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 September 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 September 30,						Nine months ended September 30,
	2011			2010			2011			2010
Change in unrealized gains and losses summary:
Fixed maturities	$	76		$	198		$	180		$	407
Equity securities		(379	)		85			(278	)		(105	)
Adjustment to deferred acquisition costs and life policy reserves		(7	)		(11	)		(11	)		(18	)
Pension obligations		1			-			3			1
Other		1			2			4			7
Income taxes on above		108			(96	)		36			(102	)
Total	$	(200	)	$	178		$	(66	)	$	190

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 September 30, 2011	cost		gains		losses		Value		AOCI

Fixed maturities:
States, municipalities and political subdivisions	$	3,020	$	220	$	1	$	3,239	$	-
Convertibles and bonds with warrants attached		69		-		-		69		-
United States government		6		1		-		7		-
Government-sponsored enterprises		217		-		-		217		-
Foreign government		3		-		-		3		-
Corporate securities		4,864		472		17		5,319		-
Subtotal		8,179		693		18		8,854	$	-
Equity securities:
Common equities		2,057		548		96		2,509
Preferred equities		75		26		1		100
Subtotal		2,132		574		97		2,609	NA
Total	$	10,311	$	1,267	$	115	$	11,463

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 September 30, 2011, were largely due to a net gain position in our fixed maturity portfolio of $675 million and a net gain position in our common stock portfolio of $452 million. The net unrealized investment gains in our fixed maturity portfolio are primarily composed of $455 million in unrealized gains from the corporate bond portfolio and $219 million in net unrealized gains from the municipal bond portfolio. The primary contributors to the net gain position in the common stock portfolio were Exxon Mobil Corporation (NYSE:XOM), The Procter & Gamble Company (NYSE:PG) and Chevron Corporation (NYSE:CVX) common stock, which had a combined net gain position of $251 million.

Of the 182 holdings with fair value below cost or amortized cost at September 30, 2011, the three largest contributors to the $115 million unrealized losses were equity securities. The fair value of these three securities was $125 million, and they accounted for $55 million in unrealized losses. Two securities have traded below cost for less than six months. One security has traded below cost for less than nine months.

Management reviews quantitative measurements such as a declining trend in fair value, the extent of the fair value decline and the length of time the value of the security has been depressed, as well as qualitative measures such as pending events, credit ratings and issuer liquidity when analyzing for other-than-temporary declines in value. Non-cash charges to income, as realized investment losses, are recorded when it is determined the value will not be recovered within a designated recovery period.

At September 30, 2011, we had $69 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 September 30, 2011	value		losses		value		losses		value		losses
Fixed maturities:
States, municipalities and political subdivisions	$	17	$	1	$	6	$	-	$	23	$	1
United States government		1		-		-		-		1		-
Government-sponsored enterprises		70		-		-		-		70		-
Corporate securities		448		14		28		3		476		17
Subtotal		536		15		34		3		570		18
Equity securities:
Common equities		571		96		-		-		571		96
Preferred equities		8		-		18		1		26		1
Subtotal		579		96		18		1		597		97
Total	$	1,115	$	111	$	52	$	4	$	1,167	$	115

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

For the three months ended September 30, 2011, the net realized loss of $2 million includes $19 million in gross realized gains and $17 million in gross realized losses from sales of securities. For the three months ended September 30, 2010, the net realized gain of $155 million includes $148 million in gross realized gains and less than $1 million in gross realized losses from sales of securities. For the nine months ended September 30, 2011, the net realized gain of $77 million includes $136 million in gross realized gains and $35 million in gross realized losses from sales of securities. For the nine months ended September 30, 2010, the net realized gain of $140 million includes $177 million in gross realized gains and $12 million in gross realized losses from sales of securities.

Other-than-temporary Impairment Charges

During the three and nine months ended September 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 nine months ended September 30, 2011:

(In millions)	Three months ended September 30,				Nine months ended September 30,
	2011		2010		2011		2010
Fixed maturities	$	3	$	1	$	3	$	3
Equity securities		-		-		30		33
Total	$	3	$	1	$	33	$	36

During the quarter ended September 30, 2011, we impaired four fixed-maturity securities for $3 million. At September 30, 2011, 13 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 September 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.