Investments

3 Months Ended

Mar. 31, 2015

Text Block [Abstract]

Investments

2. Investments

Net investment income is as follows:

Three Months Ended March 31	2015			2014
(In millions)
Fixed maturity securities	$	443		$	452
Short term investments		3			1
Limited partnership investments		160			87
Equity securities		3			2
Income (loss) from trading portfolio (a)		(15	)		40
Other		8			8
Total investment income		602			590
Investment expenses		(14	)		(13	)
Net investment income	$	588		$	577
(a)   Includes net unrealized gains (losses) related to changes in fair value on trading securities still held of $(14) and $13 for the three months ended March 31, 2015 and 2014.
Investment gains (losses) are as follows:
Three Months Ended March 31	2015			2014
(In millions)
Fixed maturity securities	$	12		$	38
Equity securities					5
Derivative instruments		(1	)
Short term investments and other		(1	)		(1	)
Investment gains (a)	$	10		$	42
(a)   Includes gross realized gains of $34 and $58 and gross realized losses of $22 and $15 on available-for-sale securities for the three months ended March 31, 2015 and 2014.
The components of net other-than-temporary impairment (“OTTI”) losses recognized in earnings by asset type are as follows:
Three Months Ended March 31	2015			2014
(In millions)
Fixed maturity securities available-for-sale:
Corporate and other bonds	$	5		$	1
States, municipalities and political subdivisions		5
Asset-backed – residential mortgage-backed		1			1
Total fixed maturities available-for-sale		11			2
Equity securities available-for-sale:
Common stock		1
Net OTTI losses recognized in earnings	$	12		$	2

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

	Cost or		Gross		Gross				Unrealized
	Amortized		Unrealized		Unrealized		Estimated		OTTI Losses
March 31, 2015	Cost		Gains		Losses		Fair Value		(Gains)
(In millions)
Fixed maturity securities:
Corporate and other bonds	$	16,737	$	1,867	$	45	$	18,559
States, municipalities and political subdivisions		11,407		1,536		9		12,934
Asset-backed:
Residential mortgage-backed		4,998		241		13		5,226	$	(51)
Commercial mortgage-backed		2,151		114		5		2,260		(3)
Other asset-backed		1,109		15		1		1,123
Total asset-backed		8,258		370		19		8,609		(54)
U.S. Treasury and obligations of government- sponsored enterprises		24		6				30
Foreign government		390		19				409
Redeemable preferred stock		39		3				42
Fixed maturities available- for-sale		36,855		3,801		73		40,583		(54)
Fixed maturities trading		142				17		125
Total fixed maturities		36,997		3,801		90		40,708		(54)
Equity securities:
Common stock		41		9				50
Preferred stock		172		7		4		175
Equity securities available-for-sale		213		16		4		225		-
Equity securities trading		459		74		114		419
Total equity securities		672		90		118		644		-
Total	$	37,669	$	3,891	$	208	$	41,352	$	(54)
December 31, 2014
Fixed maturity securities:
Corporate and other bonds	$	17,226	$	1,721	$	61	$	18,886
States, municipalities and political subdivisions		11,285		1,463		8		12,740
Asset-backed:
Residential mortgage-backed		5,028		218		13		5,233	$	(53)
Commercial mortgage-backed		2,056		93		5		2,144		(2)
Other asset-backed		1,234		11		10		1,235
Total asset-backed		8,318		322		28		8,612		(55)
U.S. Treasury and obligations of government- sponsored enterprises		26		5				31
Foreign government		438		16				454
Redeemable preferred stock		39		3				42
Fixed maturities available-for-sale		37,332		3,530		97		40,765		(55)
Fixed maturities trading		137				17		120
Total fixed maturities		37,469		3,530		114		40,885		(55)
Equity securities:
Common stock		38		9				47
Preferred stock		172		5		2		175
Equity securities available-for-sale		210		14		2		222		-
Equity securities trading		523		96		113		506
Total equity securities		733		110		115		728		-
Total	$	38,202	$	3,640	$	229	$	41,613	$	(55)

The net unrealized gains on investments included in the tables above are recorded as a component of Accumulated other comprehensive income (“AOCI”). When presented in AOCI, these amounts are net of tax and noncontrolling interests and any required Shadow Adjustments. As of March 31, 2015 and December 31, 2014, the net unrealized gains on investments included in AOCI were net of Shadow Adjustments of $1.2 billion. To the extent that unrealized gains on fixed income securities supporting certain products within CNA’s Life & Group Non-Core business would result in a premium deficiency if realized, a related decrease in Deferred acquisition costs, and/or increase in Insurance reserves are recorded, net of tax and noncontrolling interests, as a reduction of net unrealized gains 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
				Gross						Gross						Gross
	Estimated			Unrealized			Estimated			Unrealized			Estimated			Unrealized
March 31, 2015	Fair Value			Losses			Fair Value			Losses			Fair Value			Losses
(In millions)
Fixed maturity securities:
Corporate and other bonds		$	854		$	33		$	139		$	12		$	993		$	45
States, municipalities and political subdivisions			479			6			100			3			579			9
Asset-backed:
Residential mortgage-backed			318			5			148			8			466			13
Commercial mortgage-backed			175			3			62			2			237			5
Other asset-backed			187			1			5						192			1
Total asset-backed			680			9			215			10			895			19
U.S. Treasury and obligations of government- sponsored enterprises			3												3
Foreign government			13						1						14
Total fixed maturity securities			2,029			48			455			25			2,484			73
Preferred stock			15			4									15			4
Total		$	2,044		$	52		$	455		$	25		$	2,499		$	77
December 31, 2014
Fixed maturity securities:
Corporate and other bonds		$	1,330		$	46		$	277		$	15		$	1,607		$	61
States, municipalities and political subdivisions			335			5			127			3			462			8
Asset-backed:
Residential mortgage-backed			293			5			189			8			482			13
Commercial mortgage-backed			264			2			99			3			363			5
Other asset-backed			607			10			7						614			10
Total asset-backed			1,164			17			295			11			1,459			28
U.S. Treasury and obligations of government- sponsored enterprises			3						4						7
Foreign government			3						3						6
Redeemable preferred stock			3												3
Total fixed maturity securities			2,838			68			706			29			3,544			97
Preferred stock			17			2			1						18			2
Total		$	2,855		$	70		$	707		$	29		$	3,562		$	99

Based on current facts and circumstances, the Company believes the unrealized losses presented in the table above are not indicative of the ultimate collectibility of the current amortized cost of the securities, but rather are primarily attributable to changes in interest rates and credit spreads, market illiquidity and other factors. The Company has no current intent to sell securities with unrealized losses, 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 as of March 31, 2015.

The following table presents the activity related to the pretax credit loss component reflected in Retained earnings on fixed maturity securities still held as of March 31, 2015 and 2014 for which a portion of an OTTI loss was recognized in Other comprehensive income.

Three Months Ended March 31	2015			2014
(In millions)
Beginning balance of credit losses on fixed maturity securities	$	62		$	74
Reductions for securities sold during the period		(1	)		(2)
Reductions for securities the Company intends to sell or more likely than not will be required to sell					(3)
Ending balance of credit losses on fixed maturity securities	$	61		$	69

Contractual Maturity

The following table presents available-for-sale fixed maturity securities by contractual maturity. 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.

	March 31, 2015				December 31, 2014
	Cost or		Estimated		Cost or		Estimated
	Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value
(In millions)
Due in one year or less	$	2,011	$	2,043	$	2,479	$	2,511
Due after one year through five years		8,776		9,354		9,070		9,621
Due after five years through ten years		12,401		13,108		12,055		12,584
Due after ten years		13,667		16,078		13,728		16,049
Total	$	36,855	$	40,583	$	37,332	$	40,765

Derivative Financial Instruments

A summary of the aggregate contractual or notional amounts and gross estimated fair values related to derivative financial instruments follows. The contractual or notional amounts for derivatives are used to calculate the exchange of contractual payments under the agreements and may not be representative of the potential for gain or loss on these instruments. Gross estimated fair values of derivative positions are currently presented in Equity securities, Receivables and Payable to brokers on the Consolidated Condensed Balance Sheets.

	March 31, 2015							December 31, 2014
	Contractual/							Contractual/
	Notional		Estimated Fair Value					Notional		Estimated Fair Value
	Amount		Asset		(Liability)			Amount		Asset		(Liability)
(In millions)
With hedge designation:
Foreign exchange:
Currency forwards – short	$	34			$	(3	)	$	70			$	(5)
Without hedge designation:
Equity markets:
Options – purchased		2,306	$	21					544	$	24
– written		1,493				(13	)		292				(21)
Equity swaps and warrants – long		10		2					10		2
Futures – short		399		3					130		2
Foreign exchange:
Currency forwards – long		134		1					109				(3)
– short		99		2					88		2
Currency options – long		179		25					151		7
– short		218				(5	)
Embedded derivative on funds withheld liability		184				(5	)		184				(3)

Investment Commitments

As of March 31, 2015, the Company had committed approximately $338 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. As of March 31, 2015, the Company had commitments to purchase or fund additional amounts of $82 million and sell $71 million under the terms of such securities.