Securities

9 Months Ended

Sep. 30, 2011


4.	*Securities*

Securities consisted of the following available-for-sale investments:


			Non-Credit
			Loss
			Component			Gross		Gross
	Amortized		of OTTI			Unrealized		Unrealized			Fair
September 30, 2011	Cost		Securities			Gains		Losses			Value

	(in millions)

U.S. Treasury	$	365	$	-		$	11	$	-		$	376
U.S. government sponsored enterprises⁽¹⁾		421		-			6		-			427
U.S. government agency issued or guaranteed		6		-			-		-			6
Obligations of U.S. states and political subdivisions		1		-			-		-			1
Asset-backed securities⁽²⁾		52		(9	)		1		-			44
U.S. corporate debt securities⁽³⁾		1,519		-			150		(6	)		1,663
Foreign debt securities⁽⁴⁾		526		-			22		(2	)		546
Equity securities		10		-			-		-			10
Money market funds		558		-			-		-			558

Subtotal		3,458		(9	)		190		(8	)		3,631
Accrued investment income		27		-			-		-			27

Total securities available-for-sale	$	3,485	$	(9	)	$	190	$	(8	)	$	3,658


			Non-Credit
			Loss
			Component			Gross		Gross
	Amortized		of OTTI			Unrealized		Unrealized			Fair
December 31, 2010	Cost		Securities			Gains		Losses			Value

	(in millions)

U.S. Treasury	$	341	$	-		$	8	$	-		$	349
U.S. government sponsored enterprises⁽¹⁾		282		-			4		(1	)		285
U.S. government agency issued or guaranteed		10		-			1		-			11
Obligations of U.S. states and political subdivisions		29		-			1		-			30
Asset-backed securities⁽²⁾		65		(7	)		2		-			60
U.S. corporate debt securities⁽³⁾		1,714		-			94		(6	)		1,802
Foreign debt securities⁽⁴⁾		424		-			19		(1	)		442
Equity securities		9		-			-		-			9
Money market funds		353		-			-		-			353

Subtotal		3,227		(7	)		129		(8	)		3,341
Accrued investment income		30		-			-		-			30

Total securities available-for-sale	$	3,257	$	(7	)	$	129	$	(8	)	$	3,371


⁽¹⁾		Includes $21 million and $33 million of mortgage-backed securities issued by the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation as of September 30, 2011 and December 31, 2010, respectively.

⁽²⁾		Includes $21 and $31 million of residential mortgage-backed securities at September 30, 2011 and December 31, 2010, respectively.


⁽³⁾		At September 30, 2011 and December 31, 2010, the majority of our U.S. corporate debt securities represent investments in the financial services, consumer products, healthcare and industrials sectors.

⁽⁴⁾		There were no foreign debt securities issued by the governments of Portugal, Ireland, Italy, Greece or Spain at September 30, 2011 or December 31, 2010.

A summary of gross unrealized losses and related fair values as of September 30, 2011 and December 31, 2010, classified as to the length of time the losses have existed follows:


	Less Than One Year							Greater Than One Year
			Gross			Aggregate				Gross			Aggregate
	Number of		Unrealized			Fair Value of		Number of		Unrealized			Fair Value of
September 30, 2011	Securities		Losses			Investments		Securities		Losses			Investments

	(dollars are in millions)

U.S. Treasury		2	$	-		$	1		-	$	-		$	-
U.S. government sponsored enterprises		4		-			61		-		-			-
U.S. government agency issued or guaranteed		-		-			-		-		-			-
Obligations of U.S. states and political subdivisions		-		-			-		-		-			-
Asset-backed securities		-		-			-		6		(9	)		12
U.S. corporate debt securities		130		(5	)		177		5		(1	)		22
Foreign debt securities		63		(2	)		96		-		-			-
Equity Securities		1		-			5		-		-			-

		200	$	(7	)	$	340		11	$	(10	)	$	34


	Less Than One Year							Greater Than One Year
			Gross			Aggregate				Gross			Aggregate
	Number of		Unrealized			Fair Value of		Number of		Unrealized			Fair Value of
December 31, 2010	Securities		Losses			Investments		Securities		Losses			Investments

	(dollars are in millions)

U.S. Treasury		1	$	-		$	25		-	$	-		$	-
U.S. government sponsored enterprises		13		(1	)		139		-		-			-
U.S. government agency issued or guaranteed		-		-			-		-		-			-
Obligations of U.S. states and political subdivisions		4		-			5		-		-			-
Asset-backed securities		-		-			-		8		(7	)		18
U.S. corporate debt securities		100		(5	)		209		6		(1	)		23
Foreign debt securities		24		(1	)		56		-		-			-
Equity Securities		1		-			4		-		-			-

		143	$	(7	)	$	438		14	$	(8	)	$	41

Gross unrealized losses were broadly unchanged during the first nine months of 2011 while gross unrealized gains increased primarily due to a decrease in interest rates since December 31, 2010, particularly during the third quarter of 2011 due to market conditions, which increased the value of our securities. We have reviewed our securities for which there is an unrealized loss in accordance with our accounting policies for other-than-temporary impairment (“OTTI”). As a result of our reviews, no OTTI was recognized during the three and nine months ended September 30, 2011 compared to losses of less than $1 million recorded during the three and nine months ended September 30, 2010. During the nine months ended September 30, 2011, we recognized a $2 million loss in other comprehensive income relating to the non-credit component of OTTI as compared to a $2 million recovery related to OTTI previously recognized in accumulated other comprehensive income during the year-ago period. We do not consider any other securities to be other-than-temporarily impaired because we expect to recover the entire amortized cost basis of the securities and we neither intend to nor expect to be required to sell the securities prior to recovery, even if that equates to holding securities until their individual maturities. However, additional other-than-temporary impairments may occur in future periods if the credit quality of the securities deteriorates.

On-Going Assessment for Other-Than-Temporary Impairment On a quarterly basis, we perform an assessment to determine whether there have been any events or economic circumstances to indicate that a security with an unrealized loss has suffered other-than-temporary impairment. A debt security is considered impaired if the fair value is less than its amortized cost basis at the reporting date. If impaired, we then assess whether the unrealized loss is other-than- temporary.

An unrealized loss is generally deemed to be other-than-temporary and a credit loss is deemed to exist if the present value of the expected future cash flows is less than the amortized cost basis of the debt security. As a result, the credit loss component of an other-than-temporary impairment write-down for debt securities is recorded in earnings while the remaining portion of the impairment loss is recognized net of tax in other comprehensive income (loss) provided we do not intend to sell the underlying debt security and it is more-likely-than-not that we would not have to sell the debt security prior to recovery.

For all our debt securities as of the reporting date, we do not have the intention to sell these securities and believe we will not be required to sell these securities for contractual, regulatory or liquidity reasons.

We consider the following factors in determining whether a credit loss exists and the period over which the debt security is expected to recover:


	•	The length of time and the extent to which the fair value has been less than the amortized cost basis;

	•	The level of credit enhancement provided by the structure which includes, but is not limited to, credit subordination positions, overcollateralization, protective triggers and financial guarantees provided by monoline wraps;

	•	Changes in the near term prospects of the issuer or underlying collateral of a security, such as changes in default rates, loss severities given default and significant changes in prepayment assumptions;

	•	The level of excess cash flows generated from the underlying collateral supporting the principal and interest payments of the debt securities; and

	•	Any adverse change to the credit conditions of the issuer or the security such as credit downgrades by the rating agencies.

At September 30, 2011, approximately 92 percent of our corporate debt securities are rated A- or better and approximately 61 percent of our asset-backed securities, which totaled $44 million are rated “AAA.” At December 31, 2010, approximately 92 percent of our corporate debt securities were rated A- or better and approximately 66 percent of our asset-backed securities, which totaled $60 million were rated “AAA.” Although no OTTI was recorded during the nine months ended September 30, 2011 and OTTI of less than $1 million was recorded in earnings during the nine months ended September 30, 2010, additional other-than-temporary impairments may occur in future periods.

The amortized cost and fair value of asset-backed securities with unrealized losses of more than 12 months for which no other-than-temporary impairment has been recognized at September 30, 2011 and December 31, 2010 are as follows:


	Amortized		Unrealized Losses for		Fair
	Cost		More Than 12 Months		Value

	(in millions)

Asset-backed securities at:
September 30, 2011	$	-	$	-	$	-
December 31, 2010		3		-		3

Although the fair value of a particular security is below its amortized cost for more than 12 months, it does not necessarily result in a credit loss and hence other-than-temporary impairment. The decline in fair value may be caused by, among other things, the illiquidity of the market. To the extent we do not intend to sell the debt security and it is more-likely-than-not we will not be required to sell the security before the recovery of the amortized cost basis, no other-than-temporary impairment is deemed to have occurred.

Proceeds from the sale, call or redemption of available-for-sale investments totaled $360 million and $809 million during the three and nine months ended September 30, 2011, respectively, compared to $25 million and $137 million during the three and nine months ended September 30, 2010, respectively. We realized gross gains of $14 million and $28 million during the three and nine months ended September 30, 2011, respectively, compared to $1 million and $5 million during the three and nine months ended September 30, 2010, respectively. We realized gross losses of less than $1 million during the nine months ended September 30, 2011 and 2010.

Contractual maturities of and yields on investments in debt securities for those with set maturities were as follows:


	Due			After 1			After 5
	Within			but Within			but Within			After
September 30, 2011	1 Year			5 Years			10 Years			10 Years			Total

	(dollars are in millions)

U.S. Treasury:
Amortized cost	$	183		$	181		$	1		$	-		$	365
Fair value		183			192			1			-			376
Yield⁽¹⁾		.72	%		2.34	%		4.96	%		-			1.54	%
U.S. government sponsored enterprises:
Amortized cost	$	366		$	17		$	16		$	22		$	421
Fair value		366			17			18			26			427
Yield⁽¹⁾		.14	%		2.31	%		4.72	%		4.64	%		.64	%
U.S. government agency issued or guaranteed:
Amortized cost	$	-		$	-		$	-		$	6		$	6
Fair value		-			-			-			6			6
Yield⁽¹⁾		-			-			-			4.99	%		4.99	%
Obligations of U.S. states and political subdivisions:
Amortized cost	$	-		$	-		$	-		$	1		$	1
Fair value		-			-			-			1			1
Yield⁽¹⁾		-			-			-			5.50	%		5.50	%
Asset-backed securities:
Amortized cost	$	-		$	22		$	4		$	26		$	52
Fair value		-			23			4			17			44
Yield⁽¹⁾		-			4.84	%		6.07	%		1.46	%		3.26	%
U.S. corporate debt securities:
Amortized cost	$	125		$	646		$	187		$	561		$	1,519
Fair value		125			670			206			662			1,663
Yield⁽¹⁾		1.82	%		3.48	%		5.04	%		5.33	%		4.22	%
Foreign debt securities:
Amortized cost	$	42		$	402		$	42		$	40		$	526
Fair value		43			414			43			46			546
Yield⁽¹⁾		1.41	%		3.01	%		4.45	%		5.78	%		3.20	%


⁽¹⁾		Computed by dividing annualized interest by the amortized cost of respective investment securities.