Investments

3 Months Ended

Mar. 31, 2018

Investments [Abstract]

Investments

Investments

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

Three months ended March 31
(In millions)	2018			2017
Fixed maturity securities	$	446		$	455
Equity securities	10			1
Limited partnership investments	30			90
Mortgage loans	11			7
Short term investments	6			3
Trading portfolio	2			2
Other	—			1
Gross investment income	505			559
Investment expense	(15		)	(14		)
Net investment income	$	490		$	545

During the three months ended March 31, 2018, less than $1 million of Net investment income was recognized due to the change in fair value of common stock still held as of March 31, 2018.

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

Three months ended March 31
(In millions)	2018			2017
Net realized investment gains (losses):
Fixed maturity securities:
Gross realized gains	$	69		$	49
Gross realized losses	(51		)	(17		)
Net realized investment gains (losses) on fixed maturity securities	18			32
Equity securities	(15		)	—
Derivatives	5			1
Short term investments and other	4			3
Net realized investment gains (losses)	$	12		$	36

During the three months ended March 31, 2018, $15 million of Net realized investment losses were recognized due to the change in fair value of non-redeemable preferred stock still held as of March 31, 2018.

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

Three months ended March 31
(In millions)	2018		2017
Fixed maturity securities available-for-sale:
Corporate and other bonds	$	5	$	2
Asset-backed	1		—
OTTI losses recognized in earnings	$	6	$	2

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

March 31, 2018 (1)	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	$	17,538	$	1,177	$	115	$	18,600	$	—
States, municipalities and political subdivisions	11,682		1,205		12		12,875		—
Asset-backed:
Residential mortgage-backed	5,050		83		78		5,055		(27		)
Commercial mortgage-backed	1,948		29		22		1,955		—
Other asset-backed	1,185		10		7		1,188		—
Total asset-backed	8,183		122		107		8,198		(27		)
U.S. Treasury and obligations of government-sponsored enterprises	124		2		7		119		—
Foreign government	448		7		5		450		—
Redeemable preferred stock	9		1		—		10		—
Total fixed maturity securities available-for-sale	37,984		2,514		246		40,252		$	(27	)
Total fixed maturity securities trading	7						7
Total fixed maturity securities	$	37,991	$	2,514	$	246	$	40,259

December 31, 2017	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	$	1,625	$	28	$	18,807	$	—
States, municipalities and political subdivisions	12,478		1,551		2		14,027		(11		)
Asset-backed:
Residential mortgage-backed	5,043		109		32		5,120		(27		)
Commercial mortgage-backed	1,840		46		14		1,872		—
Other asset-backed	1,083		16		5		1,094		—
Total asset-backed	7,966		171		51		8,086		(27		)
U.S. Treasury and obligations of government-sponsored enterprises	111		2		4		109		—
Foreign government	437		9		2		444		—
Redeemable preferred stock	10		1		—		11		—
Total fixed maturity securities available-for-sale	38,212		3,359		87		41,484		$	(38	)
Total fixed maturity securities trading	3						3
Equity securities available-for-sale:
Common stock	21		7		1		27
Preferred stock	638		31		1		668
Total equity securities available-for-sale	659		38		2		695
Total fixed maturity and equity securities	$	38,874	$	3,397	$	89	$	42,182

(1) As of January 1, 2018, the Company adopted ASU 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. The change in fair value of equity securities is now recognized through the income statement. See Note A to the Condensed Consolidated Financial Statements for additional information.

The net unrealized gains on investments included in the tables above are recorded as a component of 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 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 March 31, 2018 and December 31, 2017, the net unrealized gains on investments included in AOCI were correspondingly reduced by Shadow Adjustments of $1,338 million and $1,411 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
March 31, 2018 (1)	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	$	4,229	$	104	$	146	$	11	$	4,375	$	115
States, municipalities and political subdivisions	962		12		3		—		965		12
Asset-backed:
Residential mortgage-backed	2,570		55		504		23		3,074		78
Commercial mortgage-backed	668		11		200		11		868		22
Other asset-backed	441		5		15		2		456		7
Total asset-backed	3,679		71		719		36		4,398		107
U.S. Treasury and obligations of government-sponsored enterprises	59		4		26		3		85		7
Foreign government	214		5		4		—		218		5
Total	$	9,143	$	196	$	898	$	50	$	10,041	$	246

	Less than 12 Months				12 Months or Longer				Total
December 31, 2017	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	$	1,354	$	21	$	168	$	7	$	1,522	$	28
States, municipalities and political subdivisions	72		1		85		1		157		2
Asset-backed:
Residential mortgage-backed	1,228		5		947		27		2,175		32
Commercial mortgage-backed	403		4		212		10		615		14
Other asset-backed	248		3		18		2		266		5
Total asset-backed	1,879		12		1,177		39		3,056		51
U.S. Treasury and obligations of government-sponsored enterprises	49		2		21		2		70		4
Foreign government	166		2		4		—		170		2
Total fixed maturity securities available-for-sale	3,520		38		1,455		49		4,975		87
Equity securities available-for-sale:
Common stock	7		1		—		—		7		1
Preferred stock	93		1		—		—		93		1
Total equity securities available-for-sale	100		2		—		—		100		2
Total	$	3,620	$	40	$	1,455	$	49	$	5,075	$	89

(1) As of January 1, 2018, the Company adopted ASU 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. The change in fair value of equity securities is now recognized through the income statement. See Note A to the Condensed Consolidated Financial Statements for additional information.

Based on current facts and circumstances, the Company believes the unrealized losses presented in the March 31, 2018 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 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 March 31, 2018.

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 March 31, 2018 and 2017 and for which a portion of an OTTI loss was recognized in Other comprehensive income (loss).

Three months ended March 31
(In millions)	2018			2017
Beginning balance of credit losses on fixed maturity securities	$	27		$	36
Reductions for securities sold during the period	(2		)	(4		)
Ending balance of credit losses on fixed maturity securities	$	25		$	32

Contractual Maturity

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

	March 31, 2018				December 31, 2017
(In millions)	Cost or Amortized Cost		Estimated Fair Value		Cost or Amortized Cost		Estimated Fair Value
Due in one year or less	$	1,323	$	1,343	$	1,135	$	1,157
Due after one year through five years	8,277		8,495		8,165		8,501
Due after five years through ten years	15,802		16,093		16,060		16,718
Due after ten years	12,582		14,321		12,852		15,108
Total	$	37,984	$	40,252	$	38,212	$	41,484

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 a funds withheld liability with a notional value of $163 million and $167 million as of March 31, 2018 and December 31, 2017 and a fair value of $1 million and $(3) million as of March 31, 2018 and December 31, 2017. The embedded derivative on the 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 March 31, 2018, the Company had committed approximately $428 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, 2018, the Company had mortgage loan commitments of $47 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 March 31, 2018, the Company had commitments to purchase or fund additional amounts of $198 million and sell $162 million under the terms of such securities.