x
|
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
|
¨
|
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
|
Indiana
|
35-1140070
|
(State or other jurisdiction of
incorporation or organization)
|
(I.R.S. Employer
Identification No.)
|
150 N. Radnor Chester Road, Suite A305, Radnor, Pennsylvania
|
19087
|
(Address of principal executive offices)
|
(Zip Code)
|
Item
|
Page
|
||||
PART I
|
|||||
1.
|
Financial Statements
|
1 | |||
2.
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations
|
48 | |||
Forward-Looking Statements – Cautionary Language
|
48 | ||||
Introduction
|
49 | ||||
Executive Summary
|
49 | ||||
Critical Accounting Policies and Estimates
|
50 | ||||
Acquisitions and Dispositions
|
53 | ||||
Results of Consolidated Operations
|
53 | ||||
Results of Annuities
|
55 | ||||
Results of Retirement Plan Services
|
61 | ||||
Results of Life Insurance
|
67 | ||||
Results of Group Protection
|
74 | ||||
Results of Other Operations
|
77 | ||||
Realized Gain (Loss) and Benefit Ratio Unlocking
|
79 | ||||
Consolidated Investments
|
81 | ||||
Review of Consolidated Financial Condition
|
96 | ||||
Liquidity and Capital Resources
|
96 | ||||
Other Matters
|
100 | ||||
Other Factors Affecting Our Business
|
100 | ||||
Recent Accounting Pronouncements
|
100 | ||||
3.
|
Quantitative and Qualitative Disclosures About Market Risk
|
100 | |||
4.
|
Controls and Procedures
|
104 | |||
PART II
|
|||||
1.
|
Legal Proceedings
|
104 | |||
1A.
|
Risk Factors
|
104 | |||
2.
|
Unregistered Sales of Equity Securities and Use of Proceeds
|
105 | |||
6.
|
Exhibits
|
105 | |||
Signatures
|
106 | ||||
Exhibit Index for the Report on Form 10-Q
|
E-1 |
|
|
|
|
|
|
As of
|
As of
|
||||
|
|
|
|
|
|
September 30,
|
December 31,
|
||||
|
|
|
|
|
2012
|
2011
|
|||||
|
|
|
|
|
|
(Unaudited)
|
|
|
|||
ASSETS
|
|
|
|
|
|||||||
Investments:
|
|
|
|
|
|||||||
|
Available-for-sale securities, at fair value:
|
|
|
|
|
||||||
|
|
Fixed maturity securities (amortized cost: 2012 - $71,778; 2011 - $68,988)
|
$
|
81,179
|
$
|
75,433
|
|||||
|
|
Variable interest entities' fixed maturity securities (amortized cost: 2012 - $676; 2011 - $673)
|
|
706
|
|
700
|
|||||
|
|
Equity securities (cost: 2012 - $143; 2011 - $135)
|
|
156
|
|
139
|
|||||
|
Trading securities
|
|
2,650
|
|
2,675
|
||||||
|
Mortgage loans on real estate
|
|
6,690
|
|
6,942
|
||||||
|
Real estate
|
|
112
|
|
137
|
||||||
|
Policy loans
|
|
2,780
|
|
2,884
|
||||||
|
Derivative investments
|
|
3,072
|
|
3,151
|
||||||
|
Other investments
|
|
1,123
|
|
1,069
|
||||||
|
|
|
Total investments
|
|
98,468
|
|
93,130
|
||||
Cash and invested cash
|
|
4,373
|
|
4,510
|
|||||||
Deferred acquisition costs and value of business acquired
|
|
5,813
|
|
6,776
|
|||||||
Premiums and fees receivable
|
|
366
|
|
408
|
|||||||
Accrued investment income
|
|
1,067
|
|
981
|
|||||||
Reinsurance recoverables
|
|
6,424
|
|
6,526
|
|||||||
Funds withheld reinsurance assets
|
|
846
|
|
874
|
|||||||
Goodwill
|
|
2,273
|
|
2,273
|
|||||||
Other assets
|
|
2,502
|
|
2,536
|
|||||||
Separate account assets
|
|
93,326
|
|
83,477
|
|||||||
|
|
|
|
Total assets |
$
|
215,458
|
$
|
201,491
|
|||
|
|
|
|
|
|
|
|
|
|||
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|||||||
Liabilities
|
|
|
|
|
|||||||
Future contract benefits
|
$
|
19,232
|
$
|
19,813
|
|||||||
Other contract holder funds
|
|
70,706
|
|
69,466
|
|||||||
Short-term debt
|
|
200
|
|
300
|
|||||||
Long-term debt
|
|
5,494
|
|
5,391
|
|||||||
Reinsurance related embedded derivatives
|
|
215
|
|
168
|
|||||||
Funds withheld reinsurance liabilities
|
|
987
|
|
1,045
|
|||||||
Deferred gain on business sold through reinsurance
|
|
338
|
|
394
|
|||||||
Payables for collateral on investments
|
|
4,566
|
|
3,733
|
|||||||
Variable interest entities' liabilities
|
|
121
|
|
193
|
|||||||
Other liabilities
|
|
5,036
|
|
4,273
|
|||||||
Separate account liabilities
|
|
93,326
|
|
83,477
|
|||||||
|
|
|
|
Total liabilities
|
|
200,221
|
|
188,253
|
|||
|
|
|
|
|
|
|
|
|
|
||
Contingencies and Commitments (See Note 9)
|
|
|
|
|
|||||||
|
|
|
|
|
|
|
|
|
|
||
Stockholders' Equity
|
|
|
|
|
|||||||
Preferred stock - 10,000,000 shares authorized; Series A - 9,532 and 10,072 sharesissued and outstanding as of September 30, 2012, and December 31, 2011, respectively
|
|
-
|
|
-
|
|||||||
Common stock - 800,000,000 shares authorized; 275,073,618 and 291,319,222 shares issued and outstanding as of September 30, 2012, and December 31, 2011, respectively
|
|
7,214
|
|
7,590
|
|||||||
Retained earnings
|
|
3,873
|
|
2,969
|
|||||||
Accumulated other comprehensive income (loss)
|
|
4,150
|
|
2,679
|
|||||||
|
|
|
|
Total stockholders' equity
|
|
15,237
|
|
13,238
|
|||
|
|
|
|
|
Total liabilities and stockholders' equity
|
$
|
215,458
|
$
|
201,491
|
|
|
|
|
|
|
|
For the Three
|
|
For the Nine
|
|||||||||
|
|
|
|
|
|
|
Months Ended
|
|
Months Ended
|
|||||||||
|
|
|
|
|
|
|
September 30,
|
|
September 30,
|
|||||||||
|
|
|
|
|
|
|
2012
|
|
2011
|
|
2012
|
|
2011
|
|||||
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Insurance premiums
|
$
|
606
|
|
$
|
559
|
|
$
|
1,825
|
|
$
|
1,721
|
|||||||
Insurance fees
|
|
990
|
|
|
864
|
|
|
2,784
|
|
|
2,582
|
|||||||
Net investment income
|
|
1,146
|
|
|
1,151
|
|
|
3,509
|
|
|
3,522
|
|||||||
Realized gain (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
|
Total other-than-temporary impairment losses on securities
|
|
(47
|
)
|
|
(44
|
)
|
|
(194
|
)
|
|
(135
|
) | |||||
|
Portion of loss recognized in other comprehensive income
|
|
15
|
|
|
18
|
|
|
82
|
|
|
37
|
||||||
|
|
Net other-than-temporary impairment losses on securitiesrecognized in earnings
|
|
(32
|
)
|
|
(26
|
)
|
|
(112
|
)
|
|
(98
|
) | ||||
|
|
Realized gain (loss), excluding other-than-temporaryimpairment losses on securities
|
|
102
|
|
|
(137
|
)
|
|
140
|
|
|
(72
|
) | ||||
|
|
|
Total realized gain (loss) |
|
70
|
|
|
(163
|
)
|
|
28
|
|
|
(170
|
) | |||
Amortization of deferred gain on business sold through reinsurance
|
|
19
|
|
|
19
|
|
|
56
|
|
|
56
|
|||||||
Other revenues and fees
|
|
123
|
|
|
117
|
|
|
366
|
|
|
362
|
|||||||
|
|
Total revenues
|
|
2,954
|
|
|
2,547
|
|
|
8,568
|
|
|
8,073
|
|||||
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Interest credited
|
|
610
|
|
|
625
|
|
|
1,851
|
|
|
1,864
|
|||||||
Benefits
|
|
811
|
|
|
664
|
|
|
2,615
|
|
|
2,527
|
|||||||
Commissions and other expenses
|
|
1,047
|
|
|
1,024
|
|
|
2,731
|
|
|
2,467
|
|||||||
Interest and debt expense
|
|
68
|
|
|
79
|
|
|
203
|
|
|
223
|
|||||||
|
Total expenses
|
|
2,536
|
|
|
2,392
|
|
|
7,400
|
|
|
7,081
|
||||||
|
|
Income (loss) from continuing operations before taxes
|
|
418
|
|
|
155
|
|
|
1,168
|
|
|
992
|
|||||
|
|
Federal income tax expense (benefit)
|
|
45
|
|
|
(6
|
)
|
|
224
|
|
|
214
|
|||||
|
|
|
Income (loss) from continuing operations
|
|
373
|
|
|
161
|
|
|
944
|
|
|
778
|
||||
|
|
|
Income (loss) from discontinued operations, net of federalincome taxes
|
|
29
|
|
|
(8
|
)
|
|
27
|
|
|
(8
|
) | |||
|
|
|
|
Net income (loss) |
|
402
|
|
|
153
|
|
|
971
|
|
|
770
|
|||
|
|
|
|
Other comprehensive income (loss), net of tax |
|
771
|
|
|
1,437
|
|
|
1,471
|
|
|
1,813
|
|||
|
|
|
|
|
Comprehensive income (loss) |
$
|
1,173
|
|
$
|
1,590
|
|
$
|
2,442
|
|
$
|
2,583
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (Loss) Per Common Share - Basic
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Income (loss) from continuing operations
|
$
|
1.35
|
|
$
|
0.53
|
|
$
|
3.33
|
|
$
|
2.51
|
|||||||
Income (loss) from discontinued operations
|
|
0.10
|
|
|
(0.03
|
)
|
|
0.10
|
|
|
(0.03
|
) | ||||||
|
Net income (loss)
|
$
|
1.45
|
|
$
|
0.50
|
|
$
|
3.43
|
|
$
|
2.48
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (Loss) Per Common Share - Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Income (loss) from continuing operations
|
$
|
1.31
|
|
$
|
0.50
|
|
$
|
3.26
|
|
$
|
2.43
|
|||||||
Income (loss) from discontinued operations
|
|
0.10
|
|
|
(0.03
|
)
|
|
0.09
|
|
|
(0.03
|
) | ||||||
|
Net income (loss)
|
$
|
1.41
|
|
$
|
0.47
|
|
$
|
3.35
|
|
$
|
2.40
|
|
For the Nine
|
|||||||
|
Months Ended
|
|||||||
|
September 30,
|
|||||||
|
2012
|
2011
|
||||||
|
|
|
||||||
Common Stock |
|
|
||||||
Balance as of beginning-of-year | $ | 7,590 | $ | 8,124 | ||||
Stock compensation/issued for benefit plans | 24 | 13 | ||||||
Retirement of common stock/cancellation of shares | (400 | ) | (345 | ) | ||||
Balance as of end-of-period | 7,214 | 7,792 | ||||||
|
||||||||
Retained Earnings | ||||||||
Balance as of beginning-of-year | 2,969 | 3,934 | ||||||
Cumulative effect from adoption of new accounting standards | - | (1,095 | ) | |||||
Net income (loss) | 971 | 770 | ||||||
Retirement of common stock | - | (30 | ) | |||||
Dividends declared: Common (2012 - $0.240; 2011 - $0.150) | (67 | ) | (48 | ) | ||||
Balance as of end-of-period | 3,873 | 3,531 | ||||||
|
||||||||
Accumulated Other Comprehensive Income (Loss) | ||||||||
Balance as of beginning-of-year | 2,679 | 748 | ||||||
Cumulative effect from adoption of new accounting standards | - | 103 | ||||||
Other comprehensive income (loss), net of tax | 1,471 | 1,813 | ||||||
Balance as of end-of-period | 4,150 | 2,664 | ||||||
Total stockholders' equity as of end-of-period
|
$ | 15,237 | $ | 13,987 |
|
For the Nine
|
|||||||
|
Months Ended
|
|||||||
|
September 30,
|
|||||||
|
2012
|
2011
|
||||||
Cash Flows from Operating Activities |
|
|
||||||
Net income (loss) | $ | 971 | $ | 770 | ||||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||||||||
Deferred acquisition costs, value of business acquired, deferred sales inducements and deferred front-end loads deferrals and interest, net of amortization | (96 | ) | (44 | ) | ||||
Trading securities purchases, sales and maturities, net | 124 | 33 | ||||||
Change in premiums and fees receivable | 42 | (48 | ) | |||||
Change in accrued investment income | (86 | ) | (90 | ) | ||||
Change in future contract benefits and other contract holder funds | (264 | ) | 141 | |||||
Change in reinsurance related assets and liabilities | 71 | (210 | ) | |||||
Change in federal income tax accruals | 44 | 255 | ||||||
Realized (gain) loss | (28 | ) | 170 | |||||
(Gain) loss on early extinguishment of debt | - | 8 | ||||||
Amortization of deferred gain on business sold through reinsurance | (56 | ) | (56 | ) | ||||
(Gain) loss on disposal of discontinued operations | 1 | 3 | ||||||
Other | (57 | ) | 2 | |||||
Net cash provided by (used in) operating activities
|
666 | 934 | ||||||
|
||||||||
Cash Flows from Investing Activities | ||||||||
Purchases of available-for-sale securities | (8,437 | ) | (8,540 | ) | ||||
Sales of available-for-sale securities | 965 | 1,274 | ||||||
Maturities of available-for-sale securities | 4,471 | 3,988 | ||||||
Purchases of other investments | (1,418 | ) | (2,202 | ) | ||||
Sales or maturities of other investments | 1,622 | 2,336 | ||||||
Increase (decrease) in payables for collateral on investments | 833 | 2,196 | ||||||
Other | (103 | ) | (63 | ) | ||||
Net cash provided by (used in) investing activities
|
(2,067 | ) | (1,011 | ) | ||||
|
||||||||
Cash Flows from Financing Activities | ||||||||
Payment of long-term debt, including current maturities | (300 | ) | (275 | ) | ||||
Issuance of long-term debt, net of issuance costs | 300 | 298 | ||||||
Increase (decrease) in commercial paper, net | - | (100 | ) | |||||
Deposits of fixed account values, including the fixed portion of variable | 7,612 | 8,187 | ||||||
Withdrawals of fixed account values, including the fixed portion of variable | (4,103 | ) | (3,750 | ) | ||||
Transfers to and from separate accounts, net | (1,775 | ) | (1,763 | ) | ||||
Common stock issued for benefit plans and excess tax benefits | (3 | ) | (6 | ) | ||||
Repurchase of common stock | (400 | ) | (375 | ) | ||||
Dividends paid to common and preferred stockholders | (67 | ) | (48 | ) | ||||
Net cash provided by (used in) financing activities
|
1,264 | 2,168 | ||||||
|
||||||||
Net increase (decrease) in cash and invested cash, including discontinued operations | (137 | ) | 2,091 | |||||
Cash and invested cash, including discontinued operations, as of beginning-of-year | 4,510 | 2,741 | ||||||
Cash and invested cash, including discontinued operations, as of end-of-period | $ | 4,373 | $ | 4,832 |
|
|
|
|
As of December 31,
|
|
||||
|
|
|
|
2011
|
|
2010
|
|
||
Assets
|
|
|
|
|
|
|
|||
Deferred acquisition costs
|
$
|
(1,415
|
)
|
$
|
(1,516
|
)
|
|||
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders' Equity
|
|
|
|
|
|
|
|||
Other liabilities - deferred income taxes
|
$
|
(490
|
)
|
$
|
(524
|
)
|
|||
|
|
|
|
|
|
|
|
|
|
Stockholders' equity:
|
|
|
|
|
|
|
|||
|
Retained earnings
|
|
(1,157
|
)
|
|
(1,095
|
)
|
||
|
Accumulated other comprehensive income (loss)
|
|
232
|
|
|
103
|
|
||
|
|
Total stockholders' equity
|
|
(925
|
)
|
|
(992
|
)
|
|
|
|
|
Total liabilities and stockholders' equity
|
$
|
(1,415
|
)
|
$
|
(1,516
|
)
|
|
|
|
For the Three
|
|
For the Nine
|
|||
|
|
|
Months
|
|
Months
|
|||
|
|
|
Ended
|
|
Ended
|
|||
|
|
|
September 30,
|
|
September 30,
|
|||
|
|
|
2011
|
|
2011
|
|||
Revenues
|
|
|
|
|
|
|||
Realized gain (loss)
|
$
|
-
|
|
$
|
8
|
|||
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|||
Commissions and other expenses
|
|
15
|
|
|
(66
|
) | ||
|
Income (loss) from continuing operations before taxes
|
|
15
|
|
|
(58
|
) | |
|
Federal income tax expense (benefit)
|
|
(5
|
)
|
|
20
|
||
|
|
Income (loss) from continuing operations
|
$
|
10
|
|
$
|
(38
|
) |
|
|
|
|
|
|
|
|
|
Earnings (Loss) Per Common Share - Basic
|
$
|
0.03
|
|
$
|
(0.12
|
) | ||
|
|
|
|
|
|
|
|
|
Earnings (Loss) Per Common Share - Diluted
|
$
|
0.03
|
|
$
|
(0.12
|
) |
|
For the Three
|
For the Nine
|
|||||||||||||
|
Months Ended
|
Months Ended
|
|||||||||||||
|
September 30,
|
September 30,
|
|||||||||||||
|
2012
|
2011
|
2012
|
2011
|
|||||||||||
Disposal |
|
|
|
|
|||||||||||
Gain (loss) on disposal, before federal income taxes | $ | - | $ | (3 | ) | $ | (1 | ) | $ | (3 | ) | ||||
Federal income tax expense (benefit) | (29 | ) | 5 | (28 | ) | 5 | |||||||||
Gain (loss) on disposal | 29 | (8 | ) | 27 | (8 | ) | |||||||||
Income (loss) from discontinued operations
|
$ | 29 | $ | (8 | ) | $ | 27 | $ | (8 | ) |
Consolidated VIEs
|
|
Amount and Date of Issuance
|
|
|||||
|
|
$400
|
|
$200
|
|
|
|
|
December |
April
|
|
|
|||
|
|
2006
|
|
2007
|
|
|
|
Original attachment point (subordination)
|
|
5.50 |
%
|
2.05 |
%
|
|
|
Current attachment point (subordination)
|
|
4.17 |
%
|
1.48 |
%
|
|
|
Maturity
|
12/20/2016
|
|
3/20/2017
|
|
|
||
Current rating of tranche
|
|
BB-
|
|
Ba2
|
|
|
|
Current rating of underlying collateral pool
|
|
Aa1-B3
|
|
Aaa-Caa2
|
|
|
|
Number of defaults in underlying collateral pool
|
|
2
|
|
2
|
|
|
|
Number of entities
|
|
123
|
|
99
|
|
|
|
Number of countries
|
|
20
|
|
21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AAA
|
|
AA
|
|
A
|
|
BBB
|
|
BB
|
|
B
|
|
CCC
|
|
Total
|
||||||||
Industry
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial intermediaries
|
-
|
%
|
|
2.1
|
%
|
|
7.6
|
%
|
|
0.9
|
%
|
|
-
|
%
|
|
-
|
%
|
|
-
|
%
|
|
10.6
|
%
|
|
Telecommunications
|
-
|
%
|
|
-
|
%
|
|
5.5
|
%
|
|
4.5
|
%
|
|
-
|
%
|
|
0.5
|
%
|
|
-
|
%
|
|
10.5
|
%
|
|
Oil and gas
|
0.3
|
%
|
|
2.1
|
%
|
|
1.0
|
%
|
|
4.6
|
%
|
|
-
|
%
|
|
-
|
%
|
|
-
|
%
|
|
8.0
|
%
|
|
Utilities
|
-
|
%
|
|
-
|
%
|
|
2.6
|
%
|
|
2.0
|
%
|
|
-
|
%
|
|
-
|
%
|
|
-
|
%
|
|
4.6
|
%
|
|
Chemicals and plastics
|
-
|
%
|
|
-
|
%
|
|
2.3
|
%
|
|
1.2
|
%
|
|
0.3
|
%
|
|
-
|
%
|
|
-
|
%
|
|
3.8
|
%
|
|
Drugs
|
0.3
|
%
|
|
2.7
|
%
|
|
0.7
|
%
|
|
-
|
%
|
|
-
|
%
|
|
-
|
%
|
|
-
|
%
|
|
3.7
|
%
|
|
Retailers (except foodand drug)
|
-
|
%
|
|
-
|
%
|
|
2.1
|
%
|
|
0.9
|
%
|
|
0.5
|
%
|
|
-
|
%
|
|
-
|
%
|
|
3.5
|
%
|
|
Industrial equipment
|
-
|
%
|
|
-
|
%
|
|
3.0
|
%
|
|
0.3
|
%
|
|
-
|
%
|
|
-
|
%
|
|
-
|
%
|
|
3.3
|
%
|
|
Sovereign
|
-
|
%
|
|
0.7
|
%
|
|
1.2
|
%
|
|
1.3
|
%
|
|
-
|
%
|
|
-
|
%
|
|
-
|
%
|
|
3.2
|
%
|
|
Conglomerates
|
-
|
%
|
|
2.3
|
%
|
|
0.9
|
%
|
|
-
|
%
|
|
-
|
%
|
|
-
|
%
|
|
-
|
%
|
|
3.2
|
%
|
|
Forest products
|
-
|
%
|
|
-
|
%
|
|
-
|
%
|
|
1.6
|
%
|
|
1.4
|
%
|
|
-
|
%
|
|
-
|
%
|
|
3.0
|
%
|
|
Other
|
-
|
%
|
|
4.5
|
%
|
|
14.9
|
%
|
|
17.9
|
%
|
|
4.1
|
%
|
|
0.9
|
%
|
|
0.3
|
%
|
|
42.6
|
%
|
|
|
Total
|
0.6
|
%
|
|
14.4
|
%
|
|
41.8
|
%
|
|
35.2
|
%
|
|
6.3
|
%
|
|
1.4
|
%
|
|
0.3
|
%
|
|
100.0
|
%
|
|
|
|
As of September 30, 2012
|
|
As of December 31, 2011
|
||||||||||||||||
|
|
|
Number
|
|
|
|
|
|
|
Number
|
|
|
|
|
|
|
|||||
|
|
|
of
|
Notional
|
|
Carrying
|
|
of
|
|
Notional
|
|
Carrying
|
|||||||||
|
|
|
Instruments
|
Amounts
|
|
Value
|
|
Instruments
|
|
Amounts
|
|
Value
|
|||||||||
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Fixed maturity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Asset-backed credit card loan
|
|
N/A
|
$
|
-
|
|
$
|
596
|
|
|
N/A
|
|
$
|
-
|
|
$
|
592
|
||||
|
U.S. government bonds
|
|
N/A
|
|
-
|
|
|
110
|
|
|
N/A
|
|
|
-
|
|
|
108
|
||||
Excess mortality swap
|
|
1
|
|
100
|
|
|
-
|
|
|
1
|
|
|
100
|
|
|
-
|
|||||
|
|
|
Total assets (1)
|
|
1
|
$
|
100
|
|
$
|
706
|
|
|
1
|
|
$
|
100
|
|
$
|
700
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Non-qualifying hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
Credit default swaps
|
|
2
|
$
|
600
|
|
$
|
175
|
|
|
2
|
|
$
|
600
|
|
$
|
295
|
||||
|
Contingent forwards
|
|
2
|
|
-
|
|
|
(1
|
)
|
|
2
|
|
|
-
|
|
|
(4
|
) | |||
|
|
Total non-qualifying hedges
|
|
4
|
|
600
|
|
|
174
|
|
|
4
|
|
|
600
|
|
|
291
|
|||
Federal income tax
|
|
N/A
|
|
-
|
|
|
(53
|
)
|
|
N/A
|
|
|
-
|
|
|
(98
|
) | ||||
|
|
|
Total liabilities (2)
|
|
4
|
$
|
600
|
|
$
|
121
|
|
|
4
|
|
$
|
600
|
|
$
|
193
|
(1)
|
Reported in VIEs’ fixed maturity securities on our Consolidated Balance Sheets.
|
(2)
|
Reported in VIEs’ liabilities on our Consolidated Balance Sheets.
|
For the Three
|
For the Nine
|
||||||||||||
Months Ended
|
Months Ended
|
||||||||||||
September 30,
|
September 30,
|
||||||||||||
2012
|
2011
|
2012
|
2011
|
||||||||||
Non-Qualifying Hedges |
|
|
|
|
|||||||||
Credit default swaps | $ | 58 | $ | (105 | ) | $ | 120 | $ | (92 | ) | |||
Contingent forwards | (1 | ) | 2 | (3 | ) | 1 | |||||||
Total non-qualifying hedges (1)
|
$ | 57 | $ | (103 | ) | $ | 117 | $ | (91 | ) |
(1)
|
Reported in realized gain (loss) on our Consolidated Statements of Comprehensive Income (Loss).
|
Unconsolidated VIEs
|
|
As of September 30, 2012
|
|||||||||||||||||
|
Amortized
|
Gross Unrealized
|
Fair
|
|||||||||||||||
|
Cost
|
Gains
|
Losses
|
OTTI
|
Value
|
|||||||||||||
Fixed maturity securities: |
|
|
|
|
|
|||||||||||||
Corporate bonds | $ | 58,531 | $ | 8,335 | $ | 292 | $ | 98 | $ | 66,476 | ||||||||
U.S. government bonds | 441 | 67 | - | - | 508 | |||||||||||||
Foreign government bonds | 570 | 91 | - | - | 661 | |||||||||||||
Residential mortgage-backed securities ("RMBS") | 6,278 | 530 | 11 | 60 | 6,737 | |||||||||||||
Commercial mortgage-backed securities ("CMBS") | 1,104 | 75 | 32 | 21 | 1,126 | |||||||||||||
Collateralized debt obligations ("CDOs") | 159 | - | 4 | 8 | 147 | |||||||||||||
State and municipal bonds | 3,519 | 826 | 7 | - | 4,338 | |||||||||||||
Hybrid and redeemable preferred securities | 1,176 | 95 | 85 | - | 1,186 | |||||||||||||
VIEs' fixed maturity securities | 676 | 30 | - | - | 706 | |||||||||||||
Total fixed maturity securities | 72,454 | 10,049 | 431 | 187 | 81,885 | |||||||||||||
Equity securities | 143 | 21 | 8 | - | 156 | |||||||||||||
Total AFS securities
|
$ | 72,597 | $ | 10,070 | $ | 439 | $ | 187 | $ | 82,041 |
|
As of December 31, 2011
|
|||||||||||||||||
|
Amortized
|
Gross Unrealized
|
Fair
|
|||||||||||||||
|
Cost
|
Gains
|
Losses
|
OTTI
|
Value
|
|||||||||||||
Fixed maturity securities: |
|
|
|
|
|
|||||||||||||
Corporate bonds | $ | 53,661 | $ | 6,185 | $ | 517 | $ | 68 | $ | 59,261 | ||||||||
U.S. government bonds | 439 | 55 | - | - | 494 | |||||||||||||
Foreign government bonds | 668 | 65 | - | - | 733 | |||||||||||||
RMBS | 7,690 | 548 | 73 | 126 | 8,039 | |||||||||||||
CMBS | 1,642 | 73 | 106 | 9 | 1,600 | |||||||||||||
CDOs | 121 | - | 19 | - | 102 | |||||||||||||
State and municipal bonds | 3,490 | 566 | 9 | - | 4,047 | |||||||||||||
Hybrid and redeemable preferred securities | 1,277 | 50 | 170 | - | 1,157 | |||||||||||||
VIEs' fixed maturity securities | 673 | 27 | - | - | 700 | |||||||||||||
Total fixed maturity securities | 69,661 | 7,569 | 894 | 203 | 76,133 | |||||||||||||
Equity securities | 135 | 16 | 12 | - | 139 | |||||||||||||
Total AFS securities
|
$ | 69,796 | $ | 7,585 | $ | 906 | $ | 203 | $ | 76,272 |
|
Amortized
|
Fair
|
||||||
|
Cost
|
Value
|
||||||
Due in one year or less | $ | 2,841 | $ | 2,895 | ||||
Due after one year through five years | 12,308 | 13,414 | ||||||
Due after five years through ten years | 24,171 | 27,194 | ||||||
Due after ten years | 25,593 | 30,372 | ||||||
Subtotal | 64,913 | 73,875 | ||||||
Mortgage-backed securities ("MBS") | 7,382 | 7,863 | ||||||
CDOs | 159 | 147 | ||||||
Total fixed maturity AFS securities
|
$ | 72,454 | $ | 81,885 |
|
As of September 30, 2012
|
||||||||||||||||||||
|
Less Than or Equal
|
Greater Than
|
|
||||||||||||||||||
|
to Twelve Months
|
Twelve Months
|
Total
|
||||||||||||||||||
|
|
Gross
|
|
Gross
|
|
Gross
|
|||||||||||||||
|
|
Unrealized
|
|
Unrealized
|
|
Unrealized
|
|||||||||||||||
|
Fair
|
Losses and
|
Fair
|
Losses and
|
Fair
|
Losses and
|
|||||||||||||||
|
Value
|
OTTI
|
Value
|
OTTI
|
Value
|
OTTI
|
|||||||||||||||
Fixed maturity securities: |
|
|
|
|
|
|
|||||||||||||||
Corporate bonds | $ | 1,534 | $ | 140 | $ | 1,095 | $ | 250 | $ | 2,629 | $ | 390 | |||||||||
RMBS | 257 | 41 | 226 | 30 | 483 | 71 | |||||||||||||||
CMBS | 64 | 21 | 137 | 32 | 201 | 53 | |||||||||||||||
CDOs | 20 | 8 | 57 | 4 | 77 | 12 | |||||||||||||||
State and municipal bonds | - | - | 23 | 7 | 23 | 7 | |||||||||||||||
Hybrid and redeemable preferred securities | 12 | 3 | 405 | 82 | 417 | 85 | |||||||||||||||
Total fixed maturity securities | 1,887 | 213 | 1,943 | 405 | 3,830 | 618 | |||||||||||||||
Equity securities | 8 | 1 | 4 | 7 | 12 | 8 | |||||||||||||||
Total AFS securities
|
$ | 1,895 | $ | 214 | $ | 1,947 | $ | 412 | $ | 3,842 | $ | 626 | |||||||||
|
|||||||||||||||||||||
Total number of AFS securities in an unrealized loss position | 583 |
|
As of December 31, 2011
|
||||||||||||||||||||
|
Less Than or Equal
|
Greater Than
|
|
||||||||||||||||||
|
to Twelve Months
|
Twelve Months
|
Total
|
||||||||||||||||||
|
|
Gross
|
|
Gross
|
|
Gross
|
|||||||||||||||
|
|
Unrealized
|
|
Unrealized
|
|
Unrealized
|
|||||||||||||||
|
Fair
|
Losses and
|
Fair
|
Losses and
|
Fair
|
Losses and
|
|||||||||||||||
|
Value
|
OTTI
|
Value
|
OTTI
|
Value
|
OTTI
|
|||||||||||||||
Fixed maturity securities: |
|
|
|
|
|
|
|||||||||||||||
Corporate bonds | $ | 2,848 | $ | 162 | $ | 1,452 | $ | 423 | $ | 4,300 | $ | 585 | |||||||||
RMBS | 565 | 125 | 429 | 74 | 994 | 199 | |||||||||||||||
CMBS | 178 | 15 | 146 | 100 | 324 | 115 | |||||||||||||||
CDOs | 9 | 1 | 80 | 18 | 89 | 19 | |||||||||||||||
State and municipal bonds | 31 | - | 30 | 9 | 61 | 9 | |||||||||||||||
Hybrid and redeemablepreferred securities | 324 | 23 | 353 | 147 | 677 | 170 | |||||||||||||||
Total fixed maturity securities | 3,955 | 326 | 2,490 | 771 | 6,445 | 1,097 | |||||||||||||||
Equity securities | 38 | 12 | - | - | 38 | 12 | |||||||||||||||
Total AFS securities
|
$ | 3,993 | $ | 338 | $ | 2,490 | $ | 771 | $ | 6,483 | $ | 1,109 | |||||||||
|
|||||||||||||||||||||
Total number of AFS securities in an unrealized loss position | 897 |
|
As of September 30, 2012
|
|||||||||
|
Amortized
|
Fair
|
Unrealized
|
|||||||
|
Cost
|
Value
|
Loss
|
|||||||
Total
|
|
|
|
|||||||
AFS securities backed by pools of residential mortgages
|
$ | 1,283 | $ | 1,016 | $ | 267 | ||||
AFS securities backed by pools of commercial mortgages
|
282 | 219 | 63 | |||||||
Total
|
$ | 1,565 | $ | 1,235 | $ | 330 | ||||
|
||||||||||
Subject to Detailed Analysis
|
||||||||||
AFS securities backed by pools of residential mortgages
|
$ | 1,279 | $ | 1,012 | $ | 267 | ||||
AFS securities backed by pools of commercial mortgages
|
63 | 39 | 24 | |||||||
Total
|
$ | 1,342 | $ | 1,051 | $ | 291 |
|
As of December 31, 2011
|
|||||||||
|
Amortized
|
Fair
|
Unrealized
|
|||||||
|
Cost
|
Value
|
Loss
|
|||||||
Total
|
|
|
|
|||||||
AFS securities backed by pools of residential mortgages
|
$ | 2,023 | $ | 1,553 | $ | 470 | ||||
AFS securities backed by pools of commercial mortgages
|
472 | 344 | 128 | |||||||
Total
|
$ | 2,495 | $ | 1,897 | $ | 598 | ||||
|
||||||||||
Subject to Detailed Analysis
|
||||||||||
AFS securities backed by pools of residential mortgages
|
$ | 2,015 | $ | 1,545 | $ | 470 | ||||
AFS securities backed by pools of commercial mortgages
|
126 | 61 | 65 | |||||||
Total
|
$ | 2,141 | $ | 1,606 | $ | 535 |
|
As of September 30, 2012
|
||||||||||||
|
|
|
|
Number
|
|||||||||
|
Fair
|
Gross Unrealized
|
of
|
||||||||||
|
Value
|
Losses
|
OTTI
|
Securities
|
(1) | ||||||||
Less than six months
|
$ | 13 | $ | 5 | $ | 1 | 11 | ||||||
Six months or greater, but less than nine months
|
18 | 10 | - | 5 | |||||||||
Nine months or greater, but less than twelve months
|
7 | 2 | - | 1 | |||||||||
Twelve months or greater
|
546 | 289 | 142 | 154 | |||||||||
Total | $ | 584 | $ | 306 | $ | 143 | 171 |
|
As of December 31, 2011
|
||||||||||||
|
|
|
|
Number
|
|||||||||
|
Fair
|
Gross Unrealized
|
of
|
||||||||||
|
Value
|
Losses
|
OTTI
|
Securities
|
(1) | ||||||||
Less than six months
|
$ | 385 | $ | 125 | $ | 31 | 56 | ||||||
Six months or greater, but less than nine months
|
53 | 30 | 12 | 18 | |||||||||
Nine months or greater, but less than twelve months
|
2 | - | 1 | 7 | |||||||||
Twelve months or greater
|
615 | 470 | 111 | 175 | |||||||||
Total | $ | 1,055 | $ | 625 | $ | 155 | 256 |
(1)
|
We may reflect a security in more than one aging category based on various purchase dates.
|
|
|
|
|
For the Three
|
|
For the Nine
|
|||||||||
|
|
|
|
Months Ended
|
|
Months Ended
|
|||||||||
|
|
|
|
September 30,
|
|
September 30,
|
|||||||||
|
|
|
|
2012
|
|
2011
|
|
2012
|
|
2011
|
|||||
Balance as of beginning-of-period
|
$
|
415
|
|
$
|
340
|
|
$
|
390
|
|
$
|
319
|
||||
|
Increases attributable to:
|
|
|
|
|
|
|
|
|
|
|
|
|||
|
|
Credit losses on securities for which an OTTI was not previously recognized
|
|
19
|
|
|
11
|
|
|
74
|
|
|
40
|
||
|
|
Credit losses on securities for which an OTTI waspreviously recognized
|
|
18
|
|
|
17
|
|
|
60
|
|
|
57
|
||
|
Decreases attributable to:
|
|
|
|
|
|
|
|
|
|
|
|
|||
|
|
Securities sold
|
|
(19
|
)
|
|
(6
|
)
|
|
(91
|
)
|
|
(54
|
) | |
|
|
|
Balance as of end-of-period
|
$
|
433
|
|
$
|
362
|
|
$
|
433
|
|
$
|
362
|
·
|
Failure of the issuer of the security to make scheduled payments;
|
·
|
Deterioration of creditworthiness of the issuer;
|
·
|
Deterioration of conditions specifically related to the security;
|
·
|
Deterioration of fundamentals of the industry in which the issuer operates;
|
·
|
Deterioration of fundamentals in the economy including, but not limited to, higher unemployment and lower housing prices; and
|
·
|
Deterioration of the rating of the security by a rating agency.
|
|
As of September 30, 2012
|
|||||||||||||||
|
|
Gross Unrealized
|
|
OTTI in
|
||||||||||||
|
Amortized
|
|
Losses and
|
Fair
|
Credit
|
|||||||||||
|
Cost
|
Gains
|
OTTI
|
Value
|
Losses
|
|||||||||||
Corporate bonds
|
$ | 259 | $ | 2 | $ | 104 | $ | 157 | $ | 78 | ||||||
RMBS
|
662 | 19 | 42 | 639 | 267 | |||||||||||
CMBS
|
43 | 1 | 20 | 24 | 88 | |||||||||||
Total
|
$ | 964 | $ | 22 | $ | 166 | $ | 820 | $ | 433 |
|
As of December 31, 2011
|
|||||||||||||||
|
|
Gross Unrealized
|
|
OTTI in
|
||||||||||||
|
Amortized
|
|
Losses and
|
Fair
|
Credit
|
|||||||||||
|
Cost
|
Gains
|
OTTI
|
Value
|
Losses
|
|||||||||||
Corporate bonds
|
$ | 169 | $ | 1 | $ | 67 | $ | 103 | $ | 51 | ||||||
RMBS
|
690 | 1 | 128 | 563 | 301 | |||||||||||
CMBS
|
17 | - | 10 | 7 | 38 | |||||||||||
Total
|
$ | 876 | $ | 2 | $ | 205 | $ | 673 | $ | 390 |
|
As of
|
As of
|
|||||
|
September 30,
|
December 31,
|
|||||
|
2012
|
2011
|
|||||
Current
|
$ | 6,646 | $ | 6,858 | |||
60 to 90 days past due
|
15 | 26 | |||||
Greater than 90 days past due
|
40 | 76 | |||||
Valuation allowance associated with impaired mortgage loans on real estate
|
(21 | ) | (31 | ) | |||
Unamortized premium (discount)
|
10 | 13 | |||||
Total carrying value | $ | 6,690 | $ | 6,942 |
|
|
As of
|
As of
|
||||
|
|
September 30,
|
December 31,
|
||||
|
|
2012
|
2011
|
||||
Number of impaired mortgage loans on real estate
|
9
|
12
|
|||||
|
|
|
|
|
|
||
Principal balance of impaired mortgage loans on real estate
|
$
|
65
|
$
|
100
|
|||
Valuation allowance associated with impaired mortgage loans on real estate
|
|
(21
|
) |
|
(31
|
) | |
|
Carrying value of impaired mortgage loans on real estate
|
$
|
44
|
$
|
69
|
|
For the Three
|
For the Nine
|
||||||||||
|
Months Ended
|
Months Ended
|
||||||||||
|
September 30,
|
September 30,
|
||||||||||
|
2012
|
2011
|
2012
|
2011
|
||||||||
Average carrying value for impaired mortgage loans on real estate
|
$ | 42 | $ | 58 | $ | 52 | $ | 55 | ||||
Interest income recognized on impaired mortgage loans on real estate
|
1 | - | 1 | 2 | ||||||||
Interest income collected on impaired mortgage loans on real estate
|
1 | - | 1 | 2 |
|
As of September 30, 2012
|
As of December 31, 2011
|
|||||||||||||||||
|
|
|
Debt-
|
|
|
Debt-
|
|||||||||||||
|
|
|
Service
|
|
|
Service
|
|||||||||||||
|
Principal
|
% of |
Coverage
|
Principal
|
% of |
Coverage
|
|||||||||||||
Loan-to-Value
|
Amount
|
Total |
Ratio
|
Amount
|
Total |
Ratio
|
|||||||||||||
Less than 65%
|
$ | 5,258 | 78.5 | % | 1.66 | $ | 5,338 | 76.7 | % | 1.61 | |||||||||
65% to 74%
|
948 | 14.1 | % | 1.39 | 1,198 | 17.2 | % | 1.37 | |||||||||||
75% to 100%
|
424 | 6.3 | % | 0.80 | 308 | 4.4 | % | 0.92 | |||||||||||
Greater than 100%
|
71 | 1.1 | % | 0.60 | 116 | 1.7 | % | 0.36 | |||||||||||
Total mortgage loans on real estate | $ | 6,701 | 100.0 | % | $ | 6,960 | 100.0 | % |
|
|
|
For the Three
|
|
For the Nine
|
|||||||||
|
|
|
Months Ended
|
|
Months Ended
|
|||||||||
|
|
|
September 30,
|
|
September 30,
|
|||||||||
|
|
|
2012
|
|
2011
|
|
2012
|
|
2011
|
|||||
Fixed maturity AFS securities:
|
|
|
|
|
|
|
|
|
|
|
|
|||
|
Gross gains
|
$
|
4
|
|
$
|
17
|
|
$
|
12
|
|
$
|
84
|
||
|
Gross losses
|
|
(49
|
)
|
|
(63
|
)
|
|
(161
|
)
|
|
(177
|
) | |
Equity AFS securities:
|
|
|
|
|
|
|
|
|
|
|
|
|||
|
Gross gains
|
|
-
|
|
|
-
|
|
|
1
|
|
|
10
|
||
Gain (loss) on other investments
|
|
(10
|
)
|
|
(3
|
)
|
|
(8
|
)
|
|
1
|
|||
Associated amortization of DAC, VOBA, DSI and DFEL and changes in other contract holder funds |
|
1
|
|
|
4
|
|
|
3
|
|
|
(10
|
) | ||
|
|
Total realized gain (loss) related to certain investments
|
$
|
(54
|
)
|
$
|
(45
|
)
|
$
|
(153
|
)
|
$
|
(92
|
) |
|
For the Three
|
For the Nine
|
||||||||||||
|
Months Ended
|
Months Ended
|
||||||||||||
|
September 30,
|
September 30,
|
||||||||||||
|
2012
|
2011
|
2012
|
2011
|
||||||||||
OTTI Recognized in Net Income (Loss) |
|
|
|
|
||||||||||
Corporate bonds | $ | (5 | ) | $ | (3 | ) | $ | (34 | ) | $ | (9 | ) | ||
RMBS | (16 | ) | (22 | ) | (48 | ) | (65 | ) | ||||||
CMBS | (14 | ) | (8 | ) | (50 | ) | (47 | ) | ||||||
CDOs | (2 | ) | - | (2 | ) | (1 | ) | |||||||
Hybrid and redeemable preferred securities | - | - | - | (2 | ) | |||||||||
Gross OTTI recognized in net income (loss) | (37 | ) | (33 | ) | (134 | ) | (124 | ) | ||||||
Associated amortization of DAC, VOBA, DSI and DFEL | 5 | 7 | 22 | 26 | ||||||||||
Net OTTI recognized in net income (loss), pre-tax
|
$ | (32 | ) | $ | (26 | ) | $ | (112 | ) | $ | (98 | ) | ||
|
. | |||||||||||||
Portion of OTTI Recognized in OCI | ||||||||||||||
Gross OTTI recognized in OCI | $ | (17 | ) | $ | (21 | ) | $ | (96 | ) | $ | (48 | ) | ||
Change in DAC, VOBA, DSI and DFEL | 2 | 3 | 14 | 11 | ||||||||||
Net portion of OTTI recognized in OCI, pre-tax | $ | (15 | ) | $ | (18 | ) | $ | (82 | ) | $ | (37 | ) |
As of September 30, 2012
|
As of December 31, 2011
|
||||||||||||
Carrying
|
Fair
|
Carrying
|
Fair
|
||||||||||
Value
|
Value
|
Value
|
Value
|
||||||||||
Collateral payable held for derivative investments (1)
|
$ | 2,953 | $ | 2,953 | $ | 2,980 | $ | 2,980 | |||||
Securities pledged under securities lending agreements (2)
|
196 | 190 | 200 | 193 | |||||||||
Securities pledged under reverse repurchase agreements (3)
|
280 | 294 | 280 | 294 | |||||||||
Securities pledged for Term Asset-Backed Securities Loan Facility ("TALF") (4)
|
37 | 52 | 173 | 199 | |||||||||
Investments pledged for Federal Home Loan Bank ofIndianapolis Securities ("FHLBI") (5)
|
1,100 | 1,870 | 100 | 142 | |||||||||
Total payables for collateral on investments | $ | 4,566 | $ | 5,359 | $ | 3,733 | $ | 3,808 |
(1)
|
We obtain collateral based upon contractual provisions with our counterparties. These agreements take into consideration the counterparties’ credit rating as compared to ours, the fair value of the derivative investments and specified thresholds that if exceeded result in the receipt of cash that is typically invested in cash and invested cash. See Note 6 for details about maximum collateral potentially required to post on our credit default swaps.
|
(2)
|
Our pledged securities under securities lending agreements are included in fixed maturity AFS securities on our Consolidated Balance Sheets. We generally obtain collateral in an amount equal to 102% and 105% of the fair value of the domestic and foreign securities, respectively. We value collateral daily and obtain additional collateral when deemed appropriate. The cash received in our securities lending program is typically invested in cash and invested cash or fixed maturity AFS securities.
|
(3)
|
Our pledged securities under reverse repurchase agreements are included in fixed maturity AFS securities on our Consolidated Balance Sheets. We obtain collateral in an amount equal to 95% of the fair value of the securities, and our agreements with third parties contain contractual provisions to allow for additional collateral to be obtained when necessary. The cash received in our reverse repurchase program is typically invested in fixed maturity AFS securities.
|
(4)
|
Our pledged securities for TALF are included in fixed maturity AFS securities on our Consolidated Balance Sheets. We obtain collateral in an amount that has typically averaged 90% of the fair value of the TALF securities. The cash received in these transactions is invested in fixed maturity AFS securities.
|
(5)
|
Our pledged investments for FHLBI are included in fixed maturity AFS securities and mortgage loans on real estate on our Consolidated Balance Sheets. The collateral requirements are generally 105% to 115% of the fair value for fixed maturity AFS securities and 155% to 175% of the fair value for mortgage loans on real estate. The cash received in these transactions is primarily invested in cash and invested cash or fixed maturity AFS securities.
|
|
For the Nine
|
||||||
|
Months Ended
|
||||||
|
September 30,
|
||||||
|
2012
|
2011
|
|||||
Collateral payable held for derivative investments
|
$ | (27 | ) | $ | 1,793 | ||
Securities pledged under securities lending agreements
|
(4 | ) | (1 | ) | |||
Securities pledged for TALF
|
(136 | ) | (96 | ) | |||
Investments pledged for FHLBI
|
1,000 | 500 | |||||
Total increase (decrease) in payables for collateral on investments | $ | 833 | $ | 2,196 |
As of September 30, 2012
|
As of December 31, 2011
|
||||||||||||||||||||
Notional
|
Fair Value
|
Notional
|
Fair Value
|
||||||||||||||||||
Amounts
|
Asset
|
Liability
|
Amounts
|
Asset
|
Liability
|
||||||||||||||||
Qualifying Hedges
|
|
|
|
|
|
|
|||||||||||||||
Cash flow hedges:
|
|
|
|
|
|
|
|||||||||||||||
Interest rate contracts (1) | $ | 3,336 | $ | 210 | $ | - | $ | 2,512 | $ | 130 | $ | - | |||||||||
Foreign currency contracts (1) | 420 | 25 | - | 340 | 38 | - | |||||||||||||||
Total cash flow hedges | 3,756 | 235 | - | 2,852 | 168 | - | |||||||||||||||
Fair value hedges:
|
|||||||||||||||||||||
Interest rate contracts (1) | 875 | 307 | - | 1,675 | 319 | - | |||||||||||||||
Equity collar (1) | 9 | - | - | - | - | - | |||||||||||||||
Total fair value hedges | 884 | 307 | - | 1,675 | 319 | - | |||||||||||||||
Non-Qualifying Hedges
|
|||||||||||||||||||||
Interest rate contracts (1)
|
36,714 | 750 | - | 30,232 | 568 | - | |||||||||||||||
Foreign currency contracts (1)
|
138 | - | - | 4 | - | - | |||||||||||||||
Equity market contracts (1)
|
19,276 | 1,780 | - | 16,401 | 2,096 | - | |||||||||||||||
Credit contracts (1)
|
47 | - | 3 | 48 | - | - | |||||||||||||||
Credit contracts (2)
|
188 | - | 16 | 148 | - | 16 | |||||||||||||||
Embedded derivatives:
|
|||||||||||||||||||||
Indexed annuity contracts (3) | - | - | 733 | - | - | 399 | |||||||||||||||
Guaranteed living benefits ("GLB") reserves (3) | - | - | 1,411 | - | - | 2,217 | |||||||||||||||
Reinsurance related (4) | - | - | 215 | - | - | 168 | |||||||||||||||
Total derivative instruments | $ | 61,003 | $ | 3,072 | $ | 2,378 | $ | 51,360 | $ | 3,151 | $ | 2,800 |
(1)
|
Reported in derivative investments on our Consolidated Balance Sheets.
|
(2)
|
Reported in other liabilities on our Consolidated Balance Sheets.
|
(3)
|
Reported in future contract benefits on our Consolidated Balance Sheets.
|
(4)
|
Reported in reinsurance related embedded derivatives on our Consolidated Balance Sheets.
|
|
Remaining Life as of September 30, 2012
|
||||||||||||||||||
Less Than
|
|
1 – 5
|
|
6 – 10
|
|
11 – 30
|
|
Over 30
|
|
|
|||||||||
|
1 Year
|
|
Years
|
|
Years
|
|
Years
|
|
Years
|
|
Total
|
||||||||
Interest rate contracts (1)
|
$
|
3,110
|
|
$
|
20,203
|
|
$
|
6,307
|
|
$
|
10,092
|
|
$
|
1,213
|
|
$
|
40,925
|
||
Foreign currency contracts (2)
|
|
138
|
|
|
179
|
|
|
191
|
|
|
50
|
|
|
-
|
|
|
558
|
||
Equity market contracts
|
|
9,917
|
|
|
3,863
|
|
|
5,477
|
|
|
25
|
|
|
3
|
|
|
19,285
|
||
Credit contracts
|
|
40
|
|
|
195
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
235
|
||
|
Total derivative instruments with notional amounts |
$
|
13,205
|
|
$
|
24,440
|
|
$
|
11,975
|
|
$
|
10,167
|
|
$
|
1,216
|
|
$
|
61,003
|
(1)
|
As of September 30, 2012, the latest maturity date for which we were hedging our exposure to the variability in future cash flows for these instruments was June 2042.
|
(2)
|
As of September 30, 2012, the latest maturity date for which we were hedging our exposure to the variability in future cash flows for these instruments was April 2028.
|
|
|
|
|
|
For the Nine
|
||||||
|
|
|
|
|
Months Ended
|
||||||
|
|
|
|
|
September 30,
|
||||||
|
|
|
|
|
2012
|
|
2011
|
||||
Unrealized Gain (Loss) on Derivative Instruments
|
|
|
|
|
|
||||||
Balance as of beginning-of-year
|
$
|
119
|
|
$
|
(15
|
) | |||||
Other comprehensive income (loss):
|
|
|
|
|
|
||||||
Cumulative effect from adoption of new accounting standards
|
|
-
|
|
|
4
|
||||||
|
Unrealized holding gains (losses) arising during the year:
|
|
|
|
|
|
|||||
|
|
Cash flow hedges:
|
|
|
|
|
|
||||
|
|
|
Interest rate contracts
|
|
67
|
|
|
178
|
|||
|
|
|
Foreign currency contracts
|
|
(3
|
)
|
|
7
|
|||
|
|
Fair value hedges:
|
|
|
|
|
|
||||
|
|
|
Interest rate contracts
|
|
3
|
|
|
3
|
|||
|
Change in foreign currency exchange rate adjustment
|
|
(7
|
)
|
|
(1
|
) | ||||
|
Change in DAC, VOBA, DSI and DFEL
|
|
9
|
|
|
(1
|
) | ||||
|
Transfers from derivative instruments to bonds through basis adjustment
|
|
13
|
|
|
-
|
|||||
|
Income tax benefit (expense)
|
|
(30
|
)
|
|
(65
|
) | ||||
|
Less:
|
|
|
|
|
|
|||||
|
|
Reclassification adjustment for gains (losses) included in net income (loss):
|
|
|
|
|
|
||||
|
|
|
Cash flow hedges:
|
|
|
|
|
|
|||
|
|
|
|
Interest rate contracts (1)
|
|
(17
|
)
|
|
(6
|
) | |
|
|
|
|
Interest rate contracts (2)
|
|
-
|
|
|
3
|
||
|
|
|
|
Foreign currency contracts (1)
|
|
3
|
|
|
(3
|
) | |
|
|
|
Fair value hedges:
|
|
|
|
|
|
|||
|
|
|
|
Interest rate contracts (2)
|
|
3
|
|
|
3
|
||
|
|
Associated amortization of DAC, VOBA, DSI and DFEL
|
|
2
|
|
|
-
|
||||
|
|
Income tax benefit (expense)
|
|
3
|
|
|
1
|
||||
|
|
|
|
|
Balance as of end-of-period
|
$
|
177
|
|
$
|
112
|
(1)
|
The OCI offset is reported within net investment income on our Consolidated Statements of Comprehensive Income (Loss).
|
(2)
|
The OCI offset is reported within interest and debt expense on our Consolidated Statements of Comprehensive Income (Loss).
|
For the Three
|
For the Nine
|
||||||||||||||
Months Ended
|
Months Ended
|
||||||||||||||
September 30,
|
September 30,
|
||||||||||||||
2012
|
2011
|
2012
|
2011
|
||||||||||||
Qualifying Hedges
|
|
|
|
|
|||||||||||
Cash flow hedges:
|
|
|
|
|
|||||||||||
Interest rate contracts (1) | $ | (6 | ) | $ | (2 | ) | $ | (17 | ) | $ | (7 | ) | |||
Foreign currency contracts (1) | 2 | 2 | 4 | 3 | |||||||||||
Total cash flow hedges | (4 | ) | - | (13 | ) | (4 | ) | ||||||||
Fair value hedges:
|
|||||||||||||||
Interest rate contracts (2) | 5 | 13 | 28 | 38 | |||||||||||
Non-Qualifying Hedges
|
|||||||||||||||
Interest rate contracts (1)
|
(4 | ) | (25 | ) | (23 | ) | (41 | ) | |||||||
Interest rate contracts (3)
|
(2 | ) | 982 | 206 | 1,008 | ||||||||||
Foreign currency contracts (3)
|
(4 | ) | (5 | ) | (8 | ) | (11 | ) | |||||||
Equity market contracts (3)
|
(343 | ) | 694 | (773 | ) | 560 | |||||||||
Equity market contracts (4)
|
(136 | ) | 154 | (246 | ) | 120 | |||||||||
Credit contracts (1)
|
- | (1 | ) | (1 | ) | (1 | ) | ||||||||
Credit contracts (3)
|
(7 | ) | (8 | ) | (2 | ) | (6 | ) | |||||||
Embedded derivatives:
|
|||||||||||||||
Indexed annuity contracts (3) | (63 | ) | 135 | (143 | ) | 81 | |||||||||
GLB reserves (3) | 570 | (2,065 | ) | 861 | (1,935 | ) | |||||||||
Reinsurance related (3) | (30 | ) | (58 | ) | (48 | ) | (76 | ) | |||||||
AFS securities (1) | - | - | - | 1 | |||||||||||
Total derivative instruments | $ | (18 | ) | $ | (184 | ) | $ | (162 | ) | $ | (266 | ) |
(1)
|
Reported in net investment income on our Consolidated Statements of Comprehensive Income (Loss).
|
(2)
|
Reported in interest and debt expense on our Consolidated Statements of Comprehensive Income (Loss).
|
(3)
|
Reported in realized gain (loss) on our Consolidated Statements of Comprehensive Income (Loss).
|
(4)
|
Reported in commissions and other expenses on our Consolidated Statements of Comprehensive Income (Loss).
|
|
For the Three
|
For the Nine
|
||||||||||
|
Months Ended
|
Months Ended
|
||||||||||
|
September 30,
|
September 30,
|
||||||||||
|
2012
|
2011
|
2012
|
2011
|
||||||||
Gain (loss) recognized as a component of OCI with the offset to net investment income | $ | (5 | ) | $ | - | $ | (15 | ) | $ | (4 | ) |
|
For the Three
|
For the Nine
|
||||||||||
|
Months Ended
|
Months Ended
|
||||||||||
|
September 30,
|
September 30,
|
||||||||||
|
2012
|
2011
|
2012
|
2011
|
||||||||
Gain (loss) recognized as a component of OCI with the offset to interest expense | $ | 1 | $ | 1 | $ | 3 | $ | 3 |
As of September 30, 2012
|
|||||||||||||||
|
|
|
Credit
|
|
|
|
|
|
|
|
|||||
|
Reason
|
|
Nature
|
|
Rating of
|
|
Number
|
|
|
|
Maximum
|
||||
|
for
|
|
of
|
|
Underlying
|
|
of
|
|
Fair
|
|
Potential
|
||||
Maturity
|
|
Entering
|
|
Recourse
|
|
Obligation (1) | Instruments |
Value (2)
|
|
Payout
|
|||||
12/20/2012 (3)
|
|
(5)
|
|
(6)
|
|
BBB+
|
|
4
|
|
$
|
-
|
|
$
|
40
|
|
12/20/2016 (4)
|
|
(5)
|
|
(6)
|
|
BBB-
|
|
3
|
|
|
(6)
|
|
|
68
|
|
03/20/2017 (4)
|
|
(5)
|
|
(6)
|
|
BBB-
|
|
4
|
|
|
(11)
|
|
|
81
|
|
|
|
|
|
|
11
|
|
$
|
(17)
|
|
$
|
189
|
As of December 31, 2011
|
|||||||||||||||
|
|
|
Credit
|
|
|
|
|
|
|
|
|||||
|
Reason
|
|
Nature
|
|
Rating of
|
|
Number
|
|
|
|
Maximum
|
||||
|
for
|
|
of
|
|
Underlying
|
|
of
|
|
Fair
|
|
Potential
|
||||
Maturity
|
|
Entering
|
|
Recourse
|
|
Obligation (1)
|
Instruments |
Value (2)
|
|
Payout
|
|||||
12/20/2012 (3)
|
|
(5)
|
|
(6)
|
|
BBB+
|
|
4
|
|
$
|
-
|
|
$
|
40
|
|
12/20/2016 (4)
|
|
(5)
|
|
(6)
|
|
BBB+
|
|
3
|
|
|
(12)
|
|
|
68
|
|
03/20/2017 (4)
|
|
(5)
|
|
(6)
|
|
BBB
|
|
2
|
|
|
(4)
|
|
|
40
|
|
|
|
|
|
|
9
|
|
$
|
(16)
|
|
$
|
148
|
(1)
|
Represents average credit ratings based on the midpoint of the applicable ratings among Moody’s, S&P and Fitch Ratings, as scaled to the corresponding S&P ratings.
|
(2)
|
Broker quotes are used to determine the market value of credit default swaps.
|
(3)
|
These credit default swaps were sold to our contract holders prior to 2007, where we determined there was a spread versus premium mismatch.
|
(4)
|
These credit default swaps were sold to a counter-party of the consolidated VIEs as discussed in Note 4 in our 2011 Form 10-K.
|
(5)
|
Credit default swaps were entered into in order to generate income by providing default protection in return for a quarterly payment.
|
(6)
|
Sellers do not have the right to demand indemnification or compensation from third parties in case of a loss (payment) on the contract.
|
|
|
|
As of
|
|
As of
|
|
||
|
|
|
September 30,
|
December 31, | ||||
|
|
|
2012
|
|
2011
|
|
||
Maximum potential payout
|
$
|
189
|
|
$
|
148
|
|
||
Less:
|
|
|
|
|
|
|
||
|
Counterparty thresholds
|
|
-
|
|
|
-
|
|
|
|
|
Maximum collateral potentially required to post
|
$
|
189
|
|
$
|
148
|
|
|
As of September 30, 2012
|
As of December 31, 2011
|
|||||||||||
|
Collateral
|
Collateral
|
Collateral
|
Collateral
|
|||||||||
|
Posted by
|
Posted by
|
Posted by
|
Posted by
|
|||||||||
S&P
|
Counter-
|
LNC
|
Counter-
|
LNC
|
|||||||||
Credit
|
Party
|
(Held by
|
Party
|
(Held by
|
|||||||||
Rating of
|
(Held by
|
Counter-
|
(Held by
|
Counter-
|
|||||||||
Counterparty
|
LNC)
|
Party)
|
LNC)
|
Party)
|
|||||||||
|
|
|
|
|
|||||||||
AA
|
$ | 46 | $ | - | $ | 35 | $ | - | |||||
AA-
|
76 | - | 219 | - | |||||||||
A+ | 668 | - | 848 | - | |||||||||
A | 879 | (83 | ) | 1,681 | (120 | ) | |||||||
A- | 1,415 | - | 387 | - | |||||||||
BBB
|
2 | - | - | - | |||||||||
$ | 3,086 | $ | (83 | ) | $ | 3,170 | $ | (120 | ) |
|
For the Three
|
For the Nine
|
||||||||||||
|
Months Ended
|
Months Ended
|
||||||||||||
|
September 30,
|
September 30,
|
||||||||||||
|
2012
|
2011
|
2012
|
2011
|
||||||||||
Tax rate times pre-tax income | $ | 146 | $ | 54 | $ | 409 | $ | 347 | ||||||
Effect of: | ||||||||||||||
Tax-preferred investment income | (32 | ) | (47 | ) | (101 | ) | (107 | ) | ||||||
Tax credits | (17 | ) | (14 | ) | (38 | ) | (35 | ) | ||||||
Change in uncertain tax positions | (83 | ) | - | (83 | ) | - | ||||||||
Other items | 31 | 1 | 37 | 9 | ||||||||||
Federal income tax expense (benefit)
|
$ | 45 | $ | (6 | ) | $ | 224 | $ | 214 | |||||
Effective tax rate | 11 | % | -4 | % | 19 | % | 22 | % |
|
For the Nine
|
|||||||
|
Months Ended
|
|||||||
|
September 30,
|
|||||||
|
2012
|
2011
|
||||||
Balance as of beginning-of-year | $ | 316 | $ | 318 | ||||
Decreases for prior year tax positions | (200 | ) | (12 | ) | ||||
Increases for current year tax positions | 27 | 2 | ||||||
Decreases for lapse of statute of limitations | (74 | ) | - | |||||
Balance as of end-of-period
|
$ | 69 | $ | 308 |
As of
|
|
As of |
|
|||
September 30, | December 31, | |||||
2012
|
|
2011
|
|
|||
Return of Net Deposits
|
|
|
|
|
|
|
Total account value
|
$
|
61,418
|
|
$
|
54,004
|
|
Net amount at risk (1)
|
|
460
|
|
|
1,379
|
|
Average attained age of contract holders
|
|
60 years
|
|
|
59 years
|
|
Minimum Return
|
|
|
|
|
|
|
Total account value
|
$
|
152
|
|
$
|
155
|
|
Net amount at risk (1)
|
|
37
|
|
|
48
|
|
Average attained age of contract holders
|
|
72 years
|
|
|
72 years
|
|
Guaranteed minimum return
|
|
5 |
%
|
|
5 | % |
Anniversary Contract Value
|
|
|
|
|
|
|
Total account value
|
$
|
22,968
|
|
$
|
21,648
|
|
Net amount at risk (1)
|
|
1,305
|
|
|
2,939
|
|
Average attained age of contract holders
|
|
67 years
|
|
|
67 years
|
|
(1)
|
Represents the amount of death benefit in excess of the account balance. The decrease in net amount at risk when comparing September 30, 2012, to December 31, 2011, was attributable primarily to the increase in the equity markets during the first nine months of 2012.
|
|
For the Nine
|
|||||||
|
Months Ended
|
|||||||
|
September 30,
|
|||||||
|
2012
|
2011
|
||||||
Balance as of beginning-of-year | $ | 84 | $ | 44 | ||||
Changes in reserves | 54 | 108 | ||||||
Benefits paid | (36 | ) | (34 | ) | ||||
Balance as of end-of-period
|
$ | 102 | $ | 118 |
|
As of
|
|
As of
|
||||
|
September 30,
|
|
December 31,
|
||||
|
2012
|
|
2011
|
||||
Asset Type |
|
|
|
|
|
||
Domestic equity |
$
|
37,679
|
|
$
|
34,286
|
||
International equity |
|
14,466
|
|
|
13,095
|
||
Bonds |
|
20,347
|
|
|
17,735
|
||
Money market |
|
7,225
|
|
|
5,892
|
||
Total
|
$
|
79,717
|
|
$
|
71,008
|
||
|
|
|
|
|
|
||
Percent of total variable annuity separate account values |
|
98
|
%
|
|
98
|
% |
For the Three
|
For the Nine
|
||||||||||||
Months Ended
|
Months Ended
|
||||||||||||
September 30,
|
September 30,
|
||||||||||||
2012
|
2011
|
2012
|
2011
|
||||||||||
Series A Preferred Stock
|
|
|
|
|
|||||||||
Balance as of beginning-of-period
|
9,632 | 10,854 | 10,072 | 10,914 | |||||||||
Conversion of convertible preferred stock (1)
|
(100 | ) | - | (540 | ) | (60 | ) | ||||||
Balance as of end-of-period | 9,532 | 10,854 | 9,532 | 10,854 | |||||||||
Common Stock
|
|||||||||||||
Balance as of beginning-of-period
|
279,168,971 | 308,339,163 | 291,319,222 | 315,718,554 | |||||||||
Conversion of convertible preferred stock (1)
|
1,600 | - | 8,640 | 960 | |||||||||
Stock compensation/issued for benefit plans
|
60,238 | 32,712 | 394,633 | 215,618 | |||||||||
Retirement/cancellation of shares
|
(4,157,191 | ) | (6,712,700 | ) | (16,648,877 | ) | (14,275,957 | ) | |||||
Balance as of end-of-period | 275,073,618 | 301,659,175 | 275,073,618 | 301,659,175 | |||||||||
Common Stock as of End-of-Period
|
|||||||||||||
Assuming conversion of preferred stock
|
275,226,130 | 301,832,839 | 275,226,130 | 301,832,839 | |||||||||
Diluted basis
|
282,361,186 | 306,899,902 | 282,361,186 | 306,899,902 |
(1)
|
Represents the conversion of Series A preferred stock into common stock.
|
For the Three
|
For the Nine
|
||||||||||||
Months Ended
|
Months Ended
|
||||||||||||
September 30,
|
September 30,
|
||||||||||||
2012
|
2011
|
2012
|
2011
|
||||||||||
Weighted-average shares, as used in basic calculation
|
277,883,878 | 304,779,641 | 282,989,766 | 310,357,508 | |||||||||
Shares to cover exercise of outstanding warrants
|
10,150,192 | 10,150,292 | 10,150,218 | 10,150,292 | |||||||||
Shares to cover conversion of preferred stock
|
153,886 | 173,664 | 154,165 | 174,293 | |||||||||
Shares to cover non-vested stock
|
1,141,821 | 815,594 | 1,087,724 | 801,261 | |||||||||
Average stock options outstanding during the period
|
513,722 | 500,578 | 540,976 | 698,054 | |||||||||
Assumed acquisition of shares with assumed proceeds from exercising outstanding warrants | (4,840,576 | ) | (5,153,660 | ) | (4,787,407 | ) | (4,223,290 | ) | |||||
Assumed acquisition of shares with assumed proceeds and benefits from exercising stock options (at average market price for the period) | (352,501 | ) | (342,848 | ) | (371,115 | ) | (459,168 | ) | |||||
Shares repurchaseable from measured but unrecognized stock option expense | (210 | ) | (31,025 | ) | (5,553 | ) | (80,317 | ) | |||||
Average deferred compensation shares
|
- | 1,105,447 | - | 1,070,549 | |||||||||
Weighted-average shares, as used in diluted calculation | 284,650,212 | 311,997,683 | 289,758,774 | 318,489,182 |
|
|
|
|
For the Nine
|
|||||
|
|
|
|
Months Ended
|
|||||
|
|
|
|
September 30,
|
|||||
|
|
|
|
2012
|
|
2011
|
|||
Unrealized Gain (Loss) on AFS Securities
|
|
|
|
|
|
||||
Balance as of beginning-of-year
|
$
|
2,947
|
|
$
|
1,072
|
||||
|
Cumulative effect from adoption of new accounting standards
|
|
-
|
|
|
105
|
|||
|
Unrealized holding gains (losses) arising during the period
|
|
2,804
|
|
|
3,232
|
|||
|
Change in foreign currency exchange rate adjustment
|
|
9
|
|
|
2
|
|||
|
Change in DAC, VOBA, DSI and other contract holder funds
|
|
(724
|
)
|
|
(791
|
) | ||
|
Income tax benefit (expense)
|
|
(779
|
)
|
|
(837
|
) | ||
|
Less:
|
|
|
|
|
|
|||
|
|
Reclassification adjustment for gains (losses) included in net income (loss)
|
|
(148
|
)
|
|
(83
|
) | |
|
|
Associated amortization of DAC, VOBA, DSI and DFEL
|
|
1
|
|
|
(10
|
) | |
|
|
Income tax benefit (expense)
|
|
51
|
|
|
33
|
||
|
|
|
Balance as of end-of-period
|
$
|
4,353
|
|
$
|
2,843
|
|
Unrealized OTTI on AFS Securities
|
|
|
|
|
|
||||
Balance as of beginning-of-year
|
$
|
(110
|
)
|
$
|
(129
|
) | |||
|
(Increases) attributable to:
|
|
|
|
|
|
|||
|
|
Cumulative effect from adoption of new accounting standards
|
|
-
|
|
|
(5
|
) | |
|
|
Gross OTTI recognized in OCI during the period
|
|
(96
|
)
|
|
(48
|
) | |
|
|
Change in DAC, VOBA, DSI and DFEL
|
|
14
|
|
|
11
|
||
|
|
Income tax benefit (expense)
|
|
31
|
|
|
13
|
||
|
Decreases attributable to:
|
|
|
|
|
|
|||
|
|
Sales, maturities or other settlements of AFS securities
|
|
112
|
|
|
91
|
||
|
|
Change in DAC, VOBA, DSI and DFEL
|
|
(14
|
)
|
|
(18
|
) | |
|
|
Income tax benefit (expense)
|
|
(35
|
)
|
|
(25
|
) | |
|
|
|
Balance as of end-of-period
|
$
|
(98
|
)
|
$
|
(110
|
) |
Unrealized Gain (Loss) on Derivative Instruments
|
|
|
|
|
|
||||
Balance as of beginning-of-year
|
$
|
119
|
|
$
|
(15
|
) | |||
|
Cumulative effect from adoption of new accounting standards
|
|
-
|
|
|
4
|
|||
|
Unrealized holding gains (losses) arising during the period
|
|
67
|
|
|
188
|
|||
|
Change in foreign currency exchange rate adjustment
|
|
(7
|
)
|
|
(1
|
) | ||
|
Change in DAC, VOBA, DSI and DFEL
|
|
9
|
|
|
(1
|
) | ||
|
Transfers from derivative instruments to bonds through basis adjustment
|
|
13
|
|
|
-
|
|||
|
Income tax benefit (expense)
|
|
(30
|
)
|
|
(65
|
) | ||
|
Less:
|
|
|
|
|
|
|||
|
|
Reclassification adjustment for gains (losses) included in net income (loss)
|
|
(11
|
)
|
|
(3
|
) | |
|
|
Associated amortization of DAC, VOBA, DSI and DFEL
|
|
2
|
|
|
-
|
||
|
|
Income tax benefit (expense)
|
|
3
|
|
|
1
|
||
|
|
|
Balance as of end-of-period
|
$
|
177
|
|
$
|
112
|
|
Foreign Currency Translation Adjustment
|
|
|
|
|
|
||||
Balance as of beginning-of-year
|
$
|
1
|
|
$
|
1
|
||||
|
Foreign currency translation adjustment arising during the period
|
|
(6
|
)
|
|
3
|
|||
|
Income tax benefit (expense)
|
|
2
|
|
|
(1
|
) | ||
|
|
Balance as of end-of-period
|
$
|
(3
|
)
|
$
|
3
|
||
Funded Status of Employee Benefit Plans
|
|
|
|
|
|
||||
Balance as of beginning-of-year
|
$
|
(278
|
)
|
$
|
(181
|
) | |||
|
Adjustment arising during the period
|
|
(2
|
)
|
|
(3
|
) | ||
|
Income tax benefit (expense)
|
|
1
|
|
|
1
|
|||
|
|
Balance as of end-of-period
|
$
|
(279
|
)
|
$
|
(183
|
) |
For the Three
|
For the Nine
|
|||||||||||||
Months Ended
|
Months Ended
|
|||||||||||||
September 30,
|
September 30,
|
|||||||||||||
2012
|
2011
|
2012
|
2011
|
|||||||||||
Total realized gain (loss) related to certain investments (1)
|
$ | (54 | ) | $ | (45 | ) | $ | (153 | ) | $ | (92 | ) | ||
Realized gain (loss) on the mark-to-market on certain instruments (2)
|
59 | (105 | ) | 99 | (95 | ) | ||||||||
Indexed annuity net derivative results: (3)
|
||||||||||||||
Gross gain (loss) | (5 | ) | (4 | ) | 14 | 3 | ||||||||
Associated amortization of DAC, VOBA, DSI and DFEL | - | 1 | (6 | ) | (2 | ) | ||||||||
Variable annuity net derivatives results: (4)
|
||||||||||||||
Gross gain (loss) | 92 | (12 | ) | 107 | 33 | |||||||||
Associated amortization of DAC, VOBA, DSI and DFEL | (22 | ) | 2 | (33 | ) | (17 | ) | |||||||
Total realized gain (loss) | $ | 70 | $ | (163 | ) | $ | 28 | $ | (170 | ) |
(1)
|
See “Realized Gain (Loss) Related to Certain Investments” section in Note 5.
|
(2)
|
Represents changes in the fair values of certain derivative investments (including those associated with our consolidated VIEs), total return swaps (embedded derivatives that are theoretically included in our various modified coinsurance and coinsurance with funds withheld reinsurance arrangements that have contractual returns related to various assets and liabilities associated with these arrangements) and trading securities.
|
(3)
|
Represents the net difference between the change in the fair value of the S&P 500 call options that we hold and the change in the fair value of the embedded derivative liabilities of our indexed annuity products along with changes in the fair value of embedded derivative liabilities related to index call options we may purchase in the future to hedge contract holder index allocations applicable to future reset periods for our indexed annuity products.
|
(4)
|
Includes the net difference in the change in embedded derivative reserves of our GLB products and the change in the fair value of the derivative instruments we own to hedge GDB and GLB products, including the cost of purchasing the hedging instruments.
|
|
For the
|
|
For the
|
|
|||
|
Three
|
|
Nine
|
|
|||
|
Months
|
|
Months
|
|
|||
|
Ended
|
|
Ended
|
|
|||
|
September 30,
|
|
September 30,
|
|
|||
|
2012
|
|
2012
|
|
|||
Awards |
|
|
|
|
|
|
|
10-year LNC stock options |
|
33,292
|
|
|
903,502
|
|
|
Performance shares |
|
11,698
|
|
|
306,456
|
|
|
SARs |
|
-
|
|
|
80,225
|
|
|
Restricted stock units |
|
44,191
|
|
|
730,421
|
|
|
Non-employee: |
|
|
|
|
|
|
|
Agent stock options
|
|
-
|
|
|
99,113
|
|
|
Director stock options
|
|
-
|
|
|
51,140
|
|
|
Director restricted stock units
|
|
11,037
|
|
|
33,383
|
|
As of September 30, 2012
|
As of December 31, 2011
|
||||||||||||
Carrying
|
Fair
|
Carrying
|
Fair
|
||||||||||
Value
|
Value
|
Value
|
Value
|
||||||||||
Assets |
|
|
|
|
|||||||||
AFS securities: |
|
|
|
|
|||||||||
Fixed maturity securities
|
$ | 81,179 | $ | 81,179 | $ | 75,433 | $ | 75,433 | |||||
VIEs' fixed maturity securities
|
706 | 706 | 700 | 700 | |||||||||
Equity securities
|
156 | 156 | 139 | 139 | |||||||||
Trading securities | 2,650 | 2,650 | 2,675 | 2,675 | |||||||||
Mortgage loans on real estate | 6,690 | 7,338 | 6,942 | 7,608 | |||||||||
Derivative investments | 3,072 | 3,072 | 3,151 | 3,151 | |||||||||
Other investments | 1,123 | 1,123 | 1,069 | 1,069 | |||||||||
Cash and invested cash | 4,373 | 4,373 | 4,510 | 4,510 | |||||||||
Separate account assets | 93,326 | 93,326 | 83,477 | 83,477 | |||||||||
Liabilities | |||||||||||||
Future contract benefits: | |||||||||||||
Indexed annuity contracts embedded derivatives
|
(733 | ) | (733 | ) | (399 | ) | (399 | ) | |||||
GLB reserves embedded derivatives
|
(1,411 | ) | (1,411 | ) | (2,217 | ) | (2,217 | ) | |||||
Other contract holder funds: | |||||||||||||
Remaining guaranteed interest and similar contracts
|
(914 | ) | (914 | ) | (1,114 | ) | (1,114 | ) | |||||
Account values of certain investment contracts
|
(28,161 | ) | (32,344 | ) | (27,468 | ) | (30,812 | ) | |||||
Short-term debt (1) | (200 | ) | (201 | ) | (300 | ) | (309 | ) | |||||
Long-term debt | (5,494 | ) | (6,266 | ) | (5,391 | ) | (5,345 | ) | |||||
Reinsurance related embedded derivatives | (215 | ) | (215 | ) | (168 | ) | (168 | ) | |||||
VIEs' liabilities - derivative instruments | (174 | ) | (174 | ) | (291 | ) | (291 | ) | |||||
Other liabilities: | |||||||||||||
Deferred compensation plans
|
(378 | ) | (378 | ) | (354 | ) | (354 | ) | |||||
Credit default swaps
|
(16 | ) | (16 | ) | (16 | ) | (16 | ) |
(1)
|
The difference between the carrying value and fair value of short-term debt as of September 30, 2012, and December 31, 2011, related to current maturities of long-term debt.
|
|
|
|
|
As of September 30, 2012
|
|||||||||||
|
|
|
|
Quoted
|
|
|
|
|
|
|
|
|
|
||
|
|
|
|
Prices
|
|
|
|
|
|
|
|
|
|
||
|
|
|
|
in Active
|
|
|
|
|
|
|
|
|
|
||
|
|
|
|
Markets for
|
|
Significant
|
|
Significant
|
|
|
|
||||
|
|
|
|
Identical
|
Observable
|
Unobservable |
Total
|
||||||||
|
|
|
|
Assets
|
|
Inputs
|
|
Inputs
|
|
Fair
|
|||||
|
|
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
Value
|
|||||
Assets
|
|
|
|
|
|
|
|
|
|
|
|
||||
Investments:
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Fixed maturity AFS securities:
|
|
|
|
|
|
|
|
|
|
|
|
|||
|
|
Corporate bonds
|
$
|
65
|
|
$
|
64,556
|
|
$
|
1,855
|
|
$
|
66,476
|
||
|
|
U.S. government bonds
|
|
476
|
|
|
31
|
|
|
1
|
|
|
508
|
||
|
|
Foreign government bonds
|
|
-
|
|
|
585
|
|
|
76
|
|
|
661
|
||
|
|
RMBS
|
|
-
|
|
|
6,734
|
|
|
3
|
|
|
6,737
|
||
|
|
CMBS
|
|
-
|
|
|
1,083
|
|
|
43
|
|
|
1,126
|
||
|
|
CDOs
|
|
-
|
|
|
-
|
|
|
147
|
|
|
147
|
||
|
|
State and municipal bonds
|
|
-
|
|
|
4,305
|
|
|
33
|
|
|
4,338
|
||
|
|
Hybrid and redeemable preferred securities
|
|
20
|
|
|
1,053
|
|
|
113
|
|
|
1,186
|
||
|
VIEs' fixed maturity securities
|
|
111
|
|
|
595
|
|
|
-
|
|
|
706
|
|||
|
Equity AFS securities
|
|
44
|
|
|
26
|
|
|
86
|
|
|
156
|
|||
|
Trading securities
|
|
2
|
|
|
2,588
|
|
|
60
|
|
|
2,650
|
|||
|
Derivative investments
|
|
-
|
|
|
839
|
|
|
2,233
|
|
|
3,072
|
|||
Cash and invested cash
|
|
-
|
|
|
4,373
|
|
|
-
|
|
|
4,373
|
||||
Separate account assets
|
|
-
|
|
|
93,326
|
|
|
-
|
|
|
93,326
|
||||
|
|
|
Total assets
|
$
|
718
|
|
$
|
180,094
|
|
$
|
4,650
|
|
$
|
185,462
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
||||
Future contract benefits:
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Indexed annuity contracts embedded derivatives
|
$
|
-
|
|
$
|
-
|
|
$
|
(733
|
)
|
$
|
(733
|
) | ||
|
GLB reserves embedded derivatives
|
|
-
|
|
|
-
|
|
|
(1,411
|
)
|
|
(1,411
|
) | ||
Long-term debt
|
|
-
|
|
|
(1,203
|
)
|
|
-
|
|
|
(1,203
|
) | |||
Reinsurance related embedded derivatives
|
|
-
|
|
|
(215
|
)
|
|
-
|
|
|
(215
|
) | |||
VIEs' liabilities - derivative instruments
|
|
-
|
|
|
-
|
|
|
(174
|
)
|
|
(174
|
) | |||
Other liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Deferred compensation plans
|
|
-
|
|
|
-
|
|
|
(378
|
)
|
|
(378
|
) | ||
|
Credit default swaps
|
|
-
|
|
|
-
|
|
|
(16
|
)
|
|
(16
|
) | ||
|
|
|
Total liabilities
|
$
|
-
|
|
$
|
(1,418
|
)
|
$
|
(2,712
|
)
|
$
|
(4,130
|
) |
|
|
|
|
As of December 31, 2011
|
|||||||||||
|
|
|
|
Quoted
|
|
|
|
|
|
|
|
|
|
||
|
|
|
|
Prices
|
|
|
|
|
|
|
|
|
|
||
|
|
|
|
in Active
|
|
|
|
|
|
|
|
|
|
||
|
|
|
|
Markets for
|
|
Significant
|
|
Significant
|
|
|
|
||||
|
|
|
|
Identical
|
Observable
|
Unobservable
|
|
Total
|
|||||||
|
|
|
|
Assets
|
|
Inputs
|
|
Inputs
|
|
Fair
|
|||||
|
|
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
Value
|
|||||
Assets
|
|
|
|
|
|
|
|
|
|
|
|
||||
Investments:
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Fixed maturity AFS securities:
|
|
|
|
|
|
|
|
|
|
|
|
|||
|
|
Corporate bonds
|
$
|
63
|
|
$
|
57,310
|
|
$
|
1,888
|
|
$
|
59,261
|
||
|
|
U.S. government bonds
|
|
475
|
|
|
18
|
|
|
1
|
|
|
494
|
||
|
|
Foreign government bonds
|
|
-
|
|
|
636
|
|
|
97
|
|
|
733
|
||
|
|
RMBS
|
|
-
|
|
|
7,881
|
|
|
158
|
|
|
8,039
|
||
|
|
CMBS
|
|
-
|
|
|
1,566
|
|
|
34
|
|
|
1,600
|
||
|
|
CDOs
|
|
-
|
|
|
-
|
|
|
102
|
|
|
102
|
||
|
|
State and municipal bonds
|
|
-
|
|
|
4,047
|
|
|
-
|
|
|
4,047
|
||
|
|
Hybrid and redeemable preferred securities
|
|
15
|
|
|
1,042
|
|
|
100
|
|
|
1,157
|
||
|
VIEs' fixed maturity securities
|
|
108
|
|
|
592
|
|
|
-
|
|
|
700
|
|||
|
Equity AFS securities
|
|
37
|
|
|
46
|
|
|
56
|
|
|
139
|
|||
|
Trading securities
|
|
2
|
|
|
2,605
|
|
|
68
|
|
|
2,675
|
|||
|
Derivative investments
|
|
-
|
|
|
681
|
|
|
2,470
|
|
|
3,151
|
|||
Cash and invested cash
|
|
-
|
|
|
4,510
|
|
|
-
|
|
|
4,510
|
||||
Separate account assets
|
|
-
|
|
|
83,477
|
|
|
-
|
|
|
83,477
|
||||
|
|
|
Total assets
|
$
|
700
|
|
$
|
164,411
|
|
$
|
4,974
|
|
$
|
170,085
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
||||
Future contract benefits:
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Indexed annuity contracts embedded derivatives
|
$
|
-
|
|
$
|
-
|
|
$
|
(399
|
)
|
$
|
(399
|
) | ||
|
GLB reserves embedded derivatives
|
|
-
|
|
|
-
|
|
|
(2,217
|
)
|
|
(2,217
|
) | ||
Long-term debt
|
|
-
|
|
|
(1,688
|
)
|
|
-
|
|
|
(1,688
|
) | |||
Reinsurance related embedded derivatives
|
|
-
|
|
|
(168
|
)
|
|
-
|
|
|
(168
|
) | |||
VIEs' liabilities - derivative instruments
|
|
-
|
|
|
-
|
|
|
(291
|
)
|
|
(291
|
) | |||
Other liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
Deferred compensation plans
|
|
-
|
|
|
-
|
|
|
(354
|
)
|
|
(354
|
) | ||
|
Credit default swaps
|
|
-
|
|
|
-
|
|
|
(16
|
)
|
|
(16
|
) | ||
|
|
|
Total liabilities
|
$
|
-
|
|
$
|
(1,856
|
)
|
$
|
(3,277
|
)
|
$
|
(5,133
|
) |
For the Three Months Ended September 30, 2012
|
|||||||||||||||||||||
|
|
Gains
|
Issuances,
|
Transfers
|
|
||||||||||||||||
|
Items
|
(Losses)
|
Sales,
|
In or
|
|
||||||||||||||||
|
Included
|
in
|
Maturities,
|
Out
|
|
||||||||||||||||
Beginning
|
in
|
OCI
|
Settlements,
|
of
|
Ending
|
||||||||||||||||
Fair
|
Net
|
and
|
Calls,
|
Level 3,
|
Fair
|
||||||||||||||||
Value
|
Income
|
Other (1)
|
Net
|
Net (2)
|
Value
|
||||||||||||||||
Investments: (3) |
|
|
|
|
|||||||||||||||||
Fixed maturity AFS securities: |
|
|
|
|
|||||||||||||||||
Corporate bonds | $ | 1,678 | $ | 1 | $ | 24 | $ | 225 | $ | (73 | ) | $ | 1,855 | ||||||||
U.S. government bonds | 1 | - | - | - | - | 1 | |||||||||||||||
Foreign government bonds | 102 | - | - | (2 | ) | (24 | ) | 76 | |||||||||||||
RMBS | 184 | - | - | - | (181 | ) | 3 | ||||||||||||||
CMBS | 39 | (2 | ) | 4 | (2 | ) | 4 | 43 | |||||||||||||
CDOs | 120 | (2 | ) | 2 | 27 | - | 147 | ||||||||||||||
State and municipal bonds | 32 | - | 1 | - | - | 33 | |||||||||||||||
Hybrid and redeemable preferred securities | 129 | - | 13 | - | (29 | ) | 113 | ||||||||||||||
Equity AFS securities | 85 | - | 1 | - | - | 86 | |||||||||||||||
Trading securities | 72 | - | 4 | (2 | ) | (14 | ) | 60 | |||||||||||||
Derivative investments | 2,517 | (268 | ) | 47 | (63 | ) | - | 2,233 | |||||||||||||
Future contract benefits: (4) | |||||||||||||||||||||
Indexed annuity contracts embedded derivatives | (431 | ) | (63 | ) | - | (239 | ) | - | (733 | ) | |||||||||||
GLB reserves embedded derivatives | (1,926 | ) | 570 | - | - | - | (1,356 | ) | |||||||||||||
VIEs' liabilities - derivative instruments (5) | (231 | ) | 57 | - | - | - | (174 | ) | |||||||||||||
Other liabilities: | |||||||||||||||||||||
Deferred compensation plans (6) | (358 | ) | (18 | ) | - | (2 | ) | - | (378 | ) | |||||||||||
Credit default swaps (7) | (11 | ) | (5 | ) | - | - | - | (16 | ) | ||||||||||||
Total, net
|
$ | 2,002 | $ | 270 | $ | 96 | $ | (58 | ) | $ | (317 | ) | $ | 1,993 |
For the Three Months Ended September 30, 2011
|
|||||||||||||||||||||
|
|
Gains
|
Issuances,
|
Transfers
|
|
||||||||||||||||
|
Items
|
(Losses)
|
Sales
|
In or
|
|
||||||||||||||||
|
Included
|
in
|
Maturities,
|
Out
|
|
||||||||||||||||
Beginning
|
in
|
OCI
|
Settlements,
|
of
|
Ending
|
||||||||||||||||
Fair
|
Net
|
and
|
Calls,
|
Level 3,
|
Fair
|
||||||||||||||||
Value
|
Income
|
Other (1)
|
Net
|
Net (2)
|
Value
|
||||||||||||||||
Investments: (3) |
|
|
|
|
|||||||||||||||||
Fixed maturity AFS securities: |
|
|
|
|
|||||||||||||||||
Corporate bonds | $ | 1,573 | $ | (18 | ) | $ | (33 | ) | $ | (11 | ) | $ | (11 | ) | $ | 1,500 | |||||
U.S. government bonds | 2 | - | - | (1 | ) | - | 1 | ||||||||||||||
Foreign government bonds | 96 | 1 | 9 | (1 | ) | - | 105 | ||||||||||||||
RMBS | 161 | (1 | ) | 2 | 24 | (47 | ) | 139 | |||||||||||||
CMBS | 53 | (7 | ) | 3 | (12 | ) | - | 37 | |||||||||||||
CDOs | 126 | 5 | (8 | ) | (12 | ) | - | 111 | |||||||||||||
Hybrid and redeemable preferred securities | 106 | - | (12 | ) | (18 | ) | 16 | 92 | |||||||||||||
Equity AFS securities | 96 | - | (14 | ) | 10 | - | 92 | ||||||||||||||
Trading securities | 71 | 1 | 1 | (5 | ) | 1 | 69 | ||||||||||||||
Derivative investments | 1,492 | 684 | 340 | 10 | - | 2,526 | |||||||||||||||
Future contract benefits: (4) | |||||||||||||||||||||
Indexed annuity contracts embedded derivatives | (506 | ) | 135 | - | 29 | - | (342 | ) | |||||||||||||
GLB reserves embedded derivatives | (278 | ) | (2,065 | ) | - | - | - | (2,343 | ) | ||||||||||||
VIEs' liabilities - derivative instruments (5) | (198 | ) | (109 | ) | - | - | - | (307 | ) | ||||||||||||
Other liabilities: | |||||||||||||||||||||
Deferred compensation plans (6) | (360 | ) | 22 | - | 13 | - | (325 | ) | |||||||||||||
Credit default swaps (7) | (7 | ) | (8 | ) | - | - | - | (15 | ) | ||||||||||||
Total, net
|
$ | 2,427 | $ | (1,360 | ) | $ | 288 | $ | 26 | $ | (41 | ) | $ | 1,340 |
For the Nine Months Ended September 30, 2012
|
|||||||||||||||||||||
|
|
Gains
|
Issuances,
|
Transfers
|
|
||||||||||||||||
|
Items
|
(Losses)
|
Sales,
|
In or
|
|
||||||||||||||||
|
Included
|
in
|
Maturities,
|
Out
|
|
||||||||||||||||
Beginning
|
in
|
OCI
|
Settlements,
|
of
|
Ending
|
||||||||||||||||
Fair
|
Net
|
and
|
Calls,
|
Level 3,
|
Fair
|
||||||||||||||||
Value
|
Income
|
Other (1)
|
Net
|
Net (2)
|
Value
|
||||||||||||||||
Investments: (3) |
|
|
|
|
|||||||||||||||||
Fixed maturity AFS securities: |
|
|
|
|
|||||||||||||||||
Corporate bonds | $ | 1,888 | $ | (16 | ) | $ | 14 | $ | 327 | $ | (358 | ) | $ | 1,855 | |||||||
U.S. government bonds | 1 | - | - | - | - | 1 | |||||||||||||||
Foreign government bonds | 97 | - | - | (4 | ) | (17 | ) | 76 | |||||||||||||
RMBS | 158 | (3 | ) | 3 | (8 | ) | (147 | ) | 3 | ||||||||||||
CMBS | 34 | (9 | ) | 15 | (10 | ) | 13 | 43 | |||||||||||||
CDOs | 102 | (2 | ) | 7 | 34 | 6 | 147 | ||||||||||||||
State and municipal bonds | - | - | 1 | 32 | - | 33 | |||||||||||||||
Hybrid and redeemable preferred securities | 100 | (1 | ) | 19 | - | (5 | ) | 113 | |||||||||||||
Equity AFS securities | 56 | - | 5 | 25 | - | 86 | |||||||||||||||
Trading securities | 68 | 2 | 3 | (2 | ) | (11 | ) | 60 | |||||||||||||
Derivative investments | 2,470 | (557 | ) | 114 | 206 | - | 2,233 | ||||||||||||||
Future contract benefits: (4) | |||||||||||||||||||||
Indexed annuity contracts embedded derivatives | (399 | ) | (143 | ) | - | (191 | ) | - | (733 | ) | |||||||||||
GLB reserves embedded derivatives | (2,217 | ) | 861 | - | - | - | (1,356 | ) | |||||||||||||
VIEs' liabilities - derivative instruments (5) | (291 | ) | 117 | - | - | - | (174 | ) | |||||||||||||
Other liabilities: | |||||||||||||||||||||
Deferred compensation plans (6) | (354 | ) | (37 | ) | - | 13 | - | (378 | ) | ||||||||||||
Credit default swaps (7) | (16 | ) | - | - | - | - | (16 | ) | |||||||||||||
Total, net
|
$ | 1,697 | $ | 212 | $ | 181 | $ | 422 | $ | (519 | ) | $ | 1,993 |
For the Nine Months Ended September 30, 2011
|
|||||||||||||||||||||
|
|
Gains
|
Issuances,
|
Transfers
|
|
||||||||||||||||
|
Items
|
(Losses)
|
Sales,
|
In or
|
|
||||||||||||||||
|
Included
|
in
|
Maturities,
|
Out
|
|
||||||||||||||||
Beginning
|
in
|
OCI
|
Settlements,
|
of
|
Ending
|
||||||||||||||||
Fair
|
Net
|
and
|
Calls,
|
Level 3,
|
Fair
|
||||||||||||||||
Value
|
Income
|
Other (1)
|
Net
|
Net (2)
|
Value
|
||||||||||||||||
Investments: (3) |
|
|
|
|
|||||||||||||||||
Fixed maturity AFS securities: |
|
|
|
|
|||||||||||||||||
Corporate bonds | $ | 1,816 | $ | 5 | $ | 10 | $ | (247 | ) | $ | (84 | ) | $ | 1,500 | |||||||
U.S. government bonds | 2 | - | - | (1 | ) | - | 1 | ||||||||||||||
Foreign government bonds | 113 | - | 12 | (3 | ) | (17 | ) | 105 | |||||||||||||
RMBS | 119 | (3 | ) | 7 | 16 | - | 139 | ||||||||||||||
CMBS | 109 | (53 | ) | 57 | (75 | ) | (1 | ) | 37 | ||||||||||||
CDOs | 172 | 19 | (17 | ) | (63 | ) | - | 111 | |||||||||||||
Hybrid and redeemable preferred securities | 119 | - | (5 | ) | (18 | ) | (4 | ) | 92 | ||||||||||||
Equity AFS securities | 92 | 8 | (13 | ) | 3 | 2 | 92 | ||||||||||||||
Trading securities | 76 | - | 4 | (8 | ) | (3 | ) | 69 | |||||||||||||
Derivative investments | 1,495 | 600 | 335 | 96 | - | 2,526 | |||||||||||||||
Future contract benefits: (4) | |||||||||||||||||||||
Indexed annuity contracts embedded derivatives | (497 | ) | 80 | - | 75 | - | (342 | ) | |||||||||||||
GLB reserves embedded derivatives | (408 | ) | (1,935 | ) | - | - | - | (2,343 | ) | ||||||||||||
VIEs' liabilities - derivative instruments (5) | (209 | ) | (98 | ) | - | - | - | (307 | ) | ||||||||||||
Other liabilities: | |||||||||||||||||||||
Deferred compensation plans (6) | (363 | ) | 10 | - | 28 | - | (325 | ) | |||||||||||||
Credit default swaps (7) | (16 | ) | (5 | ) | - | 6 | - | (15 | ) | ||||||||||||
Total, net
|
$ | 2,620 | $ | (1,372 | ) | $ | 390 | $ | (191 | ) | $ | (107 | ) | $ | 1,340 |
(1)
|
The changes in fair value of the interest rate swaps are offset by an adjustment to derivative investments (see Note 5).
|
(2)
|
Transfers in or out of Level 3 for AFS and trading securities are displayed at amortized cost as of the beginning-of-period. For AFS and trading securities, the difference between beginning-of-period amortized cost and beginning-of-period fair value was included in OCI and earnings, respectively, in prior periods.
|
(3)
|
Amortization and accretion of premiums and discounts are included in net investment income on our Consolidated Statements of Comprehensive Income (Loss). Gains (losses) from sales, maturities, settlements and calls and OTTI are included in realized gain (loss) on our Consolidated Statements of Comprehensive Income (Loss).
|
(4)
|
Gains (losses) from sales, maturities, settlements and calls are included in realized gain (loss) on our Consolidated Statements of Comprehensive Income (Loss).
|
(5)
|
The changes in fair value of the credit default swaps and contingency forwards are included in realized gain (loss) on our Consolidated Statements of Comprehensive Income (Loss).
|
(6)
|
Deferrals and subsequent changes in fair value for the participants’ investment options are reported in commissions and other expenses on our Consolidated Statements of Comprehensive Income (Loss).
|
(7)
|
Gains (losses) from sales, maturities, settlements and calls are included in net investment income on our Consolidated Statements of Comprehensive Income (Loss).
|
|
For the Three Months Ended September 30, 2012
|
||||||||||||||||||||
|
Issuances
|
Sales
|
Maturities
|
Settlements
|
Calls
|
Total
|
|||||||||||||||
Investments: |
|
|
|
|
|
|
|||||||||||||||
Fixed maturity AFS securities: |
|
|
|
|
|
|
|||||||||||||||
Corporate bonds | $ | 247 | $ | - | $ | (7 | ) | $ | (14 | ) | $ | (1 | ) | $ | 225 | ||||||
Foreign government bonds | - | - | - | (2 | ) | - | (2 | ) | |||||||||||||
CMBS | - | - | - | (2 | ) | - | (2 | ) | |||||||||||||
CDOs | 30 | - | - | (3 | ) | - | 27 | ||||||||||||||
Trading securities | - | (1 | ) | - | (1 | ) | - | (2 | ) | ||||||||||||
Derivative investments | 55 | (43 | ) | (75 | ) | - | - | (63 | ) | ||||||||||||
Future contract benefits: | |||||||||||||||||||||
Indexed annuity contracts embedded derivatives | (31 | ) | - | - | (208 | ) | - | (239 | ) | ||||||||||||
Other liabilities: | |||||||||||||||||||||
Deferred compensation plans | - | - | - | (2 | ) | - | (2 | ) | |||||||||||||
Total, net
|
$ | 301 | $ | (44 | ) | $ | (82 | ) | $ | (232 | ) | $ | (1 | ) | $ | (58 | ) |
|
For the Three Months Ended September 30, 2011
|
||||||||||||||||||||
|
Issuances
|
Sales
|
Maturities
|
Settlements
|
Calls
|
Total
|
|||||||||||||||
Investments: |
|
|
|
|
|
|
|||||||||||||||
Fixed maturity AFS securities: |
|
|
|
|
|
|
|||||||||||||||
Corporate bonds | $ | 22 | $ | (14 | ) | $ | (10 | ) | $ | (9 | ) | $ | - | $ | (11 | ) | |||||
U.S. government bonds | - | - | - | (1 | ) | - | (1 | ) | |||||||||||||
Foreign government bonds | - | - | - | - | (1 | ) | (1 | ) | |||||||||||||
RMBS | 28 | (1 | ) | - | (3 | ) | - | 24 | |||||||||||||
CMBS | - | - | - | (12 | ) | - | (12 | ) | |||||||||||||
CDOs | - | - | - | (12 | ) | - | (12 | ) | |||||||||||||
Hybrid and redeemable preferred securities | - | (18 | ) | - | - | - | (18 | ) | |||||||||||||
Equity AFS securities | 10 | - | - | - | - | 10 | |||||||||||||||
Trading securities | - | (2 | ) | - | (3 | ) | - | (5 | ) | ||||||||||||
Derivative investments | 87 | 6 | (83 | ) | - | - | 10 | ||||||||||||||
Future contract benefits: | |||||||||||||||||||||
Indexed annuity contracts embedded derivatives | (11 | ) | - | - | 40 | - | 29 | ||||||||||||||
Other liabilities: | |||||||||||||||||||||
Deferred compensation plans | - | - | - | 13 | - | 13 | |||||||||||||||
Total, net
|
$ | 136 | $ | (29 | ) | $ | (93 | ) | $ | 13 | $ | (1 | ) | $ | 26 |
|
For the Nine Months Ended September 30, 2012
|
||||||||||||||||||||
|
Issuances
|
Sales
|
Maturities
|
Settlements
|
Calls
|
Total
|
|||||||||||||||
Investments: |
|
|
|
|
|
|
|||||||||||||||
Fixed maturity AFS securities: |
|
|
|
|
|
|
|||||||||||||||
Corporate bonds | $ | 404 | $ | (27 | ) | $ | (5 | ) | $ | (41 | ) | $ | (4 | ) | $ | 327 | |||||
Foreign government bonds | - | - | - | (4 | ) | - | (4 | ) | |||||||||||||
RMBS | - | - | (7 | ) | (1 | ) | - | (8 | ) | ||||||||||||
CMBS | - | - | - | (10 | ) | - | (10 | ) | |||||||||||||
CDOs | 47 | - | - | (13 | ) | - | 34 | ||||||||||||||
State and municipal bonds | 32 | - | - | - | - | 32 | |||||||||||||||
Equity AFS securities | 25 | - | - | - | - | 25 | |||||||||||||||
Trading securities | - | - | - | (2 | ) | - | (2 | ) | |||||||||||||
Derivative investments | 428 | (40 | ) | (182 | ) | - | - | 206 | |||||||||||||
Future contract benefits: | |||||||||||||||||||||
Indexed annuity contracts embedded derivatives | (66 | ) | - | - | (125 | ) | - | (191 | ) | ||||||||||||
Other liabilities: | |||||||||||||||||||||
Deferred compensation plans | - | - | - | 13 | - | 13 | |||||||||||||||
Total, net
|
$ | 870 | $ | (67 | ) | $ | (194 | ) | $ | (183 | ) | $ | (4 | ) | $ | 422 |
|
For the Nine Months Ended September 30, 2011
|
||||||||||||||||||||
|
Issuances
|
Sales
|
Maturities
|
Settlements
|
Calls
|
Total
|
|||||||||||||||
Investments: |
|
|
|
|
|
|
|||||||||||||||
Fixed maturity AFS securities: |
|
|
|
|
|
|
|||||||||||||||
Corporate bonds | $ | 45 | $ | (146 | ) | $ | (11 | ) | $ | (46 | ) | $ | (89 | ) | $ | (247 | ) | ||||
U.S. government bonds | - | - | - | (1 | ) | - | (1 | ) | |||||||||||||
Foreign government bonds | - | (2 | ) | - | - | (1 | ) | (3 | ) | ||||||||||||
RMBS | 28 | (1 | ) | - | (11 | ) | - | 16 | |||||||||||||
CMBS | - | (53 | ) | - | (22 | ) | - | (75 | ) | ||||||||||||
CDOs | - | (34 | ) | - | (29 | ) | - | (63 | ) | ||||||||||||
Hybrid and redeemable preferred securities | - | (18 | ) | - | - | - | (18 | ) | |||||||||||||
Equity AFS securities | 18 | (15 | ) | - | - | - | 3 | ||||||||||||||
Trading securities | - | (3 | ) | - | (5 | ) | - | (8 | ) | ||||||||||||
Derivative investments | 362 | (27 | ) | (239 | ) | - | - | 96 | |||||||||||||
Future contract benefits: | |||||||||||||||||||||
Indexed annuity contracts embedded derivatives | (49 | ) | - | - | 124 | - | 75 | ||||||||||||||
Other liabilities: | |||||||||||||||||||||
Deferred compensation plans | - | - | - | 28 | - | 28 | |||||||||||||||
Credit default swaps | - | 6 | - | - | - | 6 | |||||||||||||||
Total, net
|
$ | 404 | $ | (293 | ) | $ | (250 | ) | $ | 38 | $ | (90 | ) | $ | (191 | ) |
For the Three
|
For the Nine
|
|||||||||||||
Months Ended
|
Months Ended
|
|||||||||||||
September 30,
|
September 30,
|
|||||||||||||
2012
|
2011
|
2012
|
2011
|
|||||||||||
Investments: (1) |
|
|
|
|
||||||||||
Derivative investments | $ | (279 | ) | $ | 696 | $ | (618 | ) | $ | 574 | ||||
Future contract benefits: (1) | ||||||||||||||
Indexed annuity contracts embedded derivatives | 4 | (4 | ) | 22 | - | |||||||||
GLB reserves embedded derivatives | 556 | (2,011 | ) | 924 | (1,781 | ) | ||||||||
VIEs' liabilities - derivative instruments (1) | 57 | (108 | ) | 117 | (98 | ) | ||||||||
Other liabilities: | ||||||||||||||
Deferred compensation plans (2) | (18 | ) | 22 | (37 | ) | 10 | ||||||||
Credit default swaps (3) | (5 | ) | (8 | ) | - | (7 | ) | |||||||
Total, net
|
$ | 315 | $ | (1,413 | ) | $ | 408 | $ | (1,302 | ) |
(1)
|
Included in realized gain (loss) on our Consolidated Statements of Comprehensive Income (Loss).
|
(2)
|
Included in commissions and other expenses on our Consolidated Statements of Comprehensive Income (Loss).
|
(3)
|
Included in net investment income on our Consolidated Statements of Comprehensive Income (Loss).
|
|
For the Three Months
|
For the Three Months
|
|||||||||||||||||||
|
Ended September 30, 2012
|
Ended September 30, 2011
|
|||||||||||||||||||
|
Transfers
|
Transfers
|
|
Transfers
|
Transfers
|
|
|||||||||||||||
|
In to
|
Out of
|
|
In to
|
Out of
|
|
|||||||||||||||
|
Level 3
|
Level 3
|
Total
|
Level 3
|
Level 3
|
Total
|
|||||||||||||||
Investments: |
|
|
|
|
|
|
|||||||||||||||
Fixed maturity AFS securities: |
|
|
|
|
|
|
|||||||||||||||
Corporate bonds | $ | 241 | $ | (314 | ) | $ | (73 | ) | $ | 4 | $ | (15 | ) | $ | (11 | ) | |||||
Foreign government bonds | 27 | (51 | ) | (24 | ) | - | - | - | |||||||||||||
RMBS | - | (181 | ) | (181 | ) | - | (47 | ) | (47 | ) | |||||||||||
CMBS | 4 | - | 4 | - | - | - | |||||||||||||||
Hybrid and redeemable preferred securities | - | (29 | ) | (29 | ) | 16 | - | 16 | |||||||||||||
Trading securities | 3 | (17 | ) | (14 | ) | 1 | - | 1 | |||||||||||||
Total, net
|
$ | 275 | $ | (592 | ) | $ | (317 | ) | $ | 21 | $ | (62 | ) | $ | (41 | ) |
|
For the Nine Months
|
For the Nine Months
|
|||||||||||||||||||
|
Ended September 30, 2012
|
Ended September 30, 2011
|
|||||||||||||||||||
|
Transfers
|
Transfers
|
|
Transfers
|
Transfers
|
|
|||||||||||||||
|
In to
|
Out of
|
|
In to
|
Out of
|
|
|||||||||||||||
|
Level 3
|
Level 3
|
Total
|
Level 3
|
Level 3
|
Total
|
|||||||||||||||
Investments: |
|
|
|
|
|
|
|||||||||||||||
Fixed maturity AFS securities: |
|
|
|
|
|
|
|||||||||||||||
Corporate bonds | $ | 163 | $ | (521 | ) | $ | (358 | ) | $ | 33 | $ | (117 | ) | $ | (84 | ) | |||||
Foreign government bonds | 29 | (46 | ) | (17 | ) | - | (17 | ) | (17 | ) | |||||||||||
RMBS | - | (147 | ) | (147 | ) | - | - | - | |||||||||||||
CMBS | 13 | - | 13 | - | (1 | ) | (1 | ) | |||||||||||||
CDOs | 6 | - | 6 | - | - | - | |||||||||||||||
Hybrid and redeemable preferred securities | 35 | (40 | ) | (5 | ) | 18 | (22 | ) | (4 | ) | |||||||||||
Equity AFS securities | - | - | - | 2 | - | 2 | |||||||||||||||
Trading securities | 5 | (16 | ) | (11 | ) | 1 | (4 | ) | (3 | ) | |||||||||||
Total, net
|
$ | 251 | $ | (770 | ) | $ | (519 | ) | $ | 54 | $ | (161 | ) | $ | (107 | ) |
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
Fair
|
|
Valuation
|
|
Significant
|
|
||||||
|
|
|
Value
|
|
Technique
|
|
Unobservable Inputs
|
|
Range
|
|||||
Assets
|
|
|
|
|
|
|
|
|
||||||
Investments:
|
|
|
|
|
|
|
|
|
||||||
|
Fixed maturity AFS and trading securities |
|
|
|
|
|
|
|||||||
|
|
Corporate bonds
|
$
|
1,065
|
|
Discounted cash flow
|
|
Liquidity/duration adjustment (1)
|
|
1.8% - 13.2%
|
||||
|
|
Foreign government bonds
|
|
77
|
|
Discounted cash flow
|
|
Liquidity/duration adjustment (1)
|
|
1.8% - 6.1%
|
||||
|
|
Hybrid and redeemable preferred stock |
|
21
|
|
Discounted cash flow
|
|
Liquidity/duration adjustment (1)
|
|
2.7% - 2.8%
|
||||
|
Equity AFS and trading securities |
|
12
|
|
Discounted cash flow
|
|
Liquidity/duration adjustment (1)
|
|
4.3% - 4.5%
|
|||||
|
|
|
|
|
|
|
|
|
|
|
||||
Liabilities
|
|
|
|
|
|
|
|
|
||||||
Future contract benefits:
|
|
|
|
|
|
|
|
|
||||||
|
Indexed annuity contracts embedded derivatives |
|
(733)
|
|
Discounted cash flow
|
|
Lapse rate (2)
|
|
1.0% - 15.0%
|
|||||
|
|
|
|
|
|
|
|
|
Mortality rate (3)
|
|
(7)
|
|||
|
GLB reserves embedded derivatives |
|
(1,411)
|
|
Monte Carlo simulation
|
|
Long-term lapse rate (2)
|
|
1.0% - 27.0%
|
|||||
|
|
|
|
|
|
|
|
|
Utilization of guaranteed withdrawal (5) |
|
90.0% - 100.0%
|
|||
|
|
|
|
|
|
|
|
|
Non-performance risk ("NPR") (6)
|
|
0.04% - 0.47%
|
|||
|
|
|
|
|
|
|
|
|
Mortality rate (3)
|
|
(7)
|
|||
|
|
|
|
|
|
|
|
|
Volatility (4)
|
|
1.0% - 35.0%
|
(1)
|
The liquidity/duration adjustment input represents an estimated market participant composite of adjustments attributable to liquidity premiums, expected durations, structures and credit quality that would be applied to the market observable information of an investment.
|
(2)
|
The lapse rate input represents the estimated probability of a contract surrendering during a year, and thereby forgoing any future benefits. The range represents the lapse rates during the surrender charge period for indexed annuity contracts.
|
(3)
|
The mortality rate input represents the estimated probability of when an individual belonging to a particular group, categorized according to age or some other factor such as occupation, will die.
|
(4)
|
The volatility input represents overall volatilities assumed for the underlying variable annuity funds, which include a mixture of equity and fixed income assets. Fair value of the variable annuity GLB embedded derivatives would increase if higher volatilities were used for valuation.
|
(5)
|
The utilization of guaranteed withdrawals input represents the estimated percentage of contract holders that utilize the guaranteed withdrawal feature.
|
(6)
|
The NPR input represents the estimated additional credit spread that market participants would apply to the market observable discount rate when pricing a contract.
|
(7)
|
Based on the “Annuity 2000 Mortality Table” developed by the Society of Actuaries Committee on Life Insurance Research that was adopted by the National Association of Insurance Commissioners in 1996 for our mortality input.
|
·
|
Investments – An increase in the liquidity/duration adjustment input would result in a decrease in the fair value measurement.
|
·
|
Indexed annuity contracts embedded derivatives – An increase in the lapse rate or mortality rate inputs would result in a decrease in the fair value measurement.
|
·
|
GLB reserves embedded derivatives – An increase in our lapse rate, wait period, NPR or mortality rate inputs would result in a decrease in the fair value measurement. An increase in the percent of maximum withdrawal amount input would result in an increase in the fair value measurement.
|
·
|
Realized gains and losses associated with the following (“excluded realized gain (loss)”):
|
§
|
Sales or disposals of securities;
|
§
|
Impairments of securities;
|
§
|
Changes in the fair value of derivatives, embedded derivatives within certain reinsurance arrangements and trading securities;
|
§
|
Changes in the fair value of the derivatives we own to hedge our GDB riders within our variable annuities;
|
§
|
Changes in the fair value of the embedded derivatives of our GLB riders accounted for at fair value, net of the change in the fair value of the derivatives we own to hedge them; and
|
§
|
Changes in the fair value of the embedded derivative liabilities related to index call options we may purchase in the future to hedge contract holder index allocations applicable to future reset periods for our indexed annuity products accounted for at fair value;
|
·
|
Changes in reserves resulting from benefit ratio unlocking on our GDB and GLB riders;
|
·
|
Income (loss) from reserve changes, net of related amortization, on business sold through reinsurance;
|
·
|
Gains (losses) on early extinguishment of debt;
|
·
|
Losses from the impairment of intangible assets;
|
·
|
Income (loss) from discontinued operations; and
|
·
|
Income (loss) from the initial adoption of new accounting standards.
|
·
|
Excluded realized gain (loss);
|
·
|
Revenue adjustments from the initial adoption of new accounting standards;
|
·
|
Amortization of DFEL arising from changes in GDB and GLB benefit ratio unlocking; and
|
·
|
Amortization of deferred gains arising from the reserve changes on business sold through reinsurance.
|
|
For the Three
|
For the Nine
|
||||||||||||
|
Months Ended
|
Months Ended
|
||||||||||||
|
September 30,
|
September 30,
|
||||||||||||
|
2012
|
2011
|
2012
|
2011
|
||||||||||
Revenues |
|
|
|
|
||||||||||
Operating revenues: |
|
|
|
|
||||||||||
Annuities | $ | 745 | $ | 711 | $ | 2,210 | $ | 2,179 | ||||||
Retirement Plan Services | 255 | 247 | 765 | 771 | ||||||||||
Life Insurance | 1,296 | 1,176 | 3,765 | 3,552 | ||||||||||
Group Protection | 517 | 479 | 1,560 | 1,458 | ||||||||||
Other Operations | 101 | 122 | 321 | 352 | ||||||||||
Excluded realized gain (loss), pre-tax | 39 | (186 | ) | (55 | ) | (239 | ) | |||||||
Amortization of deferred gain arising from reserve changes on business sold through reinsurance, pre-tax | 1 | 1 | 2 | 2 | ||||||||||
Amortization of DFEL associated with benefit ratio unlocking, pre-tax | - | (3 | ) | - | (2 | ) | ||||||||
Total revenues
|
$ | 2,954 | $ | 2,547 | $ | 8,568 | $ | 8,073 |
|
For the Three
|
For the Nine
|
|||||||||||||
|
Months Ended
|
Months Ended
|
|||||||||||||
|
September 30,
|
September 30,
|
|||||||||||||
|
2012
|
2011
|
2012
|
2011
|
|||||||||||
Net Income (Loss) |
|
|
|
|
|||||||||||
Income (loss) from operations: |
|
|
|
|
|||||||||||
Annuities | $ | 139 | $ | 153 | $ | 433 | $ | 442 | |||||||
Retirement Plan Services | 29 | 39 | 101 | 129 | |||||||||||
Life Insurance | 154 | 154 | 434 | 433 | |||||||||||
Group Protection | 16 | 27 | 59 | 77 | |||||||||||
Other Operations | (3 | ) | (44 | ) | (75 | ) | (104 | ) | |||||||
Excluded realized gain (loss), after-tax | 25 | (121 | ) | (35 | ) | (156 | ) | ||||||||
Gain (loss) on early extinguishment of debt, after-tax | - | (5 | ) | - | (5 | ) | |||||||||
Income (expense) from reserve changes (net of related amortization) on business sold through reinsurance, after-tax | 1 | - | 1 | 1 | |||||||||||
Impairment of intangibles, after-tax | 2 | - | 2 | - | |||||||||||
Benefit ratio unlocking, after-tax | 10 | (42 | ) | 24 | (39 | ) | |||||||||
Income (loss) from continuing operations, after-tax | 373 | 161 | 944 | 778 | |||||||||||
Income (loss) from discontinued operations, after-tax | 29 | (8 | ) | 27 | (8 | ) | |||||||||
Net income (loss)
|
$ | 402 | $ | 153 | $ | 971 | $ | 770 |
·
|
Deterioration in general economic and business conditions that may affect account values, investment results, guaranteed benefit liabilities, premium levels, claims experience and the level of pension benefit costs, funding and investment results;
|
·
|
Adverse global capital and credit market conditions could affect our ability to raise capital, if necessary, and may cause us to realize impairments on investments and certain intangible assets, including goodwill and the valuation allowance against deferred tax assets, which may reduce future earnings and/or affect our financial condition and ability to raise additional capital or refinance existing debt as it matures;
|
·
|
Because of our holding company structure, the inability of our subsidiaries to pay dividends to the holding company in sufficient amounts could harm the holding company’s ability to meet its obligations;
|
·
|
Legislative, regulatory or tax changes, both domestic and foreign, that affect the cost of, or demand for, our subsidiaries’ products, the required amount of reserves and/or surplus, or otherwise affect our ability to conduct business, including changes to statutory reserve requirements related to secondary guarantee universal life and annuities; regulations regarding captive reinsurance arrangements; restrictions on revenue sharing and 12b-1 payments; and the potential for U.S. federal tax reform;
|
·
|
Declines in or sustained low interest rates causing a reduction in investment income, the interest margins of our businesses, estimated gross profits (“EGPs”) and demand for our products;
|
·
|
Uncertainty about the effect of rules and regulations to be promulgated under the Dodd-Frank Wall Street Reform and Consumer Protection Act on us and the economy and the financial services sector in particular;
|
·
|
The initiation of legal or regulatory proceedings against us, and the outcome of any legal or regulatory proceedings, such as: adverse actions related to present or past business practices common in businesses in which we compete; adverse decisions in significant actions including, but not limited to, actions brought by federal and state authorities and class action cases; new decisions that result in changes in law; and unexpected trial court rulings;
|
·
|
A decline in the equity markets causing a reduction in the sales of our subsidiaries’ products, a reduction of asset-based fees that our subsidiaries charge on various investment and insurance products, an acceleration of the net amortization of deferred acquisition costs (“DAC”), value of business acquired (“VOBA”), deferred sales inducements (“DSI”) and deferred front-end loads (“DFEL”) and an increase in liabilities related to guaranteed benefit features of our subsidiaries’ variable annuity products;
|
·
|
Ineffectiveness of our risk management policies and procedures, including various hedging strategies used to offset the effect of changes in the value of liabilities due to changes in the level and volatility of the equity markets and interest rates;
|
·
|
A deviation in actual experience regarding future persistency, mortality, morbidity, interest rates or equity market returns from the assumptions used in pricing our subsidiaries’ products, in establishing related insurance reserves and in the net amortization of DAC, VOBA, DSI and DFEL, which may reduce future earnings;
|
·
|
Changes in GAAP, including the potential incorporation of International Financial Reporting Standards (“IFRS”) into the U.S. financial reporting system, that may result in unanticipated changes to our net income;
|
·
|
Lowering of one or more of our debt ratings issued by nationally recognized statistical rating organizations and the adverse effect such action may have on our ability to raise capital and on our liquidity and financial condition;
|
·
|
Lowering of one or more of the insurer financial strength ratings of our insurance subsidiaries and the adverse effect such action may have on the premium writings, policy retention, profitability of our insurance subsidiaries and liquidity;
|
·
|
Significant credit, accounting, fraud, corporate governance or other issues that may adversely affect the value of certain investments in our portfolios, as well as counterparties to which we are exposed to credit risk, requiring that we realize losses on investments;
|
·
|
Inability to protect our intellectual property rights or claims of infringement of the intellectual property rights of others;
|
·
|
Interruption in telecommunication, information technology or other operational systems or failure to safeguard the confidentiality or privacy of sensitive data on such systems;
|
·
|
The effect of acquisitions and divestitures, restructurings, product withdrawals and other unusual items;
|
·
|
The adequacy and collectibility of reinsurance that we have purchased;
|
·
|
Acts of terrorism, a pandemic, war or other man-made and natural catastrophes that may adversely affect our businesses and the cost and availability of reinsurance;
|
·
|
Competitive conditions, including pricing pressures, new product offerings and the emergence of new competitors, that may affect the level of premiums and fees that our subsidiaries can charge for their products;
|
·
|
The unknown effect on our subsidiaries’ businesses resulting from changes in the demographics of their client base, as aging baby-boomers move from the asset-accumulation stage to the asset-distribution stage of life; and
|
·
|
Loss of key management, financial planners or wholesalers.
|
·
|
Employee, agent or broker commissions for successful contract acquisitions;
|
·
|
Wholesaler production bonuses for successful contract acquisitions;
|
·
|
Renewal commissions and bonuses to agents or brokers;
|
·
|
Medical and inspection fees for successful contract acquisitions;
|
·
|
Premium-related taxes and assessments; and
|
·
|
A portion of the salaries and benefits of certain employees involved in the underwriting, contract issuance and processing, medical and inspection and sales force contract selling functions related to the successful issuance or renewal of an insurance contract.
|
·
|
Administrative costs;
|
·
|
Rent;
|
·
|
Depreciation;
|
·
|
Occupancy costs;
|
·
|
Equipment costs (including data processing equipment dedicated to acquiring insurance contracts); and
|
·
|
Other general overhead.
|
For the Three
|
|
||||||||||
Months Ended
|
|
||||||||||
September 30,
|
|
||||||||||
2012
|
2011
|
Change
|
|||||||||
Income (loss) from operations: |
|
|
|
||||||||
Annuities | $ | (5 | ) | $ | (18 | ) | 72 | % | |||
Retirement Plan Services | (3 | ) | (2 | ) | -50 | % | |||||
Life Insurance | 36 | 51 | -29 | % | |||||||
Excluded realized gain (loss) (1) | 76 | (78 | ) | 197 | % | ||||||
Income (loss) from continuing operations | $ | 104 | $ | (47 | ) |
NM
|
(1)
|
Includes unlocking related to the non-performance risk (“NPR”) component of our guaranteed living benefit (“GLB”) embedded derivative reserves (see “Realized Gain (Loss) and Benefit Ratio Unlocking – Variable Annuity Net Derivative Results” below for more information).
|
·
|
For Annuities and Retirement Plan Services, we modified our policyholder behavior assumptions and lowered our new money investment yield assumption as discussed above;
|
·
|
For Life Insurance, we modified our policyholder behavior assumptions, partially offset by lowering our new money investment yield assumption as discussed above; and
|
·
|
For excluded realized gain (loss), we modified our policyholder behavior assumptions for GLB riders.
|
·
|
For Annuities, we lowered our long-term equity market growth rate and interest margin assumptions, partially offset by lowering our lapse assumptions;
|
·
|
For Life Insurance, we updated our crediting rate assumptions to reflect actions implemented to reduce interest crediting rates; and
|
·
|
For excluded realized gain (loss), we lowered our assumptions for long-term volatility, partially offset by lowering our lapse assumptions.
|
As of September 30, 2012
|
|
||||||||||||
Quoted
|
|
|
|
|
|
|
|
||||||
Prices
|
|
|
|
|
|
|
|
||||||
in Active
|
|
|
|
|
|
|
|
||||||
Markets for
|
Significant
|
Significant
|
|
|
|
||||||||
Identical
|
Observable
|
Unobservable
|
Total
|
|
|||||||||
Assets
|
Inputs
|
Inputs
|
Fair
|
|
|||||||||
(Level 1)
|
(Level 2)
|
(Level 3)
|
Value
|
|
|||||||||
Priced by third party pricing services
|
$
|
719
|
$
|
71,629
|
$
|
-
|
$
|
72,348
|
|
||||
Priced by independent broker quotations
|
|
-
|
|
-
|
|
3,475
|
|
3,475
|
|
||||
Priced by matrices
|
|
-
|
|
10,766
|
|
-
|
|
10,766
|
|
||||
Priced by other methods (1)
|
|
-
|
|
-
|
|
1,175
|
|
1,175
|
|
||||
Total |
$
|
719
|
$
|
82,395
|
$
|
4,650
|
$
|
87,764
|
|
||||
|
|
|
|
|
|
|
|
|
|||||
Percent of total
|
|
1
|
% |
|
94
|
% |
|
5
|
% |
|
100
|
%
|
(1)
|
Represents primarily securities for which pricing models were used to compute fair value.
|
|
For the Three
|
|
For the Nine
|
|
||||||||||||||||||
|
Months Ended
|
|
Months Ended
|
|
||||||||||||||||||
|
September 30,
|
|
September 30,
|
|
||||||||||||||||||
|
2012
|
2011
|
Change
|
2012
|
2011
|
Change
|
||||||||||||||||
Net Income (Loss) |
|
|
|
|
|
|
||||||||||||||||
Income (loss) from operations: |
|
|
|
|
|
|
||||||||||||||||
Annuities | $ | 139 | $ | 153 | -9 | % | $ | 433 | $ | 442 | -2 | % | ||||||||||
Retirement Plan Services | 29 | 39 | -26 | % | 101 | 129 | -22 | % | ||||||||||||||
Life Insurance | 154 | 154 | 0 | % | 434 | 433 | 0 | % | ||||||||||||||
Group Protection | 16 | 27 | -41 | % | 59 | 77 | -23 | % | ||||||||||||||
Other Operations | (3 | ) | (44 | ) | 93 | % | (75 | ) | (104 | ) | 28 | % | ||||||||||
Excluded realized gain (loss), after-tax | 25 | (121 | ) | 121 | % | (35 | ) | (156 | ) | 78 | % | |||||||||||
Gain (loss) on early extinguishment of debt, after-tax | - | (5 | ) | 100 | % | - | (5 | ) | 100 | % | ||||||||||||
Income (expense) from reserve changes (net of related amortization) on business sold through reinsurance, after-tax | 1 | - |
NM
|
1 | 1 | 0 | % | |||||||||||||||
Impairment of intangibles, after-tax | 2 | - |
NM
|
2 | - |
NM
|
||||||||||||||||
Benefit ratio unlocking, after-tax | 10 | (42 | ) | 124 | % | 24 | (39 | ) | 162 | % | ||||||||||||
Income (loss) from continuing operations, after-tax | 373 | 161 | 132 | % | 944 | 778 | 21 | % | ||||||||||||||
Income (loss) from discontinued operations, after-tax | 29 | (8 | ) |
NM
|
27 | (8 | ) |
NM
|
||||||||||||||
Net income (loss)
|
$ | 402 | $ | 153 | 163 | % | $ | 971 | $ | 770 | 26 | % |
|
For the Three
|
|
For the Nine
|
|
||||||||||||||||
|
Months Ended
|
|
Months Ended
|
|
||||||||||||||||
|
September 30,
|
|
September 30,
|
|
||||||||||||||||
|
2012
|
2011
|
Change
|
2012
|
2011
|
Change
|
||||||||||||||
Deposits |
|
|
|
|
|
|
||||||||||||||
Annuities | $ | 2,677 | $ | 2,709 | -1 | % | $ | 8,025 | $ | 8,274 | -3 | % | ||||||||
Retirement Plan Services | 1,717 | 1,456 | 18 | % | 4,519 | 3,996 | 13 | % | ||||||||||||
Life Insurance | 1,106 | 1,343 | -18 | % | 3,403 | 3,887 | -12 | % | ||||||||||||
Total deposits
|
$ | 5,500 | $ | 5,508 | 0 | % | $ | 15,947 | $ | 16,157 | -1 | % | ||||||||
|
||||||||||||||||||||
Net Flows | ||||||||||||||||||||
Annuities | $ | 396 | $ | 663 | -40 | % | $ | 1,391 | $ | 1,845 | -25 | % | ||||||||
Retirement Plan Services | 232 | 329 | -29 | % | 638 | 285 | 124 | % | ||||||||||||
Life Insurance | 695 | 963 | -28 | % | 2,169 | 2,652 | -18 | % | ||||||||||||
Total net flows
|
$ | 1,323 | $ | 1,955 | -32 | % | $ | 4,198 | $ | 4,782 | -12 | % |
|
As of September 30,
|
|
|||||||||
|
2012
|
2011
|
Change
|
||||||||
Account Values |
|
|
|
||||||||
Annuities | $ | 94,158 | $ | 81,229 | 16 | % | |||||
Retirement Plan Services | 43,103 | 37,020 | 16 | % | |||||||
Life Insurance | 36,589 | 34,419 | 6 | % | |||||||
Total account values
|
$ | 173,850 | $ | 152,668 | 14 | % |
·
|
The effect of favorable prospective unlocking;
|
·
|
Favorable tax adjustments during 2012 due primarily to the release of reserves associated with prior tax years that were closed in the third quarter;
|
·
|
Realized gains on the mark-to-market on certain instruments during 2012 as compared to realized losses during 2011 attributable to spreads narrowing on corporate credit default swaps; and
|
·
|
Growth in account values, insurance in force and group earned premiums.
|
·
|
Higher gross realized gains during 2011 originating from asset sales to reposition the investment portfolio;
|
·
|
Spread compression due to new money rates averaging below our portfolio yields, partially offset by actions implemented to reduce interest crediting rates; and
|
·
|
Strategic investments in technology platforms and distribution processes, partially offset by aggressively managing expenses.
|
For the Three
|
|
For the Nine
|
|
||||||||||||||||||
Months Ended
|
|
Months Ended
|
|||||||||||||||||||
September 30,
|
|
September 30,
|
|
||||||||||||||||||
2012
|
2011
|
Change
|
2012
|
2011
|
Change
|
||||||||||||||||
Operating Revenues |
|
|
|
|
|
|
|||||||||||||||
Insurance premiums (1) | $ | 29 | $ | 15 | 93 | % | $ | 64 | $ | 60 | 7 | % | |||||||||
Insurance fees | 332 | 317 | 5 | % | 980 | 948 | 3 | % | |||||||||||||
Net investment income | 268 | 271 | -1 | % | 819 | 837 | -2 | % | |||||||||||||
Operating realized gain (loss) | 30 | 23 | 30 | % | 82 | 69 | 19 | % | |||||||||||||
Other revenues and fees (2) | 86 | 85 | 1 | % | 265 | 265 | 0 | % | |||||||||||||
Total operating revenues | 745 | 711 | 5 | % | 2,210 | 2,179 | 1 | % | |||||||||||||
Operating Expenses | |||||||||||||||||||||
Interest credited | 146 | 177 | -18 | % | 480 | 530 | -9 | % | |||||||||||||
Benefits | 131 | 87 | 51 | % | 226 | 165 | 37 | % | |||||||||||||
Commissions and other expenses | 295 | 287 | 3 | % | 974 | 961 | 1 | % | |||||||||||||
Total operating expenses | 572 | 551 | 4 | % | 1,680 | 1,656 | 1 | % | |||||||||||||
Income (loss) from operations before taxes | 173 | 160 | 8 | % | 530 | 523 | 1 | % | |||||||||||||
Federal income tax expense (benefit) | 34 | 7 |
NM
|
97 | 81 | 20 | % | ||||||||||||||
Income (loss) from operations
|
$ | 139 | $ | 153 | -9 | % | $ | 433 | $ | 442 | -2 | % |
(1)
|
Includes primarily our single-premium immediate annuities (“SPIA”), which have a corresponding offset in benefits for changes in reserves.
|
(2)
|
Consists primarily of fees attributable to broker-dealer services that are subject to market volatility.
|
·
|
More favorable tax return true-ups recorded in 2011 than in 2012 driven by the separate account dividends-received deduction (“DRD”) and other items;
|
·
|
Higher benefits attributable to the effect of prospective unlocking (see “Critical Accounting Policies and Estimates – DAC, VOBA, DSI and DFEL – Unlocking” for more information); and
|
·
|
Higher commissions and other expenses driven by higher account values driving higher trail commissions and strategic investments in technology platforms and distribution processes.
|
·
|
Higher net investment income, net of interest credited, driven by:
|
§
|
The effect of prospective unlocking (see “Critical Accounting Policies and Estimates – DAC, VOBA, DSI and DFEL – Unlocking” for more information);
|
§
|
Higher average fixed account values since the third quarter of 2011 (see the “Other Information” table within “Net Investment Income and Interest Credited” below for drivers of changes in our account values); and
|
§
|
More favorable investment income on alternative investments within our surplus portfolio (see “Consolidated Investments – Alternative Investments” below for more information);
|
§
|
Spread compression due to new money rates averaging below our portfolio yields, partially offset by actions implemented to reduce interest crediting rates; and
|
§
|
Lower prepayment and bond makewhole premiums (see “Consolidated Investments – Commercial Mortgage Loan Prepayment and Bond Makewhole Premiums” below for more information); and
|
·
|
Higher insurance fees driven by higher average daily variable account values since the third quarter of 2011 (see the “Account Value Information” table within “Insurance Fees” below for drivers of changes in our account values).
|
·
|
Higher benefits attributable to the following:
|
§
|
The effect of prospective unlocking (see “Critical Accounting Policies and Estimates – DAC, VOBA, DSI and DFEL – Unlocking” for more information);
|
§
|
Unfavorable mortality experience on SPIA during 2012 as compared to favorable experience during 2011; and
|
§
|
An increase in the growth in benefit reserves from higher than expected GLB payments;
|
·
|
More favorable tax return true-ups recorded in 2011 than in 2012 driven by the separate account DRD and other items; and
|
·
|
Higher commissions and other expenses driven by higher account values driving higher trail commissions and strategic investments in technology platforms and distribution processes.
|
·
|
Higher insurance fees driven by higher average daily variable account values since the third quarter of 2011 (see the “Account Value Information” table within “Insurance Fees” below for drivers of changes in our account values); and
|
·
|
Higher net investment income, net of interest credited, driven by:
|
§
|
The effect of prospective unlocking (see “Critical Accounting Policies and Estimates – DAC, VOBA, DSI and DFEL – Unlocking” for more information);
|
§
|
Higher average fixed account values since the third quarter of 2011 (see the “Other Information” table within “Net Investment Income and Interest Credited” below for drivers of changes in our account values); and
|
§
|
More favorable investment income on alternative investments within our surplus portfolio (see “Consolidated Investments – Alternative Investments” below for more information);
|
§
|
Spread compression due to new money rates averaging below our portfolio yields, partially offset by actions implemented to reduce interest crediting rates; and
|
§
|
Lower prepayment and bond makewhole premiums (see “Consolidated Investments – Commercial Mortgage Loan Prepayment and Bond Makewhole Premiums” below for more information).
|
|
For the Three
|
|
For the Nine
|
|
||||||||||||||||||
|
Months Ended
|
|
Months Ended
|
|
||||||||||||||||||
|
September 30,
|
|
September 30,
|
|
||||||||||||||||||
|
2012
|
2011
|
Change
|
2012
|
2011
|
Change
|
||||||||||||||||
Insurance Fees |
|
|
|
|
|
|
||||||||||||||||
Mortality, expense and other assessments | $ | 337 | $ | 316 | 7 | % | $ | 979 | $ | 950 | 3 | % | ||||||||||
Surrender charges | 2 | 8 | -75 | % | 12 | 29 | -59 | % | ||||||||||||||
DFEL: | ||||||||||||||||||||||
Deferrals | (5 | ) | (16 | ) | 69 | % | (18 | ) | (51 | ) | 65 | % | ||||||||||
Amortization, net of interest: | ||||||||||||||||||||||
Prospective unlocking | (6 | ) | 6 |
NM
|
(6 | ) | 6 |
NM
|
||||||||||||||
Amortization, net of interest, excluding unlocking | 4 | 3 | 33 | % | 13 | 14 | -7 | % | ||||||||||||||
Total insurance fees
|
$ | 332 | $ | 317 | 5 | % | $ | 980 | $ | 948 | 3 | % |
As of or For the Three
|
|
As of or For the Nine
|
|
|||||||||||||||||
Months Ended
|
|
Months Ended
|
|
|||||||||||||||||
September 30,
|
|
September 30,
|
|
|||||||||||||||||
2012
|
2011
|
Change
|
2012
|
2011
|
Change
|
|||||||||||||||
Account Value Information |
|
|
|
|
|
|
||||||||||||||
Variable annuity deposits (1) | $ | 1,518 | $ | 1,415 | 7 | % | $ | 4,621 | $ | 4,558 | 1 | % | ||||||||
Increases (decreases) in variable annuity account values: | ||||||||||||||||||||
Net flows (1)
|
(97 | ) | (41 | ) |
NM
|
(251 | ) | (243 | ) | -3 | % | |||||||||
Change in market value (1)
|
3,186 | (8,345 | ) | 138 | % | 6,576 | (5,981 | ) | 210 | % | ||||||||||
Transfers to the variable portion of variable annuity products from the fixed portion of variable annuity products
|
696 | 609 | 14 | % | 2,064 | 2,140 | -4 | % | ||||||||||||
Variable annuity account values (1) | 73,400 | 60,774 | 21 | % | 73,400 | 60,774 | 21 | % | ||||||||||||
Average daily variable annuity account values (1) | 71,535 | 65,169 | 10 | % | 69,926 | 66,625 | 5 | % | ||||||||||||
Average daily S&P 500 | 1,402.14 | 1,227.42 | 14 | % | 1,366.26 | 1,282.45 | 7 | % |
(1)
|
Excludes the fixed portion of variable.
|
For the Three
|
|
For the Nine
|
|
||||||||||||||||||
Months Ended
|
|
Months Ended
|
|
||||||||||||||||||
September 30,
|
|
September 30,
|
|
||||||||||||||||||
2012
|
2011
|
Change
|
2012
|
2011
|
Change
|
||||||||||||||||
Net Investment Income |
|
|
|
|
|
|
|||||||||||||||
Fixed maturity securities, mortgage loans on real estate and other, net of investment expenses | $ | 236 | $ | 243 | -3 | % | $ | 711 | $ | 735 | -3 | % | |||||||||
Commercial mortgage loan prepayment and bond makewhole premiums (1) | 2 | 6 | -67 | % | 8 | 23 | -65 | % | |||||||||||||
Alternative investments (2) | - | - |
NM
|
1 | - |
NM
|
|||||||||||||||
Surplus investments (3) | 30 | 22 | 36 | % | 99 | 79 | 25 | % | |||||||||||||
Total net investment income | $ | 268 | $ | 271 | -1 | % | $ | 819 | $ | 837 | -2 | % | |||||||||
Interest Credited | |||||||||||||||||||||
Amount provided to contract holders | $ | 160 | $ | 176 | -9 | % | $ | 491 | $ | 525 | -6 | % | |||||||||
DSI deferrals | (11 | ) | (10 | ) | -10 | % | (30 | ) | (29 | ) | -3 | % | |||||||||
Interest credited before DSI amortization | 149 | 166 | -10 | % | 461 | 496 | -7 | % | |||||||||||||
DSI amortization: | |||||||||||||||||||||
Prospective unlocking | (14 | ) | 2 |
NM
|
(14 | ) | 2 |
NM
|
|||||||||||||
Amortization, excluding unlocking | 11 | 9 | 22 | % | 33 | 32 | 3 | % | |||||||||||||
Total interest credited
|
$ | 146 | $ | 177 | -18 | % | $ | 480 | $ | 530 | -9 | % |
(1)
|
See “Consolidated Investments – Commercial Mortgage Loan Prepayment and Bond Makewhole Premiums” below for additional information.
|
(2)
|
See “Consolidated Investments – Alternative Investments” below for additional information.
|
(3)
|
Represents net investment income on the required statutory surplus for this segment and includes the effect of investment income on alternative investments for such assets that are held in the portfolios supporting statutory surplus versus the portfolios supporting product liabilities.
|
|
For the Three
|
|
For the Nine
|
|
|||||||||||||||||
|
Months Ended
|
Basis
|
Months Ended
|
Basis
|
|||||||||||||||||
|
September 30,
|
Point
|
September 30,
|
Point
|
|||||||||||||||||
|
2012
|
2011
|
Change
|
2012
|
2011
|
Change
|
|||||||||||||||
Interest Rate Spread |
|
|
|
|
|
|
|||||||||||||||
Fixed maturity securities, mortgage loans on real estate and other, net of investment expenses | 4.83 | % | 5.08 | % | (25 | ) | 4.88 | % | 5.18 | % | (30 | ) | |||||||||
Commercial mortgage loan prepayment and bond makewhole premiums | 0.04 | % | 0.12 | % | (8 | ) | 0.05 | % | 0.16 | % | (11 | ) | |||||||||
Net investment income yield on reserves | 4.87 | % | 5.20 | % | (33 | ) | 4.93 | % | 5.34 | % | (41 | ) | |||||||||
|
|||||||||||||||||||||
Interest rate credited to contract holders | 2.94 | % | 3.33 | % | (39 | ) | 3.04 | % | 3.34 | % | (30 | ) | |||||||||
Interest rate spread
|
1.93 | % | 1.87 | % | 6 | 1.89 | % | 2.00 | % | (11 | ) |
As of or For the Three
|
|
As of or For the Nine
|
|
|||||||||||||||||
Months Ended
|
|
Months Ended
|
|
|||||||||||||||||
September 30,
|
|
September 30,
|
|
|||||||||||||||||
2012
|
2011
|
Change
|
2012
|
2011
|
Change
|
|||||||||||||||
Other Information |
|
|
|
|
|
|
||||||||||||||
Fixed annuity deposits (1) | $ | 1,159 | $ | 1,294 | -10 | % | $ | 3,403 | $ | 3,717 | -8 | % | ||||||||
Increases (decreases) in fixed annuity account values: | ||||||||||||||||||||
Net flows (1)
|
493 | 704 | -30 | % | 1,641 | 2,089 | -21 | % | ||||||||||||
Transfers from the fixed portion of variable annuity products to the variable portion of variable annuity products | (696 | ) | (609 | ) | -14 | % | (2,064 | ) | (2,140 | ) | 4 | % | ||||||||
Reinvested interest credited (1)
|
201 | 45 |
NM
|
609 | 445 | 37 | % | |||||||||||||
Fixed annuity account values (1) | 20,757 | 20,455 | 1 | % | 20,757 | 20,455 | 1 | % | ||||||||||||
Average fixed account values (1) | 20,788 | 20,415 | 2 | % | 20,678 | 20,190 | 2 | % | ||||||||||||
Average invested assets on reserves | 19,493 | 19,160 | 2 | % | 19,523 | 18,947 | 3 | % |
(1)
|
Includes the fixed portion of variable.
|
|
For the Three
|
|
For the Nine |
|
||||||||||||||||
|
Months Ended
|
|
Months Ended |
|
||||||||||||||||
|
September 30,
|
|
September 30, |
|
||||||||||||||||
|
2012
|
2011
|
Change
|
2012
|
2011
|
Change
|
||||||||||||||
Benefits |
|
|
|
|
|
|
||||||||||||||
Prospective unlocking | $ | 73 | $ | 43 | 70 | % | $ | 73 | $ | 43 | 70 | % | ||||||||
Net death and other benefits, excluding unlocking | 58 | 44 | 32 | % | 153 | 122 | 25 | % | ||||||||||||
Total benefits
|
$ | 131 | $ | 87 | 51 | % | $ | 226 | $ | 165 | 37 | % |
For the Three
|
|
For the Nine
|
|
||||||||||||||||||||
Months Ended
|
|
Months Ended
|
|
||||||||||||||||||||
September 30,
|
|
September 30,
|
|
||||||||||||||||||||
2012
|
2011
|
Change
|
2012
|
2011
|
Change
|
||||||||||||||||||
|
|
|
|
|
|
||||||||||||||||||
Commissions and Other Expenses |
|
|
|
|
|
|
|||||||||||||||||
Commissions: |
|
|
|
|
|
|
|||||||||||||||||
Deferrable | $ | 124 | $ | 121 | 2 | % | $ | 367 | $ | 357 | 3 | % | |||||||||||
Non-deferrable | 79 | 61 | 30 | % | 221 | 195 | 13 | % | |||||||||||||||
General and administrative expenses | 97 | 85 | 14 | % | 292 | 265 | 10 | % | |||||||||||||||
Inter-segment reimbursement associated with reserve financing and LOC expenses (1) | - | (1 | ) | 100 | % | - | (1 | ) | 100 | % | |||||||||||||
Taxes, licenses and fees | 9 | 5 | 80 | % | 23 | 20 | 15 | % | |||||||||||||||
Total expenses incurred, excluding broker-dealer | 309 | 271 | 14 | % | 903 | 836 | 8 | % | |||||||||||||||
DAC deferrals | (138 | ) | (137 | ) | -1 | % | (411 | ) | (405 | ) | -1 | % | |||||||||||
Total pre-broker-dealer expenses incurred, excluding amortization, net of interest | 171 | 134 | 28 | % | 492 | 431 | 14 | % | |||||||||||||||
DAC and VOBA amortization, net of interest: | |||||||||||||||||||||||
Prospective unlocking | (57 | ) | (11 | ) |
NM
|
(57 | ) | (11 | ) |
NM
|
|||||||||||||
Amortization, net of interest, excluding unlocking | 96 | 78 | 23 | % | 280 | 272 | 3 | % | |||||||||||||||
Broker-dealer expenses incurred | 85 | 86 | -1 | % | 259 | 269 | -4 | % | |||||||||||||||
Total commissions and other expenses | $ | 295 | $ | 287 | 3 | % | $ | 974 | $ | 961 | 1 | % | |||||||||||
DAC Deferrals | |||||||||||||||||||||||
As a percentage of sales/deposits | 5.2 | % | 5.1 | % | 5.1 | % | 4.9 | % |
(1)
|
Represents reimbursements to Annuities from the Life Insurance segment for reserve financing, net of expenses incurred by Annuities for its use of letters of credit (“LOCs”). The inter-segment amounts are not reported on our Consolidated Statements of Income (Loss).
|
For the Three
|
|
For the Nine
|
|
||||||||||||||||||
Months Ended
|
Months Ended
|
|
|||||||||||||||||||
September 30,
|
|
September 30,
|
|
||||||||||||||||||
2012
|
2011
|
Change
|
2012
|
2011
|
Change
|
||||||||||||||||
Operating Revenues |
|
|
|
|
|
|
|||||||||||||||
Insurance fees | $ | 53 | $ | 51 | 4 | % | $ | 158 | $ | 161 | -2 | % | |||||||||
Net investment income | 199 | 193 | 3 | % | 598 | 598 | 0 | % | |||||||||||||
Other revenues and fees (1) | 3 | 3 | 0 | % | 9 | 12 | -25 | % | |||||||||||||
Total operating revenues | 255 | 247 | 3 | % | 765 | 771 | -1 | % | |||||||||||||
Operating Expenses | |||||||||||||||||||||
Interest credited | 114 | 109 | 5 | % | 337 | 326 | 3 | % | |||||||||||||
Benefits | - | 2 | -100 | % | - | 2 | -100 | % | |||||||||||||
Commissions and other expenses | 102 | 83 | 23 | % | 293 | 262 | 12 | % | |||||||||||||
Total operating expenses | 216 | 194 | 11 | % | 630 | 590 | 7 | % | |||||||||||||
Income (loss) from operations before taxes | 39 | 53 | -26 | % | 135 | 181 | -25 | % | |||||||||||||
Federal income tax expense (benefit) | 10 | 14 | -29 | % | 34 | 52 | -35 | % | |||||||||||||
Income (loss) from operations
|
$ | 29 | $ | 39 | -26 | % | $ | 101 | $ | 129 | -22 | % |
(1)
|
Consists primarily of mutual fund account program fees for mid to large employers.
|
·
|
Strategic investments in technology platforms and distribution expansion efforts; and
|
·
|
The effect of prospective unlocking (see “Critical Accounting Policies and Estimates – DAC, VOBA, DSI and DFEL – Unlocking” for more information).
|
·
|
Higher commissions and other expenses driven by strategic investments in technology platforms and distribution expansion efforts;
|
·
|
Lower net investment income, net of interest credited, driven by:
|
§
|
Lower prepayment and bond makewhole premiums (see “Consolidated Investments – Commercial Mortgage Loan Prepayment and Bond Makewhole Premiums” below for more information); and
|
§
|
Spread compression due to new money rates averaging below our portfolio yields, partially offset by actions implemented to reduce interest crediting rates;
|
§
|
Higher average fixed account values since the third quarter of 2011 (see the “Other Information” table within “Net Investment Income and Interest Credited” below for drivers of changes in our account values); and
|
§
|
More favorable investment income on alternative investments within our surplus portfolio (see “Consolidated Investments – Alternative Investments” below for more information); and
|
·
|
Lower insurance fees driven by lower average daily variable account values since the third quarter of 2011 (see the “Account Value Information” table within “Insurance Fees” below for drivers of changes in our account values).
|
|
For the Three
|
|
For the Nine
|
|
|||||||||||||||||
|
Months Ended
|
|
Months Ended
|
|
|||||||||||||||||
|
September 30,
|
|
September 30,
|
|
|||||||||||||||||
|
2012
|
2011
|
Change
|
2012
|
2011
|
Change
|
|||||||||||||||
Insurance Fees |
|
|
|
|
|
|
|||||||||||||||
Annuity expense assessments | $ | 45 | $ | 43 | 5 | % | $ | 133 | $ | 136 | -2 | % | |||||||||
Mutual fund fees | 8 | 7 | 14 | % | 24 | 23 | 4 | % | |||||||||||||
Total expense assessments | 53 | 50 | 6 | % | 157 | 159 | -1 | % | |||||||||||||
Surrender charges | - | 1 | -100 | % | 1 | 2 | -50 | % | |||||||||||||
Total insurance fees
|
$ | 53 | $ | 51 | 4 | % | $ | 158 | $ | 161 | -2 | % |
For the Three
|
|
For the Nine
|
|
||||||||||||||||||
Months Ended
|
|
Months Ended
|
|
||||||||||||||||||
September 30,
|
|
September 30,
|
|
||||||||||||||||||
2012
|
2011
|
Change
|
2012
|
2011
|
Change
|
||||||||||||||||
Account Value Roll Forward – By Product
|
|
|
|
|
|
||||||||||||||||
Total Micro – Small Segment:
|
|
|
|
|
|
|
|||||||||||||||
Balance as of beginning-of-period
|
$ | 6,470 | $ | 6,566 | -1 | % | $ | 6,168 | $ | 6,396 | -4 | % | |||||||||
Gross deposits
|
362 | 312 | 16 | % | 1,152 | 953 | 21 | % | |||||||||||||
Withdrawals and deaths
|
(330 | ) | (336 | ) | 2 | % | (1,110 | ) | (1,045 | ) | -6 | % | |||||||||
Net flows | 32 | (24 | ) | 233 | % | 42 | (92 | ) | 146 | % | |||||||||||
Transfers between fixed and variable accounts | (5 | ) | - |
NM
|
(16 | ) | (6 | ) |
NM
|
||||||||||||
Investment increase and change in market value | 269 | (686 | ) | 139 | % | 572 | (442 | ) | 229 | % | |||||||||||
Balance as of end-of-period | $ | 6,766 | $ | 5,856 | 16 | % | $ | 6,766 | $ | 5,856 | 16 | % | |||||||||
Total Mid – Large Segment:
|
|||||||||||||||||||||
Balance as of beginning-of-period
|
$ | 19,139 | $ | 17,333 | 10 | % | $ | 17,434 | $ | 16,207 | 8 | % | |||||||||
Gross deposits
|
1,186 | 969 | 22 | % | 2,852 | 2,504 | 14 | % | |||||||||||||
Withdrawals and deaths
|
(798 | ) | (408 | ) | -96 | % | (1,697 | ) | (1,463 | ) | -16 | % | |||||||||
Net flows | 388 | 561 | -31 | % | 1,155 | 1,041 | 11 | % | |||||||||||||
Transfers between fixed and variable accounts | (17 | ) | (19 | ) | 11 | % | (24 | ) | (57 | ) | 58 | % | |||||||||
Investment increase and change in market value | 783 | (1,769 | ) | 144 | % | 1,728 | (1,085 | ) | 259 | % | |||||||||||
Balance as of end-of-period | $ | 20,293 | $ | 16,106 | 26 | % | $ | 20,293 | $ | 16,106 | 26 | % | |||||||||
|
|||||||||||||||||||||
Total Multi-Fund® and Other Variable Annuities:
|
|||||||||||||||||||||
Balance as of beginning-of-period
|
$ | 15,788 | $ | 16,388 | -4 | % | $ | 15,531 | $ | 16,221 | -4 | % | |||||||||
Gross deposits
|
169 | 175 | -3 | % | 515 | 539 | -4 | % | |||||||||||||
Withdrawals and deaths
|
(357 | ) | (383 | ) | 7 | % | (1,074 | ) | (1,203 | ) | 11 | % | |||||||||
Net flows | (188 | ) | (208 | ) | 10 | % | (559 | ) | (664 | ) | 16 | % | |||||||||
Investment increase and change in market value | 444 | (1,122 | ) | 140 | % | 1,072 | (499 | ) |
NM
|
||||||||||||
Balance as of end-of-period | $ | 16,044 | $ | 15,058 | 7 | % | $ | 16,044 | $ | 15,058 | 7 | % | |||||||||
Total Annuities and Mutual Funds:
|
|||||||||||||||||||||
Balance as of beginning-of-period
|
$ | 41,397 | $ | 40,287 | 3 | % | $ | 39,133 | $ | 38,824 | 1 | % | |||||||||
Gross deposits
|
1,717 | 1,456 | 18 | % | 4,519 | 3,996 | 13 | % | |||||||||||||
Withdrawals and deaths
|
(1,485 | ) | (1,127 | ) | -32 | % | (3,881 | ) | (3,711 | ) | -5 | % | |||||||||
Net flows | 232 | 329 | -29 | % | 638 | 285 | 124 | % | |||||||||||||
Transfers between fixed and variable accounts | (22 | ) | (19 | ) | -16 | % | (40 | ) | (63 | ) | 37 | % | |||||||||
Investment increase and change in market value | 1,496 | (3,577 | ) | 142 | % | 3,372 | (2,026 | ) | 266 | % | |||||||||||
Balance as of end-of-period (1) | $ | 43,103 | $ | 37,020 | 16 | % | $ | 43,103 | $ | 37,020 | 16 | % |
(1)
|
Includes mutual fund account values and other third-party trustee-held assets. These items are not included in the separate accounts reported on our Consolidated Balance Sheets as we do not have any ownership interest in them.
|
As of or For the Three
|
|
As of or For the Nine
|
|
|||||||||||||||||
Months Ended
|
|
Months Ended
|
|
|||||||||||||||||
September 30,
|
|
September 30,
|
|
|||||||||||||||||
2012
|
2011
|
Change
|
2012
|
2011
|
Change
|
|||||||||||||||
Account Value Information |
|
|
|
|
|
|
||||||||||||||
Variable annuity deposits (1) | $ | 343 | $ | 391 | -12 | % | $ | 1,219 | $ | 1,199 | 2 | % | ||||||||
Increases (decreases) in variable annuity account values: | ||||||||||||||||||||
Net flows (1)
|
(103 | ) | (120 | ) | 14 | % | (291 | ) | (415 | ) | 30 | % | ||||||||
Change in market value (1)
|
632 | (1,888 | ) | 133 | % | 1,405 | (1,176 | ) | 219 | % | ||||||||||
Transfers from the variable portion of variable annuity products to the fixed portion of variable annuity products | (79 | ) | (124 | ) | 36 | % | (193 | ) | (214 | ) | 10 | % | ||||||||
Variable annuity account values (1) | 13,788 | 12,122 | 14 | % | 13,788 | 12,122 | 14 | % | ||||||||||||
Average daily variable annuity account values (1) | 13,558 | 13,217 | 3 | % | 13,507 | 13,889 | -3 | % | ||||||||||||
Average daily S&P 500 | 1,402.14 | 1,227.42 | 14 | % | 1,366.26 | 1,282.45 | 7 | % |
(1)
|
Excludes the fixed portion of variable.
|
For the Three
|
|
For the Nine
|
|
|||||||||||||||||
Months Ended
|
|
Months Ended
|
|
|||||||||||||||||
September 30,
|
|
September 30,
|
|
|||||||||||||||||
2012
|
2011
|
Change
|
2012
|
2011
|
Change
|
|||||||||||||||
Net Investment Income
|
|
|
|
|
|
|
||||||||||||||
Fixed maturity securities, mortgage loans on real estate and other, net of investment expenses | $ | 184 | $ | 180 | 2 | % | $ | 547 | $ | 536 | 2 | % | ||||||||
Commercial mortgage loan prepayment and bond makewhole premiums (1) | - | 1 | -100 | % | 3 | 20 | -85 | % | ||||||||||||
Alternative investments (2)
|
- | - |
NM
|
1 | 1 | 0 | % | |||||||||||||
Surplus investments (3)
|
15 | 12 | 25 | % | 47 | 41 | 15 | % | ||||||||||||
Total net investment income
|
$ | 199 | $ | 193 | 3 | % | $ | 598 | $ | 598 | 0 | % | ||||||||
Interest Credited
|
$ | 114 | $ | 109 | 5 | % | $ | 337 | $ | 326 | 3 | % |
(1)
|
See “Consolidated Investments – Commercial Mortgage Loan Prepayment and Bond Makewhole Premiums” below for additional information.
|
(2)
|
See “Consolidated Investments – Alternative Investments” below for additional information.
|
(3)
|
Represents net investment income on the required statutory surplus for this segment and includes the effect of investment income on alternative investments for such assets that are held in the portfolios supporting statutory surplus versus the portfolios supporting product liabilities.
|
|
For the Three
|
|
For the Nine
|
|
|||||||||||||||||
|
Months Ended
|
Basis
|
Months Ended
|
Basis
|
|||||||||||||||||
|
September 30,
|
Point
|
September 30,
|
Point
|
|||||||||||||||||
|
2012
|
2011
|
Change
|
2012
|
2011
|
Change
|
|||||||||||||||
Interest Rate Spread |
|
|
|
|
|
|
|||||||||||||||
Fixed maturity securities, mortgage loans on real estate and other, net of investment expenses | 5.23 | % | 5.53 | % | (30 | ) | 5.28 | % | 5.57 | % | (29 | ) | |||||||||
Commercial mortgage loan prepayment and bond makewhole premiums | 0.01 | % | 0.04 | % | (3 | ) | 0.02 | % | 0.20 | % | (18 | ) | |||||||||
Alternative investments | 0.00 | % | 0.00 | % | - | 0.01 | % | 0.01 | % | - | |||||||||||
Net investment income yield on reserves | 5.24 | % | 5.57 | % | (33 | ) | 5.31 | % | 5.78 | % | (47 | ) | |||||||||
Interest rate credited to contract holders | 3.22 | % | 3.31 | % | (9 | ) | 3.22 | % | 3.34 | % | (12 | ) | |||||||||
Interest rate spread
|
2.02 | % | 2.26 | % | (24 | ) | 2.09 | % | 2.44 | % | (35 | ) |
As of or For the Three
|
|
As of or For the Nine
|
|
|||||||||||||||||
Months Ended
|
|
Months Ended
|
|
|||||||||||||||||
September 30,
|
|
September 30,
|
|
|||||||||||||||||
2012
|
2011
|
Change
|
2012
|
2011
|
Change
|
|||||||||||||||
Other Information
|
|
|
|
|
|
|
||||||||||||||
Fixed annuity deposits (1)
|
$ | 489 | $ | 378 | 29 | % | $ | 1,206 | $ | 1,042 | 16 | % | ||||||||
Increases (decreases) in fixed annuity account values: | ||||||||||||||||||||
Net flows (1)
|
44 | 22 | 100 | % | (13 | ) | (87 | ) | 85 | % | ||||||||||
Transfers to the fixed portion of variable annuity products from the variable portion of variable annuity products | 79 | 124 | -36 | % | 193 | 214 | -10 | % | ||||||||||||
Reinvested interest credited (1)
|
114 | 111 | 3 | % | 336 | 327 | 3 | % | ||||||||||||
Fixed annuity account values (1)
|
14,242 | 13,395 | 6 | % | 14,242 | 13,395 | 6 | % | ||||||||||||
Average fixed account values (1)
|
14,126 | 13,244 | 7 | % | 13,918 | 13,048 | 7 | % | ||||||||||||
Average invested assets on reserves
|
14,095 | 13,068 | 8 | % | 13,829 | 12,848 | 8 | % |
(1)
|
Includes the fixed portion of variable.
|
|
For the Three
|
|
For the Nine
|
|
|||||||||||||||||||
|
Months Ended
|
|
Months Ended
|
|
|||||||||||||||||||
|
September 30,
|
|
September 30,
|
|
|||||||||||||||||||
|
2012
|
2011
|
Change
|
2012
|
2011
|
Change
|
|||||||||||||||||
Commissions and Other Expenses |
|
|
|
|
|
|
|||||||||||||||||
Commissions: |
|
|
|
|
|
|
|||||||||||||||||
Deferrable | $ | 4 | $ | 5 | -20 | % | $ | 14 | $ | 15 | -7 | % | |||||||||||
Non-deferrable | 13 | 11 | 18 | % | 38 | 35 | 9 | % | |||||||||||||||
General and administrative expenses | 77 | 65 | 18 | % | 224 | 200 | 12 | % | |||||||||||||||
Taxes, licenses and fees | 4 | 3 | 33 | % | 12 | 12 | 0 | % | |||||||||||||||
Total expenses incurred | 98 | 84 | 17 | % | 288 | 262 | 10 | % | |||||||||||||||
DAC deferrals | (9 | ) | (8 | ) | -13 | % | (28 | ) | (26 | ) | -8 | % | |||||||||||
Total expenses recognized before amortization | 89 | 76 | 17 | % | 260 | 236 | 10 | % | |||||||||||||||
DAC and VOBA amortization, net of interest: | |||||||||||||||||||||||
Prospective unlocking | 4 | 2 | 100 | % | 4 | 2 | 100 | % | |||||||||||||||
Amortization, net of interest, excluding unlocking | 9 | 5 | 80 | % | 29 | 24 | 21 | % | |||||||||||||||
Total commissions and other expenses | $ | 102 | $ | 83 | 23 | % | $ | 293 | $ | 262 | 12 | % | |||||||||||
|
|||||||||||||||||||||||
DAC Deferrals | |||||||||||||||||||||||
As a percentage of annuity sales/deposits | 1.1 | % | 1.0 | % | 1.2 | % | 1.2 | % |
|
For the Three
|
|
For the Nine
|
|
|||||||||||||||||
|
Months Ended
|
|
Months Ended
|
|
|||||||||||||||||
|
September 30,
|
|
September 30,
|
|
|||||||||||||||||
|
2012
|
2011
|
Change
|
2012
|
2011
|
Change
|
|||||||||||||||
Operating Revenues |
|
|
|
|
|
|
|||||||||||||||
Insurance premiums | $ | 103 | $ | 104 | -1 | % | $ | 326 | $ | 324 | 1 | % | |||||||||
Insurance fees | 605 | 498 | 21 | % | 1,645 | 1,473 | 12 | % | |||||||||||||
Net investment income | 578 | 569 | 2 | % | 1,773 | 1,736 | 2 | % | |||||||||||||
Operating realized gain | 1 | - |
NM
|
1 | - |
NM
|
|||||||||||||||
Other revenues and fees | 9 | 5 | 80 | % | 20 | 19 | 5 | % | |||||||||||||
Total operating revenues | 1,296 | 1,176 | 10 | % | 3,765 | 3,552 | 6 | % | |||||||||||||
Operating Expenses | |||||||||||||||||||||
Interest credited | 319 | 312 | 2 | % | 941 | 921 | 2 | % | |||||||||||||
Benefits | 296 | 152 | 95 | % | 1,248 | 1,209 | 3 | % | |||||||||||||
Commissions and other expenses | 465 | 493 | -6 | % | 951 | 791 | 20 | % | |||||||||||||
Total operating expenses | 1,080 | 957 | 13 | % | 3,140 | 2,921 | 7 | % | |||||||||||||
Income (loss) from operations before taxes | 216 | 219 | -1 | % | 625 | 631 | -1 | % | |||||||||||||
Federal income tax expense (benefit) | 62 | 65 | -5 | % | 191 | 198 | -4 | % | |||||||||||||
Income (loss) from operations
|
$ | 154 | $ | 154 | 0 | % | $ | 434 | $ | 433 | 0 | % |
·
|
Higher insurance fees due to the effect of prospective unlocking and growth in business in force; and
|
·
|
Lower commissions and other expenses due to the effect of prospective unlocking, partially offset by a higher amortization rate as a result of higher gross profits than our model projections assumed and other reserve changes;
|
·
|
Higher benefits due to:
|
§
|
The effect of prospective unlocking; and
|
§
|
Continued growth in our secondary guarantee life insurance business;
|
§
|
Lower death claims.
|
·
|
Higher insurance fees due to the effect of prospective unlocking and growth in business in force; and
|
·
|
Higher net investment income, net of interest credited, driven by:
|
§
|
Growth in business in force;
|
§
|
Less favorable investment income on alternative investments and lower prepayment and bond makewhole premiums (see “Consolidated Investments – Alternative Investments” and “Consolidated Investments – Commercial Mortgage Loan Prepayment and Bond Makewhole Premiums” below for more information); and
|
§
|
Spread compression due to new money rates averaging below our portfolio yields, partially offset by lower interest crediting rates.
|
·
|
Higher commissions and other expenses attributable to the effect of prospective unlocking and other reserve changes; and
|
·
|
Higher benefits due to:
|
§
|
Higher death claims; and
|
§
|
Continued growth in our secondary guarantee life insurance business;
|
§
|
The effect of prospective unlocking.
|
|
For the Three
|
|
For the Nine
|
|
||||||||||||||||||
|
Months Ended
|
|
Months Ended
|
|
||||||||||||||||||
|
September 30,
|
|
September 30,
|
|
||||||||||||||||||
|
2012
|
2011
|
Change
|
2012
|
2011
|
Change
|
||||||||||||||||
Insurance Fees |
|
|
|
|
|
|
||||||||||||||||
Mortality assessments | $ | 324 | $ | 335 | -3 | % | $ | 991 | $ | 986 | 1 | % | ||||||||||
Expense assessments | 197 | 230 | -14 | % | 608 | 694 | -12 | % | ||||||||||||||
Surrender charges | 25 | 21 | 19 | % | 68 | 73 | -7 | % | ||||||||||||||
DFEL: | ||||||||||||||||||||||
Deferrals | (73 | ) | (119 | ) | 39 | % | (238 | ) | (360 | ) | 34 | % | ||||||||||
Amortization, net of interest: | ||||||||||||||||||||||
Prospective unlocking | 81 | (13 | ) |
NM
|
75 | (28 | ) |
NM
|
||||||||||||||
Amortization, net of interest, excluding unlocking | 51 | 44 | 16 | % | 141 | 108 | 31 | % | ||||||||||||||
Total insurance fees
|
$ | 605 | $ | 498 | 21 | % | $ | 1,645 | $ | 1,473 | 12 | % |
|
For the Three
|
|
For the Nine
|
|
||||||||||||||||||
|
Months Ended
|
|
Months Ended
|
|
||||||||||||||||||
|
September 30,
|
|
September 30,
|
|
||||||||||||||||||
|
2012
|
2011
|
Change
|
2012
|
2011
|
Change
|
||||||||||||||||
Sales by Product |
|
|
|
|
|
|
||||||||||||||||
UL: |
|
|
|
|
|
|
||||||||||||||||
Excluding MoneyGuard® | $ | 38 | $ | 74 | -49 | % | $ | 136 | $ | 242 | -44 | % | ||||||||||
MoneyGuard® | 40 | 48 | -17 | % | 121 | 121 | 0 | % | ||||||||||||||
Total UL | 78 | 122 | -36 | % | 257 | 363 | -29 | % | ||||||||||||||
VUL | 9 | 13 | -31 | % | 31 | 34 | -9 | % | ||||||||||||||
COLI and BOLI | 9 | 8 | 13 | % | 31 | 35 | -11 | % | ||||||||||||||
Term | 16 | 12 | 33 | % | 42 | 39 | 8 | % | ||||||||||||||
Total sales
|
$ | 112 | $ | 155 | -28 | % | $ | 361 | $ | 471 | -23 | % | ||||||||||
|
||||||||||||||||||||||
Net Flows | ||||||||||||||||||||||
Deposits | $ | 1,106 | $ | 1,343 | -18 | % | $ | 3,403 | $ | 3,887 | -12 | % | ||||||||||
Withdrawals and deaths | (411 | ) | (380 | ) | -8 | % | (1,234 | ) | (1,235 | ) | 0 | % | ||||||||||
Net flows | $ | 695 | $ | 963 | -28 | % | $ | 2,169 | $ | 2,652 | -18 | % | ||||||||||
|
||||||||||||||||||||||
Contract holder assessments | $ | 816 | $ | 819 | 0 | % | $ | 2,421 | $ | 2,441 | -1 | % |
|
As of September 30,
|
|
||||||||
|
2012
|
2011
|
Change
|
|||||||
Account Values |
|
|
|
|||||||
UL | $ | 28,883 | $ | 27,485 | 5 | % | ||||
VUL | 5,450 | 4,658 | 17 | % | ||||||
Interest-sensitive whole life | 2,256 | 2,276 | -1 | % | ||||||
Total account values
|
$ | 36,589 | $ | 34,419 | 6 | % | ||||
|
||||||||||
In-Force Face Amount | ||||||||||
UL and other | $ | 308,470 | $ | 304,475 | 1 | % | ||||
Term insurance | 275,992 | 269,969 | 2 | % | ||||||
Total in-force face amount
|
$ | 584,462 | $ | 574,444 | 2 | % |
·
|
MoneyGuard® (our linked-benefit product) – 15% of single premium deposits;
|
·
|
MoneyGuard® (flexible premium option), UL (excluding linked-benefit products) and VUL (including corporate-owned UL and VUL (“COLI”) and bank-owned UL and VUL (“BOLI”)) – first year commissionable premiums plus 5% of excess premiums received, including an adjustment for internal replacements of approximately 50% of commissionable premiums; and
|
·
|
Term – 100% of first year paid premiums.
|
|
As of or For the Three
|
As of or For the Nine
|
|||||||||||
|
Months Ended
|
Months Ended
|
|||||||||||
|
September 30,
|
September 30,
|
|||||||||||
|
2012
|
2011
|
2012
|
2011
|
|||||||||
As a percentage of interest sensitive life insurance in force | 38 | % | 38 | % | 38 | % | 38 | % | |||||
As a percentage of sales
|
26 | % | 46 | % | 31 | % | 49 | % | |||||
|
For the Three
|
|
For the Nine
|
|
|||||||||||||||||
Months Ended
|
|
Months Ended
|
|
|||||||||||||||||
September 30,
|
|
September 30,
|
|
|||||||||||||||||
2012
|
2011
|
Change
|
2012
|
2011
|
Change
|
|||||||||||||||
Net Investment Income
|
|
|
|
|
|
|
||||||||||||||
Fixed maturity securities, mortgage loans on real estate and other, net of investment expenses | $ | 541 | $ | 524 | 3 | % | $ | 1,630 | $ | 1,563 | 4 | % | ||||||||
Commercial mortgage loan prepayment and bond makewhole premiums (1) | 2 | 5 | -60 | % | 10 | 21 | -52 | % | ||||||||||||
Alternative investments (2)
|
3 | 13 | -77 | % | 30 | 61 | -51 | % | ||||||||||||
Surplus investments (3)
|
32 | 27 | 19 | % | 103 | 91 | 13 | % | ||||||||||||
Total net investment income
|
$ | 578 | $ | 569 | 2 | % | $ | 1,773 | $ | 1,736 | 2 | % | ||||||||
Interest Credited
|
$ | 319 | $ | 312 | 2 | % | $ | 941 | $ | 921 | 2 | % |
(1)
|
See “Consolidated Investments – Commercial Mortgage Loan Prepayment and Bond Makewhole Premiums” below for additional information.
|
(2)
|
See “Consolidated Investments – Alternative Investments” below for additional information.
|
(3)
|
Represents net investment income on the required statutory surplus for this segment and includes the effect of investment income on alternative investments for such assets that are held in the portfolios supporting statutory surplus versus the portfolios supporting product liabilities.
|
|
For the Three
|
|
For the Nine
|
|
|||||||||||||||||
|
Months Ended
|
Basis
|
Months Ended
|
Basis
|
|||||||||||||||||
|
September 30,
|
Point
|
September 30,
|
Point
|
|||||||||||||||||
|
2012
|
2011
|
Change
|
2012
|
2011
|
Change
|
|||||||||||||||
Interest Rate Yields and Spread |
|
|
|
|
|
|
|||||||||||||||
Attributable to interest-sensitive products: |
|
|
|
|
|
|
|||||||||||||||
Fixed maturity securities, mortgage loans on real estate and other, net of investment expenses | 5.60 | % | 5.74 | % | (14 | ) | 5.70 | % | 5.82 | % | (12 | ) | |||||||||
Commercial mortgage loan prepayment and bond makewhole premiums | 0.02 | % | 0.06 | % | (4 | ) | 0.04 | % | 0.08 | % | (4 | ) | |||||||||
Alternative investments | 0.03 | % | 0.16 | % | (13 | ) | 0.12 | % | 0.26 | % | (14 | ) | |||||||||
Net investment income yield on reserves | 5.65 | % | 5.96 | % | (31 | ) | 5.86 | % | 6.16 | % | (30 | ) | |||||||||
Interest rate credited to contract holders | 3.92 | % | 4.10 | % | (18 | ) | 3.93 | % | 4.09 | % | (16 | ) | |||||||||
Interest rate spread
|
1.73 | % | 1.86 | % | (13 | ) | 1.93 | % | 2.07 | % | (14 | ) | |||||||||
|
|||||||||||||||||||||
Attributable to traditional products: | |||||||||||||||||||||
Fixed maturity securities, mortgage loans on real estate and other, net of investment expenses | 5.67 | % | 5.90 | % | (23 | ) | 5.73 | % | 5.93 | % | (20 | ) | |||||||||
Commercial mortgage loan prepayment and bond makewhole premiums | 0.00 | % | 0.03 | % | (3 | ) | 0.01 | % | 0.04 | % | (3 | ) | |||||||||
Alternative investments | 0.00 | % | 0.00 | % | - | 0.01 | % | 0.01 | % | - | |||||||||||
Net investment income yield on reserves | 5.67 | % | 5.93 | % | (26 | ) | 5.75 | % | 5.98 | % | (23 | ) |
|
For the Three
|
|
For the Nine
|
|
|||||||||||||||
|
Months Ended
|
|
Months Ended
|
|
|||||||||||||||
|
September 30,
|
|
September 30,
|
|
|||||||||||||||
|
2012
|
2011
|
Change
|
2012
|
2011
|
Change
|
|||||||||||||
Averages
|
|
|
|
|
|
|
|||||||||||||
Attributable to interest-sensitive products:
|
|
|
|
|
|
|
|||||||||||||
Invested assets on reserves
|
$ | 34,321 | $ | 32,080 | 7 | % | $ | 33,801 | $ | 31,454 | 7 | % | |||||||
Account values - universal and whole life
|
31,666 | 30,237 | 5 | % | 31,442 | 29,832 | 5 | % | |||||||||||
|
|||||||||||||||||||
Attributable to traditional products:
|
|||||||||||||||||||
Invested assets on reserves
|
4,374 | 4,311 | 1 | % | 4,310 | 4,290 | 0 | % |
For the Three
|
|
For the Nine
|
|
||||||||||||||||||
Months Ended
|
|
Months Ended
|
|
||||||||||||||||||
September 30,
|
|
September 30,
|
|
||||||||||||||||||
2012
|
2011
|
Change
|
2012
|
2011
|
Change
|
||||||||||||||||
Benefits |
|
|
|
|
|
|
|||||||||||||||
Death claims direct and assumed | $ | 703 | $ | 759 | -7 | % | $ | 2,283 | $ | 2,179 | 5 | % | |||||||||
Death claims ceded | (317 | ) | (377 | ) | 16 | % | (1,102 | ) | (1,047 | ) | -5 | % | |||||||||
Reserves released on death | (132 | ) | (108 | ) | -22 | % | (375 | ) | (345 | ) | -9 | % | |||||||||
Net death benefits | 254 | 274 | -7 | % | 806 | 787 | 2 | % | |||||||||||||
Change in secondary guarantee life insurance product reserves: | |||||||||||||||||||||
Prospective unlocking | (154 | ) | (355 | ) | 57 | % | (145 | ) | (162 | ) | 10 | % | |||||||||
Change in reserves, excluding unlocking | 111 | 128 | -13 | % | 356 | 362 | -2 | % | |||||||||||||
Other benefits: | |||||||||||||||||||||
Prospective unlocking | - | 33 | -100 | % | - | 33 | -100 | % | |||||||||||||
Other benefits, excluding unlocking (1) | 85 | 72 | 18 | % | 231 | 189 | 22 | % | |||||||||||||
Total benefits
|
$ | 296 | $ | 152 | 95 | % | $ | 1,248 | $ | 1,209 | 3 | % | |||||||||
Death claims per $1,000 of in-force | 1.74 | 1.91 | -9 | % | 1.85 | 1.85 | 0 | % |
(1)
|
Includes primarily traditional product changes in reserves and dividends.
|
|
For the Three
|
|
For the Nine
|
|
||||||||||||||||||
|
Months Ended
|
|
Months Ended
|
|
||||||||||||||||||
|
September 30,
|
|
September 30,
|
|
||||||||||||||||||
|
2012
|
2011
|
Change
|
2012
|
2011
|
Change
|
||||||||||||||||
Commissions and Other Expenses |
|
|
|
|
|
|
||||||||||||||||
Commissions | $ | 115 | $ | 161 | -29 | % | $ | 371 | $ | 500 | -26 | % | ||||||||||
General and administrative expenses | 118 | 116 | 2 | % | 357 | 343 | 4 | % | ||||||||||||||
Expenses associated with reserve financing | 17 | 14 | 21 | % | 49 | 42 | 17 | % | ||||||||||||||
Taxes, licenses and fees | 33 | 40 | -18 | % | 102 | 110 | -7 | % | ||||||||||||||
Total expenses incurred | 283 | 331 | -15 | % | 879 | 995 | -12 | % | ||||||||||||||
DAC and VOBA deferrals | (131 | ) | (183 | ) | 28 | % | (420 | ) | (569 | ) | 26 | % | ||||||||||
Total expenses recognized before amortization | 152 | 148 | 3 | % | 459 | 426 | 8 | % | ||||||||||||||
DAC and VOBA amortization, net of interest: | ||||||||||||||||||||||
Prospective unlocking | 180 | 231 | -22 | % | 147 | 17 |
NM
|
|||||||||||||||
Amortization, net of interest, excluding unlocking | 132 | 113 | 17 | % | 342 | 345 | -1 | % | ||||||||||||||
Other intangible amortization | 1 | 1 | 0 | % | 3 | 3 | 0 | % | ||||||||||||||
Total commissions and other expenses | $ | 465 | $ | 493 | -6 | % | $ | 951 | $ | 791 | 20 | % | ||||||||||
|
||||||||||||||||||||||
DAC and VOBA Deferrals | ||||||||||||||||||||||
As a percentage of sales | 117.0 | % | 118.1 | % | 116.3 | % | 120.8 | % |
|
For the Three
|
|
For the Nine
|
|
|||||||||||||||||
|
Months Ended
|
|
Months Ended
|
|
|||||||||||||||||
|
September 30,
|
|
September 30,
|
|
|||||||||||||||||
|
2012
|
2011
|
Change
|
2012
|
2011
|
Change
|
|||||||||||||||
Operating Revenues |
|
|
|
|
|
|
|||||||||||||||
Insurance premiums | $ | 473 | $ | 440 | 8 | % | $ | 1,431 | $ | 1,337 | 7 | % | |||||||||
Net investment income | 41 | 37 | 11 | % | 121 | 115 | 5 | % | |||||||||||||
Other revenues and fees | 3 | 2 | 50 | % | 8 | 6 | 33 | % | |||||||||||||
Total operating revenues | 517 | 479 | 8 | % | 1,560 | 1,458 | 7 | % | |||||||||||||
Operating Expenses | |||||||||||||||||||||
Interest credited | 1 | 1 | 0 | % | 3 | 2 | 50 | % | |||||||||||||
Benefits | 360 | 319 | 13 | % | 1,078 | 991 | 9 | % | |||||||||||||
Commissions and other expenses | 132 | 118 | 12 | % | 389 | 347 | 12 | % | |||||||||||||
Total operating expenses | 493 | 438 | 13 | % | 1,470 | 1,340 | 10 | % | |||||||||||||
Income (loss) from operations before taxes | 24 | 41 | -41 | % | 90 | 118 | -24 | % | |||||||||||||
Federal income tax expense (benefit) | 8 | 14 | -43 | % | 31 | 41 | -24 | % | |||||||||||||
Income (loss) from operations
|
$ | 16 | $ | 27 | -41 | % | $ | 59 | $ | 77 | -23 | % |
|
For the Three
|
|
For the Nine
|
|
|||||||||||||||||
|
Months Ended
|
|
Months Ended
|
|
|||||||||||||||||
|
September 30,
|
|
September 30,
|
|
|||||||||||||||||
|
2012
|
2011
|
Change
|
2012
|
2011
|
Change
|
|||||||||||||||
Income (Loss) from Operations by Product Line |
|
|
|
|
|
|
|||||||||||||||
Life | $ | 6 | $ | 11 | -45 | % | $ | 18 | $ | 28 | -36 | % | |||||||||
Disability | 7 | 15 | -53 | % | 37 | 48 | -23 | % | |||||||||||||
Dental | 2 | - |
NM
|
- | (3 | ) | 100 | % | |||||||||||||
Total non-medical | 15 | 26 | -42 | % | 55 | 73 | -25 | % | |||||||||||||
Medical | 1 | 1 | 0 | % | 4 | 4 | 0 | % | |||||||||||||
Income (loss) from operations
|
$ | 16 | $ | 27 | -41 | % | $ | 59 | $ | 77 | -23 | % |
·
|
Unfavorable total non-medical loss ratio experience; and
|
·
|
Higher commissions and other expenses attributable to strategic investments in sales and distribution processes and technology platforms as well as an increase in business.
|
|
For the Three
|
|
For the Nine
|
|
|||||||||||||||||
|
Months Ended
|
|
Months Ended
|
|
|||||||||||||||||
|
September 30,
|
|
September 30,
|
|
|||||||||||||||||
|
2012
|
2011
|
Change
|
2012
|
2011
|
Change
|
|||||||||||||||
Insurance Premiums by Product Line |
|
|
|
|
|
|
|||||||||||||||
Life | $ | 194 | $ | 174 | 11 | % | $ | 570 | $ | 517 | 10 | % | |||||||||
Disability | 207 | 190 | 9 | % | 610 | 568 | 7 | % | |||||||||||||
Dental | 49 | 46 | 7 | % | 142 | 137 | 4 | % | |||||||||||||
Total non-medical | 450 | 410 | 10 | % | 1,322 | 1,222 | 8 | % | |||||||||||||
Medical | 23 | 30 | -23 | % | 109 | 115 | -5 | % | |||||||||||||
Total insurance premiums
|
$ | 473 | $ | 440 | 8 | % | $ | 1,431 | $ | 1,337 | 7 | % | |||||||||
|
|||||||||||||||||||||
Sales | $ | 97 | $ | 75 | 29 | % | $ | 252 | $ | 187 | 35 | % |
|
For the Three
|
|
For the Nine
|
|
|||||||||||||||||
|
Months Ended
|
|
Months Ended
|
|
|||||||||||||||||
|
September 30,
|
|
September 30,
|
|
|||||||||||||||||
|
2012
|
2011
|
Change
|
2012
|
2011
|
Change
|
|||||||||||||||
|
|
|
|
|
|
||||||||||||||||
Benefits and Interest Credited by Product Line |
|
|
|
|
|
|
|||||||||||||||
Life | $ | 149 | $ | 125 | 19 | % | $ | 437 | $ | 386 | 13 | % | |||||||||
Disability | 158 | 134 | 18 | % | 440 | 396 | 11 | % | |||||||||||||
Dental | 34 | 35 | -3 | % | 107 | 110 | -3 | % | |||||||||||||
Total non-medical | 341 | 294 | 16 | % | 984 | 892 | 10 | % | |||||||||||||
Medical | 20 | 26 | -23 | % | 97 | 101 | -4 | % | |||||||||||||
Total benefits and interest credited
|
$ | 361 | $ | 320 | 13 | % | $ | 1,081 | $ | 993 | 9 | % | |||||||||
|
|||||||||||||||||||||
Loss Ratios by Product Line | |||||||||||||||||||||
Life | 76.8 | % | 72.1 | % | 76.7 | % | 74.7 | % | |||||||||||||
Disability | 76.3 | % | 70.4 | % | 72.0 | % | 70.0 | % | |||||||||||||
Dental | 69.0 | % | 76.2 | % | 75.7 | % | 80.0 | % | |||||||||||||
Total non-medical | 75.7 | % | 71.8 | % | 74.4 | % | 73.1 | % | |||||||||||||
Medical | 85.4 | % | 86.9 | % | 88.1 | % | 87.8 | % |
|
For the Three
|
|
For the Nine
|
|
||||||||||||||||||
|
Months Ended
|
|
Months Ended
|
|
||||||||||||||||||
|
September 30,
|
|
September 30,
|
|
||||||||||||||||||
|
2012
|
2011
|
Change
|
2012
|
2011
|
Change
|
||||||||||||||||
Commissions and Other Expenses |
|
|
|
|
|
|
||||||||||||||||
Commissions | $ | 55 | $ | 50 | 10 | % | $ | 162 | $ | 150 | 8 | % | ||||||||||
General and administrative expenses | 70 | 60 | 17 | % | 200 | 169 | 18 | % | ||||||||||||||
Taxes, licenses and fees | 12 | 12 | 0 | % | 37 | 32 | 16 | % | ||||||||||||||
Total expenses incurred | 137 | 122 | 12 | % | 399 | 351 | 14 | % | ||||||||||||||
DAC deferrals | (15 | ) | (13 | ) | -15 | % | (43 | ) | (32 | ) | -34 | % | ||||||||||
Total expenses recognized before amortization | 122 | 109 | 12 | % | 356 | 319 | 12 | % | ||||||||||||||
DAC and VOBA amortization, net of interest | 10 | 9 | 11 | % | 33 | 28 | 18 | % | ||||||||||||||
Total commissions and other expenses | $ | 132 | $ | 118 | 12 | % | $ | 389 | $ | 347 | 12 | % | ||||||||||
|
||||||||||||||||||||||
DAC Deferrals | ||||||||||||||||||||||
As a percentage of insurance premiums | 3.2 | % | 3.0 | % | 3.0 | % | 2.4 | % |
|
For the Three
|
|
For the Nine
|
|
|||||||||||||||||
|
Months Ended
|
|
Months Ended
|
|
|||||||||||||||||
|
September 30,
|
|
September 30,
|
|
|||||||||||||||||
|
2012
|
2011
|
Change
|
2012
|
2011
|
Change
|
|||||||||||||||
Operating Revenues |
|
|
|
|
|
|
|||||||||||||||
Insurance premiums | $ | - | $ | 1 | -100 | % | $ | 4 | $ | 1 | 300 | % | |||||||||
Net investment income | 61 | 80 | -24 | % | 198 | 237 | -16 | % | |||||||||||||
Amortization of deferred gain on business sold through reinsurance | 18 | 18 | 0 | % | 54 | 54 | 0 | % | |||||||||||||
Media revenues (net) | 21 | 20 | 5 | % | 60 | 56 | 7 | % | |||||||||||||
Other revenues and fees | 1 | 3 | -67 | % | 5 | 4 | 25 | % | |||||||||||||
Total operating revenues | 101 | 122 | -17 | % | 321 | 352 | -9 | % | |||||||||||||
Operating Expenses | |||||||||||||||||||||
Interest credited | 30 | 27 | 11 | % | 91 | 85 | 7 | % | |||||||||||||
Benefits | 43 | 34 | 26 | % | 105 | 95 | 11 | % | |||||||||||||
Media expenses | 16 | 17 | -6 | % | 49 | 51 | -4 | % | |||||||||||||
Other expenses | 33 | 34 | -3 | % | 69 | 62 | 11 | % | |||||||||||||
Interest and debt expense | 68 | 71 | -4 | % | 203 | 215 | -6 | % | |||||||||||||
Total operating expenses | 190 | 183 | 4 | % | 517 | 508 | 2 | % | |||||||||||||
Income (loss) from operations before taxes | (89 | ) | (61 | ) | -46 | % | (196 | ) | (156 | ) | -26 | % | |||||||||
Federal income tax expense (benefit) | (86 | ) | (17 | ) |
NM
|
(121 | ) | (52 | ) |
NM
|
|||||||||||
Income (loss) from operations
|
$ | (3 | ) | $ | (44 | ) | 93 | % | $ | (75 | ) | $ | (104 | ) | 28 | % |
·
|
New money rates averaging below our portfolio yields; and
|
·
|
Repurchases of common stock, net cash used in operating activities due to interest payments and transfers to other segments for other-than-temporary impairment (“OTTI”) resulting in lower average invested assets.
|
For the Three
|
|
For the Nine
|
|
|||||||||||||||||||
Months Ended
|
|
Months Ended
|
|
|||||||||||||||||||
September 30,
|
|
September 30,
|
|
|||||||||||||||||||
2012
|
2011
|
Change
|
2012
|
2011
|
Change
|
|||||||||||||||||
Other Expenses |
|
|
|
|
|
|
||||||||||||||||
General and administrative expenses: |
|
|
|
|
|
|
||||||||||||||||
Legal | $ | - | $ | - |
NM
|
$ | 1 | $ | 2 | -50 | % | |||||||||||
Branding | 4 | 9 | -56 | % | 21 | 19 | 11 | % | ||||||||||||||
Other (1) | 7 | 13 | -46 | % | 34 | 37 | -8 | % | ||||||||||||||
Total general and administrative expenses | 11 | 22 | -50 | % | 56 | 58 | -3 | % | ||||||||||||||
Restructuring charges | 14 | - |
NM
|
14 | - |
NM
|
||||||||||||||||
Taxes, licenses and fees | 11 | 14 | -21 | % | 7 | 11 | -36 | % | ||||||||||||||
Inter-segment reimbursement associated with reserve financing and LOC expenses (2) | (3 | ) | (2 | ) | -50 | % | (8 | ) | (7 | ) | -14 | % | ||||||||||
Total other expenses
|
$ | 33 | $ | 34 | -3 | % | $ | 69 | $ | 62 | 11 | % |
(1)
|
Includes expenses that are corporate in nature including charitable contributions, amortization of media intangible assets with a definite life, other expenses not allocated to our business segments and inter-segment expense eliminations.
|
(2)
|
Consists of reimbursements to Other Operations from the Life Insurance segment for the use of proceeds from certain issuances of senior notes that were used as long-term structured solutions, net of expenses incurred by Other Operations for its use of LOCs.
|
For the Three
|
|
For the Nine
|
|
|||||||||||||||||||
Months Ended
|
|
Months Ended
|
|
|||||||||||||||||||
September 30,
|
|
September 30,
|
|
|||||||||||||||||||
2012
|
2011
|
Change
|
2012
|
2011
|
Change
|
|||||||||||||||||
Components of Realized Gain (Loss), Pre-Tax |
|
|
|
|
|
|
||||||||||||||||
Total operating realized gain (loss) | $ | 31 | $ | 23 | 35 | % | $ | 83 | $ | 69 | 20 | % | ||||||||||
Total excluded realized gain (loss) | 39 | (186 | ) | 121 | % | (55 | ) | (239 | ) | 77 | % | |||||||||||
Total realized gain (loss), pre-tax | $ | 70 | $ | (163 | ) | 143 | % | $ | 28 | $ | (170 | ) | 116 | % | ||||||||
Reconciliation of Excluded Realized Gain (Loss), Net of Benefit Ratio Unlocking, After-Tax | ||||||||||||||||||||||
Total excluded realized gain (loss) | $ | 25 | $ | (121 | ) | 121 | % | $ | (35 | ) | $ | (156 | ) | 78 | % | |||||||
Benefit ratio unlocking | 10 | (42 | ) | 124 | % | 24 | (39 | ) | 162 | % | ||||||||||||
Excluded realized gain (loss) net of benefit ratio unlocking, after-tax | $ | 35 | $ | (163 | ) | 121 | % | $ | (11 | ) | $ | (195 | ) | 94 | % | |||||||
Components of Excluded Realized Gain (Loss) Net of Benefit Ratio Unlocking, After-Tax | ||||||||||||||||||||||
Realized gain (loss) related to certain investments | $ | (35 | ) | $ | (29 | ) | 155 | % | $ | (99 | ) | $ | (60 | ) | 202 | % | ||||||
Gain (loss) on the mark-to-market on certain instruments | 38 | (69 | ) |
NM
|
64 | (63 | ) |
NM
|
||||||||||||||
Variable annuity net derivatives results: | ||||||||||||||||||||||
Hedge program performance | 15 | (91 | ) | 208 | % | (3 | ) | (121 | ) | 98 | % | |||||||||||
Unlocking for GLB reserves hedged | 84 | (78 | ) |
NM
|
84 | (78 | ) | 208 | % |
GLB NPR component | (61 | ) | 106 | 160 | % | (60 | ) | 127 |
NM
|
|||||||||||||
Total variable annuity net derivatives results | 38 | (63 | ) | 160 | % | 21 | (72 | ) | 129 | % | ||||||||||||
Indexed annuity forward-starting option (2) | (6 | ) | (2 | ) |
NM
|
3 | - |
NM
|
||||||||||||||
Excluded realized gain (loss) net of benefit ratio unlocking, after-tax | $ | 35 | $ | (163 | ) | 121 | % | $ | (11 | ) | $ | (195 | ) | 94 | % |
(1)
|
DAC refers to the associated amortization of DAC, VOBA, DSI and DFEL and changes in other contract holder funds and funds withheld reinsurance liabilities.
|
(2)
|
Includes unfavorable prospective unlocking – model refinements of $8 million, after-tax, for the three and nine months ended September 30, 2012.
|
·
|
Realized gains on the mark-to-market on certain instruments during 2012 as compared to realized losses during 2011 attributable to spreads narrowing on corporate credit default swaps; and
|
·
|
Gains on variable annuity net derivatives results during 2012 as compared to losses during 2011 attributable to:
|
§
|
The effect of prospective unlocking (see “Critical Accounting Policies and Estimates – DAC, VOBA, DSI and DFEL – Unlocking” for more information); and
|
§
|
Less volatile capital markets during 2012 resulting in more favorable hedge program performance;
|
§
|
Narrowing of our credit spreads during 2012 resulting in an unfavorable GLB NPR component.
|
|
As of
|
|
|
As of
|
|
|
As of
|
|
|
As of
|
|
|
As of
|
|
||||||
|
September 30, |
June 30,
|
March 31,
|
December 31,
|
September 30,
|
|||||||||||||||
|
2012
|
|
|
2012
|
|
|
2012
|
|
|
2011
|
|
|
2011
|
|
||||||
10-year CDS spread
|
|
2.40
|
%
|
|
|
3.48
|
%
|
|
|
2.40
|
%
|
|
|
3.65
|
%
|
|
|
4.42
|
%
|
|
NPR factor related to 10-year CDS spread
|
|
0.29
|
%
|
|
|
0.45
|
%
|
|
|
0.25
|
%
|
|
|
0.43
|
%
|
|
|
0.51
|
%
|
|
Unadjusted embedded derivative liability
|
$
|
1,432
|
|
|
$
|
2,116
|
|
|
$
|
1,083
|
|
|
$
|
2,418
|
|
|
$
|
2,642
|
|
|
|
|
Percentage of
|
||||||||||||
|
|
|
Total Investments
|
||||||||||||
|
As of
|
As of
|
As of
|
As of
|
|||||||||||
|
September 30,
|
December 31,
|
September 30,
|
December 31,
|
|||||||||||
|
2012
|
2011
|
2012
|
2011
|
|||||||||||
Investments |
|
|
|
|
|||||||||||
AFS securities: |
|
|
|
|
|||||||||||
Fixed maturity | $ | 81,179 | $ | 75,433 | 82.4 | % | 81.0 | % | |||||||
VIEs' fixed maturity | 706 | 700 | 0.7 | % | 0.8 | % | |||||||||
Total fixed maturity | 81,885 | 76,133 | 83.1 | % | 81.8 | % | |||||||||
Equity | 156 | 139 | 0.2 | % | 0.1 | % | |||||||||
Trading securities | 2,650 | 2,675 | 2.7 | % | 2.9 | % | |||||||||
Mortgage loans on real estate | 6,690 | 6,942 | 6.8 | % | 7.4 | % | |||||||||
Real estate | 112 | 137 | 0.1 | % | 0.1 | % | |||||||||
Policy loans | 2,780 | 2,884 | 2.8 | % | 3.1 | % | |||||||||
Derivative investments | 3,072 | 3,151 | 3.1 | % | 3.4 | % | |||||||||
Alternative investments | 873 | 807 | 0.9 | % | 0.9 | % | |||||||||
Other investments | 250 | 262 | 0.3 | % | 0.3 | % | |||||||||
Total investments
|
$ | 98,468 | $ | 93,130 | 100.0 | % | 100.0 | % |
As of September 30, 2012
|
|||||||||||||||||||
|
Gross Unrealized
|
|
%
|
||||||||||||||||
Amortized
|
|
Losses
|
Fair
|
Fair
|
|||||||||||||||
Cost
|
Gains
|
and OTTI
|
Value
|
Value
|
|||||||||||||||
Fixed Maturity AFS Securities |
|
|
|
|
|
||||||||||||||
Industry corporate bonds: |
|
|
|
|
|
||||||||||||||
Financial services | $ | 9,129 | $ | 1,075 | $ | 87 | $ | 10,117 | 12.4 | % | |||||||||
Basic industry | 3,836 | 428 | 18 | 4,246 | 5.2 | % | |||||||||||||
Capital goods | 4,383 | 602 | 19 | 4,966 | 6.1 | % | |||||||||||||
Communications | 3,611 | 554 | 21 | 4,144 | 5.1 | % | |||||||||||||
Consumer cyclical | 3,641 | 486 | 24 | 4,103 | 5.0 | % | |||||||||||||
Consumer non-cyclical | 9,101 | 1,519 | 3 | 10,617 | 13.0 | % | |||||||||||||
Energy | 5,489 | 897 | 2 | 6,384 | 7.8 | % | |||||||||||||
Technology | 1,974 | 255 | 1 | 2,228 | 2.7 | % | |||||||||||||
Transportation | 1,543 | 193 | 1 | 1,735 | 2.1 | % | |||||||||||||
Industrial other | 991 | 98 | 1 | 1,088 | 1.3 | % | |||||||||||||
Utilities | 11,495 | 1,816 | 16 | 13,295 | 16.2 | % | |||||||||||||
Collateralized mortgage and other obligations ("CMOs"): | |||||||||||||||||||
Agency backed | 2,613 | 304 | - | 2,917 | 3.6 | % | |||||||||||||
Non-agency backed | 1,267 | 39 | 71 | 1,235 | 1.5 | % | |||||||||||||
Mortgage pass through securities ("MPTS"): | |||||||||||||||||||
Agency backed | 2,397 | 187 | - | 2,584 | 3.2 | % | |||||||||||||
Non-agency backed | 1 | - | - | 1 | 0.0 | % | |||||||||||||
Commercial mortgage-backed securities ("CMBS"): | |||||||||||||||||||
Non-agency backed | 1,104 | 75 | 53 | 1,126 | 1.4 | % | |||||||||||||
Corporate asset-backed securities ("ABS"): | |||||||||||||||||||
CDOs | 131 | - | 2 | 129 | 0.2 | % | |||||||||||||
Commercial real estate ("CRE") CDOs | 28 | - | 10 | 18 | 0.0 | % | |||||||||||||
Credit card | 666 | 48 | - | 714 | 0.9 | % | |||||||||||||
Home equity | 821 | 5 | 196 | 630 | 0.8 | % | |||||||||||||
Manufactured housing | 73 | 5 | - | 78 | 0.1 | % | |||||||||||||
Auto loan | 14 | - | - | 14 | 0.0 | % | |||||||||||||
Other | 313 | 35 | - | 348 | 0.4 | % | |||||||||||||
Municipals: | |||||||||||||||||||
Taxable | 3,483 | 822 | 7 | 4,298 | 5.2 | % | |||||||||||||
Tax-exempt | 36 | 4 | - | 40 | 0.0 | % | |||||||||||||
Government and government agencies: | |||||||||||||||||||
United States | 1,479 | 253 | - | 1,732 | 2.1 | % | |||||||||||||
Foreign | 1,659 | 254 | 1 | 1,912 | 2.3 | % | |||||||||||||
Hybrid and redeemable preferred securities | 1,176 | 95 | 85 | 1,186 | 1.4 | % | |||||||||||||
Total fixed maturity AFS securities | 72,454 | 10,049 | 618 | 81,885 | 100.0 | % | |||||||||||||
Equity AFS Securities | 143 | 21 | 8 | 156 | |||||||||||||||
Total AFS securities | 72,597 | 10,070 | 626 | 82,041 | |||||||||||||||
Trading Securities (1) | 2,211 | 456 | 17 | 2,650 | |||||||||||||||
Total AFS and trading securities
|
$ | 74,808 | $ | 10,526 | $ | 643 | $ | 84,691 |
|
|
|
|
As of December 31, 2011
|
|||||||||||||||
|
|
|
|
|
|
|
Gross Unrealized
|
|
|
|
|
%
|
|||||||
|
|
|
|
Amortized
|
|
|
|
Losses
|
|
Fair
|
|
Fair
|
|||||||
|
|
|
|
Cost
|
|
Gains
|
|
and OTTI
|
|
Value
|
|
Value
|
|||||||
Fixed Maturity AFS Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Industry corporate bonds:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
Financial services
|
$
|
8,926
|
|
$
|
607
|
|
$
|
158
|
|
$
|
9,375
|
|
12.3
|
% | ||||
|
Basic industry
|
|
3,394
|
|
|
323
|
|
|
27
|
|
|
3,690
|
|
4.8
|
% | ||||
|
Capital goods
|
|
3,933
|
|
|
455
|
|
|
9
|
|
|
4,379
|
|
5.8
|
% | ||||
|
Communications
|
|
3,247
|
|
|
364
|
|
|
37
|
|
|
3,574
|
|
4.7
|
% | ||||
|
Consumer cyclical
|
|
3,226
|
|
|
345
|
|
|
36
|
|
|
3,535
|
|
4.6
|
% | ||||
|
Consumer non-cyclical
|
|
7,956
|
|
|
1,190
|
|
|
1
|
|
|
9,145
|
|
12.0
|
% | ||||
|
Energy
|
|
5,026
|
|
|
690
|
|
|
6
|
|
|
5,710
|
|
7.5
|
% | ||||
|
Technology
|
|
1,682
|
|
|
192
|
|
|
3
|
|
|
1,871
|
|
2.5
|
% | ||||
|
Transportation
|
|
1,360
|
|
|
166
|
|
|
1
|
|
|
1,525
|
|
2.0
|
% | ||||
|
Industrial other
|
|
755
|
|
|
74
|
|
|
3
|
|
|
826
|
|
1.1
|
% | ||||
|
Utilities
|
|
10,644
|
|
|
1,457
|
|
|
27
|
|
|
12,074
|
|
15.8
|
% | ||||
CMOs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
Agency backed
|
|
3,226
|
|
|
357
|
|
|
-
|
|
|
3,583
|
|
4.7
|
% | ||||
|
Non-agency backed
|
|
1,481
|
|
|
12
|
|
|
199
|
|
|
1,294
|
|
1.7
|
% | ||||
MPTS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
Agency backed
|
|
2,982
|
|
|
179
|
|
|
-
|
|
|
3,161
|
|
4.2
|
% | ||||
|
Non-agency backed
|
|
1
|
|
|
-
|
|
|
-
|
|
|
1
|
|
0.0
|
% | ||||
CMBS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
Non-agency backed
|
|
1,642
|
|
|
73
|
|
|
115
|
|
|
1,600
|
|
2.1
|
% | ||||
ABS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
CDOs
|
|
88
|
|
|
-
|
|
|
6
|
|
|
82
|
|
0.1
|
% | ||||
|
CRE CDOs
|
|
33
|
|
|
-
|
|
|
13
|
|
|
20
|
|
0.0
|
% | ||||
|
Credit card
|
|
790
|
|
|
47
|
|
|
-
|
|
|
837
|
|
1.1
|
% | ||||
|
Home equity
|
|
905
|
|
|
3
|
|
|
271
|
|
|
637
|
|
0.8
|
% | ||||
|
Manufactured housing
|
|
85
|
|
|
5
|
|
|
1
|
|
|
89
|
|
0.1
|
% | ||||
|
Auto loan
|
|
52
|
|
|
1
|
|
|
-
|
|
|
53
|
|
0.1
|
% | ||||
|
Other
|
|
246
|
|
|
29
|
|
|
1
|
|
|
274
|
|
0.4
|
% | ||||
Municipals:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
Taxable
|
|
3,452
|
|
|
565
|
|
|
9
|
|
|
4,008
|
|
5.3
|
% | ||||
|
Tax-exempt
|
|
38
|
|
|
1
|
|
|
-
|
|
|
39
|
|
0.1
|
% | ||||
Government and government agencies:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
United States
|
|
1,468
|
|
|
232
|
|
|
-
|
|
|
1,700
|
|
2.2
|
% | ||||
|
Foreign
|
|
1,746
|
|
|
152
|
|
|
4
|
|
|
1,894
|
|
2.5
|
% | ||||
Hybrid and redeemable preferred securities
|
|
1,277
|
|
|
50
|
|
|
170
|
|
|
1,157
|
|
1.5
|
% | |||||
|
|
Total fixed maturity AFS securities
|
|
69,661
|
|
|
7,569
|
|
|
1,097
|
|
|
76,133
|
|
100.0
|
% | |||
Equity AFS Securities
|
|
135
|
|
|
16
|
|
|
12
|
|
|
139
|
|
|
||||||
|
|
|
Total AFS securities
|
|
69,796
|
|
|
7,585
|
|
|
1,109
|
|
|
76,272
|
|
|
|||
Trading Securities (1)
|
|
2,301
|
|
|
408
|
|
|
34
|
|
|
2,675
|
|
|
||||||
|
|
|
|
Total AFS and trading securities
|
$
|
72,097
|
|
$
|
7,993
|
|
$
|
1,143
|
|
$
|
78,947
|
|
|
(1)
|
Certain of our trading securities support our modified coinsurance arrangements (“Modco”), and the investment results are passed directly to the reinsurers. Refer to “Part II – Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Consolidated Investments – Fixed Maturity and Equity Securities Portfolios – Trading Securities” in our 2011 Form 10-K for further details.
|
|
|
|
Rating Agency
|
|
As of September 30, 2012
|
|
As of December 31, 2011
|
|||||||||||||||
NAIC
|
|
Equivalent
|
|
Amortized
|
|
Fair
|
|
% of
|
|
Amortized
|
|
Fair
|
|
% of
|
||||||||
Designation (1)
|
|
Designation (1)
|
|
Cost
|
|
Value
|
|
Total
|
|
Cost
|
|
Value
|
|
Total
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Investment Grade Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
1
|
|
Aaa / Aa / A
|
|
$
|
41,422
|
|
$
|
48,010
|
|
58.6%
|
|
$
|
42,436
|
|
$
|
47,490
|
|
62.4
|
% | |||
2
|
|
Baa
|
|
|
27,286
|
|
|
30,315
|
|
37.0%
|
|
|
23,323
|
|
|
25,237
|
|
33.1
|
% | |||
|
Total investment grade securities |
|
|
68,708
|
|
|
78,325
|
|
95.6%
|
|
|
65,759
|
|
|
72,727
|
|
95.5
|
% | ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Below Investment Grade Securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
3
|
|
Ba
|
|
|
2,474
|
|
|
2,497
|
|
3.0%
|
|
|
2,466
|
|
|
2,350
|
|
3.1
|
% | |||
4
|
|
B
|
|
|
875
|
|
|
768
|
|
0.9%
|
|
|
960
|
|
|
750
|
|
1.0
|
% | |||
5
|
|
Caa and lower
|
|
|
298
|
|
|
218
|
|
0.3%
|
|
|
318
|
|
|
218
|
|
0.3
|
% | |||
6
|
|
In or near default
|
|
|
99
|
|
|
77
|
|
0.2%
|
|
|
158
|
|
|
88
|
|
0.1
|
% | |||
|
Total below investment grade securities |
|
|
3,746
|
|
|
3,560
|
|
4.4%
|
|
|
3,902
|
|
|
3,406
|
|
4.5
|
% | ||||
|
|
Total fixed maturity AFS securities |
|
$
|
72,454
|
|
$
|
81,885
|
|
100.0%
|
|
$
|
69,661
|
|
$
|
76,133
|
|
100.0
|
% | |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Total securities below investment grade as a percentage of total fixed maturity AFS securities |
|
5.2
|
%
|
|
4.3
|
% |
|
|
|
5.6
|
% |
|
4.5
|
% |
|
(1)
|
Based upon the rating designations determined and provided by the National Association of Insurance Commissioners (“NAIC”) or the major credit rating agencies (Fitch Ratings (“Fitch”), Moody’s Investors Service (“Moody’s”) and Standard & Poor’s (“S&P”)). For securities where the ratings assigned by the major credit agencies are not equivalent, the second highest rating assigned is used. For those securities where ratings by the major credit rating agencies are not available, which does not represent a significant amount of our total fixed maturity AFS securities, we base the ratings disclosed upon internal ratings.
|
|
Amortized
|
Fair
|
|||||
|
Cost
|
Value
|
|||||
Spain | $ | 342 | $ | 362 | |||
Ireland | 212 | 210 | |||||
Italy | 139 | 154 | |||||
Portugal | 40 | 37 | |||||
Greece | - | - | |||||
Total
|
$ | 733 | $ | 763 |
|
As of September 30, 2012
|
||||||||||||||||
|
|
Gross
|
Estimated
|
Estimated
|
|
|
|||||||||||
|
|
Unrealized
|
Years
|
Average
|
|
|
|||||||||||
|
|
Losses
|
until Call
|
Years
|
|
|
|||||||||||
|
Fair
|
and
|
or
|
Until
|
Subordination Level
|
||||||||||||
|
|
|
|
|
|
|
|||||||||||
|
Value
|
OTTI
|
Maturity
|
Recovery
|
Current
|
Origination
|
|||||||||||
CMBS
|
$ | 201 | $ | 53 |
1 to 41
|
27 | 26.0 | % | 13.0 | % | |||||||
Hybrid and redeemable preferred securities
|
417 | 85 |
1 to 54
|
29 | N/A | N/A | |||||||||||
|
|
·
|
The current economic environment and market conditions;
|
·
|
Our business strategy and current business plans;
|
·
|
The nature and type of security, including expected maturities and exposure to general credit, liquidity, market and interest rate risk;
|
·
|
Our analysis of data from financial models and other internal and industry sources to evaluate the current effectiveness of our hedging and overall risk management strategies;
|
·
|
The current and expected timing of contractual maturities of our assets and liabilities, expectations of prepayments on investments and expectations for surrenders and withdrawals of life insurance policies and annuity contracts;
|
·
|
The capital risk limits approved by management; and
|
·
|
Our current financial condition and liquidity demands.
|
·
|
Historical and implied volatility of the security;
|
·
|
Length of time and extent to which the fair value has been less than amortized cost;
|
·
|
Adverse conditions specifically related to the security or to specific conditions in an industry or geographic area;
|
·
|
Failure, if any, of the issuer of the security to make scheduled payments; and
|
·
|
Recoveries or additional declines in fair value subsequent to the balance sheet date.
|
Prime Agency
|
Prime/ Non-Agency
|
Alt-A
|
Subprime
|
Total
|
|||||||||||||||||||||||||||
|
|
|
|
|
|||||||||||||||||||||||||||
Fair
|
Amortized
|
Fair
|
Amortized
|
Fair
|
Amortized
|
Fair
|
Amortized
|
Fair
|
Amortized
|
||||||||||||||||||||||
Value
|
Cost
|
Value
|
Cost
|
Value
|
Cost
|
Value
|
Cost
|
Value
|
Cost
|
||||||||||||||||||||||
Type
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||
RMBS
|
$ | 5,500 | $ | 5,010 | $ | 778 | $ | 760 | $ | 459 | $ | 508 | $ | - | $ | - | $ | 6,737 | $ | 6,278 | |||||||||||
ABS home equity
|
4 | 4 | - | - | 209 | 254 | 417 | 563 | 630 | 821 | |||||||||||||||||||||
Total by type (1)(2) | $ | 5,504 | $ | 5,014 | $ | 778 | $ | 760 | $ | 668 | $ | 762 | $ | 417 | $ | 563 | $ | 7,367 | $ | 7,099 | |||||||||||
Rating
|
|||||||||||||||||||||||||||||||
AAA
|
$ | 5,442 | $ | 4,958 | $ | 30 | $ | 28 | $ | 4 | $ | 4 | $ | 29 | $ | 29 | $ | 5,505 | $ | 5,019 | |||||||||||
AA
|
48 | 44 | 42 | 40 | 10 | 10 | 62 | 66 | 162 | 160 | |||||||||||||||||||||
A | 14 | 12 | 39 | 38 | 46 | 45 | 59 | 59 | 158 | 154 | |||||||||||||||||||||
BBB
|
- | - | 52 | 51 | 47 | 48 | 37 | 40 | 136 | 139 | |||||||||||||||||||||
BB and below
|
- | - | 615 | 603 | 561 | 655 | 230 | 369 | 1,406 | 1,627 | |||||||||||||||||||||
Total by rating (1)(2)(3) | $ | 5,504 | $ | 5,014 | $ | 778 | $ | 760 | $ | 668 | $ | 762 | $ | 417 | $ | 563 | $ | 7,367 | $ | 7,099 | |||||||||||
Origination Year
|
|||||||||||||||||||||||||||||||
2004 and prior
|
$ | 1,054 | $ | 959 | $ | 173 | $ | 169 | $ | 209 | $ | 230 | $ | 196 | $ | 234 | $ | 1,632 | $ | 1,592 | |||||||||||
2005 | 726 | 644 | 109 | 113 | 248 | 274 | 162 | 218 | 1,245 | 1,249 | |||||||||||||||||||||
2006 | 210 | 187 | 156 | 148 | 170 | 210 | 58 | 109 | 594 | 654 | |||||||||||||||||||||
2007 | 998 | 891 | 340 | 330 | 41 | 48 | - | - | 1,379 | 1,269 | |||||||||||||||||||||
2008 | 184 | 167 | - | - | - | - | - | - | 184 | 167 | |||||||||||||||||||||
2009 | 929 | 856 | - | - | - | - | 1 | 2 | 930 | 858 | |||||||||||||||||||||
2010 | 858 | 796 | - | - | - | - | - | - | 858 | 796 | |||||||||||||||||||||
2011 | 416 | 389 | - | - | - | - | - | - | 416 | 389 | |||||||||||||||||||||
2012 | 129 | 125 | - | - | - | - | - | - | 129 | 125 | |||||||||||||||||||||
Total by origination year (1)(2) | $ | 5,504 | $ | 5,014 | $ | 778 | $ | 760 | $ | 668 | $ | 762 | $ | 417 | $ | 563 | $ | 7,367 | $ | 7,099 | |||||||||||
Total AFS RMBS as a percentage of total AFS securities | 9.0 | % | 9.8 | % | |||||||||||||||||||||||||||
Total prime/non-agency, Alt-A and subprime as a percentage of total AFS securities | 2.3 | % | 2.9 | % |
(1)
|
Does not include the fair value of trading securities totaling $228 million, which support our Modco reinsurance agreements because investment results for these agreements are passed directly to the reinsurers. The $228 million in trading securities consisted of $204 million prime, $10 million Alt-A and $14 million subprime.
|
(2)
|
Does not include the amortized cost of trading securities totaling $213 million, which support our Modco reinsurance agreements because investment results for these agreements are passed directly to the reinsurers. The $213 million in trading securities consisted of $186 million prime, $11 million Alt-A and $15 million subprime.
|
(3)
|
Based upon the rating designations determined and provided by the major credit rating agencies (Fitch, Moody’s and S&P). For securities where the ratings assigned by the major credit agencies are not equivalent, the second highest rating assigned is used. For those securities where ratings by the major credit rating agencies are not available, which does not represent a significant amount of our total fixed maturity AFS securities, we base the ratings disclosed upon internal ratings.
|
Multiple Property
|
Single Property
|
CRE CDOs
|
Total
|
||||||||||||||||||||||
Fair
|
Amortized
|
Fair
|
Amortized
|
Fair
|
Amortized
|
Fair
|
Amortized
|
||||||||||||||||||
Value
|
Cost
|
Value
|
Cost
|
Value
|
Cost
|
Value
|
Cost
|
||||||||||||||||||
Type
|
|
|
|
|
|
|
|
|
|||||||||||||||||
CMBS
|
$ | 1,082 | $ | 1,039 | $ | 44 | $ | 65 | $ | - | $ | - | $ | 1,126 | $ | 1,104 | |||||||||
CRE CDOs
|
- | - | - | - | 18 | 28 | 18 | 28 | |||||||||||||||||
Total by type (1)(2) | $ | 1,082 | $ | 1,039 | $ | 44 | $ | 65 | $ | 18 | $ | 28 | $ | 1,144 | $ | 1,132 | |||||||||
Rating
|
|||||||||||||||||||||||||
AAA
|
$ | 661 | $ | 604 | $ | 13 | $ | 13 | $ | - | $ | - | $ | 674 | $ | 617 | |||||||||
AA
|
109 | 106 | 10 | 10 | - | - | 119 | 116 | |||||||||||||||||
A | 137 | 130 | 6 | 6 | - | - | 143 | 136 | |||||||||||||||||
BBB
|
92 | 92 | 6 | 6 | 6 | 7 | 104 | 105 | |||||||||||||||||
BB and below
|
83 | 107 | 9 | 30 | 12 | 21 | 104 | 158 | |||||||||||||||||
Total by rating (1)(2)(3) | $ | 1,082 | $ | 1,039 | $ | 44 | $ | 65 | $ | 18 | $ | 28 | $ | 1,144 | $ | 1,132 | |||||||||
Origination Year
|
|||||||||||||||||||||||||
2004 and prior
|
$ | 444 | $ | 436 | $ | 22 | $ | 22 | $ | 2 | $ | 3 | $ | 468 | $ | 461 | |||||||||
2005 | 309 | 289 | 21 | 42 | 6 | 7 | 336 | 338 | |||||||||||||||||
2006 | 138 | 133 | 1 | 1 | 10 | 18 | 149 | 152 | |||||||||||||||||
2007 | 131 | 127 | - | - | - | - | 131 | 127 | |||||||||||||||||
2008 | - | - | |||||||||||||||||||||||
2009 | - | - | |||||||||||||||||||||||
2010 | 60 | 54 | - | - | - | - | 60 | 54 | |||||||||||||||||
Total by origination year (1)(2) | $ | 1,082 | $ | 1,039 | $ | 44 | $ | 65 | $ | 18 | $ | 28 | $ | 1,144 | $ | 1,132 | |||||||||
Total AFS securities backed by pools of commercial mortgages as a percentage of total AFS securities | 1.4 | % | 1.6 | % |
(1)
|
Does not include the fair value of trading securities totaling $22 million, which support our Modco reinsurance agreements because investment results for these agreements are passed directly to the reinsurers. The $22 million in trading securities consisted of $19 million CMBS and $3 million CRE CDOs.
|
(2)
|
Does not include the amortized cost of trading securities totaling $23 million, which support our Modco reinsurance agreements because investment results for these agreements are passed directly to the reinsurers. The $23 million in trading securities consisted of $20 million CMBS and $3 million CRE CDOs.
|
(3)
|
Based upon the rating designations determined and provided by the major credit rating agencies (Fitch, Moody’s and S&P). For securities where the ratings assigned by the major credit agencies are not equivalent, the second highest rating assigned is used. For those securities where ratings by the major credit rating agencies are not available, which does not represent a significant amount of our total fixed maturity AFS securities, we base the ratings disclosed upon internal ratings.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
%
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
Gross
|
||||
|
|
|
|
|
%
|
|
|
|
|
%
|
|
Unrealized |
Unrealized
|
|||||
|
|
Fair
|
|
Fair
|
|
Amortized
|
|
Amortized
|
|
Losses
|
|
Losses
|
||||||
|
|
Value
|
|
Value
|
|
Cost
|
|
Cost
|
|
and OTTI
|
|
and OTTI
|
||||||
ABS
|
$
|
643
|
|
16.8
|
% |
$
|
851
|
|
19.0
|
% |
$
|
208
|
|
33.2
|
% | |||
Banking
|
|
499
|
|
13.0
|
%
|
|
643
|
|
14.4
|
%
|
|
144
|
|
23.0
|
% | |||
CMOs
|
|
466
|
|
12.1
|
%
|
|
536
|
|
12.0
|
%
|
|
71
|
|
11.3
|
% | |||
CMBS
|
|
203
|
|
5.3
|
%
|
|
256
|
|
5.7
|
%
|
|
53
|
|
8.5
|
% | |||
Media - non-cable
|
|
117
|
|
3.0
|
%
|
|
140
|
|
3.1
|
%
|
|
23
|
|
3.7
|
% | |||
Property and casualty insurers
|
|
51
|
|
1.3
|
%
|
|
71
|
|
1.6
|
%
|
|
20
|
|
3.2
|
% | |||
Retailers
|
|
81
|
|
2.1
|
%
|
|
98
|
|
2.2
|
%
|
|
17
|
|
2.7
|
% | |||
Diversified manufacturing
|
|
124
|
|
3.2
|
%
|
|
139
|
|
3.1
|
%
|
|
15
|
|
2.4
|
% | |||
Paper
|
|
97
|
|
2.5
|
%
|
|
108
|
|
2.4
|
%
|
|
11
|
|
1.8
|
% | |||
Industries with unrealized losses less than $10 million |
|
1,565
|
|
40.7
|
%
|
|
1,630
|
|
36.5
|
%
|
|
64
|
|
10.2
|
% | |||
|
Total by industry
|
$
|
3,846
|
|
100.0
|
%
|
$
|
4,472
|
|
100.0
|
%
|
$
|
626
|
|
100.0
|
% | ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Total by industry as a percentage of total AFS securities |
|
4.7
|
%
|
|
|
|
6.2
|
% |
|
|
|
100.0
|
% |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of September 30, 2012
|
As of December 31, 2011
|
|||||||||||||
Carrying
|
|
Carrying
|
|
|||||||||||
Value
|
%
|
Value
|
%
|
|||||||||||
Credit Quality Indicator
|
|
|
|
|
||||||||||
Current
|
$ | 6,646 | 99.3 | % | $ | 6,854 | 98.7 | % | ||||||
Delinquent and in foreclosure (1)
|
44 | 0.7 | % | 88 | 1.3 | % | ||||||||
Total mortgage loans on real estate | $ | 6,690 | 100.0 | % | $ | 6,942 | 100.0 | % |
(1)
|
As of September 30, 2012, and December 31, 2011, there were 10 and 16 mortgage loans on real estate, respectively, that were delinquent and in foreclosure.
|
|
As of
|
As of
|
|||||
|
September 30,
|
December 31, | |||||
|
2012
|
2011
|
|||||
By Segment
|
|
|
|||||
Annuities
|
$ | 1,298 | $ | 1,341 | |||
Retirement Plan Services
|
1,095 | 1,080 | |||||
Life Insurance
|
3,601 | 3,731 | |||||
Group Protection
|
267 | 278 | |||||
Other Operations
|
429 | 512 | |||||
Total mortgage loans on real estate
|
$ | 6,690 | $ | 6,942 |
|
|
|
As of
|
|
|
||
|
|
|
September 30, |
|
|||
|
|
|
2012
|
|
|
||
Allowance for Losses
|
|
|
|
|
|||
Balance as of beginning-of-year
|
$
|
31
|
|
|
|||
|
Additions
|
|
10
|
|
|
||
|
Charge-offs, net of recoveries
|
|
(12
|
)
|
|
||
|
Recoveries
|
|
(8
|
)
|
|
||
|
|
Balance as of end-of-period
|
$
|
21
|
|
|
As of September 30, 2012
|
|
|
As of September 30, 2012
|
|||||||||||
|
Carrying
|
|
|
|
|
Carrying
|
|
|
||||||
|
Value
|
|
%
|
|
|
Value
|
|
%
|
||||||
Property Type
|
|
|
|
|
|
State Exposure
|
|
|
|
|
||||
Office building
|
$
|
2,066
|
|
31.0
|
% |
|
CA
|
$
|
1,464
|
|
22.0
|
% | ||
Industrial
|
|
1,705
|
|
25.5
|
% |
|
TX
|
|
637
|
|
9.5
|
% | ||
Retail
|
|
1,541
|
|
23.0
|
% |
|
MD
|
|
462
|
|
6.9
|
% | ||
Apartment
|
|
1,017
|
|
15.2
|
% |
|
VA
|
|
341
|
|
5.1
|
% | ||
Mixed use
|
|
149
|
|
2.2
|
% |
|
TN
|
|
273
|
|
4.1
|
% | ||
Hotel/Motel
|
|
110
|
|
1.6
|
% |
|
NC
|
|
272
|
|
4.1
|
% | ||
Other commercial
|
|
102
|
|
1.5
|
% |
|
FL
|
|
254
|
|
3.8
|
% | ||
Total |
$
|
6,690
|
|
100.0
|
% |
|
WA
|
|
228
|
|
3.4
|
% | ||
|
|
|
|
|
|
AZ
|
|
220
|
|
3.3
|
% | |||
Geographic Region
|
|
|
|
|
|
GA
|
|
214
|
|
3.2
|
% | |||
Pacific
|
$
|
1,813
|
|
27.1
|
% |
|
NY
|
|
210
|
|
3.1
|
% | ||
South Atlantic
|
|
1,674
|
|
25.1
|
% |
|
IN
|
|
204
|
|
3.0
|
% | ||
West South Central
|
|
656
|
|
9.8
|
% |
|
IL
|
|
177
|
|
2.6
|
% | ||
East North Central
|
|
648
|
|
9.7
|
% |
|
NV
|
|
171
|
|
2.6
|
% | ||
Mountain
|
|
535
|
|
8.0
|
% |
|
OH
|
168
|
|
2.5
|
% | |||
Middle Atlantic
|
|
458
|
|
6.8
|
% |
|
PA
|
|
155
|
|
2.3
|
% | ||
East South Central
|
|
436
|
|
6.5
|
% |
|
MN
|
|
141
|
|
2.1
|
% | ||
West North Central
|
|
333
|
|
5.0
|
% |
|
Other states under 2%
|
|
1,099
|
|
16.4
|
% | ||
New England
|
|
137
|
|
2.0
|
% |
|
Total |
$
|
6,690
|
|
100.0
|
% | ||
Total |
$
|
6,690
|
|
100.0
|
% |
|
|
|
|
|
|
|
|
As of September 30, 2012
|
|
|
|
As of September 30, 2012
|
||||||||
|
|
Principal
|
|
|
|
|
|
Principal
|
|
|
||||
|
|
Amount
|
|
%
|
|
|
|
Amount
|
|
%
|
||||
Origination Year
|
|
|
|
|
|
Future Principal Payments
|
|
|
|
|
||||
2004 and prior
|
$
|
2,120
|
|
31.6
|
% |
|
2012
|
$
|
65
|
|
1.0
|
% | ||
2005
|
|
707
|
|
10.6
|
% |
|
2013
|
|
351
|
|
5.2
|
% | ||
2006
|
|
622
|
|
9.3
|
% |
|
2014
|
|
381
|
|
5.7
|
% | ||
2007
|
|
846
|
|
12.6
|
% |
|
2015
|
|
558
|
|
8.3
|
% | ||
2008
|
|
780
|
|
11.6
|
% |
|
2016
|
|
503
|
|
7.5
|
% | ||
2009
|
|
146
|
|
2.2
|
% |
|
2017 and thereafter
|
|
4,843
|
|
72.3
|
% | ||
2010
|
|
274
|
|
4.1
|
% |
|
|
Total
|
$
|
6,701
|
|
100.0
|
% | |
2011
|
|
896
|
|
13.4
|
% |
|
|
|
|
|
|
|
||
2012
|
|
310
|
|
4.6
|
% |
|
|
|
|
|
|
|
||
|
Total
|
$
|
6,701
|
|
100.0
|
% |
|
|
|
|
|
|
|
For the Three
|
|
For the Nine
|
|
|||||||||||||||||
Months Ended
|
|
Months Ended
|
|
|||||||||||||||||
September 30,
|
|
September 30,
|
|
|||||||||||||||||
2012
|
2011
|
Change
|
2012
|
2011
|
Change
|
|||||||||||||||
Annuities
|
$ | 4 | $ | 1 | 300 | % | $ | 23 | $ | 11 | 109 | % | ||||||||
Retirement Plan Services
|
2 | 1 | 100 | % | 11 | 6 | 83 | % | ||||||||||||
Life Insurance
|
7 | 15 | -53 | % | 52 | 72 | -28 | % | ||||||||||||
Group Protection
|
1 | - |
NM
|
7 | 3 | 133 | % | |||||||||||||
Other Operations
|
- | - |
NM
|
2 | - |
NM
|
||||||||||||||
Total (1) | $ | 14 | $ | 17 | -18 | % | $ | 95 | $ | 92 | 3 | % |
(1)
|
Includes net investment income on the alternative investments supporting the required statutory surplus of our insurance businesses.
|
|
For the Three
|
|
For the Nine
|
|
||||||||||||||||
|
Months Ended
|
|
Months Ended
|
|
||||||||||||||||
|
September 30,
|
|
September 30,
|
|
||||||||||||||||
|
2012
|
2011
|
Change
|
2012
|
2011
|
Change
|
||||||||||||||
Annuities
|
$ | - | $ | - |
NM
|
$ | 5 | $ | 4 | 25 | % | |||||||||
Retirement Plan Services
|
- | - |
NM
|
2 | 2 | 0 | % | |||||||||||||
Life Insurance
|
- | (1 | ) | 100 | % | 23 | 29 | -21 | % | |||||||||||
Group Protection
|
- | - |
NM
|
2 | 2 | 0 | % | |||||||||||||
Total | $ | - | $ | (1 | ) | 100 | % | $ | 32 | $ | 37 | -14 | % |
For the Three
|
|
For the Nine
|
|
||||||||||||||||||
Months Ended
|
|
Months Ended
|
|
||||||||||||||||||
September 30,
|
|
September 30,
|
|
||||||||||||||||||
2012
|
2011
|
Change
|
2012
|
2011
|
Change
|
||||||||||||||||
Net Investment Income |
|
|
|
|
|
|
|||||||||||||||
Fixed maturity AFS securities | $ | 981 | $ | 964 | 2 | % | $ | 2,929 | $ | 2,878 | 2 | % | |||||||||
Equity AFS securities | 2 | 1 | 100 | % | 4 | 4 | 0 | % | |||||||||||||
Trading securities | 36 | 38 | -5 | % | 111 | 116 | -4 | % | |||||||||||||
Mortgage loans on real estate | 97 | 102 | -5 | % | 299 | 306 | -2 | % | |||||||||||||
Real estate | 4 | 5 | -20 | % | 13 | 17 | -24 | % | |||||||||||||
Standby real estate equity commitments | - | - |
NM
|
- | 1 | -100 | % | ||||||||||||||
Policy loans | 37 | 42 | -12 | % | 124 | 125 | -1 | % | |||||||||||||
Invested cash | 1 | 1 | 0 | % | 3 | 3 | 0 | % | |||||||||||||
Commercial mortgage loan prepayment and bond makewhole premiums (1) | 5 | 14 | -64 | % | 22 | 73 | -70 | % | |||||||||||||
Alternative investments (2) | 14 | 17 | -18 | % | 95 | 92 | 3 | % | |||||||||||||
Consent fees | 1 | - |
NM
|
3 | 2 | 50 | % | ||||||||||||||
Other investments | (5 | ) | (3 | ) | -67 | % | (15 | ) | (9 | ) | -67 | % | |||||||||
Investment income | 1,173 | 1,181 | -1 | % | 3,588 | 3,608 | -1 | % | |||||||||||||
Investment expense | (27 | ) | (30 | ) | 10 | % | (79 | ) | (86 | ) | 8 | % | |||||||||
Net investment income
|
$ | 1,146 | $ | 1,151 | 0 | % | $ | 3,509 | $ | 3,522 | 0 | % |
(1)
|
See “Commercial Mortgage Loan Prepayment and Bond Makewhole Premiums” below for additional information.
|
(2)
|
See “Alternative Investments” above for additional information.
|
|
For the Three
|
|
For the Nine
|
|
|||||||||||||||
|
Months Ended
|
Basis
|
Months Ended
|
Basis
|
|||||||||||||||
|
September 30,
|
Point
|
September 30,
|
Point
|
|||||||||||||||
|
2012
|
2011
|
Change
|
2012
|
2011
|
Change
|
|||||||||||||
Interest Rate Yield
|
|
|
|
|
|
|
|||||||||||||
Fixed maturity securities, mortgage loans on real estate and other, net of investment expenses | 5.25 | % | 5.45 | % | (20 | ) | 5.33 | % | 5.52 | % | (19 | ) | |||||||
Commercial mortgage loan prepayment and bond makewhole premiums | 0.02 | % | 0.07 | % | (5 | ) | 0.03 | % | 0.12 | % | (9 | ) | |||||||
Alternative investments
|
0.07 | % | 0.08 | % | (1 | ) | 0.15 | % | 0.15 | % | - | ||||||||
Consent fees
|
0.00 | % | 0.00 | % | - | 0.00 | % | 0.00 | % | - | |||||||||
Net investment income yield on invested assets
|
5.34 | % | 5.60 | % | (26 | ) | 5.51 | % | 5.79 | % | (28 | ) |
|
For the Three
|
|
For the Nine
|
|
|||||||||||||||
|
Months Ended
|
|
Months Ended
|
|
|||||||||||||||
|
September 30,
|
|
September 30,
|
|
|||||||||||||||
|
2012
|
2011
|
Change
|
2012
|
2011
|
Change
|
|||||||||||||
Average invested assets at amortized cost
|
$ | 85,802 | $ | 82,254 | 4 | % | $ | 84,881 | $ | 81,117 | 5 | % |
|
For the Three
|
|
For the Nine
|
|
|||||||||||||||||
|
Months Ended
|
|
Months Ended
|
|
|||||||||||||||||
|
September 30,
|
|
September 30,
|
|
|||||||||||||||||
|
2012
|
2011
|
Change
|
2012
|
2011
|
Change
|
|||||||||||||||
Fixed maturity AFS securities: |
|
|
|
|
|
|
|||||||||||||||
Gross gains | $ | 4 | $ | 17 | -76 | % | $ | 12 | $ | 84 | -86 | % | |||||||||
Gross losses | (49 | ) | (63 | ) | 22 | % | (161 | ) | (177 | ) | 9 | % | |||||||||
Equity AFS securities: | |||||||||||||||||||||
Gross gains | - | - |
NM
|
1 | 10 | -90 | % | ||||||||||||||
Gain (loss) on other investments | (10 | ) | (3 | ) |
NM
|
(8 | ) | 1 |
NM
|
||||||||||||
Associated amortization of DAC, VOBA, DSI, and DFEL and changes in other contract holder funds | 1 | 4 | -75 | % | 3 | (10 | ) | 130 | % | ||||||||||||
Total realized gain (loss) related to certain investments, pre-tax | $ | (54 | ) | $ | (45 | ) | -20 | % | $ | (153 | ) | $ | (92 | ) | -66 | % |
|
For the Three
|
|
For the Nine
|
|
|||||||||||||||||
|
Months Ended
|
|
Months Ended
|
|
|||||||||||||||||
|
September 30,
|
|
September 30,
|
|
|||||||||||||||||
|
2012
|
2011
|
Change
|
2012
|
2011
|
Change
|
|||||||||||||||
OTTI Recognized in Net Income (Loss) |
|
|
|
|
|
|
|||||||||||||||
Corporate bonds | $ | (5 | ) | $ | (3 | ) | -67 | % | $ | (34 | ) | $ | (9 | ) |
NM
|
||||||
RMBS | (16 | ) | (22 | ) | 27 | % | (48 | ) | (65 | ) | 26 | % | |||||||||
CMBS | (14 | ) | (8 | ) | -75 | % | (50 | ) | (47 | ) | -6 | % | |||||||||
CDOs | (2 | ) | - |
NM
|
(2 | ) | (1 | ) | -100 | % | |||||||||||
Hybrid and redeemable preferred securities | - | - |
NM
|
- | (2 | ) | 100 | % | |||||||||||||
Gross OTTI recognized in net income (loss) | (37 | ) | (33 | ) | -12 | % | (134 | ) | (124 | ) | -8 | % | |||||||||
Associated amortization of DAC, VOBA, DSI and DFEL | 5 | 7 | -29 | % | 22 | 26 | -15 | % | |||||||||||||
Net OTTI recognized in net income (loss), pre-tax | $ | (32 | ) | $ | (26 | ) | -23 | % | $ | (112 | ) | $ | (98 | ) | -14 | % | |||||
|
|||||||||||||||||||||
Portion of OTTI Recognized in Other Comprehensive Income ("OCI") | |||||||||||||||||||||
Gross OTTI recognized in OCI | $ | (17 | ) | $ | (21 | ) | 19 | % | $ | (96 | ) | $ | (48 | ) | -100 | % | |||||
Change in DAC, VOBA, DSI and DFEL | 2 | 3 | -33 | % | 14 | 11 | 27 | % | |||||||||||||
Net portion of OTTI recognized in | |||||||||||||||||||||
OCI, pre-tax | $ | (15 | ) | $ | (18 | ) | 17 | % | $ | (82 | ) | $ | (37 | ) |
NM
|
For the Three
|
|
For the Nine
|
|
||||||||||||||||
Months Ended
|
|
Months Ended
|
|
||||||||||||||||
September 30,
|
|
September 30,
|
|
||||||||||||||||
2012
|
2011
|
Change
|
2012
|
2011
|
Change
|
||||||||||||||
Dividends from Subsidiaries
|
|
|
|
|
|
|
|||||||||||||
The Lincoln National Life Insurance Company
|
$ | 200 | $ | 250 | -20 | % | $ | 550 | $ | 550 | 0 | % | |||||||
Other
|
- | 7 | -100 | % | - | 19 | -100 | % | |||||||||||
Loan Repayments and Interest from Subsidiaries | |||||||||||||||||||
Interest on inter-company notes
|
33 | 32 | 3 | % | 97 | 95 | 2 | % | |||||||||||
$ | 233 | $ | 289 | -19 | % | $ | 647 | $ | 664 | -3 | % | ||||||||
Other Cash Flow and Liquidity Items
|
|||||||||||||||||||
Increase (decrease) in commercial paper, net | $ | - | $ | - |
NM
|
$ | - | $ | (100 | ) | 100 | % | |||||||
Net capital received from (paid for taxes on) stock option exercises and restricted stock | - | - |
NM
|
(3 | ) | (1 | ) |
NM
|
|||||||||||
$ | - | $ | - |
NM
|
$ | (3 | ) | $ | (101 | ) | 97 | % |
For the Nine Months Ended September 30, 2012
|
|||||||||||||||||||
|
|
|
Change
|
|
|
||||||||||||||
|
|
Maturities
|
in Fair
|
|
|
||||||||||||||
Beginning
|
|
and
|
Value
|
Other
|
Ending
|
||||||||||||||
Balance
|
Issuance
|
Repayments
|
Hedges
|
Changes (1)
|
Balance
|
||||||||||||||
Short-Term Debt
|
|
|
|
|
|
|
|||||||||||||
Current maturities of long-term debt (2)
|
$ | 300 | $ | - | $ | (300 | ) | $ | - | $ | 200 | $ | 200 | ||||||
Total short-term debt | $ | 300 | $ | - | $ | (300 | ) | $ | - | $ | 200 | $ | 200 | ||||||
Long-Term Debt
|
|||||||||||||||||||
Senior notes
|
$ | 3,730 | $ | 300 | $ | - | $ | (12 | ) | $ | (185 | ) | $ | 3,833 | |||||
Bank borrowing
|
200 | - | - | - | - | 200 | |||||||||||||
Federal Home Loan Bank of Indianapolis ("FHLBI") advance | 250 | - | - | - | - | 250 | |||||||||||||
Capital securities
|
1,211 | - | - | - | - | 1,211 | |||||||||||||
Total long-term debt | $ | 5,391 | $ | 300 | $ | - | $ | (12 | ) | $ | (185 | ) | $ | 5,494 |
(1)
|
Includes the net increase (decrease) in commercial paper, non-cash reclassification of long-term debt to current maturities of long-term debt, accretion of discounts and (amortization) of premiums, as applicable.
|
(2)
|
Consists of a $200 million floating rate senior note maturing on July 18, 2013.
|
|
For the Three
|
|
For the Nine
|
|
||||||||||||||||
|
Months Ended
|
|
Months Ended
|
|
||||||||||||||||
|
September 30,
|
|
September 30,
|
|
||||||||||||||||
|
2012
|
2011
|
Change
|
2012
|
2011
|
Change
|
||||||||||||||
Common dividends to stockholders
|
$ | 22 | $ | 15 | 47 | % | $ | 67 | $ | 48 | 40 | % | ||||||||
Repurchase of common stock
|
100 | 150 | -33 | % | 400 | 375 | 7 | % | ||||||||||||
Total cash returned to stockholders | $ | 122 | $ | 165 | -26 | % | $ | 467 | $ | 423 | 10 | % | ||||||||
|
||||||||||||||||||||
Number of shares repurchased
|
4.157 | 6.713 | -38 | % | 16.649 | 14.276 | 17 | % | ||||||||||||
Average price per share
|
$ | 24.07 | $ | 22.36 | 8 | % | $ | 24.05 | $ | 26.29 | -9 | % |
|
For the Three
|
|
For the Nine
|
|
||||||||||||||||
|
Months Ended
|
|
Months Ended
|
|
||||||||||||||||
|
September 30,
|
|
September 30,
|
|
||||||||||||||||
|
2012
|
2011
|
Change
|
2012
|
2011
|
Change
|
||||||||||||||
Debt service (interest paid)
|
$ | 64 | $ | 62 | 3 | % | $ | 195 | $ | 204 | -4 | % | ||||||||
Capital contribution to subsidiaries
|
- | - |
NM
|
- | 16 | -100 | % | |||||||||||||
Total | $ | 64 | $ | 62 | 3 | % | $ | 195 | $ | 220 | -11 | % |
Account Values
|
||||||||||||||||||
|
Retirement
|
|
|
%
|
||||||||||||||
|
Plan
|
Life
|
|
Account
|
||||||||||||||
Annuities
|
Services
|
Insurance (1)
|
Total
|
Values
|
||||||||||||||
Excess of Crediting Rates over Contract Minimums |
|
|
|
|
|
|||||||||||||
Discretionary rate setting products (2)(3) |
|
|
|
|
|
|||||||||||||
No difference | $ | 7,967 | $ | 9,823 | $ | 26,401 | $ | 44,191 | 70.4 | % | ||||||||
Up to 0.10% | 81 | 2 | - | 83 | 0.1 | % | ||||||||||||
0.11% to 0.20% | 57 | - | - | 57 | 0.1 | % | ||||||||||||
0.21% to 0.30% | 91 | 1 | 264 | 356 | 0.6 | % | ||||||||||||
0.31% to 0.40% | 121 | 15 | - | 136 | 0.2 | % | ||||||||||||
0.41% to 0.50% | 91 | 179 | - | 270 | 0.3 | % | ||||||||||||
0.51% to 0.60% | 59 | - | - | 59 | 0.1 | % | ||||||||||||
0.61% to 0.70% | 48 | 69 | - | 117 | 0.2 | % | ||||||||||||
0.71% to 0.80% | 43 | - | - | 43 | 0.1 | % | ||||||||||||
0.81% to 0.90% | 32 | - | - | 32 | 0.1 | % | ||||||||||||
0.91% to 1.00% | 22 | 121 | - | 143 | 0.2 | % | ||||||||||||
1.01% to 1.50% | 75 | 30 | - | 105 | 0.2 | % | ||||||||||||
1.51% to 2.00% | 5 | - | 162 | 167 | 0.3 | % | ||||||||||||
2.01% to 2.50% | 3 | 1 | - | 4 | 0.0 | % | ||||||||||||
2.51% to 3.00% | 5 | - | - | 5 | 0.0 | % | ||||||||||||
3.01% and above | - | 1 | - | 1 | 0.0 | % | ||||||||||||
Multi-year guarantee and indexed annuity products (4) | 10,829 | - | - | 10,829 | 17.3 | % | ||||||||||||
Total discretionary rate setting products | 19,529 | 10,242 | 26,827 | 56,598 | 90.2 | % | ||||||||||||
Other contracts (5) | 2,116 | 4,000 | - | 6,116 | 9.8 | % | ||||||||||||
Total account values
|
$ | 21,645 | $ | 14,242 | $ | 26,827 | $ | 62,714 | 100.0 | % | ||||||||
Percentage of discretionary rate setting product account values at minimum guaranteed rates | 40.8 | % | 95.9 | % | 98.4 | % | 78.1 | % |
(1)
|
Excludes policy loans.
|
(2)
|
Contracts currently within new money rate bands are grouped according to the corresponding portfolio rate band in which they will fall upon their first anniversary.
|
(3)
|
The average crediting rates for discretionary rate setting products were 58 basis points, 2 basis points and 1 basis point in excess of average minimum guaranteed rates for our Annuities, Retirement Plan Services and Life Insurance segments, respectively.
|
(4)
|
The average crediting rates were 162 basis points in excess of average minimum guaranteed rates for multi-year guarantee products; 6%, 17% and 77% of our total multi-year guarantee account values are scheduled to reset in 2012, 2013 and 2014 and beyond, respectively. Our indexed renewal business resets either annually or bi-annually. Upon reset, we are able to adjust product features to reflect changes in option prices.
|
(5)
|
For Annuities, this amount relates primarily to immediate annuity and short-term dollar cost averaging business. For Retirement Plan Services, this amount relates to indexed-based rate setting products in which the average crediting rates were 1 basis point in excess of average minimum guaranteed rates and 93% of account values were already at their minimum guaranteed rates.
|
|
S&P 500
|
|
S&P 500
|
|
||
|
at 1153 (1)
|
|
at 1729 (1)
|
|
||
Segment
|
|
|
|
|
||
Annuities
|
$
|
(84
|
)
|
$
|
45
|
|
Retirement Plan Services
|
|
(8
|
)
|
|
8
|
|
(1)
|
The baseline for these effects assumes a 4% annual equity market growth rate, depending on the block of business, beginning on October 1, 2012. The baseline is then compared to scenarios of the S&P 500 at the 1153 and 1729 levels, which assume the index moves to those levels over six months and remains at those levels through the next six months. The difference between the baseline and the S&P 500 at the 1153 and 1729 level scenarios is presented in the table.
|
|
|
As of
|
As of
|
|
|||
|
|
September 30,
|
December 31,
|
|
|||
|
|
2012
|
2011
|
|
|||
Rating
|
|
|
|
|
|
||
AA
|
$
|
9
|
$
|
23
|
|
||
A
|
|
41
|
|
56
|
|
||
BBB
|
|
-
|
|
2
|
|
||
|
Total
|
$
|
50
|
$
|
81
|
|
|
|
(a) Total
|
|
|
|
|
(c) Total Number
|
|
(d) Approximate Dollar
|
||
|
|
Number
|
|
(b) Average
|
|
of Shares (or Units)
|
|
Value of Shares (or
|
|||
|
|
of Shares
|
|
Price Paid
|
|
Purchased as Part of
|
|
Units) that May Yet Be
|
|||
|
|
(or Units)
|
|
per Share
|
|
Publicly Announced
|
|
Purchased Under the
|
|||
Period
|
|
Purchased (1)
|
|
(or Unit)
|
|
Plans or Programs (2)
|
|
Plans or Programs (2)(3)
|
|||
7/1/12 - 7/31/12
|
|
364
|
|
$
|
23.48
|
|
-
|
|
$
|
240
|
|
|
|
|
|
|
|
|
|
||||
8/1/12 - 8/31/12
|
|
2,630,625
|
|
|
23.62
|
|
2,612,644
|
|
|
938
|
|
|
|
|
|
|
|
|
|
||||
9/1/12 - 9/30/12
|
|
1,544,579
|
|
|
24.70
|
|
1,544,547
|
|
|
900
|
(1)
|
Of the total number of shares purchased, no shares were received in connection with the exercise of stock options and related taxes and 18,377 shares were withheld for taxes on the vesting of restricted stock units. For the quarter ended September 30, 2012, there were 4,157,191 shares purchased as part of publicly announced plans or programs.
|
(2)
|
On August 8, 2012, our Board authorized an increase in our securities repurchase authorization, bringing the total aggregate repurchase authorization to $1 billion. As of September 30, 2012, our remaining security repurchase authorization was $900 million. The security repurchase authorization does not have an expiration date. The amount and timing of share repurchase depends on key capital ratios, rating agency expectations, the generation of free cash flow and an evaluation of the costs and benefits associated with alternative uses of capital. The shares repurchased in connection with the awards described in Note 19 to the consolidated financial statements of our 2011 Form 10-K are not included in our security repurchase.
|
(3)
|
As of the last day of the applicable month.
|
LINCOLN NATIONAL CORPORATION | |||
By:
|
/s/ RANDAL J. FREITAG
|
||
Randal J. Freitag
Executive Vice President and Chief Financial Officer
|
|||
By:
|
/s/ DOUGLAS N. MILLER
|
||
Douglas N. Miller
Senior Vice President and Chief Accounting Officer
|
|||
Dated: November 7, 2012
|
10.1
|
Amendment No. 2 to the Severance Plan for Officers.
|
10.2
|
Amendment No. 3 to the Severance Plan for Officers.
|
12
|
Historical Ratio of Earnings to Fixed Charges.
|
31.1
|
Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
31.2
|
Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
32.1
|
Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
32.2
|
Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
101.INS
|
XBRL Instance Document.
|
101.SCH
|
XBRL Taxonomy Extension Schema Document.
|
101.CAL
|
XBRL Taxonomy Extension Calculation Linkbase Document.
|
101.LAB
|
XBRL Taxonomy Extension Label Linkbase Document.
|
101.PRE
|
XBRL Taxonomy Extension Presentation Linkbase Document.
|
101.DEF
|
XBRL Taxonomy Extension Definition Linkbase Document.
|