Investment Securities

12 Months Ended

Dec. 31, 2012

Investments, Debt and Equity Securities [Abstract]

Investment Securities

NOTE 3. INVESTMENT SECURITIES

Substantially all of our investment securities are classified as available-for-sale. These comprise mainly investment grade debt securitiessupporting obligations to annuitants, policyholders and holders of guaranteed investment contracts (GICs) in our run-off insurance operations and Trinity,investment securities at our treasury operations and investments held in our CLL business collateralized by senior secured loans of high-quality, middle-market companies in a variety of industries. We do not have any securities classified as held-to-maturity.

	2012								2011
			Gross		Gross						Gross		Gross
	Amortized		unrealized		unrealized		Estimated		Amortized		unrealized		unrealized		Estimated
December 31 (In millions)	cost		gains		losses		fair value		cost		gains		losses		fair value
Debt
U.S. corporate	$	20,233	$	4,201	$	(302)	$	24,132	$	20,748	$	3,432	$	(410)	$	23,770
State and municipal		4,084		575		(113)		4,546		3,027		350		(143)		3,234
Residential
mortgage-backed(a)		2,198		183		(119)		2,262		2,711		184		(286)		2,609
Commercial
mortgage-backed		2,930		259		(95)		3,094		2,913		162		(247)		2,828
Asset-backed		5,784		31		(77)		5,738		5,102		32		(164)		4,970
Corporate – non-U.S.		2,391		150		(126)		2,415		2,414		126		(207)		2,333
Government – non-U.S.		1,617		149		(3)		1,763		2,488		129		(86)		2,531
U.S. government and
federal agency		3,462		103		–		3,565		3,974		84		-		4,058
Retained interests		76		7		–		83		25		10		-		35
Equity
Available-for-sale		513		86		(3)		596		713		75		(38)		750
Trading		245		–		–		245		241		-		-		241
Total	$	43,533	$	5,744	$	(838)	$	48,439	$	44,356	$	4,584	$	(1,581)	$	47,359

• Substantially collateralized by U.S. mortgages. Of our total RMBS portfolio at December 31, 2012, $1,441 million relates to securities issued by government-sponsored entities and $821 million relates to securities of private label issuers. Securities issued by private label issuers are collateralized primarily by pools of individual direct mortgage loans of financial institutions.

The fair value of investment securities increased to $48,439 million at December 31, 2012, from $47,359million at December 31, 2011, primarily due to the impact of lower interest rates and improved market conditions.

The following tables present the estimated fair values and gross unrealized losses of our available-for-sale investment securities.

	In loss position for
	Less than 12 months					12 months or more
			Gross					Gross
	Estimated		unrealized			Estimated		unrealized
December 31 (In millions)	fair value		losses		(a)	fair value		losses		(a)
2012
Debt
U.S. corporate	$	434	$	(7)		$	813	$	(295)
State and municipal		146		(2)			326		(111)
Residential mortgage-backed		98		(1)			691		(118)
Commercial mortgage-backed		37		0			979		(95)
Asset-backed		18		(1)			658		(76)
Corporate – non-U.S.		167		(8)			602		(118)
Government – non-U.S.		201		(1)			37		(2)
U.S. government and federal agency		0		0			0		0
Retained interests		3		0			0		0
Equity		26		(3)			0		0
Total	$	1,130	$	(23)		$	4,106	$	(815)
2011
Debt
U.S. corporate	$	1,435	$	(241)		$	836	$	(169)
State and municipal		87		(1)			307		(142)
Residential mortgage-backed		219		(9)			825		(277)
Commercial mortgage-backed		244		(23)			1,320		(224)
Asset-backed		100		(7)			850		(157)
Corporate – non-U.S.		330		(28)			607		(179)
Government – non-U.S.		906		(5)			203		(81)
U.S. government and federal agency		502		–			–		–
Retained interests		–		–			–		–
Equity		440		(38)			–		–
Total	$	4,263	$	(352)		$	4,948	$	(1,229)

• Includes gross unrealized losses at December 31, 2012 of $(157) million related to securities that had other-than-temporary impairmentspreviously recognized.

We regularly review investment securities for impairment using both qualitative and quantitative criteria. We presently do not intend to sell the vast majority of our debt securities that are in anunrealized loss position and believe that it is not more likely than not that we will be required to sell these securities before recovery of our amortized cost. We believe that the unrealized loss associated with our equity securities will be recovered within the foreseeable future.

Substantially all of our U.S. corporate debt securities are rated investment grade by the major rating agencies. We evaluate U.S. corporate debt securities based on a variety of factors, such as the financial health of and specific prospects for the issuer, including whether the issuer is in compliance with the terms and covenants of the security. In the event a U.S. corporate debt security is deemed to be other-than-temporarily impaired, we isolate the credit portion of the impairment by comparing the present value of our expectation of cash flows to the amortized cost of the security. We discount the cash flows using the original effective interest rate of the security.

The vast majority of our RMBS have investmentgrade credit ratings from the major rating agencies and are in a senior position in the capital structure of the deal. Of our total RMBS at December 31, 2012 and 2011, approximately $471 million and $515 million, respectively, relate to residential subprime credit, primarily supporting our guaranteed investment contracts. These are collateralized primarily by pools of individual, direct mortgage loans (a majority of which were originated in 2006 and 2005), not other structured products such as collateralized debt obligations. In addition, of the total residential subprime credit exposure at December 31, 2012 and 2011, approximately $219 million and $277 million, respectively, was insured by Monoline insurers (Monolines) on which we continue to place reliance.

Our commercial mortgage-backed securities (CMBS) portfolio is collateralized by both diversified pools of mortgages that were originated for securitization (conduit CMBS) and pools of large loans backed by high-quality properties (large loan CMBS), a majority of which were originated in 2007 and 2006.The vast majority of the securities in our CMBS portfolio have investment grade credit ratings and the vast majority of the securities are in a senior position in the capital structure.

Our asset-backed securities (ABS) portfolio is collateralized by senior secured loans of high-quality, middle-market companies in a variety of industries, as well as a variety of diversified pools of assets such as student loans and credit cards. The vast majority of our ABS are in a senior position in the capital structure of the deals. In addition, substantially all of the securities that are below investment grade are in an unrealized gain position.

For ABS and RMBS, we estimate the portion of loss attributable to credit using a discounted cash flow model that considers estimates of cash flows generated from the underlying collateral. Estimates of cash flows consider credit risk, interest rate and prepayment assumptions that incorporate management's best estimate of key assumptions of the underlying collateral, including default rates, loss severity and prepayment rates. For CMBS, we estimate the portion of loss attributable to credit by evaluating potential losses on each of the underlying loans in the security. Collateral cash flows are considered in the context of our position in the capital structure of the deals. Assumptions can vary widely depending upon the collateral type, geographic concentrations and vintage.

If there has been an adverse change in cash flows for RMBS, management considers credit enhancements such as monoline insurance (which are features of a specific security). In evaluating the overall credit worthiness of the Monoline, we use an analysis that is similar to the approach we use for corporate bonds, including an evaluation of the sufficiency of the Monoline's cash reserves and capital, ratings activity, whether the Monoline is in default or default appears imminent, and the potential for intervention by an insurance or other regulator.

During 2012, we recorded pre-tax,other-than-temporary impairments of $192 million, of which $140 million was recorded through earnings ($38 million relates to equity securities) and $52 million was recorded in accumulated other comprehensive income (AOCI). At January 1, 2012, cumulative impairments recognized in earnings associated with debt securities still held were $558 million. During 2012, we recognized first-time impairments of $27 million and incremental charges on previously impaired securities of $40million. These amounts included $219 million related to securities that were subsequently sold.

During 2011, we recorded pre-tax,other-than-temporary impairments of $467 million, of which $387 million was recorded through earnings ($81 million relates to equity securities) and $80 million was recorded in AOCI. At January 1, 2011, cumulative impairments recognized in earnings associated with debt securities still held were $332 million. During 2011, we recognized first-time impairments of $58 million and incremental charges on previously impaired securities of $230 million. These amounts included $62 million related to securities that were subsequently sold.

During 2010, we recorded pre-tax,other-than-temporary impairments of $460 million, of which $253 million was recorded through earnings ($35 million relates to equity securities) and $207 million was recorded in AOCI. At January 1, 2010, cumulative impairments recognized in earnings associated with debt securities still held were $172million.During 2010, we recognized first-time impairments of $164 million and incremental charges on previously impaired securities of $38 million. These amounts included $41 million related to securities that were subsequently sold.

Contractual Maturities of our Investment in Available-for-Sale Debt Securities (Excluding Mortgage-Backed and Asset-Backed Securities)

	Amortized		Estimated
(In millions)	cost		fair value
Due in
2013	$	1,937	$	1,960
2014-2017		7,167		7,180
2018-2022		4,782		5,283
2023 and later		17,901		21,998

We expect actual maturities to differ from contractual maturities because borrowers have the right to call or prepay certain obligations.

Supplemental information about gross realized gains and losses on available-for-sale investment securities follows.

(In millions)	2012		2011		2010
Gains	$	177	$	205	$	190
Losses, including impairments		(211)		(402)		(281)
Net	$	(34)	$	(197)	$	(91)

Although we generally do not have the intent to sell any specific securities at the end of the period, in the ordinary course of managing our investment securities portfolio, we may sell securities prior to their maturities for a variety of reasons, including diversification, credit quality, yield and liquidity requirements and the funding of claims and obligations to policyholders. In some of our bank subsidiaries, we maintain a certain level of purchases and sales volume principally of non-U.S. government debt securities. In these situations, fair value approximates carrying value for these securities.

Proceeds from investment securities sales and early redemptions by issuers totaled $12,792 million, $15,606 million and $16,221millionin 2012, 2011 and 2010, respectively, principally from the sales of short-term securities in our bank subsidiaries and treasury operations.

We recognized pre-tax gains (losses) on trading securities of $20 million, $22 million and$(7) millionin 2012, 2011 and 2010, respectively.