Investments

The following table provides cost or amortized cost, gross unrealized gains, gross unrealized losses and fair value for our invested assets:

	Cost or
	amortized		Gross unrealized				Fair
(In millions)	cost		gains		losses		value
At December 31, 2011
Fixed maturities:
States, municipalities and political subdivisions	$	3,006	$	246	$	-	$	3,252
Convertibles and bonds with warrants attached		59		-		-		59
United States government		6		1		-		7
Government-sponsored enterprises		159		1		-		160
Foreign government		3		-		-		3
Corporate securities		4,851		465		18		5,298
Subtotal		8,084		713		18		8,779
Equity securities:
Common equities		2,088		801		35		2,854
Preferred equities		74		28		-		102
Subtotal		2,162		829		35		2,956
Total	$	10,246	$	1,542	$	53	$	11,735

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
Total	$	10,174	$	1,299	$	49	$	11,424

The net unrealized investment gains in our fixed-maturity portfolio are primarily the result of the current low interest rate environment that increased their fair value. The net unrealized investment gains in our common stock portfolio are primarily from two holdings, The Procter & Gamble Company (NYSE:PG) and Exxon Mobil Corporation (NYSE:XOM), which had a combined net gain position of $213 million. At December 31, 2011, we had $59 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. For the years ended December 31, 2011 and 2010, there were no other-than-temporary impairments included within AOCI.

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

	Less than 12 months				12 months or more				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
(In millions)	value		losses		value		losses		value		losses
At December 31, 2011
Fixed maturities:
States, municipalities and political subdivisions	$	-	$	-	$	12	$	-	$	12	$	-
United States government		1		-		-		-		1		-
Government-sponsored enterprises		10		-		-		-		10		-
Corporate securities		380		13		57		5		437		18
Subtotal		391		13		69		5		460		18
Equity securities:
Common equities		333		35		-		-		333		35
Preferred equities		5		-		19		-		24		-
Subtotal		338		35		19		-		357		35
Total	$	729	$	48	$	88	$	5	$	817	$	53

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

At December 31, 2011, contractual maturity dates for fixed-maturity investments were:

	Amortized		Fair		% of fair
(Dollars in millions)	cost		value		value
Maturity dates occurring:
Less than 1 year	$	394	$	401		4.6	%
Years 1 - 5		2,771		2,923		33.3
Years 6 - 10		3,614		4,028		45.8
Years 11 - 20		1,081		1,175		13.4
Over 20 years		224		252		2.9
Total	$	8,084	$	8,779		100.0	%

Actual maturities may differ from contractual maturities when there is a right to call or prepay obligations with or without call or prepayment penalties.

At December 31, 2011, fixed-maturity investments with amortized cost of $86 million and fair value of $93 million were on deposit with various states in compliance with regulatory requirements.

The following table provides investment income, realized investment gains and losses and the change in unrealized investment gains and losses and other items:

	Years ended December 31,
(In millions)	2011			2010			2009
Investment income summarized by investment category:
Interest on fixed maturities	$	424		$	423		$	402
Dividends on equity securities		104			99			100
Other investment income		4			4			7
Total		532			526			509
Less investment expenses		7			8			8
Total	$	525		$	518		$	501

Realized investment gains and losses summary:
Fixed maturities:
Gross realized gains	$	11		$	25		$	15
Gross realized losses		0			(12	)		(30	)
Other-than-temporary impairments		(5	)		(3	)		(62	)
Equity securities:
Gross realized gains		151			174			624
Gross realized losses		(40	)		0			(162	)
Other-than-temporary impairments		(52	)		(33	)		(69	)
Securities with embedded derivatives		(1	)		10			27
Other		6			(2	)		(7	)
Total	$	70		$	159		$	336

Change in unrealized investment gains and losses and other summary:
Fixed maturities	$	200		$	154		$	734
Equity securities		39			70			(134	)
Adjustment to deferred acquisition costs and life policy reserves		(14	)		(9	)		(24	)
Pension obligations		(25	)		3			(14	)
Other		3			5			28
Income taxes on above		(71	)		(78	)		(207	)
Total	$	132		$	145		$	383

For the years ended December 31, 2011 and 2010, there were no credit losses on fixed-maturity securities for which a portion of OTTI has been recognized in other comprehensive income.

During 2011, we other-than-temporarily impaired 12 securities. At December 31, 2011, 20 fixed-maturity investments with a total unrealized loss of $5 million had been in an unrealized loss position for 12 months or more. Of that total, no fixed-maturity investments had fair values below 70 percent of amortized cost. Two equity investments with a total unrealized loss of less than $1 million had been in an unrealized loss position for 12 months or more as of December 31, 2011. Of that total, no equity investments were trading below 70 percent of cost.

During 2010, we other-than-temporarily impaired 15 securities. 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 had fair values 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 cost.

During 2009, we other-than-temporarily impaired 50 securities. At December 31, 2009, 121 fixed-maturity investments with a total unrealized loss of $25 million had been in an unrealized loss position for 12 months or more. Of that total, eight fixed-maturity investments had fair values below 70 percent of amortized cost with a total unrealized loss of $2 million. Ten equity investments with a total unrealized loss of $26 million had been in an unrealized loss position for 12 months or more as of December 31, 2009. Of that total, no equity investments were trading below 70 percent of cost.

When determining OTTI charges for our fixed-maturity portfolio, management places significant emphasis on whether issuers of debt are current on contractual payments and whether future contractual amounts are likely to be paid. As required by ASC 320 effective April 1, 2009, our invested asset impairment policy for fixed-maturity securities states that OTTI is considered to have occurred (1) if we intend to sell the impaired fixed-maturity security or (2) if it is more likely than not we will be required to sell the fixed maturity security before recovery of its amortized cost basis. If we intend to sell or it is more likely than not we will be required to sell, the amortized cost of any such securities is reduced to fair value as the new cost basis, and a realized loss is recorded in the period in which it is recognized. When we believe that full collection of interest and/or principal is not likely, we determine the net present value of future cash flows by using the effective interest rate implicit in the security at the date of acquisition as the discount rate and compare that amount to the amortized cost and fair value of the security. The difference between the net present value of the expected future cash flows and amortized cost of the security is considered a credit loss and recognized as a realized loss in the period in which it occurred. The difference between the fair value and the net present value of the cash flows of the security, the non-credit loss, is recognized in other comprehensive income as an unrealized loss.

With the adoption of ASC 320 in the second quarter of 2009, we recognized a cumulative effect adjustment of $106 million, net of tax, to reclassify the non-credit component of previously recognized impairments by increasing retained earnings and reducing AOCI.

When determining OTTI charges for our equity portfolio, our invested asset impairment policy considers qualitative and quantitative factors, including facts and circumstances specific to individual securities, asset classes, the financial condition of the issuer, changes in dividend payment, the length of time fair value had been less than cost, the severity of the decline in fair value below cost, the volatility of the security and our ability and intent to hold each position until its forecasted recovery.

For each of our equity securities in an unrealized loss position at December 31, 2011, we applied the objective qualitative and quantitative criteria of our invested asset impairment policy for OTTI. Our long-term equity investment philosophy, emphasizing companies with strong indications of paying and growing dividends, combined with our strong surplus, liquidity and cash flow, supports our ability to hold these investments to recovery. Based on the individual qualitative and quantitative factors, as discussed above, we evaluate and determine an expected recovery period for each security. A change in the condition of a security can warrant impairment before the expected recovery period. If the security has not recovered cost within the expected recovery period, the security is other-than-temporarily impaired.