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Securities

3 Months Ended

Mar. 31, 2012

3. Securities

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


March 31, 2012	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(in millions)
U.S. Treasury	$	12	$	-	$	-		$	12
U.S. government sponsored enterprises⁽¹⁾		31		4		-			35
Asset-backed securities⁽²⁾		22		1		-			23
U.S. corporate debt securities⁽³⁾		1,134		122		(2	)		1,254
Foreign debt securities⁽⁴⁾		481		19		(1	)		499
Equity securities		10		-		-			10
Money market funds		123		-		-			123

Subtotal		1,813		146		(3	)		1,956
Accrued investment income		21		-		-			21

Total securities available-for-sale	$	1,834	$	146	$	(3	)	$	1,977


December 31, 2011	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(in millions)
U.S. Treasury	$	92	$	-	$	-		$	92
U.S. government sponsored enterprises⁽¹⁾		33		5		-			38
U.S. government agency issued or guaranteed		2		-		-			2
Asset-backed securities⁽²⁾		26		1		-			27
U.S. corporate debt securities⁽³⁾		1,175		140		(7	)		1,308
Foreign debt securities⁽⁴⁾		431		20		(2	)		449
Equity securities		10		-		-			10
Money market funds		93		-		-			93

Subtotal		1,862		166		(9	)		2,019
Accrued investment income		20		-		-			20

Total securities available-for-sale	$	1,882	$	166	$	(9	)	$	2,039

⁽¹⁾	Includes $6 million and $8 million of mortgage-backed securities issued by the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation as of March 31, 2012 and December 31, 2011, respectively.

⁽²⁾	Includes $3 and $4 million of residential mortgage-backed securities at March 31, 2012 and December 31, 2011, respectively.

⁽³⁾	At March 31, 2012 and December 31, 2011, the majority of our U.S. corporate debt securities represent investments in the financial services, consumer products, healthcare and industrial sectors.

⁽⁴⁾	There were no foreign debt securities issued by the governments of Portugal, Ireland, Italy, Greece or Spain at March 31, 2012 or December 31, 2011.

A summary of gross unrealized losses and related fair values as of March 31, 2012 and December 31, 2011, classified as to the length of time the losses have existed follows:


	Less Than One Year							Greater Than One Year
March 31, 2012	Number of Securities		Gross Unrealized Losses			Aggregate Fair Value of Investments		Number of Securities		Gross Unrealized Losses			Aggregate Fair Value of Investments
	(dollars are in millions)
U.S. Treasury		11	$	-		$	8		-	$	-		$	-
Asset-backed securities		-		-			-		1		-			-
U.S. corporate debt securities		62		(1	)		75		11		(1	)		22
Foreign debt securities		68		(1	)		95		-		-			-
Equity Securities		1		-			5		-		-			-

		142	$	(2	)	$	183		12	$	(1	)	$	22


	Less Than One Year							Greater Than One Year
December 31, 2011	Number of Securities		Gross Unrealized Losses			Aggregate Fair Value of Investments		Number of Securities		Gross Unrealized Losses		Aggregate Fair Value of Investments
	(dollars are in millions)
U.S. Treasury		4	$	-		$	4		-	$	-	$	-
U.S. government sponsored enterprises		1		-			5		-		-		-
Asset-backed securities		-		-			-		1		-		-
U.S. corporate debt securities		134		(7	)		191		3		-		13
Foreign debt securities		71		(2	)		91		-		-		-
Equity Securities		1		-			5		-		-		-

		211	$	(9	)	$	296		4	$	-	$	13

Gross unrealized gains decreased during the first quarter of 2012 primarily due to an increase in long-term U.S. interest rates since December 31, 2011 which decreased 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 this review, during the first quarter of 2012 no OTTI losses were recognized in the statement of income (loss). During the first quarter of 2011, OTTI losses of less than $1 million were recognized in earnings on certain debt securities.

We do not consider any 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 or if we make additional changes in our overall investment strategy.

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 March 31, 2012, approximately 90 percent of our corporate debt securities are rated A- or better and approximately 91 percent of our asset-backed securities, which totaled $23 million are rated “AAA.” At December 31, 2011, approximately 88 percent of our corporate debt securities are rated A- or better and approximately 91 percent of our asset-backed securities, which totaled $27 million are rated “AAA.” Other-than-temporary impairments may occur in future periods if the credit quality of the securities deteriorates.

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 $94 million and $110 million during the three months ended March 31, 2012 and 2011, respectively. We realized gross gains of $2 million and $3 million during the three months ended March 31, 2012 and 2011, respectively. We realized gross losses of less than $1 million during each of the three months ended March 31, 2012 and 2011.

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


March 31, 2012	Due Within 1 Year			After 1 but Within 5 Years			After 5 but Within 10 Years			After 10 Years			Total
	(dollars are in millions)
U.S. Treasury:
Amortized cost	$	4		$	8		$	-		$	-		$	12
Fair value		4			8			-			-			12
Yield⁽¹⁾		.38	%		.94	%		-			-			.75	%
U.S. government sponsored enterprises:
Amortized cost	$	5		$	5		$	2		$	19		$	31
Fair value		5			6			2			22			35
Yield⁽¹⁾		.26	%		4.39	%		5.57	%		4.64	%		3.96	%
Asset-backed securities:
Amortized cost	$	-		$	19		$	2		$	1		$	22
Fair value		-			20			2			1			23
Yield⁽¹⁾		-			4.85	%		6.23	%		5.01	%		5.00	%
U.S. corporate debt securities:
Amortized cost	$	57		$	328		$	204		$	545		$	1,134
Fair value		58			341			226			629			1,254
Yield⁽¹⁾		3.21	%		3.18	%		4.92	%		5.32	%		4.53	%
Foreign debt securities:
Amortized cost	$	45		$	327		$	69		$	40		$	481
Fair value		45			336			72			46			499
Yield⁽¹⁾		3.91	%		2.80	%		4.14	%		5.79	%		3.34	%

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