Investments

9 Months Ended

Sep. 30, 2016

Investments [Abstract]

Investments

Note C. Investments

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

Periods ended September 30	Three Months						Nine Months
(In millions)	2016			2015			2016			2015
Fixed maturity securities	$	457		$	449		$	1,352		$	1,344
Equity securities	1			3			8			9
Limited partnership investments	65			(93		)	97			69
Mortgage loans	8			8			30			25
Short term investments	2			2			6			4
Trading portfolio	1			1			7			6
Other	4			1			4			1
Gross investment income	538			371			1,504			1,458
Investment expense	(14		)	(17		)	(43		)	(46		)
Net investment income	$	524		$	354		$	1,461		$	1,412

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

Periods ended September 30	Three Months						Nine Months
(In millions)	2016			2015			2016			2015
Net realized investment gains (losses):
Fixed maturity securities:
Gross realized gains	$	67		$	22		$	152		$	91
Gross realized losses	(20		)	(51		)	(106		)	(120		)
Net realized investment gains (losses) on fixed maturity securities	47			(29		)	46			(29		)
Equity securities:
Gross realized gains	1			1			5			2
Gross realized losses	(4		)	(19		)	(10		)	(21		)
Net realized investment gains (losses) on equity securities	(3		)	(18		)	(5		)	(19		)
Derivative financial instruments	1			(1		)	(12		)	9
Short term investments and other	1			(1		)	(3		)	—
Net realized investment gains (losses)	$	46		$	(49	)	$	26		$	(39	)

Net realized investment losses for the nine months ended September 30, 2016 include $8 million related to the first quarter 2016 redemption of the Company's $350 million senior notes due August 2016.

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

Periods ended September 30	Three Months				Nine Months
(In millions)	2016		2015		2016		2015
Fixed maturity securities available-for-sale:
Corporate and other bonds	$	14	$	36	$	43	$	52
States, municipalities and political subdivisions	—		—		—		18
Asset-backed:
Residential mortgage-backed	—		1		1		7
Other asset-backed	—		—		3		1
Total asset-backed	—		1		4		8
Total fixed maturity securities available-for-sale	14		37		47		78
Equity securities available-for-sale -- Common stock	4		19		9		20
Short term investments	—		—		—		1
OTTI losses recognized in earnings	$	18	$	56	$	56	$	99

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

September 30, 2016	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	$	17,985	$	1,867	$	36	$	19,816	$	(1	)
States, municipalities and political subdivisions	11,566		1,937		2		13,501		(27		)
Asset-backed:
Residential mortgage-backed	5,174		206		15		5,365		(24		)
Commercial mortgage-backed	2,064		88		8		2,144		—
Other asset-backed	948		12		1		959		—
Total asset-backed	8,186		306		24		8,468		(24		)
U.S. Treasury and obligations of government-sponsored enterprises	68		8		—		76		—
Foreign government	415		23		—		438		—
Redeemable preferred stock	18		2		—		20		—
Total fixed maturity securities available-for-sale	38,238		4,143		62		42,319		$	(52	)
Total fixed maturity securities trading	2						2
Equity securities available-for-sale:
Common stock	15		6		1		20
Preferred stock	93		5		2		96
Total equity securities available-for-sale	108		11		3		116
Total	$	38,348	$	4,154	$	65	$	42,437

December 31, 2015	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	$	17,080	$	1,019	$	342	$	17,757	$	—
States, municipalities and political subdivisions	11,729		1,453		8		13,174		(4		)
Asset-backed:
Residential mortgage-backed	4,935		154		17		5,072		(37		)
Commercial mortgage-backed	2,154		55		12		2,197		—
Other asset-backed	923		6		8		921		—
Total asset-backed	8,012		215		37		8,190		(37		)
U.S. Treasury and obligations of government-sponsored enterprises	62		5		—		67		—
Foreign government	334		13		1		346		—
Redeemable preferred stock	33		2		—		35		—
Total fixed maturity securities available-for-sale	37,250		2,707		388		39,569		$	(41	)
Total fixed maturity securities trading	3						3
Equity securities available-for-sale:
Common stock	46		3		1		48
Preferred stock	145		7		3		149
Total equity securities available-for-sale	191		10		4		197
Total	$	37,444	$	2,717	$	392	$	39,769

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. 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 increase in Insurance reserves is recorded, net of tax, as a reduction of net unrealized gains through Other comprehensive income (loss) (Shadow Adjustments). As of September 30, 2016 and December 31, 2015, the net unrealized gains on investments included in AOCI were correspondingly reduced by Shadow Adjustments of $1,681 million and $1,111 million.

The following tables present the estimated fair value and gross unrealized losses of 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.

	Less than 12 Months				12 Months or Longer				Total
September 30, 2016	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	$	617	$	10	$	338	$	26	$	955	$	36
States, municipalities and political subdivisions	163		2		9		—		172		2
Asset-backed:
Residential mortgage-backed	273		6		212		9		485		15
Commercial mortgage-backed	391		7		96		1		487		8
Other asset-backed	153		1		17		—		170		1
Total asset-backed	817		14		325		10		1,142		24
U.S. Treasury and obligations of government-sponsored enterprises	2		—		—		—		2		—
Foreign government	16		—		—		—		16		—
Total fixed maturity securities available-for-sale	1,615		26		672		36		2,287		62
Equity securities available-for-sale:
Common stock	—		1		—		—		—		1
Preferred stock	15		2		—		—		15		2
Total equity securities available-for-sale	15		3		—		—		15		3
Total	$	1,630	$	29	$	672	$	36	$	2,302	$	65

	Less than 12 Months				12 Months or Longer				Total
December 31, 2015	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	$	4,882	$	302	$	162	$	40	$	5,044	$	342
States, municipalities and political subdivisions	338		8		75		—		413		8
Asset-backed:
Residential mortgage-backed	963		9		164		8		1,127		17
Commercial mortgage-backed	652		10		96		2		748		12
Other asset-backed	552		8		5		—		557		8
Total asset-backed	2,167		27		265		10		2,432		37
U.S. Treasury and obligations of government-sponsored enterprises	4		—		—		—		4		—
Foreign government	54		1		—		—		54		1
Redeemable preferred stock	3		—		—		—		3		—
Total fixed maturity securities available-for-sale	7,448		338		502		50		7,950		388
Equity securities available-for-sale:
Common stock	3		1		—		—		3		1
Preferred stock	13		3		—		—		13		3
Total equity securities available-for-sale	16		4		—		—		16		4
Total	$	7,464	$	342	$	502	$	50	$	7,966	$	392

Based on current facts and circumstances, the Company believes the unrealized losses presented in the September 30, 2016 table above are not indicative of the ultimate collectibility of the current amortized cost of the securities, but rather are attributable to changes in interest rates, credit spreads 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 as of September 30, 2016.

The following table presents the activity related to the pretax credit loss component reflected in Retained earnings on fixed maturity securities still held as of September 30, 2016 and 2015 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)	2016			2015			2016			2015
Beginning balance of credit losses on fixed maturity securities	$	41		$	59		$	53		$	62
Reductions for securities sold during the period	(2		)	(2		)	(14		)	(5		)
Reductions for securities the Company intends to sell or more likely than not will be required to sell	(1		)	—			(1		)	—
Ending balance of credit losses on fixed maturity securities	$	38		$	57		$	38		$	57

Contractual Maturity

The following table presents available-for-sale fixed maturity securities by contractual maturity.

	September 30, 2016				December 31, 2015
(In millions)	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
Due in one year or less	$	1,665	$	1,710	$	1,574	$	1,595
Due after one year through five years	9,052		9,584		7,721		8,070
Due after five years through ten years	14,659		15,625		14,652		14,915
Due after ten years	12,862		15,400		13,303		14,989
Total	$	38,238	$	42,319	$	37,250	$	39,569

Actual maturities may differ from contractual maturities because certain securities may be called or prepaid. Securities not due at a single date are allocated based on weighted average life.

Derivative Financial Instruments

The Company holds an embedded derivative on funds withheld liability with a notional value of $175 million and $179 million as of September 30, 2016 and December 31, 2015 and a fair value of $8 million and $(5) million as of September 30, 2016 and December 31, 2015. The embedded derivative on funds withheld liability is accounted for separately and reported with the funds withheld liability in Other liabilities on the Condensed Consolidated Balance Sheets.

Investment Commitments

As of September 30, 2016, the Company had committed approximately $393 million to future capital calls from various third-party limited partnership investments in exchange for an ownership interest in the related partnerships.

As of September 30, 2016, the Company had mortgage loan commitments of $40 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. Purchases and sales of privately placed debt securities are recorded once funded. As of September 30, 2016, the Company had commitments to purchase or fund additional amounts of $205 million and sell $163 million under the terms of such securities.