Investments

12 Months Ended

Dec. 31, 2011

Investments [Abstract]

Investments

Note B. Investments

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

Net Investment Income

Years ended December 31
(In millions)	2011			2010			2009
Fixed maturity securities	$	2,011		$	2,051		$	1,941
Short term investments	8			15			36
Limited partnership investments	48			249			315
Equity securities	20			32			49
Mortgage loans	9			2			—
Trading portfolio (a)	9			13			23
Other	7			8			6
Gross investment income	2,112			2,370			2,370
Investment expense	(58		)	(54		)	(50		)
Net investment income	$	2,054		$	2,316		$	2,320

___________________

(a) There were no net unrealized gains (losses) related to changes in fair value of trading securities still held included in net investment income for the years ended December 31, 2011 and 2010. Net unrealized losses related to changes in fair value on trading securities still held included in net investment income were $5 million for the year ended December 31, 2009.

As of December 31, 2011, the Company held nine non-income producing fixed maturity securities aggregating $3 million of fair value. As of December 31, 2010, the Company held seven non-income producing fixed maturity securities aggregating $3 million of fair value. As of December 31, 2011 and 2010, no investments in a single issuer exceeded 10% of stockholders' equity, other than investments in securities issued by the U.S. Treasury and obligations of government-sponsored enterprises.

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

Net Realized Investment Gains (Losses)

Years ended December 31
(In millions)	2011			2010			2009
Net realized investment gains (losses):
Fixed maturity securities:
Gross realized gains	$	289		$	475		$	500
Gross realized losses	(311		)	(383		)	(1,667		)
Net realized investment gains (losses) on fixed maturity securities	(22		)	92			(1,167		)
Equity securities:
Gross realized gains	10			50			473
Gross realized losses	(11		)	(52		)	(230		)
Net realized investment gains (losses) on equity securities	(1		)	(2		)	243
Derivatives	—			(1		)	51
Short term investments and other (a)	19			(3		)	16
Net realized investment gains (losses), net of participating policyholders’ interests	$	(4	)	$	86		$	(857	)

____________________

(a) Includes net unrealized gains (losses) related to changes in the fair value of securities for which the fair value option has been elected. Net unrealized gains (losses) were $2 million and $(1) million for the years ended December 31, 2011 and 2010.

Net change in unrealized gains (losses) on investments is presented in the following table.

Net Change in Unrealized Gains (Losses)

Years ended December 31
(In millions)	2011			2010			2009
Net change in unrealized gains (losses) on investments:
Fixed maturity securities	$	1,442		$	1,140		$	5,278
Equity securities	(2		)	7			156
Other	(3		)	(1		)	(4		)
Total net change in unrealized gains (losses) on investments	$	1,437		$	1,146		$	5,430

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

Years ended December 31
(In millions)	2011		2010		2009
Fixed maturity securities available-for-sale:
Corporate and other bonds	$	95	$	68	$	357
States, municipalities and political subdivisions	—		62		79
Asset-backed:
Residential mortgage-backed	105		71		461
Commercial mortgage-backed	—		3		193
Other asset-backed	6		3		31
Total asset-backed	111		77		685
Redeemable preferred stock	—		—		9
Total fixed maturity securities available-for-sale	206		207		1,130
Equity securities available-for-sale:
Common stock	8		11		5
Preferred stock	1		14		217
Total equity securities available-for-sale	9		25		222
Short term investments	1		—		—
Net OTTI losses recognized in earnings	$	216	$	232	$	1,352

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.

Prior to the adoption of the updated accounting guidance related to OTTI in the second quarter of 2009 the Company applied the impairment model described in the paragraph above to both fixed maturity and equity securities.

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

Summary of Fixed Maturity and Equity Securities

December 31, 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	$	19,086	$	1,946	$	154	$	20,878	$	—
States, municipalities and political subdivisions	9,018		900		136		9,782		—
Asset-backed:
Residential mortgage-backed	5,786		172		183		5,775		99
Commercial mortgage-backed	1,365		48		59		1,354		(2		)
Other asset-backed	946		13		4		955		—
Total asset-backed	8,097		233		246		8,084		97
U.S. Treasury and obligations of government-sponsored enterprises	479		14		—		493		—
Foreign government	608		28		—		636		—
Redeemable preferred stock	51		7		—		58		—
Total fixed maturity securities available-for-sale	37,339		3,128		536		39,931		$	97
Total fixed maturity securities trading	6		—		—		6
Equity securities available-for-sale:
Common stock	30		17		—		47
Preferred stock	258		4		5		257
Total equity securities available-for-sale	288		21		5		304
Total	$	37,633	$	3,149	$	541	$	40,241

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

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				12 Months or Longer				Total
December 31, 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	$	2,552	$	126	$	159	$	28	$	2,711	$	154
States, municipalities and political subdivisions	67		1		721		135		788		136
Asset-backed:
Residential mortgage-backed	719		36		874		147		1,593		183
Commercial mortgage-backed	431		39		169		20		600		59
Other asset-backed	389		4		—		—		389		4
Total asset-backed	1,539		79		1,043		167		2,582		246
Total fixed maturity securities available-for-sale	4,158		206		1,923		330		6,081		536
Equity securities available-for-sale:
Preferred stock	117		5		—		—		117		5
Total equity securities available-for-sale	117		5		—		—		117		5
Total	$	4,275	$	211	$	1,923	$	330	$	6,198	$	541

	Less than 12 Months				12 Months or Longer				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 following table summarizes the activity for the years ended December 31, 2011 and 2010 and for the period from April 1, 2009 to December 31, 2009 related to the pretax credit loss component reflected in Retained earnings on fixed maturity securities still held at December 31, 2011, 2010 and 2009 for which a portion of an OTTI loss was recognized in Other comprehensive income.

(In millions)	Year ended December 31, 2011			Year ended December 31, 2010			Period from April 1, 2009 to December 31, 2009
Beginning balance of credit losses on fixed maturity securities	$	141		$	164		$	192
Additional credit losses for securities for which an OTTI loss was previously recognized	39			37			93
Credit losses for securities for which an OTTI loss was not previously recognized	11			11			183
Reductions for securities sold during the period	(67		)	(62		)	(239		)
Reductions for securities the Company intends to sell or more likely than not will be required to sell	(32		)	(9		)	(65		)
Ending balance of credit losses on fixed maturity securities	$	92		$	141		$	164

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 December 31, 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 and Moody's Investor Services, Inc. in that order of preference. If a security is not rated by these providers, the Company formulates an internal rating.

Corporate and Other Bonds

The unrealized losses on the Company's investments in this category primarily relate to bonds within the financial industry sector. The financial industry sector holdings in this category include bonds with an aggregate fair value of $1,682 million and an aggregate amortized cost of $1,788 million as of December 31, 2011.

The following table summarizes corporate and other bonds in a gross unrealized loss position by ratings distribution at December 31, 2011.

Gross Unrealized Losses by Ratings Distribution

December 31, 2011	Amortized Cost		Estimated Fair Value		Gross Unrealized Losses
(In millions)
AAA	$	112	$	111	$	1
AA	97		94		3
A	895		853		42
BBB	1,275		1,196		79
Non-investment grade	486		457		29
Total	$	2,865	$	2,711	$	154

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 December 31, 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. Securities that comprise 83% of the gross unrealized losses in this category are rated AA or higher.

The largest exposures at December 31, 2011 as measured by gross unrealized losses were several separate issues of Puerto Rico sales tax revenue bonds with gross unrealized losses of $80 million. All of these securities are rated investment grade.

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 December 31, 2011.

Asset-Backed Securities

The fair value of total asset-backed holdings at December 31, 2011 was $8,084 million which was comprised of 2,010 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, 112 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.

The gross unrealized losses on residential mortgage-backed securities included $35 million related to securities guaranteed by a U.S. government agency or sponsored enterprise and $148 million related to non-agency structured securities. Non-agency structured securities included 131 securities that had at least one trade lot in a gross unrealized loss position and the aggregate severity of the gross unrealized loss was approximately 11% of amortized cost.

Commercial mortgage-backed securities included 61 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 51 securities that had at least one trade lot in a gross unrealized loss position. The aggregate severity of the gross unrealized loss was approximately 1% of amortized cost.

The following table summarizes asset-backed securities in a gross unrealized loss position by ratings distribution at December 31, 2011.

Gross Unrealized Losses by Ratings Distribution

December 31, 2011	Amortized Cost		Estimated Fair Value		Gross Unrealized Losses
(In millions)
U.S. Government, Government Agencies, and Government-Sponsored Enterprises	$	382	$	347	$	35
AAA	364		355		9
AA	409		388		21
A	370		357		13
BBB	319		294		25
Non-investment grade	984		841		143
Total	$	2,828	$	2,582	$	246

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 the 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 December 31, 2011.

Contractual Maturity

The following table summarizes available-for-sale fixed maturity securities by contractual maturity at December 31, 2011 and 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

	December 31, 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	$	1,802	$	1,812	$	1,515	$	1,506
Due after one year through five years	13,110		13,537		11,198		11,653
Due after five years through ten years	8,410		8,890		10,022		10,425
Due after ten years	14,017		15,692		13,686		13,987
Total	$	37,339	$	39,931	$	36,421	$	37,571

Limited Partnerships

The carrying value of limited partnerships as of December 31, 2011 and 2010 was $2,245 million and $2,309 million, which includes undistributed earnings of $560 million and $723 million. Limited partnerships comprising 58% of the total carrying value are reported on a current basis through December 31, 2011 with no reporting lag, 25% are reported on a one month lag and the remainder are reported on more than a one month lag. As of December 31, 2011 and 2010, the Company had 79 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 December 31, 2011 and 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 46% were equity related, 32% pursued a multi-strategy approach, 19% were focused on distressed investments and 3% were fixed income related at December 31, 2011.

Limited partnerships representing 14% and 11% at December 31, 2011 and 2010 were invested in private debt and equity. The remaining were invested in various other partnerships including real estate. The ten largest limited partnership positions held totaled $1,218 million and $1,321 million as of December 31, 2011 and 2010. Based on the most recent information available regarding the Company’s percentage ownership of the individual limited partnerships, the carrying value reflected on the Consolidated Balance Sheets represents approximately 4% of the aggregate partnership equity at December 31, 2011 and 2010, and the related income reflected on the Consolidated Statements of Operations represents approximately 4%, 3%, and 4% of the changes in partnership equity for all limited partnership investments for the years ended December 31, 2011, 2010 and 2009.

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

Risks related to the recoverability of loan balances include declines in the estimated cash flows from underlying property leases, fair value of collateral and creditworthiness of tenants of credit tenant loan properties, where lease payments directly service the loan. As of December 31, 2011 and 2010, 14% and 40% of the carrying value of mortgage loans related to credit tenant loans. The Company evaluates loans for impairment on a specific loan basis and identifies loans for evaluation of impairment based on the collection experience of each loan and other credit quality indicators such as debt service coverage ratio and the creditworthiness of the borrower or tenants of credit tenant loan properties. As of December 31, 2011 and 2010, there were no loans past due or in non-accrual status, and no valuation allowance was recorded.

Investment Commitments

As of December 31, 2011, the Company had committed approximately $129 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, sales and funding. 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 December 31, 2011, the Company had commitments to purchase $95 million and sell $69 million of such investments. The Company has an obligation to fund additional amounts under the terms of current loan participations that may not be recorded until a draw is made. As of December 31, 2011, the Company had obligations on unfunded bank loan participations in the amount of $6 million.

As of December 31, 2011, the Company had mortgage loan commitments of $48 million representing signed loan applications received and accepted. The mortgage loans are recorded once funded.

Investments on Deposit

Securities with carrying values of approximately $3.5 billion and $2.9 billion were deposited by the Company’s insurance subsidiaries under requirements of regulatory authorities as of December 31, 2011 and 2010.

Cash and securities with carrying values of approximately $5 million and $6 million were deposited with financial institutions as collateral for letters of credit as of December 31, 2011 and 2010. In addition, cash and securities were deposited in trusts with financial institutions to secure reinsurance and other obligations with various third parties. The carrying values of these deposits were approximately $288 million and $298 million as of December 31, 2011 and 2010.