Fair Value Measurements

3 Months Ended

Mar. 31, 2013

Fair Value Disclosures [Abstract]

Fair Value Measurements

FAIR VALUE MEASUREMENTS

Fair Value Hierarchy

In accordance with accounting guidance for fair value measurements and disclosures, we categorized our financial instruments, based on the priority of the observable and market-based data for the valuation technique used, into a three-level fair value hierarchy. The fair value hierarchy gives the highest priority to quoted prices with readily available independent data in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable market inputs (Level 3). When various inputs for measurement fall within different levels of the fair value hierarchy, the lowest observable input that has a significant impact on fair value measurement is used. Our valuation techniques have not changed from those used at December 31, 2012, and ultimately management determines fair value. See our 2012 Annual Report on Form 10-K, Item 8, Note 3, Fair Value Measurements, Page 121, for information on characteristics and valuation techniques used in determining fair value.

Fair Value Disclosures for Assets

The following tables illustrate the fair value hierarchy for those assets measured at fair value on a recurring basis at March 31, 2013, and December 31, 2012. We do not have any material liabilities carried at fair value. There were no transfers between Level 1 and Level 2 during the three month and twelve month periods ending March 31, 2013 and December 31, 2012, respectively.

(In millions)	Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs  (Level 2)		Significant unobservable inputs (Level 3)		Total
At March 31, 2013
Fixed maturities, available for sale:
States, municipalities and political subdivisions	$	—	$	3,237	$	1	$	3,238
Convertibles and bonds with warrants attached	—		27		—		27
United States government	8		—		—		8
Government-sponsored enterprises	—		167		—		167
Foreign government	—		13		—		13
Commercial mortgage-backed securities	—		39		—		39
Corporate securities	—		5,674		3		5,677
Subtotal	8		9,157		4		9,169
Common equities, available for sale	3,675		—		—		3,675
Preferred equities, available for sale	—		124		2		126
Taxable fixed maturities separate accounts	—		705		—		705
Top Hat Savings Plan	11		—		—		11
Total	$	3,694	$	9,986	$	6	$	13,686
At December 31, 2012
Fixed maturities, available for sale:
States, municipalities and political subdivisions	$	—	$	3,288	$	1	$	3,289
Convertibles and bonds with warrants attached	—		31		—		31
United States government	8		—		—		8
Government-sponsored enterprises	—		164		—		164
Foreign government	—		3		—		3
Commercial mortgage-backed securities	—		28		—		28
Corporate securities	—		5,567		3		5,570
Subtotal	8		9,081		4		9,093
Common equities, available for sale	3,238		—		—		3,238
Preferred equities, available for sale	—		134		1		135
Taxable fixed-maturities separate accounts	—		689		—		689
Top Hat Savings Plan	9		—		—		9
Total	$	3,255	$	9,904	$	5	$	13,164

Each financial instrument that was deemed to have significant unobservable inputs when determining valuation is identified in the following tables by security type with a summary of changes in fair value as of March 31, 2013. Total Level 3 assets continue to be less than 1 percent of financial assets measured at fair value in the condensed consolidated balance sheets. Assets presented in the table below were valued based primarily on broker/dealer quotes for which there is a lack of transparency as to inputs used to develop the valuations. The quantitative detail of these unobservable inputs is neither provided nor reasonably available to us.

The following tables provide the change in Level 3 assets for the three months ended March 31:

(In millions)	Corporate fixed maturities			States, municipalities and political subdivisions fixed maturities			Preferred  equities		Total
Beginning balance, December 31, 2012	$	3		$	1		$	1	$	5
Total gains or losses (realized/unrealized):
Included in earnings	—			—			—		—
Included in other comprehensive income	—			—			—		—
Purchases	—			—			1		1
Sales	—			—			—		—
Transfers into Level 3	—			—			—		—
Transfers out of Level 3	—			—			—		—
Ending balance, March 31, 2013	$	3		$	1		$	2	$	6
Beginning balance, December 31, 2011	$	18		$	3		$	4	$	25
Total gains or losses (realized/unrealized):
Included in earnings	—			—			—		—
Included in other comprehensive income	3			—			2		5
Purchases	—			—			1		1
Sales	(3		)	(1		)	—		(4		)
Transfers into Level 3	1			—			—		1
Transfers out of Level 3	(3		)	—			—		(3		)
Ending balance, March 31, 2012	$	16		$	2		$	7	$	25

With the exception of the Level 3 reconciliation table, additional disclosure for the Level 3 category is not material.

Fair Value Disclosure for Assets and Liabilities Not Carried at Fair Value

The disclosures below are presented to provide timely information about the effects of current market conditions on financial instruments that are not reported at fair value in our condensed consolidated financial statements.

This table summarizes the book value and principal amounts of our long-term debt:

(In millions)				Book value				Principal amount
				March 31,		December 31,		March 31,		December 31,
Interest rate		Year of issue		2013		2012		2013		2012
6.900	%	1998	Senior debentures, due 2028	$	28	$	28	$	28	$	28
6.920	%	2005	Senior debentures, due 2028	391		391		391		391
6.125	%	2004	Senior notes, due 2034	371		371		374		374
			Total	$	790	$	790	$	793	$	793

The following table shows fair values of our note payable and long-term debt subject to fair value disclosure requirements:

(In millions)	Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs  (Level 2)		Significant unobservable inputs (Level 3)		Total
At March 31, 2013
Note payable	$	—	$	104	$	—	$	104
6.900% senior debentures, due 2028	—		32		—		32
6.920% senior debentures, due 2028	—		504		—		504
6.125% senior notes, due 2034	—		428		—		428
Total	$	—	$	1,068	$	—	$	1,068
At December 31, 2012
Note payable	$	—	$	104	$	—	$	104
6.900% senior debentures, due 2028	—		31		—		31
6.920% senior debentures, due 2028	—		479		—		479
6.125% senior notes, due 2034	—		431		—		431
Total	$	—	$	1,045	$	—	$	1,045

The following table shows the fair value of our life policy loans, included in other invested assets, subject to fair value disclosure requirements:

(In millions)	Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs  (Level 2)		Significant unobservable inputs (Level 3)		Total
At March 31, 2013
Life policy loans	$	—	$	—	$	48	$	48
At December 31, 2012
Life policy loans	$	—	$	—	$	50	$	50

Outstanding principal and interest for these life policy loans was $36 million and $37 million at March 31, 2013, and December 31, 2012, respectively.

The following table shows fair values of our deferred annuities and structured settlements, included in life policy and investment contract reserves, subject to fair value disclosure requirements:

(In millions)	Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs  (Level 2)		Significant unobservable inputs (Level 3)		Total
At March 31, 2013
Deferred annuities	$	—	$	—	$	898	$	898
Structured settlements	—		235		—		235
Total	$	—	$	235	$	898	$	1,133
At December 31, 2012
Deferred annuities	$	—	$	—	$	898	$	898
Structured settlements	—		240		—		240
Total	$	—	$	240	$	898	$	1,138

Recorded reserves for the deferred annuities and structured settlements were $1.046 billion and $1.043 billion at March 31, 2013, and December 31, 2012, respectively.