Investments

9 Months Ended

Sep. 30, 2013

Investments [Abstract]

Investments

Note C. 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)	2013			2012			2013			2012
Fixed maturity securities	$	504		$	507		$	1,501		$	1,528
Short term investments	1			2			3			5
Limited partnership investments	93			89			303			184
Equity securities	3			4			9			10
Mortgage loans	6			5			17			13
Trading portfolio (a)	3			7			13			18
Other	1			—			2			3
Gross investment income	611			614			1,848			1,761
Investment expense	(14		)	(13		)	(40		)	(42		)
Net investment income	$	597		$	601		$	1,808		$	1,719

___________________

(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 three or nine months ended September 30, 2013 or 2012.

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)	2013			2012			2013			2012
Net realized investment gains (losses):
Fixed maturity securities:
Gross realized gains	$	51		$	75		$	132		$	193
Gross realized losses	(44		)	(49		)	(98		)	(120		)
Net realized investment gains (losses) on fixed maturity securities	7			26			34			73
Equity securities:
Gross realized gains	3			5			10			10
Gross realized losses	(5		)	(20		)	(27		)	(24		)
Net realized investment gains (losses) on equity securities	(2		)	(15		)	(17		)	(14		)
Derivatives	(1		)	(1		)	(4		)	(1		)
Short term investments and other	—			(2		)	5			8
Net realized investment gains (losses)	$	4		$	8		$	18		$	66

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)	2013		2012		2013		2012
Fixed maturity securities available-for-sale:
Corporate and other bonds	$	9	$	7	$	17	$	23
States, municipalities and political subdivisions	—		17		—		17
Asset-backed:
Residential mortgage-backed	2		20		5		49
Other asset-backed	1		—		2		—
Total asset-backed	3		20		7		49
U.S. Treasury and obligations of government-sponsored enterprises	—		—		—		1
Total fixed maturity securities available-for-sale	12		44		24		90
Equity securities available-for-sale:
Common stock	3		1		5		5
Preferred stock	2		19		22		19
Total equity securities available-for-sale	5		20		27		24
Net OTTI losses recognized in earnings	$	17	$	64	$	51	$	114

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

Summary of Fixed Maturity and Equity Securities

September 30, 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	$	19,616	$	1,695	$	151	$	21,160	$	—
States, municipalities and political subdivisions	11,000		672		233		11,439		—
Asset-backed:
Residential mortgage-backed	4,779		141		101		4,819		(33		)
Commercial mortgage-backed	1,942		99		24		2,017		(3		)
Other asset-backed	942		16		2		956		—
Total asset-backed	7,663		256		127		7,792		(36		)
U.S. Treasury and obligations of government-sponsored enterprises	166		8		1		173		—
Foreign government	547		17		3		561		—
Redeemable preferred stock	94		12		—		106		—
Total fixed maturity securities available-for-sale	39,086		2,660		515		41,231		$	(36	)
Total fixed maturity securities trading	43		—		—		43
Equity securities available-for-sale:
Common stock	41		12		—		53
Preferred stock	148		1		3		146
Total equity securities available-for-sale	189		13		3		199
Total	$	39,318	$	2,673	$	518	$	41,473

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 September 30, 2013 and December 31, 2012, the net unrealized gains on investments included in AOCI were net of after-tax Shadow Adjustments of $723 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
September 30, 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	$	3,521	$	146	$	45	$	5	$	3,566	$	151
States, municipalities and political subdivisions	2,413		179		122		54		2,535		233
Asset-backed:
Residential mortgage-backed	1,289		40		287		61		1,576		101
Commercial mortgage-backed	449		20		79		4		528		24
Other asset-backed	207		2		—		—		207		2
Total asset-backed	1,945		62		366		65		2,311		127
U.S. Treasury and obligations of government-sponsored enterprises	21		1		—		—		21		1
Foreign government	76		3		—		—		76		3
Total fixed maturity securities available-for-sale	7,976		391		533		124		8,509		515
Equity securities available-for-sale:
Preferred stock	86		3		—		—		86		3
Total	$	8,062	$	394	$	533	$	124	$	8,595	$	518

	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 $3 million and $15 million for the three and nine months ended September 30, 2013 and $12 million and $59 million for the three and nine months ended September 30, 2012.

Based on current facts and circumstances, the Company believes the unrealized losses presented in the September 30, 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 investments with longer duration, primarily included within the states, municipalities and political subdivision asset category, were more significantly impacted by changes in market interest rates. 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, 2013.

The following table summarizes the activity for the three and nine months ended September 30, 2013 and 2012 related to the pretax credit loss component reflected in Retained earnings on fixed maturity securities still held at September 30, 2013 and 2012 for which a portion of an OTTI loss was recognized in Other comprehensive income (loss).

Periods ended September 30	Three Months						Nine Months
(In millions)	2013			2012			2013			2012
Beginning balance of credit losses on fixed maturity securities	$	89		$	99		$	95		$	92
Additional credit losses for securities for which an OTTI loss was previously recognized	1			2			2			23
Credit losses for securities for which an OTTI loss was not previously recognized	—			—			—			2
Reductions for securities sold during the period	(7		)	(3		)	(14		)	(11		)
Reductions for securities the Company intends to sell or more likely than not will be required to sell	—			—			—			(8		)
Ending balance of credit losses on fixed maturity securities	$	83		$	98		$	83		$	98

Contractual Maturity

The following table summarizes available-for-sale fixed maturity securities by contractual maturity at September 30, 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

	September 30, 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	$	2,475	$	2,516	$	1,648	$	1,665
Due after one year through five years	10,687		11,304		13,603		14,442
Due after five years through ten years	10,586		10,901		8,726		9,555
Due after ten years	15,338		16,510		14,164		16,942
Total	$	39,086	$	41,231	$	38,141	$	42,604

Investment Commitments

As of September 30, 2013, the Company had committed approximately $405 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. As of September 30, 2013, the Company had commitments to purchase or fund additional amounts of $172 million and sell $143 million under the terms of such securities.