involving identical or comparable securities. Sources of inputs to the market approach primarily include third-party pricing services, independent broker quotations or pricing matrices. We do not adjust prices received from third parties; however, we do analyze the third-party pricing services’ valuation methodologies and related inputs and perform additional evaluation to determine the appropriate level within the fair value hierarchy.
Acquisition costs for all traditional contracts, including traditional life insurance contracts, such as individual whole life, group business and term life insurance, are amortized over periods of 7 to 30 years on either a straight-line basis or as a level percent of premium of the related policies depending on the block of business. There is currently no DAC, VOBA, DSI or DFEL balance or related amortization for fixed and variable payout annuities.
The timing of revenue recognition as it relates to fees assessed on investment contracts is determined based on the nature of such fees. Asset-based fees, cost of insurance and contract administration charges are assessed on a daily or monthly basis and recognized as revenue when assessed and earned. Percent of premium charges are assessed at the time of premium payment and recognized as revenue when assessed and earned. Certain amounts assessed that represent compensation for services to be provided in future periods are reported as unearned revenue and recognized in income over the periods benefited. Surrender charges are recognized upon surrender of a contract by the contract holder in accordance with contractual terms.
Our insurance premiums for traditional life insurance and group insurance products are recognized as revenue when due from the contract holder. Our traditional life insurance products include those products with fixed and guaranteed premiums and benefits and consist primarily of whole life insurance, limited-payment life insurance, term life insurance and certain annuities with life contingencies. Our group non-medical insurance products consist primarily of term life, disability and dental.
be required. The amendments in ASU 2013-02 are effective prospectively for reporting periods beginning after December 15, 2012. We will adopt the requirements of ASU 2013-02 beginning with our financial statements for the quarterly period ending March 31, 2013, and will include the enhanced disclosures in the notes to our consolidated financial statements.
Credit ratings express opinions about the credit quality of a security. Securities rated investment grade, that is those rated BBB- or higher by Standard & Poor’s (“S&P”) Rating Services or Baa3 or higher by Moody’s Investors Service (“Moody’s”), are generally considered by the rating agencies and market participants to be low credit risk. As of December 31, 2012 and 2011, 96% of the fair value of our corporate bond portfolio was rated investment grade. As of December 31, 2012 and 2011, the portion of our corporate bond portfolio rated below investment grade had an amortized cost of $3.0 billion and $2.6 billion, respectively, and a fair value of $2.9 billion and $2.4 billion, respectively. As of December 31, 2012 and 2011, 93% and 97%, respectively, of the fair value of our CDO portfolio was rated investment grade. As of December 31, 2012 and 2011, the portion of our CDO portfolio rated below investment grade had an amortized cost of $21 million and $3 million, respectively, and fair value of $13 million and $3 million, respectively. Based upon the analysis discussed above, we believed as of December 31, 2012 and 2011, that we would recover the amortized cost of each investment grade corporate bond and CDO security.
As of December 31, 2012, the latest maturity date for which we were hedging our exposure to the variability in future cash flows for these instruments was June 2042.
Gains (losses) (in millions) on derivative instruments designated and qualifying as fair value hedges were as follows:
Gain (loss) recognized as a component of OCI with the offset to interest expense $
Estimated future amortization of VOBA, net of interest (in millions), as of December 31, 2012, was as follows:
litigating or resolving through settlement numerous claims over an extended period of time, demonstrates to management that the monetary relief which may be specified in a lawsuit or claim bears little relevance to its merits or disposition value.
$ (216 ) $ (16 ) $ (54 ) $ (89 ) $ (138 )