METLIFE INSURANCE CO OF CONNECTICUT – 10-Q – Management’s Discussion and Analysis of Financial Condition and Results of Operations

Index to Management's Discussion and Analysis of Financial Condition

           and Results of Operations                                                                    Page                                                                Number   Forward-Looking Statements and Other Financial Information     72   Business                                                       72   Summary of Critical Accounting Estimates                       74   Economic Capital                                               74   Results of Operations                                          75   Adoption of New Accounting Pronouncements                      80   Future Adoption of New Accounting Pronouncements               80   Non-GAAP and Other Financial Disclosures                       80   Subsequent Event                                               81                                           71

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    Forward-Looking Statements and Other Financial Information For purposes of this discussion, "MICC," the "Company," "we," "our" and "us" refer to MetLife Insurance Company of Connecticut, a Connecticut corporation incorporated in 1863, and its subsidiaries, including MetLife Investors USA Insurance Company ("MLI-USA"). MetLife Insurance Company of Connecticut is a wholly-owned subsidiary of MetLife, Inc. ("MetLife"). Management's narrative analysis of the results of operations is presented pursuant to General Instruction H(2)(a) of Form 10-Q. This narrative analysis should be read in conjunction with MetLife Insurance Company of Connecticut's Annual Report on Form 10-K for the year ended December 31, 2012 (the "2012 Annual Report"), the forward-looking statement information included below, the "Risk Factors" set forth in Part II, Item 1A, and the additional risk factors referred to therein, and the Company's interim condensed consolidated financial statements included elsewhere herein. This narrative analysis may contain or incorporate by reference information that includes or is based upon forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements give expectations or forecasts of future events. These statements can be identified by the fact that they do not relate strictly to historical or current facts. They use words such as "anticipate," "estimate," "expect," "project," "intend," "plan," "believe" and other words and terms of similar meaning in connection with a discussion of future operating or financial performance. In particular, these include statements relating to future actions, prospective services or products, future performance or results of current and anticipated services or products, sales efforts, expenses, the outcome of contingencies such as legal proceedings, trends in operations and financial results. Any or all forward-looking statements may turn out to be wrong. Actual results could differ materially from those expressed or implied in the forward-looking statements. See "Note Regarding Forward-Looking Statements." This narrative analysis includes references to our performance measure, operating earnings, that is not based on accounting principles generally accepted in the United States of America ("GAAP"). Operating earnings is the measure of segment profit or loss we use to evaluate segment performance and allocate resources. Consistent with GAAP guidance for segment reporting, operating earnings is our measure of segment performance. See "- Non-GAAP and Other Financial Disclosures" for definitions of such measures. Business Overview MICC is organized into two segments: Retail and Corporate Benefit Funding. In addition, the Company reports certain of its results of operations in Corporate & Other. As anticipated, in the third quarter of 2012, MetLife and the Company continued to realign certain products and businesses among its existing segments, as well as Corporate & Other, to better conform to the way they manage and assess their respective businesses. As a result, MICC's individual disability income products previously reported in Corporate & Other are now reported in the Retail segment. Prior period results have been revised in connection with this change, which did not have a significant impact on the segment and Corporate & Other results. Management continues to evaluate the Company's segment performance and allocated resources and may adjust related measurements in the future to better reflect segment profitability. See Note 2 of the Notes to the Interim Condensed Consolidated Financial Statements for further information on the Company's segments and Corporate & Other.  

In the second quarter of 2013, MetLife announced its plans to merge into MetLife Insurance Company of Connecticut, as the surviving entity, two U.S.-based life insurance companies and an offshore reinsurance subsidiary to create one larger U.S.-based and U.S.-regulated life insurance company. The companies to be merged into MetLife Insurance Company of Connecticut, consist of MLI-USA, a subsidiary of MetLife Insurance Company of Connecticut, and MetLife Investors Insurance Company, an affiliate of MetLife Insurance Company of Connecticut, each a U.S. insurance company that issues variable annuity products in addition to other products, and Exeter Reassurance Company Ltd. ("Exeter"), a Cayman Islands reinsurance company that mainly reinsures guarantees associated with variable annuity products. Prior to the merger, MetLife Insurance Company of Connecticut will surrender its New York insurance license and, in connection therewith, reinsure certain of its New York business, including variable annuity business, with Metropolitan Life Insurance Company, subject to regulatory approvals. Also, following Exeter's merger into MetLife Insurance Company of Connecticut, MetLife Insurance Company of Connecticut will consider transferring to one or more affiliates certain business that is currently reinsured by Exeter. These mergers are expected to occur towards the end of 2014, subject to regulatory approvals. As a result of these mergers, MICC's financial condition will be impacted. It is also anticipated transparency will be increased relative to capital allocation and variable annuity risk management.

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  Regulatory Developments The U.S. life insurance industry is regulated primarily at the state level, with some products and services also subject to Federal regulation. As life insurers introduce new and often more complex products, regulators refine capital requirements and introduce new reserving standards for the life insurance industry. Regulations recently adopted or currently under review can potentially impact the statutory reserve and capital requirements of the industry. In addition, regulators have undertaken market and sales practices reviews of several markets or products, including equity-indexed annuities, variable annuities and group products. State insurance regulators and the National Association of Insurance Commissioners ("NAIC") are also investigating the use of affiliated captive reinsurers or off-shore entities to hedge and reinsure insurance risks. On June 11, 2013, the New York State Department of Financial Services (the "Department of Financial Services") issued a highly critical report setting forth its findings to date relating to its inquiry into the life insurance industry's use of captive insurance companies. In its report, the Department of Financial Services recommended that (i) the NAIC develop enhanced disclosure requirements for reserve financing transactions involving captive insurers, (ii) the Federal Insurance Office, Office of Financial Research, the NAIC and state insurance commissioners conduct inquiries similar to the Department of Financial Services inquiry and (iii) state insurance commissioners consider an immediate national moratorium on new reserve financing transactions involving captive insurers until these inquiries are complete. The NAIC and certain state insurance regulators have stated that they are opposed to an immediate moratorium on new reserve financing transactions. Like many life insurance companies, we utilize captive reinsurers to satisfy statutory reserve requirements related to universal life and term life insurance policies. We also cede variable annuity risks to a captive reinsurer, which allows us to consolidate hedging and other risk management programs. If the insurance regulators in Connecticut or Delaware restrict the use of such captive reinsurers or if we otherwise are unable to continue to use such captive reinsurers in the future, our ability to write certain products or to hedge the associated risks efficiently, and/or our risk based capital ratios could be adversely affected or we may need to increase prices on those products, which could adversely impact our competitive position and our results of operations. As described above, in the second quarter of 2013, MetLife, Inc. announced its plans to merge into MetLife Insurance Company of Connecticut, as the surviving entity, two U.S.-based life insurance companies and an offshore reinsurance subsidiary to create one larger U.S.-based and U.S.-regulated life insurance company. These anticipated mergers may mitigate to some degree the impact of any restrictions on the use of captive reinsurers that could be adopted by the insurance regulators in Connecticut or Delaware. Potential Regulation of MetLife as a Non-Bank SIFI On January 11, 2013, MetLife Bank, National Association ("MetLife Bank"), a subsidiary of MetLife, and MetLife completed the sale of the depository business of MetLife Bank to GE Capital Retail Bank. Subsequently, MetLife Bank terminated its deposit insurance and MetLife deregistered as a bank holding company. As a result, MetLife is no longer regulated as a bank holding company or subject to enhanced supervision and prudential standards as a bank holding company with assets of $50 billion or more. However, if, in the future, MetLife is designated by the Financial Stability Oversight Council ("FSOC") as a non-bank systemically important financial institution ("non-bank SIFI"), it could once again be subject to regulation by the Board of Governors of the Federal Reserve System (the "Federal Reserve Board") and to enhanced supervision and prudential standards. See "Business - Regulation - Potential Regulation of MetLife as a Non-Bank SIFI - Enhanced Prudential Standards for Non-Bank SIFIs" included in the 2012 Annual Report.  The FSOC issued final rules in April 2012, outlining a three-stage process it will follow and the criteria it will use to assess whether a non-bank financial company should be subject to enhanced supervision by the Federal Reserve Board as a non-bank SIFI. On July 16, 2013, MetLife was notified by the FSOC that it had reached Stage 3 in the process to determine whether MetLife would be named a non-bank SIFI. Regulation of MetLife as a non-bank SIFI could affect our business. See "Business - Regulation - Potential Regulation of MetLife as a Non-Bank SIFI" included in the 2012 Annual Report. If MetLife is designated as a non-bank SIFI, it will be subject to a number of Dodd-Frank Wall Street Reform and Consumer Protection Act ("Dodd-Frank") requirements that are also applicable to bank holding companies with assets of $50 billion or more. See "Business - Regulation" included in the 2012 Annual Report. In April 2013, the Federal Reserve Board proposed a rule to implement Section 318 of Dodd-Frank, which directs the Federal Reserve Board to collect assessments and other charges equal to the total expenses the Federal Reserve Board thinks is necessary for its supervision of bank holding companies and savings and loan holding companies with assets of $50 billion or more and non-bank SIFIs. As proposed, this rule would apply to MetLife for the 2012 assessment period and will apply in the future if MetLife is designated as a non-bank SIFI. Regulatory Developments Relating to G-SIIs The International Association of Insurance Supervisors ("IAIS"), an association of insurance supervisors and regulators and a member of the Financial Stability Board ("FSB"), an international entity established to coordinate, develop and promote                                         73 

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  regulatory, supervisory and other financial sector policies in the interest of financial stability, is participating in the FSB's initiative to identify global systemically important financial institutions by devising a process for designating global systemically important insurers ("G-SIIs"). On July 18, 2013, the IAIS published a revised assessment methodology for identifying G-SIIs and a framework of policy measures to be applied to G-SIIs, and the FSB published its initial list of nine G-SIIs, which includes MetLife. The FSB will update the list annually beginning in 2014. The framework of policy measures includes tiered global capital requirements for internationally active insurance groups, including G-SIIs, and G-SIIs may be subject to additional capital requirements reflecting activities deemed to be systemically risky. G-SII backstop capital requirements are to be developed by the end of 2014, for application beginning in 2019. More information on timing of development of a quantitative capital standard for large internationally active insurance groups is expected to be published by the end of 2013. The FSB and IAIS propose that national authorities ensure that any insurers identified as G-SIIs be subject to additional requirements consistent with the framework of policy measures, which include preparation of a systemic risk management plan, preparation of a recovery and resolution plan, enhanced liquidity planning and management, more intensive supervision, closer coordination among regulators led by a regulator with group-wide supervisory authority and a policy bias in favor of separation of non-traditional insurance and non-insurance activities from traditional insurance activities. The IAIS policy measures would need to be implemented by legislation or regulation in each applicable jurisdiction, and the impact on MetLife and us, and other designated G-SIIs in the U.S., is uncertain. See "Business - Regulation - Designation Process and Policy Measures that May Apply to Global Systemically Important Insurers" included in the 2012 Annual Report. Summary of Critical Accounting Estimates The preparation of financial statements in conformity with GAAP requires management to adopt accounting policies and make estimates and assumptions that affect amounts reported in the Interim Condensed Consolidated Financial Statements. The most critical estimates include those used in determining: (i)     liabilities for future policyholder benefits and the accounting for         reinsurance;   (ii)    capitalization and amortization of deferred policy acquisition costs         ("DAC") and the establishment and amortization of value of business         acquired ("VOBA");   (iii)   estimated fair values of investments in the absence of quoted market         values;  

(iv) investment impairments;

  (v)     estimated fair values of freestanding derivatives and the recognition and         estimated fair value of embedded derivatives requiring bifurcation;  

(vi) measurement of goodwill and related impairment;

(vii) measurement of income taxes and the valuation of deferred tax assets; and

(viii) liabilities for litigation and regulatory matters.

In applying our accounting policies, we make subjective and complex judgments that frequently require estimates about matters that are inherently uncertain. Many of these policies, estimates and related judgments are common in the insurance and financial services industries; others are specific to our business and operations. Actual results could differ from these estimates. The above critical accounting estimates are described in "Management's Discussion and Analysis of Financial Condition and Results of Operations - Summary of Critical Accounting Estimates" and Note 1 of the Notes to the Consolidated Financial Statements included in the 2012 Annual Report. Economic Capital Economic capital is an internally developed risk capital model, the purpose of which is to measure the risk in the business and to provide a basis upon which capital is deployed. The economic capital model accounts for the unique and specific nature of the risks inherent in MetLife's and the Company's business.

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  MetLife's economic capital model aligns segment allocated equity with emerging standards and consistent risk principles. Segment net investment income is credited or charged based on the level of allocated equity; however, changes in allocated equity do not impact the Company's consolidated net investment income, operating earnings or net income (loss). Results of Operations Consolidated Results The Company made additional changes to variable annuity guarantee features as we continued to manage sales volume, focusing on pricing discipline and risk management in this challenging economic environment. These actions, in combination with product changes made in 2012, resulted in a net decrease in sales of annuities of $2.8 billion, before income tax, or 43% compared to the prior period. The sustained low interest rate environment adversely impacted sales of our pension closeouts. While premiums for this business are almost entirely offset by the related change in policyholder benefits, the impact of current period deposits contributed to growth in our investment portfolio.                                                             Six Months                                                               Ended                                                              June 30,                                                          2013        2012                                                           (In millions) Revenues Premiums                                               $   265$  786 Universal life and investment-type product policy fees   1,120      1,119 Net investment income                                    1,454      1,548 Other revenues                                             295        248 Net investment gains (losses)                               82         75 Net derivative gains (losses)                             (382 )      143 Total revenues                                           2,834      3,919 Expenses Policyholder benefits and claims                           773      1,225 Interest credited to policyholder account balances         523        606 Capitalization of DAC                                     (287 )     (494 ) Amortization of DAC and VOBA                                30        454 Interest expense on debt                                   100        119 Other expenses                                             933      1,265 Total expenses                                           2,072      3,175 Income (loss) before provision for income tax              762        744 Provision for income tax expense (benefit)                 236        227 Net income (loss)                                      $   526$  517

Six Months Ended June 30, 2013 Compared with the Six Months Ended June 30, 2012 During the six months ended June 30, 2013, income (loss) before provision for income tax increased $18 million ($9 million, net of income tax) from the prior period primarily driven by favorable changes in operating earnings and net investment gains (losses), partially offset by an unfavorable change in net derivative gains (losses). We manage our investment portfolio using disciplined Asset/Liability Management principles, focusing on cash flow and duration to support our current and future liabilities. Our intent is to match the timing and amount of liability cash outflows with invested assets that have cash inflows of comparable timing and amount, while optimizing risk-adjusted net investment income and risk-adjusted total return. Our investment portfolio is heavily weighted toward fixed income investments, with over 80% of our portfolio invested in fixed maturity securities and mortgage loans. These securities and loans have varying maturities and other characteristics which cause them to be generally well suited for matching the cash flow and duration of insurance liabilities. Other invested asset classes including, but not limited to, equity securities, other limited partnership interests and real estate and real estate joint ventures, provide additional diversification and opportunity for long-term yield enhancement in addition to supporting the cash flow and duration objectives of our investment portfolio. We also use derivatives as an integral part of our management of the investment portfolio to hedge certain risks, including changes in interest rates, foreign currency exchange rates, credit spreads and equity market levels. Additional considerations for our investment portfolio include current and expected market conditions and expectations for changes within our specific mix of products and business segments. In addition, the general account investment portfolio includes, within fair value option securities, contractholder-directed unit-linked investments supporting unit-linked variable annuity type liabilities, which do not qualify as separate account assets. The returns on these

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  contractholder-directed unit-linked investments, which can vary significantly from period to period, include changes in estimated fair value subsequent to purchase, inure to contractholders and are offset in earnings by a corresponding change in policyholder account balances ("PABs") through interest credited to policyholder account balances. During June 2012, the Company disposed of MetLife Europe Limited ("MetLife Europe"), which held these contractholder-directed unit-linked investments. The composition of the investment portfolio of each business segment is tailored to the specific characteristics of its insurance liabilities, causing certain portfolios to be shorter in duration and others to be longer in duration. Accordingly, certain portfolios are more heavily weighted in longer duration, higher yielding fixed maturity securities, or certain sub-sectors of fixed maturity securities, than other portfolios. Investments are purchased to support our insurance liabilities and not to generate net investment gains and losses. However, net investment gains and losses are incurred and can change significantly from period to period due to changes in external influences, including changes in market factors such as interest rates, foreign currency exchange rates, credit spreads and equity markets; counterparty specific factors such as financial performance, credit rating and collateral valuation; and internal factors such as portfolio rebalancing. Changes in these factors from period to period can significantly impact the levels of both impairments and realized gains and losses on investments sold. We use freestanding interest rate, equity, credit and currency derivatives to hedge certain invested assets and insurance liabilities. Certain of these hedges are designated and qualify as accounting hedges, which reduce volatility in earnings. For those hedges not designated as accounting hedges, changes in market factors lead to the recognition of fair value changes in net derivative gains (losses) generally without an offsetting gain or loss recognized in earnings for the item being hedged. Certain direct or assumed variable annuity products with minimum benefit guarantees contain embedded derivatives that are measured at estimated fair value separately from the host variable annuity contract, with changes in estimated fair value recorded in net derivative gains (losses). The Company hedges the market risks inherent in these variable annuity guarantees through a combination of reinsurance and freestanding derivatives. Ceded reinsurance of direct or assumed variable annuity products with minimum benefit guarantees generally contain embedded derivatives that are measured at estimated fair value separately from the host variable annuity contract, with changes in estimated fair value recorded in net derivative gains (losses). The valuation of these embedded derivatives includes a nonperformance risk adjustment, which is unhedged and can be a significant driver of net derivative gains (losses) but does not have an economic impact on the Company. Direct, assumed, and ceded variable annuity embedded derivatives and associated freestanding derivative hedges are collectively referred to as "VA program derivatives" in the following table. All other derivatives that are economic hedges of certain invested assets and insurance liabilities are referred to as "non-VA program derivatives" in the following table. The table below presents the impact on net derivative gains (losses) from non-VA program derivatives and VA program derivatives:                                                                     Six Months                                                                       Ended                                                                      June 30,                                                                2013            2012                                                                   (In millions) Non-VA program derivatives Interest rate                                              $      (138 )$       58 Foreign currency exchange rate                                      11              2 Credit                                                              19             15 Non-VA embedded derivatives                                        438           (152 ) Total non-VA program derivatives                                   330            (77 ) VA program derivatives Embedded derivatives-direct/assumed guarantees: Market and other risks                                           1,276            445 Nonperformance risk                                               (127 )         (102 ) Total                                                            1,149            343 Embedded derivatives-ceded reinsurance: Market and other risks                                          (1,565 )          (51 ) Nonperformance risk                                                159             39 Total                                                           (1,406 )          (12 ) Freestanding derivatives hedging direct/assumed embedded derivatives                                                       (455 )         (111 ) Total VA program derivatives                                      (712 )          220 Net derivative gains (losses)                              $      (382 )$      143                                           76

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  Within VA Program Derivatives, a reclassification has been made to the prior year amounts to conform to the current year presentation with respect to the classification of fees on direct and ceded embedded derivatives as well as to segregate the non-VA program embedded derivatives in affiliated ceded reinsurance written on a coinsurance with funds withheld basis. The favorable change in net derivative gains (losses) on non-VA program derivatives was $407 million ($265 million, net of income tax). This was primarily due to non-VA program embedded derivatives in affiliated ceded reinsurance written on a coinsurance with funds withheld basis, which were favorably impacted by changes in value of the underlying assets, as well as by a current period refinement to the method in which the changes in fair value of the underlying assets in the reference portfolio are allocated to the embedded derivative. The favorable change was also due to increasing forward United Kingdom inflation rates favorably impacting receive-float inflation swaps. These favorable impacts were partially offset by long-term interest rates increasing in the current period and decreasing in the prior period, unfavorably impacting receive-fixed interest rate swaps and long interest rate floors. These freestanding derivatives are primarily hedging long duration liability portfolios. Because certain of these hedging strategies are not designated or do not qualify as accounting hedges, the changes in the estimated fair value of these freestanding derivatives are recognized in net derivative gains (losses) without an offsetting gain or loss recognized in earnings for the item being hedged. The unfavorable change in net derivative gains (losses) on VA program derivatives was $932 million ($606 million, net of income tax). This was due to an unfavorable change of $1.0 billion ($668 million, net of income tax) related to market and other risks on direct and assumed variable annuity embedded derivatives, net of the impact of market and other risks on the ceded reinsurance embedded derivatives and net of freestanding derivatives hedging those risks, an unfavorable change of $25 million ($16 million, net of income tax) related to the nonperformance risk adjustment on the direct and assumed variable annuity embedded derivatives and a favorable change of $120 million ($78 million, net of income tax) related to the nonperformance risk adjustment on the ceded variable annuity embedded derivatives. The nonperformance risk adjustment on the ceded variable annuity embedded derivatives gain of $159 million ($103 million, net of income tax) in the current period was comprised of a gain of $133 million due to the impact of changes in capital market inputs, such as long-term risk free interest rates and key equity index levels, as well as a gain of $26 million due to changes in the reinsurer's credit spread. The nonperformance risk adjustment on the direct and assumed variable annuity embedded derivatives loss of $127 million ($83 million, net of income tax) in the current period was comprised of a loss of $119 million due to the impact of changes in capital market inputs, such as long-term risk free interest rates and key equity levels, as well as a loss of $8 million due to changes in the Company's own credit spread. The Company calculates the nonperformance risk adjustment on the direct, assumed, and ceded variable annuity embedded derivatives as the change in the embedded derivative discounted at the risk adjusted rate (which includes a credit spread to the extent that the embedded derivative is in-the-money) less the change in the embedded derivative discounted at the risk free rate. When equity index levels decrease in isolation, the direct and assumed variable annuity guarantees become more valuable to policyholders, which results in an increase in the undiscounted embedded derivative liability. Discounting this unfavorable change by the risk adjusted rate yields a smaller loss than by discounting at the risk free rate, thus, creating a gain from including an adjustment for nonperformance risk on the direct and assumed variable annuity embedded derivatives. The opposite impact occurs with respect to the nonperformance risk adjustment on the ceded variable annuity guarantees. When the risk free interest rate decreases in isolation, discounting the embedded derivative liability produces a higher valuation of the liability than if the risk free interest rate had remained constant. Discounting this unfavorable change by the risk adjusted rate yields a smaller loss than by discounting at the risk free rate, thus, creating a gain from including an adjustment for nonperformance risk on the direct and assumed variable annuity embedded derivatives. The opposite impact occurs with respect to the nonperformance risk adjustment on the ceded variable annuity guarantees. When the Company's own credit spread increases in isolation, discounting the embedded derivative liability produces a lower valuation of the liability than if the own credit spread had remained constant. As a result, a gain is created from including an adjustment for nonperformance risk on the direct and assumed variable annuity embedded derivatives. The opposite impact occurs with respect to the nonperformance risk adjustment on ceded variable annuity guarantees when the reinsurer's credit spread increases in isolation. For each of these primary market drivers, the opposite effect occurs when they move in the opposite direction. Generally, a higher portion of the ceded reinsurance for guaranteed minimum income benefits ("GMIBs") is accounted for as an embedded derivative as compared to the direct guarantees since the settlement provisions of the reinsurance contracts                                         77 

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generally meet the accounting criteria of "net settlement." This mismatch in accounting can lead to significant volatility in earnings, even though the risks inherent in these direct guarantees are fully covered by the ceded reinsurance. The foregoing unfavorable change of $1.0 billion ($668 million, net of income tax) is comprised of a $1.9 billion ($1.2 billion, net of income tax) unfavorable change in market and other risks on ceded variable annuity embedded derivatives and freestanding derivatives, which together hedge the market and other risks on direct and assumed variable annuity embedded derivatives, and an $831 million ($540 million, net of income tax) favorable change in market and other risks on direct and assumed variable annuity embedded derivatives. As discussed in the preceding paragraph, changes in market and other risks lead to volatility in earnings due to the mismatch in accounting on GMIBs. The primary changes in market factors are summarized as follows: • Long-term interest rates increased in the current period and decreased in

       the prior period, contributing to an unfavorable change in our ceded        reinsurance assets and our freestanding derivatives and favorable changes        in our direct and assumed embedded derivatives.   •      Key equity index levels increased more in the current period than in the        prior period, contributing to unfavorable changes in our ceded reinsurance        assets and our freestanding derivatives and favorable changes in our        direct and assumed embedded derivatives.   •      Key equity volatility measures decreased less in the current period than        in the prior period, contributing to favorable changes in our ceded        reinsurance assets and our freestanding derivatives and unfavorable        changes in our direct and assumed embedded derivatives.  

The favorable change in net investment gains (losses) of $7 million ($5 million, net of income tax) reflects a decrease in impairments on fixed maturity securities, primarily in the financial and utility sectors, and an increase in net gains on sales of fixed maturity securities, partially offset by a reduction to the mortgage loan valuation allowance in the prior period. Income tax expense for the six months ended June 30, 2013 was $236 million, or 31% of income (loss) before provision for income tax, compared with $227 million, or 31% of income (loss) before provision for income tax for the prior period. The Company's 2013 and 2012 effective tax rates differ from the U.S. statutory rate of 35% primarily due to non-taxable investment income and tax credits for investments in low income housing. As more fully described in "- Non-GAAP and Other Financial Disclosures," we use operating earnings, which does not equate to net income, as determined in accordance with GAAP, to analyze our performance, evaluate segment performance, and allocate resources. We believe that the presentation of operating earnings, as we measure it for management purposes, enhances the understanding of our performance by highlighting the results of operations and the underlying profitability drivers of the business. Operating earnings should not be viewed as a substitute for net income (loss). Operating earnings increased $141 million, net of income tax, to $621 million, net of income tax, in the current period from $480 million, net of income tax, in the prior period. Reconciliation of net income (loss) to operating earnings

                                                     Six Months                                                         Ended                                                       June 30,                                                    2013       2012                                                     (In millions) Net income (loss)                                $   526$ 517 Less: Net investment gains (losses)                   82        75 Less: Net derivative gains (losses)                 (382 )     143 Less: Other adjustments to net income (1)            157      (147 ) 

Less: Provision for income tax (expense) benefit 48 (34 ) Operating earnings

$   621$ 480   ____________  (1)    See definitions of operating revenues and operating expenses for the        components of such adjustments.                                           78

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  Reconciliation of GAAP revenues to operating revenues and GAAP expenses to operating expenses                                                                    Six Months                                                                       Ended                                                                     June 30,                                                                2013           2012                                                                   (In millions) Total revenues                                             $    2,834$    3,919 Less: Net investment gains (losses)                                82             75 Less: Net derivative gains (losses)                              (382 )          143 

Less: Adjustments related to net investment gains (losses) and net derivative gains (losses)

                                  (5 )            1 Less: Other adjustments to revenues (1)                            53            141 Total operating revenues                                   $    3,086$    3,559 Total expenses                                             $    2,072$    3,175

Less: Adjustments related to net investment gains (losses) and net derivative gains (losses)

                                (229 )           68 Less: Other adjustments to expenses (1)                           120            221 Total operating expenses                                   $    2,181$    2,886   ____________ 

(1) See definitions of operating revenues and operating expenses for the

components of such adjustments.