The Company's fixed-maturity portfolio consists of high-quality (average rating Aa) taxable and tax-exempt investments of diversified maturities. Other investments primarily comprise equity investments, including those accounted for under the equity method, highly rated perpetual securities and loan receivables that bear interest. The following tables present the amortized cost, fair value and other-than-temporary impairments of fixed-maturity investments and other investments designated as available-for-sale in the consolidated investment portfolio of the Company as of September 30, 2011 and December 31, 2010:


	September 30, 2011
In millions	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		Other-Than- Temporary Impairments⁽¹⁾
Fixed-maturity investments:
Taxable bonds:
U.S. Treasury and government agency	$	825	$	59	$	-	$	884	$	-
Foreign governments		354		22		-		376		-
Corporate obligations		1,895		54		(109)		1,840		-
Mortgage-backed securities:
Residential mortgage-backed agency		1,322		56		-		1,378		-
Residential mortgage-backed non-agency		387		44		(85)		346		(127)
Commercial mortgage-backed		63		1		(8)		56
Asset-backed securities:
Collateralized debt obligations		271		-		(123)		148		(70)
Other asset-backed		595		2		(148)		449		-
State and municipal bonds		804		55		(11)		848		-

Total taxable bonds		6,516		293		(484)		6,325		(197)
Tax-exempt bonds:
State and municipal bonds		2,771		80		(10)		2,841		-

Total tax-exempt bonds		2,771		80		(10)		2,841		-

Total fixed-maturity investments		9,287		373		(494)		9,166		(197)
Other investments:
Perpetual preferred securities		178		-		(31)		147		-
Other investments		26		2		-		28		-
Money market securities		689		-		-		689		-

Total other investments		893		2		(31)		864		-
Assets of consolidated VIEs:
Corporate obligations		2		-		-		2		-
Mortgage-backed securities:
Residential mortgage-backed non-agency		124		-		(28)		96		-
Asset-backed securities:
Collateralized debt obligations		185		-		(14)		171		-
Other asset-backed		45		-		-		45		-
Other investments:
Money market securities		218		-		-		218		-

Total available-for-sale investments	$	10,754	$	375	$	(567)	$	10,562	$	(197)

(1)	- Represents the amount of other-than-temporary losses recognized in accumulated other comprehensive income (loss) since the adoption of the accounting guidance for other-than-temporary impairments.


	December 31, 2010
In millions	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		Other-Than- Temporary Impairments⁽¹⁾
Fixed-maturity investments:
Taxable bonds:
U.S. Treasury and government agency	$	1,055	$	12	$	(3)	$	1,064	$	-
Foreign governments		451		19		(1)		469		-
Corporate obligations		2,922		49		(127)		2,844		-
Mortgage-backed securities:
Residential mortgage-backed agency		1,537		39		(13)		1,563		-
Residential mortgage-backed non-agency		627		36		(180)		483		(155)
Commercial mortgage-backed		199		24		(19)		204		-
Asset-backed securities:
Collateralized debt obligations		472		1		(180)		293		(86)
Other asset-backed		732		1		(112)		621		-
State and municipal bonds		797		7		(52)		752		-

Total taxable bonds		8,792		188		(687)		8,293		(241)
Tax-exempt bonds:
State and municipal bonds		2,907		19		(104)		2,822		-

Total tax-exempt bonds		2,907		19		(104)		2,822		-

Total fixed-maturity investments		11,699		207		(791)		11,115		(241)
Other investments:
Perpetual preferred securities		195		8		(12)		191		-
Other investments		38		3		-		41		-
Money market securities		552		-		-		552		-

Total other investments		785		11		(12)		784		-
Assets of consolidated VIEs:
Asset-backed securities:
Collateralized debt obligations		91		-		(1)		90		-
Other asset-backed		98		2		-		100		-
Other investments:
Money market securities		149		-		-		149		-

Total available-for-sale investments	$	12,822	$	220	$	(804)	$	12,238	$	(241)

(1) - Represents the amount of other-than-temporary losses recognized in accumulated other comprehensive income (loss) since the adoption of the accounting guidance for other-than-temporary impairments.

The fair value of securities on deposit with various regulatory authorities was $11 million as of September 30, 2011 and December 31, 2010. These deposits are required to comply with state insurance laws.

All of the obligations under investment agreements require the Company to pledge securities as collateral. As of September 30, 2011 and December 31, 2010, the fair value of securities pledged as collateral with respect to these investment agreements approximated $1.8 billion and $2.4 billion, respectively. Additionally, the Company pledged cash as collateral under investment agreements in the amount of $378 million and $113 million as of September 30, 2011 and December 31, 2010, respectively.

The following table presents the distribution by contractual maturity of available-for-sale fixed-maturity investments at amortized cost and fair value as of September 30, 2011. Contractual maturity may differ from expected maturity as borrowers may have the right to call or prepay obligations.

Investments that are held-to-maturity are reported on the Company's consolidated balance sheets at amortized cost. These investments, which primarily relate to the Company's consolidated VIEs, principally consist of ABS and loans issued by major national and international corporations and other structured finance clients. As of September 30, 2011, unrecognized gross gains were insignificant and unrecognized gross losses were $394 million. There were no unrecognized gross gains as of December 31, 2010. Unrecognized gross losses were $279 million as of December 31, 2010. The following table presents the distribution of held-to-maturity investments by contractual maturity at amortized cost and fair value as of September 30, 2011:


					Consolidated VIEs
In millions	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in one year or less	$	-	$	-	$	-	$	-
Due after one year through five years⁽¹⁾		1		1		-		-
Due after five years through ten years		-		-		-		-
Due after ten years through fifteen years		-		-		-		-
Due after fifteen years		-		-		-		-
Mortgage-backed		-		-		-		-
Asset-backed		-		-		3,886		3,492

Total held-to-maturity investments	$	1	$	1	$	3,886	$	3,492

(1) - Relates to tax credit investments reported in "Other investments" on the Company's consolidated balance sheets.

The following tables present the gross unrealized losses included in accumulated other comprehensive income (loss) as of September 30, 2011 and December 31, 2010 related to available-for-sale fixed-maturity and other investments. These tables segregate investments that have been in a continuous unrealized loss position for less than twelve months from those that have been in a continuous unrealized loss position for twelve months or longer.


	September 30, 2011
	Less than 12 Months				12 Months or Longer				Total
In millions	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Fixed-maturity investments:
Taxable bonds:
U.S. Treasury and government agency	$	16	$	-	$	-	$	-	$	16	$	-
Foreign governments		31		-		-		-		31		-
Corporate obligations		277		(8)		497		(101)		774		(109)
Mortgage-backed securities:
Residential mortgage-backed agency		22		-		51		-		73		-
Residential mortgage-backed non-agency		57		(5)		181		(80)		238		(85)
Commercial mortgage-backed		18		(2)		24		(6)		42		(8)
Asset-backed securities:
Collateralized debt obligations		14		(2)		130		(121)		144		(123)
Other asset-backed		82		(12)		318		(136)		400		(148)
State and municipal bonds		-		-		79		(11)		79		(11)

Total taxable bonds		517		(29)		1,280		(455)		1,797		(484)
Tax-exempt bonds:
State and municipal bonds		182		(3)		162		(7)		344		(10)

Total tax-exempt bonds		182		(3)		162		(7)		344		(10)

Total fixed-maturity investments		699		(32)		1,442		(462)		2,141		(494)
Other investments:
Perpetual preferred securities		49		(4)		83		(27)		132		(31)

Total other investments		49		(4)		83		(27)		132		(31)
Assets of consolidated VIEs:
Mortgage-backed securities:
Residential mortgage-backed non-agency		4		-		93		(28)		97		(28)
Asset-backed securities:
Collateralized debt obligations		69		(1)		102		(13)		171		(14)
Other asset-backed		8		-		-		-		8		-

Total	$	829	$	(37)	$	1,720	$	(530)	$	2,549	$	(567)


	December 31, 2010
	Less than 12 Months				12 Months or Longer				Total
In millions	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Fixed-maturity investments:
Taxable bonds:
U.S. Treasury and government agency	$	370	$	(3)	$	-	$	-	$	370	$	(3)
Foreign governments		33		(1)		-		-		33		(1)
Corporate obligations		685		(13)		725		(114)		1,410		(127)
Mortgage-backed securities:
Residential mortgage-backed agency		785		(11)		59		(2)		844		(13)
Residential mortgage-backed non-agency		51		(2)		336		(178)		387		(180)
Commercial mortgage-backed		11		-		85		(19)		96		(19)
Asset-backed securities:
Collateralized debt obligations		3		-		278		(180)		281		(180)
Other asset-backed		61		(2)		480		(110)		541		(112)
State and municipal bonds		437		(26)		135		(26)		572		(52)

Total taxable bonds		2,436		(58)		2,098		(629)		4,534		(687)
Tax-exempt bonds:
State and municipal bonds		2,002		(83)		181		(21)		2,183		(104)

Total tax-exempt bonds		2,002		(83)		181		(21)		2,183		(104)

Total fixed-maturity investments		4,438		(141)		2,279		(650)		6,717		(791)
Other investments:
Perpetual preferred securities		20		-		140		(12)		160		(12)
Other investments		3		-		-		-		3		-

Total other investments		23		-		140		(12)		163		(12)
Assets of consolidated VIEs:
Asset-backed securities:
Collateralized debt obligations		62		(1)		5		-		67		(1)
Other asset-backed		7		-		-		-		7		-

Total	$	4,530	$	(142)	$	2,424	$	(662)	$	6,954	$	(804)

Gross unrealized losses on available-for-sale securities presented in the preceding tables decreased as of September 30, 2011 compared with December 31, 2010 primarily as a result of lower invested balances as of September 30, 2011 largely due to asset sales. Investments with unrealized losses that met the criteria described in the "Other-Than-Temporary Impairments" section below were tested for other-than-temporary impairments and principally related to ABS, MBS, and corporate obligations.

The following table presents the fair values and gross unrealized losses by credit rating category of ABS included in the Company's consolidated investment portfolio as of September 30, 2011 for which fair value was less than amortized cost. Of the total fair value and unrealized losses of ABS, $413 million of fair value and $124 million of unrealized losses are included in the Company's asset/liability products investment portfolio. Fair values include the benefit of guarantees provided by financial guarantors, including MBIA. The credit ratings are based on ratings from Moody's as of September 30, 2011 or an alternate ratings source, such as S&P, when a security is not rated by Moody's. For investments that are insured by various third-party guarantee insurers, the credit rating reflects the higher of the insurer's rating or the underlying bond's rating.

Sixty percent of the Company's investments in ABS reported in the preceding table were rated investment grade with 21% rated Aaa. Of the total ABS investments reported in the preceding table, $323 million include the benefit of guarantees provided by MBIA Corp. and $119 million include the benefit of guarantees provided by third-party financial guarantors. The average credit rating of all guaranteed ABS investments using the higher of the guarantors' ratings or the underlying bond ratings was Baa and the average underlying credit rating of guaranteed ABS investments, without giving effect to the guarantees, was below investment grade. Without giving effect to the benefit of guarantees provided by financial guarantors, including MBIA Corp., $239 million or 33% of the securities included in the preceding table were rated below investment grade.

The following table presents the fair values and gross unrealized losses by credit rating category of MBS included in the Company's consolidated investment portfolio as of September 30, 2011 for which fair value was less than amortized cost. Fair values include the benefit of guarantees provided by financial guarantors, including MBIA. The credit ratings are based on ratings from Moody's as of September 30, 2011 or an alternate ratings source, such as S&P, when a security is not rated by Moody's. For investments that are insured by various third-party guarantee insurers, the credit rating reflects the higher of the insurer's rating or the underlying bond's rating.

Sixty-two percent of the Company's investments in MBS reported in the preceding table were rated investment grade with 21% rated Aaa. Of the total MBS investments reported in the preceding table, $18 million include the benefit of guarantees provided by MBIA Corp. and $259 million include the benefit of guarantees provided by third-party financial guarantors. The average credit rating of all guaranteed MBS investments using the higher of the guarantors' ratings or the underlying bond ratings was Baa and the average underlying credit rating of guaranteed MBS investments, without giving effect to the guarantees, was below investment grade. Without giving effect to the benefit of guarantees provided by financial guarantors, including MBIA Corp., $257 million or 57% of the securities included in the preceding table were rated below investment grade.

The following table presents the fair values and gross unrealized losses by credit rating category of direct corporate obligations included in the Company's consolidated investment portfolio as of September 30, 2011 for which fair value was less than amortized cost. Fair values include the benefit of guarantees provided by financial guarantors, including MBIA. The credit ratings are based on ratings from Moody's as of September 30, 2011 or an alternate ratings source, such as S&P, when a security is not rated by Moody's. For investments that are insured by various third-party guarantee insurers, the credit rating reflects the higher of the insurer's rating or the underlying bond's rating.

Eighty-four percent of the Company's investments in corporate obligations reported in the preceding table were rated investment grade with 9% rated Aaa. Of the total corporate obligations reported in the preceding table, $21 million include the benefit of guarantees provided by National, $114 million include the benefit of guarantees provided by MBIA Corp., and $54 million include the benefit of guarantees provided by third-party financial guarantors. The average credit rating of all guaranteed corporate obligations included in the preceding table using the higher of the guarantors' ratings or the underlying bond ratings was A and the average underlying credit rating of these guaranteed corporate obligations without giving effect to the guarantees was Baa. Without giving effect to the benefit of guarantees provided by financial guarantors, including MBIA Corp. and National, $132 million or 17% of the securities included in the preceding table were rated below investment grade.

The following tables present the gross unrealized losses of held-to-maturity investments as of September 30, 2011 and December 31, 2010. Held-to-maturity investments are reported at amortized cost on the Company's consolidated balance sheets. The tables segregate investments that have been in a continuous unrealized loss position for less than twelve months from those that have been in a continuous unrealized loss position for twelve months or longer.

As of September 30, 2011 and December 31, 2010, the Company's available-for-sale fixed-maturity investment, other investment and held-to-maturity investment portfolios' gross unrealized losses totaled $961 million and $1.1 billion, respectively. The weighted average contractual maturity of securities in an unrealized loss position as of September 30, 2011 and December 31, 2010 was 22 years and 20 years, respectively. As of September 30, 2011, there were 313 securities that were in an unrealized loss position for a continuous twelve-month period or longer with aggregate unrealized losses of $893 million. Within these securities, the book value of 215 securities exceeded market value by more than 5% as presented in the following table:

As of December 31, 2010, there were 412 securities that were in an unrealized loss position for a continuous twelve-month period or longer with aggregate unrealized losses of $941 million. Within the 412 securities, the book value of 321 securities exceeded market value by more than 5%.

The Company has an ongoing review process for all securities in its investment portfolio, including a quarterly assessment of other-than-temporary impairments. Key factors considered when assessing other-than-temporary impairments include but are not limited to: (a) structural and economic factors among security types that represent the Company's largest exposure to credit impairment losses, (b) the duration and severity of the unrealized losses (i.e., a decline in the market value of a security by 20% or more at the time of the review, or 5% impaired at the time of review with a fair value below amortized cost for a consecutive 12-month period) and (c) the results of various cash flow modeling techniques. As of September 30, 2011, the fair value and related unrealized loss of available-for-sale securities totaled $2.5 billion and $567 million, respectively, and consisted primarily of ABS, MBS, and corporate obligations. Based on its evaluation, the Company realized other-than-temporary impairments of $44 million for the nine months ended September 30, 2011, primarily related to RMBS, CDOs and corporate obligations.

As part of the Company's assessment of other-than-temporary impairments of investments, it considers (i) the magnitude and duration of declines in fair value; (ii) the reasons for the declines in fair value, such as general credit spread movements in each asset-backed sector, transaction-specific changes in credit spreads, credit rating downgrades, modeled defaults, and principal and interest payment priorities within each investment structure; and (iii) whether MBIA has the intent to sell the securities or, more likely than not, will be required to sell the securities before their anticipated recovery. In calculating credit-related losses, the Company utilizes cash flow modeling based on the type of security. The Company's cash flow analysis considers all sources of cash, including credit enhancement, that support the payment of amounts owed by an issuer of a security. This includes the consideration of cash expected to be provided by financial guarantors, including MBIA Corp., resulting from an actual or potential insurance policy claim. In general, any change in the amount and/or timing of cash flows received or expected to be received, whether or not such cash flows are contractually defined, is reflected in the Company's cash flow analysis for purposes of assessing an other-than-temporary impairment loss on an impaired security.

ABS investments are evaluated for other-than-temporary impairments using historical collateral performance, deal waterfall and structural protections, credit ratings, and forward looking projections of collateral performance based on business and economic conditions specific to each collateral type and risk. The underlying collateral is evaluated to identify any specific performance concerns, and stress scenarios are considered in forecasting ultimate returns of principal. Based on this evaluation, if a principal default is projected for a security, estimated future cash flows are discounted at the security's purchase yield. If the present value of cash flows is less than the Company's amortized cost for the security, the difference is recorded as an other-than-temporary impairment loss.

RMBS investments are evaluated for other-than-temporary impairments using industry-standard quantitative tools. Loan level data is obtained and analyzed in a model that produces prepayment, default, and severity vectors. The model utilizes macro inputs, including housing price assumptions and interest rates, which are consistent with industry views. The vector outputs are used as inputs to a third-party cash flow model, which considers deal waterfall dynamics and structural features, to generate cash flows for an RMBS investment. These cash flows are then discounted at the security's purchase yield. If the present value of the cash flows is less than the Company's amortized cost for the investment, the difference is recorded as an other-than-temporary impairment loss. For CDO investments, the Company utilizes the same tools as for RMBS securities, aggregating the bond level cash flows to the CDO investment level.

Corporate obligation investments are evaluated for other-than-temporary impairments using industry-standard credit analysis techniques. The Company's analysis includes a detailed review of a number of quantitative and qualitative factors impacting the value of an individual security. These factors include the interest rate of the security (fixed or floating), the security's current market spread, any collateral supporting the security, the security's position in the issuer's capital structure, and credit rating upgrades or downgrades. Additionally, these factors include an assessment of various issuer-related credit metrics including market capitalization, earnings, cash flow, capitalization, interest coverage, leverage, liquidity, management and a third-party quantitative default probability model. The Company's analysis is augmented by comparing market prices for similar securities of other issuers in the same sector, as well as any recent corporate or government actions that may impact the ultimate return of principal. If the Company determines that, after considering these factors, a principal default is projected, a recovery analysis is performed using the above data. If the Company's estimated recovery value for the security is less than its amortized cost, the difference is recorded as an other-than-temporary impairment loss.

The Company does not record other-than-temporary impairments related to credit concerns about issuers of securities insured by MBIA Corp. and National since investors in these securities, including MBIA, are guaranteed payment of principal and interest when due by MBIA. Securities insured by the Company, whether or not owned by the Company, are evaluated for impairment as part of its insurance surveillance process and, therefore, losses on securities insured by the Company are recorded in accordance with its loss reserving policy. Refer to "Note 2: Significant Accounting Policies" and "Note 5: Loss and Loss Adjustment Expense Reserves" for information about the Company's loss reserving policy and loss reserves.

In considering cash expected to be provided from other third-party financial guarantors, the Company assesses the financial guarantor's ability to make claim payments under a variety of scenarios that test the guarantor's ultimate claims paying ability. The weighted average outcome of these scenarios, combined with the cash flows provided by the insured security, are used to determine the recoverability of the Company's amortized cost.

The following table provides information about securities held by the Company as of September 30, 2011 that were in an unrealized loss position and insured by a financial guarantor, along with the amount of insurance loss reserves corresponding to the par amount owned by the Company:


In millions	Fair Value		Unrealized Loss			Insurance Loss Reserve ⁽²⁾
Asset-backed:
MBIA⁽¹⁾	$	323	$	(80	)	$	22
Other		119		(24	)		-

Total asset-backed		442		(104	)		22
Mortgage-backed:
MBIA⁽¹⁾		18		(5	)		1
Other		259		(97	)		-

Total mortgage-backed		277		(102	)		1
Corporate obligations:
MBIA⁽¹⁾		135		(19	)		-
Other		54		(13	)		-

Total corporate obligations		189		(32	)		-
Other:
MBIA⁽¹⁾		155		(14	)		-
Other		86		(3	)		-

Total other		241		(17	)		-

Total	$	1,149	$	(255	)	$	23

(1)	- Includes investments insured by MBIA Corp. and National.

(2)	- Insurance loss reserve estimates are based on the proportion of par value owned to the total amount of par value insured.

The Company concluded that it does not have the intent to sell securities in an unrealized loss position and it is more likely than not that it will not have to sell these securities before recovery of their cost basis. In making this conclusion, the Company examined the cash flow projections for its investment portfolios, the potential sources and uses of cash in its businesses, and the cash resources available to its business other than sales of securities. It also considered the existence of any risk management or other plans as of September 30, 2011 that would require the sale of impaired securities.

Each quarter, an internal committee, comprising staff that is independent of the Company's evaluation process for determining other-than-temporary impairments of securities, reviews and approves the valuation of investments. Among other responsibilities, this committee ensures that the Company's process for identifying and calculating other-than-temporary impairments, including the use of models and assumptions, is reasonable and complies with the Company's internal policy.

Refer to "Note 8: Investment Income and Gains and Losses" for information on realized losses due to other-than-temporary impairments.