INVESTMENTS

9 Months Ended

Sep. 30, 2015

5. INVESTMENTS

Securities Available for Sale

The following table presents the amortized cost or cost and fair value of our available for sale securities:

										Other-Than-
		Amortized		Gross		Gross				Temporary
		Cost or		Unrealized		Unrealized		Fair		Impairments
(in millions)		Cost		Gains		Losses		Value		in AOCI^(a)
September 30, 2015
Bonds available for sale:
U.S. government and government sponsored entities	$	1,705	$	179	$	(2)	$	1,882	$	-
Obligations of states, municipalities and political subdivisions		26,305		1,361		(120)		27,546		16
Non-U.S. governments		17,940		818		(330)		18,428		-
Corporate debt		134,852		8,032		(2,762)		140,122		21
Mortgage-backed, asset-backed and collateralized:
RMBS		32,891		3,046		(312)		35,625		1,479
CMBS		13,014		775		(72)		13,717		206
CDO/ABS		15,278		505		(149)		15,634		40
Total mortgage-backed, asset-backed and collateralized		61,183		4,326		(533)		64,976		1,725
Total bonds available for sale^(b)		241,985		14,716		(3,747)		252,954		1,762
Equity securities available for sale:
Common stock		986		1,993		(18)		2,961		-
Preferred stock		19		4		-		23		-
Mutual funds		801		43		(36)		808		-
Total equity securities available for sale		1,806		2,040		(54)		3,792		-
Total	$	243,791	$	16,756	$	(3,801)	$	256,746	$	1,762
December 31, 2014
Bonds available for sale:
U.S. government and government sponsored entities	$	2,806	$	204	$	(18)	$	2,992	$	-
Obligations of states, municipalities and political subdivisions		25,979		1,729		(49)		27,659		(13)
Non-U.S. governments		20,280		966		(151)		21,095		-
Corporate debt		134,961		10,594		(1,122)		144,433		64
Mortgage-backed, asset-backed and collateralized:
RMBS		34,377		3,435		(292)		37,520		1,767
CMBS		12,129		815		(59)		12,885		215
CDO/ABS		12,775		628		(128)		13,275		47
Total mortgage-backed, asset-backed and collateralized		59,281		4,878		(479)		63,680		2,029
Total bonds available for sale^(b)		243,307		18,371		(1,819)		259,859		2,080
Equity securities available for sale:
Common stock		1,185		2,461		(17)		3,629		-
Preferred stock		21		4		-		25		-
Mutual funds		724		54		(37)		741		-
Total equity securities available for sale		1,930		2,519		(54)		4,395		-
Total	$	245,237	$	20,890	$	(1,873)	$	264,254	$	2,080

(a) Represents the amount of other-than-temporary impairments recognized in Accumulated other comprehensive income. Amount includes unrealized gains and losses on impaired securities relating to changes in the fair value of such securities subsequent to the impairment measurement date.

(b) At September 30, 2015 and December 31, 2014, bonds available for sale held by us that were below investment grade or not rated totaled $35.4 billion and $35.1 billion, respectively.

Securities Available for Sale in a Loss Position

The following table summarizes the fair value and gross unrealized losses on our available for sale securities, aggregated by major investment category and length of time that individual securities have been in a continuous unrealized loss position:

	Less than 12 Months				12 Months or More				Total
				Gross				Gross				Gross
		Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
(in millions)		Value		Losses		Value		Losses		Value		Losses
September 30, 2015
Bonds available for sale:
U.S. government and government sponsored entities	$	121	$	2	$	1	$	-	$	122	$	2
Obligations of states, municipalities and political
subdivisions		3,190		103		259		17		3,449		120
Non-U.S. governments		4,140		194		725		136		4,865		330
Corporate debt		32,818		1,858		4,664		904		37,482		2,762
RMBS		5,056		82		4,146		230		9,202		312
CMBS		2,239		46		571		26		2,810		72
CDO/ABS		4,686		44		2,018		105		6,704		149
Total bonds available for sale		52,250		2,329		12,384		1,418		64,634		3,747
Equity securities available for sale:
Common stock		96		18		6		-		102		18
Mutual funds		297		28		16		8		313		36
Total equity securities available for sale		393		46		22		8		415		54
Total	$	52,643	$	2,375	$	12,406	$	1,426	$	65,049	$	3,801
December 31, 2014
Bonds available for sale:
U.S. government and government sponsored entities	$	526	$	5	$	281	$	13	$	807	$	18
Obligations of states, municipalities and political
subdivisions		495		9		794		40		1,289		49
Non-U.S. governments		1,606		42		1,690		109		3,296		151
Corporate debt		12,132		450		11,570		672		23,702		1,122
RMBS		4,621		109		3,996		183		8,617		292
CMBS		220		1		2,087		58		2,307		59
CDO/ABS		3,857		50		1,860		78		5,717		128
Total bonds available for sale		23,457		666		22,278		1,153		45,735		1,819
Equity securities available for sale:
Common stock		88		16		2		1		90		17
Mutual funds		280		37		64		-		344		37
Total equity securities available for sale		368		53		66		1		434		54
Total	$	23,825	$	719	$	22,344	$	1,154	$	46,169	$	1,873

At September 30, 2015, we held 12,631 and 198 individual fixed maturity and equity securities, respectively, that were in an unrealized loss position, of which 1,966 individual fixed maturity securities were in a continuous unrealized loss position for 12 months or more. We did not recognize the unrealized losses in earnings on these fixed maturity securities at September 30, 2015 because we neither intend to sell the securities nor do we believe that it is more likely than not that we will be required to sell these securities before recovery of their amortized cost basis. For fixed maturity securities with significant declines, we performed fundamental credit analyses on a security-by-security basis, which included consideration of credit enhancements, expected defaults on underlying collateral, review of relevant industry analyst reports and forecasts and other available market data.

Contractual Maturities of Fixed Maturity Securities Available for Sale

The following table presents the amortized cost and fair value of fixed maturity securities available for sale by contractual maturity:

	Total Fixed Maturity Securities				Fixed Maturity Securities in a Loss
September 30, 2015	Available for Sale				Position Available for Sale
(in millions)		Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in one year or less	$	10,295	$	10,412	$	945	$	926
Due after one year through five years		46,854		49,320		7,176		6,915
Due after five years through ten years		55,985		57,443		17,681		16,601
Due after ten years		67,668		70,803		23,330		21,476
Mortgage-backed, asset-backed and collateralized		61,183		64,976		19,249		18,716
Total	$	241,985	$	252,954	$	68,381	$	64,634
December 31, 2014
Due in one year or less	$	9,821	$	9,975	$	637	$	620
Due after one year through five years		48,352		50,873		6,669		6,529
Due after five years through ten years		62,685		65,889		12,873		12,338
Due after ten years		63,168		69,442		10,255		9,607
Mortgage-backed, asset-backed and collateralized		59,281		63,680		17,120		16,641
Total	$	243,307	$	259,859	$	47,554	$	45,735

Actual maturities may differ from contractual maturities because certain borrowers have the right to call or prepay certain obligations with or without call or prepayment penalties.

The following table presents the gross realized gains and gross realized losses from sales or maturities of our available for sale securities:

	Three Months Ended September 30,								Nine Months Ended September 30,
		2015				2014			2015					2014
		Gross		Gross		Gross		Gross		Gross		Gross		Gross		Gross
	Realized		Realized		Realized		Realized		Realized		Realized		Realized			Realized
(in millions)		Gains		Losses		Gains		Losses		Gains		Losses		Gains		Losses
Fixed maturity securities	$	96	$	112	$	118	$	21	$	439	$	289		$	528	$	65
Equity securities		24		8		33		4		544		16			102		10
Total	$	120	$	120	$	151	$	25	$	983	$	305		$	630	$	75

For the three- and nine-month periods ended September 30, 2015, the aggregate fair value of available for sale securities sold was $6.9 billion and $20.9 billion, respectively, which resulted in net realized capital gains of zero and $0.7 billion, respectively.

For the three- and nine-month periods ended September 30, 2014, the aggregate fair value of available for sale securities sold was $4.2 billion and $16.2 billion, respectively, which resulted in net realized capital gains of $0.1 billion and $0.5 billion, respectively.

Other Securities Measured at Fair Value

The following table presents the fair value of other securities measured at fair value based on our election of the fair value option:

		September 30, 2015				December 31, 2014
		Fair	Percent			Fair	Percent
(in millions)		Value	of Total			Value	of Total
Fixed maturity securities:
U.S. government and government sponsored entities	$	3,813	21	%	$	5,498	27	%
Obligations of states, municipalities and political subdivisions		75	-			122	1
Non-U.S. governments		2	-			2	-
Corporate debt		1,249	7			719	3
Mortgage-backed, asset-backed and collateralized:
RMBS		2,285	13			2,094	10
CMBS		819	5			1,077	5
CDO/ABS and other collateralized^*		8,579	48			10,200	49
Total mortgage-backed, asset-backed and collateralized		11,683	66			13,371	64
Total fixed maturity securities		16,822	94			19,712	95
Equity securities		1,066	6			1,049	5
Total	$	17,888	100	%	$	20,761	100	%

* Includes $748 million and $859 million of U.S. Government agency-backed ABS at September 30, 2015 and December 31, 2014, respectively.

Net Investment Income

The following table presents the components of Net investment income:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(in millions)		2015		2014		2015		2014
Fixed maturity securities, including short-term investments	$	2,794	$	3,022	$	8,477	$	9,264
Equity securities		(5)		135		76		67
Interest on mortgage and other loans		360		318		1,046		947
Alternative investments^*		88		636		1,471		2,108
Real estate		66		25		116		86
Other investments		36		25		86		34
Total investment income		3,339		4,161		11,272		12,506
Investment expenses		133		133		402		398
Net investment income	$	3,206	$	4,028	$	10,870	$	12,108

* Includes hedge funds, private equity funds, affordable housing partnerships, investments in life settlements and other investment partnerships.

Net Realized Capital Gains and Losses

The following table presents the components of Net realized capital gains (losses):

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(in millions)		2015		2014		2015			2014
Sales of fixed maturity securities	$	(16)	$	97	$	150		$	463
Sales of equity securities		16		29		528			92
Other-than-temporary impairments:
Severity		(10)		-		(12)			-
Change in intent		(81)		(14)		(193)			(20)
Foreign currency declines		(5)		(3)		(37)			(13)
Issuer-specific credit events		(176)		(31)		(314)			(124)
Adverse projected cash flows		(1)		(2)		(9)			(7)
Provision for loan losses		32		(11)		43			9
Foreign exchange transactions		(16)		350		304			329
Derivative instruments		13		102		509			(114)
Impairments on investments in life settlements		(58)		(52)		(200)			(139)
Other		(40)		71		356	^*		70
Net realized capital gains (losses)	$	(342)	$	536	$	1,125		$	546

* Includes realized gains due to the sale of Class B shares of Prudential Financial, Inc. and common shares of Springleaf Holdings, Inc. and realized losses on the sale of ordinary shares of AerCap.

Change in Unrealized Appreciation (Depreciation) of Investments

The following table presents the increase (decrease) in unrealized appreciation (depreciation) of our available for sale securities and other investments:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(in millions)		2015		2014		2015		2014
Increase (decrease) in unrealized appreciation (depreciation) of investments:
Fixed maturity securities	$	(1,180)	$	(1,515)	$	(5,583)	$	6,123
Equity securities		(384)		303		(479)		348
Other investments		(85)		94		(625)		127
Total Increase (decrease) in unrealized appreciation (depreciation) of investments	$	(1,649)	$	(1,118)	$	(6,687)	$	6,598

Evaluating Investments for Other-Than-Temporary Impairments

For a discussion of our policy for evaluating investments for other-than-temporary impairments, see Note 6 to the Consolidated Financial Statements in the 2014 Annual Report.

Credit Impairments

The following table presents a rollforward of the cumulative credit losses in other-than-temporary impairments recognized in earnings for available for sale fixed maturity securities:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(in millions)		2015		2014		2015		2014
Balance, beginning of period	$	2,238	$	3,166	$	2,659	$	3,872
Increases due to:
Credit impairments on new securities subject to impairment losses		51		13		101		35
Additional credit impairments on previously impaired securities		37		5		84		59
Reductions due to:
Credit impaired securities fully disposed of for which there was no
prior intent or requirement to sell		(63)		(116)		(213)		(528)
Credit impaired securities for which there is a current intent or
anticipated requirement to sell		(1)		-		(1)		-
Accretion on securities previously impaired due to credit^*		(197)		(183)		(565)		(544)
Other		-		-		-		(9)
Balance, end of period	$	2,065	$	2,885	$	2,065	$	2,885

* Represents both accretion recognized due to changes in cash flows expected to be collected over the remaining expected term of the credit impaired securities and the accretion due to the passage of time.

Purchased Credit Impaired (PCI) Securities

We purchase certain RMBS securities that have experienced deterioration in credit quality since their issuance. We determine, based on our expectations as to the timing and amount of cash flows expected to be received, whether it is probable at acquisition that we will not collect all contractually required payments for these PCI securities, including both principal and interest after considering the effects of prepayments. At acquisition, the timing and amount of the undiscounted future cash flows expected to be received on each PCI security is determined based on our best estimate using key assumptions, such as interest rates, default rates and prepayment speeds. At acquisition, the difference between the undiscounted expected future cash flows of the PCI securities and the recorded investment in the securities represents the initial accretable yield, which is accreted into Net investment income over their remaining lives on a level-yield basis. Additionally, the difference between the contractually required payments on the PCI securities and the undiscounted expected future cash flows represents the non-accretable difference at acquisition. The accretable yield and the non-accretable difference will change over time, based on actual payments received and changes in estimates of undiscounted expected future cash flows, which are discussed further below.

On a quarterly basis, the undiscounted expected future cash flows associated with PCI securities are re-evaluated based on updates to key assumptions. Declines in undiscounted expected future cash flows due to further credit deterioration as well as changes in the expected timing of the cash flows can result in the recognition of an other-than-temporary impairment charge, as PCI securities are subject to our policy for evaluating investments for other-than-temporary impairment. Changes to undiscounted expected future cash flows due solely to the changes in the contractual benchmark interest rates on variable rate PCI securities will change the accretable yield prospectively. Significant increases in undiscounted expected future cash flows for reasons other than interest rate changes are recognized prospectively as adjustments to the accretable yield.

The following tables present information on our PCI securities, which are included in bonds available for sale:

(in millions)	At Date of Acquisition
Contractually required payments (principal and interest)	$	32,656
Cash flows expected to be collected^*		26,444
Recorded investment in acquired securities		17,662

* Represents undiscounted expected cash flows, including both principal and interest.

(in millions)	September 30, 2015		December 31, 2014
Outstanding principal balance	$	17,017	$	16,962
Amortized cost		12,408		12,216
Fair value		13,426		13,462

The following table presents activity for the accretable yield on PCI securities:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(in millions)		2015		2014		2015		2014
Balance, beginning of period	$	6,833	$	7,042	$	6,865	$	6,940
Newly purchased PCI securities		136		358		551		1,127
Disposals		-		-		(13)		-
Accretion		(220)		(223)		(661)		(654)
Effect of changes in interest rate indices		4		(96)		(140)		(327)
Net reclassification from (to) non-accretable difference,
including effects of prepayments		180		30		331		25
Balance, end of period	$	6,933	$	7,111	$	6,933	$	7,111

Pledged Investments

Secured Financing and Similar Arrangements

We enter into secured financing transactions whereby certain securities are sold under agreements to repurchase (repurchase agreements), in which we transfer securities in exchange for cash, with an agreement by us to repurchase the same or substantially similar securities. At September 30, 2015, our secured financing transactions also include those that involve the transfer of securities to financial institutions in exchange for cash (securities lending agreements). In all of these secured financing transactions, the securities transferred by us (pledged collateral) may be sold or repledged by the counterparties. These agreements are recorded at their contracted amounts plus accrued interest, other than those that are accounted for at fair value.

Pledged collateral levels are monitored daily and are generally maintained at an agreed-upon percentage of the fair value of the amounts borrowed during the life of the transactions. In the event of a decline in the fair value of the pledged collateral under these secured financing transactions, we may be required to transfer cash or additional securities as pledged collateral under these agreements. At the termination of the transactions, we and our counterparties are obligated to return the amounts borrowed and the securities transferred, respectively.

The following table presents the fair value of securities pledged to counterparties under secured financing transactions, including repurchase and securities lending agreements:

(in millions)		September 30, 2015		December 31, 2014
Fixed maturity securities available for sale	$	996	$	-
Other bond securities, at fair value	$	994	$	2,122

At September 30, 2015, amounts borrowed under repurchase and securities lending agreements totaled $1.9 billion.

At September 30, 2015, outstanding overnight and continuous repurchase agreements were collateralized by U.S. government bond securities, at fair value, of $155 million. Repurchase agreements with remaining contractual maturities of 31 - 90 days, 91 - 364 days and 365 days or greater were collateralized by Corporate bond securities, at fair value, of $73 million, $690 million, and $76 million, respectively. Repurchase agreements with remaining contractual maturities up to 30 days were collateralized by U.S. government bond securities, available for sale, of $15 million.

Securities lending agreements outstanding at September 30, 2015 had remaining contractual maturities of 31 - 90 days and the securities pledged to counterparties included $856 million of Corporate bond securities and $125 million of Non-U.S. government securities, all classified as available for sale.

We also enter into agreements in which securities are purchased by us under agreements to resell (reverse repurchase agreements), which are accounted for as secured financing transactions and reported as short-term investments or other assets, depending on their terms. These agreements are recorded at their contracted resale amounts plus accrued interest, other than those that are accounted for at fair value. In all reverse repurchase transactions, we take possession of or obtain a security interest in the related securities, and we have the right to sell or repledge this collateral received.

The following table presents information on the fair value of securities pledged to us under reverse repurchase agreements:

(in millions)		September 30, 2015		December 31, 2014
Securities collateral pledged to us	$	2,969	$	2,506
Amount sold or repledged by us	$	126	$	131

Insurance - Statutory and Other Deposits

Total carrying values of cash and securities deposited by our insurance subsidiaries under requirements of regulatory authorities or other insurance-related arrangements, including certain annuity-related obligations and certain reinsurance treaties, were $5.5 billion and $5.9 billion at September 30, 2015 and December 31, 2014, respectively.

Other Pledges and Restrictions

Certain of our subsidiaries are members of Federal Home Loan Banks (FHLBs) and such membership requires the members to own stock in these FHLBs. We owned an aggregate of $48 million and $44 million of stock in FHLBs at September 30, 2015 and December 31, 2014, respectively. In addition, our subsidiaries have pledged securities available for sale with a fair value of $1.2 billion and $0.5 billion at September 30, 2015 and December 31, 2014, respectively, associated with advances from the FHLBs.

Certain GIAs have provisions that require collateral to be posted or payments to be made by us upon a downgrade of our long-term debt ratings. The actual amount of collateral required to be posted to the counterparties in the event of such downgrades, and the aggregate amount of payments that we could be required to make, depend on market conditions, the fair value of outstanding affected transactions and other factors prevailing at and after the time of the downgrade. The fair value of securities pledged as collateral with respect to these obligations was approximately $2.6 billion and $3.5 billion at September 30, 2015 and December 31, 2014, respectively. This collateral primarily consists of securities of the U.S. government and government sponsored entities and generally cannot be repledged or resold by the counterparties.

At September 30, 2015, $391 million of short-term investments were held in escrow accounts or were otherwise subject to restriction as to their use.

- Definition

The entire disclosure for investments in certain debt and equity securities.

+ References + Details