(1) Formation of Genworth and Basis of Presentation

Genworth Holdings, Inc. (“Genworth Holdings”) (formerly known as Genworth Financial, Inc.) was incorporated in Delaware in 2003 in preparation for an initial public offering of Genworth common stock, which was completed on May 28, 2004. On April 1, 2013, Genworth Holdings completed a holding company reorganization pursuant to which Genworth Holdings became a direct, 100% owned subsidiary of a new public holding company that it had formed. The new public holding company was incorporated in Delaware on December 5, 2012, in connection with the reorganization, under the name Sub XLVI, Inc., and was renamed Genworth Financial, Inc. (“Genworth Financial”) upon the completion of the reorganization.

The accompanying unaudited condensed financial statements include on a consolidated basis the accounts of Genworth Financial and the affiliate companies in which it holds a majority voting interest or where it is the primary beneficiary of a variable interest entity (“VIE”). All intercompany accounts and transactions have been eliminated in consolidation.

References to “Genworth,” the “Company,” “we” or “our” in the accompanying condensed consolidated financial statements and these notes thereto are, unless the context otherwise requires, to Genworth Financial on a consolidated basis.

We have the following operating segments:

 

•

International Mortgage Insurance. We are a leading provider of mortgage insurance products and related services in Canada and Australia and also participate in select European and other countries. Our products predominantly insure prime-based, individually underwritten residential mortgage loans, also known as flow mortgage insurance. We also selectively 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.

 

•

U.S. Mortgage Insurance. In the United States, 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 bulk basis with essentially all of our bulk writings being prime-based. Additionally, we offer services, analytical tools and technology that enable lenders to operate efficiently and manage risk.

 

•

U.S. Life Insurance. We offer and manage a variety of insurance and fixed annuity products in the United States. Our primary products include long-term care insurance, life insurance and fixed annuities.

 

•

Runoff. The Runoff segment includes the results of non-strategic products which are no longer actively sold. Our non-strategic products primarily include our variable annuity, variable life insurance, institutional, corporate-owned life insurance and other accident and health insurance products. Institutional products consist of funding agreements, funding agreements backing notes (“FABNs”) and guaranteed investment contracts (“GICs”). We no longer offer retail and group variable annuities but continue to service our existing blocks of business.

We also have Corporate and Other activities which include debt financing expenses that are incurred at the Genworth Holdings level, unallocated corporate income and expenses, eliminations of inter-segment transactions and the results of other non-core businesses that are managed outside of our operating segments, including discontinued operations.

 

In June 2015, our Board of Directors approved a transaction to sell our lifestyle protection insurance business, which had previously been designated as a non-core business. Because the business is available for immediate sale and the sale is anticipated to occur during the next 12 months and certain other criteria were met, the held-for-sale criteria was satisfied during the second quarter of 2015. As a result, we recorded an estimated loss to reduce the carrying value of the business to the fair value less pension settlement costs and closing costs. Our lifestyle protection insurance business, previously the only business in the International Protection segment, has been reported as discontinued operations and its financial position, results of operations and cash flows are separately reported for all periods presented. All prior periods reflected herein have been re-presented on this basis. See note 12 for additional information.

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 unaudited condensed consolidated financial statements include all adjustments (including normal recurring 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 unaudited condensed consolidated financial statements should not be regarded as necessarily indicative of results that may be expected for the entire year. The unaudited condensed consolidated financial statements included herein should be read in conjunction with the audited consolidated financial statements and related notes contained in our 2014 Annual Report on Form 10-K. Certain prior year amounts have been reclassified to conform to the current year presentation.

We have revised our condensed consolidated statement of cash flows previously reported in our Quarterly Report on Form 10-Q for the six months ended June 30, 2014 to reflect a correction related to the calculation of the change in reinsurance recoverable that impacted the lines “insurance reserves” and “other liabilities, policy and contract claims and other policy-related balances.” As a result, the change in insurance reserves decreased by $311 million and the change in other liabilities, policy and contract claims and other policy-related balances increased by $311 million. The revisions had no impact on net cash flows from operating activities or the total change in cash and cash equivalents within our condensed consolidated statement of cash flows. Additionally, there was no impact on our unaudited condensed consolidated balance sheet or unaudited condensed consolidated statement of income.

 

(2) Accounting Changes

a) Accounting Pronouncements Recently Adopted

On January 1, 2015, we early adopted new accounting guidance related to measuring the financial assets and financial liabilities of a consolidated collateralized financing entity. The guidance addresses the accounting for the measurement difference between the fair value of financial assets and the fair value of financial liabilities of a collateralized financing entity. The new guidance provides an alternative whereby a reporting entity could measure the financial assets and financial liabilities of the collateralized financing entity in its consolidated financial statements using the more observable of the fair values. There was no impact on our consolidated financial statements.

On January 1, 2015, we adopted new accounting guidance related to the accounting for repurchase-to-maturity transactions and repurchase financings. The new guidance changed the accounting for repurchase-to-maturity transactions and repurchase financing such that they were consistent with secured borrowing accounting. In addition, the guidance required new disclosures for all repurchase agreements and securities lending transactions which were effective beginning in the second quarter of 2015. We do not have repurchase-to-maturity transactions, but have repurchase agreements and securities lending transactions that are subject to additional disclosures. This new guidance did not have an impact on our consolidated financial statements but did impact our disclosures.

On January 1, 2015, we adopted new accounting guidance related to the accounting for investments in affordable housing projects that qualify for the low-income housing tax credit. The new guidance permits reporting entities to make an accounting policy election to account for investments in qualified affordable housing projects by amortizing the initial cost of the investment in proportion to the tax benefits received and recognize the net investment performance as a component of income tax expense (called the proportional amortization method) if certain conditions are met. The new guidance requires use of the equity method or cost method for investments in qualified affordable housing projects not accounted for using the proportional amortization method. The adoption of this new guidance did not have a material impact on our consolidated financial statements.

On January 1, 2015, we early adopted new accounting guidance related to the accounting for share-based payment awards when the terms of an award provide that a performance target can be achieved after the requisite service period. The guidance requires that such performance targets should not be reflected in estimating the grant-date fair value of an award, and that compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved. We have a performance stock unit plan where awards for employees who are retirement eligible can vest on a pro-rata basis upon retirement even if retirement occurs before the performance target is achieved. There was no impact on our consolidated financial statements.

b) Accounting Pronouncement Not Yet Adopted

In May 2015, the Financial Accounting Standards Board (the “FASB”) issued new disclosure requirements for short-duration insurance contracts. The new guidance requires additional disclosures on short-duration policy and contract claims liabilities for incurred and paid claims development, unpaid claims and claims frequency. These new disclosures will be effective for us on December 31, 2016 with early adoption permitted and will only impact our disclosures.

In April 2015, the FASB issued new guidance related to the presentation of debt issuance costs. This guidance requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The guidance is effective for us on January 1, 2016, with early adoption permitted, and is required to be applied on a retrospective basis. We are still in the process of evaluating the impact the guidance will have on our consolidated financial statements.

In February 2015, the FASB issued new accounting guidance related to consolidation. This guidance primarily impacts limited partnerships and similar legal entities, evaluation of fees paid to a decision maker as a variable interest, the effect of fee arrangements and related parties on the primary beneficiary determination and certain investment funds. This guidance is effective for us on January 1, 2016, with early adoption permitted. We are in the process of determining the impact on our consolidated financial statements.

(3) Earnings (Loss) Per Share

Basic and diluted earnings 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 June 30,								Six months ended June 30,
(Amounts in millions, except per share amounts)		2015				2014				2015				2014
Weighted-average shares used in basic earnings per common share calculations			497.4				496.6				497.2				496.2
Potentially dilutive securities:
Stock options, restricted stock units and stock appreciation rights			1.9				7.0				1.9				7.0
Weighted-average shares used in diluted earnings per common share calculations			499.3				503.6				499.1				503.2
Income from continuing operations:
Income from continuing operations		$	175			$	224			$	378			$	434
Less: income from continuing operations attributable to noncontrolling interests			54				52				104				87
Income from continuing operations available to Genworth Financial, Inc.’s common stockholders		$	121			$	172			$	274			$	347
Basic per common share		$	0.24			$	0.35			$	0.55			$	0.70
Diluted per common share		$	0.24			$	0.34			$	0.55			$	0.69
Income (loss) from discontinued operations:
Income (loss) from discontinued operations, net of taxes		$	(314	)		$	4			$	(313	)		$	13
Less: income from discontinued operations, net of taxes, attributable to noncontrolling interests			—				—				—				—
Income (loss) from discontinued operations, net of taxes, available to Genworth Financial, Inc.’s common stockholders		$	(314	)		$	4			$	(313	)		$	13
Basic per common share		$	(0.63	)		$	0.01			$	(0.63	)		$	0.03
Diluted per common share		$	(0.63	)		$	0.01			$	(0.63	)		$	0.03
Net income (loss):
Income from continuing operations		$	175			$	224			$	378			$	434
Income (loss) from discontinued operations, net of taxes			(314	)			4				(313	)			13
Net income (loss)			(139	)			228				65				447
Less: net income attributable to noncontrolling interests			54				52				104				87
Net income (loss) available to Genworth Financial, Inc.’s common stockholders		$	(193	)		$	176			$	(39	)		$	360
Basic per common share		$	(0.39	)		$	0.35			$	(0.08	)		$	0.73
Diluted per common share		$	(0.39	)		$	0.35			$	(0.08	)		$	0.72

(4) Investments

(a) Net Investment Income

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

 

		Three months ended June 30,								Six months ended June 30,
(Amounts in millions)		2015				2014				2015				2014
Fixed maturity securities—taxable		$	645			$	658			$	1,277			$	1,297
Fixed maturity securities—non-taxable			3				3				6				6
Commercial mortgage loans			83				81				168				164
Restricted commercial mortgage loans related to securitization entities			3				4				7				8
Equity securities			4				4				8				8
Other invested assets			37				25				77				54
Restricted other invested assets related to securitization entities			1				1				2				2
Policy loans			35				32				68				63
Cash, cash equivalents and short-term investments			4				7				7				12
Gross investment income before expenses and fees			815				815				1,620				1,614
Expenses and fees			(22	)			(24	)			(46	)			(47	)
Net investment income		$	793			$	791			$	1,574			$	1,567

(b) Net Investment Gains (Losses)

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

 

		Three months ended June 30,								Six months ended June 30,
(Amounts in millions)		2015				2014				2015				2014
Available-for-sale securities:
Realized gains		$	20			$	38			$	35			$	44
Realized losses			(6	)			(14	)			(18	)			(37	)
Net realized gains (losses) on available-for-sale securities			14				24				17				7
Impairments:
Total other-than-temporary impairments			—				(2	)			(3	)			(3	)
Portion of other-than-temporary impairments included in other comprehensive income (loss)			—				—				—				—
Net other-than-temporary impairments			—				(2	)			(3	)			(3	)
Trading securities			(16	)			8				(10	)			20
Commercial mortgage loans			2				3				4				6
Net gains (losses) related to securitization entities			2				9				10				15
Derivative instruments (1)			6				(7	)			(26	)			(28	)
Other			—				(1	)			—				(1	)
Net investment gains (losses)		$	8			$	34			$	(8	)		$	16

 

(1)	See note 5 for additional information on the impact of derivative instruments included in net investment gains (losses).

 

We generally intend to hold securities in unrealized loss positions until they recover. However, from time to time, our intent on an individual security may change, based upon market or other unforeseen developments. In such instances, we sell securities in the ordinary course of managing our portfolio to meet diversification, credit quality, yield and liquidity requirements. If a loss is recognized from a sale subsequent to a balance sheet date due to these unexpected developments, the loss is recognized in the period in which we determined that we have the intent to sell the securities or it is more likely than not that we will be required to sell the securities prior to recovery. The aggregate fair value of securities sold at a loss during the three months ended June 30, 2015 and 2014 was $144 million and $241 million, respectively, which was approximately 96% and 94%, respectively, of book value. The aggregate fair value of securities sold at a loss during the six months ended June 30, 2015 and 2014 was $284 million and $506 million, respectively, which was approximately 94% and 93%, respectively, of book value.

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 and for the periods indicated:

 

		As of or for the three months ended June 30,								As of or for the six months ended June 30,
(Amounts in millions)		2015				2014				2015				2014
Beginning balance		$	78			$	99			$	83			$	101
Additions:
Other-than-temporary impairments not previously recognized			—				1				—				1
Reductions:
Securities sold, paid down or disposed			(3	)			(5	)			(8	)			(7	)
Ending balance		$	75			$	95			$	75			$	95

(c) Unrealized Investment Gains and Losses

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)		June 30, 2015				December 31, 2014
Net unrealized gains (losses) on investment securities:
Fixed maturity securities		$	4,102			$	5,560
Equity securities			12				32
Other invested assets			(1	)			(2	)
Subtotal			4,113				5,590
Adjustments to deferred acquisition costs, present value of future profits, sales inducements and benefit reserves			(1,445	)			(1,656	)
Income taxes, net			(921	)			(1,372	)
Net unrealized investment gains (losses)			1,747				2,562
Less: net unrealized investment gains (losses) attributable to noncontrolling interests			119				109
Net unrealized investment gains (losses) attributable to Genworth Financial, Inc.		$	1,628			$	2,453

 

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

 

		As of or for the three months ended June 30,
(Amounts in millions)		2015				2014
Beginning balance		$	2,748			$	1,624
Unrealized gains (losses) arising during the period:
Unrealized gains (losses) on investment securities			(2,406	)			1,193
Adjustment to deferred acquisition costs			168				(96	)
Adjustment to present value of future profits			70				(39	)
Adjustment to sales inducements			18				(15	)
Adjustment to benefit reserves			411				(200	)
Provision for income taxes			608				(295	)
Change in unrealized gains (losses) on investment securities			(1,131	)			548
Reclassification adjustments to net investment (gains) losses, net of taxes of $5 and $8			(9	)			(14	)
Change in net unrealized investment gains (losses)			(1,140	)			534
Less: change in net unrealized investment gains (losses) attributable to noncontrolling interests			(20	)			30
Ending balance		$	1,628			$	2,128

 

		As of or for the six months ended June 30,
(Amounts in millions)		2015				2014
Beginning balance		$	2,453			$	926
Unrealized gains (losses) arising during the period:
Unrealized gains (losses) on investment securities			(1,463	)			2,624
Adjustment to deferred acquisition costs			70				(195	)
Adjustment to present value of future profits			50				(91	)
Adjustment to sales inducements			3				(28	)
Adjustment to benefit reserves			88				(388	)
Provision for income taxes			446				(673	)
Change in unrealized gains (losses) on investment securities			(806	)			1,249
Reclassification adjustments to net investment (gains) losses, net of taxes of $5 and $2			(9	)			(3	)
Change in net unrealized investment gains (losses)			(815	)			1,246
Less: change in net unrealized investment gains (losses) attributable to noncontrolling interests			10				44
Ending balance		$	1,628			$	2,128

 

(d) Fixed Maturity and Equity Securities

As of June 30, 2015, 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:

 

						Gross unrealized gains								Gross unrealized losses
(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		$	5,041			$	729			$	—			$	(49	)		$	—			$	5,721
State and political subdivision			2,259				168				—				(38	)			—				2,389
Non-U.S. government			1,841				132				—				(3	)			—				1,970
U.S. corporate:
Utilities			3,359				399				—				(24	)			—				3,734
Energy			2,666				210				—				(26	)			—				2,850
Finance and insurance			5,245				414				19				(42	)			—				5,636
Consumer—non-cyclical			3,623				385				—				(26	)			—				3,982
Technology and communications			2,276				147				—				(23	)			—				2,400
Industrial			1,222				79				—				(19	)			—				1,282
Capital goods			1,843				206				—				(12	)			—				2,037
Consumer—cyclical			1,734				114				—				(14	)			—				1,834
Transportation			940				88				—				(11	)			—				1,017
Other			355				25				—				(1	)			—				379
Total U.S. corporate			23,263				2,067				19				(198	)			—				25,151
Non-U.S. corporate:
Utilities			873				44				—				(4	)			—				913
Energy			1,868				136				—				(30	)			—				1,974
Finance and insurance			2,738				177				1				(6	)			—				2,910
Consumer—non-cyclical			782				32				—				(14	)			—				800
Technology and communications			1,018				49				—				(10	)			—				1,057
Industrial			1,171				49				—				(25	)			—				1,195
Capital goods			629				27				—				(9	)			—				647
Consumer—cyclical			588				15				—				(1	)			—				602
Transportation			561				61				—				(2	)			—				620
Other			2,866				223				—				(10	)			—				3,079
Total non-U.S. corporate			13,094				813				1				(111	)			—				13,797
Residential mortgage-backed			4,759				333				12				(18	)			(1	)			5,085
Commercial mortgage-backed			2,473				118				4				(13	)			—				2,582
Other asset-backed			3,887				24				1				(39	)			—				3,873
Total fixed maturity securities			56,617				4,384				37				(469	)			(1	)			60,568
Equity securities			299				8				—				(8	)			—				299
Total available-for-sale securities		$	56,916			$	4,392			$	37			$	(477	)		$	(1	)		$	60,867

 

As of December 31, 2014, 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:

 

						Gross unrealized gains								Gross unrealized losses
(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		$	5,006			$	995			$	—			$	(1	)		$	—			$	6,000
State and political subdivision			2,013				236				—				(27	)			—				2,222
Non-U.S. government			1,778				144				—				(2	)			—				1,920
U.S. corporate:
Utilities			3,292				577				—				(5	)			—				3,864
Energy			2,498				265				—				(21	)			—				2,742
Finance and insurance			5,109				537				20				(13	)			—				5,653
Consumer—non-cyclical			3,489				538				—				(8	)			—				4,019
Technology and communications			2,112				217				—				(4	)			—				2,325
Industrial			1,195				100				—				(8	)			—				1,287
Capital goods			1,748				263				—				(5	)			—				2,006
Consumer—cyclical			1,750				158				—				(8	)			—				1,900
Transportation			929				114				—				(4	)			—				1,039
Other			370				31				—				—				—				401
Total U.S. corporate			22,492				2,800				20				(76	)			—				25,236
Non-U.S. corporate:
Utilities			867				48				—				(2	)			—				913
Energy			1,925				163				—				(38	)			—				2,050
Finance and insurance			2,812				203				—				(3	)			—				3,012
Consumer—non-cyclical			780				41				—				(9	)			—				812
Technology and communications			999				71				—				(4	)			—				1,066
Industrial			1,178				65				—				(18	)			—				1,225
Capital goods			605				31				—				(5	)			—				631
Consumer—cyclical			535				14				—				—				—				549
Transportation			525				70				—				(1	)			—				594
Other			3,169				257				—				(15	)			—				3,411
Total non-U.S. corporate			13,395				963				—				(95	)			—				14,263
Residential mortgage-backed			4,871				362				13				(17	)			(1	)			5,228
Commercial mortgage-backed			2,564				143				4				(9	)			—				2,702
Other asset-backed			3,735				23				1				(54	)			—				3,705
Total fixed maturity securities			55,854				5,666				38				(281	)			(1	)			61,276
Equity securities			250				32				—				(7	)			—				275
Total available-for-sale securities		$	56,104			$	5,698			$	38			$	(288	)		$	(1	)		$	61,551

 

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 June 30, 2015:

 

		Less than 12 months												12 months or more												Total
(Dollar amounts in millions)		Fair value				Gross unrealized losses				Number of securities				Fair value				Gross unrealized losses (1)				Number of securities				Fair value				Gross unrealized losses (1)				Number of securities
Description of Securities
Fixed maturity securities:
U.S. government, agencies and government-sponsored enterprises		$	1,026			$	(49	)			29			$	—			$	—				—			$	1,026			$	(49	)			29
State and political subdivision			554				(21	)			103				160				(17	)			—				714				(38	)			103
Non-U.S. government			213				(3	)			31				—				—				17				213				(3	)			48
U.S. corporate			4,497				(170	)			617				443				(28	)			61				4,940				(198	)			678
Non-U.S. corporate			2,181				(87	)			308				260				(24	)			39				2,441				(111	)			347
Residential mortgage-backed			520				(9	)			59				118				(10	)			70				638				(19	)			129
Commercial mortgage-backed			501				(11	)			73				74				(2	)			16				575				(13	)			89
Other asset-backed			846				(3	)			132				388				(36	)			48				1,234				(39	)			180
Subtotal, fixed maturity securities			10,338				(353	)			1,352				1,443				(117	)			251				11,781				(470	)			1,603
Equity securities			176				(7	)			63				21				(1	)			3				197				(8	)			66
Total for securities in an unrealized loss position		$	10,514			$	(360	)			1,415			$	1,464			$	(118	)			254			$	11,978			$	(478	)			1,669
% Below cost—fixed maturity securities:
<20% Below cost		$	10,306			$	(343	)			1,348			$	1,343			$	(75	)			232			$	11,649			$	(418	)			1,580
20%-50% Below cost			32				(10	)			4				100				(41	)			13				132				(51	)			17
>50% Below cost			—				—				—				—				(1	)			6				—				(1	)			6
Total fixed maturity securities			10,338				(353	)			1,352				1,443				(117	)			251				11,781				(470	)			1,603
% Below cost—equity securities:
<20% Below cost			176				(7	)			63				21				(1	)			3				197				(8	)			66
Total equity securities			176				(7	)			63				21				(1	)			3				197				(8	)			66
Total for securities in an unrealized loss position		$	10,514			$	(360	)			1,415			$	1,464			$	(118	)			254			$	11,978			$	(478	)			1,669
Investment grade		$	9,888			$	(326	)			1,294			$	1,267			$	(92	)			196			$	11,155			$	(418	)			1,490
Below investment grade (2)			626				(34	)			121				197				(26	)			58				823				(60	)			179
Total for securities in an unrealized loss position		$	10,514			$	(360	)			1,415			$	1,464			$	(118	)			254			$	11,978			$	(478	)			1,669

 

(1)	Amounts included $1 million of unrealized losses on other-than-temporarily impaired securities.

(2)	Amounts that have been in a continuous unrealized loss position for 12 months or more included $1 million of unrealized losses on other-than-temporarily impaired securities.

 

The following table presents the gross unrealized losses and fair values of our corporate securities, aggregated by investment type and length of time that individual investment securities have been in a continuous unrealized loss position, based on industry, as of June 30, 2015:

 

		Less than 12 months												12 months or more												Total
(Dollar amounts in millions)		Fair value				Gross unrealized losses				Number of securities				Fair value				Gross unrealized losses				Number of securities				Fair value				Gross unrealized losses				Number of securities
Description of Securities
U.S. corporate:
Utilities		$	434			$	(23	)			63			$	18			$	(1	)			5			$	452			$	(24	)			68
Energy			646				(20	)			91				73				(6	)			11				719				(26	)			102
Finance and insurance			1,033				(34	)			142				110				(8	)			13				1,143				(42	)			155
Consumer—non-cyclical			590				(23	)			76				82				(3	)			11				672				(26	)			87
Technology and communications			618				(23	)			83				—				—				—				618				(23	)			83
Industrial			298				(15	)			43				48				(4	)			8				346				(19	)			51
Capital goods			306				(10	)			42				26				(2	)			4				332				(12	)			46
Consumer—cyclical			375				(11	)			47				64				(3	)			7				439				(14	)			54
Transportation			159				(10	)			25				22				(1	)			2				181				(11	)			27
Other			38				(1	)			5				—				—				—				38				(1	)			5
Subtotal, U.S. corporate securities			4,497				(170	)			617				443				(28	)			61				4,940				(198	)			678
Non-U.S. corporate:
Utilities			90				(2	)			15				25				(2	)			3				115				(4	)			18
Energy			483				(28	)			62				22				(2	)			6				505				(30	)			68
Finance and insurance			384				(5	)			60				18				(1	)			3				402				(6	)			63
Consumer—non-cyclical			219				(12	)			22				33				(2	)			3				252				(14	)			25
Technology and communications			188				(7	)			27				32				(3	)			5				220				(10	)			32
Industrial			303				(15	)			37				104				(10	)			14				407				(25	)			51
Capital goods			140				(6	)			24				11				(3	)			2				151				(9	)			26
Consumer—cyclical			65				(1	)			10				—				—				—				65				(1	)			10
Transportation			115				(2	)			15				—				—				—				115				(2	)			15
Other			194				(9	)			36				15				(1	)			3				209				(10	)			39
Subtotal, non-U.S. corporate securities			2,181				(87	)			308				260				(24	)			39				2,441				(111	)			347
Total for corporate securities in an unrealized loss position		$	6,678			$	(257	)			925			$	703			$	(52	)			100			$	7,381			$	(309	)			1,025

As indicated in the tables above, the majority of the securities in a continuous unrealized loss position for less than 12 months were investment grade and less than 20% below cost. These unrealized losses were primarily attributable to the increase in interest rates, mostly concentrated in our corporate securities. For securities that have been in a continuous unrealized loss position for less than 12 months, the average fair value percentage below cost was approximately 3% as of June 30, 2015.

 

Fixed Maturity Securities In A Continuous Unrealized Loss Position For 12 Months Or More

Of the $75 million of unrealized losses on fixed maturity securities in a continuous unrealized loss for 12 months or more that were less than 20% below cost, the weighted-average rating was “BBB+” and approximately 78% of the unrealized losses were related to investment grade securities as of June 30, 2015. These unrealized losses were predominantly attributable to corporate securities and municipal securities including fixed rate securities purchased in a lower rate environment and variable rate securities purchased in a higher rate and lower spread environment. The average fair value percentage below cost for these securities was approximately 5% as of June 30, 2015. See below for additional discussion related to fixed maturity securities that have been in a continuous unrealized loss position for 12 months or more with a fair value that was more than 20% below cost.

The following tables present the concentration of gross unrealized losses and fair values of fixed maturity securities that were more than 20% below cost and in a continuous unrealized loss position for 12 months or more by asset class as of June 30, 2015:

 

		Investment Grade
		20% to 50%																Greater than 50%
(Dollar amounts in millions)		Fair value				Gross unrealized losses				% of total gross unrealized losses				Number of securities				Fair value				Gross unrealized losses				% of total gross unrealized losses				Number of securities
Fixed maturity securities:
State and political subdivision		$	8			$	(4	)			1	%			1			$	—			$	—				—	%			—
Non-U.S. corporate:
Industrial			4				(2	)			1				1				—				—				—				—
Capital goods			7				(2	)			—				1				—				—				—				—
Total non-U.S. corporate			11				(4	)			1				2				—				—				—				—
Structured securities:
Other asset-backed			68				(25	)			5				4				—				—				—				—
Total structured securities			68				(25	)			5				4				—				—				—				—
Total		$	87			$	(33	)			7	%			7			$	—			$	—				—	%			—

 

		Below Investment Grade
		20% to 50%																Greater than 50%
(Dollar amounts in millions)		Fair value				Gross unrealized losses				% of total gross unrealized losses				Number of securities				Fair value				Gross unrealized losses				% of total gross unrealized losses				Number of securities
Fixed maturity securities:
Non-U.S. corporate—capital goods		$	4			$	(1	)			—	%			1			$	—			$	—				—	%			—
Structured securities:
Residential mortgage-backed			1				(1	)			—				4				—				(1	)			—				6
Other asset-backed			8				(6	)			1				1				—				—				—				—
Total structured securities			9				(7	)			1				5				—				(1	)			—				6
Total		$	13			$	(8	)			1	%			6			$	—			$	(1	)			—	%			6

 

For all securities in an unrealized loss position, we expect to recover the amortized cost based on our estimate of the amount and timing of cash flows to be collected. We do not intend to sell nor do we expect that we will be required to sell these securities prior to recovering our amortized cost. See below for further discussion of gross unrealized losses by asset class.

Structured Securities

Of the $33 million of unrealized losses related to structured securities that have been in an unrealized loss position for 12 months or more and were more than 20% below cost, $1 million related to other-than-temporarily impaired securities where the unrealized losses represented the portion of the other-than-temporary impairment recognized in OCI. The extent and duration of the unrealized loss position on our structured securities was primarily due to credit spreads that have widened since acquisition. Additionally, the fair value of certain structured securities has been impacted from high risk premiums being incorporated into the valuation as a result of the amount of potential losses that may be absorbed by the security in the event of additional deterioration in the U.S. economy.

While we consider the length of time each security had been in an unrealized loss position, the extent of the unrealized loss position and any significant declines in fair value subsequent to the balance sheet date in our evaluation of impairment for each of these individual securities, the primary factor in our evaluation of impairment is the expected performance for each of these securities. Our evaluation of expected performance is based on the historical performance of the associated securitization trust as well as the historical performance of the underlying collateral. Our examination of the historical performance of the securitization trust included consideration of the following factors for each class of securities issued by the trust: (i) the payment history, including failure to make scheduled payments; (ii) current payment status; (iii) current and historical outstanding balances; (iv) current levels of subordination and losses incurred to date; and (v) characteristics of the underlying collateral. Our examination of the historical performance of the underlying collateral included: (i) historical default rates, delinquency rates, voluntary and involuntary prepayments and severity of losses, including recent trends in this information; (ii) current payment status; (iii) loan to collateral value ratios, as applicable; (iv) vintage; and (v) other underlying characteristics such as current financial condition.

We use our assessment of the historical performance of both the securitization trust and the underlying collateral for each security, along with third-party sources, when available, to develop our best estimate of cash flows expected to be collected. These estimates reflect projections for future delinquencies, prepayments, defaults and losses for the assets that collateralize the securitization trust and are used to determine the expected cash flows for our security, based on the payment structure of the trust. Our projection of expected cash flows is primarily based on the expected performance of the underlying assets that collateralize the securitization trust and is not directly impacted by the rating of our security. While we consider the rating of the security as an indicator of the financial condition of the issuer, this factor does not have a significant impact on our expected cash flows for each security. In limited circumstances, our expected cash flows include expected payments from reliable financial guarantors where we believe the financial guarantor will have sufficient assets to pay claims under the financial guarantee when the cash flows from the securitization trust are not sufficient to make scheduled payments. We then discount the expected cash flows using the effective yield of each security to determine the present value of expected cash flows.

Based on this evaluation, the present value of expected cash flows was greater than or equal to the amortized cost for each security. Accordingly, we determined that the unrealized losses on each of our structured securities represented temporary impairments as of June 30, 2015.

 

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 structured securities and future write-downs within our portfolio of structured 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, 2014:

 

		Less than 12 months												12 months or more												Total
(Dollar amounts in millions)		Fair value				Gross unrealized losses				Number of securities				Fair value				Gross unrealized losses (1)				Number of securities				Fair value				Gross unrealized losses (1)				Number of securities
Description of Securities
Fixed maturity securities:
U.S. government, agencies and government-sponsored enterprises		$	—			$	—				—			$	75			$	(1	)			10			$	75			$	(1	)			10
State and political subdivision			9				—				7				267				(27	)			45				276				(27	)			52
Non-U.S. government			64				(1	)			15				22				(1	)			4				86				(2	)			19
U.S. corporate			1,646				(33	)			233				1,201				(43	)			174				2,847				(76	)			407
Non-U.S. corporate			1,529				(67	)			230				504				(28	)			67				2,033				(95	)			297
Residential mortgage-backed			180				(1	)			24				249				(17	)			87				429				(18	)			111
Commercial mortgage-backed			163				—				21				362				(9	)			49				525				(9	)			70
Other asset-backed			1,551				(12	)			215				487				(42	)			55				2,038				(54	)			270
Subtotal, fixed maturity securities			5,142				(114	)			745				3,167				(168	)			491				8,309				(282	)			1,236
Equity securities			30				(3	)			46				48				(4	)			6				78				(7	)			52
Total for securities in an unrealized loss position		$	5,172			$	(117	)			791			$	3,215			$	(172	)			497			$	8,387			$	(289	)			1,288
% Below cost—fixed maturity securities:
<20% Below cost		$	5,105			$	(103	)			741			$	3,036			$	(114	)			470			$	8,141			$	(217	)			1,211
20%-50% Below cost			37				(11	)			4				131				(53	)			15				168				(64	)			19
>50% Below cost			—				—				—				—				(1	)			6				—				(1	)			6
Total fixed maturity securities			5,142				(114	)			745				3,167				(168	)			491				8,309				(282	)			1,236
% Below cost—equity securities:
<20% Below cost			26				(2	)			40				48				(4	)			6				74				(6	)			46
20%-50% Below cost			4				(1	)			6				—				—				—				4				(1	)			6
Total equity securities			30				(3	)			46				48				(4	)			6				78				(7	)			52
Total for securities in an unrealized loss position		$	5,172			$	(117	)			791			$	3,215			$	(172	)			497			$	8,387			$	(289	)			1,288
Investment grade		$	4,581			$	(75	)			664			$	2,918			$	(145	)			424			$	7,499			$	(220	)			1,088
Below investment grade (2)			591				(42	)			127				297				(27	)			73				888				(69	)			200
Total for securities in an unrealized loss position		$	5,172			$	(117	)			791			$	3,215			$	(172	)			497			$	8,387			$	(289	)			1,288

 

(1)	Amounts included $1 million of unrealized losses on other-than-temporarily impaired securities.

(2)	Amounts that have been in a continuous unrealized loss position for 12 months or more included $1 million of unrealized losses on other-than-temporarily impaired securities.

 

The following table presents the gross unrealized losses and fair values of our corporate securities, aggregated by investment type and length of time that individual investment securities have been in a continuous unrealized loss position, based on industry, as of December 31, 2014:

 

		Less than 12 months												12 months or more												Total
(Dollar amounts in millions)		Fair value				Gross unrealized losses				Number of securities				Fair value				Gross unrealized losses				Number of securities				Fair value				Gross unrealized losses				Number of securities
Description of Securities
U.S. corporate:
Utilities		$	55			$	—				10			$	164			$	(5	)			23			$	219			$	(5	)			33
Energy			404				(16	)			56				96				(5	)			15				500				(21	)			71
Finance and insurance			401				(3	)			57				257				(10	)			35				658				(13	)			92
Consumer—non-cyclical			165				(3	)			21				182				(5	)			32				347				(8	)			53
Technology and communications			181				(3	)			27				97				(1	)			15				278				(4	)			42
Industrial			151				(4	)			21				80				(4	)			11				231				(8	)			32
Capital goods			85				—				13				122				(5	)			18				207				(5	)			31
Consumer—cyclical			132				(2	)			17				139				(6	)			18				271				(8	)			35
Transportation			52				(2	)			9				57				(2	)			6				109				(4	)			15
Other			20				—				2				7				—				1				27				—				3
Subtotal, U.S. corporate securities			1,646				(33	)			233				1,201				(43	)			174				2,847				(76	)			407
Non-U.S. corporate:
Utilities			80				—				14				43				(2	)			5				123				(2	)			19
Energy			449				(33	)			60				58				(5	)			13				507				(38	)			73
Finance and insurance			261				(2	)			41				29				(1	)			6				290				(3	)			47
Consumer—non-cyclical			142				(6	)			13				83				(3	)			9				225				(9	)			22
Technology and communications			88				(2	)			18				81				(2	)			8				169				(4	)			26
Industrial			218				(9	)			31				116				(9	)			15				334				(18	)			46
Capital goods			68				(2	)			10				38				(3	)			4				106				(5	)			14
Consumer—cyclical			10				—				3				—				—				—				10				—				3
Transportation			34				—				7				14				(1	)			1				48				(1	)			8
Other			179				(13	)			33				42				(2	)			6				221				(15	)			39
Subtotal, non-U.S. corporate securities			1,529				(67	)			230				504				(28	)			67				2,033				(95	)			297
Total for corporate securities in an unrealized loss position		$	3,175			$	(100	)			463			$	1,705			$	(71	)			241			$	4,880			$	(171	)			704

 

The scheduled maturity distribution of fixed maturity securities as of June 30, 2015 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		$	2,050			$	2,069
Due after one year through five years			10,541				11,069
Due after five years through ten years			11,771				12,212
Due after ten years			21,136				23,678
Subtotal			45,498				49,028
Residential mortgage-backed			4,759				5,085
Commercial mortgage-backed			2,473				2,582
Other asset-backed			3,887				3,873
Total		$	56,617			$	60,568

As of June 30, 2015, $7,376 million of our investments (excluding mortgage-backed and asset-backed securities) were subject to certain call provisions.

As of June 30, 2015, securities issued by finance and insurance, energy, utilities and consumer—non-cyclical industry groups represented approximately 22%, 13%, 12% and 12%, respectively, of our domestic and foreign corporate fixed maturity securities portfolio. No other industry group comprised more than 10% of our investment portfolio. This portfolio is widely diversified among various geographic regions in the United States and internationally, and is not dependent on the economic stability of one particular region.

As of June 30, 2015, 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 principal payments, 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 dates indicated:

 

		June 30, 2015								December 31, 2014
(Amounts in millions)		Carrying value				% of total				Carrying value				% of total
Property type:
Retail		$	2,154				35	%		$	2,150				35	%
Office			1,726				28				1,643				27
Industrial			1,578				25				1,597				26
Apartments			471				8				494				8
Mixed use/other			265				4				239				4
Subtotal			6,194				100	%			6,123				100	%
Unamortized balance of loan origination fees and costs			(1	)							(1	)
Allowance for losses			(18	)							(22	)
Total		$	6,175							$	6,100

 

		June 30, 2015								December 31, 2014
(Amounts in millions)		Carrying value				% of total				Carrying value				% of total
Geographic region:
South Atlantic		$	1,609				26	%		$	1,673				27	%
Pacific			1,608				26				1,636				27
Middle Atlantic			878				14				826				14
Mountain			574				9				536				9
West North Central			403				7				382				6
East North Central			399				6				397				7
West South Central			289				5				268				4
New England			272				4				264				4
East South Central			162				3				141				2
Subtotal			6,194				100	%			6,123				100	%
Unamortized balance of loan origination fees and costs			(1	)							(1	)
Allowance for losses			(18	)							(22	)
Total		$	6,175							$	6,100

 

The following tables set forth the aging of past due commercial mortgage loans by property type as of the dates indicated:

 

		June 30, 2015
(Amounts in millions)		31 - 60 days past due				61 - 90 days past due				Greater than 90 days past due				Total past due				Current				Total
Property type:
Retail		$	1			$	—			$	—			$	1			$	2,153			$	2,154
Office			6				—				3				9				1,717				1,726
Industrial			—				—				—				—				1,578				1,578
Apartments			—				—				—				—				471				471
Mixed use/other			—				—				—				—				265				265
Total recorded investment		$	7			$	—			$	3			$	10			$	6,184			$	6,194
% of total commercial mortgage loans			—	%			—	%			—	%			—	%			100	%			100	%

 

		December 31, 2014
(Amounts in millions)		31 - 60 days past due				61 - 90 days past due				Greater than 90 days past due				Total past due				Current				Total
Property type:
Retail		$	—			$	—			$	—			$	—			$	2,150			$	2,150
Office			—				—				6				6				1,637				1,643
Industrial			—				—				2				2				1,595				1,597
Apartments			—				—				—				—				494				494
Mixed use/other			—				—				—				—				239				239
Total recorded investment		$	—			$	—			$	8			$	8			$	6,115			$	6,123
% of total commercial mortgage loans			—	%			—	%			—	%			—	%			100	%			100	%

As of June 30, 2015 and December 31, 2014, we had no commercial mortgage loans that were past due for more than 90 days and still accruing interest. We also did not have any commercial mortgage loans that were past due for less than 90 days on non-accrual status as of June 30, 2015 and December 31, 2014.

We evaluate the impairment of commercial mortgage loans on an individual loan basis. As of June 30, 2015, our commercial mortgage loans greater than 90 days past due included loans with appraised values in excess of the recorded investment and the current recorded investment of these loans was expected to be recoverable.

During the six months ended June 30, 2015 and the year ended December 31, 2014, we modified or extended 7 and 28 commercial mortgage loans, respectively, with a total carrying value of $73 million and $254 million, respectively. All of these modifications or extensions were based on current market interest rates, did not result in any forgiveness in the outstanding principal amount owed by the borrower and were not considered troubled debt restructurings.

 

The following table sets forth the allowance for credit losses and recorded investment in commercial mortgage loans as of or for the periods indicated:

 

		Three months ended June 30,								Six months ended June 30,
(Amounts in millions)		2015				2014				2015				2014
Allowance for credit losses:
Beginning balance		$	20			$	30			$	22			$	33
Charge-offs			—				—				(3	)			(1	)
Recoveries			—				—				—				—
Provision			(2	)			(3	)			(1	)			(5	)
Ending balance		$	18			$	27			$	18			$	27
Ending allowance for individually impaired loans		$	—			$	—			$	—			$	—
Ending allowance for loans not individually impaired that were evaluated collectively for impairment		$	18			$	27			$	18			$	27
Recorded investment:
Ending balance		$	6,194			$	6,013			$	6,194			$	6,013
Ending balance of individually impaired loans		$	18			$	17			$	18			$	17
Ending balance of loans not individually impaired that were evaluated collectively for impairment		$	6,176			$	5,996			$	6,176			$	5,996

As of June 30, 2015, we had an individually impaired commercial mortgage loan included within the office property type with a recorded investment of $3 million, an unpaid principal balance of $6 million and charge-offs of $3 million. As of June 30, 2015 and December 31, 2014, we had an individually impaired commercial mortgage loan included within the industrial property type with a recorded investment of $15 million, an unpaid principal balance of $16 million and charge-offs of $1 million, which were recorded in the first quarter of 2014.

In evaluating the credit quality of commercial mortgage loans, we assess the performance of the underlying loans using both quantitative and qualitative criteria. Certain risks associated with commercial mortgage loans can be evaluated by reviewing both the loan-to-value and debt service coverage ratio to understand both the probability of the borrower not being able to make the necessary loan payments as well as the ability to sell the underlying property for an amount that would enable us to recover our unpaid principal balance in the event of default by the borrower. The average loan-to-value ratio is based on our most recent estimate of the fair value for the underlying property which is evaluated at least annually and updated more frequently if necessary to better indicate risk associated with the loan. A lower loan-to-value indicates that our loan value is more likely to be recovered in the event of default by the borrower if the property was sold. The debt service coverage ratio is based on “normalized” annual net operating income of the property compared to the payments required under the terms of the loan. Normalization allows for the removal of annual one-time events such as capital expenditures, prepaid or late real estate tax payments or non-recurring third-party fees (such as legal, consulting or contract fees). This ratio is evaluated at least annually and updated more frequently if necessary to better indicate risk associated with the loan. A higher debt service coverage ratio indicates the borrower is less likely to default on the loan. The debt service coverage ratio should not be used without considering other factors associated with the borrower, such as the borrower’s liquidity or access to other resources that may result in our expectation that the borrower will continue to make the future scheduled payments.

 

The following tables set forth the loan-to-value of commercial mortgage loans by property type as of the dates indicated:

 

		June 30, 2015
(Amounts in millions)		0% - 50%				51% - 60%				61% - 75%				76% - 100%				Greater than 100% (1)				Total
Property type:
Retail		$	713			$	415			$	942			$	66			$	18			$	2,154
Office			451				302				848				99				26				1,726
Industrial			402				295				803				76				2				1,578
Apartments			188				78				197				8				—				471
Mixed use/other			55				38				166				6				—				265
Total recorded investment		$	1,809			$	1,128			$	2,956			$	255			$	46			$	6,194
% of total			29	%			18	%			48	%			4	%			1	%			100	%
Weighted-average debt service coverage ratio			2.13				1.77				1.62				0.91				0.79				1.76

 

(1)	Included $46 million of loans in good standing, where borrowers continued to make timely payments, with a total weighted-average loan-to-value of 122%.

 

		December 31, 2014
(Amounts in millions)		0% - 50%				51% - 60%				61% - 75%				76% - 100%				Greater than 100% (1)				Total
Property type:
Retail		$	671			$	419			$	967			$	75			$	18			$	2,150
Office			383				278				782				164				36				1,643
Industrial			451				285				778				60				23				1,597
Apartments			211				76				199				8				—				494
Mixed use/other			45				43				145				6				—				239
Total recorded investment		$	1,761			$	1,101			$	2,871			$	313			$	77			$	6,123
% of total			29	%			18	%			47	%			5	%			1	%			100	%
Weighted-average debt service coverage ratio			2.27				1.75				1.61				1.02				0.72				1.78

 

(1)	Included $15 million of impaired loans, $6 million of loans past due and not individually impaired and $56 million of loans in good standing, where borrowers continued to make timely payments, with a total weighted-average loan-to-value of 120%.

 

The following tables set forth the debt service coverage ratio for fixed rate commercial mortgage loans by property type as of the dates indicated:

 

		June 30, 2015
(Amounts in millions)		Less than 1.00				1.00 - 1.25				1.26 - 1.50				1.51 - 2.00				Greater than 2.00				Total
Property type:
Retail		$	71			$	237			$	551			$	890			$	405			$	2,154
Office			105				88				299				849				378				1,719
Industrial			155				137				229				704				353				1,578
Apartments			1				44				85				195				146				471
Mixed use/other			6				1				85				137				36				265
Total recorded investment		$	338			$	507			$	1,249			$	2,775			$	1,318			$	6,187
% of total			5	%			8	%			20	%			45	%			22	%			100	%
Weighted-average loan-to-value			73	%			63	%			60	%			60	%			45	%			58	%

 

		December 31, 2014
(Amounts in millions)		Less than 1.00				1.00 - 1.25				1.26 - 1.50				1.51 - 2.00				Greater than 2.00				Total
Property type:
Retail		$	80			$	253			$	524			$	870			$	423			$	2,150
Office			119				101				247				780				389				1,636
Industrial			158				142				246				706				343				1,595
Apartments			1				48				88				186				171				494
Mixed use/other			6				1				61				135				36				239
Total recorded investment		$	364			$	545			$	1,166			$	2,677			$	1,362			$	6,114
% of total			6	%			9	%			19	%			44	%			22	%			100	%
Weighted-average loan-to-value			77	%			64	%			64	%			59	%			45	%			59	%

As of June 30, 2015 and December 31, 2014, we had floating rate commercial mortgage loans of $7 million and $9 million, respectively.

(f) Restricted Commercial Mortgage Loans Related To Securitization Entities

We have a consolidated securitization entity that holds commercial mortgage loans that are recorded as restricted commercial mortgage loans related to 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 and whereby the changes in fair value are recorded in current period income (loss). The trading securities comprise asset-backed securities, including residual interest in certain policy loan securitization entities and highly rated bonds that are primarily backed by credit card receivables.