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Investment Securities
9 Months Ended
Sep. 30, 2011
Investment Securities [Abstract] 
Investment Securities

3. INVESTMENT SECURITIES

Substantially all of our investment securities are classified as available-for-sale. These comprise investment grade debt securities, including investment securities supporting obligations to holders of guaranteed investment contracts (GICs) in Trinity, and investment securities at our treasury operations. We do not have any securities classified as held to maturity.

 At
 September 30, 2011 December 31, 2010
   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$ 3,696 $ 59 $ (168) $ 3,587 $ 3,490 $169 $ (14) $ 3,645
   State and municipal  654   17   (141)   530   918  4   (232)   690
   Residential mortgage-backed(a)  1,790   29   (281)   1,538   2,099  14   (355)   1,758
   Commercial mortgage-backed  1,480   25   (199)   1,306   1,619   -   (183)   1,436
   Asset-backed  3,925   2   (215)   3,712   3,242   7   (190)   3,059
   Corporate – non-U.S.  1,395   34   (124)   1,305   1,478   39   (111)   1,406
   Government – non-U.S.  1,787   4   (133)   1,658   1,804   8   (58)   1,754
   U.S. government and                       
       federal agency  2,523   13   –    2,536   2,663   3   (5)   2,661
Retained interests  29   14   (6)   37   55   10   (26)   39
Equity                       
   Available-for-sale  720   123   (77)   766   902   194   (9)   1,087
   Trading  387   –    –    387   417   -   -   417
Total$ 18,386 $ 320 $ (1,344) $ 17,362 $ 18,687 $448 $ (1,183) $ 17,952
                        
                        

  • Substantially collateralized by U.S. mortgages. Of our total residential mortgage-backed securities (RMBS) portfolio at September 30, 2011, $770 million relates to securities issued by government sponsored entities and $768 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 individual financial institutions.

 In loss position for 
 Less than 12 months 12 months or more 
   Gross (a)  Gross 
 EstimatedunrealizedEstimatedunrealized 
(In millions)fair valuelossesfair valuelosses(a)
             
September 30, 2011            
Debt            
   U.S. corporate$ 584 $ (69) $ 451 $ (99) 
   State and municipal  56   (28)   266   (113) 
   Residential mortgage-backed  134   (1)   892   (280) 
   Commercial mortgage-backed  –    –    1,304   (199) 
   Asset-backed  2,836   (48)   850   (167) 
   Corporate – non-U.S.  38   (2)   723   (122) 
   Government – non-U.S.  578   (25)   160   (108) 
   U.S. government and federal agency  –    –    2   –  
Retained interests  –    –    3   (6) 
Equity  116   (77)   –    –  
Total$ 4,342 $ (250) $ 4,651 $ (1,094) 
             
December 31, 2010            
Debt            
   U.S. corporate$ 357 $ (5) $ 337 $ (9) 
   State and municipal  137   (16)   443   (216) 
   Residential mortgage-backed  166   (3)   920   (352) 
   Commercial mortgage-backed  779   (103)   652   (80) 
   Asset-backed  111   (5)   902   (185) 
   Corporate – non-U.S.  123   (2)   673   (109) 
   Government – non-U.S.  642   (6)   105   (52) 
   U.S. government and federal agency  1,613   (5)   –    –  
Retained interests  –    –    34   (26) 
Equity  46   (9)   –    –  
Total$ 3,974 $ (154) $ 4,066 $ (1,029) 
             
             

  • At September 30, 2011, other-than-temporary impairments previously recognized through other comprehensive income (OCI) on securities still held amounted to $(467) million, of which$ (378) million related to RMBS. Gross unrealized losses related to those securities at September 30, 2011 amounted to $(604) million, of which $(495) million related to RMBS.

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 and believe that it is not more likely than not that we will be required to sell these securities that are in an unrealized loss position before recovery of our amortized cost. We believe that the unrealized loss associated with our equity securities will be recovered within the foreseeable future. The methodologies and significant inputs used to measure the amount of credit loss for our investment securities during the three and nine months ended September 30, 2011 have not changed from those described in our 2010 consolidated financial statements. See Note 3 in our 2010 consolidated financial statements for additional information regarding these methodologies and inputs.

 

During the third quarter of 2011, we recorded other-than-temporary impairments of $83 million, of which $64 million was recorded through earnings ($6 million relates to equity securities) and $19 million was recorded in accumulated other comprehensive income (AOCI). At July 1, 2011, cumulative impairments recognized in earnings associated with debt securities still held were $392 million. During the third quarter, we recognized first time impairments of $36 million and incremental charges on previously impaired securities of $20 million. These amounts included $1 million related to securities that were subsequently sold.

 

During the third quarter of 2010, we recorded other-than-temporary impairments of $36 million, of which $30 million was recorded through earnings ($23 million relates to equity securities) and $6 million was recorded in AOCI. At July 1, 2010, cumulative impairments recognized in earnings associated with debt securities still held were $249 million. During the third quarter of 2010, we recognized first time impairments of $2 million which included $1 million related to securities that were subsequently sold.

 

During the nine months ended September 30, 2011, we recorded other-than-temporary impairments of $260 million, of which $179 million was recorded through earnings ($16 million relates to equity securities) and $81 million was recorded in AOCI. At January 1, 2011, cumulative impairments recognized in earnings associated with debt securities still held were $316 million. During the nine months ended September 30, 2011, we recognized first time impairments of $55 million and incremental charges on previously impaired securities of $99 million. These amounts included $22 million related to securities that were subsequently sold.

 

During the nine months ended September 30, 2010, we recorded other-than-temporary impairments of $283 million, of which $156 million was recorded through earnings ($24 million relates to equity securities) and $127 million was recorded in AOCI. At January 1, 2010, cumulative impairments recognized in earnings associated with debt securities still held were $140 million. During the nine months ended September 30, 2010, we recognized first time impairments of $92 million and incremental charges on previously impaired securities of $34 million. These amounts included $15 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     
    2011$ 2,663 $ 2,665
    2012-2015  4,712   4,720
    2016-2020  1,734   1,522
    2021 and later  932   695

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.

  Three months ended September 30, Nine months ended September 30,
(In millions)2011 2010 2011 2010
            
Gains$ 25 $ 29 $ 180 $ 135
Losses, including impairments  (64)   (32)   (188)   (161)
Net$ (39) $ (3) $ (8) $ (26)
            

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 the issuer totaled $3,369 million and $4,520 million in the three months ended September 30, 2011 and 2010, respectively, and $13,131 million and $11,449 million in the nine months ended September 30, 2011 and 2010, respectively, principally from the sales of short-term securities in our bank subsidiaries and treasury operations.

 

We recognized net pre-tax gains (losses) on trading securities of $(29) million and $33 million in the three months ended September 30, 2011 and 2010, respectively, and $26 million and $52 million in the nine months ended September 30, 2011 and 2010, respectively.