Investments

9 Months Ended

Sep. 30, 2011

Investments, Debt and Equity Securities [Abstract]

Investments

Investments

The significant components of net investment income are presented in the following table.

Net Investment Income

Periods ended September 30	Three Months						Nine Months
(In millions)	2011			2010			2011			2010
Fixed maturity securities	$	494		$	511		$	1,505		$	1,540
Short term investments	2			2			6			13
Limited partnership investments	(93		)	68			32			136
Equity securities	4			7			16			26
Mortgage loans	2			1			6			1
Trading portfolio (a)	(1		)	4			5			10
Other	1			2			6			7
Gross investment income	409			595			1,576			1,733
Investment expense	(15		)	(14		)	(45		)	(41		)
Net investment income	$	394		$	581		$	1,531		$	1,692

____________________

(a) The net unrealized losses related to changes in fair value on trading securities still held included in net investment income were $1 million for the three and nine months ended September 30, 2011. The net unrealized gains related to changes in fair value on trading securities still held included in net investment income were $1 million for the three and nine months ended September 30, 2010.

Net realized investment gains (losses) are presented in the following table.

Net Realized Investment Gains (Losses)

Periods ended September 30	Three Months						Nine Months
(In millions)	2011			2010			2011			2010
Net realized investment gains (losses):
Fixed maturity securities:
Gross realized gains	$	56		$	121		$	233		$	352
Gross realized losses	(85		)	(45		)	(222		)	(183		)
Net realized investment gains (losses) on fixed maturity securities	(29		)	76			11			169
Equity securities:
Gross realized gains	1			3			7			7
Gross realized losses	(2		)	(20		)	(10		)	(49		)
Net realized investment losses on equity securities	(1		)	(17		)	(3		)	(42		)
Derivatives	1			(1		)	—			(1		)
Short term investments and other (a) (b)	2			4			(7		)	(1		)
Net realized investment gains (losses), net of participating policyholders’ interests	$	(27	)	$	62		$	1		$	125

____________________

(a) The nine months ended September 30, 2011 includes a $9 million loss related to the early extinguishment of $400 million of senior notes originally due August 15, 2011.

(b) Includes net unrealized gains (losses) related to changes in the fair value of securities for which the fair value option has been elected. There were no net unrealized gains (losses) included in the three months ended September 30, 2011, $1 million of net unrealized gains for the nine months ended September 30, 2011 and $2 million of net unrealized gains for the three and nine months ended September 30, 2010.

The components of net other-than-temporary impairment (OTTI) losses recognized in earnings by asset type are summarized in the following table.

Periods ended September 30	Three Months				Nine Months
(In millions)	2011		2010		2011		2010
Fixed maturity securities available-for-sale:
Corporate and other bonds	$	49	$	17	$	73	$	59
States, municipalities and political subdivisions	—		—		—		20
Asset-backed:
Residential mortgage-backed	21		18		95		55
Commercial mortgage-backed	—		—		—		2
Other asset-backed	4		—		4		2
Total asset-backed	25		18		99		59
Total fixed maturity securities available-for-sale	74		35		172		138
Equity securities available-for-sale:
Common stock	3		5		7		10
Preferred stock	—		4		1		13
Total equity securities available-for-sale	3		9		8		23
Net OTTI losses recognized in earnings	$	77	$	44	$	180	$	161

A security is impaired if the fair value of the security is less than its cost adjusted for accretion, amortization and previously recorded OTTI losses, otherwise defined as an unrealized loss. When a security is impaired, the impairment is evaluated to determine whether it is temporary or other-than-temporary.

Significant judgment is required in the determination of whether an OTTI loss has occurred for a security. The Company follows a consistent and systematic process for determining and recording an OTTI loss. The Company has established a committee responsible for the OTTI process. This committee, referred to as the Impairment Committee, is made up of three officers appointed by the Company’s Chief Financial Officer. The Impairment Committee is responsible for evaluating all securities in an unrealized loss position on at least a quarterly basis.

The Impairment Committee’s assessment of whether an OTTI loss has occurred incorporates both quantitative and qualitative information. Fixed maturity securities that the Company intends to sell, or it more likely than not will be required to sell before recovery of amortized cost, are considered to be other-than-temporarily impaired and the entire difference between the amortized cost basis and fair value of the security is recognized as an OTTI loss in earnings. The remaining fixed maturity securities in an unrealized loss position are evaluated to determine if a credit loss exists. The factors considered by the Impairment Committee include (a) the financial condition and near term prospects of the issuer, (b) whether the debtor is current on interest and principal payments, (c) credit ratings of the securities and (d) general market conditions and industry or sector specific outlook. The Company also considers results and analysis of cash flow modeling for asset-backed securities, and when appropriate, other fixed maturity securities. The focus of the analysis for asset-backed securities is on assessing the sufficiency and quality of underlying collateral and timing of cash flows based on scenario tests. If the present value of the modeled expected cash flows equals or exceeds the amortized cost of a security, no credit loss is judged to exist and the asset-backed security is deemed to be temporarily impaired. If the present value of the expected cash flows is less than amortized cost, the security is judged to be other-than-temporarily impaired for credit reasons and that shortfall, referred to as the credit component, is recognized as an OTTI loss in earnings. The difference between the adjusted amortized cost basis and fair value, referred to as the non-credit component, is recognized as OTTI in Other comprehensive income. In subsequent reporting periods, a change in intent to sell or further credit impairment on a security whose fair value has not deteriorated will cause the non-credit component originally recorded as OTTI in Other comprehensive income to be recognized as an OTTI loss in earnings.

The Company performs the discounted cash flow analysis using stressed scenarios to determine future expectations regarding recoverability. For asset-backed securities, significant assumptions enter into these cash flow projections including delinquency rates, probable risk of default, loss severity upon a default, over collateralization and interest coverage triggers, and credit support from lower level tranches.

The Company applies the same impairment model as described above for the majority of non-redeemable preferred stock securities on the basis that these securities possess characteristics similar to debt securities and that the issuers maintain their ability to pay dividends. For all other equity securities, in determining whether the security is other-than-temporarily impaired, the Impairment Committee considers a number of factors including, but not limited to: (a) the length of time and the extent to which the fair value has been less than amortized cost, (b) the financial condition and near term prospects of the issuer, (c) the intent and ability of the Company to retain its investment for a period of time sufficient to allow for an anticipated recovery in value and (d) general market conditions and industry or sector specific outlook.

The following tables provide a summary of fixed maturity and equity securities.

Summary of Fixed Maturity and Equity Securities

September 30, 2011	Cost or Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value		Unrealized OTTI Losses (Gains)
(In millions)
Fixed maturity securities available-for-sale:
Corporate and other bonds	$	19,141	$	1,918	$	160	$	20,899	$	—
States, municipalities and political subdivisions	8,834		853		150		9,537		—
Asset-backed:
Residential mortgage-backed	5,812		199		161		5,850		82
Commercial mortgage-backed	1,255		55		61		1,249		(8		)
Other asset-backed	1,035		15		14		1,036		—
Total asset-backed	8,102		269		236		8,135		74
U.S. Treasury and obligations of government-sponsored enterprises	221		16		—		237		—
Foreign government	557		25		—		582		—
Redeemable preferred stock	49		8		—		57		—
Total fixed maturity securities available-for-sale	36,904		3,089		546		39,447		$	74
Total fixed maturity securities trading	9		—		—		9
Equity securities available-for-sale:
Common stock	103		19		2		120
Preferred stock	213		2		8		207
Total equity securities available-for-sale	316		21		10		327
Total	$	37,229	$	3,110	$	556	$	39,783

Summary of Fixed Maturity and Equity Securities

December 31, 2010	Cost or Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value		Unrealized OTTI Losses (Gains)
(In millions)
Fixed maturity securities available-for-sale:
Corporate and other bonds	$	19,492	$	1,603	$	70	$	21,025	$	—
States, municipalities and political subdivisions	8,157		142		410		7,889		—
Asset-backed:
Residential mortgage-backed	6,254		101		265		6,090		114
Commercial mortgage-backed	994		40		41		993		(2		)
Other asset-backed	753		18		8		763		—
Total asset-backed	8,001		159		314		7,846		112
U.S. Treasury and obligations of government-sponsored enterprises	122		16		1		137		—
Foreign government	602		18		—		620		—
Redeemable preferred stock	47		7		—		54		—
Total fixed maturity securities available-for-sale	36,421		1,945		795		37,571		$	112
Total fixed maturity securities trading	6		—		—		6
Equity securities available-for-sale:
Common stock	90		25		—		115
Preferred stock	332		2		9		325
Total equity securities available-for-sale	422		27		9		440
Total	$	36,849	$	1,972	$	804	$	38,017

At September 30, 2011 and December 31, 2010, net unrealized gains on investments included in Accumulated other comprehensive income (AOCI) supporting certain products within the Life & Group Non-Core segment were reduced by $467 million and $150 million, net of tax, resulting from a reduction of Deferred acquisition costs or an increase in Future policy benefit reserves.

The following tables summarize the estimated fair value and gross unrealized losses of available-for-sale fixed maturity and equity securities in a gross unrealized loss position by the length of time in which the securities have continuously been in that position.

Securities in a Gross Unrealized Loss Position

	Less than 12 Months				Greater than 12 Months				Total
September 30, 2011	Estimated Fair Value		Gross Unrealized Losses		Estimated Fair Value		Gross Unrealized Losses		Estimated Fair Value		Gross Unrealized Losses
(In millions)
Fixed maturity securities available-for-sale:
Corporate and other bonds	$	3,143	$	134	$	142	$	26	$	3,285	$	160
States, municipalities and political subdivisions	270		4		716		146		986		150
Asset-backed:
Residential mortgage-backed	789		20		978		141		1,767		161
Commercial mortgage-backed	474		42		179		19		653		61
Other asset-backed	377		4		77		10		454		14
Total asset-backed	1,640		66		1,234		170		2,874		236
Total fixed maturity securities available-for-sale	5,053		204		2,092		342		7,145		546
Equity securities available-for-sale:
Common stock	36		2		—		—		36		2
Preferred stock	129		7		19		1		148		8
Total equity securities available-for-sale	165		9		19		1		184		10
Total	$	5,218	$	213	$	2,111	$	343	$	7,329	$	556

	Less than 12 Months				Greater than 12 Months				Total
December 31, 2010	Estimated Fair Value		Gross Unrealized Losses		Estimated Fair Value		Gross Unrealized Losses		Estimated Fair Value		Gross Unrealized Losses
(In millions)
Fixed maturity securities available-for-sale:
Corporate and other bonds	$	1,719	$	34	$	405	$	36	$	2,124	$	70
States, municipalities and political subdivisions	3,339		164		745		246		4,084		410
Asset-backed:
Residential mortgage-backed	1,800		52		1,801		213		3,601		265
Commercial mortgage-backed	164		3		333		38		497		41
Other asset-backed	122		1		60		7		182		8
Total asset-backed	2,086		56		2,194		258		4,280		314
U.S. Treasury and obligations of government-sponsored enterprises	8		1		—		—		8		1
Total fixed maturity securities available-for-sale	7,152		255		3,344		540		10,496		795
Equity securities available-for-sale:
Preferred stock	175		5		70		4		245		9
Total equity securities available-for-sale	175		5		70		4		245		9
Total	$	7,327	$	260	$	3,414	$	544	$	10,741	$	804

The amount of pretax net unrealized gains (losses) on available-for-sale securities reclassified out of AOCI into earnings was $(29) million and $12 million for the three and nine months ended September 30, 2011 and $62 million and $133 million for the three and nine months ended September 30, 2010.

The following table summarizes the activity for the three and nine months ended September 30, 2011 and 2010 related to the pretax credit loss component reflected in Retained earnings on fixed maturity securities still held at September 30, 2011 and 2010 for which a portion of an OTTI loss was recognized in Other comprehensive income.

Periods ended September 30	Three Months						Nine Months
(In millions)	2011			2010			2011			2010
Beginning balance of credit losses on fixed maturity securities	$	82		$	171		$	141		$	164
Additional credit losses for securities for which an OTTI loss was previously recognized	11			4			29			26
Credit losses for securities for which an OTTI loss was not previously recognized	10			1			11			9
Reductions for securities sold during the period	(4		)	(27		)	(50		)	(50		)
Reductions for securities the Company intends to sell or more likely than not will be required to sell	—			(8		)	(32		)	(8		)
Ending balance of credit losses on fixed maturity securities	$	99		$	141		$	99		$	141

Based on current facts and circumstances, the Company has determined that no additional OTTI losses related to the securities in an unrealized loss position presented in the September 30, 2011 Securities in a Gross Unrealized Loss Position table above are required to be recorded. A discussion of some of the factors reviewed in making that determination is presented below.

The classification between investment grade and non-investment grade presented in the discussion below is based on a ratings methodology that takes into account ratings from two major providers, Standard & Poor’s (S&P) and Moody’s Investors Service, Inc. (Moody’s) in that order of preference. If a security is not rated by these providers, the Company formulates an internal rating. For securities with credit support from third party guarantees, the rating reflects the greater of the underlying rating of the issuer or the insured rating.

Corporate and Other Bonds

The unrealized losses on the Company’s investments in this category primarily relate to non-investment grade bonds and bonds within the financial industry sector. The financial industry sector holdings in this category include bonds with an aggregate fair value of $1,702 million and an aggregate amortized cost of $1,793 million as of September 30, 2011.

The following table summarizes corporate and other bonds in a gross unrealized loss position by ratings distribution at September 30, 2011.

Gross Unrealized Losses by Ratings Distribution

September 30, 2011	Amortized Cost		Estimated Fair Value		Gross Unrealized Losses
(In millions)
AAA	$	58	$	57	$	1
AA	202		196		6
A	1,018		975		43
BBB	1,280		1,219		61
Non-investment grade	887		838		49
Total	$	3,445	$	3,285	$	160

The Company has no current intent to sell these securities, nor is it more likely than not that it will be required to sell prior to recovery of amortized cost. Additionally, the Company believes that the unrealized losses on these securities were not due to factors regarding the ultimate collection of principal and interest; accordingly, the Company has determined that there are no additional OTTI losses to be recorded at September 30, 2011.

States, Municipalities and Political Subdivisions

The unrealized losses on the Company's investments in this category are primarily due to market conditions for zero coupon bonds, particularly for those with maturity dates that exceed 20 years. Yields for these securities continue to be higher than historical norms relative to after-tax returns on similar fixed income securities.

The following table summarizes the ratings distribution of states, municipalities and political subdivisions securities in a gross unrealized loss position at September 30, 2011.

Gross Unrealized Losses by Ratings Distribution

September 30, 2011	Amortized Cost		Estimated Fair Value		Gross Unrealized Losses
(In millions)
AAA	$	198	$	190	$	8
AA	485		378		107
A	370		340		30
BBB	67		63		4
Non-investment grade	16		15		1
Total	$	1,136	$	986	$	150

The Company has no current intent to sell these securities, nor is it more likely than not that it will be required to sell prior to recovery of amortized cost. Additionally, the Company believes that the unrealized losses on these securities were not due to factors regarding the ultimate collection of principal and interest; accordingly, the Company has determined that there are no additional OTTI losses to be recorded at September 30, 2011.

Asset-Backed Securities

The fair value of total asset-backed holdings at September 30, 2011 was $8,135 million which was comprised of 2,054 different securities. The fair value of these securities tends to be influenced by the characteristics and projected cash flows of the underlying collateral rather than the credit of the issuer. Each security has deal-specific tranche structures, credit support that results from the unique deal structure, particular collateral characteristics and other distinct security terms. As a result, seemingly common factors such as delinquency rates and collateral performance affect each security differently. Of these securities, 132 had underlying collateral that was either considered sub-prime or Alt-A in nature. The exposure to sub-prime residential mortgage (sub-prime) collateral and Alternative A residential mortgages that have lower than normal standards of loan documentation (Alt-A) collateral is measured by the original deal structure.

Residential mortgage-backed securities included 149 non-agency structured securities that had at least one trade lot in a gross unrealized loss position. The aggregate severity of the gross unrealized loss for residential mortgage-backed securities was approximately 8% of amortized cost.

Commercial mortgage-backed securities included 66 securities that had at least one trade lot in a gross unrealized loss position. The aggregate severity of the gross unrealized loss was approximately 9% of amortized cost.

Other asset-backed securities included 46 securities that had at least one trade lot in a gross unrealized loss position. The aggregate severity of the gross unrealized loss was approximately 3% of amortized cost.

The following table summarizes asset-backed securities in a gross unrealized loss position by ratings distribution at September 30, 2011.

Gross Unrealized Losses by Ratings Distribution

September 30, 2011	Amortized Cost		Estimated Fair Value		Gross Unrealized Losses
(In millions)
U.S. Government, Government Agencies, and Government-Sponsored Enterprises	$	481	$	465	$	16
AAA	762		734		28
AA	441		415		26
A	213		203		10
BBB	316		278		38
Non-investment grade	897		779		118
Total	$	3,110	$	2,874	$	236

The Company believes the unrealized losses are primarily attributable to broader economic conditions, changes in interest rates, wider than historical bid/ask spreads, and uncertainty with regard to the timing and amount of ultimate collateral realization, but are not indicative of the ultimate collectibility of the current carrying values of securities. The Company has no current intent to sell these securities, nor is it more likely than not that it will be required to sell prior to recovery of amortized cost; accordingly, the Company has determined that there are no additional OTTI losses to be recorded at September 30, 2011.

Contractual Maturity

The following table summarizes available-for-sale fixed maturity securities by contractual maturity at September 30, 2011 and December 31, 2010. Actual maturities may differ from contractual maturities because certain securities may be called or prepaid with or without call or prepayment penalties. Securities not due at a single date are allocated based on weighted average life.

Contractual Maturity

	September 30, 2011				December 31, 2010
(In millions)	Cost or Amortized Cost		Estimated Fair Value		Cost or Amortized Cost		Estimated Fair Value
Due in one year or less	$	1,658	$	1,662	$	1,515	$	1,506
Due after one year through five years	12,947		13,407		11,198		11,653
Due after five years through ten years	8,447		8,941		10,022		10,425
Due after ten years	13,852		15,437		13,686		13,987
Total	$	36,904	$	39,447	$	36,421	$	37,571

Limited Partnerships

The carrying value of limited partnerships as of September 30, 2011 and December 31, 2010 was $2,371 million and $2,309 million. Limited partnerships comprising 57% of the total carrying value were reported on a current basis through September 30, 2011 with no reporting lag, 27% were reported on a one month lag and the remainder were reported on more than a one month lag. As of September 30, 2011 and December 31, 2010, the Company had 82 and 75 active limited partnership investments. The number of limited partnerships held and the strategies employed provide diversification to the limited partnership portfolio and the overall invested asset portfolio.

Of the limited partnerships held, 81% and 85% at September 30, 2011 and December 31, 2010 employ hedge fund strategies that generate returns through investing in securities that are marketable while engaging in various management techniques primarily in public fixed income and equity markets. These hedge fund strategies include both long and short positions in fixed income, equity and derivative instruments. The hedge fund strategies may seek to generate gains from mispriced or undervalued securities, price differentials between securities, distressed investments, sector rotation, or various arbitrage disciplines. Within hedge fund strategies, approximately 45% were equity related, 32% pursued a multi-strategy approach, 19% were focused on distressed investments and 4% were fixed income related at September 30, 2011. Limited partnerships representing 14% and 11% at September 30, 2011 and December 31, 2010 were invested in private debt and equity. The remaining were invested in various other partnerships including real estate.

While the Company generally does not invest in highly leveraged partnerships, there are risks which may result in losses due to short-selling, derivatives or other speculative investment practices. The use of leverage increases volatility generated by the underlying investment strategies.

The Company's limited partnership investments contain withdrawal provisions that generally limit liquidity for a period of thirty days up to one year and in some cases do not permit withdrawals until the termination of the partnership. Typically, withdrawals require advanced written notice of up to 90 days.

Commercial Mortgage Loans

Mortgage loans are commercial in nature and are carried at unpaid principal balance, net of unamortized fees and any valuation allowance. Mortgage loans are considered to be impaired loans when it is probable that contractual principal and interest payments will not be collected. A valuation allowance is established for impaired loans to the extent that the present value of expected future cash flows discounted at the loan's original effective interest rate is less than the carrying value of the loan. Interest income from mortgage loans is recognized on an accrual basis using the effective yield method. Accrual of income is generally suspended for mortgage loans that are impaired and collection of principal and interest payment is unlikely. Mortgage loans are considered past due when full principal or interest payments have not been received according to contractual terms.

Risks related to the recoverability of loan balances include declines in the estimated cash flows from underlying property leases, declines in the fair value of collateral, and creditworthiness of tenants of credit tenant loan properties, where lease payments directly service the loan. As of September 30, 2011, 17% of the carrying value of mortgage loans related to credit tenant loans. The Company identifies loans for evaluation of impairment primarily based on the collection experience of each loan. As of September 30, 2011, there were no loans past due or in non-accrual status, and no valuation allowance was recorded.

Investment Commitments

As of September 30, 2011, the Company had committed approximately $157 million to future capital calls from various third-party limited partnership investments in exchange for an ownership interest in the related partnerships.

The Company invests in various privately placed debt securities, including bank loans, as part of its overall investment strategy and has committed to additional future purchases and sales. The purchase and sale of these investments are recorded on the date that the legal agreements are finalized and cash settlements are made. As of September 30, 2011, the Company had commitments to purchase $110 million and sell $51 million of such investments.

As of September 30, 2011, the Company had mortgage loan commitments of $31 million representing signed loan applications received and accepted. The mortgage loans are recorded once funded.