NOTE 2 – Investments

Fixed maturities (bonds and redeemable preferred stocks) and equity securities (common and non-redeemable preferred stocks) have been classified as available for sale and are stated at fair values at June 30, 2011, and December 31, 2010. Realized gains and losses on investments are recognized in earnings on a specific identification basis.

The change in unrealized gains and losses, net of taxes, described in the following table, is included in other comprehensive income and shareholders’ equity.

(In millions)	Three months ended June 30,						Six months ended June 30,
	2011			2010			2011			2010
Change in unrealized investment gains and losses and other summary:
Fixed maturities	$	96		$	123		$	104		$	209
Equity securities		(21	)		(254	)		101			(190	)
Adjustment to deferred acquisition costs and life policy reserves		(4	)		(4	)		(4	)		(7	)
Pension obligations		1			-			2			1
Other		2			3			3			5
Income taxes on above		(26	)		46			(72	)		(6	)
Total	$	48		$	(86	)	$	134		$	12

The following table analyzes cost or amortized cost, gross unrealized gains, gross unrealized losses and fair value for our investments, along with the amount of cumulative non-credit other-than-temporary impairment (OTTI) losses transferred to accumulated other comprehensive income (AOCI) in accordance with ASC 320-10-65, Recognition and Presentation of Other-Than-Temporary Impairments, for securities that also had a credit impairment:

(In millions)	Cost or
	amortized		Gross unrealized				Fair		OTTI in
At June 30, 2011	cost		gains		losses		value		AOCI
Fixed maturities:
States, municipalities and political subdivisions	$	3,077	$	157	$	3	$	3,231	$	-
Convertibles and bonds with warrants attached		73		-		-		73		-
United States government		5		1		-		6		-
Government-sponsored enterprises		163		-		1		162		-
Foreign government		3		-		-		3		-
Corporate securities		4,797		449		4		5,242		-
Subtotal		8,118		607		8		8,717	$	-
Equity securities:
Common equities		2,040		845		21		2,864
Preferred equities		75		33		1		107
Subtotal		2,115		878		22		2,971	NA
Total	$	10,233	$	1,485	$	30	$	11,688

At December 31, 2010
Fixed maturities:
States, municipalities and political subdivisions	$	3,043	$	110	$	10	$	3,143	$	-
Convertibles and bonds with warrants attached		69		-		-		69		-
United States government		4		1		-		5		-
Government-sponsored enterprises		201		-		1		200		-
Foreign government		3		-		-		3		-
Corporate securities		4,568		404		9		4,963		-
Subtotal		7,888		515		20		8,383	$	-
Equity securities:
Common equities		2,211		757		28		2,940
Preferred equities		75		27		1		101
Subtotal		2,286		784		29		3,041	NA
Total	$	10,174	$	1,299	$	49	$	11,424

The unrealized investment gains at June 30, 2011, were largely due to a net gain position in our fixed maturity portfolio of $599 million and a net gain position in our common stock portfolio of $824 million. The unrealized investment gains in our fixed maturity portfolio are primarily composed of $445 million in unrealized gains from the corporate bond portfolio and $154 million in unrealized gains from the municipal bond portfolio. The primary contributors to the net gain position in the common stock portfolio were The Procter & Gamble Company (NYSE:PG), Exxon Mobil Corporation (NYSE:XOM) and Chevron Corporation (NYSE:CVX) common stock, which had a combined net gain position of $283 million. At June 30, 2011, we had $73 million fair value of hybrid securities included in fixed maturities that follow ASC 815-15-25, Accounting for Certain Hybrid Financial Instruments. The hybrid securities are carried at fair value, and the changes in fair value are included in realized investment gains and losses.

The table below provides fair values and unrealized losses by investment category and by the duration of the securities’ continuous unrealized loss position:

(In millions)	Less than 12 months				12 months or more				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
At June 30, 2011	value		losses		value		losses		value		losses
Fixed maturities:
States, municipalities and political subdivisions	$	123	$	2	$	9	$	1	$	132	$	3
Government-sponsored enterprises		77		1		-		-		77		1
Corporate securities		256		2		28		2		284		4
Subtotal		456		5		37		3		493		8
Equity securities:
Common equities		197		21		-		-		197		21
Preferred equities		5		-		18		1		23		1
Subtotal		202		21		18		1		220		22
Total	$	658	$	26	$	55	$	4	$	713	$	30

At December 31, 2010
Fixed maturities:
States, municipalities and political subdivisions	$	325	$	9	$	9	$	1	$	334	$	10
Government-sponsored enterprises		133		1		-		-		133		1
Corporate securities		354		6		39		3		393		9
Subtotal		812		16		48		4		860		20
Equity securities:
Common equities		337		28		-		-		337		28
Preferred equities		5		-		23		1		28		1
Subtotal		342		28		23		1		365		29
Total	$	1,154	$	44	$	71	$	5	$	1,225	$	49

Net realized gains were $67 million and $79 million for the three and six months ended June 30, 2011, compared with net realized losses of $23 million and $15 million for the three and six months ended June 30, 2010. The realized gains for the three months ended June 30, 2011 were $67 million, offset by less than a $1 million impairment charge. The realized gains for the six months ended June 30, 2011, were $109 million, offset by a $30 million impairment charge in the first six months of 2011. The realized gains for the three and six months ended June 30, 2010, were $11 million and $20 million, offset by an impairment charge of less than $1 million in the first quarter of 2010 and $34 million in the second quarter of 2010.

Other-than-temporary Impairment Charges

During the three and six months ended June 30, 2011, there were no credit losses on fixed-maturity securities for which a portion of OTTI has been recognized in other comprehensive income. The following table provides the amount of OTTI charges for the three and six months ended June 30, 2011:

(In millions)	Three months ended June 30,				Six months ended June 30,
	2011		2010		2011		2010
Fixed maturities	$	-	$	1	$	-	$	2
Equity securities		-		33		30		33
Total	$	-	$	34	$	30	$	35

During the quarter ended June 30, 2011, we impaired one fixed-maturity security for less than $1 million. At June 30, 2011, 14 fixed-maturity investments with a total unrealized loss of $3 million had been in an unrealized loss position for 12 months or more, but none were trading below 70 percent of amortized cost. At June 30, 2011, two equity securities with a total unrealized loss of $1 million had been in an unrealized loss position for 12 months or more, but none were trading below 70 percent of amortized cost.

At December 31, 2010, 17 fixed-maturity investments with a total unrealized loss of $4 million had been in an unrealized loss position for 12 months or more. Of that total, no fixed maturity investments were trading below 70 percent of amortized cost. Three equity investments with a total unrealized loss of $1 million had been in an unrealized loss position for 12 months or more as of December 31, 2010. Of that total, no equity investments were trading below 70 percent of amortized cost.