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Investment Securities
 6 Months Ended
Jun. 30, 2014
Investment Securities [Abstract]  
Investment Securities

3. INVESTMENT SECURITIES

Substantially all of our investment securities are classified as available-for-sale. These comprise mainly investment-grade debt securities supporting obligations to annuitants, policyholders in our run-off insurance operations and supporting obligations to holders of guaranteed investment contracts (GICs) in Trinity 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.

 June 30, 2014 December 31, 2013
   Gross Gross     Gross Gross  
 Amortized unrealized unrealized Estimated Amortized unrealized unrealized Estimated
(In millions)cost gains losses fair value cost gains losses fair value
                        
                        
Debt                       
U.S. corporate$ 19,800 $ 3,510 $ (91) $ 23,219 $ 19,600 $ 2,323 $ (217) $ 21,706
   State and municipal  5,144   497   (96)   5,545   4,245   235   (191)   4,289
   Residential mortgage-backed(a)  1,755   153   (30)   1,878   1,819   139   (48)   1,910
   Commercial mortgage-backed  2,933   207   (42)   3,098   2,929   188   (82)   3,035
   Asset-backed  7,685   33   (36)   7,682   7,373   60   (46)   7,387
   Corporate – non-U.S.  1,666   179   (50)   1,795   1,741   103   (86)   1,758
   Government – non-U.S.  2,011   118   (3)   2,126   2,336   81   (7)   2,410
   U.S. government and                       
        federal agency  698   50   (1)   747   752   45   (27)   770
Retained interests  60   13   -   73   64   8   -   72
Equity                       
   Available-for-sale  215   71   (2)   284   203   51   (3)   251
   Trading  53   -   -   53   74   -   -   74
Total$ 42,020 $ 4,831 $ (351) $ 46,500 $ 41,136 $ 3,233 $ (707) $ 43,662
                        

  • Substantially collateralized by U.S. mortgages. At June 30, 2014, $1,238 million related to securities issued by government-sponsored entities and $640 million related 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.

 

Estimated Fair Value and Gross Unrealized Losses of Available-for-Sale Investment Securities

 

 In loss position for 
 Less than 12 months 12 months or more 
   Gross   Gross 
 Estimatedunrealized Estimatedunrealized 
(In millions)fair valuelosses(a)fair valuelosses(a)
             
June 30, 2014            
Debt            
   U.S. corporate$ 234 $ (4) $ 1,523 $ (87) 
   State and municipal  115   (2)   766   (94) 
   Residential mortgage-backed  47   (1)   471   (29) 
   Commercial mortgage-backed  5   -   931   (42) 
   Asset-backed  3   -   321   (36) 
   Corporate – non-U.S.  20   -   444   (50) 
   Government – non-U.S.  984   (3)   89   - 
   U.S. government and federal agency  -   -   255   (1) 
Retained interests  7   -   1   - 
Equity  46   (2)   -   - 
Total$ 1,461 $ (12) $ 4,801 $ (339)(b)
             
December 31, 2013            
Debt            
   U.S. corporate$ 2,170 $ (122) $ 598 $ (95) 
   State and municipal  1,076   (82)   367   (109) 
   Residential mortgage-backed  232   (11)   430   (37) 
   Commercial mortgage-backed  396   (24)   780   (58) 
   Asset-backed  112   (2)   359   (44) 
   Corporate – non-U.S.  96   (3)   454   (83) 
   Government – non-U.S.  1,479   (6)   42   (1) 
   U.S. government and federal agency  229   (27)   254   - 
Retained interests  2   -   -   - 
Equity  31   (3)   -   - 
Total$ 5,823 $ (280) $ 3,284 $ (427) 
             

  • Included gross unrealized losses related to securities that had other-than-temporary impairments previously recognized of $(66) million at June 30, 2014.
  • The majority relate to debt securities held to support obligations to holders of GICs and more than 70% are debt securities that were considered to be investment-grade by the major rating agencies at June 30, 2014.  

 

We regularly review investment securities for other-than-temporary impairment (OTTI) using both qualitative and quantitative criteria. For debt securities, our qualitative review considers our ability and intent to hold the security and the financial condition of and near-term prospects for the issuer, including whether the issuer is in compliance with the terms and covenants of the security. Our quantitative review considers whether there has been an adverse change in expected future cash flows. Unrealized losses are not indicative of the amount of credit loss that would be recognized and at June 30, 2014 are primarily due to increases in market yields subsequent to our purchase of the securities. We presently do not intend to sell the vast majority of our debt securities that are in an unrealized loss position and believe that it is not more likely than not that we will be required to sell the vast majority of these securities before anticipated recovery of our amortized cost. The methodologies and significant inputs used to measure the amount of credit loss for our investment securities during the six months ended June 30, 2014 have not changed. For equity securities, we consider the duration and the severity of the unrealized loss. We believe that the unrealized loss associated with our equity securities will be recovered within the foreseeable future.

Our corporate debt portfolio comprises securities issued by public and private corporations in various industries, primarily in the U.S. Substantially all of our corporate debt securities are rated investment grade by the major rating agencies.

Our RMBS portfolio is collateralized primarily by pools of individual, direct mortgage loans, of which substantially all are in a senior position in the capital structure of the deals, not other structured products such as collateralized debt obligations. Of the total RMBS held at June 30, 2014, $1,238 million and $640 million related to agency and non-agency securities, respectively. Additionally, $337 million was related to residential subprime credit securities, primarily supporting our guaranteed investment contracts. Substantially all of the subprime exposure is related to securities backed by mortgage loans originated in 2006 and prior. A majority of subprime RMBS have been downgraded to below investment grade and are insured by Monoline insurers (Monolines). We continue to place partial reliance on Monolines with adequate capital and claims paying resources depending on the extent of the Monoline's anticipated ability to cover expected credit losses.

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 prior. The vast majority of the securities in our CMBS portfolio have investment-grade credit ratings.

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 the securities in our ABS portfolio are in a senior position in the capital structure of the deals.

Pre-tax, Other-Than-Temporary Impairments on Investment Securities
            
 Three months ended June 30 Six months ended June 30
(In millions)2014 2013 2014 2013
            
Total pre-tax, OTTI recognized$ 9 $ 152 $ 47 $ 441
Less pre-tax, OTTI recognized in AOCI  -   (19)   (4)   (30)
Pre-tax, OTTI recognized in earnings(a)$ 9 $ 133 $ 43 $ 411
            

(a)       Included pre-tax, other-than-temporary impairments recorded in earnings related to equity securities of $2 million and an insignificant amount in the three months ended June 30, 2014 and 2013, respectively, and $3 million and $1 million in the six months ended June 30, 2014 and 2013, respectively. The three and six months ended June 30, 2013 included $96 million related to the impairment of an investment in a Brazilian company that was fully offset by the benefit of a guarantee provided by GE.

Changes in Cumulative Credit Loss Impairments Recognized on Debt Securities Still Held
            
 Three months ended June 30 Six months ended June 30
(In millions)2014 2013 2014 2013
            
Cumulative credit loss impairments recognized, beginning of period$ 1,003 $ 694 $ 1,025 $ 420
Credit loss impairments recognized on securities not previously impaired  1   122   1   385
Incremental credit loss impairments recognized on securities previously impaired   2   7   31   19
Less credit loss impairments previously recognized on securities sold during the period  (3)   (46)   (54)   (47)
Cumulative credit loss impairments recognized, end of period$ 1,003 $ 777 $ 1,003 $ 777

Contractual Maturities of Investment in Available-for-Sale Debt Securities (Excluding Mortgage-Backed and Asset-Backed Securities)
            
       Amortized Estimated
(In millions)      cost fair value
            
Due           
    Within one year      $1,935 $1,942
    After one year through five years       3,680  4,018
    After five years through ten years       5,241  5,592
    After ten years       18,463  21,880
            

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

 

Gross Realized Gains and Losses on Available-for-Sale Investment Securities

 Three months ended June 30 Six months ended June 30
(In millions)2014 2013 2014 2013
            
Gains$43 $123 $62 $185
Losses, including impairments (9)  (139)  (45)  (417)
    Net$34 $(16) $17 $(232)
            

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 $1,198 million and $6,284 million in the three months ended June 30, 2014 and 2013, respectively, and $2,547 million and $9,925 million in the six months ended June 30, 2014 and 2013, respectively, principally from sales of short-term government securities in our bank subsidiaries and Treasury operations, and redemptions of non-U.S. corporate and asset-backed securities in our CLL business.

 

We recognized pre-tax gains (losses) on trading securities of $1 million and $5 million in the three months ended June 30, 2014 and 2013, respectively, and $(4) million and $41 million in the six months ended June 30, 2014 and 2013, respectively.