Investments in debt and equity securities

We have investments in certain debt and equity securities, primarily at Insurance Services, which are recorded at fair value and are primarily included in Other assets in the Consolidated Statement of Financial Position.

Debt securities have been classified as available-for-sale and the unrealized gains and losses arising from the revaluation of these debt securities are included, net of applicable deferred income taxes, in equity (Accumulated other comprehensive income (loss) in the Consolidated Statement of Financial Position). Realized gains and losses on sales of debt investments are generally determined using the specific identification method and are included in Other income (expense) in the Consolidated Statement of Results of Operations.

Beginning January 1, 2018, we adopted new accounting guidance issued by the FASB resulting in the unrealized gains and losses arising from the revaluation of these equity securities to be included in Other income (expense) in the Consolidated Statement of Results of Operations. Prior to January 1, 2018, the unrealized gains and losses arising from revaluation of the available-for-sale equity securities and the Real Estate Investment Trust were included, net of applicable deferred income taxes, in equity (Accumulated other comprehensive income (loss) in the Consolidated Statement of Financial Position). See Note 2 for additional information.

The cost basis and fair value of debt and equity securities with unrealized gains and losses included in equity (Accumulated other comprehensive income (loss) in the Consolidated Statement of Financial Position) were as follows:



	September 30, 2018							December 31, 2017
(Millions of dollars)	Cost Basis		Unrealized Pretax Net Gains (Losses)			Fair Value		Cost Basis		Unrealized Pretax Net Gains (Losses)			Fair Value
Government debt
U.S. treasury bonds	$	9	$	—		$	9	$	10	$	—		$	10
Other U.S. and non-U.S. government bonds	48		—			48		42		—			42

Corporate bonds
Corporate bonds	721		(11		)	710		585		(1		)	584
Asset-backed securities	61		—			61		67		—			67

Mortgage-backed debt securities
U.S. governmental agency	300		(10		)	290		265		(4		)	261
Residential	7		—			7		8		—			8
Commercial	15		(1		)	14		17		—			17
Total debt securities	$	1,161	$	(22	)	$	1,139	$	994	$	(5	)	$	989

Equity securities¹
Large capitalization value								287		(3		)	284
Real estate investment trust (REIT)								104		6			110
Smaller company growth								40		16			56
Total equity securities								$	431	$	19		$	450

¹Beginning January 1, 2018, the unrealized gains and losses arising from the revaluation of the equity securities are included in Other income (expense) in the Consolidated Statement of Results of Operations. See Note 2 for additional information.



Available-for-sale investments in an unrealized loss position that are not other-than-temporarily impaired:

	September 30, 2018
	Less than 12 months¹				12 months or more ¹				Total
(Millions of dollars)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Corporate bonds
Corporate bonds	$	498	$	8	$	93	$	3	$	591	$	11
Mortgage-backed debt securities
U.S. governmental agency	119		3		163		8		282		11
Commercial	8		—		6		1		14		1
Total	$	625	$	11	$	262	$	12	$	887	$	23



	December 31, 2017
	Less than 12 months ¹				12 months or more ¹				Total
(Millions of dollars)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Corporate bonds
Corporate bonds	$	312	$	2	$	38	$	—	$	350	$	2
Mortgage-backed debt securities
U.S. governmental agency	129		1		110		3		239		4
Equity securities
Large capitalization value	129		5		14		2		143		7
Smaller company growth	17		1		1		—		18		1
Total	$	587	$	9	$	163	$	5	$	750	$	14

¹ Indicates the length of time that individual securities have been in a continuous unrealized loss position.

Corporate Bonds. The unrealized losses on our investments in corporate bonds relate to changes in interest rates and credit-related yield spreads since time of purchase. We do not intend to sell the investments, and it is not likely that we will be required to sell the investments before recovery of their amortized cost basis. We do not consider these investments to be other-than-temporarily impaired as of September 30, 2018.

Mortgage-Backed Debt Securities. The unrealized losses on our investments in U.S. government agency mortgage-backed securities and commercial mortgage-backed securities relate to changes in interest rates and credit-related yield spreads since time of purchase. We do not intend to sell the investments, and it is not likely that we will be required to sell the investments before recovery of their amortized cost basis. We do not consider these investments to be other-than-temporarily impaired as of September 30, 2018.

The cost basis and fair value of the available-for-sale debt securities at September 30, 2018, by contractual maturity, is shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to prepay and creditors may have the right to call obligations.



	September 30, 2018
(Millions of dollars)	Cost Basis		Fair Value
Due in one year or less	$	160	$	159
Due after one year through five years	540		531
Due after five years through ten years	122		120
Due after ten years	17		18
U.S. governmental agency mortgage-backed securities	300		290
Residential mortgage-backed securities	7		7
Commercial mortgage-backed securities	15		14
Total debt securities – available-for-sale	$	1,161	$	1,139



Sales of available-for-sale securities:
	Three Months Ended September 30				Nine Months Ended September 30
(Millions of dollars)	2018¹		2017		2018¹		2017
Proceeds from the sale of available-for-sale securities	$	41	$	244	$	181	$	431
Gross gains from the sale of available-for-sale securities	$	—	$	38	$	—	$	40
Gross losses from the sale of available-for-sale securities	$	—	$	1	$	—	$	3

¹ Beginning January 1, 2018, equity securities are no longer classified as available-for-sale securities. See Note 2 for additional information.

For the three and nine months ended September 30, 2018, the net unrealized gains (losses) for equity securities were $10 million and $14 million, respectively. For the three and nine months ended September 30, 2018, there were $4 million of realized net gains (losses) recognized on the sale of equity securities.