Investment Securities

3 Months Ended

Mar. 31, 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.

	March 31, 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	$	19,711	$	3,088	$	(138)	$	22,661	$	19,600	$	2,323	$	(217)	$	21,706
State and municipal		5,115		409		(130)		5,394		4,245		235		(191)		4,289
Residential mortgage-backed(a)		1,770		143		(39)		1,874		1,819		139		(48)		1,910
Commercial mortgage-backed		2,986		198		(61)		3,123		2,929		188		(82)		3,035
Asset-backed		7,347		32		(41)		7,338		7,373		60		(46)		7,387
Corporate – non-U.S.		1,716		137		(64)		1,789		1,741		103		(86)		1,758
Government – non-U.S.		2,058		103		(3)		2,158		2,336		81		(7)		2,410
U.S. government and
federal agency		707		48		(18)		737		752		45		(27)		770
Retained interests		64		11		-		75		64		8		-		72
Equity
Available-for-sale		195		46		(8)		233		203		51		(3)		251
Trading		68		-		-		68		74		-		-		74
Total	$	41,737	$	4,215	$	(502)	$	45,450	$	41,136	$	3,233	$	(707)	$	43,662

• Substantially collateralized by U.S. mortgages. At March 31, 2014, $1,225 million relates to securities issued by government-sponsored entities and $649 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.

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
	Estimated		unrealized			Estimated		unrealized
(In millions)	fair value		losses		(a)	fair value		losses		(a)
March 31, 2014
Debt
U.S. corporate	$	1,578	$	(63)		$	563	$	(75)
State and municipal		942		(37)			347		(93)
Residential mortgage-backed		187		(6)			430		(33)
Commercial mortgage-backed		254		(11)			803		(50)
Asset-backed		101		(1)			294		(40)
Corporate – non-U.S.		43		(1)			430		(63)
Government – non-U.S.		1,098		(3)			52		-
U.S. government and federal agency		238		(18)			-		-
Retained interests		1		-			1		-
Equity		40		(8)			-		-
Total	$	4,482	$	(148)		$	2,920	$	(354)	(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)

• Includes gross unrealized losses related to securities that had other-than-temporary impairments previously recognized of $(85) million at March 31, 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 March 31, 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 March 31, 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 three months ended March 31, 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 March 31, 2014, $1,225 million and $649 million related to agency and non-agency securities, respectively. Additionally, $355 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 March 31
(In millions)		2014		2013
Total pre-tax, OTTI recognized	$	38	$	289
Less: pre-tax, OTTI recognized in AOCI		(4)		(11)
Pre-tax, OTTI recognized in earnings(a)	$	34	$	278

(a)Included pre-tax, other-than-temporary impairments recorded in earnings related to equity securities of $1million during both the three months ended March 31, 2014 and 2013.

Changes in Cumulative Credit Loss Impairments Recognized on Debt Securities Still Held
		Three months ended March 31
(In millions)		2014		2013
Cumulative credit loss impairments recognized, beginning of period	$	1,025	$	420
Credit loss impairments recognized on securities not previously impaired		-		263
Incremental credit loss impairments recognized on securities previously impaired		29		12
Less: credit loss impairments previously recognized on securities sold during the period		(51)		(1)
Cumulative credit loss impairments recognized, end of period	$	1,003	$	694

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	$	1,838	$	1,845
After one year through five years		3,630		3,892
After five years through ten years		5,349		5,641
After ten years		18,490		21,361

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 March 31
(In millions)	2014		2013
Gains	$	19	$	62
Losses, including impairments		(36)		(278)
Net	$	(17)	$	(216)

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 issuerstotaled $1,349 million and $3,641 million in the three months ended March 31, 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 $(5) million and $36 million in the three months ended March 31, 2014 and 2013, respectively.