(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’s 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, 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 unaudited condensed consolidated financial statements and these notes thereto are, unless the context otherwise requires, to Genworth Financial on a consolidated basis.

We operate our business through the following five operating segments:

 

•

U.S. Mortgage Insurance. In the United States, we offer mortgage insurance products predominantly insuring prime-based, individually underwritten residential mortgage loans (“flow mortgage insurance”). We selectively provide mortgage insurance on a bulk basis (“bulk mortgage insurance”) with essentially all of our bulk writings being prime-based.

 

•

Canada Mortgage Insurance. We offer flow mortgage insurance and also provide bulk mortgage insurance that aids in the sale of mortgages to the capital markets and helps lenders manage capital and risk in Canada.

 

•

Australia Mortgage Insurance. In Australia, we offer flow mortgage insurance and selectively provide bulk mortgage insurance that aids in the sale of mortgages to the capital markets and helps lenders manage capital and risk.

 

•

U.S. Life Insurance. We offer long-term care insurance products as well as service traditional life insurance and fixed annuity products in the United States.

 

•

Runoff. The Runoff segment includes the results of non-strategic products which are no longer actively sold but we continue to service our existing blocks of business. 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 and guaranteed investment contracts.

In addition to our five operating business segments, 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 businesses that are managed outside of our operating segments, including certain smaller international mortgage insurance businesses and discontinued operations.

On May 9, 2016, Genworth Mortgage Insurance Corporation (“GMICO”), our wholly-owned indirect subsidiary, completed the sale of our European mortgage insurance business. As the held-for-sale criteria were satisfied during the fourth quarter of 2015, our European mortgage insurance business, included in Corporate and Other activities, has been reported as held for sale and its financial position is separately reported for all periods presented. All prior periods reflected herein have been re-presented on this basis. See note 14 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 2015 Annual Report on Form 10-K. Certain prior year amounts have been reclassified to conform to the current year presentation.

On October 21, 2016, we entered into a definitive agreement with China Oceanwide Holdings Group Co., Ltd. (“China Oceanwide”) under which China Oceanwide has agreed to acquire all of our outstanding common stock for a total transaction value of approximately $2.7 billion, or $5.43 per share in cash. The acquisition will be completed through Asia Pacific Global Capital Co. Ltd., one of China Oceanwide’s investment platforms. The transaction is subject to approval by our stockholders as well as other closing conditions, including the receipt of required regulatory approvals.

(2) Accounting Changes

Accounting Pronouncement Recently Adopted

On January 1, 2016, we adopted new accounting guidance related to consolidation. The new 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. The adoption of this new guidance did not have a material impact on our consolidated financial statements.

Accounting Pronouncements Not Yet Adopted

In September 2016, the Financial Accounting Standards Board (the “FASB”) issued new guidance related to the statement of cash flows classification of certain cash payments and cash receipts. The guidance will reduce diversity in practice related to eight specific cash flow issues. The new guidance is effective for us on January 1, 2018, with early adoption permitted. We are in the process of determining the impact from this guidance on our consolidated financial statements.

In June 2016, the FASB issued new guidance related to accounting for credit losses on financial instruments. The guidance requires that entities recognize an allowance equal to its estimate of lifetime expected credit losses and applies to most debt instruments not measured at fair value, which would primarily include our commercial mortgage loans and reinsurance receivables. The new guidance retains most of the existing impairment guidance for available-for-sale debt securities but amends the presentation of credit losses to be presented as an allowance as opposed to a write-down and permits the reversal of credit losses when reassessing changes in the credit losses each reporting period. The new guidance is effective for us on January 1, 2020, with early adoption permitted beginning January 1, 2019. Upon adoption, a cumulative effect adjustment in retained earnings as of the beginning of the year of adoption will be recorded. We are in the process of determining the impact from this guidance on our consolidated financial statements.

In March 2016, the FASB issued new accounting guidance related to the accounting for stock compensation. The guidance primarily simplifies the accounting for employee share-based payment transactions, including a new requirement to record all of the income tax effects at settlement or expiration through the income statement, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The guidance is effective for us on January 1, 2017, with early adoption permitted. We are in the process of determining the impact from this guidance on our consolidated financial statements.

In March 2016, the FASB issued new accounting guidance related to transition to the equity method of accounting. The guidance eliminates the retrospective application of the equity method of accounting when obtaining significant influence over a previously held investment. The guidance requires that an entity that has an available-for-sale equity security that becomes qualified for the equity method of accounting recognize through earnings the unrealized holding gain or loss in accumulated other comprehensive income at the date the investment becomes qualified for use of the equity method. The guidance is effective for us on January 1, 2017, with early adoption permitted. We do not expect any significant impact from this guidance on our consolidated financial statements.

In March 2016, the FASB issued new accounting guidance related to the assessment of contingent put and call options in debt instruments. The guidance clarifies the requirements for assessing whether contingent call (put) options that can accelerate the payment of principal on debt instruments are clearly and closely related to their debt hosts. An entity performing the assessment under the amendments in this update is required to assess the embedded call (put) options solely in accordance with the four-step decision sequence. The guidance is effective for us on January 1, 2017, with early adoption permitted. We are in the process of determining the impact from this guidance on our consolidated financial statements.

In March 2016, the FASB issued new accounting guidance related to the effect of derivative contract novations on existing hedge accounting relationships. The guidance clarifies that a change in the counterparty to a derivative instrument that has been designated as the hedging instrument does not, in and of itself, require dedesignation of that hedging relationship provided that all other hedge accounting criteria continue to be met. The guidance is effective for us on January 1, 2017, with early adoption permitted. This guidance is consistent with our accounting for derivative contract novations and, accordingly, we do not expect any impact on our consolidated financial statements.

In February 2016, the FASB issued new accounting guidance related to the accounting for leases. The new guidance generally requires lessees to recognize both a right-to-use asset and a corresponding liability on the balance sheet. The guidance is effective for us on January 1, 2019, with early adoption permitted. We are still in the process of evaluating the impact this guidance will have on our consolidated financial statements.

(3) Earnings (Loss) Per Share

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

 

		Three months ended September 30,								Nine months ended September 30,
(Amounts in millions, except per share amounts)		2016				2015				2016				2015
Weighted-average common shares used in basic earnings (loss) per common share calculations			498.3				497.4				498.3				497.3
Potentially dilutive securities:
Stock options, restricted stock units and stock appreciation rights			—				—				—				1.7
Weighted-average common shares used in diluted earnings (loss) per common share calculations (1)			498.3				497.4				498.3				499.0
Income (loss) from continuing operations:
Income (loss) from continuing operations		$	(347	)		$	(217	)		$	21			$	161
Less: income from continuing operations attributable to noncontrolling interests			48				46				151				150
Income (loss) from continuing operations available to Genworth Financial, Inc.’s common stockholders		$	(395	)		$	(263	)		$	(130	)		$	11
Basic per common share		$	(0.79	)		$	(0.53	)		$	(0.26	)		$	0.02
Diluted per common share		$	(0.79	)		$	(0.53	)		$	(0.26	)		$	0.02
Income (loss) from discontinued operations:
Income (loss) from discontinued operations, net of taxes		$	15			$	(21	)		$	(25	)		$	(334	)
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		$	15			$	(21	)		$	(25	)		$	(334	)
Basic per common share		$	0.03			$	(0.04	)		$	(0.05	)		$	(0.67	)
Diluted per common share		$	0.03			$	(0.04	)		$	(0.05	)		$	(0.67	)
Net loss:
Income (loss) from continuing operations		$	(347	)		$	(217	)		$	21			$	161
Income (loss) from discontinued operations, net of taxes			15				(21	)			(25	)			(334	)
Net loss			(332	)			(238	)			(4	)			(173	)
Less: net income attributable to noncontrolling interests			48				46				151				150
Net loss available to Genworth Financial, Inc.’s common stockholders		$	(380	)		$	(284	)		$	(155	)		$	(323	)
Basic per common share		$	(0.76	)		$	(0.57	)		$	(0.31	)		$	(0.65	)
Diluted per common share		$	(0.76	)		$	(0.57	)		$	(0.31	)		$	(0.65	)

 

(1)

Under applicable accounting guidance, companies in a loss position are required to use basic weighted-average common shares outstanding in the calculation of diluted loss per share. Therefore, as a result of our loss from continuing operations available to Genworth Financial, Inc.’s common stockholders for the three months ended September 30, 2016 and 2015 and the nine months ended September 30, 2016, we were required to use basic weighted-average common shares outstanding in the calculation of diluted loss per share for the three months ended September 30, 2016 and 2015 and the nine months ended September 30, 2016, as the inclusion of shares for stock options, restricted stock units and stock appreciation rights of 2.2 million, 1.3 million and 1.8 million, respectively, would have been antidilutive to the calculation. If we had not incurred a loss from continuing operations available to Genworth Financial, Inc.’s common stockholders for the three months ended September 30, 2016 and 2015 and the nine months ended September 30, 2016, dilutive potential weighted-average common shares outstanding would have been 500.5 million, 498.7 million and 500.1 million, respectively.

(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)		2016				2015				2016				2015
Fixed maturity securities—taxable		$	655			$	647			$	1,930			$	1,924
Fixed maturity securities—non-taxable			3				3				9				9
Commercial mortgage loans			79				84				237				252
Restricted commercial mortgage loans related to securitization entities			3				3				8				10
Equity securities			8				3				20				11
Other invested assets			34				26				105				103
Restricted other invested assets related to securitization entities			—				1				3				3
Policy loans			38				33				107				101
Cash, cash equivalents and short-term investments			5				3				16				10
Gross investment income before expenses and fees			825				803				2,435				2,423
Expenses and fees			(20	)			(20	)			(62	)			(66	)
Net investment income		$	805			$	783			$	2,373			$	2,357

 

(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)		2016				2015				2016				2015
Available-for-sale securities:
Realized gains		$	39			$	14			$	205			$	49
Realized losses			(24	)			(18	)			(75	)			(36	)
Net realized gains (losses) on available-for-sale securities			15				(4	)			130				13
Impairments:
Total other-than-temporary impairments			(2	)			(10	)			(35	)			(13	)
Portion of other-than-temporary impairments included in other comprehensive income (loss)			—				1				—				1
Net other-than-temporary impairments			(2	)			(9	)			(35	)			(12	)
Trading securities			(4	)			12				40				2
Commercial mortgage loans			(1	)			1				1				5
Net gains (losses) related to securitization entities			2				(1	)			(51	)			9
Derivative instruments (1)			10				(53	)			(52	)			(79	)
Contingent consideration adjustment			—				2				(2	)			2
Other			—				1				—				1
Net investment gains (losses)		$	20			$	(51	)		$	31			$	(59	)

 

(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 September 30, 2016 and 2015 was $293 million and $186 million, respectively, which was approximately 95% and 93%, respectively, of book value. The aggregate fair value of securities sold at a loss during the nine months ended September 30, 2016 and 2015 was $833 million and $470 million, respectively, which was approximately 93% and 94%, 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 September 30,								As of or for the nine months ended September 30,
(Amounts in millions)		2016				2015				2016				2015
Beginning balance		$	62			$	75			$	64			$	83
Additions:
Other-than-temporary impairments not previously recognized			—				—				1				—
Reductions:
Securities sold, paid down or disposed			(8	)			(9	)			(11	)			(17	)
Ending balance		$	54			$	66			$	54			$	66

(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, 2016				December 31, 2015
Net unrealized gains (losses) on investment securities:
Fixed maturity securities		$	6,621			$	3,140
Equity securities			(2	)			(10	)
Subtotal			6,619				3,130
Adjustments to deferred acquisition costs, present value of future profits, sales inducements and benefit reserves			(2,045	)			(1,070	)
Income taxes, net			(1,595	)			(711	)
Net unrealized investment gains (losses)			2,979				1,349
Less: net unrealized investment gains (losses) attributable to noncontrolling interests			119				95
Net unrealized investment gains (losses) attributable to Genworth Financial, Inc.		$	2,860			$	1,254

 

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 September 30,
(Amounts in millions)		2016				2015
Beginning balance		$	2,789			$	1,628
Unrealized gains (losses) arising during the period:
Unrealized gains (losses) on investment securities			228				70
Adjustment to deferred acquisition costs			(17	)			32
Adjustment to present value of future profits			3				(5	)
Adjustment to sales inducements			(6	)			9
Adjustment to benefit reserves			(81	)			23
Provision for income taxes			(41	)			(50	)
Change in unrealized gains (losses) on investment securities			86				79
Reclassification adjustments to net investment (gains) losses, net of taxes of $4 and $(5)			(9	)			8
Change in net unrealized investment gains (losses)			77				87
Less: change in net unrealized investment gains (losses) attributable to noncontrolling interests			6				(16	)
Ending balance		$	2,860			$	1,731

 

		As of or for the nine months ended September 30,
(Amounts in millions)		2016				2015
Beginning balance		$	1,254			$	2,453
Unrealized gains (losses) arising during the period:
Unrealized gains (losses) on investment securities			3,584				(1,393	)
Adjustment to deferred acquisition costs			(291	)			102
Adjustment to present value of future profits			(26	)			45
Adjustment to sales inducements			(46	)			12
Adjustment to benefit reserves			(612	)			111
Provision for income taxes			(917	)			396
Change in unrealized gains (losses) on investment securities			1,692				(727	)
Reclassification adjustments to net investment (gains) losses, net of taxes of $33 and $—			(62	)			(1	)
Change in net unrealized investment gains (losses)			1,630				(728	)
Less: change in net unrealized investment gains (losses) attributable to noncontrolling interests			24				(6	)
Ending balance		$	2,860			$	1,731

 

(d) Fixed Maturity and Equity Securities

As of September 30, 2016, 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		$	5,416			$	1,288			$	—			$	(1	)		$	—			$	6,703
State and political subdivisions			2,491				350				—				(17	)			—				2,824
Non-U.S. government			2,052				175				—				—				—				2,227
U.S. corporate:
Utilities			4,073				678				—				(2	)			—				4,749
Energy			2,124				177				—				(22	)			—				2,279
Finance and insurance			5,711				615				23				(9	)			—				6,340
Consumer—non-cyclical			4,190				689				—				(1	)			—				4,878
Technology and communications			2,486				248				—				(8	)			—				2,726
Industrial			1,181				114				—				(4	)			—				1,291
Capital goods			1,876				319				—				—				—				2,195
Consumer—cyclical			1,506				158				—				(4	)			—				1,660
Transportation			1,077				138				—				—				—				1,215
Other			335				27				—				—				—				362
Total U.S. corporate			24,559				3,163				23				(50	)			—				27,695
Non-U.S. corporate:
Utilities			899				64				—				(2	)			—				961
Energy			1,281				129				—				(15	)			—				1,395
Finance and insurance			2,458				201				—				(1	)			—				2,658
Consumer—non-cyclical			768				55				—				(1	)			—				822
Technology and communications			968				80				—				(1	)			—				1,047
Industrial			955				68				—				(5	)			—				1,018
Capital goods			545				36				—				(1	)			—				580
Consumer—cyclical			490				15				—				—				—				505
Transportation			605				81				—				(3	)			—				683
Other			3,039				305				—				(5	)			—				3,339
Total non-U.S. corporate			12,008				1,034				—				(34	)			—				13,008
Residential mortgage-backed			4,418				396				11				(2	)			—				4,823
Commercial mortgage-backed			2,983				192				2				(4	)			—				3,173
Other asset-backed			3,324				28				1				(26	)			—				3,327
Total fixed maturity securities			57,251				6,626				37				(134	)			—				63,780
Equity securities			599				26				—				(35	)			—				590
Total available-for-sale securities		$	57,850			$	6,652			$	37			$	(169	)		$	—			$	64,370

 

As of December 31, 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		$	5,487			$	732			$	—			$	(16	)		$	—			$	6,203
State and political subdivisions			2,287				181				—				(30	)			—				2,438
Non-U.S. government			1,910				110				—				(5	)			—				2,015
U.S. corporate:
Utilities			3,355				364				—				(26	)			—				3,693
Energy			2,560				103				—				(162	)			—				2,501
Finance and insurance			5,268				392				15				(43	)			—				5,632
Consumer—non-cyclical			3,755				371				—				(30	)			—				4,096
Technology and communications			2,108				123				—				(38	)			—				2,193
Industrial			1,164				53				—				(44	)			—				1,173
Capital goods			1,774				188				—				(12	)			—				1,950
Consumer—cyclical			1,602				95				—				(22	)			—				1,675
Transportation			1,023				75				—				(12	)			—				1,086
Other			385				22				—				(5	)			—				402
Total U.S. corporate			22,994				1,786				15				(394	)			—				24,401
Non-U.S. corporate:
Utilities			815				37				—				(9	)			—				843
Energy			1,700				64				—				(78	)			—				1,686
Finance and insurance			2,327				152				2				(8	)			—				2,473
Consumer—non-cyclical			746				24				—				(18	)			—				752
Technology and communications			978				36				—				(26	)			—				988
Industrial			1,063				19				—				(96	)			—				986
Capital goods			602				19				—				(17	)			—				604
Consumer—cyclical			522				8				—				(4	)			—				526
Transportation			559				52				—				(6	)			—				605
Other			2,574				187				—				(25	)			—				2,736
Total non-U.S. corporate			11,886				598				2				(287	)			—				12,199
Residential mortgage-backed			4,777				330				11				(17	)			—				5,101
Commercial mortgage-backed			2,492				84				3				(20	)			—				2,559
Other asset-backed			3,328				11				1				(59	)			—				3,281
Total fixed maturity securities			55,161				3,832				32				(828	)			—				58,197
Equity securities			325				8				—				(23	)			—				310
Total available-for-sale securities		$	55,486			$	3,840			$	32			$	(851	)		$	—			$	58,507

 

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, 2016:

 

		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
Fixed maturity securities:
U.S. government, agencies and government-sponsored enterprises		$	300			$	(1	)			6			$	—			$	—				—			$	300			$	(1	)			6
State and political subdivisions			92				(1	)			14				143				(16	)			12				235				(17	)			26
U.S. corporate			808				(18	)			120				693				(32	)			104				1,501				(50	)			224
Non-U.S. corporate			261				(6	)			48				414				(28	)			56				675				(34	)			104
Residential mortgage-backed			67				(1	)			22				57				(1	)			30				124				(2	)			52
Commercial mortgage-backed			234				(3	)			34				27				(1	)			10				261				(4	)			44
Other asset-backed			433				(4	)			70				356				(22	)			68				789				(26	)			138
Subtotal, fixed maturity securities			2,195				(34	)			314				1,690				(100	)			280				3,885				(134	)			594
Equity securities			94				(5	)			191				123				(30	)			47				217				(35	)			238
Total for securities in an unrealized loss position		$	2,289			$	(39	)			505			$	1,813			$	(130	)			327			$	4,102			$	(169	)			832
% Below cost—fixed maturity securities:
<20% Below cost		$	2,195			$	(34	)			314			$	1,604			$	(69	)			270			$	3,799			$	(103	)			584
20%-50% Below cost			—				—				—				86				(31	)			10				86				(31	)			10
Total fixed maturity securities			2,195				(34	)			314				1,690				(100	)			280				3,885				(134	)			594
% Below cost—equity securities:
<20% Below cost			93				(4	)			181				55				(10	)			22				148				(14	)			203
20%-50% Below cost			1				(1	)			10				68				(20	)			25				69				(21	)			35
Total equity securities			94				(5	)			191				123				(30	)			47				217				(35	)			238
Total for securities in an unrealized loss position		$	2,289			$	(39	)			505			$	1,813			$	(130	)			327			$	4,102			$	(169	)			832
Investment grade		$	2,098			$	(25	)			297			$	1,351			$	(100	)			245			$	3,449			$	(125	)			542
Below investment grade			191				(14	)			208				462				(30	)			82				653				(44	)			290
Total for securities in an unrealized loss position		$	2,289			$	(39	)			505			$	1,813			$	(130	)			327			$	4,102			$	(169	)			832

 

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 September 30, 2016:

 

		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		$	113			$	(1	)			22			$	23			$	(1	)			4			$	136			$	(2	)			26
Energy			112				(7	)			13				290				(15	)			46				402				(22	)			59
Finance and insurance			227				(3	)			32				108				(6	)			16				335				(9	)			48
Consumer—non-cyclical			108				(1	)			15				—				—				—				108				(1	)			15
Technology and communications			101				(2	)			15				138				(6	)			19				239				(8	)			34
Industrial			34				(1	)			6				108				(3	)			13				142				(4	)			19
Consumer—cyclical			113				(3	)			17				26				(1	)			6				139				(4	)			23
Subtotal, U.S. corporate securities			808				(18	)			120				693				(32	)			104				1,501				(50	)			224
Non-U.S. corporate:
Utilities			16				(1	)			2				14				(1	)			1				30				(2	)			3
Energy			72				(1	)			11				122				(14	)			22				194				(15	)			33
Finance and insurance			72				(1	)			15				—				—				—				72				(1	)			15
Consumer—non-cyclical			49				(1	)			5				—				—				—				49				(1	)			5
Technology and communications			—				—				—				28				(1	)			3				28				(1	)			3
Industrial			26				(1	)			6				103				(4	)			15				129				(5	)			21
Capital goods			—				—				—				34				(1	)			3				34				(1	)			3
Transportation			—				—				—				49				(3	)			4				49				(3	)			4
Other			26				(1	)			9				64				(4	)			8				90				(5	)			17
Subtotal, non-U.S. corporate securities			261				(6	)			48				414				(28	)			56				675				(34	)			104
Total for corporate securities in an unrealized loss position		$	1,069			$	(24	)			168			$	1,107			$	(60	)			160			$	2,176			$	(84	)			328

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 increased market volatility, 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 2% as of September 30, 2016.

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

Of the $69 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 65% of the unrealized losses were related to investment grade securities as of September 30, 2016. These unrealized losses were predominantly attributable to corporate securities including variable rate securities purchased in a higher rate and lower spread environment. The average fair value percentage below cost for these securities was approximately 4% as of September 30, 2016. 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 September 30, 2016:

 

		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 subdivisions		$	9			$	(3	)			2	%			1			$	—			$	—				—	%			—
U.S. corporate:
Energy			13				(4	)			2				1				—				—				—				—
Finance and insurance			12				(3	)			2				1				—				—				—				—
Total U.S. corporate			25				(7	)			4				2				—				—				—				—
Structured securities:
Other asset-backed			43				(17	)			10				4				—				—				—				—
Total structured securities			43				(17	)			10				4				—				—				—				—
Total		$	77			$	(27	)			16	%			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:
U.S. corporate:
Energy		$	4			$	(2	)			1	%			1			$	—			$	—				—	%			—
Total U.S. corporate			4				(2	)			1				1				—				—				—				—
Non-U.S. corporate:
Energy			3				(1	)			1				1				—				—				—				—
Total non-U.S. corporate			3				(1	)			1				1				—				—				—				—
Structured securities:
Other asset-backed			2				(1	)			1				1				—				—				—				—
Total structured securities			2				(1	)			1				1				—				—				—				—
Total		$	9			$	(4	)			3	%			3			$	—			$	—				—	%			—

 

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.

U.S. corporate

As indicated above, $9 million of gross unrealized losses were related to U.S. corporate fixed maturity securities that have been in an unrealized loss position for more than 12 months and were more than 20% below cost. Of the total unrealized losses for U.S. corporate fixed maturity securities, $6 million, or 67%, related to the energy sector and $3 million, or 33%, related to the finance and insurance sector. Ongoing low oil prices and market volatility adversely impacted the fair value of these securities.

We expect that our investments in U.S. 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 reasonably possible that issuers of our investments in U.S. corporate securities may perform worse than current expectations. Such events may lead us to recognize write-downs within our portfolio of U.S. corporate securities in the future.

Structured Securities

Of the $18 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, none 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 September 30, 2016.

Despite the considerable analysis and rigor employed on our structured securities, it is reasonably possible that the underlying collateral of these investments may 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, 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
Fixed maturity securities:
U.S. government, agencies and government-sponsored enterprises		$	883			$	(16	)			32			$	—			$	—				—			$	883			$	(16	)			32
State and political subdivisions			464				(15	)			81				163				(15	)			17				627				(30	)			98
Non-U.S. government			366				(5	)			49				—				—				—				366				(5	)			49
U.S. corporate			5,836				(332	)			817				466				(62	)			83				6,302				(394	)			900
Non-U.S. corporate			3,016				(170	)			400				486				(117	)			87				3,502				(287	)			487
Residential mortgage-backed			756				(10	)			88				103				(7	)			38				859				(17	)			126
Commercial mortgage-backed			780				(19	)			116				39				(1	)			13				819				(20	)			129
Other asset-backed			1,944				(22	)			349				336				(37	)			55				2,280				(59	)			404
Subtotal, fixed maturity securities			14,045				(589	)			1,932				1,593				(239	)			293				15,638				(828	)			2,225
Equity securities			153				(23	)			64				—				—				—				153				(23	)			64
Total for securities in an unrealized loss position		$	14,198			$	(612	)			1,996			$	1,593			$	(239	)			293			$	15,791			$	(851	)			2,289
% Below cost—fixed maturity securities:
<20% Below cost		$	13,726			$	(472	)			1,877			$	1,259			$	(78	)			238			$	14,985			$	(550	)			2,115
20%-50% Below cost			319				(116	)			54				316				(139	)			50				635				(255	)			104
>50% Below cost			—				(1	)			1				18				(22	)			5				18				(23	)			6
Total fixed maturity securities			14,045				(589	)			1,932				1,593				(239	)			293				15,638				(828	)			2,225
% Below cost—equity securities:
<20% Below cost			133				(18	)			56				—				—				—				133				(18	)			56
20%-50% Below cost			20				(5	)			8				—				—				—				20				(5	)			8
Total equity securities			153				(23	)			64				—				—				—				153				(23	)			64
Total for securities in an unrealized loss position		$	14,198			$	(612	)			1,996			$	1,593			$	(239	)			293			$	15,791			$	(851	)			2,289
Investment grade		$	13,342			$	(524	)			1,834			$	1,245			$	(135	)			225			$	14,587			$	(659	)			2,059
Below investment grade			856				(88	)			162				348				(104	)			68				1,204				(192	)			230
Total for securities in an unrealized loss position		$	14,198			$	(612	)			1,996			$	1,593			$	(239	)			293			$	15,791			$	(851	)			2,289

 

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, 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		$	485			$	(25	)			74			$	14			$	(1	)			7			$	499			$	(26	)			81
Energy			1,162				(134	)			163				131				(28	)			22				1,293				(162	)			185
Finance and insurance			1,142				(35	)			160				94				(8	)			15				1,236				(43	)			175
Consumer—non-cyclical			836				(26	)			107				51				(4	)			10				887				(30	)			117
Technology and communications			658				(36	)			95				23				(2	)			5				681				(38	)			100
Industrial			476				(33	)			64				44				(11	)			9				520				(44	)			73
Capital goods			293				(10	)			48				26				(2	)			4				319				(12	)			52
Consumer—cyclical			427				(18	)			60				63				(4	)			10				490				(22	)			70
Transportation			273				(10	)			38				20				(2	)			1				293				(12	)			39
Other			84				(5	)			8				—				—				—				84				(5	)			8
Subtotal, U.S. corporate securities			5,836				(332	)			817				466				(62	)			83				6,302				(394	)			900
Non-U.S. corporate:
Utilities			130				(6	)			20				32				(3	)			6				162				(9	)			26
Energy			589				(48	)			71				127				(30	)			20				716				(78	)			91
Finance and insurance			478				(7	)			77				30				(1	)			8				508				(8	)			85
Consumer—non-cyclical			261				(14	)			27				37				(4	)			4				298				(18	)			31
Technology and communications			324				(15	)			37				33				(11	)			9				357				(26	)			46
Industrial			495				(54	)			67				110				(42	)			18				605				(96	)			85
Capital goods			154				(8	)			22				41				(9	)			9				195				(17	)			31
Consumer—cyclical			155				(4	)			20				—				—				—				155				(4	)			20
Transportation			147				(6	)			17				—				—				—				147				(6	)			17
Other			283				(8	)			42				76				(17	)			13				359				(25	)			55
Subtotal, non-U.S. corporate securities			3,016				(170	)			400				486				(117	)			87				3,502				(287	)			487
Total for corporate securities in an unrealized loss position		$	8,852			$	(502	)			1,217			$	952			$	(179	)			170			$	9,804			$	(681	)			1,387

 

The scheduled maturity distribution of fixed maturity securities as of September 30, 2016 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		$	1,752			$	1,775
Due after one year through five years			10,704				11,309
Due after five years through ten years			12,300				13,129
Due after ten years			21,770				26,244
Subtotal			46,526				52,457
Residential mortgage-backed			4,418				4,823
Commercial mortgage-backed			2,983				3,173
Other asset-backed			3,324				3,327
Total		$	57,251			$	63,780

As of September 30, 2016, $10,260 million of our investments (excluding mortgage-backed and asset-backed securities) were subject to certain call provisions.

As of September 30, 2016, securities issued by finance and insurance, utilities and consumer—non-cyclical industry groups represented approximately 22%, 14% and 14%, respectively, of our domestic and foreign corporate fixed maturity securities portfolio. No other industry group comprised more than 10% of our investment portfolio.

As of September 30, 2016, 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:

 

		September 30, 2016								December 31, 2015
(Amounts in millions)		Carrying value				% of total				Carrying value				% of total
Property type:
Retail		$	2,099				35	%		$	2,116				34	%
Industrial			1,544				26				1,562				25
Office			1,421				23				1,516				24
Apartments			449				7				465				8
Mixed use			232				4				234				4
Other			287				5				294				5
Subtotal			6,032				100	%			6,187				100	%
Unamortized balance of loan origination fees and costs			(2	)							(2	)
Allowance for losses			(13	)							(15	)
Total		$	6,017							$	6,170

 

		September 30, 2016								December 31, 2015
(Amounts in millions)		Carrying value				% of total				Carrying value				% of total
Geographic region:
Pacific		$	1,563				27	%		$	1,581				26	%
South Atlantic			1,506				25				1,574				25
Middle Atlantic			886				15				890				14
Mountain			549				9				585				10
West North Central			443				7				416				7
East North Central			382				6				386				6
West South Central			305				5				294				5
New England			208				3				268				4
East South Central			190				3				193				3
Subtotal			6,032				100	%			6,187				100	%
Unamortized balance of loan origination fees and costs			(2	)							(2	)
Allowance for losses			(13	)							(15	)
Total		$	6,017							$	6,170

 

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

 

		September 30, 2016
(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		$	—			$	—			$	5			$	5			$	2,094			$	2,099
Industrial			—				—				12				12				1,532				1,544
Office			—				—				4				4				1,417				1,421
Apartments			—				—				—				—				449				449
Mixed use			—				—				—				—				232				232
Other			—				—				—				—				287				287
Total recorded investment		$	—			$	—			$	21			$	21			$	6,011			$	6,032
% of total commercial mortgage loans			—	%			—	%			—	%			—	%			100	%			100	%

 

		December 31, 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		$	—			$	—			$	—			$	—			$	2,116			$	2,116
Industrial			—				—				—				—				1,562				1,562
Office			6				—				5				11				1,505				1,516
Apartments			—				—				—				—				465				465
Mixed use			—				—				—				—				234				234
Other			—				—				—				—				294				294
Total recorded investment		$	6			$	—			$	5			$	11			$	6,176			$	6,187
% of total commercial mortgage loans			—	%			—	%			—	%			—	%			100	%			100	%

As of September 30, 2016 and December 31, 2015, 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 September 30, 2016 and December 31, 2015.

We evaluate the impairment of commercial mortgage loans on an individual loan basis. As of September 30, 2016, 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 the loans was expected to be recoverable.

During the nine months ended September 30, 2016 and the year ended December 31, 2015, we modified or extended 10 and 21 commercial mortgage loans, respectively, with a total carrying value of $63 million and $110 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, but one loan with a carrying value $1 million at the time of modification was considered a troubled debt restructuring. This loan was impaired in the third quarter and the recorded investment was less than $1 million as of September 30, 2016.

 

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 September 30,								Nine months ended September 30,
(Amounts in millions)		2016				2015				2016				2015
Allowance for credit losses:
Beginning balance		$	13			$	18			$	15			$	22
Charge-offs			—				(1	)			(4	)			(4	)
Provision			—				—				2				(1	)
Ending balance		$	13			$	17			$	13			$	17
Ending allowance for individually impaired loans		$	—			$	—			$	—			$	—
Ending allowance for loans not individually impaired that were evaluated collectively for impairment		$	13			$	17			$	13			$	17
Recorded investment:
Ending balance		$	6,032			$	6,151			$	6,032			$	6,151
Ending balance of individually impaired loans		$	17			$	19			$	17			$	19
Ending balance of loans not individually impaired that were evaluated collectively for impairment		$	6,015			$	6,132			$	6,015			$	6,132

As of September 30, 2016, we had individually impaired commercial mortgage loans included within the retail property type with a recorded investment of $5 million, an unpaid principal balance of $7 million, charge-offs of $2 million and an average recorded investment of $3 million.

As of December 31, 2015, we had an individually impaired commercial mortgage loan included within the industrial property type with a recorded investment of $14 million, an unpaid principal balance of $15 million and charge-offs of $1 million, which were recorded in the first quarter of 2014. As of December 31, 2015, this loan had interest income of $1 million. In the second quarter of 2016, we recorded additional charge-offs of $2 million related to this loan. As of September 30, 2016, the individually impaired loan within the industrial property type had a recorded investment of $12 million, an unpaid principal balance of $15 million and total charge-offs of $3 million.

As of December 31, 2015, we had an individually impaired commercial mortgage loan included within the office property type with a recorded investment of $5 million, an unpaid principal balance of $6 million and charge-offs of $1 million, which were recorded in the third quarter of 2015.

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:

 

		September 30, 2016
(Amounts in millions)		0% - 50%				51% - 60%				61% - 75%				76% - 100%				Greater than 100% (1)				Total
Property type:
Retail		$	763			$	495			$	812			$	29			$	—			$	2,099
Industrial			631				436				451				24				2				1,544
Office			420				315				645				31				10				1,421
Apartments			194				75				175				5				—				449
Mixed use			68				88				76				—				—				232
Other			61				30				196				—				—				287
Total recorded investment		$	2,137			$	1,439			$	2,355			$	89			$	12			$	6,032
% of total			36	%			24	%			39	%			1	%			—	%			100	%
Weighted-average debt service coverage ratio			2.22				1.87				1.61				0.91				0.07				1.87

 

(1)	Included $12 million of loans in good standing, where borrowers continued to make timely payments, with a total weighted-average loan-to-value of 112%.

 

		December 31, 2015
(Amounts in millions)		0% - 50%				51% - 60%				61% - 75%				76% - 100%				Greater than 100% (1)				Total
Property type:
Retail		$	785			$	417			$	800			$	103			$	11			$	2,116
Industrial			515				478				499				65				5				1,562
Office			493				341				580				83				19				1,516
Apartments			196				66				182				21				—				465
Mixed use			56				48				124				3				3				234
Other			54				55				185				—				—				294
Total recorded investment		$	2,099			$	1,405			$	2,370			$	275			$	38			$	6,187
% of total			34	%			23	%			38	%			4	%			1	%			100	%
Weighted-average debt service coverage ratio			2.13				1.82				1.57				1.12				0.55				1.79

 

(1)	Included $38 million of loans in good standing, where borrowers continued to make timely payments, with a total weighted-average loan-to-value of 123%.

 

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

 

		September 30, 2016
(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		$	73			$	200			$	420			$	827			$	579			$	2,099
Industrial			86				126				246				578				508				1,544
Office			103				79				172				620				447				1,421
Apartments			19				19				43				216				152				449
Mixed use			2				9				20				113				88				232
Other			1				148				57				58				23				287
Total recorded investment		$	284			$	581			$	958			$	2,412			$	1,797			$	6,032
% of total			5	%			10	%			15	%			40	%			30	%			100	%
Weighted-average loan-to-value			64	%			62	%			60	%			57	%			45	%			55	%

 

		December 31, 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		$	67			$	221			$	433			$	882			$	513			$	2,116
Industrial			94				181				208				672				407				1,562
Office			85				114				265				699				346				1,509
Apartments			6				41				74				199				145				465
Mixed use			3				11				28				135				57				234
Other			—				58				146				60				30				294
Total recorded investment		$	255			$	626			$	1,154			$	2,647			$	1,498			$	6,180
% of total			4	%			10	%			19	%			43	%			24	%			100	%
Weighted-average loan-to-value			74	%			64	%			58	%			58	%			43	%			56	%

As of September 30, 2016, we did not have any floating rate commercial mortgage loans. As of December 31, 2015, we had floating rate commercial mortgage loans of $7 million.

(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 highly rated bonds that are primarily backed by credit card receivables.

 

In June 2016, we amended and exercised a clean-up call on our consolidated securitization entity writing off our residual interest and settling the outstanding debt of $70 million. As a result of this transaction, we recorded $64 million of realized investment losses related to the write-off of our residual interest in those entities and a $64 million gain related to the early extinguishment of debt which was included in other income. There was no impact to net income.

In addition, the policy loan securitization entities in which we previously held a residual interest were not required to be consolidated in our balance sheets. In June 2016, we repurchased $134 million of policy loans from those entities. The policy loans are now included in our consolidated balance sheet.

(h) Limited Partnerships or Similar Entities

Investments in partnerships or similar entities are generally considered VIEs when the equity group lacks sufficient financial control. Generally, these investments are limited partner or non-managing member equity investments in a widely held fund that is sponsored and managed by a reputable asset manager. We are not the primary beneficiary of any VIE investment in a limited partnership or similar entity. As of September 30, 2016 and December 31, 2015, the total carrying value of these investments was $171 million and $165 million, respectively. Our maximum exposure to loss is equal to the outstanding carrying value and future funding commitments. We have not contributed, and do not plan to contribute, any additional financial or other support outside of what is contractually obligated.