| FAIR VALUE MEASUREMENTS | 12 Months Ended |
| Dec. 31, 2013 |
| FAIR VALUE MEASUREMENTS | ' |
| FAIR VALUE MEASUREMENTS | ' |
| 5. FAIR VALUE MEASUREMENTS |
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| Fair Value Measurements on a Recurring Basis |
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| We carry certain of our financial instruments at fair value. We define the fair value of a financial instrument as the amount that would be received from the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. We are responsible for the determination of the value of the investments carried at fair value and the supporting methodologies and assumptions. |
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| The degree of judgment used in measuring the fair value of financial instruments generally inversely correlates with the level of observable valuation inputs. We maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Financial instruments with quoted prices in active markets generally have more pricing observability and less judgment is used in measuring fair value. Conversely, financial instruments for which no quoted prices are available have less observability and are measured at fair value using valuation models or other pricing techniques that require more judgment. Pricing observability is affected by a number of factors, including the type of financial instrument, whether the financial instrument is new to the market and not yet established, the characteristics specific to the transaction, liquidity and general market conditions. |
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| Fair Value Hierarchy |
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| Assets and liabilities recorded at fair value in the Consolidated Balance Sheets are measured and classified in accordance with a fair value hierarchy consisting of three "levels" based on the observability of inputs available in the marketplace used to measure the fair values as discussed below: |
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| Level 1: Fair value measurements that are based on quoted prices (unadjusted) in active markets that we have the ability to access for identical assets or liabilities. Market price data generally is obtained from exchange or dealer markets. We do not adjust the quoted price for such instruments. |
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| Level 2: Fair value measurements based on inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, and inputs other than quoted prices that are observable for the asset or liability, such as interest rates and yield curves that are observable at commonly quoted intervals. |
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| Level 3: Fair value measurements based on valuation techniques that use significant inputs that are unobservable. Both observable and unobservable inputs may be used to determine the fair values of positions classified in Level 3. The circumstances for using these measurements include those in which there is little, if any, market activity for the asset or liability. Therefore, we must make certain assumptions about the inputs a hypothetical market participant would use to value that asset or liability. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls is determined based on the lowest level input that is significant to the fair value measurement in its entirety. |
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| The following is a description of the valuation methodologies used for instruments carried at fair value. These methodologies are applied to assets and liabilities across the levels discussed above, and it is the observability of the inputs used that determines the appropriate level in the fair value hierarchy for the respective asset or liability. |
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| Valuation Methodologies of Financial Instruments Measured at Fair Value |
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| Incorporation of Credit Risk in Fair Value Measurements |
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| Our Own Credit Risk. Fair value measurements for certain liabilities incorporate our own credit risk by determining the explicit cost for each counterparty to protect against its net credit exposure to us at the balance sheet date by reference to observable AIG CDS or cash bond spreads. A derivative counterparty's net credit exposure to us is determined based on master netting agreements, when applicable, which take into consideration all derivative positions with us, as well as collateral we post with the counterparty at the balance sheet date. We calculate the effect of these credit spread changes using discounted cash flow techniques that incorporate current market interest rates. |
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| Counterparty Credit Risk. Fair value measurements for freestanding derivatives incorporate counterparty credit by determining the explicit cost for us to protect against our net credit exposure to each counterparty at the balance sheet date by reference to observable counterparty CDS spreads, when available. When not available, other directly or indirectly observable credit spreads will be used to derive the best estimates of the counterparty spreads. Our net credit exposure to a counterparty is determined based on master netting agreements, which take into consideration all derivative positions with the counterparty, as well as collateral posted by the counterparty at the balance sheet date. |
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| Fair values for fixed maturity securities based on observable market prices for identical or similar instruments implicitly incorporate counterparty credit risk. Fair values for fixed maturity securities based on internal models incorporate counterparty credit risk by using discount rates that take into consideration cash issuance spreads for similar instruments or other observable information. |
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| The cost of credit protection is determined under a discounted present value approach considering the market levels for single name CDS spreads for each specific counterparty, the mid market value of the net exposure (reflecting the amount of protection required) and the weighted average life of the net exposure. CDS spreads are provided to us by an independent third party. We utilize an interest rate based on the benchmark London Interbank Offered Rate (LIBOR) curve to derive our discount rates. |
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| While this approach does not explicitly consider all potential future behavior of the derivative transactions or potential future changes in valuation inputs, we believe this approach provides a reasonable estimate of the fair value of the assets and liabilities, including consideration of the impact of non-performance risk. |
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| Fixed Maturity Securities |
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| Whenever available, we obtain quoted prices in active markets for identical assets at the balance sheet date to measure fixed maturity securities at fair value. Market price data is generally obtained from dealer markets. |
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| We employ independent third-party valuation service providers to gather, analyze, and interpret market information to derive fair value estimates for individual investments, based upon market-accepted methodologies and assumptions. The methodologies used by these independent third-party valuation services are reviewed and understood by management, through periodic discussion with and information provided by the valuation services. In addition, as discussed further below, control processes are applied to the fair values received from third-party valuation services to ensure the accuracy of these values. |
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| Valuation service providers typically obtain data about market transactions and other key valuation model inputs from multiple sources and, through the use of market-accepted valuation methodologies, which may utilize matrix pricing, financial models, accompanying model inputs and various assumptions, provide a single fair value measurement for individual securities. The inputs used by the valuation service providers include, but are not limited to, market prices from completed transactions for identical securities and transactions for comparable securities, benchmark yields, interest rate yield curves, credit spreads, currency rates, quoted prices for similar securities and other market-observable information, as applicable. If fair value is determined using financial models, these models generally take into account, among other things, market observable information as of the measurement date as well as the specific attributes of the security being valued, including its term, interest rate, credit rating, industry sector, and when applicable, collateral quality and other security or issuer-specific information. When market transactions or other market observable data is limited, the extent to which judgment is applied in determining fair value is greatly increased. |
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| We have control processes designed to ensure that the fair values received from third party valuation services are accurately recorded, that their data inputs and valuation techniques are appropriate and consistently applied and that the assumptions used appear reasonable and consistent with the objective of determining fair value. We assess the reasonableness of individual security values received from valuation service providers through various analytical techniques, and have procedures to escalate related questions internally and to the third party valuation services for resolution. To assess the degree of pricing consensus among various valuation services for specific asset types, we have conducted comparisons of prices received from available sources. We have used these comparisons to establish a hierarchy for the fair values received from third party valuation services to be used for particular security classes. We also validate prices for selected securities through reviews by members of management who have relevant expertise and who are independent of those charged with executing investing transactions. |
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| When our third-party valuation service providers are unable to obtain sufficient market observable information upon which to estimate the fair value for a particular security, fair value is determined either by requesting brokers who are knowledgeable about these securities to provide a price quote, which is generally non-binding, or by employing market accepted valuation models. Broker prices may be based on an income approach, which converts expected future cash flows to a single present value amount, with specific consideration of inputs relevant to particular security types. For structured securities, such inputs may include ratings, collateral types, geographic concentrations, underlying loan vintages, loan delinquencies and defaults, prepayments, and weighted average coupons and maturities. When the volume or level of market activity for a security is limited, certain inputs used to determine fair value may not be observable in the market. Broker prices may also be based on a market approach that considers recent transactions involving identical or similar securities. Fair values provided by brokers are subject to similar control processes to those noted above for fair values from third party valuation services, including management reviews. For those corporate debt instruments (for example, private placements) that are not traded in active markets or that are subject to transfer restrictions, valuations are adjusted to reflect illiquidity and non-transferability, and such adjustments generally are based on available market evidence. When observable price quotations are not available, fair value is determined based on discounted cash flow models using discount rates based on credit spreads, yields or price levels of comparable securities, adjusted for illiquidity and structure. Fair values determined internally are also subject to management review to ensure that valuation models and related inputs are reasonable. |
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| The methodology above is relevant for all fixed maturity securities including residential mortgage backed securities (RMBS), commercial mortgage backed securities (CMBS), collateralized debt obligations (CDO), other asset-backed securities (ABS) and fixed maturity securities issued by government sponsored entities and corporate entities. |
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| Equity Securities Traded in Active Markets |
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| Whenever available, we obtain quoted prices in active markets for identical assets at the balance sheet date to measure equity securities at fair value. Market price data is generally obtained from exchange or dealer markets. |
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| Mortgage and Other Loans Receivable |
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| We estimate the fair value of mortgage and other loans receivable that are measured at fair value by using dealer quotations, discounted cash flow analyses and/or internal valuation models. The determination of fair value considers inputs such as interest rate, maturity, the borrower's creditworthiness, collateral, subordination, guarantees, past-due status, yield curves, credit curves, prepayment rates, market pricing for comparable loans and other relevant factors. |
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| Other Invested Assets |
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| We initially estimate the fair value of investments in certain hedge funds, private equity funds and other investment partnerships by reference to the transaction price. Subsequently, we generally obtain the fair value of these investments from net asset value information provided by the general partner or manager of the investments, the financial statements of which are generally audited annually. We consider observable market data and perform certain control procedures to validate the appropriateness of using the net asset value as a fair value measurement. The fair values of other investments carried at fair value, such as direct private equity holdings, are initially determined based on transaction price and are subsequently estimated based on available evidence such as market transactions in similar instruments, other financing transactions of the issuer and other available financial information for the issuer, with adjustments made to reflect illiquidity as appropriate. |
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| Short-term Investments |
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| For short-term investments that are measured at fair value, the carrying values of these assets approximate fair values because of the relatively short period of time between origination and expected realization, and their limited exposure to credit risk. Securities purchased under agreements to resell (reverse repurchase agreements) are generally treated as collateralized receivables. We report certain receivables arising from securities purchased under agreements to resell as Short-term investments in the Consolidated Balance Sheets. We use market-observable interest rates for receivables measured at fair value. This methodology considers such factors as the coupon rate and yield curves. |
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| Separate Account Assets |
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| Separate account assets are composed primarily of registered and unregistered open-end mutual funds that generally trade daily and are measured at fair value in the manner discussed above for equity securities traded in active markets. |
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| Freestanding Derivatives |
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| Derivative assets and liabilities can be exchange-traded or traded over-the-counter (OTC). We generally value exchange-traded derivatives such as futures and options using quoted prices in active markets for identical derivatives at the balance sheet date. |
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| OTC derivatives are valued using market transactions and other market evidence whenever possible, including market-based inputs to models, model calibration to market clearing transactions, broker or dealer quotations or alternative pricing sources with reasonable levels of price transparency. When models are used, the selection of a particular model to value an OTC derivative depends on the contractual terms of, and specific risks inherent in the instrument, as well as the availability of pricing information in the market. We generally use similar models to value similar instruments. Valuation models require a variety of inputs, including contractual terms, market prices and rates, yield curves, credit curves, measures of volatility, prepayment rates and correlations of such inputs. For OTC derivatives that trade in liquid markets, such as generic forwards, swaps and options, model inputs can generally be corroborated by observable market data by correlation or other means, and model selection does not involve significant management judgment. |
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| For certain OTC derivatives that trade in less liquid markets, where we generally do not have corroborating market evidence to support significant model inputs and cannot verify the model to market transactions, the transaction price may provide the best estimate of fair value. Accordingly, when a pricing model is used to value such an instrument, the model is adjusted so the model value at inception equals the transaction price. We will update valuation inputs in these models only when corroborated by evidence such as similar market transactions, third party pricing services and/or broker or dealer quotations, or other empirical market data. When appropriate, valuations are adjusted for various factors such as liquidity, bid/offer spreads and credit considerations. Such adjustments are generally based on available market evidence. In the absence of such evidence, management's best estimate is used. |
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| Embedded Policy Derivatives |
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| Certain variable annuity and equity-indexed annuity and life contracts contain embedded policy derivatives that we bifurcate from the host contracts and account for separately at fair value, with changes in fair value recognized in earnings. We have concluded these contracts contain (i) written option guarantees on minimum accumulation value, (ii) a series of written options that guarantee withdrawals from the highest anniversary value within a specific period or for life, or (iii) equity-indexed written options that meet the criteria of derivatives that must be bifurcated. |
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| The fair value of embedded policy derivatives contained in certain variable annuity and equity-indexed annuity and life contracts is measured based on actuarial and capital market assumptions related to projected cash flows over the expected lives of the contracts. These cash flow estimates primarily include benefits and related fees assessed, when applicable, and incorporate expectations about policyholder behavior. Estimates of future policyholder behavior are subjective and based primarily on our historical experience. |
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| With respect to embedded policy derivatives in our variable annuity contracts, because of the dynamic and complex nature of the expected cash flows, risk neutral valuations are used. Estimating the underlying cash flows for these products involves judgments regarding expected market rates of return, market volatility, correlations of market index returns to funds, fund performance, discount rates and policyholder behavior. With respect to embedded policy derivatives in our equity-indexed annuity and life contracts, option pricing models are used to estimate fair value, taking into account assumptions for future equity index growth rates, volatility of the equity index, future interest rates, and determinations on adjusting the participation rate and the cap on equity-indexed credited rates in light of market conditions and policyholder behavior assumptions. These methodologies incorporate an explicit risk margin to take into consideration market participant estimates of projected cash flows and policyholder behavior. |
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| We also incorporate our own risk of non-performance in the valuation of the embedded policy derivatives associated with variable annuity and equity-indexed annuity and life contracts. Historically, the expected cash flows were discounted using the interest rate swap curve (swap curve), which is commonly viewed as being consistent with the credit spreads for highly-rated financial institutions (S&P AA-rated or above). A swap curve shows the fixed-rate leg of a non-complex swap against the floating rate (for example, LIBOR) leg of a related tenor. The swap curve was adjusted, as necessary, for anomalies between the swap curve and the U.S. Treasury yield curve. |
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| Super Senior Credit Default Swap Portfolio |
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| We value CDS transactions written on the super senior risk layers of designated pools of debt securities or loans using internal valuation models, third-party price estimates and market indices. The principal market was determined to be the market in which super senior credit default swaps of this type and size would be transacted, or have been transacted, with the greatest volume or level of activity. We have determined that the principal market participants, therefore, would consist of other large financial institutions who participate in sophisticated over-the-counter derivatives markets. The specific valuation methodologies vary based on the nature of the referenced obligations and availability of market prices. |
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| The valuation of the super senior credit derivatives is complex because of the limited availability of market observable information due to the lack of trading and price transparency in certain structured finance markets. These market conditions have increased the reliance on management estimates and judgments in arriving at an estimate of fair value for financial reporting purposes. Further, disparities in the valuation methodologies employed by market participants and the varying judgments reached by such participants when assessing volatile markets have increased the likelihood that the various parties to these instruments may arrive at significantly different estimates as to their fair values. |
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| Our valuation methodologies for the super senior credit default swap portfolio have evolved over time in response to market conditions and the availability of market observable information. We have sought to calibrate the methodologies to available market information and to review the assumptions of the methodologies on a regular basis. |
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| Multi-sector CDO portfolios: We use a modified version of the Binomial Expansion Technique (BET) model to value our credit default swap portfolio written on super senior tranches of multi-sector CDOs of ABS. The BET model was developed in 1996 by a major rating agency to generate expected loss estimates for CDO tranches and derive a credit rating for those tranches, and remains widely used. |
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| We have adapted the BET model to estimate the price of the super senior risk layer or tranche of the CDO. We modified the BET model to imply default probabilities from market prices for the underlying securities and not from rating agency assumptions. To generate the estimate, the model uses the price estimates for the securities comprising the portfolio of a CDO as an input and converts those estimates to credit spreads over current LIBOR-based interest rates. These credit spreads are used to determine implied probabilities of default and expected losses on the underlying securities. This data is then aggregated and used to estimate the expected cash flows of the super senior tranche of the CDO. |
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| Prices for the individual securities held by a CDO are obtained in most cases from the CDO collateral managers, to the extent available. CDO collateral managers provided market prices for 46 percent and 59 percent of the underlying securities used in the valuation at December 31, 2013 and 2012. When a price for an individual security is not provided by a CDO collateral manager, we derive the price through a pricing matrix using prices from CDO collateral managers for similar securities. Matrix pricing is a mathematical technique used principally to value debt securities without relying exclusively on quoted prices for the specific securities, but rather by relying on the relationship of the security to other benchmark quoted securities. Substantially all of the CDO collateral managers who provided prices used dealer prices for all or part of the underlying securities, in some cases supplemented by third-party pricing services. |
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| The BET model also uses diversity scores, weighted average lives, recovery rates and discount rates. We employ a Monte Carlo simulation to assist in quantifying the effect on the valuation of the CDO of the unique aspects of the CDO's structure such as triggers that divert cash flows to the most senior part of the capital structure. The Monte Carlo simulation is used to determine whether an underlying security defaults in a given simulation scenario and, if it does, the security's implied random default time and expected loss. This information is used to project cash flow streams and to determine the expected losses of the portfolio. |
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| In addition to calculating an estimate of the fair value of the super senior CDO security referenced in the credit default swaps using our internal model, we also consider the price estimates for the super senior CDO securities provided by third parties, including counterparties to these transactions, to validate the results of the model and to determine the best available estimate of fair value. In determining the fair value of the super senior CDO security referenced in the credit default swaps, we use a consistent process that considers all available pricing data points and eliminates the use of outlying data points. When pricing data points are within a reasonable range an averaging technique is applied. |
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| Corporate debt/Collateralized loan obligation (CLO) portfolios: For credit default swaps written on portfolios of investment-grade corporate debt, we use a mathematical model that produces results that are closely aligned with prices received from third parties. This methodology uses the current market credit spreads of the names in the portfolios along with the base correlations implied by the current market prices of comparable tranches of the relevant market traded credit indices as inputs. |
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| We estimate the fair value of our obligations resulting from credit default swaps written on CLOs to be equivalent to the par value less the current market value of the referenced obligation. Accordingly, the value is determined by obtaining third-party quotations on the underlying super senior tranches referenced under the credit default swap contract. |
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| Policyholder Contract Deposits |
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| Policyholder contract deposits accounted for at fair value are measured using an earnings approach by taking into consideration the following factors: |
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| Current policyholder account values and related surrender charges; |
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| The present value of estimated future cash inflows (policy fees) and outflows (benefits and maintenance expenses) associated with the product using risk neutral valuations, incorporating expectations about policyholder behavior, market returns and other factors; and |
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| A risk margin that market participants would require for a market return and the uncertainty inherent in the model inputs. |
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| The change in fair value of these policyholder contract deposits is recorded as Policyholder benefits and claims incurred in the Consolidated Statements of Income. |
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| Long-Term Debt |
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| The fair value of non-structured liabilities is generally determined by using market prices from exchange or dealer markets, when available, or discounting expected cash flows using the appropriate discount rate for the applicable maturity. We determine the fair value of structured liabilities and hybrid financial instruments (where performance is linked to structured interest rates, inflation or currency risks) using the appropriate derivative valuation methodology (described above) given the nature of the embedded risk profile. In addition, adjustments are made to the valuations of both non-structured and structured liabilities to reflect our own creditworthiness based on the methodology described under the caption "Incorporation of Credit Risk in Fair Value Measurements — Our Own Credit Risk" above. |
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| Borrowings under obligations of guaranteed investment agreements (GIAs), which are guaranteed by us, are recorded at fair value using discounted cash flow calculations based on interest rates currently being offered for similar contracts and our current market observable implicit credit spread rates with maturities consistent with those remaining for the contracts being valued. Obligations may be called at various times prior to maturity at the option of the counterparty. Interest rates on these borrowings are primarily fixed, vary by maturity and range up to 9.8 percent. |
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| Other Liabilities |
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| Other liabilities measured at fair value include certain securities sold under agreements to repurchase and certain securities sold but not yet purchased. Liabilities arising from securities sold under agreements to repurchase are generally treated as collateralized borrowings. We estimate the fair value of liabilities arising under these agreements by using market-observable interest rates. This methodology considers such factors as the coupon rate, yield curves and other relevant factors. Fair values for securities sold but not yet purchased are based on current market prices. |
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| Assets and Liabilities Measured at Fair Value on a Recurring Basis |
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| The following table presents information about assets and liabilities measured at fair value on a recurring basis and indicates the level of the fair value measurement based on the observability of the inputs used: |
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| December 31, 2013 | | Level 1 | | Level 2 | | Level 3 | | Counterparty | | Cash | | Total | | | | | | | |
| (in millions) | Netting(a) | Collateral(b) | | | | | | |
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| Assets: | | | | | | | | | | | | | | | | | | | | | | | | | |
| Bonds available for sale: | | | | | | | | | | | | | | | | | | | | | | | | | |
| U.S. government and government sponsored entities | | $ | 133 | | $ | 3,062 | | $ | – | | $ | – | | $ | – | | $ | 3,195 | | | | | | | |
| Obligations of states, municipalities and political subdivisions | | | – | | | 28,300 | | | 1,080 | | | – | | | – | | | 29,380 | | | | | | | |
| Non-U.S. governments | | | 508 | | | 21,985 | | | 16 | | | – | | | – | | | 22,509 | | | | | | | |
| Corporate debt | | | – | | | 143,297 | | | 1,255 | | | – | | | – | | | 144,552 | | | | | | | |
| RMBS | | | – | | | 21,207 | | | 14,941 | | | – | | | – | | | 36,148 | | | | | | | |
| CMBS | | | – | | | 5,747 | | | 5,735 | | | – | | | – | | | 11,482 | | | | | | | |
| CDO/ABS | | | – | | | 4,034 | | | 6,974 | | | – | | | – | | | 11,008 | | | | | | | |
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| Total bonds available for sale | | | 641 | | | 227,632 | | | 30,001 | | | – | | | – | | | 258,274 | | | | | | | |
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| Other bond securities: | | | | | | | | | | | | | | | | | | | | | | | | | |
| U.S. government and government sponsored entities | | | 78 | | | 5,645 | | | – | | | – | | | – | | | 5,723 | | | | | | | |
| Obligations of states, municipalities and political subdivisions | | | – | | | 121 | | | – | | | – | | | – | | | 121 | | | | | | | |
| Non-U.S. governments | | | – | | | 2 | | | – | | | – | | | – | | | 2 | | | | | | | |
| Corporate debt | | | – | | | 1,169 | | | – | | | – | | | – | | | 1,169 | | | | | | | |
| RMBS | | | – | | | 1,326 | | | 937 | | | – | | | – | | | 2,263 | | | | | | | |
| CMBS | | | – | | | 509 | | | 844 | | | – | | | – | | | 1,353 | | | | | | | |
| CDO/ABS | | | – | | | 3,158 | | | 8,834 | | | – | | | – | | | 11,992 | | | | | | | |
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| Total other bond securities | | | 78 | | | 11,930 | | | 10,615 | | | – | | | – | | | 22,623 | | | | | | | |
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| Equity securities available for sale: | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common stock | | | 3,218 | | | – | | | 1 | | | – | | | – | | | 3,219 | | | | | | | |
| Preferred stock | | | – | | | 27 | | | – | | | – | | | – | | | 27 | | | | | | | |
| Mutual funds | | | 408 | | | 2 | | | – | | | – | | | – | | | 410 | | | | | | | |
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| Total equity securities available for sale | | | 3,626 | | | 29 | | | 1 | | | – | | | – | | | 3,656 | | | | | | | |
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| Other equity securities | | | 750 | | | 84 | | | – | | | – | | | – | | | 834 | | | | | | | |
| Mortgage and other loans receivable | | | – | | | – | | | – | | | – | | | – | | | – | | | | | | | |
| Other invested assets | | | 1 | | | 2,667 | | | 5,930 | | | – | | | – | | | 8,598 | | | | | | | |
| Derivative assets: | | | | | | | | | | | | | | | | | | | | | | | | | |
| Interest rate contracts | | | 14 | | | 3,716 | | | 41 | | | – | | | – | | | 3,771 | | | | | | | |
| Foreign exchange contracts | | | – | | | 52 | | | – | | | – | | | – | | | 52 | | | | | | | |
| Equity contracts | | | 151 | | | 106 | | | 49 | | | – | | | – | | | 306 | | | | | | | |
| Commodity contracts | | | – | | | – | | | 1 | | | – | | | – | | | 1 | | | | | | | |
| Credit contracts | | | – | | | – | | | 55 | | | – | | | – | | | 55 | | | | | | | |
| Other contracts | | | – | | | 1 | | | 33 | | | – | | | – | | | 34 | | | | | | | |
| Counterparty netting and cash collateral | | | – | | | – | | | – | | | (1,734 | ) | | (820 | ) | | (2,554 | ) | | | | | | |
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| Total derivative assets | | | 165 | | | 3,875 | | | 179 | | | (1,734 | ) | | (820 | ) | | 1,665 | | | | | | | |
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| Short-term investments | | | 332 | | | 5,981 | | | – | | | – | | | – | | | 6,313 | | | | | | | |
| Separate account assets | | | 67,708 | | | 3,351 | | | – | | | – | | | – | | | 71,059 | | | | | | | |
| Other assets | | | – | | | 418 | | | – | | | – | | | – | | | 418 | | | | | | | |
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| Total | | $ | 73,301 | | $ | 255,967 | | $ | 46,726 | | $ | (1,734 | ) | $ | (820 | ) | $ | 373,440 | | | | | | | |
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| Liabilities: | | | | | | | | | | | | | | | | | | | | | | | | | |
| Policyholder contract deposits | | $ | – | | $ | 72 | | $ | 312 | | $ | – | | $ | – | | $ | 384 | | | | | | | |
| Derivative liabilities: | | | | | | | | | | | | | | | | | | | | | | | | | |
| Interest rate contracts | | | – | | | 3,661 | | | 141 | | | – | | | – | | | 3,802 | | | | | | | |
| Foreign exchange contracts | | | – | | | 319 | | | – | | | – | | | – | | | 319 | | | | | | | |
| Equity contracts | | | – | | | 101 | | | – | | | – | | | – | | | 101 | | | | | | | |
| Commodity contracts | | | – | | | 5 | | | – | | | – | | | – | | | 5 | | | | | | | |
| Credit contracts | | | – | | | – | | | 1,335 | | | – | | | – | | | 1,335 | | | | | | | |
| Other contracts | | | – | | | 25 | | | 142 | | | – | | | – | | | 167 | | | | | | | |
| Counterparty netting and cash collateral | | | – | | | – | | | – | | | (1,734 | ) | | (1,484 | ) | | (3,218 | ) | | | | | | |
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| Total derivative liabilities | | | – | | | 4,111 | | | 1,618 | | | (1,734 | ) | | (1,484 | ) | | 2,511 | | | | | | | |
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| Long-term debt | | | – | | | 6,377 | | | 370 | | | – | | | – | | | 6,747 | | | | | | | |
| Other liabilities | | | 42 | | | 891 | | | – | | | – | | | – | | | 933 | | | | | | | |
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| Total | | $ | 42 | | $ | 11,451 | | $ | 2,300 | | $ | (1,734 | ) | $ | (1,484 | ) | $ | 10,575 | | | | | | | |
| | | | | | | |
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| | | | | | | |
| December 31, 2012 | | Level 1 | | Level 2 | | Level 3 | | Counterparty | | Cash | | Total | | | | | | | |
| (in millions) | Netting(a) | Collateral(b) | | | | | | |
| | | | | | | |
| Assets: | | | | | | | | | | | | | | | | | | | | | | | | | |
| Bonds available for sale: | | | | | | | | | | | | | | | | | | | | | | | | | |
| U.S. government and government sponsored entities | | $ | – | | $ | 3,483 | | $ | – | | $ | – | | $ | – | | $ | 3,483 | | | | | | | |
| Obligations of states, municipalities and political subdivisions | | | – | | | 34,681 | | | 1,024 | | | – | | | – | | | 35,705 | | | | | | | |
| Non-U.S. governments | | | 1,004 | | | 25,782 | | | 14 | | | – | | | – | | | 26,800 | | | | | | | |
| Corporate debt | | | – | | | 149,625 | | | 1,487 | | | – | | | – | | | 151,112 | | | | | | | |
| RMBS | | | – | | | 22,730 | | | 11,662 | | | – | | | – | | | 34,392 | | | | | | | |
| CMBS | | | – | | | 5,010 | | | 4,905 | | | – | | | – | | | 9,915 | | | | | | | |
| CDO/ABS | | | – | | | 3,492 | | | 5,060 | | | – | | | – | | | 8,552 | | | | | | | |
| | | | | | | |
| Total bonds available for sale | | | 1,004 | | | 244,803 | | | 24,152 | | | – | | | – | | | 269,959 | | | | | | | |
| | | | | | | |
| Other bond securities: | | | | | | | | | | | | | | | | | | | | | | | | | |
| U.S. government and government sponsored entities | | | 266 | | | 6,528 | | | – | | | – | | | – | | | 6,794 | | | | | | | |
| Non-U.S. governments | | | – | | | 2 | | | – | | | – | | | – | | | 2 | | | | | | | |
| Corporate debt | | | – | | | 1,320 | | | – | | | – | | | – | | | 1,320 | | | | | | | |
| RMBS | | | – | | | 1,331 | | | 396 | | | – | | | – | | | 1,727 | | | | | | | |
| CMBS | | | – | | | 1,424 | | | 803 | | | – | | | – | | | 2,227 | | | | | | | |
| CDO/ABS | | | – | | | 3,969 | | | 8,545 | | | – | | | – | | | 12,514 | | | | | | | |
| | | | | | | |
| Total other bond securities | | | 266 | | | 14,574 | | | 9,744 | | | – | | | – | | | 24,584 | | | | | | | |
| | | | | | | |
| Equity securities available for sale: | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common stock | | | 3,002 | | | 3 | | | 24 | | | – | | | – | | | 3,029 | | | | | | | |
| Preferred stock | | | – | | | 34 | | | 44 | | | – | | | – | | | 78 | | | | | | | |
| Mutual funds | | | 83 | | | 22 | | | – | | | – | | | – | | | 105 | | | | | | | |
| | | | | | | |
| Total equity securities available for sale | | | 3,085 | | | 59 | | | 68 | | | – | | | – | | | 3,212 | | | | | | | |
| | | | | | | |
| Other equity securities | | | 578 | | | 84 | | | – | | | – | | | – | | | 662 | | | | | | | |
| Mortgage and other loans receivable | | | – | | | 134 | | | – | | | – | | | – | | | 134 | | | | | | | |
| Other invested assets | | | 125 | | | 1,542 | | | 5,389 | | | – | | | – | | | 7,056 | | | | | | | |
| Derivative assets: | | | | | | | | | | | | | | | | | | | | | | | | | |
| Interest rate contracts | | | 2 | | | 5,521 | | | 956 | | | – | | | – | | | 6,479 | | | | | | | |
| Foreign exchange contracts | | | – | | | 104 | | | – | | | – | | | – | | | 104 | | | | | | | |
| Equity contracts | | | 104 | | | 63 | | | 54 | | | – | | | – | | | 221 | | | | | | | |
| Commodity contracts | | | – | | | 144 | | | 1 | | | – | | | – | | | 145 | | | | | | | |
| Credit contracts | | | – | | | – | | | 60 | | | – | | | – | | | 60 | | | | | | | |
| Other contracts | | | – | | | – | | | 38 | | | – | | | – | | | 38 | | | | | | | |
| Counterparty netting and cash collateral | | | – | | | – | | | – | | | (2,467 | ) | | (909 | ) | | (3,376 | ) | | | | | | |
| | | | | | | |
| Total derivative assets | | | 106 | | | 5,832 | | | 1,109 | | | (2,467 | ) | | (909 | ) | | 3,671 | | | | | | | |
| | | | | | | |
| Short-term investments | | | 285 | | | 7,771 | | | – | | | – | | | – | | | 8,056 | | | | | | | |
| Separate account assets | | | 54,430 | | | 2,907 | | | – | | | – | | | – | | | 57,337 | | | | | | | |
| Other assets | | | – | | | 696 | | | – | | | – | | | – | | | 696 | | | | | | | |
| | | | | | | |
| Total | | $ | 59,879 | | $ | 278,402 | | $ | 40,462 | | $ | (2,467 | ) | $ | (909 | ) | $ | 375,367 | | | | | | | |
| | | | | | | |
| Liabilities: | | | | | | | | | | | | | | | | | | | | | | | | | |
| Policyholder contract deposits | | $ | – | | $ | – | | $ | 1,257 | | $ | – | | $ | – | | $ | 1,257 | | | | | | | |
| Derivative liabilities: | | | | | | | | | | | | | | | | | | | | | | | | | |
| Interest rate contracts | | | – | | | 5,582 | | | 224 | | | – | | | – | | | 5,806 | | | | | | | |
| Foreign exchange contracts | | | – | | | 174 | | | – | | | – | | | – | | | 174 | | | | | | | |
| Equity contracts | | | – | | | 114 | | | 7 | | | – | | | – | | | 121 | | | | | | | |
| Commodity contracts | | | – | | | 146 | | | – | | | – | | | – | | | 146 | | | | | | | |
| Credit contracts | | | – | | | – | | | 2,051 | | | – | | | – | | | 2,051 | | | | | | | |
| Other contracts | | | – | | | 6 | | | 200 | | | – | | | – | | | 206 | | | | | | | |
| Counterparty netting and cash collateral | | | – | | | – | | | – | | | (2,467 | ) | | (1,976 | ) | | (4,443 | ) | | | | | | |
| | | | | | | |
| Total derivative liabilities | | | – | | | 6,022 | | | 2,482 | | | (2,467 | ) | | (1,976 | ) | | 4,061 | | | | | | | |
| | | | | | | |
| Long-term debt | | | – | | | 7,711 | | | 344 | | | – | | | – | | | 8,055 | | | | | | | |
| Other liabilities | | | 30 | | | 1,050 | | | – | | | – | | | – | | | 1,080 | | | | | | | |
| | | | | | | |
| Total | | $ | 30 | | $ | 14,783 | | $ | 4,083 | | $ | (2,467 | ) | $ | (1,976 | ) | $ | 14,453 | | | | | | | |
| | | | | | | |
|
| (a) Represents netting of derivative exposures covered by qualifying master netting agreements. |
|
| (b) Represents cash collateral posted and received. Securities collateral posted for derivative transactions that is reflected in Fixed maturity securities in the Consolidated Balance Sheet, and collateral received, not reflected in the Consolidated Balance Sheet, was $1.3 billion and $120 million, respectively, at December 31, 2013 and $1.9 billion and $299 million, respectively, at December 31, 2012. |
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| Transfers of Level 1 and Level 2 Assets and Liabilities |
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| Our policy is to record transfers of assets and liabilities between Level 1 and Level 2 at their fair values as of the end of each reporting period, consistent with the date of the determination of fair value. Assets are transferred out of Level 1 when they are no longer transacted with sufficient frequency and volume in an active market. Conversely, assets are transferred from Level 2 to Level 1 when transaction volume and frequency are indicative of an active market. During the years ended December 31, 2013 and 2012, we transferred $944 million and $464 million, respectively, of securities issued by Non-U.S. government entities from Level 1 to Level 2, because they are no longer considered actively traded. For similar reasons, during the years ended December 31, 2013 and 2012, we transferred $356 million and $888 million, respectively, of securities issued by the U.S. government and government-sponsored entities from Level 1 to Level 2. We had no material transfers from Level 2 to Level 1 during the years ended December 31, 2013 and 2012. |
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| Changes in Level 3 Recurring Fair Value Measurements |
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| The following tables present changes during the years ended December 31, 2013 and 2012 in Level 3 assets and liabilities measured at fair value on a recurring basis, and the realized and unrealized gains (losses) related to the Level 3 assets and liabilities in the Consolidated Balance Sheets at December 31, 2013 and 2012: |
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| | | | | | | | | | | | | | | | | | | | | | | | | |
| |
| (in millions) | | Fair Value | | Net | | Other | | Purchases, | | Gross | | Gross | | Fair Value | | Changes in | |
| Beginning of | Realized and | Comprehensive | Sales, | Transfers | Transfers | End | Unrealized Gains |
| Year(a) | Unrealized | Income (Loss) | Issues and | In | Out | of Year | (Losses) Included |
| Gains (Losses) | | Settlements, Net | | | | in Income on |
| Included | | | | | | Instruments Held |
| in Income | | | | | | at End of Year |
| |
| December 31, 2013 | | | | | | | | | | | | | | | | | | | | | | | | | |
| Assets: | | | | | | | | | | | | | | | | | | | | | | | | | |
| Bonds available for sale: | | | | | | | | | | | | | | | | | | | | | | | | | |
| Obligations of states, municipalities and political subdivisions | | $ | 1,024 | | $ | 29 | | $ | (175 | ) | $ | 403 | | $ | – | | $ | (201 | ) | $ | 1,080 | | $ | – | |
| Non-U.S. governments | | | 14 | | | – | | | (1 | ) | | 3 | | | 1 | | | (1 | ) | | 16 | | | – | |
| Corporate debt | | | 1,487 | | | 8 | | | (19 | ) | | (176 | ) | | 450 | | | (495 | ) | | 1,255 | | | – | |
| RMBS | | | 11,662 | | | 867 | | | 466 | | | 1,818 | | | 186 | | | (58 | ) | | 14,941 | | | – | |
| CMBS | | | 5,124 | | | 24 | | | 100 | | | 375 | | | 161 | | | (49 | ) | | 5,735 | | | – | |
| CDO/ABS | | | 4,841 | | | 161 | | | 9 | | | 1,946 | | | 901 | | | (884 | ) | | 6,974 | | | – | |
| |
| Total bonds available for sale | | | 24,152 | | | 1,089 | | | 380 | | | 4,369 | | | 1,699 | | | (1,688 | ) | | 30,001 | | | – | |
| |
| Other bond securities: | | | | | | | | | | | | | | | | | | | | | | | | | |
| RMBS | | | 396 | | | 66 | | | – | | | 208 | | | 267 | | | – | | | 937 | | | (2 | ) |
| CMBS | | | 812 | | | 67 | | | – | | | (200 | ) | | 279 | | | (114 | ) | | 844 | | | 29 | |
| CDO/ABS | | | 8,536 | | | 1,527 | | | – | | | (2,044 | ) | | 843 | | | (28 | ) | | 8,834 | | | 681 | |
| |
| Total other bond securities | | | 9,744 | | | 1,660 | | | – | | | (2,036 | ) | | 1,389 | | | (142 | ) | | 10,615 | | | 708 | |
| |
| Equity securities available for sale: | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common stock | | | 24 | | | 7 | | | (8 | ) | | (22 | ) | | – | | | – | | | 1 | | | – | |
| Preferred stock | | | 44 | | | – | | | 3 | | | (47 | ) | | – | | | – | | | – | | | – | |
| |
| Total equity securities available for sale | | | 68 | | | 7 | | | (5 | ) | | (69 | ) | | – | | | – | | | 1 | | | – | |
| |
| Other invested assets | | | 5,389 | | | 208 | | | 237 | | | 64 | | | 344 | | | (312 | ) | | 5,930 | | | – | |
| |
| Total | | $ | 39,353 | | $ | 2,964 | | $ | 612 | | $ | 2,328 | | $ | 3,432 | | $ | (2,142 | ) | $ | 46,547 | | $ | 708 | |
| |
| Liabilities: | | | | | | | | | | | | | | | | | | | | | | | | | |
| Policyholder contract deposits | | $ | (1,257 | ) | $ | 744 | | $ | (1 | ) | $ | 202 | | $ | – | | $ | – | | $ | (312 | ) | $ | 104 | |
| Derivative liabilities, net: | | | | | | | | | | | | | | | | | | | | | | | | | |
| Interest rate contracts | | | 732 | | | 19 | | | – | | | (851 | ) | | – | | | – | | | (100 | ) | | 35 | |
| Equity contracts | | | 47 | | | 74 | | | – | | | (20 | ) | | 1 | | | (53 | ) | | 49 | | | 30 | |
| Commodity contracts | | | 1 | | | – | | | – | | | – | | | – | | | – | | | 1 | | | (1 | ) |
| Credit contracts | | | (1,991 | ) | | 567 | | | – | | | 144 | | | – | | | – | | | (1,280 | ) | | 711 | |
| Other contracts | | | (162 | ) | | 42 | | | 15 | | | (2 | ) | | (2 | ) | | – | | | (109 | ) | | 7 | |
| |
| Total derivative liabilities, net | | | (1,373 | ) | | 702 | | | 15 | | | (729 | ) | | (1 | ) | | (53 | ) | | (1,439 | ) | | 782 | |
| |
| Long-term debt | | | (344 | ) | | (137 | ) | | – | | | 38 | | | (2 | ) | | 75 | | | (370 | ) | | (30 | ) |
| |
| Total | | $ | (2,974 | ) | $ | 1,309 | | $ | 14 | | $ | (489 | ) | $ | (3 | ) | $ | 22 | | $ | (2,121 | ) | $ | 856 | |
| |
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| |
| (in millions) | | Fair Value | | Net | | Other | | Purchases, | | Gross | | Gross | | Fair Value | | Changes in | |
| Beginning | Realized and | Comprehensive | Sales, | Transfers | Transfers | End | Unrealized Gains |
| of Year* | Unrealized | Income (Loss) | Issues and | In | Out | of Year | (Losses) Included |
| Gains (Losses) | | Settlements, Net | | | | in Income on |
| Included | | | | | | Instruments Held |
| in Income | | | | | | at End of Year |
| |
| December 31, 2012 | | | | | | | | | | | | | | | | | | | | | | | | | |
| Assets: | | | | | | | | | | | | | | | | | | | | | | | | | |
| Bonds available for sale: | | | | | | | | | | | | | | | | | | | | | | | | | |
| Obligations of states, municipalities and political subdivisions | | $ | 960 | | $ | 48 | | $ | 12 | | $ | 84 | | $ | 70 | | $ | (150 | ) | $ | 1,024 | | $ | – | |
| Non-U.S. governments | | | 9 | | | 1 | | | (1 | ) | | 1 | | | 4 | | | – | | | 14 | | | – | |
| Corporate debt | | | 1,935 | | | (44 | ) | | 145 | | | 24 | | | 664 | | | (1,237 | ) | | 1,487 | | | – | |
| RMBS | | | 10,877 | | | 522 | | | 2,121 | | | (316 | ) | | 952 | | | (2,494 | ) | | 11,662 | | | – | |
| CMBS | | | 3,955 | | | (135 | ) | | 786 | | | 636 | | | 44 | | | (162 | ) | | 5,124 | | | – | |
| CDO/ABS | | | 4,220 | | | 334 | | | 289 | | | 10 | | | 691 | | | (703 | ) | | 4,841 | | | – | |
| |
| Total bonds available for sale | | | 21,956 | | | 726 | | | 3,352 | | | 439 | | | 2,425 | | | (4,746 | ) | | 24,152 | | | – | |
| |
| Other bond securities: | | | | | | | | | | | | | | | | | | | | | | | | | |
| Corporate debt | | | 7 | | | – | | | – | | | (7 | ) | | – | | | – | | | – | | | – | |
| RMBS | | | 303 | | | 76 | | | 2 | | | (109 | ) | | 128 | | | (4 | ) | | 396 | | | 42 | |
| CMBS | | | 554 | | | 70 | | | 2 | | | (159 | ) | | 446 | | | (101 | ) | | 812 | | | 87 | |
| CDO/ABS | | | 8,432 | | | 3,683 | | | 3 | | | (3,968 | ) | | 386 | | | – | | | 8,536 | | | 2,547 | |
| |
| Total other bond securities | | | 9,296 | | | 3,829 | | | 7 | | | (4,243 | ) | | 960 | | | (105 | ) | | 9,744 | | | 2,676 | |
| |
| Equity securities available for sale: | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common stock | | | 57 | | | 22 | | | (28 | ) | | (33 | ) | | 6 | | | – | | | 24 | | | – | |
| Preferred stock | | | 99 | | | 17 | | | (35 | ) | | (36 | ) | | 11 | | | (12 | ) | | 44 | | | – | |
| |
| Total equity securities available for sale | | | 156 | | | 39 | | | (63 | ) | | (69 | ) | | 17 | | | (12 | ) | | 68 | | | – | |
| |
| Mortgage and other loans receivable | | | 1 | | | – | | | – | | | (1 | ) | | – | | | – | | | – | | | – | |
| Other invested assets | | | 6,618 | | | (95 | ) | | 290 | | | (257 | ) | | 1,204 | | | (2,371 | ) | | 5,389 | | | – | |
| |
| Total | | $ | 38,027 | | $ | 4,499 | | $ | 3,586 | | $ | (4,131 | ) | $ | 4,606 | | $ | (7,234 | ) | $ | 39,353 | | $ | 2,676 | |
| |
| Liabilities: | | | | | | | | | | | | | | | | | | | | | | | | | |
| Policyholder contract deposits | | $ | (918 | ) | $ | (275 | ) | $ | (72 | ) | $ | 8 | | $ | – | | $ | – | | $ | (1,257 | ) | $ | (276 | ) |
| Derivative liabilities, net: | | | | | | | | | | | | | | | | | | | | | | | | | |
| Interest rate contracts | | | 785 | | | (11 | ) | | – | | | (42 | ) | | – | | | – | | | 732 | | | (56 | ) |
| Foreign exchange contracts | | | 2 | | | – | | | – | | | (2 | ) | | – | | | – | | | – | | | – | |
| Equity contracts | | | 28 | | | 10 | | | – | | | 12 | | | (3 | ) | | – | | | 47 | | | 10 | |
| Commodity contracts | | | 2 | | | 5 | | | – | | | (6 | ) | | – | | | – | | | 1 | | | 6 | |
| Credit contracts | | | (3,273 | ) | | 638 | | | – | | | 644 | | | – | | | – | | | (1,991 | ) | | 1,172 | |
| Other contracts | | | 33 | | | (76 | ) | | (18 | ) | | 15 | | | (116 | ) | | – | | | (162 | ) | | (46 | ) |
| |
| Total derivatives liabilities, net | | | (2,423 | ) | | 566 | | | (18 | ) | | 621 | | | (119 | ) | | – | | | (1,373 | ) | | 1,086 | |
| |
| Long-term debt | | | (508 | ) | | (411 | ) | | (77 | ) | | 242 | | | (14 | ) | | 424 | | | (344 | ) | | (105 | ) |
| |
| Total | | $ | (3,849 | ) | $ | (120 | ) | $ | (167 | ) | $ | 871 | | $ | (133 | ) | $ | 424 | | $ | (2,974 | ) | $ | 705 | |
| |
|
| * Total Level 3 derivative exposures have been netted in these tables for presentation purposes only. |
|
| Net realized and unrealized gains and losses included in income related to Level 3 assets and liabilities shown above are reported in the Consolidated Statements of Income as follows: |
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| | | | | | | | | | | | | |
| (in millions) | | Net | | Net Realized | | Other | | Total | | | | | | | | | | | | | |
| Investment | Capital | Income | | | | | | | | | | | | |
| Income | Gains (Losses) | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| December 31, 2013 | | | | | | | | | | | | | | | | | | | | | | | | | |
| Bonds available for sale | | $ | 997 | | $ | (17 | ) | $ | 109 | | $ | 1,089 | | | | | | | | | | | | | |
| Other bond securities | | | 187 | | | 9 | | | 1,464 | | | 1,660 | | | | | | | | | | | | | |
| Equity securities available for sale | | | – | | | 7 | | | – | | | 7 | | | | | | | | | | | | | |
| Other invested assets | | | 210 | | | (42 | ) | | 40 | | | 208 | | | | | | | | | | | | | |
| Policyholder contract deposits | | | – | | | 744 | | | – | | | 744 | | | | | | | | | | | | | |
| Derivative liabilities, net | | | 39 | | | 43 | | | 620 | | | 702 | | | | | | | | | | | | | |
| Long-term debt | | | – | | | – | | | (137 | ) | | (137 | ) | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| December 31, 2012 | | | | | | | | | | | | | | | | | | | | | | | | | |
| Bonds available for sale | | $ | 906 | | $ | (395 | ) | $ | 215 | | $ | 726 | | | | | | | | | | | | | |
| Other bond securities | | | 3,303 | | | – | | | 526 | | | 3,829 | | | | | | | | | | | | | |
| Equity securities available for sale | | | – | | | 39 | | | – | | | 39 | | | | | | | | | | | | | |
| Other invested assets | | | 54 | | | (210 | ) | | 61 | | | (95 | ) | | | | | | | | | | | | |
| Policyholder contract deposits | | | – | | | (275 | ) | | – | | | (275 | ) | | | | | | | | | | | | |
| Derivative liabilities, net | | | 3 | | | 26 | | | 537 | | | 566 | | | | | | | | | | | | | |
| Long-term debt | | | – | | | – | | | (411 | ) | | (411 | ) | | | | | | | | | | | | |
| | | | | | | | | | | | | |
|
| The following table presents the gross components of purchases, sales, issues and settlements, net, shown above: |
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| | | | | | | | | | | | | |
| (in millions) | | Purchases | | Sales | | Settlements | | Purchases, | | | | | | | | | | | | | |
| Sales, Issues and | | | | | | | | | | | | |
| Settlements, Net(a) | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| December 31, 2013 | | | | | | | | | | | | | | | | | | | | | | | | | |
| Assets: | | | | | | | | | | | | | | | | | | | | | | | | | |
| Bonds available for sale: | | | | | | | | | | | | | | | | | | | | | | | | | |
| Obligations of states, municipalities and political subdivisions | | $ | 541 | | $ | (138 | ) | $ | – | | $ | 403 | | | | | | | | | | | | | |
| Non-U.S. governments | | | 9 | | | – | | | (6 | ) | | 3 | | | | | | | | | | | | | |
| Corporate debt | | | 487 | | | (114 | ) | | (549 | ) | | (176 | ) | | | | | | | | | | | | |
| RMBS | | | 4,424 | | | (266 | ) | | (2,340 | ) | | 1,818 | | | | | | | | | | | | | |
| CMBS | | | 1,023 | | | (188 | ) | | (460 | ) | | 375 | | | | | | | | | | | | | |
| CDO/ABS | | | 2,662 | | | (159 | ) | | (557 | ) | | 1,946 | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Total bonds available for sale | | | 9,146 | | | (865 | ) | | (3,912 | ) | | 4,369 | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Other bond securities: | | | | | | | | | | | | | | | | | | | | | | | | | |
| RMBS | | | 350 | | | (12 | ) | | (130 | ) | | 208 | | | | | | | | | | | | | |
| CMBS | | | 24 | | | (71 | ) | | (153 | ) | | (200 | ) | | | | | | | | | | | | |
| CDO/ABS | | | 353 | | | (72 | ) | | (2,325 | ) | | (2,044 | ) | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Total other bond securities | | | 727 | | | (155 | ) | | (2,608 | ) | | (2,036 | ) | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Equity securities available for sale | | | 58 | | | (12 | ) | | (115 | ) | | (69 | ) | | | | | | | | | | | | |
| Other invested assets | | | 882 | | | (9 | ) | | (809 | ) | | 64 | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Total assets | | $ | 10,813 | | $ | (1,041 | ) | $ | (7,444 | ) | $ | 2,328 | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Liabilities: | | | | | | | | | | | | | | | | | | | | | | | | | |
| Policyholder contract deposits | | $ | – | | $ | (26 | ) | $ | 228 | | $ | 202 | | | | | | | | | | | | | |
| Derivative liabilities, net | | | 10 | | | (1 | ) | | (738 | ) | | (729 | ) | | | | | | | | | | | | |
| Long-term debt(c) | | | – | | | – | | | 38 | | | 38 | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Total liabilities | | $ | 10 | | $ | (27 | ) | $ | (472 | ) | $ | (489 | ) | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| December 31, 2012 | | | | | | | | | | | | | | | | | | | | | | | | | |
| Assets: | | | | | | | | | | | | | | | | | | | | | | | | | |
| Bonds available for sale: | | | | | | | | | | | | | | | | | | | | | | | | | |
| Obligations of states, municipalities and political subdivisions | | $ | 477 | | $ | (219 | ) | $ | (174 | ) | $ | 84 | | | | | | | | | | | | | |
| Non-U.S. governments | | | 5 | | | (3 | ) | | (1 | ) | | 1 | | | | | | | | | | | | | |
| Corporate debt | | | 283 | | | (75 | ) | | (184 | ) | | 24 | | | | | | | | | | | | | |
| RMBS | | | 2,308 | | | (723 | ) | | (1,901 | ) | | (316 | ) | | | | | | | | | | | | |
| CMBS | | | 1,137 | | | (318 | ) | | (183 | ) | | 636 | | | | | | | | | | | | | |
| CDO/ABS | | | 1,120 | | | (4 | ) | | (1,106 | ) | | 10 | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Total bonds available for sale | | | 5,330 | | | (1,342 | ) | | (3,549 | ) | | 439 | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Other bond securities: | | | | | | | | | | | | | | | | | | | | | | | | | |
| Corporate debt | | | – | | | – | | | (7 | ) | | (7 | ) | | | | | | | | | | | | |
| RMBS | | | – | | | (45 | ) | | (64 | ) | | (109 | ) | | | | | | | | | | | | |
| CMBS | | | 225 | | | (106 | ) | | (278 | ) | | (159 | ) | | | | | | | | | | | | |
| CDO/ABS(b) | | | 7,382 | | | (21 | ) | | (11,329 | ) | | (3,968 | ) | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Total other bond securities | | | 7,607 | | | (172 | ) | | (11,678 | ) | | (4,243 | ) | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Equity securities available for sale | | | 67 | | | (56 | ) | | (80 | ) | | (69 | ) | | | | | | | | | | | | |
| Mortgage and other loans receivable | | | – | | | – | | | (1 | ) | | (1 | ) | | | | | | | | | | | | |
| Other invested assets | | | 900 | | | (100 | ) | | (1,057 | ) | | (257 | ) | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Total assets | | $ | 13,904 | | $ | (1,670 | ) | $ | (16,365 | ) | $ | (4,131 | ) | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Liabilities: | | | | | | | | | | | | | | | | | | | | | | | | | |
| Policyholder contract deposits | | $ | – | | $ | (25 | ) | $ | 33 | | $ | 8 | | | | | | | | | | | | | |
| Derivative liabilities, net | | | 11 | | | (2 | ) | | 612 | | | 621 | | | | | | | | | | | | | |
| Long-term debt(c) | | | – | | | – | | | 242 | | | 242 | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Total liabilities | | $ | 11 | | $ | (27 | ) | $ | 887 | | $ | 871 | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
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| (a) There were no issuances during year ended December 31, 2013 and 2012. |
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| (b) Includes $7.1 billion of securities purchased through the FRBNY's auction of ML III assets. |
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| (c) Includes GIAs, notes, bonds, loans and mortgages payable. |
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| Both observable and unobservable inputs may be used to determine the fair values of positions classified in Level 3 in the tables above. As a result, the unrealized gains (losses) on instruments held at December 31, 2013 and 2012 may include changes in fair value that were attributable to both observable (e.g., changes in market interest rates) and unobservable (e.g., changes in unobservable long-dated volatilities) inputs. |
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| Transfers of Level 3 Assets and Liabilities |
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| We record transfers of assets and liabilities into or out of Level 3 at their fair values as of the end of each reporting period, consistent with the date of the determination of fair value. As a result, the Net realized and unrealized gains (losses) included in income or other comprehensive income and as shown in the table above excludes $15 million and $143 million of net losses related to assets and liabilities transferred into Level 3 during 2013 and 2012, respectively, and includes $44 million and $92 million of net gains related to assets and liabilities transferred out of Level 3 during 2013 and 2012, respectively. |
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| Transfers of Level 3 Assets |
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| During the years ended December 31, 2013 and 2012, transfers into Level 3 assets primarily included certain investments in private placement corporate debt, RMBS, CMBS, CDO, ABS, and investments in hedge funds and private equity funds. |
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| • |
| The transfer of investments in RMBS, CMBS and CDO and certain ABS into Level 3 assets were due to decreases in market transparency and liquidity for individual security types. |
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| • |
| Transfers of private placement corporate debt and certain ABS into Level 3 assets were primarily the result of limited market pricing information that required us to determine fair value for these securities based on inputs that are adjusted to better reflect our own assumptions regarding the characteristics of a specific security or associated market liquidity. |
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| • |
| Certain investments in hedge funds were transferred into Level 3 as a result of limited market activity due to fund-imposed redemption restrictions. |
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| • |
| Certain private equity fund investments were transferred into Level 3 due to these investments being carried at fair value and no longer being accounted for using the equity method of accounting. |
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| Assets are transferred out of Level 3 when circumstances change such that significant inputs can be corroborated with market observable data. This may be due to a significant increase in market activity for the asset, a specific event, one or more significant input(s) becoming observable or a long-term interest rate significant to a valuation becoming short-term and thus observable. In addition, transfers out of Level 3 assets also occur when investments are no longer carried at fair value as the result of a change in the applicable accounting methodology, given changes in the nature and extent of our ownership interest. |
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| During the years ended December 31, 2013 and 2012, transfers out of Level 3 assets primarily related to certain investments in municipal securities, private placement corporate debt, RMBS, CMBS, CDO/ABS, and investments in hedge funds and private equity funds. |
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| • |
| Transfers of certain investments in municipal securities, RMBS, CMBS, CDO and certain ABS out of Level 3 assets were based on consideration of market liquidity as well as related transparency of pricing and associated observable inputs for these investments. |
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| • |
| Transfers of private placement corporate debt and certain ABS out of Level 3 assets were primarily the result of using observable pricing information that reflects the fair value of those securities without the need for adjustment based on our own assumptions regarding the characteristics of a specific security or the current liquidity in the market. |
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| • |
| The removal or easing of fund-imposed redemption restrictions, as well as certain fund investments becoming subject to the equity method of accounting resulted in the transfer of certain hedge fund and private equity fund investments out of Level 3 assets. |
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| Transfers of Level 3 Liabilities |
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| There were no significant transfers of derivative or other liabilities into or out of Level 3 for the year ended December 31, 2013. |
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| Because we present carrying values of our derivative positions on a net basis in the table above, transfers into Level 3 liabilities for the year ended December 31, 2012 primarily related to certain derivative assets transferred out of Level 3 because of the presence of observable inputs on certain forward commitments and options. During the year ended December 31, 2012, certain notes payable were transferred out of Level 3 liabilities because input parameters for the pricing of these liabilities became more observable as a result of market movements and portfolio aging. There were no significant transfers of derivative liabilities out of Level 3 for the year ended December 31, 2012. |
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| We use various hedging techniques to manage risks associated with certain positions, including those classified within Level 3. Such techniques may include the purchase or sale of financial instruments that are classified within Level 1 and/or Level 2. As a result, the realized and unrealized gains (losses) for assets and liabilities classified within Level 3 presented in the table above do not reflect the related realized or unrealized gains (losses) on hedging instruments that are classified within Level 1 and/or Level 2. |
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| Quantitative Information about Level 3 Fair Value Measurements |
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| The table below presents information about the significant unobservable inputs used for recurring fair value measurements for certain Level 3 instruments, and includes only those instruments for which information about the inputs is reasonably available to us, such as data from third-party valuation service providers and from internal valuation models. Because input information from third-parties with respect to certain Level 3 instruments (primarily CDO/ABS) may not be reasonably available to us, balances shown below may not equal total amounts reported for such Level 3 assets and liabilities: |
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| (in millions) | | Fair Value at | | Valuation | | Unobservable Input(a) | | Range | | | | | | | | | | | | | | | | |
| December 31, | Technique | (Weighted Average)(a) | | | | | | | | | | | | | | | | |
| 2013 | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| Assets: | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Corporate debt | | $ | 788 | | Discounted cash flow | | Yield(b) | | 0.00% – 14.29% (6.64%) | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| RMBS | | | 14,419 | | Discounted cash flow | | Constant prepayment rate(c) | | 0.00% – 10.35% (4.97%) | | | | | | | | | | | | | | | | |
| | | | | | | Loss severity(c) | | 42.60% – 79.07% (60.84%) | | | | | | | | | | | | | | | | |
| | | | | | | Constant default rate(c) | | 3.98% – 12.22% (8.10%) | | | | | | | | | | | | | | | | |
| | | | | | | Yield(c) | | 2.54% – 7.40% (4.97%) | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Certain CDO/ABS | | | 5,414 | | Discounted cash flow | | Constant prepayment rate(c) | | 5.20% – 10.80% (8.20%) | | | | | | | | | | | | | | | | |
| | | | | | | Loss severity(c) | | 48.60% – 63.40% (56.40%) | | | | | | | | | | | | | | | | |
| | | | | | | Constant default rate(c) | | 3.20% – 16.20% (9.00%) | | | | | | | | | | | | | | | | |
| | | | | | | Yield(c) | | 5.20% – 11.50% (9.40%) | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| CMBS | | | 5,847 | | Discounted cash flow | | Yield(b) | | 0.00% – 14.69% (5.58%) | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| CDO/ABS – Direct | | | | | Binomial Expansion | | Recovery rate(b) | | 6.00% – 63.00% (25.00%) | | | | | | | | | | | | | | | | |
| Investment Book | | | 557 | | Technique (BET) | | Diversity score(b) | | 5 – 35 (12) | | | | | | | | | | | | | | | | |
| | | | | | | Weighted average life(b) | | 1.07 – 9.47 years (4.86 years) | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| Liabilities: | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Policyholder contract deposits – GMWB | | | 312 | | Discounted cash flow | | Equity implied volatility(b) | | 6.00% – 39.00% | | | | | | | | | | | | | | | | |
| | | | | | | Base lapse rate(b) | | 1.00% – 40.00% | | | | | | | | | | | | | | | | |
| | | | | | | Dynamic lapse rate(b) | | 0.20% – 60.00% | | | | | | | | | | | | | | | | |
| | | | | | | Mortality rate(b) | | 0.50% – 40.00% | | | | | | | | | | | | | | | | |
| | | | | | | Utilization rate(b) | | 0.50% – 25.00% | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Derivative Liabilities – Credit contracts | | | 996 | | BET | | Recovery rate(b) | | 5.00% – 34.00% (17.00%) | | | | | | | | | | | | | | | | |
| | | | | | | Diversity score(b) | | 9 – 32 (13) | | | | | | | | | | | | | | | | |
| | | | | | | Weighted average life(b) | | 4.50 – 9.47 years (5.63 years) | | | | | | | | | | | | | | | | |
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| (in millions) | | Fair Value at | | Valuation | | Unobservable Input(a) | | Range | | | | | | | | | | | | | | | | |
| December 31, | Technique | (Weighted Average)(a) | | | | | | | | | | | | | | | | |
| 2012 | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| Assets: | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Corporate debt | | $ | 775 | | Discounted cash flow | | Yield(b) | | 0.08% – 6.55% (3.31%) | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| RMBS | | | 10,650 | | Discounted cash flow | | Constant prepayment rate(c) | | 0.00% – 10.76% (5.03%) | | | | | | | | | | | | | | | | |
| | | | | | | Loss severity(c) | | 43.70% – 78.72% (61.21%) | | | | | | | | | | | | | | | | |
| | | | | | | Constant default rate(c) | | 4.21% – 13.30% (8.75%) | | | | | | | | | | | | | | | | |
| | | | | | | Yield(c) | | 2.23% – 9.42% (5.82%) | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Certain CDO/ABS(d) | | | 7,844 | | Discounted cash flow | | Constant prepayment rate(c) | | 0.00% – 32.25% (11.82%) | | | | | | | | | | | | | | | | |
| | | | | | | Loss severity(c) | | 0.00% – 29.38% (6.36%) | | | | | | | | | | | | | | | | |
| | | | | | | Constant default rate(c) | | 0.00% – 4.05% (1.18%) | | | | | | | | | | | | | | | | |
| | | | | | | Yield(c) | | 5.41% – 10.67% (8.04%) | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| CMBS | | | 3,251 | | Discounted cash flow | | Yield(b) | | 0.00% – 19.95% (7.76%) | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| CDO/ABS – Direct | | | | | Binomial Expansion | | Recovery rate(b) | | 3.00% – 63.00% (27.00%) | | | | | | | | | | | | | | | | |
| Investment Book | | | 1,205 | | Technique (BET) | | Diversity score(b) | | 4 – 44 (13) | | | | | | | | | | | | | | | | |
| | | | | | | Weighted average life(b) | | 1.27 – 9.11 years (4.91 years) | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| Liabilities: | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Policyholder contract deposits – GMWB | | | 1,257 | | Discounted cash flow | | Equity implied volatility(b) | | 6.00% – 39.00% | | | | | | | | | | | | | | | | |
| | | | | | | Base lapse rate(b) | | 1.00% – 40.00% | | | | | | | | | | | | | | | | |
| | | | | | | Dynamic lapse rate(b) | | 0.20% – 60.00% | | | | | | | | | | | | | | | | |
| | | | | | | Mortality rate(b) | | 0.50% – 40.00% | | | | | | | | | | | | | | | | |
| | | | | | | Utilization rate(b) | | 0.50% – 25.00% | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Derivative Liabilities – Credit contracts | | | 1,436 | | BET | | Recovery rate(b) | | 3.00% – 37.00% (17.00%) | | | | | | | | | | | | | | | | |
| | | | | | | Diversity score(b) | | 9 – 38 (14) | | | | | | | | | | | | | | | | |
| | | | | | | Weighted average life(b) | | 5.10 – 8.45 years (5.75 years) | | | | | | | | | | | | | | | | |
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| (a) The unobservable inputs and ranges for the constant prepayment rate, loss severity and constant default rate relate to each of the individual underlying mortgage loans that comprise the entire portfolio of securities in the RMBS and CDO securitization vehicles and not necessarily to the securitization vehicle bonds (tranches) purchased by us. The ranges of these inputs do not directly correlate to changes in the fair values of the tranches purchased by us because there are other factors relevant to the fair values of specific tranches owned by us including, but not limited to, purchase price, position in the waterfall, senior versus subordinated position and attachment points. |
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| (b) Represents discount rates, estimates and assumptions that we believe would be used by market participants when valuing these assets and liabilities. |
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| (c) Information received from third-party valuation service providers. |
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| (d) Yield was the only input available for $6.6 billion of total fair value at December 31, 2012. |
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| The ranges of reported inputs for Corporate debt, RMBS, CDO/ABS, and CMBS valued using a discounted cash flow technique consist of plus/minus one standard deviation in either direction from the value-weighted average. The preceding table does not give effect to our risk management practices that might offset risks inherent in these investments. |
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| Sensitivity to Changes in Unobservable Inputs |
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| We consider unobservable inputs to be those for which market data is not available and that are developed using the best information available to us about the assumptions that market participants would use when pricing the asset or liability. Relevant inputs vary depending on the nature of the instrument being measured at fair value. The following is a general description of sensitivities of significant unobservable inputs along with interrelationships between and among the significant unobservable inputs and their impact on the fair value measurements. The effect of a change in a particular assumption in the sensitivity analysis below is considered independently of changes in any other assumptions. In practice, simultaneous changes in assumptions may not always have a linear effect on the inputs discussed below. Interrelationships may also exist between observable and unobservable inputs. Such relationships have not been included in the discussion below. For each of the individual relationships described below, the inverse relationship would also generally apply. |
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| Corporate Debt |
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| Corporate debt securities included in Level 3 are primarily private placement issuances that are not traded in active markets or that are subject to transfer restrictions. Fair value measurements consider illiquidity and non-transferability. When observable price quotations are not available, fair value is determined based on discounted cash flow models using discount rates based on credit spreads, yields or price levels of publicly-traded debt of the issuer or other comparable securities, considering illiquidity and structure. The significant unobservable input used in the fair value measurement of corporate debt is the yield. The yield is affected by the market movements in credit spreads and U.S. Treasury yields. In addition, the migration in credit quality of a given security generally has a corresponding effect on the fair value measurement of the security. For example, a downward migration of credit quality would increase spreads. Holding U.S. Treasury rates constant, an increase in corporate credit spreads would decrease the fair value of corporate debt. |
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| RMBS and Certain CDO/ABS |
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| The significant unobservable inputs used in fair value measurements of RMBS and certain CDO/ABS valued by third-party valuation service providers are constant prepayment rates (CPR), loss severity, constant default rates (CDR), and yield. A change in the assumptions used for the probability of default will generally be accompanied by a corresponding change in the assumption used for the loss severity and an inverse change in the assumption used for prepayment rates. In general, increases in CPR, loss severity, CDR, and yield, in isolation, would result in a decrease in the fair value measurement. Changes in fair value based on variations in assumptions generally cannot be extrapolated because the relationship between the directional change of each input is not usually linear. |
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| CMBS |
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| The significant unobservable input used in fair value measurements for CMBS is the yield. Prepayment assumptions for each mortgage pool are factored into the yield. CMBS generally feature a lower degree of prepayment risk than RMBS because commercial mortgages generally contain a penalty for prepayment. In general, increases in the yield would decrease the fair value of CMBS. |
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| CDO/ABS — Direct Investment book |
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| The significant unobservable inputs used for certain CDO/ABS securities valued using the BET are recovery rates, diversity score, and the weighted average life of the portfolio. An increase in recovery rates and diversity score will increase the fair value of the portfolio. An increase in the weighted average life will decrease the fair value. |
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| Policyholder contract deposits |
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| Embedded derivatives within Policyholder contract deposits relate to guaranteed minimum withdrawal benefits (GMWB) within variable annuity products and certain enhancements to interest crediting rates based on market indices within equity-indexed annuities and guaranteed investment contracts (GICs). GMWB represents our largest exposure of these embedded derivatives, although the carrying value of the liability fluctuates based on the performance of the equity markets and therefore, at a point in time, can be low relative to the exposure. The principal unobservable input used for GMWBs and embedded derivatives in equity-indexed annuities measured at fair value is equity implied volatility. For GMWBs, other significant unobservable inputs include base and dynamic lapse rates, mortality rates, and utilization rates. Lapse, mortality, and utilization rates may vary significantly depending upon age groups and duration. In general, increases in volatility and utilization rates will increase the fair value of the liability associated with GMWB, while increases in lapse rates and mortality rates will decrease the fair value of the liability. Significant unobservable inputs used in valuing embedded derivatives within GICs include long-term forward interest rates and foreign exchange rates. Generally, the embedded derivative liability for GICs will increase as interest rates decrease or if the U.S. dollar weakens compared to the euro. |
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| Derivative liabilities — credit contracts |
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| The significant unobservable inputs used for Derivatives liabilities — credit contracts are recovery rates, diversity scores, and the weighted average life of the portfolio. AIG non-performance risk is also considered in the measurement of the liability. |
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| An increase in recovery rates and diversity score will decrease the fair value of the liability. An increase in the weighted average life will increase the fair value measurement of the liability. |
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| Investments in Certain Entities Carried at Fair Value Using Net Asset Value per Share |
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| The following table includes information related to our investments in certain other invested assets, including private equity funds, hedge funds and other alternative investments that calculate net asset value per share (or its equivalent). For these investments, which are measured at fair value on a recurring basis, we use the net asset value per share as a practical expedient to measure fair value. |
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| | | | | December 31, 2013 | | December 31, 2012 | | | | | | | | | | |
| (in millions) | | Investment Category Includes | | Fair Value | | Unfunded | | Fair Value | | Unfunded | | | | | | | | | | |
| Using Net | Commitments | Using Net | Commitments | | | | | | | | | |
| Asset Value | | Asset Value | | | | | | | | | | |
| Per Share (or | | Per Share (or | | | | | | | | | | |
| its equivalent) | | its equivalent) | | | | | | | | | | |
| | | | | | | | | | | |
| Investment Category | | | | | | | | | | | | | | | | | | | | | | | | |
| Private equity funds: | | | | | | | | | | | | | | | | | | | | | | | | |
| Leveraged buyout | | Debt and/or equity investments made as part of a transaction in which assets of mature companies are acquired from the current shareholders, typically with the use of financial leverage | | $ | 2,544 | | $ | 578 | | $ | 2,529 | | $ | 669 | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Real Estate / Infrastructure | | Investments in real estate properties and infrastructure positions, including power plants and other energy generating facilities | | | 346 | | | 86 | | | 251 | | | 52 | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Venture capital | | Early-stage, high-potential, growth companies expected to generate a return through an eventual realization event, such as an initial public offering or sale of the company | | | 140 | | | 13 | | | 157 | | | 16 | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Distressed | | Securities of companies that are in default, under bankruptcy protection, or troubled | | | 183 | | | 34 | | | 184 | | | 36 | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Other | | Includes multi-strategy and mezzanine strategies | | | 134 | | | 238 | | | 112 | | | 100 | | | | | | | | | | |
| | | | | | | | | | |
| Total private equity funds | | | | | 3,347 | | | 949 | | | 3,233 | | | 873 | | | | | | | | | | |
| | | | | | | | | | |
| Hedge funds: | | | | | | | | | | | | | | | | | | | | | | | | |
| Event-driven | | Securities of companies undergoing material structural changes, including mergers, acquisitions and other reorganizations | | | 976 | | | 2 | | | 788 | | | 2 | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Long-short | | Securities that the manager believes are undervalued, with corresponding short positions to hedge market risk | | | 1,759 | | | 11 | | | 1,318 | | | – | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Macro | | Investments that take long and short positions in financial instruments based on a top-down view of certain economic and capital market conditions | | | 612 | | | – | | | 320 | | | – | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Distressed | | Securities of companies that are in default, under bankruptcy protection or troubled | | | 594 | | | 15 | | | 316 | | | – | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Emerging markets | | Investments in the financial markets of developing countries | | | 287 | | | – | | | – | | | – | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Other | | Includes multi-strategy and relative value strategies | | | 157 | | | – | | | 66 | | | – | | | | | | | | | | |
| | | | | | | | | | |
| Total hedge funds | | | | | 4,385 | | | 28 | | | 2,808 | | | 2 | | | | | | | | | | |
| | | | | | | | | | |
| Total | | | | $ | 7,732 | | $ | 977 | | $ | 6,041 | | $ | 875 | | | | | | | | | | |
| | | | | | | | | | |
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| Private equity fund investments included above are not redeemable, as distributions from the funds will be received when underlying investments of the funds are liquidated. Private equity funds are generally expected to have 10-year lives at their inception, but these lives may be extended at the fund manager's discretion, typically in one or two-year increments. At December 31, 2013, assuming average original expected lives of 10 years for the funds, 62 percent of the total fair value using net asset value per share (or its equivalent) presented above would have expected remaining lives of three years or less, 34 percent between four and six years and 4 percent between seven and 10 years. |
|
| The hedge fund investments included above are generally redeemable monthly (14 percent), quarterly (44 percent), semi-annually (22 percent) and annually (20 percent), with redemption notices ranging from one day to 180 days. At December 31, 2013, however, investments representing approximately 57 percent of the total fair value of the hedge fund investments cannot be redeemed, either in whole or in part, because the investments include various contractual restrictions. The majority of these contractual restrictions, which may have been put in place at the fund's inception or thereafter, have pre-defined end dates and are generally expected to be lifted by the end of 2015. The fund investments for which redemption is restricted only in part generally relate to certain hedge funds that hold at least one investment that the fund manager deems to be illiquid. |
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| Fair Value Option |
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| Under the fair value option, we may elect to measure at fair value financial assets and financial liabilities that are not otherwise required to be carried at fair value. Subsequent changes in fair value for designated items are reported in earnings. We elect the fair value option for certain hybrid securities given the complexity of bifurcating the economic components associated with the embedded derivatives. Refer to Note 11 for additional information related to embedded derivatives. |
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| Additionally, beginning in the third quarter of 2012 we elected the fair value option for investments in certain private equity funds, hedge funds and other alternative investments when such investments are eligible for this election. We believe this measurement basis is consistent with the applicable accounting guidance used by the respective investment company funds themselves. Refer to Note 6 herein for additional information. |
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| The following table presents the gains or losses recorded related to the eligible instruments for which we elected the fair value option: |
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| | | | | | | | | | | | | | | | |
| | Gain (Loss) | | | | | | | | | | | | | | | | |
| Years Ended December 31, | | | | | | | | | | | | | | | | |
| (in millions) | | 2013 | | 2012 | | 2011 | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| Assets: | | | | | | | | | | | | | | | | | | | | | | | | | |
| Mortgage and other loans receivable | | $ | 3 | | $ | 47 | | $ | 11 | | | | | | | | | | | | | | | | |
| Bond and equity securities | | | 1,667 | | | 2,339 | | | 1,273 | | | | | | | | | | | | | | | | |
| Other securities – ML II interest | | | – | | | 246 | | | 42 | | | | | | | | | | | | | | | | |
| Other securities – ML III interest | | | – | | | 2,888 | | | (646 | ) | | | | | | | | | | | | | | | |
| Retained interest in AIA | | | – | | | 2,069 | | | 1,289 | | | | | | | | | | | | | | | | |
| Alternative investments(a) | | | 360 | | | 36 | | | 2 | | | | | | | | | | | | | | | | |
| Other, including Short-term investments | | | 11 | | | 20 | | | 33 | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| Liabilities: | | | | | | | | | | | | | | | | | | | | | | | | | |
| Long-term debt(b) | | | 327 | | | (681 | ) | | (966 | ) | | | | | | | | | | | | | | | |
| Other liabilities | | | (15 | ) | | (33 | ) | | (67 | ) | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| Total gain | | $ | 2,353 | | $ | 6,931 | | $ | 971 | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
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| (a) Includes certain hedge funds, private equity funds and other investment partnerships. |
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| (b) Includes GIAs, notes, bonds and mortgage payable. |
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| Interest income and dividend income on assets measured under the fair value option are recognized and included in Net investment income in the Consolidated Statements of Income with the exception of activity within AIG's Other Operations, which is included in Other income. Interest on liabilities measured under the fair value option is recognized in interest expense in the Consolidated Statements of Income. See Note 6 herein for additional information about our policies for recognition, measurement, and disclosure of interest and dividend income and interest expense. |
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| During 2013, 2012 and 2011, we recognized losses of $54 million, losses of $641 million and gains of $420 million, respectively, attributable to the observable effect of changes in credit spreads on our own liabilities for which the fair value option was elected. We calculate the effect of these credit spread changes using discounted cash flow techniques that incorporate current market interest rates, our observable credit spreads on these liabilities and other factors that mitigate the risk of nonperformance such as cash collateral posted. |
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| The following table presents the difference between fair values and the aggregate contractual principal amounts of mortgage and other loans receivable and long-term borrowings for which the fair value option was elected: |
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| | December 31, 2013 | | December 31, 2012 | | | | | | | |
| (in millions) | | Fair Value | | Outstanding | | Difference | | Fair Value | | Outstanding | | Difference | | | | | | | |
| Principal Amount | Principal Amount | | | | | | |
| | | | | | | |
| Assets: | | | | | | | | | | | | | | | | | | | | | | | | | |
| Mortgage and other loans receivable | | $ | – | | $ | – | | $ | – | | $ | 134 | | $ | 141 | | $ | (7 | ) | | | | | | |
| Liabilities: | | | | | | | | | | | | | | | | | | | | | | | | | |
| Long-term debt* | | $ | 6,747 | | $ | 5,231 | | $ | 1,516 | | $ | 8,055 | | $ | 5,705 | | $ | 2,350 | | | | | | | |
| | | | | | | |
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| * Includes GIAs, notes, bonds, loans and mortgages payable. |
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| There were no mortgage or other loans receivable for which the fair value option was elected that were 90 days or more past due or in non-accrual status at December 31, 2013 and 2012. |
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| FAIR VALUE MEASUREMENTS ON A NON-RECURRING BASIS |
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| We measure the fair value of certain assets on a non-recurring basis, generally quarterly, annually or when events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. These assets include cost and equity-method investments, investments in life settlements, collateral securing foreclosed loans and real estate and other fixed assets, goodwill and other intangible assets. See Note 6 herein for additional information about how we test various asset classes for impairment. |
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| The following table presents assets measured at fair value on a non-recurring basis at the time of impairment and the related impairment charges recorded during the periods presented: |
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| | | | |
| | Assets at Fair Value | | Impairment Charges | | | | |
| | Non-Recurring Basis | | December 31, | | | | |
| (in millions) | | Level 1 | | Level 2 | | Level 3 | | Total | | 2013 | | 2012 | | 2011 | | | | |
| | | | |
| December 31, 2013 | | | | | | | | | | | | | | | | | | | | | | | | | |
| Investment real estate | | $ | – | | $ | – | | $ | – | | $ | – | | $ | – | | $ | – | | $ | 18 | | | | |
| Other investments | | | – | | | – | | | 1,615 | | | 1,615 | | | 112 | | | 151 | | | 327 | | | | |
| Investments in life settlements | | | – | | | – | | | 896 | | | 896 | | | 971 | | | 309 | | | 312 | | | | |
| Other assets | | | – | | | 11 | | | 48 | | | 59 | | | 31 | | | 11 | | | 3 | | | | |
| | | | |
| Total | | $ | – | | $ | 11 | | $ | 2,559 | | $ | 2,570 | | $ | 1,114 | | $ | 471 | | $ | 660 | | | | |
| | | | |
| December 31, 2012 | | | | | | | | | | | | | | | | | | | | | | | | | |
| Other investments | | $ | – | | $ | – | | $ | 1,930 | | $ | 1,930 | | | | | | | | | | | | | |
| Investments in life settlements | | | – | | | – | | | 120 | | | 120 | | | | | | | | | | | | | |
| Other assets | | | – | | | 3 | | | 18 | | | 21 | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Total | | $ | – | | $ | 3 | | $ | 2,068 | | $ | 2,071 | | | | | | | | | | | | | |
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| FAIR VALUE INFORMATION ABOUT FINANCIAL INSTRUMENTS NOT MEASURED AT FAIR VALUE |
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| Information regarding the estimation of fair value for financial instruments not carried at fair value (excluding insurance contracts and lease contracts) is discussed below: |
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| • |
| Mortgage and other loans receivable: Fair values of loans on real estate and other loans receivable were estimated for disclosure purposes using discounted cash flow calculations based on discount rates that we believe market participants would use in determining the price that they would pay for such assets. For certain loans, our current incremental lending rates for similar types of loans are used as the discount rates, because we believe this rate approximates the rates market participants would use. The fair values of policy loans are generally estimated based on unpaid principal amount as of each reporting date or, in some cases, based on the present value of the loans using a discounted cash flow model. No consideration is given to credit risk because policy loans are effectively collateralized by the cash surrender value of the policies. |
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| • |
| Other invested assets: The majority of Other invested assets that are not measured at fair value represent investments in life settlements. The fair value of investments in life settlements is determined using a discounted cash flow methodology that incorporates best available market assumptions for longevity as well as market yields based on reported transactions. Due to the individual life nature of each investment in life settlements and the illiquidity of the existing market, significant inputs to the fair value are unobservable. |
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| • |
| Cash and short-term investments: The carrying values of these assets approximate fair values because of the relatively short period of time between origination and expected realization, and their limited exposure to credit risk. |
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| • |
| Policyholder contract deposits associated with investment-type contracts: Fair values for policyholder contract deposits associated with investment-type contracts not accounted for at fair value were estimated using discounted cash flow calculations based on interest rates currently being offered for similar contracts with maturities consistent with those of the contracts being valued. When no similar contracts are being offered, the discount rate is the appropriate swap rate (if available) or current risk-free interest rate consistent with the currency in which the cash flows are denominated. |
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| • |
| Other liabilities: The majority of Other liabilities that are financial instruments not measured at fair value represent secured financing arrangements, including repurchase agreements. The carrying values of these liabilities approximate fair value, because the financing arrangements are short-term and are secured by cash or other liquid collateral. |
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| • |
| Long-term debt: Fair values of these obligations were determined by reference to quoted market prices, when available and appropriate, or discounted cash flow calculations based upon our current market-observable implicit-credit-spread rates for similar types of borrowings with maturities consistent with those remaining for the debt being valued. |
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| The following table presents the carrying values and estimated fair values of our financial instruments not measured at fair value and indicates the level in the fair value hierarchy of the estimated fair value measurement based on the observability of the inputs used: |
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| | | | | | | | | | |
| | Estimated Fair Value | | | | | | | | | | | | |
| | Carrying | | | | | | | | | | |
| (in millions) | | Level 1 | | Level 2 | | Level 3 | | Total | Value | | | | | | | | | | |
| | | | | | | | | | |
| December 31, 2013 | | | | | | | | | | | | | | | | | | | | | | | | | |
| Assets: | | | | | | | | | | | | | | | | | | | | | | | | | |
| Mortgage and other loans receivable | | $ | – | | $ | 219 | | $ | 21,418 | | $ | 21,637 | | $ | 20,765 | | | | | | | | | | |
| Other invested assets | | | – | | | 529 | | | 2,705 | | | 3,234 | | | 4,194 | | | | | | | | | | |
| Short-term investments | | | – | | | 15,304 | | | – | | | 15,304 | | | 15,304 | | | | | | | | | | |
| Cash | | | 2,241 | | | – | | | – | | | 2,241 | | | 2,241 | | | | | | | | | | |
| Liabilities: | | | | | | | | | | | | | | | | | | | | | | | | | |
| Policyholder contract deposits associated with investment-type contracts | | | – | | | 199 | | | 114,361 | | | 114,560 | | | 105,093 | | | | | | | | | | |
| Other liabilities | | | – | | | 4,869 | | | 1 | | | 4,870 | | | 4,869 | | | | | | | | | | |
| Long-term debt | | | – | | | 36,239 | | | 2,394 | | | 38,633 | | | 34,946 | | | | | | | | | | |
| | | | | | | | | | |
| December 31, 2012 | | | | | | | | | | | | | | | | | | | | | | | | | |
| Assets: | | | | | | | | | | | | | | | | | | | | | | | | | |
| Mortgage and other loans receivable | | $ | – | | $ | 823 | | $ | 19,396 | | $ | 20,219 | | $ | 19,348 | | | | | | | | | | |
| Other invested assets | | | – | | | 237 | | | 3,521 | | | 3,758 | | | 4,932 | | | | | | | | | | |
| Short-term investments | | | – | | | 20,752 | | | – | | | 20,752 | | | 20,752 | | | | | | | | | | |
| Cash | | | 1,151 | | | – | | | – | | | 1,151 | | | 1,151 | | | | | | | | | | |
| Liabilities: | | | | | | | | | | | | | | | | | | | | | | | | | |
| Policyholder contract deposits associated with investment-type contracts | | | – | | | 245 | | | 123,860 | | | 124,105 | | | 105,979 | | | | | | | | | | |
| Other liabilities | | | – | | | 3,981 | | | 818 | | | 4,799 | | | 4,800 | | | | | | | | | | |
| Long-term debt | | | – | | | 43,966 | | | 1,925 | | | 45,891 | | | 40,445 | | | | | | | | | | |
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