2.	Investments

Net investment income is as follows:


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2012			2011			2012			2011
(In millions)

Fixed maturity securities	$	507		$	494		$	1,528		$	1,505
Short term investments		3			4			10			11
Limited partnership investments		110			(87	)		210			69
Equity securities		4			4			10			16
Income (loss) from trading portfolio (a)		66			(70	)		62			(55	)
Other		5			3			16			12

Total investment income		695			348			1,836			1,558
Investment expenses		(13	)		(15	)		(42	)		(45	)

Net investment income	$	682		$	333		$	1,794		$	1,513

(a)	Includes net unrealized gains (losses) related to changes in fair value on trading securities still held of $66, $(63), $21 and $(86) for the three and nine months ended September 30, 2012 and 2011.

Investment gains (losses) are as follows:


Fixed maturity securities	$	26		$	(29	)	$	73		$	11
Equity securities		(15	)		(1	)		(14	)		(3	)
Derivative instruments		(2	)		1			(4	)
Short term investments and other		(2	)		2			4			7

Investment gains (losses) (a)	$	7		$	(27	)	$	59		$	15

(a)	Includes gross realized gains of $80, $57, $203 and $240 and gross realized losses of $69, $87, $144 and $232 on available-for-sale securities for the three and nine months ended September 30, 2012 and 2011.

The components of other-than-temporary impairment (“OTTI”) losses recognized in earnings by asset type are as follows:


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2012		2011		2012		2011
(In millions)

Fixed maturity securities available-for-sale:
Corporate and other bonds	$	7	$	49	$	23	$	73
States, municipalities and political subdivisions		17				17
Asset-backed:
Residential mortgage-backed		20		21		49		95
Other asset-backed				4				4

Total asset-backed		20		25		49		99
U.S. Treasury and obligations of government- sponsored enterprises						1

Total fixed maturities available-for-sale		44		74		90		172

Equity securities available-for-sale:
Common stock		1		3		5		7
Preferred stock		19				19		1

Total equity securities available-for-sale		20		3		24		8

Net OTTI losses recognized in earnings	$	64	$	77	$	114	$	180

A security is impaired if the fair value of the security is less than its cost adjusted for accretion, amortization and previously recorded OTTI losses, otherwise defined as an unrealized loss. When a security is impaired, the impairment is evaluated to determine whether it is temporary or other-than-temporary.

Significant judgment is required in the determination of whether an OTTI loss has occurred for a security. CNA follows a consistent and systematic process for determining and recording an OTTI loss. CNA has established a committee responsible for the OTTI process. This committee, referred to as the Impairment Committee, is made up of three officers appointed by CNA’s Chief Financial Officer. The Impairment Committee is responsible for evaluating all securities in an unrealized loss position on at least a quarterly basis.

The Impairment Committee’s assessment of whether an OTTI loss has occurred incorporates both quantitative and qualitative information. Fixed maturity securities that CNA intends to sell, or it more likely than not will be required to sell before recovery of amortized cost, are considered to be other-than-temporarily impaired and the entire difference between the amortized cost basis and fair value of the security is recognized as an OTTI loss in earnings. The remaining fixed maturity securities in an unrealized loss position are evaluated to determine if a credit loss exists. The factors considered by the Impairment Committee include: (i) the financial condition and near term prospects of the issuer, (ii) whether the debtor is current on interest and principal payments, (iii) credit ratings of the securities and (iv) general market conditions and industry or sector specific outlook. CNA also considers results and analysis of cash flow modeling for asset-backed securities, and when appropriate, other fixed maturity securities.

The focus of the analysis for asset-backed securities is on assessing the sufficiency and quality of underlying collateral and timing of cash flows based on scenario tests. If the present value of the modeled expected cash flows equals or exceeds the amortized cost of a security, no credit loss is judged to exist and the asset-backed security is deemed to be temporarily impaired. If the present value of the expected cash flows is less than amortized cost, the security is judged to be other-than-temporarily impaired for credit reasons and that shortfall, referred to as the credit component, is recognized as an OTTI loss in earnings. The difference between the adjusted amortized cost basis and fair value, referred to as the non-credit component, is recognized as OTTI in Other comprehensive income. In subsequent reporting periods, a change in intent to sell or further credit impairment on a security whose fair value has not deteriorated will cause the non-credit component originally recorded as OTTI in Other comprehensive income to be recognized as an OTTI loss in earnings.

CNA performs the discounted cash flow analysis using stressed scenarios to determine future expectations regarding recoverability. For asset-backed securities, significant assumptions enter into these cash flow projections including delinquency rates, probable risk of default, loss severity upon a default, over collateralization and interest coverage triggers and credit support from lower level tranches.

CNA applies the same impairment model as described above for the majority of non-redeemable preferred stock securities on the basis that these securities possess characteristics similar to debt securities and that the issuers maintain their ability to pay dividends. For all other equity securities, in determining whether the security is other-than-temporarily impaired, the Impairment Committee considers a number of factors including, but not limited to: (i) the length of time and the extent to which the fair value has been less than amortized cost, (ii) the financial condition and near term prospects of the issuer, (iii) the intent and ability of CNA to retain its investment for a period of time sufficient to allow for an anticipated recovery in value and (iv) general market conditions and industry or sector specific outlook.

The amortized cost and fair values of securities are as follows:


September 30, 2012	Cost or Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value		Unrealized OTTI Losses (Gains)
(In millions)

Fixed maturity securities:
Corporate and other bonds	$	19,209	$	2,634	$	32	$	21,811
States, municipalities and political subdivisions		9,415		1,450		53		10,812
Asset-backed:
Residential mortgage-backed		5,907		264		81		6,090	$	(12	)
Commercial mortgage-backed		1,582		123		17		1,688		(3	)
Other asset-backed		944		23		1		966

Total asset-backed		8,433		410		99		8,744		(15	)
U.S. Treasury and obligations of government- sponsored enterprises		182		11		1		192
Foreign government		588		26				614
Redeemable preferred stock		101		14				115

Fixed maturities available-for-sale		37,928		4,545		185		42,288		(15	)
Fixed maturities, trading		165		1		25		141

Total fixed maturities		38,093		4,546		210		42,429		(15	)

Equity securities:
Common stock		22		24				46
Preferred stock		206		8				214

Equity securities available-for-sale		228		32				260		—
Equity securities, trading		746		94		81		759

Total equity securities		974		126		81		1,019		—

Total	$	39,067	$	4,672	$	291	$	43,448	$	(15	)


December 31, 2011
(In millions)

Fixed maturity securities:
Corporate and other bonds	$	19,086	$	1,946	$	154	$	20,878
States, municipalities and political subdivisions		9,018		900		136		9,782
Asset-backed:
Residential mortgage-backed		5,786		172		183		5,775	$	99
Commercial mortgage-backed		1,365		48		59		1,354		(2	)
Other asset-backed		946		13		4		955

Total asset-backed		8,097		233		246		8,084		97
U.S. Treasury and obligations of government- sponsored enterprises		479		14				493
Foreign government		608		28				636
Redeemable preferred stock		51		7				58

Fixed maturities available-for-sale		37,339		3,128		536		39,931		97
Fixed maturities, trading		127				18		109

Total fixed maturities		37,466		3,128		554		40,040		97

Equity securities:
Common stock		30		17				47
Preferred stock		258		4		5		257

Equity securities available-for-sale		288		21		5		304		—
Equity securities, trading		614		76		67		623

Total equity securities		902		97		72		927		—

Total	$	38,368	$	3,225	$	626	$	40,967	$	97

The net unrealized gains on investments included in the tables above are recorded as a component of AOCI. When presented in AOCI, these amounts are net of tax and noncontrolling interests and any required Shadow Adjustments. At September 30, 2012 and December 31, 2011, the net unrealized gains on investments included in AOCI were net of Shadow Adjustments of $1.1 billion and $651 million. To the extent that unrealized gains on fixed income securities supporting certain products within CNA’s Life & Group Non-Core segment would result in a premium deficiency if realized, a related decrease in Deferred acquisition costs, and/or increase in Insurance reserves is recorded, net of tax and noncontrolling interests, as a reduction through Other comprehensive income (Shadow Adjustments).

The available-for-sale securities in a gross unrealized loss position are as follows:


	Less than 12 Months				12 Months or Longer				Total
September 30, 2012	Estimated Fair Value		Gross Unrealized Losses		Estimated Fair Value		Gross Unrealized Losses		Estimated Fair Value		Gross Unrealized Losses
(In millions)

Fixed maturity securities:
Corporate and other bonds	$	600	$	18	$	210	$	14	$	810	$	32
States, municipalities and political subdivisions		84		1		227		52		311		53
Asset-backed:
Residential mortgage-backed		327		3		580		78		907		81
Commercial mortgage-backed		142		2		132		15		274		17
Other asset-backed		66		1						66		1

Total asset-backed		535		6		712		93		1,247		99
U.S. Treasury and obligations of government- sponsored enterprises		22		1						22		1

Total	$	1,241	$	26	$	1,149	$	159	$	2,390	$	185


December 31, 2011
(In millions)

Fixed maturity securities:
Corporate and other bonds	$	2,552	$	126	$	159	$	28	$	2,711	$	154
States, municipalities and political subdivisions		67		1		721		135		788		136
Asset-backed:
Residential mortgage-backed		719		36		874		147		1,593		183
Commercial mortgage-backed		431		39		169		20		600		59
Other asset-backed		389		4						389		4

Total asset-backed		1,539		79		1,043		167		2,582		246

Total fixed maturities available-for-sale		4,158		206		1,923		330		6,081		536
Equity securities available-for-sale:
Preferred stock		117		5						117		5

Total	$	4,275	$	211	$	1,923	$	330	$	6,198	$	541

Based on current facts and circumstances, the Company believes the unrealized losses presented in the table above are primarily attributable to broader economic conditions, changes in interest rates and credit spreads, market illiquidity and other market factors, but are not indicative of the ultimate collectibility of the current amortized costs of the securities. The Company has no current intent to sell these securities, nor is it more likely than not that it will be required to sell prior to recovery of amortized cost; accordingly, the Company has determined that there are no additional OTTI losses to be recorded at September 30, 2012.

The amount of pretax net unrealized gains (losses) on available-for-sale securities reclassified out of AOCI into earnings was $12 million, $(29) million, $59 million and $12 million for the three and nine months ended September 30, 2012 and 2011.

The following table summarizes the activity for the three and nine months ended September 30, 2012 and 2011 related to the pretax credit loss component reflected in Retained earnings on fixed maturity securities still held at September 30, 2012 and 2011 for which a portion of an OTTI loss was recognized in Other comprehensive income.


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2012			2011			2012			2011
(In millions)

Beginning balance of credit losses on fixed maturity securities	$	99		$	82		$	92		$	141
Additional credit losses for securities for which an OTTI loss was previously recognized		2			11			23			29
Credit losses for securities for which an OTTI loss was not previously recognized					10			2			11
Reductions for securities sold during the period		(3	)		(4	)		(11	)		(50	)
Reductions for securities the Company intends to sell or more likely than not will be required to sell								(8	)		(32	)

Ending balance of credit losses on fixed maturity securities	$	98		$	99		$	98		$	99

Contractual Maturity

The following table summarizes available-for-sale fixed maturity securities by contractual maturity at September 30, 2012 and December 31, 2011. Actual maturities may differ from contractual maturities because certain securities may be called or prepaid with or without call or prepayment penalties. Securities not due at a single date are allocated based on weighted average life.


	September 30, 2012				December 31, 2011
	Cost or Amortized Cost		Estimated Fair Value		Cost or Amortized Cost		Estimated Fair Value
(In millions)

Due in one year or less	$	1,861	$	1,876	$	1,802	$	1,812
Due after one year through five years		13,382		14,176		13,110		13,537
Due after five years through ten years		8,490		9,337		8,410		8,890
Due after ten years		14,195		16,899		14,017		15,692

Total	$	37,928	$	42,288	$	37,339	$	39,931

Investment Commitments

As of September 30, 2012, the Company had committed approximately $114 million to future capital calls from various third-party limited partnership investments in exchange for an ownership interest in the related partnerships.

The Company invests in various privately placed debt securities, including bank loans, as part of its overall investment strategy and has committed to additional future purchases, sales and funding. The purchase and sale of these investments are recorded on the date that the legal agreements are finalized and cash settlements are made. As of September 30, 2012, the Company had commitments to purchase $159 million and sell $154 million of such investments. The Company has an obligation to fund additional amounts under the terms of current loan participations that may not be recorded until a draw is made. As of September 30, 2012, the Company had obligations on unfunded bank loan participations in the amount of $6 million.