4. INVESTMENT SECURITIES

Investment securities classified as current and long-term were as follows at September 30, 2012 and December 31, 2011, respectively:


	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(in millions)
September 30, 2012
U.S. Treasury and other U.S. government corporations and agencies:
U.S. Treasury and agency obligations	$	545	$	18	$	0		$	563
Mortgage-backed securities		1,836		107		(1	)		1,942
Tax-exempt municipal securities		2,688		192		(2	)		2,878
Mortgage-backed securities:
Residential		36		1		(1	)		36
Commercial		613		45		0			658
Asset-backed securities		36		1		0			37
Corporate debt securities		3,377		406		(2	)		3,781

Total debt securities	$	9,131	$	770	$	(6	)	$	9,895


December 31, 2011
U.S. Treasury and other U.S. government corporations and agencies:
U.S. Treasury and agency obligations	$	705	$	20	$	0		$	725
Mortgage-backed securities		1,701		85		(2	)		1,784
Tax-exempt municipal securities		2,709		149		(2	)		2,856
Mortgage-backed securities:
Residential		46		0		(2	)		44
Commercial		356		25		0			381
Asset-backed securities		82		1		0			83
Corporate debt securities		3,329		262		(11	)		3,580

Total debt securities	$	8,928	$	542	$	(17	)	$	9,453

Gross unrealized losses and fair values aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position were as follows at September 30, 2012 and December 31, 2011, respectively:


	Less than 12 months					12 months or more					Total
	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
	(in millions)
September 30, 2012
U.S. Treasury and other U.S. government corporations and agencies:
U.S. Treasury and agency obligations	$	49	$	0		$	1	$	0		$	50	$	0
Mortgage-backed securities		54		(1	)		15		0			69		(1	)
Tax-exempt municipal securities		51		(1	)		25		(1	)		76		(2	)
Mortgage-backed securities:
Residential		0		0			4		(1	)		4		(1	)
Commercial		10		0			0		0			10		0
Asset-backed securities		0		0			7		0			7		0
Corporate debt securities		62		(2	)		6		0			68		(2	)

Total debt securities	$	226	$	(4	)	$	58	$	(2	)	$	284	$	(6	)


December 31, 2011
U.S. Treasury and other U.S. government corporations and agencies:
U.S. Treasury and agency obligations	$	117	$	0		$	0	$	0		$	117	$	0
Mortgage-backed securities		67		(1	)		18		(1	)		85		(2	)
Tax-exempt municipal securities		53		0			48		(2	)		101		(2	)
Mortgage-backed securities:
Residential		3		0			24		(2	)		27		(2	)
Commercial		14		0			0		0			14		0
Asset-backed securities		16		0			4		0			20		0
Corporate debt securities		355		(10	)		41		(1	)		396		(11	)

Total debt securities	$	625	$	(11	)	$	135	$	(6	)	$	760	$	(17	)

Approximately 94% of our debt securities were investment-grade quality, with a weighted average credit rating of AA- by S&P at September 30, 2012. Most of the debt securities that were below investment-grade were rated BB, the higher end of the below investment-grade rating scale. At September 30, 2012, 10% of our tax-exempt municipal securities were pre-refunded, generally with U.S. government and agency securities. Tax-exempt municipal securities that were not pre-refunded were diversified among general obligation bonds of U.S. states and local municipalities as well as special revenue bonds. General obligation bonds, which are backed by the taxing power and full faith of the issuer, accounted for 43% of the tax-exempt municipals that were not pre-refunded in the portfolio. Special revenue bonds, issued by a municipality to finance a specific public works project such as utilities, water and sewer, transportation, or education, and supported by the revenues of that project, accounted for the remaining 57% of these municipals. Our general obligation bonds are diversified across the U.S. with no individual state exceeding 11%. In addition, 21% of our tax-exempt securities were insured by bond insurers and had an equivalent weighted average S&P credit rating of AA- exclusive of the bond insurers’ guarantee. Our investment policy limits investments in a single issuer and requires diversification among various asset types.

The recoverability of our non-agency residential and commercial mortgage-backed securities is supported by factors such as seniority, underlying collateral characteristics and credit enhancements. These residential and commercial mortgage-backed securities at September 30, 2012 primarily were composed of senior tranches having high credit support, with over 99% of the collateral consisting of prime loans. The weighted average credit rating of all commercial mortgage-backed securities was AA at September 30, 2012.

The percentage of corporate securities associated with the financial services industry was 22.6% at September 30, 2012 and 19.3% at December 31, 2011.

Several European countries, including Spain, Italy, Ireland, Portugal, and Greece, have been subject to credit deterioration due to weakness in their economic and fiscal situations. We have no direct exposure to sovereign issuances of these five countries.

All issuers of securities we own that were trading at an unrealized loss at September 30, 2012 remain current on all contractual payments. After taking into account these and other factors previously described, we believe these unrealized losses primarily were caused by an increase in market interest rates and tighter liquidity conditions in the current markets than when the securities were purchased. At September 30, 2012, we did not intend to sell the securities with an unrealized loss position in accumulated other comprehensive income, and it is not likely that we will be required to sell these securities before recovery of their amortized cost basis. As a result, we believe that the securities with an unrealized loss were not other-than-temporarily impaired at September 30, 2012.

The detail of realized gains (losses) related to investment securities and included within investment income was as follows for the three and nine months ended September 30, 2012 and 2011:


	For the three months ended September 30,						For the nine months ended September 30,
	2012			2011			2012			2011
	(in millions)
Gross realized gains	$	10		$	5		$	26		$	16
Gross realized losses		(4	)		(3	)		(6	)		(9	)

Net realized capital gains	$	6		$	2		$	20		$	7

There were no material other-than-temporary impairments for the three and nine months ended September 30, 2012 or 2011.

The contractual maturities of debt securities available for sale at September 30, 2012, regardless of their balance sheet classification, are shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.


	Amortized Cost		Fair Value
	(in millions)
Due within one year	$	393	$	396
Due after one year through five years		1,853		1,939
Due after five years through ten years		2,690		2,963
Due after ten years		1,674		1,924
Mortgage and asset-backed securities		2,521		2,673

Total debt securities	$	9,131	$	9,895