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Securities

6 Months Ended

Jun. 30, 2012

3. Securities

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


June 30, 2012	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
	(in millions)
Continuing operations:
U.S. government sponsored enterprises⁽¹⁾	$	1	$	-	$	-	$	1
U.S. corporate debt securities⁽²⁾		61		1		-		62
Foreign debt securities⁽³⁾		47		1		-		48
Equity securities		10		-		-		10
Money market funds		29		-		-		29

Subtotal		148		2		-		150
Accrued investment income		1		-		-		1

Securities available-for-sale – continuing operations	$	149	$	2	$	-	$	151

Securities available-for-sale – discontinued operations⁽⁴⁾	$	1,550	$	167	$	-	$	1,717


December 31, 2011	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(in millions)
Continuing operations:
U.S. Treasury	$	80	$	-	$	-		$	80
U.S. government sponsored enterprises⁽¹⁾		1		-		-			1
U.S. corporate debt securities⁽²⁾		57		1		(1	)		57
Foreign debt securities⁽³⁾		26		-		-			26
Equity securities		10		-		-			10
Money market funds		13		-		-			13

Subtotal		187		1		(1	)		187
Accrued investment income		1		-		-			1

Securities available-for-sale – continuing operations	$	188	$	1	$	(1	)	$	188

Securities available-for-sale – discontinued operations⁽⁴⁾	$	1,694	$	165	$	(8	)	$	1,851

⁽¹⁾	Represents mortgage-backed securities issued by the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation as of June 30, 2012 and December 31, 2011.

⁽²⁾	The majority of our U.S. corporate debt securities represent investments in the financial services, consumer products and insurance sectors at June 30, 2012 and December 31, 2011.

⁽³⁾	There were no foreign debt securities issued by the governments of Portugal, Ireland, Italy, Greece or Spain at June 30, 2012 or December 31, 2011.

⁽⁴⁾	Securities available-for-sale in our discontinued operations relates to our discontinued Insurance business and primarily consists of U.S. corporate debt securities, money market funds and foreign debt securities at June 30, 2012 and December 31, 2011.

At June 30, 2012, we had 10 securities with gross unrealized losses for less than one year and 5 securities with unrealized losses for greater than one year, however the gross unrealized losses for these securities both individually and in the aggregate were less than $1 million. The table below provides a summary of gross unrealized losses and related fair values as of December 31, 2011 for available-for-sale securities for continuing operations classified as to the length of time the losses have existed.


	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. corporate debt securities		17	$	(1	)	$	26		-	$	-	$	-
Foreign debt securities		10		-			15		-		-		-
Equity securities		1		-			5		-		-		-

		28	$	(1	)	$	46		-	$	-	$	-

Gross unrealized gains for securities in our continuing operations were essentially flat during the first half of 2012. 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, no OTTI was recorded during the three and six months ended June 30, 2012. During the three and six months ended June 30, 2011, OTTI of less than $1 million was recognized in earnings on certain debt securities.

As it relates to the securities of our discontinued operations, these securities are part of a disposal group that became classified as held for sale during the second quarter of 2012 and moved to assets of discontinued operations. Upon classification as held for sale, we recognized other-than-temporary impairment on the unrealized loss associated with these securities totaling $1 million as we no longer have the intent to hold these securities until recovery of the unrealized loss. See Note 2, “Discontinued Operations,” for additional information.

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.

For available-for-sale securities in our continuing operations, at June 30, 2012, approximately 93 percent of our corporate debt securities are rated A- or better. At December 31, 2011, approximately 90 percent of our corporate debt securities for our continuing operations are rated A- or better. 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.

For available-for-sale securities in our discontinued operations, At June 30, 2012, approximately 86 percent of our corporate debt securities are rated A- or better and approximately 91 percent of our asset-backed securities, which totaled $22 million are rated “AAA.” At December 31, 2011, approximately 88 percent of our corporate debt securities for discontinued operations are rated A- or better and approximately 91 percent of our asset-backed securities for discontinued operations, which totaled $27 million are rated “AAA.” Other-than-temporary impairments may occur in future periods if the credit quality of the securities deteriorates.

There were no significant gross realized gains or gross realized losses for continuing operations recorded during the three and six months ended June 30, 2012 and 2011.

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


June 30, 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. government sponsored enterprises:
Amortized cost	$	-		$	-		$	1		$	-	$	1
Fair value		-			-			1			-		1
Yield⁽¹⁾		-			-			5.58	%		-		5.58	%
U.S. corporate debt securities:
Amortized cost	$	10		$	45		$	6		$	-	$	61
Fair value		10			46			6			-		62
Yield⁽¹⁾		1.15	%		1.84	%		2.97	%		-		1.84	%
Foreign debt securities:
Amortized cost	$	4		$	42		$	1		$	-	$	47
Fair value		4			43			1			-		48
Yield⁽¹⁾		.75	%		2.00	%		3.50	%		-		1.93	%

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