Investments

12 Months Ended

Dec. 31, 2013

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)	2013			2012			2011
Fixed maturity securities	$	1,998		$	2,022		$	2,011
Short term investments	3			5			8
Limited partnership investments	451			251			48
Equity securities	12			12			20
Mortgage loans	23			17			9
Trading portfolio	17			24			9
Other	2			7			7
Gross investment income	2,506			2,338			2,112
Investment expense	(56		)	(56		)	(58		)
Net investment income	$	2,450		$	2,282		$	2,054

As of December 31, 2013, the Company held no non-income producing fixed maturity securities. As of December 31, 2012, the Company held nine non-income producing fixed maturity securities aggregating $1 million of fair value. As of December 31, 2013 and 2012, 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)	2013			2012			2011
Net realized investment gains (losses):
Fixed maturity securities:
Gross realized gains	$	201		$	232		$	289
Gross realized losses	(146		)	(149		)	(311		)
Net realized investment gains (losses) on fixed maturity securities	55			83			(22		)
Equity securities:
Gross realized gains	13			19			10
Gross realized losses	(35		)	(42		)	(11		)
Net realized investment gains (losses) on equity securities	(22		)	(23		)	(1		)
Derivatives	(9		)	(2		)	—
Short term investments and other	7			5			21
Net realized investment gains (losses)	$	31		$	63		$	(2	)

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

Net Change in Unrealized Gains

Years ended December 31
(In millions)	2013			2012			2011
Net change in unrealized gains on investments:
Fixed maturity securities	$	(2,541	)	$	1,871		$	1,442
Equity securities	(15		)	5			(2		)
Other	—			(1		)	(3		)
Total net change in unrealized gains on investments	$	(2,556	)	$	1,875		$	1,437

The components of OTTI losses recognized in earnings by asset type are summarized in the following table.

Years ended December 31
(In millions)	2013		2012		2011
Fixed maturity securities available-for-sale:
Corporate and other bonds	$	22	$	27	$	95
States, municipalities and political subdivisions	—		34		—
Asset-backed:
Residential mortgage-backed	19		50		105
Other asset-backed	2		—		6
Total asset-backed	21		50		111
U.S. Treasury and obligations of government-sponsored enterprises	—		1		—
Total fixed maturity securities available-for-sale	43		112		206
Equity securities available-for-sale:
Common stock	8		6		8
Preferred stock	26		36		1
Total equity securities available-for-sale	34		42		9
Short term investments	1		—		1
OTTI losses recognized in earnings	$	78	$	154	$	216

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

Summary of Fixed Maturity and Equity Securities

December 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	$	19,352	$	1,645	$	135	$	20,862	$	—
States, municipalities and political subdivisions	11,281		548		272		11,557		—
Asset-backed:
Residential mortgage-backed	4,940		123		92		4,971		(37		)
Commercial mortgage-backed	1,995		90		22		2,063		(3		)
Other asset-backed	945		13		3		955		—
Total asset-backed	7,880		226		117		7,989		(40		)
U.S. Treasury and obligations of government-sponsored enterprises	139		6		1		144		—
Foreign government	531		15		3		543		—
Redeemable preferred stock	92		10		—		102		—
Total fixed maturity securities available-for-sale	39,275		2,450		528		41,197		$	(40	)
Total fixed maturity securities trading	36		—		—		36
Equity securities available-for-sale:
Common stock	36		9		—		45
Preferred stock	143		1		4		140
Total equity securities available-for-sale	179		10		4		185
Total	$	39,490	$	2,460	$	532	$	41,418

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 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, 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	$	3,592	$	129	$	72	$	6	$	3,664	$	135
States, municipalities and political subdivisions	3,251		197		129		75		3,380		272
Asset-backed:
Residential mortgage-backed	1,293		29		343		63		1,636		92
Commercial mortgage-backed	640		22		—		—		640		22
Other asset-backed	269		3		—		—		269		3
Total asset-backed	2,202		54		343		63		2,545		117
U.S. Treasury and obligations of government-sponsored enterprises	13		1		—		—		13		1
Foreign government	111		3		—		—		111		3
Total fixed maturity securities available-for-sale	9,169		384		544		144		9,713		528
Equity securities available-for-sale:
Preferred stock	87		4		—		—		87		4
Total	$	9,256	$	388	$	544	$	144	$	9,800	$	532

	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

Based on current facts and circumstances, the Company believes the unrealized losses presented in the December 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 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 December 31, 2013.

The following table summarizes the activity for the years ended December 31, 2013, 2012 and 2011 related to the pretax credit loss component reflected in Retained earnings on fixed maturity securities still held at December 31, 2013, 2012 and 2011 for which a portion of an OTTI loss was recognized in Other comprehensive income.

Years ended December 31
(In millions)	2013			2012			2011
Beginning balance of credit losses on fixed maturity securities	$	95		$	92		$	141
Additional credit losses for securities for which an OTTI loss was previously recognized	2			23			39
Credit losses for securities for which an OTTI loss was not previously recognized	—			2			11
Reductions for securities sold during the period	(23		)	(14		)	(67		)
Reductions for securities the Company intends to sell or more likely than not will be required to sell	—			(8		)	(32		)
Ending balance of credit losses on fixed maturity securities	$	74		$	95		$	92

Contractual Maturity

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

	December 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	$	2,420	$	2,455	$	1,648	$	1,665
Due after one year through five years	9,496		10,068		13,603		14,442
Due after five years through ten years	11,667		11,954		8,726		9,555
Due after ten years	15,692		16,720		14,164		16,942
Total	$	39,275	$	41,197	$	38,141	$	42,604

Limited Partnerships

The carrying value of limited partnerships as of December 31, 2013 and 2012 was $2,720 million and $2,462 million, which includes undistributed earnings of $969 million and $768 million. Limited partnerships comprising 67% of the total carrying value are reported on a current basis through December 31, 2013 with no reporting lag, 16% are reported on a one month lag and the remainder are reported on more than a one month lag. As of December 31, 2013 and 2012, the Company had 87 and 79 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, 74% and 80% at December 31, 2013 and 2012 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 51% were equity related, 28% pursued a multi-strategy approach, 17% were focused on distressed investments and 4% were fixed income related at December 31, 2013.

Limited partnerships representing 22% and 16% at December 31, 2013 and 2012 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 $1,471 million and $1,309 million as of December 31, 2013 and 2012. 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, 2013 and 2012, and the related income reflected on the Consolidated Statements of Operations represents approximately 4%, 3%, and 4% of the changes in total partnership equity for the years ended December 31, 2013, 2012 and 2011.

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 advance 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. 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, 2013 and 2012, there were no loans past due or in non-accrual status, and no valuation allowance was recorded.

Investment Commitments

As of December 31, 2013, the Company had committed approximately $381 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 December 31, 2013, the Company had commitments to purchase or fund additional amounts of $151 million and sell $145 million under the terms of such securities.

Investments on Deposit

Securities with carrying values of approximately $3.3 billion and $3.6 billion were deposited by the Company’s insurance subsidiaries under requirements of regulatory authorities and others as of December 31, 2013 and 2012.

Cash and securities with carrying values of approximately $353 million and $4 million were deposited with financial institutions as collateral for letters of credit as of December 31, 2013 and 2012. 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 $294 million and $277 million as of December 31, 2013 and 2012.