 | ) |
The following table provides a summary of the changes($ in millions) Net
investment
income Realized capital gains and losses Interest credited to contractholder funds Loss on disposition of operations Total gain (loss) recognized in net income on derivatives 2014 Interest rate contracts $ — $ (3 ) $ — $ — $ (4 ) $ (7 ) Equity and index contracts — (1 ) — 38 — 37 Embedded derivative financial instruments — — 15 (14 ) — 1 Foreign currency contracts — 10 — — — 10 Credit default contracts — 8 — — — 8 Other contracts — — — (2 ) — (2 ) Total $ — $ 14 $ 15 $ 22 $ (4 ) $ 47
| 2013 | |||||||||||||||||||||||
| Interest rate contracts | $ | — | $ | 3 | $ | — | $ | — | $ | (6 | ) | $ | (3 | ) | |||||||||
| Equity and index contracts | — | — | — | 94 | — | 94 | |||||||||||||||||
| Embedded derivative financial instruments | — | (1 | ) | 74 | (75 | ) | — | (2 | ) | ||||||||||||||
| Foreign currency contracts | — | (2 | ) | — | — | — | (2 | ) | |||||||||||||||
| Credit default contracts | — | 14 | — | — | — | 14 | |||||||||||||||||
| Other contracts | — | — | — | (3 | ) | — | (3 | ) | |||||||||||||||
| Total | $ | — | $ | 14 | $ | 74 | $ | 16 | $ | (6 | ) | $ | 98 | ||||||||||
| 2012 | |||||||||||||||||||||||
| Derivatives in fair value accounting hedging relationships | |||||||||||||||||||||||
| Interest rate contracts | $ | (1 | ) | $ | — | $ | — | $ | — | $ | — | $ | (1 | ) | |||||||||
| Derivatives not designated as accounting hedging instruments | |||||||||||||||||||||||
| Interest rate contracts | — | 2 | — | — | — | 2 | |||||||||||||||||
| Equity and index contracts | — | — | — | 56 | — | 56 | |||||||||||||||||
| Embedded derivative financial instruments | — | 20 | 36 | 134 | — | 190 | |||||||||||||||||
| Foreign currency contracts | — | (2 | ) | — | — | — | (2 | ) | |||||||||||||||
| Credit default contracts | — | 15 | — | — | — | 15 | |||||||||||||||||
| Other contracts | — | — | — | 3 | — | 3 | |||||||||||||||||
| Subtotal | — | 35 | 36 | 193 | — | 264 | |||||||||||||||||
| Total | $ | (1 | ) | $ | 35 | $ | 36 | $ | 193 | $ | — | $ | 263 | ||||||||||
($ in millions) |
|
| Gain (loss) on derivatives |
|
| Gain (loss) on hedged risk | |||||||
Location of gain or (loss) recognized in |
|
| Interest |
|
| Foreign |
|
| Contractholder |
|
| Investments | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income |
| $ | 3 |
| $ | -- |
| $ | -- |
| $ | (3 | ) |
Total |
| $ | 3 |
| $ | -- |
| $ | -- |
| $ | (3 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest credited to contractholder funds |
| $ | (7) |
| $ | (34) |
| $ | 41 |
| $ | -- |
|
Net investment income |
|
| 26 |
|
| -- |
|
| -- |
|
| (26 | ) |
Realized capital gains and losses |
|
| (8) |
|
| -- |
|
| -- |
|
| -- |
|
Total |
| $ | 11 |
| $ | (34) |
| $ | 41 |
| $ | (26 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest credited to contractholder funds |
| $ | -- |
| $ | (48) |
| $ | 48 |
| $ | -- |
|
Net investment income |
|
| (33) |
|
| -- |
|
| -- |
|
| 33 |
|
Realized capital gains and losses |
|
| 9 |
|
| (2) |
|
| -- |
|
| -- |
|
Total |
| $ | (24) |
| $ | (50) |
| $ | 48 |
| $ | 33 |
|
investments, both of which were reported in net investment income.
The following table summarizes the counterparty credit exposure as of December 31 by counterparty credit rating as it relates to the Company’s OTC derivatives.
($ in millions) |
| 2012 |
| 2011 | |||||||||||||||||||
Rating (1) |
| Number |
|
| Notional |
|
| Credit |
|
| Exposure, |
| Number |
|
| Notional |
|
| Credit |
|
| Exposure, | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AA- |
| -- |
| $ | -- |
| $ | -- |
| $ | -- |
| 1 |
| $ | 25 |
| $ | 1 |
| $ | 1 |
|
A+ |
| 1 |
|
| 19 |
|
| -- |
|
| -- |
| 3 |
|
| 2,936 |
|
| 24 |
|
| 4 |
|
A |
| 3 |
|
| 2,252 |
|
| 12 |
|
| -- |
| 2 |
|
| 3,913 |
|
| 14 |
|
| -- |
|
A- |
| 2 |
|
| 311 |
|
| 1 |
|
| 1 |
| 2 |
|
| 3,815 |
|
| 25 |
|
| -- |
|
BBB+ |
| 1 |
|
| 3,617 |
|
| 11 |
|
| -- |
| 2 |
|
| 57 |
|
| 41 |
|
| 41 |
|
Total |
| 7 |
| $ | 6,199 |
| $ | 24 |
| $ | 1 |
| 10 |
| $ | 10,746 |
| $ | 105 |
| $ | 46 |
|
| ($ in millions) | 2014 | 2013 | ||||||||||||||||||||||||||||
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+ | 1 | $ | 164 | $ | 2 | $ | 1 | 1 | $ | 22 | $ | 1 | $ | 1 | ||||||||||||||||
| A | 3 | 88 | 3 | 1 | 4 | 1,523 | 2 | — | ||||||||||||||||||||||
| A- | 1 | 8 | — | — | 1 | 24 | 1 | — | ||||||||||||||||||||||
| BBB+ | 1 | 11 | — | — | 1 | 3 | — | — | ||||||||||||||||||||||
| BBB | 1 | 52 | — | — | 1 | 76 | 1 | — | ||||||||||||||||||||||
| Total | 7 | $ | 323 | $ | 5 | $ | 2 | 8 | $ | 1,648 | $ | 5 | $ | 1 | ||||||||||||||||
(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. |
($ in millions) |
|
| 2012 |
|
| 2011 |
Gross liability fair value of contracts containing credit-risk-contingent |
| $ | 62 |
| $ | 133 |
Gross asset fair value of contracts containing credit-risk-contingent |
|
| (28) |
|
| (60) |
Collateral posted under MNAs for contracts containing credit-risk- |
|
| (25) |
|
| (72) |
Maximum amount of additional exposure for contracts with credit-risk- |
| $ | 9 |
| $ | 1 |
| ($ in millions) | 2014 | 2013 | |||||
| Gross liability fair value of contracts containing credit-risk-contingent features | $ | 11 | $ | 25 | |||
| Gross asset fair value of contracts containing credit-risk-contingent features and subject to MNAs | (2 | ) | (9 | ) | |||
| Collateral posted under MNAs for contracts containing credit-risk-contingent features | (7 | ) | (14 | ) | |||
| Maximum amount of additional exposure for contracts with credit-risk-contingent features if all features were triggered concurrently | $ | 2 | $ | 2 | |||
The following table shows the CDS notional amounts by credit rating and fair value of protection sold.
($ in millions) |
| Notional amount |
|
|
| ||||||||||||||
|
| AA |
|
| A |
|
| BBB |
|
| BB and |
|
| Total |
|
| Fair | ||
December 31, 2012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Single name |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Investment grade | $ | -- |
| $ | 5 |
| $ | -- |
| $ | -- |
| $ | 5 |
| $ | -- |
| |
Municipal |
| 25 |
|
| -- |
|
| -- |
|
| -- |
|
| 25 |
|
| (3 | ) | |
Subtotal |
| 25 |
|
| 5 |
|
| -- |
|
| -- |
|
| 30 |
|
| (3 | ) | |
Baskets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
First-to-default |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Municipal |
| -- |
|
| 100 |
|
| -- |
|
| -- |
|
| 100 |
|
| (26 | ) | |
Subtotal |
| -- |
|
| 100 |
|
| -- |
|
| -- |
|
| 100 |
|
| (26 | ) | |
Index |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Investment grade |
| 1 |
|
| 26 |
|
| 68 |
|
| 5 |
|
| 100 |
|
| -- |
| |
Total | $ | 26 |
| $ | 131 |
| $ | 68 |
| $ | 5 |
| $ | 230 |
| $ | (29 | ) | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
December 31, 2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Single name |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Investment grade | $ | 40 |
| $ | 45 |
| $ | 15 |
| $ | 10 |
| $ | 110 |
| $ | (1 | ) | |
High yield debt |
| -- |
|
| -- |
|
| -- |
|
| 2 |
|
| 2 |
|
| -- |
| |
Municipal |
| 25 |
|
| -- |
|
| -- |
|
| -- |
|
| 25 |
|
| (5 | ) | |
Subtotal |
| 65 |
|
| 45 |
|
| 15 |
|
| 12 |
|
| 137 |
|
| (6 | ) | |
Baskets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Tranche |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Investment grade |
| -- |
|
| -- |
|
| -- |
|
| 65 |
|
| 65 |
|
| (29 | ) | |
First-to-default |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Municipal |
| -- |
|
| 100 |
|
| -- |
|
| -- |
|
| 100 |
|
| (33 | ) | |
Subtotal |
| -- |
|
| 100 |
|
| -- |
|
| 65 |
|
| 165 |
|
| (62 | ) | |
Total | $ | 65 |
| $ | 145 |
| $ | 15 |
| $ | 77 |
| $ | 302 |
| $ | (68 | ) | |
|
| ||||||||||||||||||
|
| ||||||||||||||||||
(1) Investment grade corporate debt categorization is based on the rating of the underlying name(s) at initial purchase. | |||||||||||||||||||
| ($ in millions) | Notional amount | ||||||||||||||||||||||
| AA | A | BBB | BB and lower | Total | Fair value | ||||||||||||||||||
| December 31, 2014 | |||||||||||||||||||||||
| Single name | |||||||||||||||||||||||
| Corporate debt | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||||||
| First-to-default Basket | |||||||||||||||||||||||
| Municipal | — | 100 | — | — | 100 | (9 | ) | ||||||||||||||||
| Index | |||||||||||||||||||||||
| Corporate debt | — | 22 | 52 | 6 | 80 | 2 | |||||||||||||||||
| Total | $ | — | $ | 122 | $ | 52 | $ | 6 | $ | 180 | $ | (7 | ) | ||||||||||
| December 31, 2013 | |||||||||||||||||||||||
| Single name | |||||||||||||||||||||||
| Corporate debt | $ | — | $ | 5 | $ | — | $ | — | $ | 5 | $ | — | |||||||||||
| First-to-default Basket | |||||||||||||||||||||||
| Municipal | — | 100 | — | — | 100 | (15 | ) | ||||||||||||||||
| Index | |||||||||||||||||||||||
| Corporate debt | 1 | 20 | 55 | 4 | 80 | 2 | |||||||||||||||||
| Total | $ | 1 | $ | 125 | $ | 55 | $ | 4 | $ | 185 | $ | (13 | ) | ||||||||||
The Company monitors risk associated with credit derivatives through individual name credit limits at both a credit derivative and a combined cash instrument/credit derivative level. The ratings of individual names for which protection has been sold are also monitored.
In addition to the CDS described above, the Company’s synthetic collateralized debt obligations contain embedded credit default swaps which sell protection on a basket of reference entities. The synthetic collateralized debt obligations are fully funded; therefore, the Company is not obligated to contribute additional funds when credit events occur related to the reference entities named in the embedded credit default swaps. The Company’s maximum amount at risk equals the amount of its aggregate initial investment in the synthetic collateralized debt obligations.
($ in millions) |
| 2012 |
| 2011 |
|
Commitments to invest in limited partnership interests | $ | 947 | $ | 797 |
|
Commitments to extend mortgage loans |
| 67 |
| 72 |
|
Private placement commitments |
| 6 |
| 30 |
|
Other loan commitments |
| 7 |
| 24 |
|
| ($ in millions) | 2014 | 2013 | |||||
| Commitments to invest in limited partnership interests | $ | 1,223 | $ | 1,366 | |||
| Commitments to extend mortgage loans | 44 | 1 | |||||
| Private placement commitments | 25 | 5 | |||||
| Other loan commitments | 46 | 26 | |||||
91
8.9. Reserve for Life-Contingent Contract Benefits and Contractholder Funds
($ in millions) |
| 2012 |
| 2011 |
|
Immediate fixed annuities: |
|
|
|
|
|
Structured settlement annuities | $ | 7,274 | $ | 7,075 |
|
Other immediate fixed annuities |
| 2,382 |
| 2,346 |
|
Traditional life insurance |
| 2,899 |
| 2,805 |
|
Accident and health insurance |
| 1,448 |
| 1,322 |
|
Other |
| 114 |
| 118 |
|
Total reserve for life-contingent contract benefits | $ | 14,117 | $ | 13,666 |
|
| ($ in millions) | 2014 | 2013 | |||||
| Immediate fixed annuities: | |||||||
| Structured settlement annuities | $ | 6,682 | $ | 6,645 | |||
| Other immediate fixed annuities | 2,246 | 2,279 | |||||
| Traditional life insurance | 2,303 | 2,329 | |||||
| Accident and health insurance | 238 | 236 | |||||
| Other | 97 | 100 | |||||
| Total reserve for life-contingent contract benefits | $ | 11,566 | $ | 11,589 | |||
|
|
|
| |||||||||
Product | Mortality | Interest rate | Estimation method | |||||||||
| Structured settlement annuities | U.S. population with projected calendar year improvements; mortality rates adjusted for each impaired life based on reduction in life expectancy | Interest rate assumptions range from | Present value of contractually specified future benefits | |||||||||
Other immediate fixed annuities | 1983 group annuity mortality table with internal modifications; 1983 individual annuity mortality table; Annuity 2000 mortality table with internal modifications; Annuity 2000 mortality table; 1983 individual annuity mortality table with internal modifications | Interest rate assumptions range from | Present value of expected future benefits based on historical experience | |||||||||
Traditional life insurance | Actual company experience plus loading | Interest rate assumptions range from | Net level premium reserve method using the Company’s withdrawal experience rates; includes reserves for unpaid claims | |||||||||
Accident and health insurance | Actual company experience plus loading | Interest rate assumptions range from 3.0% to 6.0% | Unearned premium; additional contract reserves for mortality risk and unpaid claims | |||||||||
Other: Variable annuity guaranteed minimum death benefits (1) | Annuity | Interest rate assumptions range from | Projected benefit ratio applied to cumulative assessments | |||||||||
_______________________
(1) In 2006, the Company disposed of substantially all of its variable annuity business through reinsurance agreements with The Prudential Insurance Company of America, a subsidiary of Prudential Financial, Inc. (collectively “Prudential”).
(1) | In 2006, the Company disposed of substantially all of its variable annuity business through reinsurance agreements with The Prudential Insurance Company of America, a subsidiary of Prudential Financial, Inc. (collectively “Prudential”). |
As of December 31, contractholder funds consist of the following:
($ in millions) |
| 2012 |
| 2011 |
|
Interest-sensitive life insurance | $ | 10,356 | $ | 10,195 |
|
Investment contracts: |
|
|
|
|
|
Fixed annuities |
| 25,851 |
| 29,017 |
|
Funding agreements backing medium-term notes |
| 1,867 |
| 1,929 |
|
Other investment contracts |
| 560 |
| 528 |
|
Total contractholder funds | $ | 38,634 | $ | 41,669 |
|
| ($ in millions) | 2014 | 2013 | |||||
| Interest-sensitive life insurance | $ | 7,193 | $ | 7,104 | |||
| Investment contracts: | |||||||
| Fixed annuities | 14,284 | 16,172 | |||||
| Funding agreements backing medium-term notes | 85 | 89 | |||||
| Other investment contracts | 254 | 239 | |||||
| Total contractholder funds | $ | 21,816 | $ | 23,604 | |||
| ||||
| Product | Interest rate | Withdrawal/surrender charges | ||
Interest-sensitive life insurance | Interest rates credited range from 0% to | Either a percentage of account balance or dollar amount grading off generally over 20 years | ||
Fixed annuities | Interest rates credited range from 0% to 9.8% for immediate annuities; (8.0)% to 13.5% for equity-indexed annuities (whose returns are indexed to the S&P 500); and 0.1% to | Either a declining or a level percentage charge generally over ten years or less. Additionally, approximately | ||
Funding agreements backing medium-term notes | Interest | Not applicable | ||
Other investment contracts: Guaranteed minimum income, accumulation and withdrawal benefits on variable (1) and fixed annuities and secondary guarantees on interest-sensitive life insurance and fixed annuities | Interest rates used in establishing reserves range from 1.7% to 10.3% | Withdrawal and surrender charges are based on the terms of the related interest-sensitive life insurance or fixed annuity contract | ||
_____________________
(1) In 2006, the Company disposed of substantially all of its variable annuity business through reinsurance agreements with Prudential.
(1) | In 2006, the Company disposed of substantially all of its variable annuity business through reinsurance agreements with Prudential. |
($ in millions) |
| 2012 |
| 2011 |
|
Balance, beginning of year | $ | 41,669 | $ | 46,458 |
|
Deposits |
| 2,180 |
| 1,869 |
|
Interest credited |
| 1,296 |
| 1,592 |
|
Benefits |
| (1,454) |
| (1,454) |
|
Surrenders and partial withdrawals |
| (3,969) |
| (4,908) |
|
Maturities of and interest payments on institutional products |
| (138) |
| (867) |
|
Contract charges |
| (995) |
| (962) |
|
Net transfers from separate accounts |
| 11 |
| 12 |
|
Fair value hedge adjustments for institutional products |
| -- |
| (34) |
|
Other adjustments |
| 34 |
| (37) |
|
Balance, end of year | $ | 38,634 | $ | 41,669 |
|
| ($ in millions) | 2014 | 2013 | 2012 | ||||||||
| Balance, beginning of year | $ | 23,604 | $ | 38,634 | $ | 41,669 | |||||
| Classified as held for sale, beginning balance | 10,945 | — | — | ||||||||
| Total, including those classified as held for sale | 34,549 | 38,634 | 41,669 | ||||||||
| Deposits | 1,227 | 2,338 | 2,180 | ||||||||
| Interest credited | 892 | 1,268 | 1,296 | ||||||||
| Benefits | (1,178 | ) | (1,521 | ) | (1,454 | ) | |||||
| Surrenders and partial withdrawals | (2,253 | ) | (3,279 | ) | (3,969 | ) | |||||
| Maturities of and interest payments on institutional products | (2 | ) | (1,799 | ) | (138 | ) | |||||
| Contract charges | (798 | ) | (1,032 | ) | (995 | ) | |||||
| Net transfers from separate accounts | 7 | 12 | 11 | ||||||||
| Other adjustments | 34 | (72 | ) | 34 | |||||||
| Sold in LBL disposition | (10,662 | ) | — | — | |||||||
| Classified as held for sale, ending balance | — | (10,945 | ) | — | |||||||
| Balance, end of year | $ | 21,816 | $ | 23,604 | $ | 38,634 | |||||
variable contract guarantees are reported on a gross basis on the balance sheet with a corresponding reinsurance recoverable asset for those contracts subject to reinsurance. In 2006, the Company disposed of substantially all of its variable annuity business through reinsurance agreements with Prudential.
($ in millions) |
| December 31, |
| ||
|
| 2012 |
| 2011 |
|
In the event of death |
|
|
|
|
|
Separate account value | $ | 5,947 | $ | 6,372 |
|
Net amount at risk (1) | $ | 1,044 | $ | 1,502 |
|
Average attained age of contractholders |
| 67 years |
| 66 years |
|
|
|
|
|
|
|
At annuitization (includes income benefit guarantees) |
|
|
|
|
|
Separate account value | $ | 1,416 | $ | 1,489 |
|
Net amount at risk (2) | $ | 418 | $ | 574 |
|
Weighted average waiting period until annuitization options available |
| None |
| 1 year |
|
|
|
|
|
|
|
For cumulative periodic withdrawals |
|
|
|
|
|
Separate account value | $ | 532 | $ | 587 |
|
Net amount at risk (3) | $ | 16 | $ | 27 |
|
|
|
|
|
|
|
Accumulation at specified dates |
|
|
|
|
|
Separate account value | $ | 811 | $ | 906 |
|
Net amount at risk (4) | $ | 50 | $ | 78 |
|
Weighted average waiting period until guarantee date |
| 6 years |
| 6 years |
|
_________________
(1) Defined as the estimated current guaranteed minimum death benefit in excess of the current account balance as of the balance sheet date.
(2) Defined as the estimated present value of the guaranteed minimum annuity payments in excess of the current account balance.
(3) Defined as the estimated current guaranteed minimum withdrawal balance (initial deposit) in excess of the current account balance as of the balance sheet date.
(4) Defined as the estimated present value of the guaranteed minimum accumulation balance in excess of the current account balance.
| ($ in millions) | December 31, | ||||||
| 2014 | 2013 | ||||||
| In the event of death | |||||||
| Separate account value | $ | 4,288 | $ | 5,951 | |||
Net amount at risk (1) | $ | 581 | $ | 636 | |||
| Average attained age of contractholders | 69 years | 68 years | |||||
| At annuitization (includes income benefit guarantees) | |||||||
| Separate account value | $ | 1,142 | $ | 1,463 | |||
Net amount at risk (2) | $ | 238 | $ | 252 | |||
| Weighted average waiting period until annuitization options available | None | None | |||||
| For cumulative periodic withdrawals | |||||||
| Separate account value | $ | 382 | $ | 488 | |||
Net amount at risk (3) | $ | 8 | $ | 9 | |||
| Accumulation at specified dates | |||||||
| Separate account value | $ | 480 | $ | 732 | |||
Net amount at risk (4) | $ | 24 | $ | 27 | |||
| Weighted average waiting period until guarantee date | 4 years | 5 years | |||||
(1) | Defined as the estimated current guaranteed minimum death benefit in excess of the current account balance as of the balance sheet date. |
(2) | Defined as the estimated present value of the guaranteed minimum annuity payments in excess of the current account balance. |
(3) | Defined as the estimated current guaranteed minimum withdrawal balance (initial deposit) in excess of the current account balance as of the balance sheet date. |
(4) | Defined as the estimated present value of the guaranteed minimum accumulation balance in excess of the current account balance. |
balance through a charge or credit to contract benefits.
($ in millions) |
|
| Liability for |
|
| Liability for |
|
| Liability for |
|
| Total | |
Balance, December 31, 2011 (1) |
| $ | 289 |
| $ | 191 |
| $ | 164 |
| $ | 644 |
|
Less reinsurance recoverables |
|
| 116 |
|
| 175 |
|
| 162 |
|
| 453 |
|
Net balance as of December 31, 2011 |
|
| 173 |
|
| 16 |
|
| 2 |
|
| 191 |
|
Incurred guarantee benefits |
|
| 25 |
|
| (1) |
|
| 2 |
|
| 26 |
|
Paid guarantee benefits |
|
| (2) |
|
| -- |
|
| -- |
|
| (2 | ) |
Net change |
|
| 23 |
|
| (1) |
|
| 2 |
|
| 24 |
|
Net balance as of December 31, 2012 |
|
| 196 |
|
| 15 |
|
| 4 |
|
| 215 |
|
Plus reinsurance recoverables |
|
| 113 |
|
| 220 |
|
| 125 |
|
| 458 |
|
Balance, December 31, 2012 (2) |
| $ | 309 |
| $ | 235 |
| $ | 129 |
| $ | 673 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2010 (3) |
| $ | 236 |
| $ | 227 |
| $ | 136 |
| $ | 599 |
|
Less reinsurance recoverables |
|
| 93 |
|
| 210 |
|
| 135 |
|
| 438 |
|
Net balance as of December 31, 2010 |
|
| 143 |
|
| 17 |
|
| 1 |
|
| 161 |
|
Incurred guarantee benefits |
|
| 30 |
|
| (1) |
|
| 1 |
|
| 30 |
|
Paid guarantee benefits |
|
| -- |
|
| -- |
|
| -- |
|
| -- |
|
Net change |
|
| 30 |
|
| (1) |
|
| 1 |
|
| 30 |
|
Net balance as of December 31, 2011 |
|
| 173 |
|
| 16 |
|
| 2 |
|
| 191 |
|
Plus reinsurance recoverables |
|
| 116 |
|
| 175 |
|
| 162 |
|
| 453 |
|
Balance, December 31, 2011 (1) |
| $ | 289 |
| $ | 191 |
| $ | 164 |
| $ | 644 |
|
| ($ in millions) | Liability for guarantees related to death benefits and interest-sensitive life products | Liability for guarantees related to income benefits | Liability for guarantees related to accumulation and withdrawal benefits | Total | |||||||||||
Balance, December 31, 2013 (1) | $ | 377 | $ | 113 | $ | 65 | $ | 555 | |||||||
| Less reinsurance recoverables | 100 | 99 | 56 | 255 | |||||||||||
| Net balance as of December 31, 2013 | 277 | 14 | 9 | 300 | |||||||||||
| Incurred guarantee benefits | 34 | — | 9 | 43 | |||||||||||
| Paid guarantee benefits | — | — | — | — | |||||||||||
| Sold in LBL disposition | (214 | ) | (10 | ) | (3 | ) | (227 | ) | |||||||
| Net change | (180 | ) | (10 | ) | 6 | (184 | ) | ||||||||
| Net balance as of December 31, 2014 | 97 | 4 | 15 | 116 | |||||||||||
| Plus reinsurance recoverables | 98 | 91 | 45 | 234 | |||||||||||
Balance, December 31, 2014 (2) | $ | 195 | $ | 95 | $ | 60 | $ | 350 | |||||||
Balance, December 31, 2012 (3) | $ | 309 | $ | 235 | $ | 129 | $ | 673 | |||||||
| Less reinsurance recoverables | 113 | 220 | 125 | 458 | |||||||||||
| Net balance as of December 31, 2012 | 196 | 15 | 4 | 215 | |||||||||||
| Incurred guarantee benefits | 83 | (1 | ) | 5 | 87 | ||||||||||
| Paid guarantee benefits | (2 | ) | — | — | (2 | ) | |||||||||
| Net change | 81 | (1 | ) | 5 | 85 | ||||||||||
| Net balance as of December 31, 2013 | 277 | 14 | 9 | 300 | |||||||||||
| Plus reinsurance recoverables | 100 | 99 | 56 | 255 | |||||||||||
Balance, December 31, 2013 (1) | $ | 377 | $ | 113 | $ | 65 | $ | 555 | |||||||
(1) | Included in the total liability balance as of December 31, |
(2) | Included in the total liability balance as of December 31, 2014 are reserves for variable annuity death benefits of $96 million, variable annuity income benefits of $92 million, variable annuity accumulation benefits of $32 million, variable annuity withdrawal benefits of $13 million and other guarantees of $117 million. |
(3) | Included in the total liability balance as of December 31, 2012 are reserves for variable annuity death benefits of $112 million, variable annuity income benefits of $221 million, variable annuity accumulation benefits of $86 million, variable annuity withdrawal benefits of $39 million and other guarantees of $215 million. | |
|
| |
For certain term life insurance policies issued prior to October 2009, the Company ceded up to 90% of the mortality risk depending on the year of policy issuance under coinsurance agreements to a pool of fourteen unaffiliated reinsurers. Effective October 2009, mortality risk on term business is ceded under yearly renewable term agreements under which the Company cedes mortality in excess of its retention, which is consistent with how the Company generally reinsures its permanent life insurance business. The following table summarizes those retention limits by period of policy issuance. Single life: $5 million per life, $3 million age 70 and over, and $10 million for contracts that meet specific criteria Joint life: $8 million per life, and $10 million for contracts that meet specific criteria July 2007 through March 2011 $5 million per life, $3 million age 70 and over, and $10 million for contracts that meet specific criteria September 1998 through June 2007 $2 million per life, in 2006 the limit was increased to $5 million for instances when specific criteria were met August 1998 and prior Up to $1 million per life ($ in millions) 2012 2011 2010 Direct $ 2,121 $ 2,229 $ 2,230 Assumed Affiliate 115 113 107 Non-affiliate 40 20 22 Ceded-non-affiliate (654 ) (730 ) (776 ) Premiums and contract charges, net of reinsurance $ 1,622 $ 1,632 $ 1,583 ($ in millions) 2012 2011 2010 Direct $ 2,051 $ 2,036 $ 2,075 Assumed Affiliate 80 78 72 Non-affiliate 34 19 22 Ceded-non-affiliate (644 ) (631 ) (673 ) Contract benefits, net of reinsurance $ 1,521 $ 1,502 $ 1,496 ($ in millions) 2012 2011 2010 Direct $ 1,288 $ 1,614 $ 1,774 Assumed Affiliate 10 10 10 Non-affiliate 19 11 12 Ceded-non-affiliate (28 ) (27 ) (32 ) Interest credited to contractholder funds, net of reinsurance $ 1,289 $ 1,608 $ 1,764 ($ in millions) 2012 2011 Annuities $ 1,831 $ 1,827 Life insurance 1,606 1,595 Long-term care insurance 1,049 949 Other 84 86 Total $ 4,570 $ 4,457 ($ in millions) 2012 2011 2010 Balance, beginning of year $ 2,165 $ 2,526 $ 3,073 Acquisition costs deferred 262 241 304 Amortization charged to income (324 ) (430 ) (220 ) Effect of unrealized gains and losses (269 ) (172 ) (631 ) Balance, end of year $ 1,834 $ 2,165 $ 2,526 ($ in millions) 2012 2011 2010 Balance, beginning of year $ 41 $ 86 $ 195 Sales inducements deferred 22 7 14 Amortization charged to income (14 ) (23 ) (27 ) Effect of unrealized gains and losses (8 ) (29 ) (96 ) Balance, end of year $ 41 $ 41 $ 86 The Company owns certain 2014. a result of these reviews, from time to time the Company may decide to modify some of its procedures and policies. Such modifications, and the reviews that led to them, may be accompanied by payments being made and costs being incurred. The ultimate changes and eventual effects of these actions on the Company’s business, if any, are uncertain. ($ in millions) 2012 2011 Deferred assets Difference in tax bases of investments $ 53 $ 146 Deferred reinsurance gain 27 31 Other assets 1 11 Total deferred assets 81 188 Deferred liabilities Unrealized net capital gains (883 ) (440 ) DAC (444 ) (427 ) Life and annuity reserves (193 ) (56 ) Other liabilities (85 ) (86 ) Total deferred liabilities (1,605 ) (1,009 ) Net deferred liability $ (1,524 ) $ (821 ) ($ in millions) 2012 2011 2010 Current $ (82 ) $ 29 $ (199 ) Deferred 261 196 154 Total income tax expense (benefit) $ 179 $ 225 $ (45 ) current income tax payable of $5 million as of December 31, 2013. 2012 2011 2010 Statutory federal income tax rate - expense (benefit) 35.0 % 35.0 % (35.0 ) % Tax credits (3.8 ) (1.4 ) (2.2 ) Dividends received deduction (1.4 ) (1.2 ) (13.1 ) State income taxes -- 0.3 (2.1 ) Other (0.2 ) (0.2 ) (0.2 ) Effective income tax rate - expense (benefit) 29.6 % 32.5 % (52.6 ) % surplus.9. The Company cedes 100% of the morbidity risk on substantially all of its long-term care contracts.PeriodRetention limitsPeriod Retention limits April 2011 through current acquisition or disposition of certain blocks of business. The Company had reinsurance recoverables of $1.69$1.46 billion and $1.68$1.51 billion as of December 31, 20122014 and 2011,2013, respectively, due from Prudential related to the disposal of substantially all of its variable annuity business that was effected through reinsurance agreements. In 2014, premiums and contract charges of $109 million, contract benefits of $36 million, interest credited to contractholder funds of $21 million, and operating costs and expenses of $20 million were ceded to Prudential. In 2013, premiums and contract charges of $120 million, contract benefits of $139 million, interest credited to contractholder funds of $22 million, and operating costs and expenses of $23 million were ceded to Prudential. In 2012, premiums and contract charges of $128 million, contract benefits of $91 million, interest credited to contractholder funds of $23 million, and operating costs and expenses of $25 million were ceded to Prudential. In 2011, premiums and contract charges of $152 million, contract benefits of $121 million, interest credited to contractholder funds of $20 million, and operating costs and expenses of $27 million were ceded to Prudential. In 2010, premiums and contract charges of $171 million, contract benefits of $152 million, interest credited to contractholder funds of $29 million, and operating costs and expenses of $31 million were ceded to Prudential. In addition, as of December 31, 20122014 and 20112013 the Company had reinsurance recoverables of $160$157 million and $165$156 million, respectively, due from subsidiaries of Citigroup (Triton Insurance and American Health and Life Insurance) and Scottish Re (U.S.) Inc. in connection with the disposition of substantially all of the direct response distribution business in 2003.2012,2014, the gross life insurance in force was $533.65$424.34 billion of which $208.97$97.57 billion was ceded to the unaffiliated reinsurers.($ in millions) 2014 2013 2012 Direct $ 1,084 $ 2,093 $ 2,121 Assumed Affiliate 130 124 115 Non-affiliate 614 68 40 Ceded-non-affiliate (392 ) (618 ) (654 ) Premiums and contract charges, net of reinsurance $ 1,436 $ 1,667 $ 1,622 ($ in millions) 2014 2013 2012 Direct $ 1,295 $ 1,805 $ 2,051 Assumed Affiliate 88 82 80 Non-affiliate 398 50 34 Ceded-non-affiliate (329 ) (331 ) (644 ) Contract benefits, net of reinsurance $ 1,452 $ 1,606 $ 1,521 ($ in millions) 2014 2013 2012 Direct $ 827 $ 1,240 $ 1,288 Assumed Affiliate 9 9 10 Non-affiliate 82 29 19 Ceded-non-affiliate (27 ) (27 ) (28 ) Interest credited to contractholder funds, net of reinsurance $ 891 $ 1,251 $ 1,289 ($ in millions) 2014 2013 Annuities $ 1,594 $ 1,648 Life insurance 910 1,025 Long-term care insurance 80 78 Other 2 3 Total $ 2,586 $ 2,754 20122014 and 2011,2013, approximately 95%92% and 94%92%, respectively, of the Company’s reinsurance recoverables are due from companies rated A- or better by S&P.10.($ in millions) 2014 2013 2012 Balance, beginning of year $ 1,331 $ 1,834 $ 2,165 Classified as held for sale, beginning balance 743 — — Total, including those classified as held for sale 2,074 1,834 2,165 Acquisition costs deferred 163 254 262 Amortization charged to income (162 ) (240 ) (324 ) Effect of unrealized gains and losses (97 ) 226 (269 ) Sold in LBL disposition (707 ) (743 ) — Balance, end of year $ 1,271 $ 1,331 $ 1,834 11.($ in millions) 2014 2013 2012 Balance, beginning of year $ 42 $ 41 $ 41 Classified as held for sale, beginning balance 28 — — Total, including those classified as held for sale 70 41 41 Sales inducements deferred 4 24 22 Amortization charged to income (4 ) (7 ) (14 ) Effect of unrealized gains and losses (3 ) 12 (8 ) Sold in LBL disposition (23 ) — — Classified as held for sale, ending balance — (28 ) — Balance, end of year $ 44 $ 42 $ 41 20122014 and 2011,2013, the liability balance included in other liabilities and accrued expenses was $40$10 million and $41$27 million, respectively. The related premium tax offsets included in other assets were $32$15 million and $34$31 million as of December 31, 20122014 and 2011,2013, respectively.Executive Life Insurance Company of New York (“ELNY”) has been under the jurisdiction of the New York Liquidation Bureau (the “Bureau”) as part of a 1992 court-ordered rehabilitation plan. ELNY continues to fully pay annuity benefits when due. The Superintendent of Insurance of the State of New York in conjunction with the New
GuaranteesYork Attorney General filed a proposed formal plan of liquidation on September 1, 2011 and a court order approving the plan, as amended, was entered on April 16, 2012. On May 30, 2012, an attorney representing a number of ELNY payees filed a notice, appealing the ELNY Order of Liquidation. On February 6, 2013, the New York Appellate Division issued its order on that appeal and affirmed the lower court’s order of liquidation. The attorney representing those payees has indicated that he will appeal this most recent decision. Assessments will not begin until the completion of the appeals process. The current publicly available estimated shortfall from the Bureau is $1.57 billion. New York law currently contains an aggregate limit on insurer assessments by the guaranty fund, the Life Insurance Corporation of New York, of $558 million, of which approximately $40 million has been used. The Company’s three-year average market share for New York as of December 31, 2010, based on assessable premiums, was approximately 1.8%.As of December 31, 2012, the accrued liability for the Company’s estimated aggregate exposure is $10 million, net of state related taxes, which includes $16 million pre-tax for guaranty fund assessments and $3 million pre-tax for participation in an industry sponsored plan to supplement certain ELNY policyholders. The ultimate cost will depend on the approved court ordered liquidation plan, the level of guaranty fund system participation and the realization of tax benefits. Under current law, the Company may be allowed to recoup a portion of the amount of any additional guaranty fund assessment in periods subsequent to the recognition of the assessment by offsetting future state related taxes.Guaranteesfixed income securitiesinvestments that obligate the Company to exchange credit risk or to forfeit principal due, depending on the nature or occurrence of specified credit events for the reference entities. In the event all such specified credit events were to occur, the Company’s maximum amount at risk on these fixed income securities,investments, as measured by the amount of the aggregate initial investment, was $4 million as of December 31, 2012.2014. The obligations associated with these fixed income securitiesinvestments expire at various dates on or before March 11, 2018.in connection withcertain liabilities arising from the Company’s provision of transition services. The reinsurance agreements contain no limitations or indemnifications with regard to insurance risk transfer, and transferred all of the future risks and responsibilities for performance on the underlying variable annuity contracts to Prudential, including those related to benefit guarantees. Management does not believe this agreement will have a material effect on results of operations, cash flows or financial position of the Company.2012.changing social, economicextensive laws, regulations and regulatory conditions.actions. From time to time, regulatory authorities or legislative bodies seek to impose additional regulations regarding agent and broker compensation, regulate the nature of and amount of investments, impose fines and penalties for unintended errors or mistakes, and otherwise expand overall regulation of insurance products and the insurance industry. In addition, the Company is subject to laws and regulations administered and enforced by federal agencies and other organizations, including but not limited to the Securities and Exchange Commission, the Financial Industry Regulation Authority, and the U.S. Department of Justice. The Company has established procedures and policies to facilitate compliance with laws and regulations, to foster prudent business operations, and to support financial reporting. The Company routinely reviews its practices to validate compliance with laws and regulations and with internal procedures and policies. As12.20092011 and 20102012 federal income tax returns. The IRS has completed its examinationsexamination of the Allstate Group’s 2009 and 2010 federal income tax returns for 2005-2006 and 2007-2008 anda final settlement related to the cases are under consideration atexamination was approved by the IRS Appeals Office.Division on September 19, 2014. The Allstate Group’s tax years prior to 20052009 have been examined by the IRS and the statute of limitations has expired on those years. Any adjustments that may result from IRS examinations of the Allstate Group’s tax returns are not expected to have a material effect on the results of operations, cash flows or financial position of the Company.20122014, 2013 or 2011,2012, and believes it is reasonably possible that the liability balance will not significantly increase within the next twelve months. No amounts have been accrued for interest or penalties.($ in millions) 2014 2013 Deferred assets Difference in tax bases of investments $ 31 $ 44 Deferred reinsurance gain 20 23 Sale of subsidiary — 173 Other assets 15 6 Total deferred assets 66 246 Deferred liabilities Unrealized net capital gains (747 ) (501 ) DAC (396 ) (470 ) Life and annuity reserves (255 ) (273 ) Other liabilities (75 ) (94 ) Total deferred liabilities (1,473 ) (1,338 ) Net deferred liability before classification as held for sale (1,407 ) (1,092 ) Deferred taxes classified as held for sale — (151 ) Net deferred liability $ (1,407 ) $ (941 ) There was no valuation allowance for deferred tax assets as of December 31, 2012 or 2011. (benefit) for the years ended December 31 are as follows:($ in millions) 2014 2013 2012 Current $ 101 $ 71 $ (82 ) Deferred 132 (52 ) 261 Total income tax expense $ 233 $ 19 $ 179 received refunds of $58 million and $629 million in 2012 and 2010, respectively, and paid income taxes of $72$80 million in 2011.2014 and received refunds of $11 million and $58 million in 2013 and 2012, respectively. The Company had a current income tax receivable of $77 million and $53$7 million as of December 31, 20122014 and 2011, respectively.13. 2014 2013 2012 Statutory federal income tax rate - (benefit) expense 35.0 % (35.0 )% 35.0 % Tax credits (1.9 ) (181.8 ) (3.8 ) Dividends received deduction (0.9 ) (46.1 ) (1.4 ) Adjustments to prior year tax liabilities (0.2 ) (14.1 ) (0.3 ) Sale of subsidiary (1.8 ) 351.3 — State income taxes 0.1 15.3 — Non-deductible expenses 0.2 6.8 0.1 Other 0.2 0.1 — Effective income tax rate - expense 30.7 % 96.5 % 29.6 % 20122014 and 20112013 relates to intercompany obligations. These obligations reflect notes due to related parties and are discussed in Note 4.5. The Company paid $48$16 million, $97$27 million and $16$48 million of interest on debt in 2014, 2013 and 2012, 2011 and 2010, respectively.14. (loss) of ALIC and its insurance subsidiaries was $1.01 billion, $447 million and $382 million $(83) millionin 2014, 2013 and $(456) million in 2012, 2011 and 2010, respectively. Statutory capital and surplus was $3.38$2.71 billion and $3.46$2.88 billion as of December 31, 20122014 and 2011,2013, respectively.is further limited to the amount of unassigned surplus, which is the portion of statutory capital and surplus out of which dividends can be paid. During 2013, ALIC will notwould be able to pay dividends without prior IL DOI approval since it does not haveat a given point in time during 2015 is $819 million. However, any dividend must be paid out of unassigned surplus. Assurplus excluding unrealized appreciation from investments, which for ALIC totaled $122 million as of December 31, 2012, ALIC’s unassigned surplus reflected a deficit position of $62 million. All2014.regulators havelaws, insurance companies are required to maintain paid up capital of not less than the minimum capital requirement applicable to the types of insurance they are authorized to write. Insurance companies are also subject to risk-based capital (“RBC”) requirements adopted RBC requirements developed by the NAIC. Maintainingstate insurance regulators. A company’s “authorized control level RBC” is calculated using various factors applied to certain financial balances and activity. Companies that do not maintain statutory capital and surplus at a level in excess of the company action level allowsRBC, which is two times authorized control level RBC, are required to take specified actions. Company action level RBC is significantly in excess of the minimum capital requirements. Total statutory capital and surplus and authorized control level RBC of ALIC were $2.71 billion and $499 million, respectively, as of December 31, 2014. ALIC’s insurance company to avoid RBC regulatory action.subsidiaries are included as a component of ALIC’s total statutory capital and surplus exceeds its company action level RBC as of December 31, 2012.100
15.16. Benefit Plans
The Corporation provides certain health care subsidies for eligible employees hired before January 1, 2003 when they retire and their eligible dependents and certain life insurance benefits for eligible employees hired before January 1, 2003 when they retire (“postretirement benefits”). The cost allocated to the Company for postretirement benefits other than pension plans was $91 thousand and $1 million in 2012 and 2010, respectively, and the credit allocated to the Company was $1 million in 2011.
16.
($ in millions) |
| 2012 |
| 2011 |
| 2010 | |||||||||||||||||||||
|
| Pre- |
| Tax |
| After- |
| Pre- |
| Tax |
| After- |
| Pre- |
| Tax |
| After- | |||||||||
Unrealized net | $ | 1,180 |
| $ | (414 | ) | $ | 766 |
| $ | 1,001 |
| $ | (350 | ) | $ | 651 |
| $ | 1,819 |
| $ | (638 | ) | $ | 1,181 |
|
Less: reclassification |
| (84 | ) |
| 29 |
|
| (55 | ) |
| 579 |
|
| (203 | ) |
| 376 |
|
| (349 | ) |
| 122 |
|
| (227 | ) |
Unrealized net capital gains and losses |
| 1,264 |
|
| (443 | ) |
| 821 |
|
| 422 |
|
| (147 | ) |
| 275 |
|
| 2,168 |
|
| (760 | ) |
| 1,408 |
|
Unrealized foreign currency translation adjustments |
| -- |
|
| -- |
|
| -- |
|
| (2 | ) |
| 1 |
|
| (1 | ) |
| -- |
|
| -- |
|
| -- |
|
Other comprehensive income | $ | 1,264 |
| $ | (443 | ) | $ | 821 |
| $ | 420 |
| $ | (146 | ) | $ | 274 |
| $ | 2,168 |
| $ | (760 | ) | $ | 1,408 |
|
| ($ in millions) | 2014 | 2013 | 2012 | ||||||||||||||||||||||||||||||||
Pre- tax | Tax | After- tax | Pre- tax | Tax | After- tax | Pre- tax | Tax | After- tax | |||||||||||||||||||||||||||
| Unrealized net holding gains and losses arising during the period, net of related offsets | $ | 805 | $ | (282 | ) | $ | 523 | $ | (1,047 | ) | $ | 367 | $ | (680 | ) | $ | 1,180 | $ | (414 | ) | $ | 766 | |||||||||||||
| Less: reclassification adjustment of realized capital gains and losses | 104 | (36 | ) | 68 | 42 | (15 | ) | 27 | (84 | ) | 29 | (55 | ) | ||||||||||||||||||||||
| Unrealized net capital gains and losses | 701 | (246 | ) | 455 | (1,089 | ) | 382 | (707 | ) | 1,264 | (443 | ) | 821 | ||||||||||||||||||||||
| Unrealized foreign currency translation adjustments | (6 | ) | 2 | (4 | ) | 3 | (1 | ) | 2 | — | — | — | |||||||||||||||||||||||
| Other comprehensive income (loss) | $ | 695 | $ | (244 | ) | $ | 451 | $ | (1,086 | ) | $ | 381 | $ | (705 | ) | $ | 1,264 | $ | (443 | ) | $ | 821 | |||||||||||||
($ in millions) |
| First Quarter |
| Second Quarter |
| Third Quarter |
| Fourth Quarter |
| ||||||||
|
| 2012 |
| 2011 |
| 2012 |
| 2011 |
| 2012 |
| 2011 |
| 2012 |
| 2011 |
|
Revenues | $ | 1,052 | $ | 1,125 | $ | 1,065 | $ | 1,141 | $ | 970 | $ | 1,279 | $ | 1,116 | $ | 1,114 |
|
Net income |
| 83 |
| 91 |
| 98 |
| 135 |
| 103 |
| 160 |
| 142 |
| 83 |
|
101
| ($ in millions) | First Quarter | Second Quarter | Third Quarter | Fourth Quarter | |||||||||||||||||||||||||||
| 2014 | 2013 | 2014 | 2013 | 2014 | 2013 | 2014 | 2013 | ||||||||||||||||||||||||
| Revenues | $ | 1,049 | $ | 1,049 | $ | 851 | $ | 1,087 | $ | 823 | $ | 1,016 | $ | 937 | $ | 1,076 | |||||||||||||||
| Net income (loss) | 127 | 109 | 132 | 150 | 84 | (394 | ) | 183 | 97 | ||||||||||||||||||||||
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
1024, 2015
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
2014.RulesRule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934. Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based upon this evaluation, the principal executive officer and the principal financial officer concluded that our disclosure controls and procedures are effective in providing reasonable assurance that material information required to be disclosed in our reports filed with or submitted to the Securities and Exchange Commission under the Securities Exchange Act is recorded, processed, summarized and reported within the time periods specified by the Securities Exchange Act and made known to management, including the principal executive officer and the principal financial officer, as appropriate to allow timely decisions regarding required disclosure.20122014 based on the criteria related to internal control over financial reporting described in “Internal Control —– Integrated Framework”Framework (2013)” issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation, management concluded that our internal control over financial reporting was effective as of December 31, 2012.2012,2014, there have been no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
None.
Part III
2012 2011 (c) Audit fees (a) $ 2,997,400 $ 3,043,600 Audit related fees (b) 91,900 367,200 Total fees $ 3,089,300 $ 3,410,800 Audit related fees relate primarily to professional services such as 2012 2011 Adoption of new accounting standards $ 61,900 $ 189,200 Audits and other attestation services 30,000 30,000 Other -- 148,000 Audit related fees $ 91,900 $ 367,200 Part IV20122014 and 2011.______________________ 2014 $ 2,760,340 $ 3,037,600 81,000 102,000 Total fees $ 2,841,340 $ 3,139,600 (a)(a) Fees for audits of annual financial statements, reviews of quarterly financial statements, statutory audits, attest services, comfort letters, consents, and review of documents filed with the Securities and Exchange Commission. The amount disclosed does not reflect reimbursed audit fees received from non-Deloitte entitiesthird-party reinsurers in the amounts of $253,400$216,400 and $332,600$304,000 for 20122014 and 2011,2013, respectively.(b) (b)accounting consultations relatingother attest services.(c) Total fees for 2013 have been adjusted to new accounting standards and are set forth below.reflect an increase of $72,000 for scope changes related to a disposition transaction not included in the prior year disclosure.(c) Total fees for 2011 have been reduced by $169,900 primarily to reflect a decrease in estimated audit related fees for the adoption of new standards.—– The Allstate Corporation Policy Regarding Pre-Approval of Independent Registered Public Accountant’s Services (the “Pre-Approval Policy”). In addition, in 2005 the Audit Committee of Allstate Life adopted the Pre-Approval Policy, as it may be amended from time to time by the Audit Committee or the Board of Directors of the Corporation, as its own policy, provided that the Designated Member referred to in such policy need not be independent because the New York Stock Exchange corporate governance standards do not apply to Allstate Life. All of the services provided by Deloitte & Touche LLP to Allstate Life in 20122014 and 20112013 were approved by The Allstate Corporation and Allstate Life Audit Committees.104
Page Schedules required to be filed under the provisions of Regulation S-X Article 7: Schedule I Summary of Investments - Other than Investments in Related Parties S-1 Schedule IV Reinsurance S-2 Schedule V Valuation Allowances and Qualifying Accounts S-3 Incorporated by Reference Exhibit Exhibit Description Form File Exhibit Filing Date Filed or 3(i) Articles of Amendment to the Articles of Incorporation of Allstate Life Insurance Company dated December 29, 1999. 10 000-31248 3.1 April 24, 2002 3(ii) Amended and Restated By-Laws of Allstate Life Insurance Company effective March 15, 2007. 8-K 000-31248 3(ii) March 20, 2007 4 See Exhibits 3 (i) and 3 (ii). 10.2 Credit Agreement dated April 27, 2012 among The Allstate Corporation, Allstate Insurance Company and Allstate Life Insurance Company, as Borrowers; the Lenders party thereto, Wells Fargo Bank, National Association, as Syndication Agent; Citibank, N.A. and Bank of America, N.A., as Documentation Agents; and JPMorgan Chase Bank, N.A., as Administrative Agent. 10-Q 1-11840 10.6 May 2, 2012 10.3 Surplus Note Purchase Agreement between Allstate Life Insurance Company and Kennett Capital, Inc. effective, August 1, 2005. 10-Q 000-31248 10.2 November 7, 2005 10.4 Pledge and Security Agreement between Allstate Life Insurance Company and Kennett Capital, Inc. effective August 1, 2005. 10-Q 000-31248 10.3 November 7, 2005 10.5 Surplus Note between Allstate Life Insurance Company and Allstate Insurance Company dated November 17, 2008. 8-K 000-31248 10.1 November 18, 2008 10.6 Intercompany Loan Agreement between The Allstate Corporation, Allstate Life Insurance Company, Lincoln Benefit Life Company and other certain subsidiaries of The Allstate Corporation effective February 1, 1996. 10-K 000-31248 10.24 March 13, 2007 10.7 Amended and Restated Intercompany Liquidity Agreement between Allstate Insurance Company, Allstate Life Insurance Company and The Allstate Corporation effective as of May 8, 2008. 10-Q 000-31248 10.2 May 14, 2008 10.8 Revolving Loan Credit Agreement, effective December 20, 2010 between American Heritage Life Insurance Company and Road Bay Investments, LLC. 8-K 000-31248 10.1 December 27, 2010 10.9 Pledge and Security Agreement, dated as of December 20, 2010, between Road Bay Investments, LLC and American Heritage Life Insurance Company securing obligations under the Revolving Loan Credit Agreement. 8-K 000-31248 10.2 December 27, 2010 10.10 Form of Asset Purchase Agreement between Allstate Insurance Company and Road Bay Investments, LLC dated as of March 24, 2011. 10-Q 000-31248 10.1 May 4, 2011 10.11 Form of Pledge and Security Agreement between Road Bay Investments, LLC and Allstate Insurance Company dated as of March 24, 2011. 10-Q 000-31248 10.2 May 4, 2011 10.12 Capital Support Agreement between Allstate Life Insurance Company and Allstate Insurance Company effective December 14, 2007. 8-K 000-31248 10.1 February 7, 2008 10.13 Form of Amended and Restated Service and Expense Agreement among Allstate Insurance Company, The Allstate Corporation and certain affiliates effective January 1, 2004. 10-K 000-31248 10.1 March 17, 2008 10.14 Form of Amendment No. 1 effective January 1, 2009 to Amended and Restated Service and Expense Agreement among Allstate Insurance Company, The Allstate Corporation and certain affiliates dated as of January 1, 2009. 8-K 000-31248 10.1 February 17, 2010 10.15 Letter Agreement among Allstate Insurance Company, The Allstate Corporation and certain affiliates, including Allstate Life Insurance Company, effective December 1, 2007. 8-K 000-31248 10.1 May 23, 2008 10.16 Addendum among Allstate Insurance Company and certain affiliates dated August 17, 2011 to Amended and Restated Service and Expense Agreement among Allstate Insurance Company, The Allstate Corporation and certain affiliates effective as of January 1, 2004, as amended by amendment No. 1 effective as of January 1, 2009. 10-K 000-31248 10.20 March 8, 2012 10.17 New York Insurer Supplement to Amended and Restated Service and Expense Agreement among Allstate Insurance Company, The Allstate Corporation, Allstate Life Insurance Company of New York and Intramerica Life Insurance Company, effective March 5, 2005. 10-Q 000-31248 10.2 August 8, 2005 10.18 Limited Servicing Agreement among Allstate Life Insurance Company, Allstate Distributors, L.L.C. and Allstate Financial Services, LLC effective October 1, 2002. 10-K 000-31248 10.40 March 17, 2008 10.19 Form of Investment Management Agreement among Allstate Investment Management Company, The Allstate Corporation and certain affiliates effective February 1, 2012. 8-K 000-31248 10.1 February 7, 2012 10.20 Termination of Investment Management Agreement among Allstate Investments, LLC, Allstate Insurance Company, The Allstate Corporation, and certain subsidiaries effective February 1, 2012. 8-K 000-31248 10.2 February 7, 2012 10.21 Form of Investment Management Agreement among Allstate Investments, LLC, Allstate Insurance Company, The Allstate Corporation and certain affiliates effective January 1, 2007. 10-K 000-31248 10.12 March 17, 2008 10.22 Investment Advisory Agreement and Amendment to Service Agreement as of January 1, 2002 between Allstate Insurance Company, Allstate Investments, LLC and Allstate Life Insurance Company of New York. 10 000-31248 10.31 April 24, 2002 10.23 Investment Management Agreement between Allstate Investments, LLC and ALIC Reinsurance Company, effective July 1, 2005. 10-Q 000-31248 10.1 November 7, 2005 10.24 Investment Management Agreement between Allstate Investments, LLC and ALIC Reinsurance Company effective as of March 31, 2008. 8-K 000-31248 10.1 December 23, 2008 10.25 Investment Advisory Agreement by and between Allstate Insurance Company and Intramerica Life Insurance Company effective July 1, 1999. 10 000-31248 10.29 April 24, 2002 10.26 Assignment and Assumption Agreement dated as of January 1, 2002 among Allstate Insurance Company, Allstate Investments, LLC and Intramerica Life Insurance Company. 10 000-31248 10.30 April 24, 2002 10.27 Investment Sub-Advisory Agreement between Allstate Institutional Advisors, LLC and Allstate Investment Management Company effective as of March 30, 2008. 8-K 000-31248 10.1 April 24, 2008 10.28 Assignment & Delegation of Administrative Services Agreements, Underwriting Agreements, and Selling Agreements entered into as of September 1, 2011 between ALFS, Inc., Allstate Life Insurance Company, Allstate Life Insurance Company of New York, Allstate Distributors, L.L.C., Charter National Life Insurance Company, Intramerica Life Insurance Company, Allstate Financial Services, LLC, and Lincoln Benefit Life Company. 8-K 000-31248 10.1 September 1, 2011 10.29 Selling Agreement by and among Allstate Life Insurance Company, Allstate Distributors, L.L.C. (ALFS, Inc., f/k/a Allstate Life Financial Services, Inc., merged with and into Allstate Distributors, L.L.C. effective September 1, 2011) and Allstate Financial Services, LLC (f/k/a LSA Securities, Inc.) effective July 26, 1999. 10-K 000-31248 10.6 March 26, 2004 10.30 Amendment effective August 1, 1999 to Selling Agreement between Allstate Life Insurance Company, Allstate Distributors, L.L.C. (ALFS, Inc. merged with and into Allstate Distributors, L.L.C. effective September 1, 2011) and Allstate Financial Services, LLC effective July 26, 1999. 10-Q 000-31248 10.1 November 10, 2004 10.31 Amendment effective September 28, 2001 to Selling Agreement between Allstate Life Insurance Company, Allstate Distributors, L.L.C. (ALFS, Inc. merged with and into Allstate Distributors, L.L.C. effective September 1, 2011) and Allstate Financial Services, LLC effective July 26, 1999. 10-Q 000-31248 10.2 November 10, 2004 10.32 Amendment effective February 15, 2002 to Selling Agreement between Allstate Life Insurance Company, Allstate Distributors, L.L.C. (ALFS, Inc. merged with and into Allstate Distributors, L.L.C. effective September 1, 2011) and Allstate Financial Services, LLC effective July 26, 1999. 10-Q 000-31248 10.3 November 10, 2004 10.33 Amendment effective April 21, 2003 to Selling Agreement between Allstate Life Insurance Company, Allstate Distributors, L.L.C. (ALFS, Inc. merged with and into Allstate Distributors, L.L.C. effective September 1, 2011) and Allstate Financial Services, LLC effective July 26, 1999. 10-Q 000-31248 10.4 November 10, 2004 10.34 Selling Agreement and Addenda to Agreement between Allstate Life Insurance Company as successor in interest to Glenbrook Life and Annuity Company, Allstate Distributors, L.L.C. (ALFS, Inc. merged with and into Allstate Distributors, L.L.C. effective September 1, 2011) and Allstate Financial Services, LLC effective May 17, 2001, December 31, 2001 and November 18, 2002, respectively. 10-K 000-31248 10.39 March 17, 2008 10.35 Selling Agreement by and among Allstate Life Insurance Company of New York, Allstate Distributors, L.L.C. (ALFS, Inc. merged with and into Allstate Distributors, L.L.C. effective September 1, 2011) and Allstate Financial Services, LLC effective May 1, 2005. 10-K 000-31248 10.7 March 26, 2004 10.36 Selling Agreement by and between Lincoln Benefit Life Company, Allstate Distributors, L.L.C. (ALFS, Inc. merged with and into Allstate Distributors, L.L.C. effective September 1, 2011) and Allstate Financial Services, LLC effective August 2, 1999. 10-K 000-31248 10.8 March 26, 2004 10.37 Marketing Coordination and Administrative Services Agreement among Allstate Insurance Company, Allstate Life Insurance Company and Allstate Financial Services, LLC effective January 1, 2003. 10-K 000-31248 10.9 March 26, 2004 10.38 First Amendment to Marketing Coordination and Administrative Services Agreement by and among Allstate Life Insurance Company, Allstate Financial Services, LLC and Allstate Insurance Company effective January 1, 2006. 10-Q 000-31248 10.1 August 8, 2006 10.39 Marketing Agreement by and among Allstate Life Insurance Company as successor in interest to Glenbrook Life and Annuity Company, Allstate Distributors, L.L.C. (ALFS, Inc. merged with and into Allstate Distributors, L.L.C. effective September 1, 2011) and Allstate Financial Services, LLC effective June 10, 2003. 10-K 000-31248 10.41 March 17, 2008 10.40 Reinsurance and Administrative Services Agreement by and between American Heritage Life Insurance Company and Columbia Universal Life Insurance Company effective February 1, 1998. 8-K 000-31248 10.3 January 30, 2008 10.41 Novation and Assignment Agreement by and among Allstate Life Insurance Company, American Heritage Life Insurance Company and Columbia Universal Life Insurance Company effective June 30, 2004. 8-K 000-31248 10.2 January 30, 2008 10.42 Amendment to Reinsurance Agreement effective December 1, 2007, by and between American Heritage Life Insurance Company and Allstate Life Insurance Company. 8-K 000-31248 10.1 January 30, 2008 10.43 Reinsurance Agreement between Allstate Life Insurance Company and American Heritage Life Insurance Company effective December 31, 2004. 8-K 000-31248 10.2 January 9, 2008 10.44 Amendment No. 1 dated as of January 1, 2008 to Reinsurance Agreement between Allstate Life Insurance Company and American Heritage Life Insurance Company effective December 31, 2004. 8-K 000-31248 10.1 January 9, 2008 10.45 Amendment No. 2 dated and effective as of April 1, 2011 to Reinsurance Agreement between Allstate Life Insurance Company and American Heritage Life Insurance Company effective December 31, 2004. 10-Q 000-31248 10.4 August 5, 2011 10.46 Retrocessional Reinsurance Agreement between Allstate Life Insurance Company and American Heritage Life Insurance Company effective December 31, 2004. 10-K 000-31248 10.23 March 16, 2005 10.47 Reinsurance Agreement effective October 1, 2008 between American Heritage Life Insurance Company and Allstate Life Insurance Company. 8-K 000-31248 10.1 October 28, 2008 10.48 Reinsurance Agreement effective July 1, 2010 between Allstate Life Insurance Company and American Heritage Life Insurance Company. 8-K 000-31248 10.1 July 15, 2010 10.49 Amendment No. 1 dated and effective as of July 18, 2011 to Reinsurance Agreement effective July 1, 2010 between Allstate Life Insurance Company and American Heritage Life Insurance Company. 10-Q 000-31248 10.3 August 5, 2011 10.50 Reinsurance Agreement effective September 30, 2012 between Lincoln Benefit Life Company and Lincoln Benefit Reinsurance Company. 8-K 000-31248 10.1 October 3, 2012 10.51 Form of Tax Sharing Agreement by and among The Allstate Corporation and certain affiliates dated as of November 12, 1996. 10-K 000-31248 10.24 March 17, 2008 10.52 Agreement for the Settlement of State and Local Tax Credits among Allstate Insurance Company and certain of its affiliates, including Allstate Life Insurance Company effective January 1, 2007. 8-K 000-31248 10.1 February 21, 2008 23 Consent of Independent Registered Public Accounting Firm X 31(i) Rule 13a-14(a) Certification of Principal Executive Officer X 31(i) Rule 13a-14(a) Certification of Principal Financial Officer X 32 Section 1350 Certifications X 99 The Allstate Corporation Policy Regarding Pre-Approval of Independent Registered Public Accountant’s Services effective February 23, 2009. 10-K 000-31248 99 March 19, 2009 101.INS XBRL Instance Document X 101.SCH XBRL Taxonomy Extension Schema X 101.CAL XBRL Taxonomy Extension Calculation Linkbase X 101.DEF XBRL Taxonomy Extension Definition Linkbase X 101.LAB XBRL Taxonomy Extension Label Linkbase X 101.PRE XBRL Taxonomy Extension Presentation Linkbase XAllstate Life Insurance Company
Number
Number
Furnished
Herewith Incorporated by Reference Exhibit Description Form Exhibit Filing Date 3(i) Articles of Amendment to the Articles of Incorporation of Allstate Life Insurance Company dated December 29, 1999. 10 000-31248 3.1 April 24, 2002 3(ii) Amended and Restated By-Laws of Allstate Life Insurance Company effective March 15, 2007. 8-K 000-31248 3(ii) March 20, 2007 4 See Exhibits 3 (i) and 3 (ii). 10.2 Credit Agreement dated April 27, 2012 among The Allstate Corporation, Allstate Insurance Company and Allstate Life Insurance Company, as Borrowers; the Lenders party thereto, Wells Fargo Bank, National Association, as Syndication Agent; Citibank, N.A. and Bank of America, N.A., as Documentation Agents; and JPMorgan Chase Bank, N.A., as Administrative Agent. 10-Q 1-11840 10.6 May 2, 2012 10.3 Amendment No. 1 to Credit Agreement dated as of April 27, 2014 8-K 1-11840 10.1 April 29, 2014 10.4 Surplus Note Purchase Agreement between Allstate Life Insurance Company and Kennett Capital, Inc. effective, August 1, 2005. 10-Q 000-31248 10.2 November 7, 2005 10.5 Pledge and Security Agreement between Allstate Life Insurance Company and Kennett Capital, Inc. effective August 1, 2005. 10-Q 000-31248 10.3 November 7, 2005 10.6 Intercompany Loan Agreement between The Allstate Corporation, Allstate Life Insurance Company, and other certain subsidiaries of The Allstate Corporation effective February 1, 1996. 10-K 000-31248 10.24 March 13, 2007 10.7 Amended and Restated Intercompany Liquidity Agreement between Allstate Insurance Company, Allstate Life Insurance Company and The Allstate Corporation effective as of May 8, 2008. 10-Q 000-31248 10.2 May 14, 2008 10.8 Revolving Loan Credit Agreement, effective December 20, 2010 between American Heritage Life Insurance Company and Road Bay Investments, LLC. 8-K 000-31248 10.1 December 27, 2010 10.9 Pledge and Security Agreement, dated as of December 20, 2010, between Road Bay Investments, LLC and American Heritage Life Insurance Company securing obligations under the Revolving Loan Credit Agreement. 8-K 000-31248 10.2 December 27, 2010 10.10 Capital Support Agreement between Allstate Life Insurance Company and Allstate Insurance Company effective December 14, 2007. 8-K 000-31248 10.1 February 7, 2008 10.11 Form of Amended and Restated Service and Expense Agreement among Allstate Insurance Company, The Allstate Corporation and certain affiliates effective January 1, 2004. 10-K 000-31248 10.1 March 17, 2008 10.12 Form of Amendment No. 1 effective January 1, 2009 to Amended and Restated Service and Expense Agreement among Allstate Insurance Company, The Allstate Corporation and certain affiliates dated as of January 1, 2009. 8-K 000-31248 10.1 February 17, 2010 10.13 Letter Agreement among Allstate Insurance Company, The Allstate Corporation and certain affiliates, including Allstate Life Insurance Company, effective December 1, 2007. 8-K 000-31248 10.1 May 23, 2008 10.14 Addendum among Allstate Insurance Company and certain affiliates dated August 17, 2011 to Amended and Restated Service and Expense Agreement among Allstate Insurance Company, The Allstate Corporation and certain affiliates effective as of January 1, 2004, as amended by amendment No. 1 effective as of January 1, 2009. 10-K 000-31248 10.20 March 8, 2012 10.15 New York Insurer Supplement to Amended and Restated Service and Expense Agreement among Allstate Insurance Company, The Allstate Corporation, Allstate Life Insurance Company of New York and Intramerica Life Insurance Company, effective March 5, 2005. 10-Q 000-31248 10.2 August 8, 2005 10.16 Limited Servicing Agreement among Allstate Life Insurance Company, Allstate Distributors, L.L.C. and Allstate Financial Services, LLC effective October 1, 2002. 10-K 000-31248 10.40 March 17, 2008 10.17 Form of Investment Management Agreement among Allstate Investment Management Company, The Allstate Corporation and certain affiliates effective February 1, 2012. 8-K 000-31248 10.1 February 7, 2012 10.18 Form of Investment Management Agreement among Allstate Investments, LLC, Allstate Insurance Company, The Allstate Corporation and certain affiliates effective January 1, 2007. 10-K 000-31248 10.12 March 17, 2008 10.19 Investment Advisory Agreement and Amendment to Service Agreement as of January 1, 2002 between Allstate Insurance Company, Allstate Investments, LLC and Allstate Life Insurance Company of New York. 10 000-31248 10.31 April 24, 2002 10.20 Investment Management Agreement between Allstate Investments, LLC and ALIC Reinsurance Company, effective July 1, 2005. 10-Q 000-31248 10.1 November 7, 2005 10.21 Investment Management Agreement between Allstate Investments, LLC and ALIC Reinsurance Company effective as of March 31, 2008. 8-K 000-31248 10.1 December 23, 2008 10.22 Investment Advisory Agreement by and between Allstate Insurance Company and Intramerica Life Insurance Company effective July 1, 1999. 10 000-31248 10.29 April 24, 2002 10.23 Assignment and Assumption Agreement dated as of January 1, 2002 among Allstate Insurance Company, Allstate Investments, LLC and Intramerica Life Insurance Company. 10 000-31248 10.30 April 24, 2002 10.24 Assignment & Delegation of Administrative Services Agreements, Underwriting Agreements, and Selling Agreements entered into as of September 1, 2011 between ALFS, Inc., Allstate Life Insurance Company, Allstate Life Insurance Company of New York, Allstate Distributors, L.L.C., Charter National Life Insurance Company, Intramerica Life Insurance Company, Allstate Financial Services, LLC, and Lincoln Benefit Life Company. 8-K 000-31248 10.1 September 1, 2011 10.25 Selling Agreement by and among Allstate Life Insurance Company, Allstate Distributors, L.L.C. (ALFS, Inc., f/k/a Allstate Life Financial Services, Inc., merged with and into Allstate Distributors, L.L.C. effective September 1, 2011) and Allstate Financial Services, LLC (f/k/a LSA Securities, Inc.) effective July 26, 1999. 10-K 000-31248 10.6 March 26, 2004 10.26 Amendment effective August 1, 1999 to Selling Agreement between Allstate Life Insurance Company, Allstate Distributors, L.L.C. (ALFS, Inc. merged with and into Allstate Distributors, L.L.C. effective September 1, 2011) and Allstate Financial Services, LLC effective July 26, 1999. 10-Q 000-31248 10.1 November 10, 2004 10.27 Amendment effective September 28, 2001 to Selling Agreement between Allstate Life Insurance Company, Allstate Distributors, L.L.C. (ALFS, Inc. merged with and into Allstate Distributors, L.L.C. effective September 1, 2011) and Allstate Financial Services, LLC effective July 26, 1999. 10-Q 000-31248 10.2 November 10, 2004 10.28 Amendment effective February 15, 2002 to Selling Agreement between Allstate Life Insurance Company, Allstate Distributors, L.L.C. (ALFS, Inc. merged with and into Allstate Distributors, L.L.C. effective September 1, 2011) and Allstate Financial Services, LLC effective July 26, 1999. 10-Q 000-31248 10.3 November 10, 2004 10.29 Amendment effective April 21, 2003 to Selling Agreement between Allstate Life Insurance Company, Allstate Distributors, L.L.C. (ALFS, Inc. merged with and into Allstate Distributors, L.L.C. effective September 1, 2011) and Allstate Financial Services, LLC effective July 26, 1999. 10-Q 000-31248 10.4 November 10, 2004 10.30 Selling Agreement and Addenda to Agreement between Allstate Life Insurance Company as successor in interest to Glenbrook Life and Annuity Company, Allstate Distributors, L.L.C. (ALFS, Inc. merged with and into Allstate Distributors, L.L.C. effective September 1, 2011) and Allstate Financial Services, LLC effective May 17, 2001, December 31, 2001 and November 18, 2002, respectively. 10-K 000-31248 10.39 March 17, 2008 10.31 Selling Agreement by and among Allstate Life Insurance Company of New York, Allstate Distributors, L.L.C. (ALFS, Inc. merged with and into Allstate Distributors, L.L.C. effective September 1, 2011) and Allstate Financial Services, LLC effective May 1, 2005. 10-K 000-31248 10.7 March 26, 2004 10.32 Selling Agreement by and between Lincoln Benefit Life Company, Allstate Distributors, L.L.C. (ALFS, Inc. merged with and into Allstate Distributors, L.L.C. effective September 1, 2011) and Allstate Financial Services, LLC effective August 2, 1999. 10-K 000-31248 10.8 March 26, 2004 10.33 Marketing Coordination and Administrative Services Agreement among Allstate Insurance Company, Allstate Life Insurance Company and Allstate Financial Services, LLC effective January 1, 2003. 10-K 000-31248 10.9 March 26, 2004 10.34 First Amendment to Marketing Coordination and Administrative Services Agreement by and among Allstate Life Insurance Company, Allstate Financial Services, LLC and Allstate Insurance Company effective January 1, 2006. 10-Q 000-31248 10.1 August 8, 2006 10.35 Marketing Agreement by and among Allstate Life Insurance Company as successor in interest to Glenbrook Life and Annuity Company, Allstate Distributors, L.L.C. (ALFS, Inc. merged with and into Allstate Distributors, L.L.C. effective September 1, 2011) and Allstate Financial Services, LLC effective June 10, 2003. 10-K 000-31248 10.41 March 17, 2008 10.36 Reinsurance and Administrative Services Agreement by and between American Heritage Life Insurance Company and Columbia Universal Life Insurance Company effective February 1, 1998. 8-K 000-31248 10.3 January 30, 2008 10.37 Novation and Assignment Agreement by and among Allstate Life Insurance Company, American Heritage Life Insurance Company and Columbia Universal Life Insurance Company effective June 30, 2004. 8-K 000-31248 10.2 January 30, 2008 10.38 Amendment to Reinsurance Agreement effective December 1, 2007, by and between American Heritage Life Insurance Company and Allstate Life Insurance Company. 8-K 000-31248 10.1 January 30, 2008 10.39 Reinsurance Agreement between Allstate Life Insurance Company and American Heritage Life Insurance Company effective December 31, 2004. 8-K 000-31248 10.2 January 9, 2008 10.40 Amendment No. 1 dated as of January 1, 2008 to Reinsurance Agreement between Allstate Life Insurance Company and American Heritage Life Insurance Company effective December 31, 2004. 8-K 000-31248 10.1 January 9, 2008 10.41 Amendment No. 2 dated and effective as of April 1, 2011 to Reinsurance Agreement between Allstate Life Insurance Company and American Heritage Life Insurance Company effective December 31, 2004. 10-Q 000-31248 10.4 August 5, 2011 10.42 Retrocessional Reinsurance Agreement between Allstate Life Insurance Company and American Heritage Life Insurance Company effective December 31, 2004. 10-K 000-31248 10.23 March 16, 2005 10.43 Reinsurance Agreement effective October 1, 2008 between American Heritage Life Insurance Company and Allstate Life Insurance Company. 8-K 000-31248 10.1 October 28, 2008 10.44 Reinsurance Agreement effective July 1, 2010 between Allstate Life Insurance Company and American Heritage Life Insurance Company. 8-K 000-31248 10.1 July 15, 2010 10.45 Amendment No. 1 dated and effective as of July 18, 2011 to Reinsurance Agreement effective July 1, 2010 between Allstate Life Insurance Company and American Heritage Life Insurance Company. 10-Q 000-31248 10.3 August 5, 2011 10.46 Reinsurance Agreement effective September 30, 2012 between Lincoln Benefit Life Company and Lincoln Benefit Reinsurance Company. 8-K 000-31248 10.1 October 3, 2012 10.47 Form of Tax Sharing Agreement by and among The Allstate Corporation and certain affiliates dated as of November 12, 1996. 10-K 000-31248 10.24 March 17, 2008 10.48 Agreement for the Settlement of State and Local Tax Credits among Allstate Insurance Company and certain of its affiliates, including Allstate Life Insurance Company effective January 1, 2007. 8-K 000-31248 10.1 February 21, 2008 10.49 Stock Purchase Agreement, dated July 17, 2013, among the Registrant, Resolution Life Holdings, Inc., and Resolution Life L.P. 8-K 1-11840 10.1 July 22, 2013 10.50 Amended and Restated Reinsurance Agreement, dated April 1, 2014, between the Registrant and Lincoln Benefit Life Company 8-K 1-11840 10.1 April 7, 2014 10.51 Partial Commutation Agreement, dated April 1, 2014, between the Registrant and Lincoln Benefit Life Company 8-K 1-11840 10.2 April 7, 2014 23 Consent of Independent Registered Public Accounting Firm X 31(i) Rule 13a-14(a) Certification of Principal Executive Officer X 31(i) Rule 13a-14(a) Certification of Principal Financial Officer X 32 Section 1350 Certifications X 99 The Allstate Corporation Policy Regarding Pre-Approval of Independent Registered Public Accountant’s Services effective February 23, 2009. 10-K 000-31248 99 March 19, 2009 101.INS XBRL Instance Document X 101.SCH XBRL Taxonomy Extension Schema X 101.CAL XBRL Taxonomy Extension Calculation Linkbase X 101.DEF XBRL Taxonomy Extension Definition Linkbase X 101.LAB XBRL Taxonomy Extension Label Linkbase X 101.PRE XBRL Taxonomy Extension Presentation Linkbase X 108
SIGNATURES
| ALLSTATE LIFE INSURANCE COMPANY | ||
(Registrant) | ||
/s/ Samuel H. Pilch | ||
By: Samuel H. Pilch | ||
(Senior Group Vice President and Controller) | ||
March | ||
|
|
| ||||
Signature | Title | Date | ||||
| /s/ Don Civgin | President, Chief Executive Officer | March 4, 2015 | ||||
Don Civgin | and a Director (Principal Executive Officer) |
| ||||
/s/ Jesse E. Merten | Senior Vice President, Chief Financial | March 4, 2015 | ||||
Jesse E. Merten | Officer and a Director (Principal Financial Officer) |
| ||||
/s/ Thomas J. Wilson | Chairman of the Board and a Director | March | ||||
Thomas J. Wilson | ||||||
/s/ | Director |
| March | |||
| ||||||
|
|
| ||||
| ||||||
/s/ Angela K. Fontana | Director |
| March | |||
Angela K. Fontana | ||||||
/s/ Judith P. Greffin | Director |
| March | |||
Judith P. Greffin | ||||||
/s/ Wilford J. Kavanaugh | Director |
| March | |||
Wilford J. Kavanaugh | ||||||
/s/ Harry R. Miller | Director | March 4, 2015 | ||||
| Harry R. Miller | ||||||
| /s/ Samuel H. Pilch | Director |
| March | |||
Samuel H. Pilch | ||||||
/s/ John C. Pintozzi | Director |
| March | |||
John C. Pintozzi | ||||||
/s/ Steven E. Shebik | Director |
| March | |||
Steven E. Shebik | ||||||
/s/ Matthew E. Winter | Director |
| March | |||
Matthew E. Winter | ||||||
ALLSTATE LIFE INSURANCE COMPANY AND SUBSIDIARIES
($ in millions) |
| Cost/ |
| Fair |
| Amount at |
|
Type of investment |
|
|
|
|
|
|
|
Fixed maturities: |
|
|
|
|
|
|
|
Bonds: |
|
|
|
|
|
|
|
United States government, government agencies and authorities | $ | 2,137 | $ | 2,379 | $ | 2,379 |
|
States, municipalities and political subdivisions |
| 4,153 |
| 4,704 |
| 4,704 |
|
Foreign governments |
| 1,017 |
| 1,180 |
| 1,180 |
|
Public utilities |
| 6,175 |
| 6,934 |
| 6,934 |
|
Convertibles and bonds with warrants attached |
| 401 |
| 358 |
| 358 |
|
All other corporate bonds |
| 22,172 |
| 24,239 |
| 24,239 |
|
Asset-backed securities |
| 1,921 |
| 1,865 |
| 1,865 |
|
Residential mortgage-backed securities |
| 1,778 |
| 1,791 |
| 1,791 |
|
Commercial mortgage-backed securities |
| 1,425 |
| 1,408 |
| 1,408 |
|
Redeemable preferred stocks |
| 15 |
| 18 |
| 18 |
|
Total fixed maturities |
| 41,194 | $ | 44,876 |
| 44,876 |
|
|
|
|
|
|
|
|
|
Equity securities: |
|
|
|
|
|
|
|
Common stocks: |
|
|
|
|
|
|
|
Industrial, miscellaneous and all other |
| 310 | $ | 345 |
| 345 |
|
|
|
|
|
|
|
|
|
Mortgage loans on real estate |
| 5,943 | $ | 6,223 |
| 5,943 |
|
Real estate (includes $34 acquired in satisfaction of debt) |
| 62 |
|
|
| 62 |
|
Policy loans |
| 836 |
|
|
| 836 |
|
Derivative instruments |
| 127 | $ | 129 |
| 129 |
|
Limited partnership interests |
| 1,924 |
|
|
| 1,924 |
|
Other long-term investments |
| 876 |
|
|
| 876 |
|
Short-term investments |
| 875 | $ | 875 |
| 875 |
|
Total investments | $ | 52,147 |
|
| $ | 55,866 |
|
2014
| ($ in millions) | Cost/ amortized cost | Fair value | Amount at which shown in the Balance Sheet | ||||||||
| Type of investment | |||||||||||
| Fixed maturities: | |||||||||||
| Bonds: | |||||||||||
| United States government, government agencies and authorities | $ | 668 | $ | 770 | $ | 770 | |||||
| States, municipalities and political subdivisions | 3,156 | 3,662 | 3,662 | ||||||||
| Foreign governments | 654 | 735 | 735 | ||||||||
| Public utilities | 3,736 | 4,235 | 4,235 | ||||||||
| Convertibles and bonds with warrants attached | 178 | 156 | 156 | ||||||||
| All other corporate bonds | 15,551 | 16,594 | 16,594 | ||||||||
| Asset-backed securities | 773 | 765 | 765 | ||||||||
| Residential mortgage-backed securities | 554 | 605 | 605 | ||||||||
| Commercial mortgage-backed securities | 538 | 579 | 579 | ||||||||
| Redeemable preferred stocks | 14 | 16 | 16 | ||||||||
| Total fixed maturities | 25,822 | $ | 28,117 | 28,117 | |||||||
| Equity securities: | |||||||||||
| Common stocks: | |||||||||||
| Public utilities | 24 | $ | 24 | 24 | |||||||
| Banks, trusts and insurance companies | 177 | 177 | 177 | ||||||||
| Industrial, miscellaneous and all other | 701 | 743 | 743 | ||||||||
| Nonredeemable preferred stocks | 25 | 26 | 26 | ||||||||
| Total equity securities | 927 | $ | 970 | 970 | |||||||
| Mortgage loans on real estate | 3,686 | $ | 3,922 | 3,686 | |||||||
| Real estate (includes $5 acquired in satisfaction of debt) | 32 | 32 | |||||||||
| Policy loans | 616 | 616 | |||||||||
| Derivative instruments | 87 | $ | 90 | 90 | |||||||
| Limited partnership interests | 2,024 | 2,024 | |||||||||
| Other long-term investments | 1,074 | 1,074 | |||||||||
| Short-term investments | 857 | $ | 857 | 857 | |||||||
| Total investments | $ | 35,125 | $ | 37,466 | |||||||
ALLSTATE LIFE INSURANCE COMPANY AND SUBSIDIARIES
($ in millions) |
| Gross |
| Ceded to |
| Assumed |
| Net |
| Percentage |
Year ended December 31, 2012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life insurance in force | $ | 505,436 | $ | 208,967 | $ | 28,211 | $ | 324,680 |
| 8.7% |
|
|
|
|
|
|
|
|
|
|
|
Premiums and contract charges: |
|
|
|
|
|
|
|
|
|
|
Life insurance | $ | 1,978 | $ | 550 | $ | 95 | $ | 1,523 |
| 6.2% |
|
|
|
|
|
|
|
|
|
|
|
Accident and health insurance |
| 143 |
| 104 |
| 60 |
| 99 |
| 60.6% |
|
|
|
|
|
|
|
|
|
|
|
Total premiums and contract charges | $ | 2,121 | $ | 654 | $ | 155 | $ | 1,622 |
| 9.6% |
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life insurance in force | $ | 504,176 | $ | 221,372 | $ | 22,108 | $ | 304,912 |
| 7.3% |
|
|
|
|
|
|
|
|
|
|
|
Premiums and contract charges: |
|
|
|
|
|
|
|
|
|
|
Life insurance | $ | 2,072 | $ | 610 | $ | 72 | $ | 1,534 |
| 4.7% |
|
|
|
|
|
|
|
|
|
|
|
Accident and health insurance |
| 157 |
| 120 |
| 61 |
| 98 |
| 62.2% |
|
|
|
|
|
|
|
|
|
|
|
Total premiums and contract charges | $ | 2,229 | $ | 730 | $ | 133 | $ | 1,632 |
| 8.1% |
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Life insurance in force | $ | 507,645 | $ | 237,626 | $ | 22,879 | $ | 292,898 |
| 7.8% |
|
|
|
|
|
|
|
|
|
|
|
Premiums and contract charges: |
|
|
|
|
|
|
|
|
|
|
Life insurance | $ | 2,063 | $ | 647 | $ | 71 | $ | 1,487 |
| 4.8% |
|
|
|
|
|
|
|
|
|
|
|
Accident and health insurance |
| 167 |
| 129 |
| 58 |
| 96 |
| 60.4% |
|
|
|
|
|
|
|
|
|
|
|
Total premiums and contract charges | $ | 2,230 | $ | 776 | $ | 129 | $ | 1,583 |
| 8.1% |
____________________
(1) No reinsurance or coinsurance income was netted against premiums ceded in 2012, 2011 or 2010.
| ($ in millions) | Gross amount | Ceded to other companies (1) | Assumed from other companies | Net amount | Percentage of amount assumed to net | |||||||||||||
| Year ended December 31, 2014 | ||||||||||||||||||
| Life insurance in force | $ | 119,024 | $ | 97,574 | $ | 305,313 | $ | 326,763 | 93.4 | % | ||||||||
| Premiums and contract charges: | ||||||||||||||||||
| Life insurance | $ | 1,022 | $ | 353 | $ | 674 | $ | 1,343 | 50.2 | % | ||||||||
| Accident and health insurance | 62 | 39 | 70 | 93 | 75.3 | % | ||||||||||||
| Total premiums and contract charges | $ | 1,084 | $ | 392 | $ | 744 | $ | 1,436 | 51.8 | % | ||||||||
| Year ended December 31, 2013 | ||||||||||||||||||
| Life insurance in force | $ | 512,105 | $ | 195,414 | $ | 28,060 | $ | 344,751 | 8.1 | % | ||||||||
| Premiums and contract charges: | ||||||||||||||||||
| Life insurance | $ | 1,969 | $ | 532 | $ | 125 | $ | 1,562 | 8.0 | % | ||||||||
| Accident and health insurance | 124 | 86 | 67 | 105 | 63.8 | % | ||||||||||||
| Total premiums and contract charges | $ | 2,093 | $ | 618 | $ | 192 | $ | 1,667 | 11.5 | % | ||||||||
| Year ended December 31, 2012 | ||||||||||||||||||
| Life insurance in force | $ | 505,436 | $ | 208,967 | $ | 28,211 | $ | 324,680 | 8.7 | % | ||||||||
| Premiums and contract charges: | ||||||||||||||||||
| Life insurance | $ | 1,978 | $ | 550 | $ | 95 | $ | 1,523 | 6.2 | % | ||||||||
| Accident and health insurance | 143 | 104 | 60 | 99 | 60.6 | % | ||||||||||||
| Total premiums and contract charges | $ | 2,121 | $ | 654 | $ | 155 | $ | 1,622 | 9.6 | % | ||||||||
(1) | No reinsurance or coinsurance income was netted against premium ceded in 2014, 2013 or 2012. |
ALLSTATE LIFE INSURANCE COMPANY AND SUBSIDIARIES
($ in millions) |
|
|
| Additions |
|
|
|
| |||
Description |
| Balance as |
| Charged |
| Other |
| Deductions |
| Balance | |
|
|
|
|
|
|
|
|
|
|
| |
Year ended December 31, 2012 |
|
|
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|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for estimated losses on mortgage loans | $ | 63 | $ | (5 | ) | $ | -- | $ | 16 | $ | 42 |
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for estimated losses on mortgage loans | $ | 84 | $ | 33 |
| $ | -- | $ | 54 | $ | 63 |
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for estimated losses on mortgage loans | $ | 94 | $ | 65 |
| $ | -- | $ | 75 | $ | 84 |
| ($ in millions) | Additions | ||||||||||||||||||
| Description | Balance as of beginning of period | Charged to costs and expenses | Other additions | Deductions | Balance as of end of period | ||||||||||||||
| Year ended December 31, 2014 | |||||||||||||||||||
| Allowance for estimated losses on mortgage loans | $ | 21 | $ | (5 | ) | $ | — | $ | 8 | $ | 8 | ||||||||
| Year ended December 31, 2013 | |||||||||||||||||||
| Allowance for estimated losses on mortgage loans | $ | 42 | $ | (11 | ) | $ | — | $ | 10 | $ | 21 | ||||||||
| Year ended December 31, 2012 | |||||||||||||||||||
| Allowance for estimated losses on mortgage loans | $ | 63 | $ | (5 | ) | $ | — | $ | 16 | $ | 42 | ||||||||