Investments

3 Months Ended

Mar. 31, 2013

Investments [Abstract]

Investments

Note C. Investments

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

Net Investment Income

Three months ended March 31
(In millions)	2013			2012
Fixed maturity securities	$	499		$	516
Short term investments	1			1
Limited partnership investments	131			130
Equity securities	3			4
Mortgage loans	5			3
Trading portfolio (a)	5			7
Other	1			1
Gross investment income	645			662
Investment expense	(12		)	(14		)
Net investment income	$	633		$	648

___________________

(a) There were $1 million of net unrealized gains for the three months ended March 31, 2013 and no net unrealized gains (losses) for the three months ended March 31, 2012 related to changes in fair value of trading securities still held included in net investment income.

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

Net Realized Investment Gains (Losses)

Three months ended March 31
(In millions)	2013			2012
Net realized investment gains (losses):
Fixed maturity securities:
Gross realized gains	$	44		$	69
Gross realized losses	(12		)	(39		)
Net realized investment gains (losses) on fixed maturity securities	32			30
Equity securities:
Gross realized gains	2			3
Gross realized losses	(15		)	(2		)
Net realized investment gains (losses) on equity securities	(13		)	1
Derivatives	2			(1		)
Short term investments and other	7			6
Net realized investment gains (losses)	$	28		$	36

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

Three months ended March 31
(In millions)	2013		2012
Fixed maturity securities available-for-sale:
Corporate and other bonds	$	3	$	10
Asset-backed - residential mortgage-backed	—		14
U.S. Treasury and obligations of government-sponsored enterprises	—		1
Total fixed maturity securities available-for-sale	3		25
Equity securities available-for-sale:
Common stock	—		2
Preferred stock	15		—
Total equity securities available-for-sale	15		2
Net OTTI losses recognized in earnings	$	18	$	27

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 (CFO). 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 (loss). 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 (loss) 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

March 31, 2013	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	$	19,747	$	2,562	$	18	$	22,291	$	—
States, municipalities and political subdivisions	9,599		1,408		59		10,948		—
Asset-backed:
Residential mortgage-backed	5,518		235		70		5,683		(49		)
Commercial mortgage-backed	1,853		147		10		1,990		(3		)
Other asset-backed	932		23		—		955		—
Total asset-backed	8,303		405		80		8,628		(52		)
U.S. Treasury and obligations of government-sponsored enterprises	170		11		—		181		—
Foreign government	528		24		—		552		—
Redeemable preferred stock	123		14		1		136		—
Total fixed maturity securities available-for-sale	38,470		4,424		158		42,736		$	(52	)
Total fixed maturity securities trading	63		—		—		63
Equity securities available-for-sale:
Common stock	38		17		—		55
Preferred stock	139		7		—		146
Total equity securities available-for-sale	177		24		—		201
Total	$	38,710	$	4,448	$	158	$	43,000

December 31, 2012	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	$	19,530	$	2,698	$	21	$	22,207	$	—
States, municipalities and political subdivisions	9,372		1,455		44		10,783		—
Asset-backed:
Residential mortgage-backed	5,745		246		71		5,920		(28		)
Commercial mortgage-backed	1,692		147		17		1,822		(3		)
Other asset-backed	929		23		—		952		—
Total asset-backed	8,366		416		88		8,694		(31		)
U.S. Treasury and obligations of government-sponsored enterprises	172		11		1		182		—
Foreign government	588		25		—		613		—
Redeemable preferred stock	113		13		1		125		—
Total fixed maturity securities available-for-sale	38,141		4,618		155		42,604		$	(31	)
Total fixed maturity securities trading	29		—		—		29
Equity securities available-for-sale:
Common stock	38		14		—		52
Preferred stock	190		7		—		197
Total equity securities available-for-sale	228		21		—		249
Total	$	38,398	$	4,639	$	155	$	42,882

The net unrealized gains on investments included in the tables above are recorded as a component of Accumulated other comprehensive income (AOCI). When presented in AOCI, these amounts are net of tax and any required Shadow Adjustments. At March 31, 2013 and December 31, 2012, the net unrealized gains on investments included in AOCI were net of after-tax Shadow Adjustments of $1,438 million and $1,511 million. To the extent that unrealized gains on fixed income securities supporting certain products within the Life & Group Non-Core segment would result in a premium deficiency if realized, a related decrease in Deferred acquisition costs and/or increase in Insurance reserves are recorded, net of tax, as a reduction of net unrealized gains through Other comprehensive income (loss) (Shadow Adjustments).

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
March 31, 2013	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	$	951	$	13	$	50	$	5	$	1,001	$	18
States, municipalities and political subdivisions	683		16		121		43		804		59
Asset-backed:
Residential mortgage-backed	920		19		347		51		1,267		70
Commercial mortgage-backed	155		2		141		8		296		10
Total asset-backed	1,075		21		488		59		1,563		80
Redeemable preferred stock	34		1		—		—		34		1
Total	$	2,743	$	51	$	659	$	107	$	3,402	$	158

	Less than 12 Months				12 Months or Longer				Total
December 31, 2012	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	$	846	$	13	$	108	$	8	$	954	$	21
States, municipalities and political subdivisions	254		5		165		39		419		44
Asset-backed:
Residential mortgage-backed	583		5		452		66		1,035		71
Commercial mortgage-backed	85		2		141		15		226		17
Total asset-backed	668		7		593		81		1,261		88
U.S. Treasury and obligations of government-sponsored enterprises	23		1		—		—		23		1
Redeemable preferred stock	28		1		—		—		28		1
Total	$	1,819	$	27	$	866	$	128	$	2,685	$	155

The amount of pretax net realized gains on available-for-sale securities reclassified out of AOCI into earnings was $19 million and $32 million for the three months ended March 31, 2013 and 2012.

Based on current facts and circumstances, the Company believes the unrealized losses presented in the March 31, 2013 Securities in a Gross Unrealized Loss Position table above, are primarily attributable to broader economic conditions, changes in interest rates and credit spreads, market illiquidity and other market factors, but are not indicative of the ultimate collectibility of the current amortized cost 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 March 31, 2013.

The following table summarizes the activity for the three months ended March 31, 2013 and 2012 related to the pretax credit loss component reflected in Retained earnings on fixed maturity securities still held at March 31, 2013 and 2012 for which a portion of an OTTI loss was recognized in Other comprehensive income (loss).

Three months ended March 31
(In millions)	2013			2012
Beginning balance of credit losses on fixed maturity securities	$	95		$	92
Additional credit losses for securities for which an OTTI loss was previously recognized	—			11
Credit losses for securities for which an OTTI loss was not previously recognized	—			1
Reductions for securities sold during the period	(3		)	(4		)
Ending balance of credit losses on fixed maturity securities	$	92		$	100

Contractual Maturity

The following table summarizes available-for-sale fixed maturity securities by contractual maturity at March 31, 2013 and December 31, 2012. 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

	March 31, 2013				December 31, 2012
(In millions)	Cost or Amortized Cost		Estimated Fair Value		Cost or Amortized Cost		Estimated Fair Value
Due in one year or less	$	1,783	$	1,819	$	1,648	$	1,665
Due after one year through five years	12,916		13,731		13,603		14,442
Due after five years through ten years	9,430		10,267		8,726		9,555
Due after ten years	14,341		16,919		14,164		16,942
Total	$	38,470	$	42,736	$	38,141	$	42,604

Investment Commitments

As of March 31, 2013, the Company had committed approximately $247 million to future capital calls from various third-party limited partnership investments in exchange for an ownership interest in the related partnerships.

As of March 31, 2013, the Company had mortgage loan commitments of $29 million representing signed loan applications received and accepted.

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. As of March 31, 2013, the Company had commitments to purchase or fund additional amounts of $167 million and sell $210 million under the terms of such securities.