GENWORTH FINANCIAL INC, 10-Q filed on 11/7/2011
Quarterly Report
Document and Entity Information
9 Months Ended
Sep. 30, 2011
Oct. 31, 2011
Document and Entity Information
 
 
Document Type
10-Q 
 
Amendment Flag
FALSE 
 
Document Period End Date
Sep. 30, 2011 
 
Document Fiscal Year Focus
2011 
 
Document Fiscal Period Focus
Q3 
 
Trading Symbol
GNW 
 
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
 
490,931,207 
Condensed Consolidated Statements Of Income (USD $)
In Millions, except Per Share data
3 Months Ended
Sep. 30,
9 Months Ended
Sep. 30,
2011
2010
2011
2010
Revenues:
 
 
 
 
Premiums
$ 1,461 
$ 1,447 
$ 4,353 
$ 4,387 
Net investment income
842 
815 
2,553 
2,403 
Net investment gains (losses)
(157)
105 
(225)
(104)
Insurance and investment product fees and other
375 
300 
1,063 
812 
Total revenues
2,521 
2,667 
7,744 
7,498 
Benefits and expenses:
 
 
 
 
Benefits and other changes in policy reserves
1,457 
1,502 
4,538 
4,157 
Interest credited
194 
212 
599 
636 
Acquisition and operating expenses, net of deferrals
510 
472 
1,524 
1,446 
Amortization of deferred acquisition costs and intangibles
190 
227 
572 
590 
Interest expense
124 
114 
385 
338 
Total benefits and expenses
2,475 
2,527 
7,618 
7,167 
Income before income taxes
46 
140 
126 
331 
Provision (benefit) for income taxes
(19)
18 
(80)
Net income
65 
122 
121 
411 
Less: net income attributable to noncontrolling interests
36 
39 
106 
108 
Net income available to Genworth Financial, Inc.'s common stockholders
29 
83 
15 
303 
Net income available to Genworth Financial, Inc.'s common stockholders per common share:
 
 
 
 
Basic
$ 0.06 
$ 0.17 
$ 0.03 
$ 0.62 
Diluted
$ 0.06 
$ 0.17 
$ 0.03 
$ 0.61 
Weighted-average common shares outstanding:
 
 
 
 
Basic
490.8 
489.5 
490.5 
489.1 
Diluted
492.5 
493.9 
493.7 
493.9 
Supplemental disclosures:
 
 
 
 
Total other-than-temporary impairments
(39)
(7)
(98)
(108)
Portion of other-than-temporary impairments included in other comprehensive income (loss)
(13)
(30)
(16)
(60)
Net other-than-temporary impairments
(52)
(37)
(114)
(168)
Other investments gains (losses)
(105)
142 
(111)
64 
Total net investment gains (losses)
$ (157)
$ 105 
$ (225)
$ (104)
Condensed Consolidated Balance Sheets (USD $)
In Millions
Sep. 30, 2011
Dec. 31, 2010
Assets
 
 
Fixed maturity securities available-for-sale, at fair value
$ 57,816 
$ 55,183 
Equity securities available-for-sale, at fair value
354 
332 
Commercial mortgage loans
6,271 
6,718 
Restricted commercial mortgage loans related to securitization entities
430 
507 
Policy loans
1,556 
1,471 
Other invested assets
5,626 
3,854 
Restricted other invested assets related to securitization entities ($376 and $370 at fair value)
377 
372 
Total investments
72,430 
68,437 
Cash and cash equivalents
3,648 
3,132 
Accrued investment income
725 
733 
Deferred acquisition costs
7,359 
7,256 
Intangible assets
626 
741 
Goodwill
1,326 
1,329 
Reinsurance recoverable
16,976 
17,191 
Other assets
1,002 
810 
Deferred tax asset
 
1,100 
Separate account assets
9,794 
11,666 
Total assets
113,886 
112,395 
Liabilities and stockholders' equity
 
 
Future policy benefits
31,745 
30,717 
Policyholder account balances
26,480 
26,978 
Liability for policy and contract claims
7,379 1
6,933 1
Unearned premiums
4,210 
4,541 
Other liabilities ($212 and $150 other liabilities related to securitization entities)
6,755 
6,085 
Borrowings related to securitization entities ($48 and $51 at fair value)
414 
494 
Non-recourse funding obligations
3,280 
3,437 
Long-term borrowings
4,708 
4,952 
Deferred tax liability
1,753 
1,621 
Separate account liabilities
9,794 
11,666 
Total liabilities
96,518 
97,424 
Commitments and contingencies
 
 
Stockholders' equity:
 
 
Class A common stock, $0.001 par value; 1.5 billion shares authorized; 579 million and 578 million shares issued as of September 30, 2011 and December 31, 2010, respectively; 491 million and 490 million shares outstanding as of September 30, 2011 and December 31, 2010, respectively
Additional paid-in capital
12,117 
12,095 
Net unrealized investment gains (losses):
 
 
Net unrealized gains (losses) on securities not other-than-temporarily impaired
1,579 
21 
Net unrealized gains (losses) on other-than-temporarily impaired securities
(126)
(121)
Net unrealized investment gains (losses)
1,453 
(100)
Derivatives qualifying as hedges
1,960 
924 
Foreign currency translation and other adjustments
459 
668 
Total accumulated other comprehensive income (loss)
3,872 
1,492 
Retained earnings
2,988 
2,973 
Treasury stock, at cost (88 million shares as of September 30, 2011 and December 31, 2010)
(2,700)
(2,700)
Total Genworth Financial, Inc.'s stockholders' equity
16,278 
13,861 
Noncontrolling interests
1,090 
1,110 
Total stockholders' equity
17,368 
14,971 
Total liabilities and stockholders' equity
$ 113,886 
$ 112,395 
Condensed Consolidated Balance Sheets (Parenthetical) (USD $)
In Millions, except Share data
Sep. 30, 2011
Dec. 31, 2010
Condensed Consolidated Balance Sheets
 
 
Restricted other invested assets related to securitization entities, at fair value
$ 376 
$ 370 
Other liabilities related to securitization entities
212 
150 
Borrowings related to securitization entities
$ 48 
$ 51 
Class A common stock, par value
$ 0.001 
$ 0.001 
Class A common stock, shares authorized
1,500,000,000 
1,500,000,000 
Class A common stock, shares issued
579,000,000 
578,000,000 
Class A common stock, shares outstanding
491,000,000 
490,000,000 
Treasury stock, shares
88,000,000 
88,000,000 
Condensed Consolidated Statements Of Changes In Stockholders' Equity (USD $)
In Millions
Common Stock [Member]
Additional Paid-in Capital [Member]
Accumulated Other Comprehensive Income (Loss) [Member]
Retained Earnings [Member]
Treasury Stock, at Cost [Member]
Total Genworth Financial, Inc.'s Stockholders' Equity [Member]
Noncontrolling Interests [Member]
Total
Balances at Dec. 31, 2009
$ 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
 
 
260 
(275)
 
(15)
 
(15)
Repurchase of subsidiary shares
 
 
 
 
 
 
(131)
(131)
Comprehensive income (loss):
 
 
 
 
 
 
 
 
Net income
 
 
 
303 
 
303 
108 
411 
Net unrealized gains (losses) on securities not other- than-temporarily impaired
 
 
1,621 
 
 
1,621 
28 
1,649 
Net unrealized gains (losses) on other-than-temporarily impaired securities
 
 
104 
 
 
104 
 
104 
Derivatives qualifying as hedges
 
 
552 
 
 
552 
 
552 
Foreign currency translation and other adjustments
 
 
111 
 
 
111 
22 
133 
Total comprehensive income (loss)
 
 
 
 
 
 
 
2,849 
Dividends to noncontrolling interests
 
 
 
 
 
 
(32)
(32)
Stock-based compensation expense and exercises and other
 
30 
 
 
 
30 
 
30 
Other capital transactions
 
20 
 
 
 
20 
 
20 
Balances at Sep. 30, 2010
12,084 
2,484 
3,133 
(2,700)
15,002 
1,069 
16,071 
Balances at Dec. 31, 2010
12,095 
1,492 
2,973 
(2,700)
13,861 
1,110 
14,971 
Repurchase of subsidiary shares
 
 
 
 
 
 
(71)
(71)
Comprehensive income (loss):
 
 
 
 
 
 
 
 
Net income
 
 
 
15 
 
15 
106 
121 
Net unrealized gains (losses) on securities not other- than-temporarily impaired
 
 
1,558 
 
 
1,558 
34 
1,592 
Net unrealized gains (losses) on other-than-temporarily impaired securities
 
 
(5)
 
 
(5)
 
(5)
Derivatives qualifying as hedges
 
 
1,036 
 
 
1,036 
 
1,036 
Foreign currency translation and other adjustments
 
 
(209)
 
 
(209)
(54)
(263)
Total comprehensive income (loss)
 
 
 
 
 
 
 
2,481 
Dividends to noncontrolling interests
 
 
 
 
 
 
(35)
(35)
Stock-based compensation expense and exercises and other
 
22 
 
 
 
22 
 
22 
Balances at Sep. 30, 2011
$ 1 
$ 12,117 
$ 3,872 
$ 2,988 
$ (2,700)
$ 16,278 
$ 1,090 
$ 17,368 
Condensed Consolidated Statements Of Cash Flows (USD $)
In Millions
9 Months Ended
Sep. 30,
2011
2010
Cash flows from operating activities:
 
 
Net income
$ 121 
$ 411 
Adjustments to reconcile net income to net cash from operating activities:
 
 
Amortization of fixed maturity discounts and premiums and limited partnerships
(71)
(11)
Net investment losses (gains)
225 
104 
Charges assessed to policyholders
(507)
(367)
Acquisition costs deferred
(686)
(610)
Amortization of deferred acquisition costs and intangibles
572 
590 
Deferred income taxes
(158)
(111)
Net increase in trading securities, held-for-sale investments and derivative instruments
795 
113 
Stock-based compensation expense
23 
31 
Change in certain assets and liabilities:
 
 
Accrued investment income and other assets
(152)
(31)
Insurance reserves
1,942 
1,767 
Current tax liabilities
(313)
Other liabilities and other policy-related balances
(80)
(597)
Net cash from operating activities
2,032 
976 
Cash flows from investing activities:
 
 
Fixed maturity securities
4,075 
3,302 
Commercial mortgage loans
633 
493 
Restricted commercial mortgage loans related to securitization entities
77 
40 
Proceeds from sales of investments:
 
 
Fixed maturity and equity securities
3,446 
3,329 
Purchases and originations of investments:
 
 
Fixed maturity and equity securities
(7,798)
(10,223)
Commercial mortgage loans
(202)
(35)
Other invested assets, net
(56)
1,483 
Policy loans, net
(85)
(77)
Payments for businesses purchased, net of cash acquired
(4)
 
Net cash from investing activities
86 
(1,688)
Cash flows from financing activities:
 
 
Deposits to universal life and investment contracts
2,016 
1,832 
Withdrawals from universal life and investment contracts
(3,034)
(2,950)
Short-term borrowings and other, net
21 
(86)
Redemption and repurchase of non-recourse funding obligations
(112)
(6)
Proceeds from the issuance of long-term debt
545 
660 
Repayment and repurchase of long-term debt
(760)
(6)
Repayment of borrowings related to securitization entities
(77)
(46)
Repurchase of subsidiary shares
(71)
(131)
Dividends paid to noncontrolling interests
(35)
(32)
Net cash from financing activities
(1,507)
(765)
Effect of exchange rate changes on cash and cash equivalents
(95)
73 
Net change in cash and cash equivalents
516 
(1,404)
Cash and cash equivalents at beginning of period
3,132 
5,002 
Cash and cash equivalents at end of period
$ 3,648 
$ 3,598 
Formation Of Genworth And Basis Of Presentation
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 interest 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/or manage a variety of protection, wealth management and retirement income products. Our primary insurance products include life and long-term care insurance. Additionally, we offer other Medicare supplement insurance 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 and fixed deferred and immediate individual annuities. We previously offered variable deferred annuities and group variable annuities offered through retirement plans.

 

  International. We offer mortgage and lifestyle protection insurance products and related services in multiple markets. 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. We are a leading provider of protection coverages primarily associated with certain financial obligations (referred to as lifestyle protection) in multiple European countries. These lifestyle protection insurance products primarily 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 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 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 capital and 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-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").

In January 2011, we discontinued new sales of retail and group variable annuities while continuing to service our existing blocks of business. We continue to offer fixed annuities.

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 2010 Annual Report on Form 10-K. Certain prior year amounts have been reclassified to conform to the current year presentation.

Accounting Pronouncements
Accounting Pronouncements

(2) Accounting Pronouncements

Recently Adopted

In September 2011, the Financial Accounting Standards Board (the "FASB") issued new accounting guidance related to goodwill impairment testing. The new guidance permits the use of a qualitative assessment prior to, and potentially instead of, the two step quantitative goodwill impairment test. The new guidance has a mandatory effective date of January 1, 2012, with early adoption permitted in some cases. We elected to early adopt this new guidance effective on July 1, 2011 in order to apply the new guidance in our annual goodwill impairment testing performed during the third quarter. The adoption of this new accounting guidance did not have an impact on our consolidated financial statements.

On July 1, 2011, we adopted new accounting guidance related to additional disclosures for troubled debt restructurings. The adoption of this new accounting guidance did not have a material impact on our consolidated financial statements.

On January 1, 2011, we adopted new accounting guidance related to goodwill impairment testing when a reporting unit's carrying value is zero or negative. This guidance did not impact our consolidated financial statements upon adoption, as all of our reporting units with goodwill balances have positive carrying values.

On January 1, 2011, we adopted new accounting guidance related to how investments held through separate accounts affect an insurer's consolidation analysis of those investments. The adoption of this new accounting guidance did not have a material impact on our consolidated financial statements.

On January 1, 2011, we adopted new accounting guidance related to additional disclosures about purchases, sales, issuances and settlements in the rollforward of Level 3 fair value measurements. The adoption of this new accounting guidance did not have a material impact on our consolidated financial statements.

Not Yet Adopted

In June 2011, the FASB issued new accounting guidance requiring presentation of the components of net income (loss), the components of other comprehensive income (loss) ("OCI") and total comprehensive income either in a single continuous statement of comprehensive income (loss) or in two separate but consecutive statements. This new accounting guidance is effective for us on January 1, 2012. We do not expect the adoption of this accounting guidance to have a material impact on our consolidated financial results.

In May 2011, the FASB issued new accounting guidance for fair value measurements. This new accounting guidance clarifies existing fair value measurement requirements and changes certain fair value measurement principles and disclosure requirements that will be effective for us on January 1, 2012. We have not yet determined the impact this accounting guidance will have on our consolidated financial statements.

In April 2011, the FASB issued new accounting guidance for repurchase agreements and other agreements that both entitle and obligate a transferor to repurchase or redeem financial assets before their maturity. The new guidance removes the requirement to consider a transferor's ability to fulfill its contractual rights from the criteria when determining effective control and is effective, for us, prospectively to any transactions occurring on or after January 1, 2012. We do not expect the adoption of this accounting guidance to have a material impact on our consolidated financial statements.

In October 2010, the FASB issued new accounting guidance related to accounting for costs associated with acquiring or renewing insurance contracts. This new accounting guidance will be effective for us on January 1, 2012. The new guidance is effective prospectively with retrospective adoption allowed. We intend to adopt this new guidance retrospectively. We expect that this new guidance, when adopted, will reduce retained earnings and stockholders' equity by approximately $1.3 billion to $1.6 billion, subject to other adjustments. When adopted in 2012, we expect to defer fewer costs and record lower amortization resulting in decreased earnings.

Earnings Per Share
Earnings (Loss) Per Share

(3) Earnings Per Share

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

 

Investments
Investments

(4) Investments

(a) Net Investment Income

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

 

                                 
     Three months ended
September 30,
    Nine months ended
September 30,
 

(Amounts in millions)

   2011     2010     2011     2010  

Fixed maturity securities—taxable

   $ 669      $ 658      $ 2,032      $ 1,930   

Fixed maturity securities—non-taxable

     8        14        29        46   

Commercial mortgage loans

     89        95        273        298   

Restricted commercial mortgage loans related to securitization entities

     11        10        30        30   

Equity securities

     3        4        16        11   

Other invested assets

     42        24        131        61   

Restricted other invested assets related to securitization entities

     —          1        —          2   

Policy loans

     30        28        89        83   

Cash, cash equivalents and short-term investments

     12        6        24        15   
    

 

 

   

 

 

   

 

 

   

 

 

 

Gross investment income before expenses and fees

     864        840        2,624        2,476   

Expenses and fees

     (22     (25     (71     (73
    

 

 

   

 

 

   

 

 

   

 

 

 

Net investment income

   $ 842      $ 815      $ 2,553      $ 2,403   
    

 

 

   

 

 

   

 

 

   

 

 

 

 

(b) Net Investment Gains (Losses)

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

 

                                 
      Three months ended
September 30,
    Nine months ended
September 30,
 

(Amounts in millions)

   2011     2010     2011     2010  

Available-for-sale securities:

                                

Realized gains

   $ 59      $ 38      $ 113      $ 114   

Realized losses

     (23     (35     (88     (109
    

 

 

   

 

 

   

 

 

   

 

 

 

Net realized gains (losses) on available-for-sale securities

     36        3        25        5   
    

 

 

   

 

 

   

 

 

   

 

 

 

Impairments:

                                

Total other-than-temporary impairments

     (39     (7     (98     (108

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

     (13     (30     (16     (60
    

 

 

   

 

 

   

 

 

   

 

 

 

Net other-than-temporary impairments

     (52     (37     (114     (168
    

 

 

   

 

 

   

 

 

   

 

 

 

Trading securities

     11        23        36        25   

Commercial mortgage loans

     3        (9     4        (31

Net gains (losses) related to securitization entities

     (57     30        (52     (6

Derivative instruments (1)

     (76     94        (101     48   

Contingent purchase price valuation change

     (22     —          (23     —     

Other

     —          1        —          23   
    

 

 

   

 

 

   

 

 

   

 

 

 

Net investment gains (losses)

   $ (157   $ 105      $ (225   $ (104
    

 

 

   

 

 

   

 

 

   

 

 

 

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 September 30, 2011 and 2010 was $263 million and $275 million, respectively, which was approximately 93% and 89%, respectively, of book value. The aggregate fair value of securities sold at a loss during the nine months ended September 30, 2011 and 2010 was $954 million and $1,691 million, respectively, which was approximately 93% and 94%, respectively, of book value.

The following represents the activity for credit losses recognized in net income on debt securities where an other-than-temporary impairment was identified and a portion of other-than-temporary impairments was included in OCI as of or for the periods indicated:

 

                                 
     As of or for  the
three months ended
September 30,
    As of or for the
nine months ended
September 30,
 

(Amounts in millions)

   2011     2010     2011     2010  

Beginning balance

   $ 726      $ 978      $ 784      $ 1,059   

Additions:

                                

Other-than-temporary impairments not previously recognized

     27        13        31        44   

Increases related to other-than-temporary impairments previously recognized

     24        22        72        100   

Reductions:

                                

Securities sold, paid down or disposed

     (58     (126     (168     (316
    

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance

   $ 719      $ 887      $ 719      $ 887   
    

 

 

   

 

 

   

 

 

   

 

 

 

 

(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)

   September 30, 2011     December 31, 2010  

Net unrealized gains (losses) on investment securities:

                

Fixed maturity securities

   $ 3,553      $ 511   

Equity securities

     (4     9   

Other invested assets

     (30     (22
    

 

 

   

 

 

 

Subtotal

     3,519        498   

Adjustments to deferred acquisition costs, present value of future profits, sales inducements and benefit reserves

     (1,162     (583

Income taxes, net

     (820     35   
    

 

 

   

 

 

 

Net unrealized investment gains (losses)

     1,537        (50

Less: net unrealized investment gains (losses) attributable to noncontrolling interests

     84        50   
    

 

 

   

 

 

 

Net unrealized investment gains (losses) attributable to Genworth Financial, Inc.

   $ 1,453      $ (100
    

 

 

   

 

 

 

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 periods indicated:

 

                 
     As of or for the
three months ended
September 30,
 

(Amounts in millions)

   2011     2010  

Beginning balance

   $ 236      $ 29   

Cumulative effect of changes in accounting

     —          169   

Unrealized gains (losses) arising during the period:

                

Unrealized gains (losses) on investment securities

     2,365        1,486   

Adjustment to deferred acquisition costs

     (44     (187

Adjustment to present value of future profits

     (61     (101

Adjustment to sales inducements

     6        (21

Adjustment to benefit reserves

     (369     (581

Provision for income taxes

     (662     (210
    

 

 

   

 

 

 

Change in unrealized gains (losses) on investment securities

     1,235        386   

Reclassification adjustments to net investment (gains) losses, net of taxes of $(5) and $(12)

     11        22   
    

 

 

   

 

 

 

Change in net unrealized investment gains (losses)

     1,246        577   

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

     29        19   
    

 

 

   

 

 

 

Ending balance

   $ 1,453      $ 587   
    

 

 

   

 

 

 

 

                 
     As of or for  the
nine months ended
September 30,
 

(Amounts in millions)

   2011     2010  

Beginning balance

   $ (100   $ (1,398

Cumulative effect of changes in accounting

     —          260   

Unrealized gains (losses) arising during the period:

                

Unrealized gains (losses) on investment securities

     2,932        3,747   

Adjustment to deferred acquisition costs

     (101     (381

Adjustment to present value of future profits

     (77     (182

Adjustment to sales inducements

     (1     (46

Adjustment to benefit reserves

     (400     (581

Provision for income taxes

     (824     (910
    

 

 

   

 

 

 

Change in unrealized gains (losses) on investment securities

     1,529        1,647   

Reclassification adjustments to net investment (gains) losses, net of taxes of $(31) and $(57)

     58        106   
    

 

 

   

 

 

 

Change in net unrealized investment gains (losses)

     1,587        2,013   

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

     34        28   
    

 

 

   

 

 

 

Ending balance

   $ 1,453      $ 587   
    

 

 

   

 

 

 

(d) Fixed Maturity and Equity Securities

As of September 30, 2011, 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

   $ 3,973       $ 853       $ —         $ (1   $ —        $ 4,825   

Tax-exempt

     753         24         —           (84     —          693   

Government—non-U.S.

     1,990         178         —           (3     —          2,165   

U.S. corporate

     23,218         2,461         15         (324     (2     25,368   

Corporate—non-U.S.

     13,138         768         —           (201     —          13,705   

Residential mortgage-backed

     5,392         446         10         (267     (201     5,380   

Commercial mortgage-backed

     3,613         161         6         (199     (38     3,543   

Other asset-backed

     2,202         23         —           (87     (1     2,137   
    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total fixed maturity securities

     54,279         4,914         31         (1,166     (242     57,816   

Equity securities

     357         15         —           (18     —          354   
    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total available-for- sale securities

   $ 54,636       $ 4,929       $ 31       $ (1,184   $ (242   $ 58,170   
    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

 

As of December 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:

 

                                                 
            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

   $ 3,568       $ 145       $ —         $ (8   $ —        $ 3,705   

Tax-exempt

     1,124         19         —           (113     —          1,030   

Government—non-U.S.

     2,257         118         —           (6     —          2,369   

U.S. corporate

     23,282         1,123         10         (448     —          23,967   

Corporate—non-U.S.

     13,180         485         —           (167     —          13,498   

Residential mortgage-backed

     4,821         116         18         (304     (196     4,455   

Commercial mortgage-backed

     3,936         132         6         (286     (45     3,743   

Other asset-backed

     2,494         18         —           (94     (2     2,416   
    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total fixed maturity securities

     54,662         2,156         34         (1,426     (243     55,183   

Equity securities

     323         13         —           (4     —          332   
    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total available-for-sale securities

   $ 54,985       $ 2,169       $ 34       $ (1,430   $ (243   $ 55,515   
    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

 

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 September 30, 2011:

 

     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 (2)
    Number of
securities
 

Description of Securities

                 

Fixed maturity securities:

                 

U.S. government, agencies and government-sponsored enterprises

  $ 263      $ (1     3      $ —        $ —          —        $ 263      $ (1 )       3   

Tax-exempt

    —          —          —          254        (84 )       79        254        (84 )       79   

Government—non-U.S.

    149        (3     31        —          —          —          149        (3 )       31   

U.S. corporate

    1,700        (65     204        1,526        (261 )       137        3,226        (326 )       341   

Corporate—non-U.S.

    1,774        (78     271        736        (123 )       73        2,510        (201 )       344   

Residential mortgage-backed

    155        (4     71        815        (464 )       365        970        (468 )       436   

Commercial mortgage-backed

    321        (29     52        940        (208 )       167        1,261        (237 )       219   

Other asset-backed

    182        (1     35        319        (87 )       36        501        (88 )       71   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Subtotal, fixed maturity securities

    4,544        (181     667        4,590        (1,227     857        9,134        (1,408     1,524   

Equity securities

    115        (15     50        20        (3 )       13        135        (18 )       63   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total for securities in an unrealized loss position

  $ 4,659      $ (196     717      $ 4,610      $ (1,230     870      $ 9,269      $ (1,426     1,587   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

% Below cost—fixed maturity securities:

                 

<20% Below cost

  $ 4,477      $ (152     622      $ 3,230      $ (322 )       456      $ 7,707      $ (474 )       1,078   

20%-50% Below cost

    62        (24     34        1,207        (585 )       272        1,269        (609 )       306   

>50% Below cost

    5        (5     11        153        (320 )       129        158        (325 )       140   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total fixed maturity securities

    4,544        (181     667        4,590        (1,227     857        9,134        (1,408     1,524   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

% Below cost—equity securities:

                 

<20% Below cost

    99        (8     41        16        (1 )       9        115        (9 )       50   

20%-50% Below cost

    16        (7     9        4        (2 )       4        20        (9 )       13   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total equity securities

    115        (15     50        20        (3 )       13        135        (18 )       63   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total for securities in an unrealized loss position

  $ 4,659      $ (196     717      $ 4,610      $ (1,230     870      $ 9,269      $ (1,426     1,587   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Investment grade

  $ 4,047      $ (151     536      $ 3,237      $ (567 )       486      $ 7,284      $ (718 )       1,022   

Below investment grade (3)

    612        (45     181        1,373        (663 )       384        1,985        (708 )       565   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total for securities in an unrealized loss position

  $ 4,659      $ (196     717      $ 4,610      $ (1,230     870      $ 9,269      $ (1,426     1,587   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

As indicated in the table 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 credit spreads that have widened since acquisition for corporate securities across various industry sectors, including finance and insurance as well as consumer-non-cyclical. For securities that have been in a continuous unrealized loss for less than 12 months, the average fair value percentage below cost was approximately 4% as of September 30, 2011.

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

Of the $322 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 75% of the unrealized losses were related to investment grade securities as of September 30, 2011. These unrealized losses were attributable to the widening of credit spreads for these securities since acquisition, primarily associated with corporate securities in the finance and insurance sector as well as mortgage-backed and asset-backed securities. The average fair value percentage below cost for these securities was approximately 9% as of September 30, 2011. See below for additional discussion related to fixed maturity securities that have been in a continuous 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 loss position for 12 months or more by asset class as of September 30, 2011:

 

                                                                 
     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:

                                                                   

Tax-exempt

   $ 160       $ (73     5     39       $ —         $ —          —       —     

U.S. corporate

     179         (74     5        12         —           —          —          —     

Corporate—non-U.S.

     158         (76     5        14         —           —          —          —     

Structured securities:

                                                                   

Residential mortgage-backed

     73         (30     2        28         11         (27     2        14   

Commercial mortgage-backed

     68         (29     2        15         5         (6     —          7   

Other asset-backed

     27         (9     1        3         1         (1     —          1   
    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total structured securities

     168         (68     5        46         17         (34     2        22   
    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total

   $ 665       $ (291     20     111       $ 17       $ (34     2     22   
    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

 

                                                                 
     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:

                                                                   

Tax-exempt

   $ —         $ —          —       —         $ —         $ —          —       —     

U.S. corporate

     59         (37     3        9         9         (11     1        3   

Structured securities:

                                                                   

Residential mortgage-backed

     310         (170     12        118         86         (204     14        86   

Commercial mortgage-backed

     87         (38     3        30         29         (59     4        16   

Other asset-backed

     86         (49     3        4         12         (12     1        2   
    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total structured securities

     483         (257     18        152         127         (275     19        104   
    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total

   $ 542       $ (294     21     161       $ 136       $ (286     20     107   
    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

For all securities in an unrealized loss position, we expect to recover the amortized cost based on our estimate of cash flows to be collected. We do not intend to sell and it is not more likely than not 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.

Tax-Exempt Securities

As indicated in the table above, $73 million of gross unrealized losses were related to tax-exempt securities that have been in a continuous unrealized loss position for more than 12 months and were more than 20% below cost. The unrealized losses for tax-exempt securities represent municipal bonds that were diversified by state as well as municipality or political subdivision within those states. Of these tax-exempt securities, the average unrealized loss was approximately $2 million which represented an average of 31% below cost. The unrealized losses primarily related to widening of credit spreads on these securities since acquisition as a result of higher risk premiums being attributed to these securities from uncertainty in many political subdivisions related to special revenues supporting these obligations as well as certain securities having longer duration that may be viewed as less desirable in the current market place. Additionally, the fair value of certain of these securities has been negatively impacted as a result of having certain bond insurers associated with the security. In our analysis of impairment for these securities, we expect to recover our amortized cost from the cash flows of the underlying securities before any guarantee support. However, the existence of these guarantees may negatively impact the value of the debt security in certain instances. We performed an analysis of these securities and the underlying activities that are expected to support the cash flows and determined we expect to recover our amortized cost.

 

Corporate Debt Securities

The following tables present the concentration of gross unrealized losses and fair values related to corporate debt fixed maturity securities that were more than 20% below cost and in a continuous loss position for 12 months or more by industry as of September 30, 2011:

 

                                                                 
     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
 

Industry:

                                                                    

Finance and insurance

   $ 290       $ (133     9     24       $ —         $ —           —       —     

Utilities and energy

     17         (6     —          1         —           —           —          —     

Consumer-non-cyclical

     30         (11     1        1         —           —           —          —     
    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total

   $ 337       $ (150     10     26       $ —         $ —           —       —     
    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

 

                                                                 
     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
 

Industry:

                                                                   

Finance and insurance

   $ 57       $ (36     3     7       $ 9       $ (11     1     3   

Technology and communications

     2         (1     —          2         —           —          —          —     
    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total

   $   59       $ (37     3     9       $ 9       $ (11     1     3   
    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Of the total unrealized losses of $198 million for corporate fixed maturity securities presented in the preceding tables, $180 million, or 91%, of the unrealized losses related to issuers in the finance and insurance sector that were 34% below cost on average. Given the current market conditions, including current financial industry events and uncertainty around global economic conditions, the fair value of these debt securities has declined due to credit spreads that have widened since acquisition. 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 debt securities represented temporary impairments as of September 30, 2011. Of the $180 million of unrealized losses related to the finance and insurance industry, $141 million related to financial hybrid securities on which a debt impairment model was employed. Most of our hybrid securities retained a credit rating of investment grade. The fair value of these hybrid securities has been impacted by credit spreads that have widened since acquisition and reflect uncertainty surrounding the extent and duration of government involvement, potential capital restructuring of these institutions, and continued but diminishing risk that income payments may be deferred. We continue to receive our contractual payments and expect to fully recover our amortized cost.

We expect that our investments in corporate securities will continue to perform in accordance with our expectations 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 write-downs within our portfolio of corporate securities in the future.

Structured Securities

Of the $634 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, $202 million related to other-than-temporarily-impaired securities where the unrealized losses represented the non-credit portion of the impairment. The extent and duration of the unrealized loss position on our structured securities is due to the ongoing concern and uncertainty about the residential and commercial real estate market and unemployment, resulting in credit spreads that have widened since acquisition. Additionally, the fair value of certain structured securities has been significantly 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 housing market.

 

While we considered 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 used 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 September 30, 2011.

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, 2010:

 

                                                                         
     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 
(2)
    Number of
securities
 

Description of Securities

                                                                       

U.S. government, agencies and government-sponsored enterprises

  $ 545      $ (8     36      $ —        $ —          —        $ 545      $ (8 )       36   

Tax-exempt

    285        (12     101        244        (101 )       90        529        (113 )       191   

Government—non-U.S.

    431        (5     69        21        (1 )       7        452        (6 )       76   

U.S. corporate

    3,615        (125     443        2,338        (323 )       191        5,953        (448 )       634   

Corporate—non-U.S.

    2,466        (53     296        1,141        (114 )       102        3,607        (167 )       398   

Residential mortgage-backed

    461        (23     92        1,031        (477 )       416        1,492        (500 )       508   

Commercial mortgage-backed

    177        (8     26        1,167        (323 )       225        1,344        (331 )       251   

Other asset-backed

    401        (2     37        512        (94 )       53        913        (96 )       90   
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Subtotal, fixed maturity securities

    8,381        (236     1,100        6,454        (1,433     1,084        14,835        (1,669     2,184   

Equity securities

    77        (3     48        5        (1 )       4        82        (4 )       52   
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total for securities in an unrealized loss position

  $ 8,458      $ (239     1,148      $ 6,459      $ (1,434     1,088      $ 14,917      $ (1,673     2,236   
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

% Below cost—fixed maturity securities:

                                                                       

<20% Below cost

  $ 8,359      $ (226     1,076      $ 4,852      $ (418 )       588      $ 13,211      $ (644 )       1,664   

20%-50% Below cost

    22        (8     18        1,428        (652 )       328        1,450        (660 )       346   

>50% Below cost

    —          (2     6        174        (363 )       168        174        (365 )       174   
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total fixed maturity securities

    8,381        (236     1,100        6,454        (1,433     1,084        14,835        (1,669     2,184   
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

% Below cost—equity securities:

                                                                       

<20% Below cost

    72        (2     47        5        (1 )       4        77        (3 )       51   

20%-50% Below cost

    5        (1     1        —          —          —          5        (1 )       1   
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total equity securities

    77        (3     48        5        (1 )       4        82        (4 )       52   
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total for securities in an unrealized loss position

  $ 8,458      $ (239     1,148      $ 6,459      $ (1,434     1,088      $ 14,917      $ (1,673     2,236   
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
                   

Investment grade

  $ 8,249      $ (231     1,060      $ 4,850      $ (764 )       683      $ 13,099      $ (995 )       1,743   

Below investment grade (3)

    209        (8     88        1,609        (670 )       405        1,818        (678 )       493   
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total for securities in an unrealized loss position

  $ 8,458      $ (239     1,148      $ 6,459      $ (1,434     1,088      $ 14,917      $ (1,673     2,236   
   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

The scheduled maturity distribution of fixed maturity securities as of September 30, 2011 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

   $ 2,696       $ 2,720   

Due after one year through five years

     10,842         11,172   

Due after five years through ten years

     9,964         10,612   

Due after ten years

     19,570         22,252   
    

 

 

    

 

 

 

Subtotal

     43,072         46,756   

Residential mortgage-backed

     5,392         5,380   

Commercial mortgage-backed

     3,613         3,543   

Other asset-backed

     2,202         2,137   
    

 

 

    

 

 

 

Total

   $ 54,279       $ 57,816   
    

 

 

    

 

 

 

As of September 30, 2011, $4,347 million of our investments (excluding mortgage-backed and asset-backed securities) were subject to certain call provisions.

As of September 30, 2011, securities issued by utilities and energy, finance and insurance, and consumer—non-cyclical industry groups represented approximately 23%, 22% and 12% 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 United States and internationally, and is not dependent on the economic stability of one particular region.

 

As of September 30, 2011, 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 dates indicated:

 

                                 
     September 30, 2011     December 31, 2010  

(Amounts in millions)

   Carrying
value
    % of
total
    Carrying
value
    % of
total
 

Property type:

                                

Retail

   $ 1,889        30   $ 1,974        29

Industrial

     1,736        28        1,788        26   

Office

     1,647        26        1,850        27   

Apartments

     708        11        725        11   

Mixed use/other

     341        5        435        7   
    

 

 

   

 

 

   

 

 

   

 

 

 

Subtotal

     6,321        100     6,772        100
            

 

 

           

 

 

 

Unamortized balance of loan origination fees and costs

     4                5           

Allowance for losses

     (54             (59        
    

 

 

           

 

 

         

Total

   $ 6,271              $ 6,718           
    

 

 

           

 

 

         

 

                                 
     September 30, 2011     December 31, 2010  

(Amounts in millions)

   Carrying
value
    % of
total
    Carrying
value
    % of
total
 

Geographic region:

                                

South Atlantic

   $ 1,624        27   $ 1,583        23

Pacific

     1,598        25        1,769        26   

Middle Atlantic

     810        13        937        14   

East North Central

     568        9        612        9   

Mountain

     500        8        540        8   

New England

     390        6        482        7   

West North Central

     344        5        369        6   

West South Central

     329        5        297        4   

East South Central

     158        2        183        3   
    

 

 

   

 

 

   

 

 

   

 

 

 

Subtotal

     6,321        100     6,772        100
            

 

 

           

 

 

 

Unamortized balance of loan origination fees and costs

     4                5           

Allowance for losses

     (54             (59        
    

 

 

           

 

 

         

Total

   $ 6,271              $ 6,718           
    

 

 

           

 

 

         

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

 

                                                 
     September 30, 2011  

(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

   $ —        $ —        $ 3      $ 3      $ 1,886      $ 1,889   

Industrial

     —          16        4        20        1,716        1,736   

Office

     10        4        8        22        1,625        1,647   

Apartments

     1        —          —          1        707        708   

Mixed use/other

     1        —          —          1        340        341   
    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total recorded investment

   $ 12      $ 20      $ 15      $ 47      $ 6,274      $ 6,321   
    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

% of total commercial mortgage loans

     —       1     —       1     99     100
    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

                                                 
     December 31, 2010  

(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

   $ —        $ —        $ —        $ —        $ 1,974      $ 1,974   

Industrial

     —          6        27        33        1,755        1,788   

Office

     —          —          12        12        1,838        1,850   

Apartments

     —          —          —          —          725        725   

Mixed use/other

     —          —          —          —          435        435   
    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total recorded investment

   $ —        $ 6      $ 39      $ 45      $ 6,727