Document and Entity Information

Apr. 26, 2010

3 Months Ended
Mar. 31, 2010

Amendment Flag

FALSE

Document Type

10-Q

Document Period End Date

03/31/2010

Entity Registrant Name

GENWORTH FINANCIAL INC

Entity Central Index Key

0001276520

Current Fiscal Year End Date

12/31

Entity Filer Category

Large Accelerated Filer

Entity Common Stock, Shares Outstanding

489,079,622

Document Fiscal Year Focus

2010

Document Fiscal Period Focus

Q1

Condensed Consolidated Statements of Income (USD $)

In Millions, except Per Share data

3 Months Ended
Mar. 31,

2010

2009

Revenues:

Premiums

$ 1,470

$ 1,502

Net investment income

765

711

Net investment gains (losses)

(70)

(770)

Insurance and investment product fees and other

256

291

Total revenues

2,421

1,734

Benefits and expenses:

Benefits and other changes in policy reserves

1,315

1,508

Interest credited

213

275

Acquisition and operating expenses, net of deferrals

475

441

Amortization of deferred acquisition costs and intangibles

184

247

Interest expense

115

96

Total benefits and expenses

2,302

2,567

Income (loss) before income taxes

119

(833)

Benefit for income taxes

(93)

(364)

Net income (loss)

212

(469)

Less: net income attributable to noncontrolling interests

34

Net income (loss) available to Genworth Financial, Inc.'s common stockholders

178

(469)

Net income (loss) available to Genworth Financial, Inc.'s common stockholders per common share:

Basic

0.36

(1.08)

Diluted

0.36

(1.08)

Weighted-average common shares outstanding:

Basic

488.8

433.2

Diluted

493.5

433.2

Supplemental disclosures:

Total other-than-temporary impairments

(77)

(597)

Portion of other-than-temporary impairments recognized in other comprehensive income (loss)

(3)

Net other-than-temporary impairments

(80)

(597)

Other investments gains (losses)

10

(173)

Total net investment gains (losses)

$ (70)

$ (770)

Condensed Consolidated Balance Sheets (USD $)

In Millions

Mar. 31, 2010

Dec. 31, 2009

Assets

Fixed maturity securities available-for-sale, at fair value

$ 52,040

$ 49,752

Equity securities available-for-sale, at fair value

179

159

Commercial mortgage loans

7,336

7,499

Restricted commercial mortgage loans related to securitization entities

552

Policy loans

1,408

1,403

Other invested assets

3,972

4,702

Restricted other invested assets related to securitization entities ($377 at fair value)

385

Total investments

65,872

63,515

Cash and cash equivalents

3,466

5,002

Accrued investment income

775

691

Deferred acquisition costs

7,252

7,341

Intangible assets

863

934

Goodwill

1,319

1,324

Reinsurance recoverable

17,333

17,332

Other assets

934

954

Deferred tax asset

18

92

Separate account assets

11,261

11,002

Total assets

109,093

108,187

Liabilities and stockholders' equity

Future policy benefits

29,686

29,469

Policyholder account balances

28,107

28,470

Liability for policy and contract claims

6,389

6,567

Unearned premiums

4,571

4,714

Other liabilities ($135 and $- other liabilities related to securitization entities)

6,185

6,298

Borrowings related to securitization entities ($58 at fair value)

551

Non-recourse funding obligations

3,437

3,443

Short-term borrowings

930

Long-term borrowings

3,638

3,641

Deferred tax liability

313

303

Separate account liabilities

11,261

11,002

Total liabilities

95,068

94,837

Commitments and contingencies

Stockholders' equity:

Class A common stock, $0.001 par value; 1.5 billion shares authorized; 577 million shares issued as of March 31, 2010 and December 31, 2009; 489 million shares outstanding as of March 31, 2010 and December 31, 2009

1

Additional paid-in capital

12,064

12,034

Accumulated other comprehensive income (loss):

Net unrealized gains (losses) on securities not other-than-temporarily impaired

(652)

(1,151)

Net unrealized gains (losses) on other-than-temporarily impaired securities

(208)

(247)

Net unrealized investment gains (losses)

(860)

(1,398)

Derivatives qualifying as hedges

777

802

Foreign currency translation and other adjustments

430

432

Total accumulated other comprehensive income (loss)

347

(164)

Retained earnings

3,179

3,105

Treasury stock, at cost (88 million shares as of March 31, 2010 and December 31, 2009)

(2,700)

Total Genworth Financial, Inc.'s stockholders' equity

12,891

12,276

Noncontrolling interests

1,134

1,074

Total stockholders' equity

14,025

13,350

Total liabilities and stockholders' equity

$ 109,093

$ 108,187

Condensed Consolidated Balance Sheets (Parenthetical) (USD $)

In Millions, except Per Share data

3 Months Ended
Mar. 31, 2010

Dec. 31, 2009

Fair value of restricted other invested assets related to securitization entities

$ 377.0

Liabilities related to securitization entities, other

135.0

Fair value of borrowings related to securitization entities

58.0

Class A Common Stock, par value

0.001

Class A Common Stock, shares authorized

1,500

Class A Common Stock, shares issued

577

Class A Common Stock, shares outstanding

489

Treasury stock, shares

88

Condensed Consolidated Statements of Changes in Stockholders' Equity (USD $)

In Millions

Common stock

Additional paid-in capital

Accumulated other comprehensive income (loss)

Retained earnings

Treasury stock, at cost

Total Genworth Financial, Inc.'s stockholders' equity

Noncontrolling interests

Total

1/1/2009 - 3/31/2009

Balances

$ 1

$ 11,477

$ (3,062)

$ 3,210

$ (2,700)

$ 8,926

Cumulative effect of change in accounting, net of taxes and other adjustments

Net income (loss)

(469)

Comprehensive income (loss):

Net unrealized gains (losses) on investment securities

(57)

Net unrealized gains (losses) on securities not other-than-temporarily impaired

Net unrealized gains (losses) on other-than-temporarily impaired securities

Derivatives qualifying as hedges

(100)

Foreign currency translation and other adjustments

(79)

Total comprehensive income (loss)

(705)

Dividends to noncontrolling interests

Stock-based compensation expense and exercises and other

8

Other capital transactions

Balances

1

11,485

(3,298)

2,741

(2,700)

8,229

1/1/2010 - 3/31/2010

Balances

1

12,034

(164)

3,105

(2,700)

12,276

1,074

13,350

Cumulative effect of change in accounting, net of taxes and other adjustments

91

(104)

(13)

Net income (loss)

178

34

212

Comprehensive income (loss):

Net unrealized gains (losses) on investment securities

Net unrealized gains (losses) on securities not other-than-temporarily impaired

(652)

Net unrealized gains (losses) on securities not other-than-temporarily impaired

408

(1)

407

Net unrealized gains (losses) on other-than-temporarily impaired securities

39

Derivatives qualifying as hedges

(25)

Foreign currency translation and other adjustments

(2)

37

35

Total comprehensive income (loss)

668

Dividends to noncontrolling interests

(10)

Stock-based compensation expense and exercises and other

10

Other capital transactions

20

Balances

$ 1

$ 12,064

$ 347

$ 3,179

$ (2,700)

$ 12,891

$ 1,134

$ 14,025

Condensed Consolidated Statements of Cash Flows (USD $)

In Millions

3 Months Ended
Mar. 31,

2010

2009

Cash flows from operating activities:

Net income (loss)

$ 212

$ (469)

Adjustments to reconcile net income (loss) to net cash from operating activities:

Amortization of fixed maturity discounts and premiums

24

82

Net investment losses (gains)

70

770

Charges assessed to policyholders

(113)

(103)

Acquisition costs deferred

(193)

(194)

Amortization of deferred acquisition costs and intangibles

184

247

Deferred income taxes

(101)

(502)

Net increase (decrease) in trading securities, held-for-sale investments and derivative instruments

58

(56)

Stock-based compensation expense

11

8

Change in certain assets and liabilities:

Accrued investment income and other assets

(43)

(70)

Insurance reserves

576

468

Current tax liabilities

(163)

83

Other liabilities and other policy-related balances

(392)

519

Net cash from operating activities

130

783

Cash flows from investing activities:

Fixed maturity securities

941

901

Commercial mortgage loans

136

239

Restricted commercial mortgage loans related to securitization entities

12

Proceeds from sales of investments:

Fixed maturity and equity securities

1,021

947

Purchases and originations of investments:

Fixed maturity and equity securities

(3,623)

(825)

Other invested assets, net

344

Policy loans, net

(5)

(8)

Net cash from investing activities

(1,174)

1,254

Cash flows from financing activities:

Deposits to universal life and investment contracts

490

773

Withdrawals from universal life and investment contracts

(913)

(2,803)

Short-term borrowings and other, net

(37)

(82)

Repayment and repurchase of long-term borrowings

(79)

Redemption of non-recourse funding obligations

(6)

(12)

Repayment of borrowings related to securitization entities

(11)

Dividends paid to noncontrolling interests

(10)

Net cash from financing activities

(487)

(2,203)

Effect of exchange rate changes on cash and cash equivalents

(5)

(98)

Net change in cash and cash equivalents

(1,536)

(264)

Cash and cash equivalents at beginning of period

5,002

7,328

Cash and cash equivalents at end of period

$ 3,466

$ 7,064

Formation of Genworth and Basis of Presentation

(1) Formation of Genworth and Basis of Presentation

Genworth Financial, Inc. (“Genworth”) was incorporated in Delaware on October 23, 2003. The accompanying condensed financial statements include on a consolidated basis the accounts of Genworth and our affiliate companies in which we hold a majority voting or where we are the primary beneficiary of a variable interest entity, which we refer to as the “Company,” “we,” “us” or “our” unless the context otherwise requires. All intercompany accounts and transactions have been eliminated in consolidation.

We have the following three operating segments:

•

Retirement and Protection. We offer and manage a variety of protection, wealth management and retirement income products. Our primary protection products include: life, long-term care and Medicare supplement insurance. Additionally, we offer other senior supplemental products, as well as care coordination services for our long-term care policyholders. Our wealth management and retirement income products include: a variety of managed account programs and advisor services, financial planning services, fixed and variable deferred and immediate individual annuities and group variable annuities offered through retirement plans.

•

International. We are a leading provider of mortgage insurance products in Canada, Australia, Mexico and multiple European countries. Our products predominantly insure prime-based, individually underwritten residential mortgage loans, also known as flow mortgage insurance. On a limited basis, we also provide mortgage insurance on a structured, or bulk, basis that aids in the sale of mortgages to the capital markets and helps lenders manage capital and risk. Additionally, we offer services, analytical tools and technology that enable lenders to operate efficiently and manage risk. We also offer payment protection coverages in multiple European countries, Canada and Mexico. Our lifestyle protection insurance products help consumers meet specified payment obligations should they become unable to pay due to accident, illness, involuntary unemployment, disability or death.

•

U.S. Mortgage Insurance. In the U.S., we offer mortgage insurance products predominantly insuring prime-based, individually underwritten residential mortgage loans, also known as flow mortgage insurance. We selectively provide mortgage insurance on a structured, or bulk, basis with essentially all of our bulk writings prime-based. Additionally, we offer services, analytical tools and technology that enable lenders to operate efficiently and manage risk.

We also have Corporate and Other activities which include debt financing expenses that are incurred at our holding company level, unallocated corporate income and expenses, eliminations of inter-segment transactions and the results of non-core businesses and non-strategic products that are managed outside of our operating segments. Our non-strategic products include our institutional and corporate-owned life insurance products. Institutional products consist of: funding agreements, funding agreements backing notes (“FABNs”) and guaranteed investment contracts (“GICs”).

The accompanying condensed consolidated financial statements are unaudited and have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) and rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). Preparing financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect reported amounts and related disclosures. Actual results could differ from those estimates. These condensed consolidated financial statements include all adjustments considered necessary by management to present a fair statement of the financial position, results of operations and cash flows for the periods presented. The results reported in these condensed consolidated financial statements should not be regarded as necessarily indicative of results that may be expected for the entire year. The condensed consolidated financial statements included herein should be read in conjunction with the audited consolidated financial statements and related notes contained in our 2009 Annual Report on Form 10-K. Certain prior year amounts have been reclassified to conform to the current year presentation.

Accounting Pronouncements

(2) Accounting Pronouncements

Recently Adopted

Accounting for Transfers of Financial Assets

On January 1, 2010, we adopted new accounting guidance related to accounting for transfers of financial assets. This accounting guidance amends the previous guidance on transfers of financial assets by eliminating the qualifying special-purpose entity concept, providing certain conditions that must be met to qualify for sale accounting, changing the amount of gain or loss recognized on certain transfers and requiring additional disclosures. The adoption of this accounting guidance did not have a material impact on our consolidated financial statements. The elimination of the qualifying special-purpose entity concept requires that these entities be considered for consolidation as a result of the new guidance related to variable interest entities (“VIEs”) as discussed below.

Improvements to Financial Reporting by Enterprises Involved with VIEs

On January 1, 2010, we adopted new accounting guidance for determining which enterprise, if any, has a controlling financial interest in a VIE and requires additional disclosures about involvement in VIEs. Under this new accounting guidance, the primary beneficiary of a VIE is the enterprise that has the power to direct the activities of a VIE that most significantly impacts the VIE’s economic performance and has the obligation to absorb losses or receive benefits that could potentially be significant to the VIE. Upon adoption of this new accounting guidance, we were required to consolidate certain VIEs, including previously qualifying special-purpose entities and investment structures. We recorded a transition adjustment for the impact upon adoption to reflect the difference between the assets and liabilities of the newly consolidated entities and the amounts recorded for our interests in these entities prior to adoption. On January 1, 2010, we recorded a net cumulative effect adjustment of $104 million to retained earnings with a partial offset to accumulated other comprehensive income (loss) of $91 million related to the adoption of this new accounting guidance.

The assets and liabilities of the newly consolidated entities were as follows as of January 1, 2010:


(Amounts in millions)	Carrying value ⁽¹⁾		Adjustment for election of fair value option ⁽²⁾			Amounts recorded upon consolidation
Assets
Restricted commercial mortgage loans	$	564	$	—		$	564
Restricted other invested assets		409		(30	)		379
Accrued investment income		2		—			2

Total assets		975		(30	)		945

Liabilities
Other liabilities		138		—			138
Borrowings related to securitization entities		644		(80	)		564

Total liabilities		782		(80	)		702

Net assets and liabilities of newly consolidated entities	$	193	$	50			243

Less: amortized cost of fixed maturity securities previously recorded ⁽³⁾							404

Cumulative effect adjustment to retained earnings upon adoption, pre-tax							(161	)
Tax effect							57

Net cumulative effect adjustment to retained earnings upon adoption						$	(104	)

⁽¹⁾

Carrying value represents the amounts that would have been recorded in the consolidated financial statements on January 1, 2010 had we recorded the assets and liabilities in our financial statements from the date we first met the conditions for consolidation based on the criteria in the new accounting guidance.

⁽ ² ⁾

Amount represents the difference between book value and fair value of the investments and borrowings related to consolidated securitization entities where we have elected fair value option.

⁽ ³ ⁾

Fixed maturity securities that were previously recorded had net unrealized investment losses of $91 million included in accumulated other comprehensive income (loss) as of December 31, 2009.

For commercial mortgage loans, the carrying amounts represent the unpaid principal balance less any reserve. Restricted other invested assets are comprised of trading securities that are recorded at fair value. Trading securities represent asset-backed securities where we elected fair value option. Borrowings related to securitization entities are recorded at unpaid principal except for the borrowings related to entities where we elected fair value option for all assets and liabilities.

For certain entities consolidated upon adoption of the new accounting guidance on January 1, 2010, we elected fair value option to measure all assets and liabilities at current fair value with future changes in fair value being recording in income (loss). We elected fair value option for certain entities as a method to better present the offsetting changes in assets and liabilities related to third-party interests in those entities and eliminated the potential accounting mismatch between the measurement of the assets and derivatives of the entity compared to the borrowings issued by the entity. The entities where we did not elect fair value option did not have the same accounting mismatch since the assets held by the securitization entity and the borrowings of the entity were recorded at cost. See note 7 for additional information related to consolidation of VIEs.

The new accounting guidance related to consolidation of VIEs has been deferred for a reporting entity’s interest in an entity that has all of the attributes of an investment company as long as there is no implicit or explicit obligation to fund losses of the entity. For entities that meet these criteria, the new accounting guidance related to VIE consolidation would not be applicable until further guidance is issued. Accordingly, we did not have any impact upon adoption related to entities that meet the deferral criteria, such as certain limited partnership and fund investments.

Fair Value Measurements and Disclosures—Improving Disclosures about Fair Value Measurements

On January 1, 2010, we adopted new accounting guidance requiring additional disclosures for significant transfers between Level 1 and 2 fair value measurements and clarifications to existing fair value disclosures related to the level of disaggregation, inputs and valuation techniques. The adoption of this new accounting guidance did not have a material impact on our consolidated financial statements.

Not Yet Adopted

In March 2010, the Financial Accounting Standards Board (“FASB”) issued new accounting guidance clarifying the scope exception for embedded credit derivatives and when those features would be bifurcated from the host contract. Under the new accounting guidance, only embedded credit derivative features that are in the form of subordination of one financial instrument to another would not be subject to the bifurcation requirements. Accordingly, entities will be required to bifurcate any embedded credit derivative features that no longer qualify under the amended scope exception, or, for certain investments, an entity can elect fair value option and record the entire investment at fair value. This accounting guidance will be effective for us on July 1, 2010. Upon adoption, any changes in the carrying value of impacted items will be recorded directly in retained earnings. We have not yet determined the impact this accounting guidance will have on our consolidated financial statements.

In January 2010, the FASB issued new accounting guidance to require additional disclosures about purchases, sales, issuances, and settlements in the rollforward of Level 3 fair value measurements. This new accounting guidance will be effective for us on January 1, 2011. We do not expect the adoption of this new accounting guidance to have a material impact on our consolidated financial statements.

In April 2010, the FASB issued new accounting guidance on how investments held through separate accounts affect an insurer’s consolidation analysis of those investments. This new accounting guidance will be effective for us on January 1, 2011. We have not yet determined the impact this accounting guidance will have on our consolidated financial statements.

Earnings (Loss) Per Share

(3) Earnings (Loss) Per Share

Basic and diluted earnings (loss) per share are calculated by dividing each income (loss) category presented below by the weighted-average basic and diluted shares outstanding for the periods indicated:


	Three months ended March 31,
(Amounts in millions, except per share amounts)	2010		2009
Net income (loss)	$	212	$	(469	)
Less: net income attributable to noncontrolling interests		34		—

Net income (loss) available to Genworth Financial, Inc.’s common stockholders	$	178	$	(469	)

Basic per common share:
Net income (loss)	$	0.43	$	(1.08	)
Less: net income attributable to noncontrolling interests		0.07		—

Net income (loss) available to Genworth Financial, Inc.’s common stockholders ⁽¹⁾	$	0.36	$	(1.08	)

Diluted per common share:
Net income (loss)	$	0.43	$	(1.08	)
Less: net income attributable to noncontrolling interests		0.07		—

Net income (loss) available to Genworth Financial, Inc.’s common stockholders ⁽¹⁾	$	0.36	$	(1.08	)


Weighted-average shares used in basic earnings (loss) per common share calculations		488.8		433.2
Potentially dilutive securities:
Stock options, restricted stock units and stock appreciation rights		4.7		—

Weighted-average shares used in diluted earnings (loss) per common share calculations ⁽ ² ⁾		493.5		433.2

⁽¹⁾	May not total due to whole number calculation.

⁽²⁾

Under applicable accounting guidance, companies in a loss position are required to use basic weighted-average common shares outstanding in the calculation of diluted loss per share. Therefore, as a result of our net loss for the three months ended March 31, 2009, we were required to use basic weighted-average common shares outstanding in the calculation of the 2009 diluted loss per share, as the inclusion of shares for stock options, restricted stock units and stock appreciation rights of 53,858 would have been antidilutive to the calculation. If we had not incurred a net loss in 2009, dilutive potential common shares would have remained at 433.2 million.

Investments

(4) Investments

(a) Net Investment Income

Sources of net investment income were as follows for the periods indicated:


	Three months ended March 31,
(Amounts in millions)	2010			2009
Fixed maturity securities—taxable	$	626		$	623
Fixed maturity securities—non-taxable		16			30
Commercial mortgage loans		104			114
Restricted commercial mortgage loans related to securitization entities ⁽¹⁾		10			—
Equity securities		2			3
Other invested assets		(2	)		(99	)
Restricted other invested assets related to securitization entities ⁽¹⁾		1			—
Policy loans		27			44
Cash, cash equivalents and short-term investments		5			17

Gross investment income before expenses and fees		789			732
Expenses and fees		(24	)		(21	)

Net investment income	$	765		$	711

⁽¹⁾	See note 7 for additional information related to consolidated securitization entities.

(b) Net Investment Gains (Losses)

The following table sets forth net investment gains (losses) for the periods indicated:


	Three months ended March 31,
(Amounts in millions)	2010			2009
Available-for-sale securities:
Realized gains on sale	$	23		$	29
Realized losses on sale		(38	)		(63	)
Impairments:
Total other-than-temporary impairments		(77	)		(597	)
Portion of other-than-temporary impairments recognized in other comprehensive income (loss)		(3	)		—

Net other-than-temporary impairments		(80	)		(597	)

Trading securities		6			(12	)
Commercial mortgage loans		(4	)		(6	)
Net gains (losses) related to securitization entities ⁽¹⁾		11			—
Derivative instruments		(8	)		(121	)
Other		20			—

Net investment gains (losses)	$	(70	)	$	(770	)

⁽¹⁾	See note 7 for additional information related to consolidated securitization entities.

Derivative instruments primarily consist of changes in the fair value of non-qualifying derivatives, including embedded derivatives, changes in fair value of certain derivatives and related hedged items in fair value hedge relationships and hedge ineffectiveness on qualifying derivative instruments. See note 5 for additional information on the impact of derivative instruments included in net investment gains (losses).

The following represents the activity for credit losses recognized in net income (loss) on debt securities where an other-than-temporary impairment was identified and a portion of other-than-temporary impairments was included in other comprehensive income (loss) (“OCI”) as of the period indicated:


(Amounts in millions)	As of or for the three months ended March 31, 2010
Cumulative credit loss beginning balance	$	1,059
Additions:
Other-than-temporary impairments not previously recognized		20
Increases related to other-than-temporary impairments previously recognized		46
Reductions:
Securities sold, paid down or disposed		(100	)
Securities where there is intent to sell		—

Cumulative credit loss ending balance	$	1,025

(c) Unrealized Investment Gains and Losses

Net unrealized gains and losses on investment securities classified as available-for-sale and other invested assets are reduced by deferred income taxes and adjustments to present value of future profits, deferred acquisition costs and sales inducements that would have resulted had such gains and losses been realized. Net unrealized gains and losses on available-for-sale investment securities reflected as a separate component of accumulated other comprehensive income (loss) were as follows as of the dates indicated:


(Amounts in millions)	March 31, 2010			December 31, 2009
Net unrealized gains (losses) on investment securities:
Fixed maturity securities	$	(1,245	)	$	(2,245	)
Equity securities		16			20
Other invested assets		(26	)		(29	)

Subtotal		(1,255	)		(2,254	)
Adjustments to present value of future profits, deferred acquisition costs and sales inducements		(21	)		138
Income taxes, net		454			757

Net unrealized investment gains (losses)		(822	)		(1,359	)
Less: net unrealized investment (gains) losses attributable to noncontrolling interests		38			39

Net unrealized investment gains (losses) attributable to Genworth Financial, Inc.	$	(860	)	$	(1,398	)

The change in net unrealized gains (losses) on available-for-sale securities reported in accumulated other comprehensive income (loss) was as follows as of or for the period indicated:


(Amounts in millions)	As of or for the three months ended March 31, 2010
Beginning balance	$	(1,398	)
Impact upon adoption of new accounting guidance		91
Unrealized gains (losses) arising during the period:
Unrealized gains (losses) on investment securities		763
Adjustment to deferred acquisition costs		(113	)
Adjustment to present value of future profits		(31	)
Adjustment to sales inducements		(15	)
Provision for income taxes		(220	)

Change in unrealized gains (losses) on investment securities		384
Reclassification adjustments to net investment (gains) losses, net of taxes of $(34)		62

Change in net unrealized investment gains (losses)		537
Less: change in net unrealized investment (gains) losses attributable to noncontrolling interests		1

Ending balance	$	(860	)

(d) Fixed Maturity and Equity Securities

As of March 31, 2010, the amortized cost or cost, gross unrealized gains (losses) and fair value of our fixed maturity and equity securities classified as available-for-sale were as follows:


(Amounts in millions)	Amortized cost or cost		Gross unrealized gains				Gross unrealized losses						Fair value
(Amounts in millions)	Amortized cost or cost		Not other-than- temporarily impaired		Other-than- temporarily impaired		Not other-than- temporarily impaired			Other-than- temporarily impaired			Fair value
Fixed maturity securities:
U.S. government, agencies and government-sponsored enterprises	$	3,079	$	30	$	—	$	(80	)	$	—		$	3,029
Tax-exempt		1,495		35		—		(94	)		—			1,436
Government—non-U.S.		2,323		103		—		(12	)		—			2,414
U.S. corporate		22,108		722		8		(583	)		(2	)		22,253
Corporate—non-U.S.		13,019		407		13		(288	)		—			13,151
Residential mortgage-backed		4,445		50		8		(402	)		(291	)		3,810
Commercial mortgage-backed		4,243		95		6		(577	)		(74	)		3,693
Other asset-backed		2,573		12		—		(310	)		(21	)		2,254

Total fixed maturity securities		53,285		1,454		35		(2,346	)		(388	)		52,040
Equity securities		163		19		—		(3	)		—			179

Total available-for-sale securities	$	53,448	$	1,473	$	35	$	(2,349	)	$	(388	)	$	52,219

As of December 31, 2009, the amortized cost or cost, gross unrealized gains (losses) and fair value of our fixed maturity and equity securities classified as available-for-sale were as follows:


(Amounts in millions)	Amortized cost or cost		Gross unrealized gains				Gross unrealized losses						Fair value
(Amounts in millions)	Amortized cost or cost		Not other-than- temporarily impaired		Other-than- temporarily impaired		Not other-than- temporarily impaired			Other-than- temporarily impaired			Fair value
Fixed maturity securities:
U.S. government, agencies and government-sponsored enterprises	$	2,673	$	25	$	—	$	(96	)	$	—		$	2,602
Tax-exempt		1,606		42		—		(104	)		—			1,544
Government—non-U.S.		2,310		96		—		(22	)		—			2,384
U.S. corporate		21,598		628		3		(814	)		(3	)		21,412
Corporate—non-U.S.		12,530		366		11		(356	)		—			12,551
Residential mortgage-backed		3,989		41		7		(484	)		(326	)		3,227
Commercial mortgage-backed		4,404		44		4		(738	)		(97	)		3,617
Other asset-backed		2,887		8		—		(466	)		(14	)		2,415

Total fixed maturity securities		51,997		1,250		25		(3,080	)		(440	)		49,752
Equity securities		139		23		—		(3	)		—			159

Total available-for-sale securities	$	52,136	$	1,273	$	25	$	(3,083	)	$	(440	)	$	49,911

The following table presents the gross unrealized losses and fair values of our investment securities, aggregated by investment type and length of time that individual investment securities have been in a continuous unrealized loss position, as of March 31, 2010:


	Less than 12 months						12 months or more
(Dollar amounts in millions)	Fair value		Gross unrealized losses			Number of securities	Fair value		Gross unrealized losses			Number of securities
Description of Securities
Fixed maturity securities:
U.S. government, agencies and government sponsored entities	$	1,967	$	(77	)	73	$	60	$	(3	)	5
Tax-exempt		160		(5	)	47		342		(89	)	108
Government—non-U.S.		488		(4	)	32		73		(8	)	12
U.S. corporate		3,084		(62	)	348		4,721		(523	)	403
Corporate—non-U.S.		1,977		(38	)	185		2,160		(250	)	206
Residential mortgage-backed		924		(29	)	164		1,170		(664	)	450
Commercial mortgage-backed		128		(12	)	24		1,418		(639	)	306
Other asset-backed		85		(1	)	16		1,333		(330	)	169

Subtotal, fixed maturity securities		8,813		(228	)	889		11,277		(2,506	)	1,659
Equity securities		17		(1	)	15		12		(2	)	10

Total for securities in an unrealized loss position	$	8,830	$	(229	)	904	$	11,289	$	(2,508	)	1,669

% Below cost—fixed maturity securities:
<20% Below cost	$	8,789	$	(203	)	829	$	8,747	$	(651	)	948
20-50% Below cost		13		(7	)	23		2,116		(1,019	)	410
>50% Below cost		11		(18	)	37		414		(836	)	301

Total fixed maturity securities		8,813		(228	)	889		11,277		(2,506	)	1,659

% Below cost—equity securities:
<20% Below cost		17		(1	)	15		11		(1	)	7
>50% Below cost		—		—		—		1		(1	)	3

Total equity securities		17		(1	)	15		12		(2	)	10

Total for securities in an unrealized loss position	$	8,830	$	(229	)	904	$	11,289	$	(2,508	)	1,669


Investment grade	$	8,562	$	(209	)	804	$	9,380	$	(1,666	)	1,187
Below investment grade		268		(20	)	100		1,909		(842	)	482
Not rated—fixed maturity securities		—		—		—		—		—		—
Not rated—equity securities		—		—		—		—		—		—

Total for securities in an unrealized loss position	$	8,830	$	(229	)	904	$	11,289	$	(2,508	)	1,669

The investment securities in an unrealized loss position as of March 31, 2010 consisted of 2,573 securities and accounted for unrealized losses of $2,737 million. Of these unrealized losses of $2,737 million, 69% were investment grade (rated “AAA” through “BBB-”) and 31% were less than 20% below cost. The securities less than 20% below cost were primarily attributable to widening credit spreads and a depressed market for certain structured mortgage securities. Included in these unrealized losses as of March 31, 2010 was $388 million of unrealized losses on other-than-temporarily impaired securities. Of the total unrealized losses on other-than-temporarily impaired securities, $376 million have been in an unrealized loss position for more than 12 months.

Of the unrealized losses of $2,737 million, $1,675 million were related to structured securities and $558 million were related to corporate securities in the finance and insurance sector. Of the remaining gross unrealized losses of $504 million, $186 million were related to U.S. government, agencies and government-sponsored enterprises, tax-exempt and government—non-U.S. securities and $318 million were primarily related to other corporate securities that were spread evenly across all other sectors with no individual sector exceeding $57 million.

Of the $1,675 million unrealized losses in structured securities, 41% were in residential mortgage-backed securities and 39% were in commercial mortgage-backed securities with the remainder in other asset-backed securities. Approximately 58% of the total unrealized losses in structured securities were on securities that have retained investment grade ratings. Most of these securities have been in an unrealized loss position for 12 months or more. Given the current market conditions and limited trading on these securities, the fair value of these securities has declined due to widening credit spreads and high premiums for illiquidity. We examined the performance of the underlying collateral and developed our estimate of cash flows expected to be collected. In doing so, we identified certain securities where the non-credit portion of other-than-temporary impairments was recorded in OCI. Based on this evaluation, we determined that the unrealized losses on our mortgage-backed and asset-backed securities represented temporary impairments as of March 31, 2010.

Of the $558 million unrealized losses in the finance and insurance sector, most have been in an unrealized loss position for 12 months or more. Most of these securities have retained a credit rating of investment grade. A portion of the unrealized losses included securities where an other-than-temporary impairment was recorded in OCI. Given the current market conditions, including current financial industry events and uncertainty around global economic conditions, the fair value of these securities has declined due to widening credit spreads. In our examination of these securities, we considered all available evidence, including the issuers’ financial condition and current industry events to develop our conclusion on the amount and timing of the cash flows expected to be collected. Based on this evaluation, we determined that the unrealized losses on these securities represented temporary impairments as of March 31, 2010. A subset of the securities issued by banks and other financial institutions represent investments in financial hybrid securities on which a debt impairment model was employed. All of these securities retain a credit rating of investment grade. The majority of these securities were issued by foreign financial institutions. The fair value of these securities has been impacted by widening credit spreads which reflect current financial industry events including uncertainty surrounding the level and type of government support of European financial institutions, potential capital restructuring of these institutions, the risk that income payments may be deferred and the risk that these institutions could be nationalized. The remaining unrealized losses in our U.S. and non-U.S. corporate securities were evenly distributed across all other major industry types that comprise our corporate bond holdings.

Of the investment securities in an unrealized loss position for 12 months or more as of March 31, 2010, 714 securities were 20% or more below cost, of which 328 securities were also below investment grade (rated “BB+” and below) and accounted for unrealized losses of $742 million. These securities were primarily structured securities or securities issued by corporations in the finance and insurance sector. Included in this amount are other-than-temporarily impaired securities where the non-credit loss of $289 million was recorded in OCI.

While certain securities included in the preceding table were considered other-than-temporarily impaired, we expect to recover the new amortized cost based on our estimate of cash flows to be collected. As of March 31, 2010, we expect to recover our amortized cost on the securities included in the chart above and do not intend to sell or it is not more likely than not that we will be required to sell these securities prior to recovering our amortized cost.

Despite the considerable analysis and rigor employed on our structured securities, it is at least reasonably possible that the underlying collateral of these investments will perform worse than current market expectations. Such events may lead to adverse changes in cash flows on our holdings of asset-backed and mortgage-backed securities and potential future write-downs within our portfolio of mortgage-backed and asset-backed securities. We expect our investments in corporate securities will continue to perform in accordance with our conclusions about the amount and timing of estimated cash flows. Although we do not anticipate such events, it is at least reasonably possible that issuers of our investments in corporate securities will perform worse than current expectations. Such events may lead us to recognize potential future write-downs within our portfolio of corporate securities.

The following table presents the gross unrealized losses and fair values of our investment securities, aggregated by investment type and length of time that individual investment securities have been in a continuous unrealized loss position, as of December 31, 2009:


	Less than 12 months						12 months or more
(Dollar amounts in millions)	Fair value		Gross unrealized losses			Number of securities	Fair value		Gross unrealized losses			Number of securities
Description of Securities
Fixed maturity securities:
U.S. government, agencies and government-sponsored enterprises	$	1,759	$	(95	)	81	$	6	$	(1	)	2
Tax-exempt		152		(6	)	48		346		(98	)	113
Government—non-U.S.		341		(3	)	60		105		(19	)	35
U.S. corporate		2,823		(81	)	317		5,660		(736	)	510
Corporate—non-U.S.		1,721		(55	)	221		2,245		(301	)	258
Residential mortgage-backed		941		(252	)	256		1,012		(558	)	348
Commercial mortgage-backed		714		(64	)	81		1,720		(771	)	345
Other asset-backed		329		(6	)	43		1,727		(474	)	183

Subtotal, fixed maturity securities		8,780		(562	)	1,107		12,821		(2,958	)	1,794
Equity securities		2		(1	)	3		12		(2	)	9

Total for securities in an unrealized loss position	$	8,782	$	(563	)	1,110	$	12,833	$	(2,960	)	1,803

% Below cost—fixed maturity securities:
<20% Below cost	$	8,437	$	(245	)	920	$	9,699	$	(762	)	1,055
20-50% Below cost		267		(137	)	91		2,637		(1,246	)	455
>50% Below cost		76		(180	)	96		485		(950	)	284

Total fixed maturity securities		8,780		(562	)	1,107		12,821		(2,958	)	1,794

% Below cost—equity securities:
<20% Below cost		2		(1	)	3		11		(1	)	5
>50% Below cost		—		—		—		1		(1	)	4

Total equity securities		2		(1	)	3		12		(2	)	9

Total for securities in an unrealized loss position	$	8,782	$	(563	)	1,110	$	12,833	$	(2,960	)	1,803


Investment grade	$	8,391	$	(320	)	891	$	10,897	$	(2,122	)	1,390
Below investment grade		391		(243	)	219		1,936		(838	)	413

Total for securities in an unrealized loss position	$	8,782	$	(563	)	1,110	$	12,833	$	(2,960	)	1,803

The scheduled maturity distribution of fixed maturity securities as of March 31, 2010 is set forth below. Actual maturities may differ from contractual maturities because issuers of securities may have the right to call or prepay obligations with or without call or prepayment penalties.


(Amounts in millions)	Amortized cost or cost		Fair value
Due one year or less	$	2,634	$	2,660
Due after one year through five years		12,313		12,582
Due after five years through ten years		7,929		8,152
Due after ten years		19,148		18,889

Subtotal		42,024		42,283
Residential mortgage-backed		4,445		3,810
Commercial mortgage-backed		4,243		3,693
Other asset-backed		2,573		2,254

Total	$	53,285	$	52,040

As of March 31, 2010, $5,437 million of our investments (excluding mortgage-backed and asset-backed securities) were subject to certain call provisions.

As of March 31, 2010, securities issued by finance and insurance, utilities and energy, and consumer—non-cyclical industry groups represented approximately 26%, 22% and 11% of our domestic and foreign corporate fixed maturity securities portfolio, respectively. No other industry group comprised more than 10% of our investment portfolio. This portfolio is widely diversified among various geographic regions in the U.S. and internationally, and is not dependent on the economic stability of one particular region.

As of March 31, 2010, we did not hold any fixed maturity securities in any single issuer, other than securities issued or guaranteed by the U.S. government, which exceeded 10% of stockholders’ equity.

(e) Commercial Mortgage Loans

Our mortgage loans are collateralized by commercial properties, including multi-family residential buildings. The carrying value of commercial mortgage loans is stated at original cost net of prepayments, amortization and allowance for loan losses.

We diversify our commercial mortgage loans by both property type and geographic region. The following tables set forth the distribution across property type and geographic region for commercial mortgage loans as of the periods indicated:


	March 31, 2010					December 31, 2009
(Amounts in millions)	Carrying value			% of total		Carrying value			% of total
Property Type
Retail	$	2,074		28	%	$	2,115		28	%
Office		1,991		27			2,025		27
Industrial		1,955		27			1,979		26
Apartments		819		11			832		11
Mixed use/other		543		7			590		8

Total principal balance		7,382		100	%		7,541		100	%

Unamortized balance of loan origination fees and costs		6					6
Allowance for losses		(52	)				(48	)

Total ⁽¹⁾	$	7,336				$	7,499

⁽¹⁾	Included $17 million of held-for-sale mortgage loans as of December 31, 2009. In the first quarter of 2010, we began reporting held-for-sale mortgages in other invested assets.


	March 31, 2010					December 31, 2009
(Amounts in millions)	Carrying value			% of total		Carrying value			% of total
Geographic Region
Pacific	$	1,966		27	%	$	2,005		27	%
South Atlantic		1,669		23			1,711		23
Middle Atlantic		987		13			1,005		13
East North Central		714		10			728		10
Mountain		640		9			650		9
New England		486		6			492		6
West North Central		385		5			389		5
West South Central		325		4			331		4
East South Central		210		3			230		3

Total principal balance		7,382		100	%		7,541		100	%

Unamortized balance of loan origination fees and costs		6					6
Allowance for losses		(52	)				(48	)

Total ⁽¹⁾	$	7,336				$	7,499

⁽¹⁾	Included $17 million of held-for-sale mortgage loans as of December 31, 2009. In the first quarter of 2010, we began reporting held-for-sale mortgages in other invested assets.

“Impaired” loans are defined by U.S. GAAP as loans for which it is probable that the lender will be unable to collect all amounts due according to original contractual terms of the loan agreement.

Under these principles, we may have two types of “impaired” loans: loans requiring specific allowances for losses (none for the three months ended March 31, 2010 and $21 million for the year ended December 31, 2009) and loans expected to be fully recoverable because the carrying amount has been reduced previously through charge-offs or deferral of income recognition (none for the three months ended March 31, 2010 and for the year ended December 31, 2009).

Average investment in specifically impaired loans was $9 million and $10 million as of March 31, 2010 and December 31, 2009, respectively, and there was no interest income recognized on these loans while they were considered impaired.

The following table presents the activity in the allowance for losses during the period indicated:


(Amounts in millions)	March 31, 2010
Beginning balance	$	48
Provision		4
Release		—

Ending balance	$	52

(f) Restricted Commercial Mortgage Loans Related To Securitization Entities

The following tables set forth additional information regarding our restricted commercial mortgage loans related to securitization entities as of the date indicated:


	March 31, 2010
(Amounts in millions)	Carrying value			% of total
Property Type
Retail	$	200		36	%
Industrial		136		25
Office		125		22
Apartments		67		12
Mixed use/other		26		5

Total principal balance		554		100	%

Allowance for losses		(2	)

Total	$	552


	March 31, 2010
(Amounts in millions)	Carrying value			% of total
Geographic Region
South Atlantic	$	198		36	%
Pacific		100		18
Middle Atlantic		74		13
East North Central		64		12
Mountain		37		7
East South Central		34		6
West North Central		33		6
West South Central		13		2
New England		1		—

Total principal balance		554		100	%

Allowance for losses		(2	)

Total	$	552

See note 7 for additional information related to consolidated securitization entities.

(g) Restricted Other Invested Assets Related To Securitization Entities

We have consolidated securitization entities that hold certain investments that are recorded as restricted other invested assets related to securitization entities. The consolidated securitization entities hold certain investments as trading securities whereby the changes in fair value are recorded in current period income (loss). The trading securities are comprised of asset-backed securities, including residual interest in certain policy loan securitization entities and highly rated bonds that are primarily backed by credit card receivables. See note 7 for additional information related to consolidated securitization entities.

Derivative Instruments

(5) Derivative Instruments

Our business activities routinely deal with fluctuations in interest rates, equity prices, currency exchange rates and other asset and liability prices. We use derivative instruments to mitigate or reduce certain of these risks. We have established policies for managing each of these risks, including prohibitions on derivatives market-making and other speculative derivatives activities. These policies require the use of derivative instruments in concert with other techniques to reduce or mitigate these risks. While we use derivatives to mitigate or reduce risks, certain derivatives do not meet the accounting requirements to be designated as hedging instruments and are denoted as “derivatives not designated as hedges” in the following disclosures. For derivatives that meet the accounting requirements to be designated as hedges, the following disclosures for these derivatives are denoted as “derivatives designated as hedges,” which include both cash flow and fair value hedges.

The following table sets forth our positions in derivative instruments as of the dates indicated:


	Asset derivatives							Liability derivatives
	Balance sheet classification	Fair value						Balance sheet classification	Fair value
(Amounts in millions)	Balance sheet classification	March 31, 2010			December 31, 2009			Balance sheet classification	March 31, 2010		December 31, 2009
Derivatives designated as hedges
Cash flow hedges:
Interest rate swaps	Other invested assets	$	69		$	72		Other liabilities	$	158	$	114
Inflation indexed swaps	Other invested assets		1			—		Other liabilities		13		21
Foreign currency swaps	Other invested assets		100			101		Other liabilities		—		—

Total cash flow hedges			170			173				171		135

Fair value hedges:
Interest rate swaps	Other invested assets		130			132		Other liabilities		12		15
Foreign currency swaps	Other invested assets		22			24		Other liabilities		—		—

Total fair value hedges			152			156				12		15

Total derivatives designated as hedges			322			329				183		150

Derivatives not designated as hedges
Interest rate swaps	Other invested assets		475			505		Other liabilities		44		59
Interest rate swaps related to securitization entities ⁽¹⁾	Restricted other invested assets		—			—		Other liabilities		16		—
Interest rate swaptions	Other invested assets		14			54		Other liabilities		18		67
Credit default swaps	Other invested assets		10			11		Other liabilities		1		3
Credit default swaps related to securitization entities ⁽¹⁾	Restricted other invested assets		—			—		Other liabilities		118		—
Equity index options	Other invested assets		34			39		Other liabilities		4		2
Financial futures	Other invested assets		—			—		Other liabilities		—		—
Other foreign currency contracts	Other invested assets		4			8		Other liabilities		—		—
GMWB embedded derivatives	Reinsurance recoverable ⁽² ⁾		(6	)		(5	)	Policyholder account balances ⁽³ ⁾		145		175

Total derivatives not designated as hedges			531			612				346		306

Total derivatives		$	853		$	941			$	529	$	456

⁽¹⁾	See note 7 for additional information related to consolidated securitization entities.

⁽²⁾	Represents the embedded derivatives associated with the reinsured portion of our guaranteed minimum withdrawal benefits (“GMWB”) liabilities.

⁽³⁾	Represents the embedded derivatives associated with our GMWB liabilities, excluding the impact of reinsurance.

The fair value of derivative positions presented above was not offset by the respective collateral amounts retained or provided under these agreements. The amounts recognized for derivative counterparty collateral retained by us was recorded in other invested assets with a corresponding amount recorded in other liabilities to represent our obligation to return the collateral retained by us.

The activity associated with derivative instruments can generally be measured by the change in notional value over the periods presented. However, for GMWB embedded derivatives, the change between periods is best illustrated by the number of policies. The following tables represent activity associated with derivative instruments as of the dates indicated:


(Notional in millions)	Measurement	December 31, 2009		Additions		Maturities/ terminations			March 31, 2010
Derivatives designated as hedges
Cash flow hedges:
Interest rate swaps	Notional	$	9,479	$	1,182	$	(3	)	$	10,658
Inflation indexed swaps	Notional		376		157		—			533
Foreign currency swaps	Notional		491		—		—			491

Total cash flow hedges			10,346		1,339		(3	)		11,682

Fair value hedges:
Interest rate swaps	Notional		2,366		—		(74	)		2,292
Foreign currency swaps	Notional		85		—		—			85

Total fair value hedges			2,451		—		(74	)		2,377

Total derivatives designated as hedges			12,797		1,339		(77	)		14,059

Derivatives not designated as hedges
Interest rate swaps	Notional		6,474		1,246		(354	)		7,366
Interest rate swaps related to securitization entities	Notional		—		138		—			138
Interest rate swaptions	Notional		5,100		—		(3,300	)		1,800
Credit default swaps	Notional		1,090		—		—			1,090
Credit default swaps related to securitization entities	Notional		—		322		—			322
Equity index options	Notional		912		149		(81	)		980
Financial futures	Notional		5,822		2,186		(2,545	)		5,463
Other foreign currency contracts	Notional		521		—		—			521

Total derivatives not designated as hedges			19,919		4,041		(6,280	)		17,680

Total derivatives		$	32,716	$	5,380	$	(6,357	)	$	31,739


(Number of policies)	Measurement	December 31, 2009	Additions	Terminations		March 31, 2010
Derivatives not designated as hedges
GMWB embedded derivatives	Policies	47,543	1,323	(461	)	48,405

Approximately $1.1 billion of notional value above is related to derivatives with counterparties that can be terminated at the option of the derivative counterparty and represented a net fair value asset of $112 million as of March 31, 2010.

Cash Flow Hedges

Certain derivative instruments are designated as cash flow hedges. The changes in fair value of these instruments are recorded as a component of OCI. We designate and account for the following as cash flow hedges when they have met the effectiveness requirements: (i) various types of interest rate swaps to convert floating rate investments to fixed rate investments; (ii) various types of interest rate swaps to convert floating rate liabilities into fixed rate liabilities; (iii) receive U.S. dollar fixed on foreign currency swaps to hedge the foreign currency cash flow exposure of foreign currency denominated investments; (iv) pay U.S. dollar fixed on foreign currency swaps to hedge the foreign currency cash flow exposure on liabilities denominated in foreign currencies; (v) forward starting interest rate swaps to hedge against changes in interest rates associated with future fixed-rate bond purchases and/or interest income; and (vi) other instruments to hedge the cash flows of various forecasted transactions.

The following table provides information about the pre-tax income (loss) effects of cash flow hedges for the three months ended March 31, 2010:


(Amounts in millions)	Gain (loss) recognized in OCI			Gain (loss) reclassified into net income (loss) from OCI ⁽¹⁾			Classification of gain (loss) reclassified into net income (loss)	Gain (loss) recognized in net income (loss) ⁽²⁾			Classification of gain (loss) recognized in net income (loss)
Interest rate swaps hedging assets	$	(36	)	$	4		Net investment income	$	(3	)	Net investment gains (losses)
Interest rate swaps hedging assets		—			1		Net investment gains (losses)		—		Net investment gains (losses)
Foreign currency swaps		1			(2	)	Interest expense		—		Net investment gains (losses)

Total	$	(35	)	$	3			$	(3	)

⁽¹⁾	No amounts were reclassified into net income (loss) for cash flow hedges that were terminated or de-designated where the effective portion is reclassified into net income (loss) when the underlying hedge item affects net income (loss).

⁽²⁾	Represents ineffective portion of cash flow hedges as there were no amounts excluded from the measurement of effectiveness.

The following table provides information about the pre-tax income (loss) effects of cash flow hedges for the three months ended March 31, 2009:


(Amounts in millions)	Gain (loss) recognized in OCI			Gain (loss) reclassified into net income (loss) from OCI ⁽¹⁾			Classification of gain (loss) reclassified into net income (loss)	Gain (loss) recognized in net income (loss) ⁽²⁾			Classification of gain (loss) recognized in net income (loss)
Interest rate swaps hedging assets	$	(145	)	$	5		Net investment income	$	(6	)	Net investment gains (losses)
Interest rate swaps hedging assets		—			3		Net investment gains (losses)		—		Net investment gains (losses)
Foreign currency swaps		(12	)		(3	)	Interest expense		—		Net investment gains (losses)

Total	$	(157	)	$	5			$	(6	)

⁽¹⁾	Amounts included $3 million of gains reclassified into income (loss) for cash flow hedges that were terminated or de-designated where the effective portion is reclassified into income (loss) when the underlying hedge item affects net income (loss).

⁽²⁾	Represents ineffective portion of cash flow hedges as there were no amounts excluded from the measurement of effectiveness.

The total of derivatives designated as cash flow hedges of $777 million, net of taxes, recorded in stockholders’ equity as of March 31, 2010 is expected to be reclassified to future net income (loss), concurrently with and primarily offsetting changes in interest expense and interest income on floating-rate instruments and interest income on future fixed-rate bond purchases. Of this amount, $6 million, net of taxes, is expected to be reclassified to net income (loss) in the next 12 months. Actual amounts may vary from this amount as a result of market conditions. All forecasted transactions associated with qualifying cash flow hedges are expected to occur by 2045. No amounts were reclassified to net income (loss) during the three months ended March 31, 2010 in connection with forecasted transactions that were no longer considered probable of occurring.

Fair Value Hedges

Certain derivative instruments are designated as fair value hedges. The changes in fair value of these instruments are recorded in net income (loss). In addition, changes in the fair value attributable to the hedged portion of the underlying instrument are reported in net income (loss). We designate and account for the following as fair value hedges when they have met the effectiveness requirements: (i) interest rate swaps to convert fixed rate investments to floating rate investments; (ii) interest rate swaps to convert fixed rate liabilities into floating rate liabilities; (iii) cross currency swaps to convert non-U.S. dollar fixed rate liabilities to floating rate U.S. dollar liabilities; and (iv) other instruments to hedge various fair value exposures of investments.

The following table provides information about the pre-tax income (loss) effects of fair value hedges and related hedged items for the three months ended March 31, 2010:


	Derivative instrument								Hedged item
(Amounts in millions)	Gain (loss) recognized in net income (loss)			Classification of gain (loss) recognized in net income (loss)	Other impacts to net income (loss)			Classification of other impacts to net income (loss)	Gain (loss) recognized in net income (loss)			Classification of gain (loss) recognized in net income (loss)
Interest rate swaps hedging assets	$	1		Net investment gains (losses)	$	(3	)	Net investment income	$	(1	)	Net investment gains (losses)
Interest rate swaps hedging liabilities		(1	)	Net investment gains (losses)		25		Interest credited		1		Net investment gains (losses)
Foreign currency swaps		(2	)	Net investment gains (losses)		1		Interest credited		2		Net investment gains (losses)

Total	$	(2	)		$	23			$	2

The following table provides information about the pre-tax income (loss) effects of fair value hedges and related hedged items for the three months ended March 31, 2009:


	Derivative instrument								Hedged item
(Amounts in millions)	Gain (loss) recognized in net income (loss)			Classification of gain (loss) recognized in net income (loss)	Other impacts to net income (loss)			Classification of other impacts to net income (loss)	Gain (loss) recognized in net income (loss)		Classification of gain (loss) recognized in net income (loss)
Interest rate swaps hedging assets	$	(7	)	Net investment gains (losses)	$	(4	)	Net investment income	$	7	Net investment gains (losses)
Interest rate swaps hedging liabilities		—		Net investment gains (losses)		19		Interest credited		—	Net investment gains (losses)
Foreign currency swaps		(11	)	Net investment gains (losses)		—		Interest credited		10	Net investment gains (losses)

Total	$	(18	)		$	15			$	17

The difference between the gain (loss) recognized for the derivative instruments and the hedged items presented above represents the net ineffectiveness of the fair value hedging relationships. The other impacts presented above represent the income (loss) effects of the derivative instruments that are presented in the same location as the income (loss) activity from the hedged items. There were no amounts excluded from the measurement of effectiveness.

Derivatives Not Designated As Hedges

We also enter into certain non-qualifying derivative instruments such as: (i) interest rate swaps, swaptions and financial futures to mitigate interest rate risk as part of managing regulatory capital positions; (ii) credit default swaps to enhance yield and reproduce characteristics of investments with similar terms and credit risk; (iii) equity index options, interest rate swaps and financial futures to mitigate the risks associated with liabilities that have guaranteed minimum benefits; and (iv) interest rate swaps where the hedging relationship does not qualify for hedge accounting. Additionally, we provide GMWBs on certain products that are required to be bifurcated as embedded derivatives.

We also have derivatives related to securitization entities where we were required to consolidate the related securitization entity as a result of our involvement in the structure. The counterparties for these derivatives typically only have recourse to the securitization entity. The interest rate swaps used for these entities are typically used to effectively convert the interest payments on the assets of the securitization entity to the same basis as the interest rate on the borrowings issued by the securitization entity. Credit default swaps are utilized in certain securitization entities to enhance the yield payable on the borrowings issued by the securitization entity and also include a settlement feature that allows the securitization entity to provide the par value of assets in the securitization entity for the amount of any losses incurred under the credit default swap. See note 7 for additional information related to consolidated securitization entities.

The following table provides the pre-tax gain (loss) recognized in net income (loss) for the effects of derivatives not designated as hedges for the periods indicated:


	Three months ended March 31,						Classification of gain (loss) recognized in net income (loss)
(Amounts in millions)	2010			2009
Interest rate swaps	$	(6	)	$	82		Net investment gains (losses)
Interest rate swaps related to securitization entities		(3	)		—		Net investment gains (losses)
Interest rate swaptions		22			(242	)	Net investment gains (losses)
Credit default swaps		5			(14	)	Net investment gains (losses)
Credit default swaps related to securitization entities		5			—		Net investment gains (losses)
Equity index options		(27	)		16		Net investment gains (losses)
Financial futures		(33	)		79		Net investment gains (losses)
Inflation indexed swaps		—			(7	)	Net investment gains (losses)
Other foreign currency contracts		(3	)		8		Net investment gains (losses)
GMWB embedded derivatives		36			(39	)	Net investment gains (losses)

Total derivatives not designated as hedges	$	(4	)	$	(117	)

Derivative Counterparty Credit Risk

As of March 31, 2010 and December 31, 2009, net fair value assets by counterparty totaled $710 million and $739 million, respectively. As of March 31, 2010 and December 31, 2009, net fair value liabilities by counterparty totaled $233 million and $74 million, respectively. As of March 31, 2010 and December 31, 2009, we retained collateral of $628 million and $647 million, respectively, related to these agreements, including over collateralization of $25 million and $10 million, respectively, from certain counterparties. As of March 31, 2010, we posted $110 million of collateral to derivative counterparties, including over collateralization of $14 million. As of December 31, 2009, we posted $121 million of collateral to derivative counterparties, including over collateralization of $46 million. For derivatives related to securitization entities, there are no arrangements that require either party to provide collateral and the recourse of the derivative counterparty is typically limited to the assets held by the securitization entity and there is no recourse to any entity other than the securitization entity.

Except for derivatives related to securitization entities, all of our master swap agreements contain credit downgrade provisions that allow either party to assign or terminate derivative transactions if the other party’s long-term unsecured debt rating or financial strength rating is below the limit defined in the applicable agreement. If the downgrade provisions had been triggered as of March 31, 2010 and December 31, 2009, we could have been allowed to claim up to $107 million and $102 million, respectively, from counterparties and required to disburse up to $5 million and $1 million, respectively. This represented the net fair value of gains and losses by counterparty, less available collateral held, and did not include any fair value gains or losses for derivatives related to securitization entities.

Credit Derivatives

We sell protection under single name credit default swaps and credit default swap index tranches in combination with purchasing securities to replicate characteristics of similar investments based on the credit quality and term of the credit default swap. Credit default triggers for both indexed reference entities and single name reference entities follow the Credit Derivatives Physical Settlement Matrix published by the International Swaps and Derivatives Association. Under these terms, credit default triggers are defined as bankruptcy, failure to pay or restructuring, if applicable. Our maximum exposure to credit loss equals the notional value for credit default swaps and the par value of debt instruments with embedded credit derivatives. In the event of default for credit default swaps, we are typically required to pay the protection holder the full notional value less a recovery rate determined at auction. For debt instruments with embedded credit derivatives, the security’s principal is typically reduced by the net amount of default for any referenced entity defaults.

In addition to the credit derivatives discussed above, we also have credit derivative instruments related to securitization entities that we were required to consolidate in 2010. These derivatives represent a customized index of reference entities with specified attachment points for certain derivatives. The credit default triggers are similar to those described above. In the event of default, the securitization entity will provide the counterparty with the par value of assets held in the securitization entity for the amount of incurred loss on the credit default swap. The maximum exposure to loss for the securitization entity is the notional value of the derivatives. Certain losses on these credit default swaps would be absorbed by the third-party noteholders of the securitization entity and the remaining losses on the credit default swaps would be absorbed by our portion of the notes issued by the securitization entity. See note 9 for information on the third-party borrowings related to consolidated securitization entities.

The following table sets forth our credit default swaps where we sell protection on single name reference entities and the fair values as of the dates indicated:


	March 31, 2010						December 31, 2009
(Amounts in millions)	Notional value		Assets		Liabilities		Notional value		Assets		Liabilities
Reference entity credit rating and maturity:
AAA
Matures after one year through five years	$	—	$	—	$	—	$	6	$	—	$	—
AA
Matures after one year through five years		11		—		—		5		—		—
A
Matures after one year through five years		32		—		1		32		1		—
Matures after five years through ten years		10		—		—		10		—		—
BBB
Matures after one year through five years		73		2		—		73		1		—
Matures after five years through ten years		29		—		—		29		—		—

Total credit default swaps on single name reference entities	$	155	$	2	$	1	$	155	$	2	$	—

The following table sets forth our credit default swaps where we sell protection on credit default swap index tranches and the fair values as of the dates indicated:


	March 31, 2010						December 31, 2009
(Amounts in millions)	Notional value		Assets		Liabilities		Notional value		Assets		Liabilities
Index tranche attachment/detachment point and maturity:
9% – 12% matures after one year through five years ⁽¹⁾	$	150	$	—	$	—	$	50	$	—	$	—
9% – 12% matures after five years through ten years ⁽²⁾		150		1		—		250		1		1
10% – 15% matures after five years through ten years ⁽³⁾		250		1		—		250		—		2
12% – 22% matures after five years through ten years ⁽⁴⁾		248		3		—		248		4		—
15% – 30% matures after five years through ten years ⁽⁵⁾		127		3		—		127		2		—

Total credit default swap index tranches		925		8		—		925		7		3

Customized credit default swap index tranches related to securitization entities:
Portion backing third-party borrowings maturing 2017 ⁽⁶⁾		22		—		14		—		—		—
Portion backing our interest maturing 2017 ⁽⁷⁾		300		—		104		—		—		—

Total customized credit default swap index tranches related to securitization entities		322		—		118		—		—		—

Total credit default swaps on index tranches	$	1,247	$	8	$	118	$	925	$	7	$	3

⁽¹⁾	The current attachment/detachment as of March 31, 2010 and December 31, 2009 was 9% – 12%.

⁽²⁾	The current attachment/detachment as of March 31, 2010 and December 31, 2009 was 9% – 12%.

⁽³⁾	The current attachment/detachment as of March 31, 2010 and December 31, 2009 was 10% – 15%.

⁽⁴⁾	The current attachment/detachment as of March 31, 2010 and December 31, 2009 was 12% – 22%.

⁽⁵⁾	The current attachment/detachment as of March 31, 2010 and December 31, 2009 was 14.8% – 30.3%.

⁽⁶⁾	Original notional value was $39 million.

⁽⁷⁾	Original notional value was $300 million.

The following table sets forth our holding of available-for-sale fixed maturity securities that include embedded credit derivatives and the fair values as of the dates indicated:


	March 31, 2010						December 31, 2009
(Amounts in millions)	Par value		Amortized cost		Fair value		Par value		Amortized cost		Fair value
Credit rating:
AA
Matures after five years through ten years	$	100	$	100	$	97	$	100	$	100	$	96
BBB
Matures after five years through ten years		—		—		—		100		100		76
BB
Matures after five years through ten years		—		—		—		200		228		148

Total available-for-sale fixed maturity securities that include embedded credit derivatives	$	100	$	100	$	97	$	400	$	428	$	320

Fair Value of Financial Instruments

(6) Fair Value of Financial Instruments

Assets and liabilities that are reflected in the accompanying consolidated financial statements at fair value are not included in the following disclosure of fair value. Such items include cash and cash equivalents, investment securities, separate accounts, securities held as collateral and derivative instruments. Other financial assets and liabilities—those not carried at fair value—are discussed below. Apart from certain of our borrowings and certain marketable securities, few of the instruments discussed below are actively traded and their fair values must often be determined using models. The fair value estimates are made at a specific point in time, based upon available market information and judgments about the financial instruments, including estimates of the timing and amount of expected future cash flows and the credit standing of counterparties. Such estimates do not reflect any premium or discount that could result from offering for sale at one time our entire holdings of a particular financial instrument, nor do they consider the tax impact of the realization of unrealized gains or losses. In many cases, the fair value estimates cannot be substantiated by comparison to independent markets.

The basis on which we estimate fair value is as follows:

Commercial mortgage loans. Based on recent transactions and/or discounted future cash flows, using current market rates.

Restricted commercial mortgage loans. Based on recent transactions and/or discounted future cash flows, using current market rates.

Other invested assets. Based on comparable market transactions, discounted future cash flows, quoted market prices and/or estimates using the most recent data available for the related instrument. Primarily represents short-term investments, limited partnerships accounted for under the cost method and bank loans.

Short-term borrowings. Based on carrying value which approximates fair value since the borrowings are based on variable interest rates that are reset monthly.

Long-term borrowings. Based on market quotes or comparable market transactions.

Non-recourse funding obligations. Based on the then current coupon, revalued based on the London Interbank Offered Rate (“LIBOR”) rate set and current spread assumption based on commercially available data. The model is a floating rate coupon model using the spread assumption to derive the valuation.

Borrowings related to securitization entities. Based on market quotes or comparable market transactions.

Investment contracts. Based on expected future cash flows, discounted at current market rates for annuity contracts or institutional products.

The following represents the fair value of financial assets and liabilities that are not required to be carried at fair value as of the dates indicated:


(Amounts in millions)	March 31, 2010							December 31, 2009
(Amounts in millions)	Notional amount			Carrying amount		Fair value		Notional amount			Carrying amount		Fair value
Assets:
Commercial mortgage loans	$		⁽¹⁾	$	7,336	$	7,077	$		⁽¹⁾	$	7,499	$	7,213
Restricted commercial mortgage loans ⁽²⁾			⁽¹⁾		552		554			⁽¹⁾		—		—
Other invested assets			⁽¹⁾		1,456		1,460			⁽¹⁾		1,766		1,769
Liabilities:
Short-term borrowings ⁽³⁾			⁽¹⁾		930		930			⁽¹⁾		930		930
Long-term borrowings ⁽³⁾			⁽¹⁾		3,638		3,470			⁽¹⁾		3,641		3,291
Non-recourse funding obligations ⁽³⁾			⁽¹⁾		3,437		1,718			⁽¹⁾		3,443		1,674
Borrowings related to securitization entities ^{(2), (3)}			⁽¹⁾		493		510			⁽¹⁾		—		—
Investment contracts			⁽¹⁾		21,107		21,375			⁽¹⁾		21,515		21,743
Performance guarantees, principally letters of credit		77			—		—		117			—		—
Other firm commitments:
Commitments to fund limited partnerships		187			—		—		194			—		—
Ordinary course of business lending commitments		9			—		—		—			—		—

⁽¹⁾	These financial instruments do not have notional amounts.

⁽²⁾	See note 7 for additional information related to consolidated securitization entities.

⁽³⁾	See note 9 for additional information related to borrowings.

Recurring Fair Value Measurements

We have fixed maturity, equity and trading securities, derivatives, embedded derivatives, securities held as collateral, separate account assets and certain other financial instruments, which are carried at fair value. Below is a description of the valuation techniques and inputs used to determine fair value by class of instrument.

Fixed maturity, equity and trading securities

The valuations of fixed maturity, equity and trading securities are determined using a market approach, income approach or a combination of the market and income approach depending on the type of instrument and availability of information.

We utilize certain third-party data providers when determining fair value. We consider information obtained from third-party pricing services as well as third-party broker provided prices, or broker quotes, in our determination of fair value. Additionally, we utilize internal models to determine the valuation of securities using an income approach where the inputs are based on third-party provided market inputs. While we consider the valuations provided by third-party pricing services and broker quotes, management determines the fair value of our investment securities after considering all relevant and available information. We also obtain an understanding of the valuation methodologies and procedures used by third-party data providers to ensure sufficient understanding to evaluate the valuation data received and determine the appropriate fair value.

In general, we first obtain valuations from pricing services. If a price is not supplied by a pricing service, we will typically seek a broker quote. For certain private fixed maturity securities where we do not obtain valuations from pricing services, we utilize an internal model to determine fair value since transactions for identical securities are not readily observable and these securities are not typically valued by pricing services. For all securities, excluding certain private fixed maturity securities, if neither a pricing service nor broker quote valuation is available, we determine fair value using internal models.

For pricing services, we obtain an understanding of the pricing methodologies and procedures for each type of instrument. In general, a pricing service does not provide a price for a security if sufficient information is not readily available to determine fair value or if such security is not in the specific sector or class covered by a particular pricing service. Given our understanding of the pricing methodologies and procedures of pricing services, the securities valued by pricing services are typically classified as Level 2 unless we determine the valuation process for a security or group of securities utilizes significant unobservable inputs.

For private fixed maturity securities, we utilize an internal model to determine fair value and utilize public bond spreads by sector, rating and maturity to develop the market rate that would be utilized for a similar public bond. We then add an additional premium to the public bond spread to adjust for the liquidity and other features of our private placements. We utilize the estimated market yield to discount the expected cash flows of the security to determine fair value. We assign each security an internal rating to determine appropriate public bond spread that should be utilized in the valuation. While we generally consider the public bond spreads by sector and maturity to be observable inputs, we evaluate the similarities of our private placement with the public bonds to determine whether the spreads utilized would be considered observable inputs for the private placement being valued. To determine the significance of unobservable inputs, we calculate the impact on the valuation from the unobservable input and will classify a security as Level 3 when the impact on the valuation exceeds 10%.

For broker quotes, we discuss the valuation methodology utilized by the third party but cannot typically obtain sufficient evidence to determine the valuation does not include significant unobservable inputs. Accordingly, we typically classify the securities where fair value is based on our consideration of broker quotes as Level 3 measurements.

For remaining securities priced using internal models, we maximize the use of observable inputs but typically utilize significant unobservable inputs to determine fair value. Accordingly, the valuations are typically classified as Level 3.

The following table summarizes the primary sources considered when determining fair value of each class of fixed maturity securities as of March 31, 2010.


(Amounts in millions)	Total		Level 1		Level 2		Level 3
U.S. government, agencies and government-sponsored enterprises:
Pricing services	$	3,012	$	—	$	3,012	$	—
Broker quotes		1		—		—		1
Internal models		16		—		9		7

Total U.S. government, agencies and government-sponsored enterprises		3,029		—		3,021		8

Tax-exempt:
Pricing services		1,434		—		1,434		—
Internal models		2		—		—		2

Total tax-exempt		1,436		—		1,434		2

Government—non-U.S.:
Pricing services		2,385		—		2,385		—
Internal models		29		—		28		1

Total government—non-U.S.		2,414		—		2,413		1

U.S. corporate:
Pricing services		18,782		—		18,782		—
Broker quotes		260		—		—		260
Internal models		3,211		—		2,565		646

Total U.S. corporate		22,253		—		21,347		906

Corporate—non-U.S.:
Pricing services		10,867		—		10,768		99
Broker quotes		214		—		—		214
Internal models		2,070		—		1,875		195

Total corporate—non-U.S.		13,151		—		12,643		508

Residential mortgage-backed:
Pricing services		3,639		—		3,639		—
Broker quotes		29		—		—		29
Internal models		142		—		—		142

Total residential mortgage-backed		3,810		—		3,639		171

Commercial mortgage-backed:
Pricing services		3,646		—		3,646		—
Broker quotes		7		—		—		7
Internal models		40		—		—		40

Total commercial mortgage-backed		3,693		—		3,646		47

Other asset-backed:
Pricing services		1,834		—		1,834		—
Broker quotes		155		—		—		155
Internal models		265		—		11		254

Total other asset-backed		2,254		—		1,845		409

Total fixed maturity securities	$	52,040	$	—	$	49,988	$	2,052

The following table summarizes the primary sources considered when determining fair value of equity securities as of March 31, 2010.


(Amounts in millions)	Total		Level 1		Level 2		Level 3
Pricing services	$	112	$	24	$	88	$	—
Broker quotes		5		—		—		5
Internal models		62		—		—		62

Total equity securities	$	179	$	24	$	88	$	67

The following table summarizes the primary sources considered when determining fair value of trading securities as of March 31, 2010.


(Amounts in millions)	Total		Level 1		Level 2		Level 3
Pricing services	$	25	$	—	$	25	$	—
Broker quotes		142		—		—		142

Total trading securities	$	167	$	—	$	25	$	142

Restricted other invested assets related to securitization entities

We have trading securities related to securitization entities that are classified as restricted other invested assets and are carried at fair value. The trading securities represent asset-backed securities. The valuation for trading securities is determined using a market approach and/or an income approach depending on the availability of information. For certain highly rated asset-backed securities, there is observable market information for transactions of the same or similar instruments and is provided to us by a third-party pricing service and is classified as Level 2. For certain securities that are not actively traded, we determine fair value after considering third-party broker provided prices or discounted expected cash flows using current yields for similar securities and classify these valuations as Level 3.

Securities lending and derivative counterparty collateral

The fair value of securities held as collateral is primarily based on Level 2 inputs from market information for the collateral that is held on our behalf by the custodian. We determine fair value after considering prices obtained by third-party pricing services.

Separate account assets

The fair value of separate account assets is based on the quoted prices of the underlying fund investments and, therefore, represents Level 1 pricing.

Derivatives

In determining the fair value of derivatives, we consider the counterparty collateral arrangements and rights of set-off when determining whether any incremental adjustment should be made for both the counterparty’s and our non-performance risk. As a result of these counterparty arrangements, we determined no adjustment for our non-performance risk was required to our derivative liabilities.

Interest rate swaps. The valuation of interest rate swaps is determined using an income approach. The primary inputs into the valuation represent the forward interest rate swap curve, which is generally considered an observable input, and results in the derivative being classified as Level 2. For certain swaps, there are features that provide an option to the counterparty to terminate the swap at specified dates and would be considered a significant unobservable input and results in the fair value measurement of the derivative being classified as Level 3.

Interest rate swaps related to securitization entities. The valuation of interest rate swaps related to securitization entities is determined using an income approach. The primary input into the valuation represent the forward interest rate swap curve, which is generally considered an observable input, and results in the derivative being classified as Level 2.

Inflation indexed swaps. The valuation of inflation indexed swaps is determined using an income approach. The primary inputs into the valuation represent the forward interest rate swap curve and consumer price index, which are generally considered observable inputs, and results in the derivative being classified as Level 2.

Interest rate swaptions. The valuation of interest rate swaptions is determined using an income approach. The primary inputs into the valuation represent the forward interest rate swap curve, which is generally considered an observable input, forward interest rate volatility and time value component associated with the optionality in the derivative. As a result of the significant unobservable inputs associated with the forward interest rate volatility input, the derivative is classified as Level 3.

Foreign currency swaps. The valuation of foreign currency swaps is determined using an income approach. The primary inputs into the valuation represent the forward interest rate swap curve and foreign currency exchange rates, both of which are considered an observable input, and results in the derivative being classified as Level 2.

Credit default swaps. We have both single name credit default swaps and index tranche credit default swaps. For single name credit default swaps, we utilize an income approach to determine fair value based on using current market information for the credit spreads of the reference entity, which is considered observable inputs based on the reference entities of our derivatives and results in these derivatives being classified as Level 2. For index tranche credit default swaps, we utilize an income approach that utilizes current market information related to credit spreads and expected defaults and losses associated with the reference entities that comprise the respective index associated with each derivative. There are significant unobservable inputs associated with the timing and amount of losses from the reference entities as well as the timing or amount of losses, if any, that will be absorbed by our tranche. Accordingly, the index tranche credit default swaps are classified as Level 3.

Credit default swaps related to securitization entities. Credit default swaps related to securitization entities represent customized index tranche credit default swaps and are valued using a similar methodology as described above for index tranche credit default swaps. We determine fair value of these credit default swaps after considering both the valuation methodology described above as well as the valuation provided by the derivative counterparty. In addition to the valuation methodology and inputs described for index tranche credit default swaps, these customized credit default swaps contain a feature that permits the securitization entity to provide the par value of underlying assets in the securitization entity to settle any losses under the credit default swap. The valuation of this settlement feature is dependent upon the valuation of the underlying assets and the timing and amount of any expected loss on the credit default swap, which is considered a significant unobservable input. Accordingly, these customized index tranche credit default swaps related to securitization entities are classified as Level 3.

Equity index options. We have equity index options associated with various equity indices. The valuation of equity index options is determined using an income approach. The primary inputs into the valuation represent forward interest rate volatility and time value component associated with the optionality in the derivative, which are considered significant unobservable inputs in most instances. The equity index volatility surface is determined based on market information that is not readily observable and is developed based upon inputs received from several third-party sources. Accordingly, these options are classified as Level 3

Financial futures. The fair value of financial futures is based on the closing exchange prices. Accordingly, these financial futures are classified as Level 1. The period end valuation is zero as a result of settling the margins on these contracts on a daily basis.

Other foreign currency contracts. We have certain foreign currency options classified as other foreign currency contracts. The valuation of foreign currency options is determined using an income approach. The primary inputs into the valuation represent the forward interest rate swap curve, foreign currency exchange rates, forward interest rate and foreign currency exchange rate volatility and time value component associated with the optionality in the derivative. As a result of the significant unobservable inputs associated with the forward interest rate and foreign currency exchange rate volatility input, the derivative is classified as Level 3.

GMWB embedded derivatives

We are required to bifurcate an embedded derivative for certain features associated with annuity products and related reinsurance agreements where we provide a GMWB to the policyholder and are required to record the GMWB embedded derivative at fair value. The valuation of our GMWB embedded derivative is based on an income approach that incorporates inputs such as forward interest rates, equity index volatility, equity index and fund correlation, and policyholder assumptions such as utilization, lapse and mortality. In addition to these inputs, we also consider risk and expense margins when determining the projected cash flows that would be determined by another market participant. While the risk and expense margins are considered in determining fair value, these inputs do not have a significant impact on the valuation.

For GMWB liabilities, non-performance risk is integrated into the discount rate. The discount rate utilized in our valuation was based on the swap curve, which included the credit risk of an instrument rated “AA” and incorporated the non-performance risk of our GMWB liabilities. In recent periods, the swap curve has been lower than the U.S. Treasury curve for certain points on the curve. For the points where the swap curve is lower than the U.S. Treasury curve, we utilize the U.S. Treasury curve as our discount rate. As of March 31, 2010 and December 31, 2009, the impact of non-performance risk on our GMWB valuation was not material.

To determine whether the use of the swap curve was the appropriate discount rate to reflect the non-performance risk of the GMWB liabilities, we evaluate the non-performance risk in our liabilities based on a hypothetical exit market transaction as there is no exit market for these types of liabilities. A hypothetical exit market can be viewed as a hypothetical transfer of the liability to another similarly rated insurance company which would closely resemble a reinsurance transaction. Another hypothetical exit market transaction can be viewed as a hypothetical transaction from the perspective of the GMWB policyholder. After considering all relevant factors in assessing whether any additional adjustment to the discount rate for non-performance risk was necessary, including assumptions we expect market participants would utilize in a hypothetical exit market transaction, we determined that no incremental adjustment to the discount rate was necessary for our GMWB liabilities that are recorded at fair value. We believe that a hypothetical exit market participant would use a similar discount rate to value the liabilities and would not incorporate changes in non-performance risk in the discount rate other than the implied credit spread incorporated in the swap curve.

For equity index volatility, we determine the projected equity market volatility using both historical volatility and projected near-term equity market volatility with more significance being placed on projected and recent historical data.

Equity index and fund correlations are determined based on historical price observations for the fund and equity index.

For policyholder assumptions, we use our expected lapse, mortality and utilization assumptions and update these assumptions for our actual experience, as necessary. For our lapse assumption, we adjust our base lapse assumption by policy based on a combination of the policyholder’s current account value and GMWB benefit.

We classify the GMWB valuation as Level 3 based on having significant unobservable inputs. We evaluate the inputs and methodologies used to determine fair value based on how we expect a market participant would determine exit value. As stated above, there is no exit market or market participants for the GMWB embedded derivatives. Accordingly, we evaluate our inputs and resulting fair value based on a hypothetical exit market and hypothetical market participants. A hypothetical exit market could be viewed as a transaction that would closely resemble reinsurance. While reinsurance transactions for this type of product are not an observable input, we consider this type of hypothetical exit market when evaluating our inputs and determining that our inputs are consistent with that of a hypothetical market participant.

Borrowings related to securitization entities

We record certain borrowings related to securitization entities at fair value. The fair value of these borrowings is determined using either a market approach or income approach, depending on the instrument and availability of market information. Given the unique characteristics of the securitization entities that issued these borrowings as well as the lack of comparable instruments, we determine fair value considering the valuation of the underlying assets held by the securitization entities and any derivatives, as well as any unique characteristics of the borrowings that may impact the valuation. After considering all relevant inputs, we determine fair value of the borrowings using the net valuation of the underlying assets and derivatives that are backing the borrowings. Accordingly, these instruments are classified as Level 3.

The following tables set forth our assets and liabilities by class of instrument that are measured at fair value on a recurring basis as of the dates indicated:


	March 31, 2010
(Amounts in millions)	Total			Level 1		Level 2		Level 3
Assets
Investments:
Fixed maturity securities:
U.S. government, agencies and government-sponsored enterprises	$	3,029		$	—	$	3,021	$	8
Tax-exempt		1,436			—		1,434		2
Government—non-U.S.		2,414			—		2,413		1
U.S. corporate		22,253			—		21,347		906
Corporate—non-U.S.		13,151			—		12,643		508
Residential mortgage-backed		3,810			—		3,639		171
Commercial mortgage-backed		3,693			—		3,646		47
Other asset-backed		2,254			—		1,845		409

Total fixed maturity securities		52,040			—		49,988		2,052

Equity securities		179			24		88		67

Other invested assets:
Trading securities		167			—		25		142
Derivative assets:
Interest rate swaps		674			—		670		4
Inflation indexed swaps		1			—		1		—
Foreign currency swaps		122			—		122		—
Interest rate swaptions		14			—		—		14
Credit default swaps		10			—		3		7
Equity index options		34			—		—		34
Other foreign currency contracts		4			—		—		4

Total derivative assets		859			—		796		63

Securities lending collateral		593			—		593		—
Derivatives counterparty collateral		137			—		137		—
Restricted other invested assets related to securitization entities		377			—		203		174

Total other invested assets		2,133			—		1,754		379

Reinsurance recoverable ⁽¹⁾		(6	)		—		—		(6	)
Separate account assets		11,261			11,261		—		—

Total assets	$	65,607		$	11,285	$	51,830	$	2,492

Liabilities
Policyholder account balances ⁽²⁾	$	145		$	—	$	—	$	145
Derivative liabilities:
Interest rate swaps		214			—		214		—
Interest rate swaps related to securitization entities		16			—		16		—
Inflation indexed swaps		13			—		13		—
Interest rate swaptions		18			—		—		18
Credit default swaps		1			—		—		1
Credit default swaps related to securitization entities		118			—		—		118
Equity index options		4			—		—		4

Total derivative liabilities		384			—		243		141
Borrowings related to securitization entities		58			—		—		58

Total liabilities	$	587		$	—	$	243	$	344

⁽¹⁾	Represents embedded derivatives associated with the reinsured portion of our GMWB liabilities.

⁽²⁾	Represents embedded derivatives associated with our GMWB liabilities, excluding the impact of reinsurance.


	December 31, 2009
(Amounts in millions)	Total			Level 1		Level 2		Level 3
Assets
Investments:
Fixed maturity securities:
U.S. government, agencies and government-sponsored enterprises	$	2,602		$	—	$	2,586	$	16
Tax-exempt		1,544			—		1,542		2
Government—non-U.S.		2,384			—		2,377		7
U.S. corporate		21,412			—		20,339		1,073
Corporate—non-U.S.		12,551			—		12,047		504
Residential mortgage-backed		3,227			—		1,746		1,481
Commercial mortgage-backed		3,617			—		59		3,558
Other asset-backed		2,415			—		996		1,419

Total fixed maturity securities		49,752			—		41,692		8,060

Equity securities		159			42		108		9

Other invested assets:
Trading securities		174			—		29		145
Derivative assets:
Interest rate swaps		709			—		706		3
Foreign currency swaps		125			—		125		—
Interest rate swaptions		54			—		—		54
Credit default swaps		11			—		5		6
Equity index options		39			—		—		39
Other foreign currency contracts		8			—		—		8

Total derivative assets		946			—		836		110

Securities lending collateral		853			—		853		—
Derivatives counterparty collateral		148			—		148		—

Total other invested assets		2,121			—		1,866		255

Reinsurance recoverable ⁽¹⁾		(5	)		—		—		(5	)
Separate account assets		11,002			11,002		—		—

Total assets	$	63,029		$	11,044	$	43,666	$	8,319

Liabilities
Policyholder account balances ⁽²⁾	$	175		$	—	$	—	$	175
Derivative liabilities:
Interest rate swaps		188			—		186		2
Inflation indexed swaps		21			—		21		—
Interest rate swaptions		67			—		—		67
Credit default swap		3			—		3		—
Equity index options		2			—		—		2

Total derivative liabilities		281			—		210		71

Total liabilities	$	456		$	—	$	210	$	246

⁽¹⁾	Represents embedded derivatives associated with the reinsured portion of our GMWB liabilities.

⁽²⁾	Represents embedded derivatives associated with our GMWB liabilities, excluding the impact of reinsurance.

The following tables present additional information about assets measured at fair value on a recurring basis and for which we have utilized significant unobservable (Level 3) inputs to determine fair value as of or for the dates indicated:


	Beginning balance as of January 1, 2010			Total realized and unrealized gains (losses)						Purchases, sales, issuances and settlements, net			Transfer in Level 3		Transfer out of Level 3			Ending balance as of March 31, 2010			Total gains (losses) included in net income (loss) attributable to assets still held
(Amounts in millions)	Beginning balance as of January 1, 2010			Included in net income (loss)			Included in OCI						Transfer in Level 3		Transfer out of Level 3			Ending balance as of March 31, 2010
Fixed maturity securities:
U.S. government, agencies and government-sponsored enterprises	$	16		$	—		$	—		$	(1	)	$	3	$	(10	)	$	8		$	—
Tax-exempt		2			—			—			—			—		—			2			—
Government—non-U.S.		7			—			—			—			—		(6	)		1			—
U.S. corporate		1,073			—			15			60			25		(267	)		906			4
Corporate—non-U.S.		504			1			1			9			59		(66	)		508			1
Residential mortgage-backed		1,481			—			3			106			—		(1,419	)		171			—
Commercial mortgage-backed		3,558			1			4			(62	)		—		(3,454	)		47			—
Other asset-backed		1,419			(16	)		21			(4	)		10		(1,021	)		409			(16	)

Total fixed maturity securities		8,060			(14	)		44			108			97		(6,243	)		2,052			(11	)

Equity securities		9			—			(1	)		7			52		—			67			—

Other invested assets:
Trading securities		145			8			—			(11	)		—		—			142			8
Derivative assets:
Interest rate swaps		3			1			—			—			—		—			4			2
Interest rate swaptions		54			(10	)		—			(30	)		—		—			14			(5	)
Credit default swaps		6			1			—			—			—		—			7			1
Equity index options		39			(25	)		—			20			—		—			34			(24	)
Other foreign currency contracts		8			(4	)		—			—			—		—			4			(4	)

Total derivative assets		110			(37	)		—			(10	)		—		—			63			(30	)

Total other invested assets		255			(29	)		—			(21	)		—		—			205			(22	)

Restricted other invested assets related to securitization entities ⁽¹⁾		—			—			—			—			174		—			174			—
Reinsurance recoverable ⁽²⁾		(5	)		(1	)		—			—			—		—			(6	)		(1	)

Total Level 3 assets	$	8,319		$	(44	)	$	43		$	94		$	323	$	(6,243	)	$	2,492		$	(34	)

⁽¹⁾	Relates to the consolidation of certain securitization entities as of January 1, 2010. See note 7 for additional information related to consolidated securitization entities.

⁽²⁾	Represents embedded derivatives associated with the reinsured portion of our GMWB liabilities.


	Beginning balance as of January 1, 2009		Total realized and unrealized gains (losses)					Purchases, sales, issuances and settlements, net			Transfer in Level 3		Transfer out of Level 3			Ending balance as of March 31, 2009		Total gains (losses) included in net income (loss) attributable to assets still held
(Amounts in millions)	Beginning balance as of January 1, 2009		Included in net income (loss)			Included in OCI					Transfer in Level 3		Transfer out of Level 3			Ending balance as of March 31, 2009
Fixed maturity securities	$	10,560	$	(292	)	$	260	$	(311	)	$	2,697	$	(1,911	)	$	11,003	$	(296	)
Equity securities		60		—			—		1			—		—			61		—
Other invested assets ⁽¹⁾		1,058		(251	)		—		(21	)		76		—			862		(271	)
Reinsurance recoverable		18		1			—		(1	)		—		—			18		1

Total Level 3 assets	$	11,696	$	(542	)	$	260	$	(332	)	$	2,773	$	(1,911	)	$	11,944	$	(566	)

⁽¹⁾	Includes certain trading securities and derivative assets.

As included in the Level 3 tables above, the total fixed maturity securities classified as Level 3 measurements decreased by $6.0 billion and increased by $443 million for the three months ended March 31, 2010 and 2009, respectively. The decrease in Level 3 measurements in 2010 was primarily the result of securities where the fair value measurement was classified as Level 3 as of December 31, 2009 but was not classified as Level 3 as of March 31, 2010. The change in classification primarily resulted from a change in the liquidity for mortgage-backed and asset-backed securities. The current market conditions for these securities have improved and we no longer consider the valuation to have significant unobservable inputs as a result of illiquidity. Accordingly, we classified the resulting fair value measurements after considering the pricing source and inputs used in the determination of fair value of the security and determined certain securities should be classified as Level 2.

The following tables present additional information about liabilities measured at fair value on a recurring basis and for which we have utilized significant unobservable (Level 3) inputs to determine fair value as of or for the dates indicated:


	Beginning balance as of January 1, 2010		Total realized and unrealized (gains) losses					Purchases, sales, issuances and settlements, net			Transfer in Level 3		Transfer out of Level 3		Ending balance as of March 31, 2010		Total (gains) losses included in net (income) loss attributable to liabilities still held
(Amounts in millions)	Beginning balance as of January 1, 2010		Included in net (income) loss			Included in OCI					Transfer in Level 3		Transfer out of Level 3		Ending balance as of March 31, 2010
Policyholder account balances ⁽¹ ⁾	$	175	$	(39	)	$	9	$	—		$	—	$	—	$	145	$	(37	)
Derivative liabilities:
Interest rate swaps		2		(2	)		—		—			—		—		—		(2	)
Interest rate swaptions		67		(32	)		—		(17	)		—		—		18		(15	)
Credit default swaps		—		1			—		—			—		—		1		1
Credit default swaps related to securitization entities ⁽²⁾		—		(5	)		—		2			121		—		118		(5	)
Equity index options		2		3			—		(1	)		—		—		4		3

Total derivative liabilities		71		(35	)		—		(16	)		121		—		141		(18	)
Borrowings related to securitization entities ⁽²⁾		—		(2	)		—		—			60		—		58		(2	)

Total Level 3 liabilities	$	246	$	(76	)	$	9	$	(16	)	$	181	$	—	$	344	$	(57	)

⁽ ¹ ⁾

Represents embedded derivatives associated with our GMWB liabilities, excluding the impact of reinsurance.

⁽²⁾	Relates to the consolidation of certain securitization entities as of January 1, 2010. See note 7 for additional information related to consolidated securitization entities.


	Beginning balance as of January 1, 2009		Total realized and unrealized (gains) losses				Purchases, sales, issuances and settlements, net		Transfer in Level 3		Transfer out of Level 3		Ending balance as of March 31, 2009		Total (gains) losses included in net (income) loss attributable to liabilities still held
(Amounts in millions)	Beginning balance as of January 1, 2009		Included in net (income) loss		Included in OCI				Transfer in Level 3		Transfer out of Level 3		Ending balance as of March 31, 2009
Policyholder account balances	$	878	$	39	$	—	$	6	$	—	$	—	$	923	$	44
Other liabilities ⁽ ¹ ⁾		68		5		—		—		—		—		73		5

Total Level 3 liabilities	$	946	$	44	$	—	$	6	$	—	$	—	$	996	$	49

⁽¹ ⁾	Represents derivative liabilities.

Realized and unrealized gains (losses) on Level 3 assets and liabilities are primarily reported in either net investment gains (losses) within the consolidated statements of income or OCI within stockholders’ equity based on the appropriate accounting treatment for the instrument.

Purchases, sales, issuances and settlements, net, represent the activity that occurred during the period that results in a change of the asset or liability but does not represent changes in fair value for the instruments held at the beginning of the period. Such activity primarily consists of purchases and sales of fixed maturity, equity and trading securities and purchases and settlements of derivative instruments.

Purchases, sales, issuances and settlements, net, presented for policyholder account balances represent the issuances and settlements of embedded derivatives associated with our GMWB liabilities where: issuances are characterized as the change in fair value associated with the product fees recognized that are attributed to the embedded derivative to equal the expected future benefit costs upon issuance and settlements are characterized as the change in fair value upon exercising the embedded derivative instrument, effectively representing a settlement of the embedded derivative instrument. We have shown these changes in fair value separately based on the classification of this activity as effectively issuing and settling the embedded derivative instrument with all remaining changes in the fair value of these embedded derivative instruments being shown separately in the category labeled “included in net (income) loss” in the tables presented above.

The amount presented for unrealized gains (losses) for assets and liabilities still held as of the reporting date primarily represents impairments for available-for-sale securities, accretion on certain fixed maturity securities, changes in fair value of trading securities and certain derivatives and changes in fair value of embedded derivatives associated with our GMWB liabilities that existed as of the reporting date, which were recorded in net investment gains (losses).

Non-Recurring Fair Value Measurements

We hold investments in bank loans that are recorded at the lower of cost or fair value and are recorded in other invested assets. As of March 31, 2010, no bank loans were recorded at fair value as cost was lower than their respective fair values; therefore, there were no fair value loss adjustments for the three months ended March 31, 2010.

Variable Interest and Securitization Entities

(7) Variable Interest and Securitization Entities

VIEs are generally entities that have either a total equity investment that is insufficient to permit the entity to finance its activities without additional subordinated financial support or whose equity investors lack the characteristics of a controlling financial interest. We evaluate VIEs to determine whether we are the primary beneficiary and are required to consolidate the assets and liabilities of the entity. The determination of the primary beneficiary for a VIE can be complex and requires management judgment regarding the expected results of the entity and who directs the activities of the entity that most significantly impact the economic results of the VIE. Our primary involvement related to VIEs includes:

•

asset securitization transactions,

•

certain investments and

•

certain mortgage insurance policies.

(a) Asset securitizations

We have used former affiliates and third-party entities to facilitate asset securitizations. Disclosure requirements related to off-balance sheet arrangements encompass a broader array of arrangements than those at risk for consolidation. These arrangements include transactions with term securitization entities, as well as transactions with conduits that are sponsored by third parties.

The following table summarizes the total securitized assets as of the dates indicated:


(Amounts in millions)	March 31, 2010		December 31, 2009
Receivables secured by:
Commercial mortgage loans	$	—	$	574
Fixed maturity securities		110		123
Other assets		169		236

Total securitized assets not required to be consolidated		279		933

Total securitized assets required to be consolidated		631		—

Total securitized assets	$	910	$	933

Financial support for certain securitization entities was provided under credit support agreements, in which we provided limited recourse for a maximum of $117 million of credit losses as of March 31, 2010. These agreements will remain in place throughout the life of the related entities. Included in this amount was $40 million for the limited recourse related to one of our commercial mortgage loan entities that was required to be consolidated with assets of $129 million as of March 31, 2010. There were no amounts recorded for these limited recourse liabilities as of March 31, 2010 and December 31, 2009.

(b) Securitization and Variable Interest Entities Not Required To Be Consolidated

We are involved in certain securitization and VIEs where we are not required to consolidate the securitization entity.

Asset securitizations. We transferred assets to securitization entities that would be considered VIEs but we were not required to consolidate the securitization entities. These securitization entities were designed to have significant limitations on the types of assets owned and the types and extent of permitted activities and decision making rights. We evaluated our involvement in the entities’ design and our decision making ability regarding the assets held by the securitization entity and determined we would generally not be the party with power to direct the activities that significantly impact the economic performance of the entity.

In certain instances, we determined we were the party with power but did not have a variable interest in the entity. Our interest in the entities included servicer fees and excess interest, where our benefit from our excess interest holding is subordinated to third-party holdings. Based on the composition of the assets in the securitization entity, there were no reasonable scenarios that would result in our interest receiving any significant benefit for the entity. As a result, our interest would not be considered a variable interest in the entity as a result of meeting certain requirements in the accounting guidance.

Amounts recognized in our consolidated financial statements related to our involvement with entities used to facilitate asset securitization transactions where the securitization entity was not required to be consolidated as of the dates indicated:


	March 31, 2010				December 31, 2009
(Amounts in millions)	Cost		Fair value		Cost		Fair value
Retained interests—assets	$	3	$	4	$	79	$	44

Total	$	3	$	4	$	79	$	44

The decrease in the amounts presented above were primarily a result of having to consolidate certain securitization entities as discussed above.

In certain securitization transactions, we retained an interest in transferred assets. Those interests take various forms and may be subject to credit, prepayment and interest rate risks. When we securitized receivables, we determined the fair value based on discounted cash flow models that incorporate, among other things, assumptions including credit losses, prepayment speeds and discount rates. These assumptions were based on our experience, market trends and anticipated performance related to the particular assets securitized. Our retained interests are reflected as fixed maturity securities available-for-sale.

Following a securitization transaction, we retained the responsibility for servicing the receivables, and as such, were entitled to receive an ongoing fee based on the outstanding principal balances of the receivables. There were no servicing assets nor liabilities recorded as the benefits of servicing the assets were adequate to compensate an independent servicer for its servicing responsibilities.

There has been no new asset securitization activity in 2010 or 2009.

Investments. We hold investments in certain structures that are considered VIEs. Our investments represent beneficial interests that are primarily in the form of structured securities. Our involvement in these structures typically represent a passive investment in the returns generated by the VIE and typically do not result in having significant influence over the economic performance of the VIE. See note 4 for additional information related to our investments, which includes information related to structured securities, such as asset-backed and mortgage-backed securities. Our maximum exposure to loss represents our cost basis in the investments.

Mortgage insurance. We also provide mortgage insurance on certain residential mortgage loans originated and securitized by third parties using VIEs to issue mortgage-backed securities. While we provide mortgage insurance on the underlying loans, we do not typically have any ongoing involvement with the VIE other than our mortgage insurance coverage and do not act in a servicing or decision making capacity for the underlying loans held by the VIE.

(c) Securitization and Variable Interest Entities Required To Be Consolidated

As a result of adopting new accounting guidance for VIE consolidation on January 1, 2010, we were required to consolidate certain VIEs. Our involvement with VIEs that were required to be consolidated related to asset securitization transactions and certain investments, both of which are described in more detail below. Prior to being required to consolidate these entities, our interest in these entities were recorded in our consolidated financial statements as fixed maturity securities available-for-sale.

Asset securitizations. For VIEs related to asset securitization transactions, we were required to consolidate three securitization entities as a result of our involvement in the entities’ design or having certain decision making ability regarding the assets held by the securitization entity. These securitization entities were designed to have significant limitations on the types of assets owned and the types and extent of permitted activities and decision making rights. The three securitization entities that were required to be consolidated are comprised of two securitization entities backed by commercial mortgage loans and one backed by residual interests in certain policy loan securitization entities.

For one of our commercial mortgage loan securitization entities with assets of $129 million as of March 31, 2010, our economic interest represents the excess interest received on the loans compared to the interest paid on the entity’s obligation. We also act as the servicer for the underlying mortgage loans and have the ability to direct certain activities in accordance with the agreements related to the securitization entity.

For the other commercial mortgage loan securitization entity with assets of $423 million as of March 31, 2010, our economic interest represents the excess interest of the commercial mortgage loans and the subordinated notes of the securitization entity. The commercial mortgage loans are serviced by a third-party servicer and special servicer. However, we have the right to replace the special servicer without cause at any time. This right is recognized under accounting guidance as resulting in our effective control of the activities directed by the special servicer.

Our economic interest in the policy loan securitization entity represents the excess interest received from the residual interest in certain policy loan securitization entities and the floating rate obligation issued by the securitization entity. The securitization entity also contains an interest rate swap to mitigate the difference between the effective fixed receipt on the assets and the floating rate obligation issued by the securitization entity. Since there are no significant ongoing activities in the securitization entity, we evaluated the design of the entity upon inception when we transferred the residual interests in the securitization entity. Prior to 2010, we fully impaired our investment in this securitization entity as a result of not expecting any future economic benefits from our investment under any reasonable scenario. However, there are certain remote interest rate and mortality scenarios that would result in our residual interest receiving significant economic benefits in relation to benefits received by the securitization entity. In accordance with the relevant accounting guidance, the use of probability is not permitted when determining whether we would have the ability to receive significant benefits from the securitization entity.

Investments. For VIEs related to certain investments, we were required to consolidate three securitization entities as a result of having certain decision making rights related to instruments held by the entities. These securitization entities were designed as synthetic collateralized debt obligations whereby the entities purchased highly rated asset-backed securities and entered into credit default swaps to generate income that would be passed to the noteholders of the entities. The entities also have the ability to settle any losses incurred on the credit default swap by providing the derivative counterparty asset-backed securities with a par amount equal to the loss incurred on the credit default swap. We hold the majority of the notes issued by the securitization entity and also have certain decision making rights related to the instruments held by the entity. Previously, we were not required to consolidate the securitization entity as a result of other noteholders absorbing the majority of expected losses from the entity.

The following table shows the activity presented in our consolidated statement of income related to the consolidated securitization entities for the period indicated:


(Amounts in millions)	Three months ended March 31, 2010
Revenues:
Net investment income:
Restricted commercial mortgage loans	$	10
Restricted other invested assets		1

Total net investment income		11

Net investment gains (losses):
Trading securities		7
Derivatives		2
Borrowings related to securitization entities recorded at fair value		2

Total net investment gains (losses)		11

Total revenues		22

Expenses:
Interest expense		8

Total expenses		8

Income before income taxes		14
Provision for income taxes		5

Net income	$	9

The following table shows the assets and liabilities that were recorded for the consolidated securitization entities as of the date indicated:


(Amounts in millions)	March 31, 2010
Assets
Investments:
Restricted commercial mortgage loans	$	552
Restricted other invested assets:
Trading securities		377
Other		8

Total restricted other invested assets		385

Total investments		937
Cash and cash equivalents		1
Accrued investment income		1

Total assets	$	939

Liabilities
Other liabilities:
Derivative liabilities	$	134
Other liabilities		1

Total other liabilities		135
Borrowings related to securitization entities		551

Total liabilities	$	686

The assets and other instruments held by the securitization entities are restricted and can only be used to fulfill the obligations of the securitization entity. Additionally, the obligations of the securitization entities do not have any recourse to the general credit of any other consolidated subsidiaries, except $40 million of limited recourse related to a consolidated commercial mortgage loan securitization entity.

Commitments and Contingencies

(8) Commitments and Contingencies

(a) Litigation

We face the risk of litigation and regulatory investigations and actions in the ordinary course of operating our businesses, including class action lawsuits. Our pending legal and regulatory actions include proceedings specific to us and others generally applicable to business practices in the industries in which we operate. In our insurance operations, we are, have been, or may become subject to class actions and individual suits alleging, among other things, issues relating to sales or underwriting practices, payment of contingent or other sales commissions, bidding practices in connection with our management and administration of a third party’s municipal guaranteed investment contract business, claims payments and procedures, cancellation or rescission of coverage, product design, product disclosure, administration, additional premium charges for premiums paid on a periodic basis, denial or delay of benefits, charging excessive or impermissible fees on products, recommending unsuitable products to customers, our pricing structures and business practices in our mortgage insurance businesses, such as captive reinsurance arrangements with lenders and contract underwriting services, violations of Real Estate Settlement Procedures Act of 1974 or related state anti-inducement laws, and breaching fiduciary or other duties to customers. Plaintiffs in class action and other lawsuits against us may seek very large or indeterminate amounts which may remain unknown for substantial periods of time. In our investment-related operations, we are subject to litigation involving commercial disputes with counterparties. We are also subject to litigation arising out of our general business activities such as our contractual and employment relationships. We are also subject to various regulatory inquiries, such as information requests, subpoenas, books and record examinations and market conduct and financial examinations from state, federal and international regulators and other authorities. A substantial legal liability or a significant regulatory action against us could have an adverse effect on our financial condition and results of operations. Moreover, even if we ultimately prevail in the litigation, regulatory action or investigation, we could suffer significant reputational harm, which could have an adverse effect on our business, financial condition or results of operations. At this time, it is not feasible to predict, nor to determine the ultimate outcomes of all pending investigations and legal proceedings, nor to provide reasonable ranges of potential losses.

(b) Commitments

As of March 31, 2010, we were committed to fund $187 million in limited partnership investments and $9 million in U.S. commercial mortgage loan investments.

Borrowings and Other Financings

(9) Borrowings and Other Financings

Revolving Credit Facilities

We have two five-year revolving credit facilities that mature in May 2012 and August 2012. These facilities bear variable interest rates based on one-month LIBOR plus a margin. Each of these facilities originally had $1.0 billion available for borrowings. Lehman Commercial Paper Inc. (“LCP”) had committed $70 million under the August 2012 credit facility and Lehman Brothers Bank, FSB (“Lehman FSB”) had committed $70 million under the May 2012 credit facility. On October 5, 2008, LCP filed for protection under Chapter 11 of the Federal Bankruptcy Code in the U.S. Bankruptcy Court for the Southern District of New York. LCP was unable to fulfill its commitments under the August 2012 credit facility and Lehman FSB declined to fulfill its commitment under the May 2012 credit facility. Therefore, as of March 31, 2010, we only had access to $1.9 billion under these facilities. On April 1, 2010, a consent and waiver agreement was entered into which releases the Lehman Brothers-related entities from their commitments under the facilities and reduces the remaining commitments by those respective amounts.

As of March 31, 2010, we had borrowings of $930 million under these facilities and we utilized $404 million under these facilities primarily for the issuance of letters of credit for the benefit of one of our life insurance subsidiaries. As of December 31, 2009, we had borrowings of $930 million under these facilities and we utilized $407 million under these facilities for the issuance of letters of credit for the benefit of one of our life insurance subsidiaries.

Non-Recourse Funding Obligations

As of March 31, 2010, we had $3.4 billion of fixed and floating rate non-recourse funding obligations outstanding backing additional statutory reserves. As of March 31, 2010 and December 31, 2009, the weighted-average interest rates on our non-recourse funding obligations were 1.40% and 1.49%, respectively.

Borrowings Related To Securitization Entities

Borrowings related to securitization entities were as follows as of March 31, 2010:


(Amounts in millions)	Principal amount		Carrying value
GFCM LLC, due 2035, 5.2541%	$	250	$	250
GFCM LLC, due 2035, 5.7426%		113		113
Genworth Special Purpose Two, LLC, due 2023, 6.0175%		130		130
Marvel Finance 2007-1 LLC, due 2017 ⁽ ¹ ⁾		9		1
Marvel Finance 2007-3 LLC, due 2017 ⁽ ¹ ⁾		1		—
Marvel Finance 2007-4 LLC, due 2017 ⁽ ¹ ⁾		12		7
Genworth Special Purpose Five, LLC, due 2040 ⁽ ¹ ⁾		50		50

Total	$	565	$	551

⁽¹⁾	Accrual of interest based on three-month LIBOR that resets every three months plus a fixed margin.

These borrowings are required to be paid down as principal is collected on the restricted investments held by the securitization entities and accordingly the repayment of these borrowings follows the maturity or prepayment, as permitted, of the restricted investments. See note 7 for additional information on consolidated securitization entities.

Income Taxes

(10) Income Taxes

The reconciliation of the federal statutory tax rate to the effective income tax rate was as follows for the periods indicated:


	Three months ended March 31,
	2010		2009
Statutory U.S. federal income tax rate	35.0	%	35.0	%
Increase (reduction) in rate resulting from:
State income tax, net of federal income tax effect	(3.4	)	0.5
Benefit on tax favored investments	(6.6	)	4.3
Effect of foreign operations	(13.7	)	4.8
Non-deductible expenses	(0.5	)	(0.5	)
Interest on uncertain tax positions	(2.2	)	(0.3	)
Tax benefits related to separation from our former parent	(89.5	)	—
Other, net	2.7		(0.1	)

Effective rate	(78.2	)%	43.7	%

The effective tax rate decreased significantly from the prior year due to uncertain tax benefits related to separation from our former parent, lower taxed foreign income and tax favored investments.

In connection with our 2004 separation from our former parent, General Electric (“GE”), we made certain joint tax elections and realized certain tax benefits. During the first quarter of 2010, the Internal Revenue Service (“IRS”) completed an examination of GE’s 2004 tax return, including these tax impacts. Therefore, $106 million of previously uncertain tax benefits related to separation became certain and we recognized those in the first quarter of 2010. Additionally, we recorded $20 million as additional paid-in capital related to our 2004 separation.

Segment Information

(11) Segment Information

We conduct our operations in three operating business segments: (1) Retirement and Protection, which includes our life insurance, long-term care insurance, wealth management products and services and retirement income products; (2) International, which includes international mortgage and lifestyle protection insurance; and (3) U.S. Mortgage Insurance, which includes mortgage-related products and services that facilitate homeownership by enabling borrowers to buy homes with low-down-payment mortgages.

We also have Corporate and Other activities which include interest and other debt financing expenses, other corporate income and expenses not allocated to the segments, the results of non-core businesses and non-strategic products that are managed outside of our operating segments, and eliminations of inter-segment transactions.

We allocate net investment gains (losses) from Corporate and Other activities to our Retirement and Protection segment using an approach based principally upon the investment portfolio established to support the segment’s products and targeted capital levels. We do not allocate net investment gains (losses) from Corporate and Other activities to our International and U.S. Mortgage Insurance segments, because they have their own separate investment portfolios, and net investment gains (losses) from those portfolios are reflected in the International and U.S. Mortgage Insurance segment results, respectively.

We use the same accounting policies and procedures to measure segment income (loss) and assets as our consolidated net income (loss) and assets. Our chief operating decision maker evaluates segment performance and allocates resources on the basis of “net operating income (loss) available to Genworth Financial, Inc.’s common stockholders.” We define net operating income (loss) available to Genworth Financial, Inc.’s common stockholders as income (loss) from continuing operations excluding net income attributable to noncontrolling interests, after-tax net investment gains (losses) and other adjustments and infrequent or unusual non-operating items. We exclude net investment gains (losses) and infrequent or unusual non-operating items because we do not consider them to be related to the operating performance of our segments and Corporate and Other activities. A significant component of our net investment gains (losses) is the result of impairments, the size and timing of which can vary significantly depending on market credit cycles. In addition, the size and timing of other investment gains (losses) are often subject to our discretion and are influenced by market opportunities, as well as asset-liability matching considerations. Infrequent or unusual non-operating items are also excluded from net operating income (loss) available to Genworth Financial, Inc.’s common stockholders if, in our opinion, they are not indicative of overall operating trends. While some of these items may be significant components of net income (loss) available to Genworth Financial, Inc.’s common stockholders in accordance with U.S. GAAP, we believe that net operating income (loss) available to Genworth Financial, Inc.’s common stockholders, and measures that are derived from or incorporate net operating income (loss) available to Genworth Financial, Inc.’s common stockholders, are appropriate measures that are useful to investors because they identify the income (loss) attributable to the ongoing operations of the business. However, net operating income (loss) available to Genworth Financial, Inc.’s common stockholders is not a substitute for net income (loss) available to Genworth Financial, Inc.’s common stockholders determined in accordance with U.S. GAAP. In addition, our definition of net operating income (loss) available to Genworth Financial, Inc.’s common stockholders may differ from the definitions used by other companies.

There were no infrequent or unusual non-operating items excluded from net operating income (loss) available to Genworth Financial, Inc.’s common stockholders during the periods presented other than a $106 million tax benefit related to separation from our former parent recorded in the first quarter of 2010.

The following is a summary of revenues for our segments and Corporate and Other activities for the periods indicated:


	Three months ended March 31,
(Amounts in millions)	2010			2009
Revenues:
Retirement and Protection	$	1,593		$	987
International		651			590
U.S. Mortgage Insurance		181			188
Corporate and Other		(4	)		(31	)

Total revenues	$	2,421		$	1,734

The following is a summary of net operating income (loss) available to Genworth Financial, Inc.’s common stockholders for our segments and Corporate and Other activities and a reconciliation of net operating income (loss) available to Genworth Financial, Inc.’s common stockholders for our segments and Corporate and Other activities to net income (loss) for the periods indicated:


	Three months ended March 31,
(Amounts in millions)	2010			2009
Retirement and Protection	$	122		$	38
International		91			101
U.S. Mortgage Insurance		(36	)		(135	)
Corporate and Other		(63	)		10

Net operating income		114			14
Net investment gains (losses), net of taxes and other adjustments		(42	)		(483	)
Net tax benefit related to separation from our former parent		106			—

Net income (loss) available to Genworth Financial, Inc.’s common stockholders		178			(469	)
Add: net income attributable to noncontrolling interests		34			—

Net income (loss)	$	212		$	(469	)

The following is a summary of total assets for our segments and Corporate and Other activities as of the dates indicated:


(Amounts in millions)	March 31, 2010		December 31, 2009
Assets:
Retirement and Protection	$	81,881	$	81,497
International		12,050		12,143
U.S. Mortgage Insurance		3,982		4,247
Corporate and Other		11,180		10,300

Total assets	$	109,093	$	108,187

Noncontrolling Interests

(12) Noncontrolling Interests

In July 2009, Genworth MI Canada Inc. (“Genworth Canada”), our indirect subsidiary, completed the initial public offering (the “Offering”) of its common shares. Of the 49.7 million common shares of Genworth Canada that were sold in the Offering, 5.1 million common shares were sold by Genworth Canada and 44.6 million common shares were sold by Brookfield Life Assurance Company Limited, our indirect wholly-owned subsidiary. Following completion of the Offering, we beneficially own 57.5% of the common shares of Genworth Canada.

In March 2010, a dividend of $10 million was paid to the noncontrolling interests.