Investments

12 Months Ended

Dec. 31, 2014

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)	2014			2013			2012
Fixed maturity securities	$	1,803		$	1,827		$	1,846
Short term investments	3			3			5
Limited partnership investments	263			451			251
Equity securities	12			12			12
Mortgage loans	31			23			17
Trading portfolio	10			17			24
Other	3			2			7
Gross investment income	2,125			2,335			2,162
Investment expense	(58		)	(53		)	(52		)
Net investment income	$	2,067		$	2,282		$	2,110

As of December 31, 2014 and 2013, the Company held no non-income producing fixed maturity securities. As of December 31, 2014 and 2013, 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)	2014			2013			2012
Net realized investment gains (losses):
Fixed maturity securities:
Gross realized gains	$	170		$	185		$	222
Gross realized losses	(129		)	(144		)	(145		)
Net realized investment gains (losses) on fixed maturity securities	41			41			77
Equity securities:
Gross realized gains	8			13			19
Gross realized losses	(7		)	(35		)	(42		)
Net realized investment gains (losses) on equity securities	1			(22		)	(23		)
Derivatives	(1		)	(9		)	(2		)
Short term investments and other	16			10			2
Net realized investment gains (losses)	$	57		$	20		$	54

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

Net Change in Unrealized Gains

Years ended December 31
(In millions)	2014		2013			2012
Net change in unrealized gains on investments:
Fixed maturity securities	$	1,511	$	(2,541	)	$	1,871
Equity securities	6		(15		)	5
Other	—		—			(1		)
Total net change in unrealized gains on investments	$	1,517	$	(2,556	)	$	1,875

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

Years ended December 31
(In millions)	2014		2013		2012
Fixed maturity securities available-for-sale:
Corporate and other bonds	$	18	$	20	$	25
States, municipalities and political subdivisions	46		—		34
Asset-backed:
Residential mortgage-backed	5		19		48
Other asset-backed	1		2		—
Total asset-backed	6		21		48
U.S. Treasury and obligations of government-sponsored enterprises	—		—		1
Total fixed maturity securities available-for-sale	70		41		108
Equity securities available-for-sale:
Common stock	7		8		6
Preferred stock	—		26		36
Total equity securities available-for-sale	7		34		42
Short term investments	—		1		—
OTTI losses recognized in earnings	$	77	$	76	$	150

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

Summary of Fixed Maturity and Equity Securities

December 31, 2014	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	$	17,210	$	1,721	$	61	$	18,870	$	—
States, municipalities and political subdivisions	11,285		1,463		8		12,740		—
Asset-backed:
Residential mortgage-backed	5,028		218		13		5,233		(53		)
Commercial mortgage-backed	2,056		93		5		2,144		(2		)
Other asset-backed	1,234		11		10		1,235		—
Total asset-backed	8,318		322		28		8,612		(55		)
U.S. Treasury and obligations of government-sponsored enterprises	26		5		—		31		—
Foreign government	438		16		—		454		—
Redeemable preferred stock	39		3		—		42		—
Total fixed maturity securities available-for-sale	37,316		3,530		97		40,749		$	(55	)
Total fixed maturity securities trading	19						19
Equity securities available-for-sale:
Common stock	38		9		—		47
Preferred stock	172		5		2		175
Total equity securities available-for-sale	210		14		2		222
Total	$	37,545	$	3,544	$	99	$	40,990

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

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, 2014	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	$	1,330	$	46	$	277	$	15	$	1,607	$	61
States, municipalities and political subdivisions	335		5		127		3		462		8
Asset-backed:
Residential mortgage-backed	293		5		189		8		482		13
Commercial mortgage-backed	264		2		99		3		363		5
Other asset-backed	607		10		7		—		614		10
Total asset-backed	1,164		17		295		11		1,459		28
U.S. Treasury and obligations of government-sponsored enterprises	3		—		4		—		7		—
Foreign government	3		—		3		—		6		—
Redeemable preferred stock	3		—		—		—		3		—
Total fixed maturity securities available-for-sale	2,838		68		706		29		3,544		97
Equity securities available-for-sale:
Preferred stock	17		2		1		—		18		2
Total	$	2,855	$	70	$	707	$	29	$	3,562	$	99

	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

Based on current facts and circumstances, the Company believes the unrealized losses presented in the December 31, 2014 Securities in a Gross Unrealized Loss Position table above, are not indicative of the ultimate collectibility of the current amortized cost of the securities, but rather are primarily attributable to changes in interest rates and credit spreads, market illiquidity and other factors. The Company has no current intent to sell securities with unrealized losses, 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, 2014.

The following table summarizes the activity for the years ended December 31, 2014, 2013 and 2012 related to the pretax credit loss component reflected in Retained earnings on fixed maturity securities still held at December 31, 2014, 2013 and 2012 for which a portion of an OTTI loss was recognized in Other comprehensive income.

Years ended December 31
(In millions)	2014			2013			2012
Beginning balance of credit losses on fixed maturity securities	$	74		$	95		$	92
Additional credit losses for securities for which an OTTI loss was previously recognized	—			2			23
Credit losses for securities for which an OTTI loss was not previously recognized	—			—			2
Reductions for securities sold during the period	(9		)	(23		)	(14		)
Reductions for securities the Company intends to sell or more likely than not will be required to sell	(3		)	—			(8		)
Ending balance of credit losses on fixed maturity securities	$	62		$	74		$	95

Contractual Maturity

The following table summarizes available-for-sale fixed maturity securities by contractual maturity. 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	2014				2013
(In millions)	Cost or Amortized Cost		Estimated Fair Value		Cost or Amortized Cost		Estimated Fair Value
Due in one year or less	$	2,479	$	2,511	$	2,420	$	2,455
Due after one year through five years	9,054		9,605		9,496		10,068
Due after five years through ten years	12,055		12,584		11,667		11,954
Due after ten years	13,728		16,049		15,692		16,720
Total	$	37,316	$	40,749	$	39,275	$	41,197

Limited Partnerships

The carrying value of limited partnerships as of December 31, 2014 and 2013 was $2,937 million and $2,720 million, which includes undistributed earnings of $1,040 million and $969 million. Limited partnerships comprising 65% of the total carrying value are reported on a current basis through December 31, 2014 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, 2014 and 2013, the Company had 86 and 87 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, 73% and 74% at December 31, 2014 and 2013 employ hedge fund strategies that generate returns through investing in marketable securities in the public fixed income and equity markets. Limited partnerships representing 23% and 22% at December 31, 2014 and 2013 were invested in private debt and equity, and the remaining limited partnerships were primarily invested in real estate strategies. Hedge fund strategies include both long and short positions in fixed income, equity and derivative instruments. These 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 56% were equity related, 27% pursued a multi-strategy approach, 14% were focused on distressed investments and 3% were fixed income related at December 31, 2014.

The ten largest limited partnership positions held totaled $1,492 million and $1,471 million as of December 31, 2014 and 2013. 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, 2014 and 2013, and the related income reflected on the Consolidated Statements of Operations represents approximately 4%, 4% and 3% of the changes in total partnership equity for the years ended December 31, 2014, 2013 and 2012.

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, 2014 and 2013, there were no loans past due or in non-accrual status, and no valuation allowance was recorded.

Investment Commitments

As of December 31, 2014, the Company had committed approximately $327 million to future capital calls from various third-party limited partnership investments in exchange for an ownership interest in the related partnerships.

As of December 31, 2014, the Company had a mortgage loan commitment of $8 million representing a signed loan application 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 December 31, 2014, the Company had commitments to purchase or fund additional amounts of $75 million and sell $97 million under the terms of such securities.

Investments on Deposit

Securities with carrying values of approximately $3.0 billion and $3.3 billion were deposited by the Company’s insurance subsidiaries under requirements of regulatory authorities and others as of December 31, 2014 and 2013.

Cash and securities with carrying values of approximately $361 million and $353 million were deposited with financial institutions as collateral for letters of credit as of December 31, 2014 and 2013. 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 $302 million and $294 million as of December 31, 2014 and 2013.