INVESTMENTS OF INSURANCE SUBSIDIARIES

12 Months Ended

Dec. 31, 2012

INVESTMENTS OF INSURANCE SUBSIDIARIES

NOTE 7 — INVESTMENTS OF INSURANCE SUBSIDIARIES

A summary of the insurance subsidiaries’ investments at December 31 follows (dollars in millions):

	2012
	Amortized Cost		Unrealized Amounts					Fair Value
			Gains		Losses
Debt securities:
States and municipalities	$	395	$	23	$	—		$	418
Auction rate securities		74		—		(6	)		68
Asset-backed securities		14		—		—			14
Money market funds		67		—		—			67
		550		23		(6	)		567
Equity securities		2		1		—			3
	$	552	$	24	$	(6	)		570
Amounts classified as current assets									(55	)
Investment carrying value								$	515

	2011
	Amortized Cost		Unrealized Amounts					Fair Value
			Gains		Losses
Debt securities:
States and municipalities	$	398	$	19	$	—		$	417
Auction rate securities		139		—		(8	)		131
Asset-backed securities		20		—		—			20
Money market funds		53		—		—			53
		610		19		(8	)		621
Equity securities		7		1		(1	)		7
	$	617	$	20	$	(9	)		628
Amounts classified as current assets									(80	)
Investment carrying value								$	548

At December 31, 2012 and 2011 the investments of our insurance subsidiaries were classified as “available-for-sale.” Changes in temporary unrealized gains and losses are recorded as adjustments to other comprehensive income (loss). At December 31, 2012 and 2011, $9 million and $19 million, respectively, of our investments were subject to the restrictions included in insurance bond collateralization and assumed reinsurance contracts.

Scheduled maturities of investments in debt securities at December 31, 2012 were as follows (dollars in millions):

	Amortized Cost		Fair Value
Due in one year or less	$	76	$	76
Due after one year through five years		173		181
Due after five years through ten years		120		128
Due after ten years		93		100
		462		485
Auction rate securities		74		68
Asset-backed securities		14		14
	$	550	$	567

The average expected maturity of the investments in debt securities at December 31, 2012 was 4.5 years, compared to the average scheduled maturity of 8.3 years. Expected and scheduled maturities may differ because the issuers of certain securities have the right to call, prepay or otherwise redeem such obligations prior to their scheduled maturity date. The average expected maturities for our auction rate and asset-backed securities were derived from valuation models of expected cash flows and involved management’s judgment. The average expected maturities for our auction rate and asset-backed securities at December 31, 2012 were 5.5 years and 4.0 years, respectively, compared to average scheduled maturities of 24.1 years and 24.0 years, respectively.

The cost of securities sold is based on the specific identification method. Sales of securities for the years ended December 31 are summarized below (dollars in millions):

	2012		2011		2010
Debt securities:
Cash proceeds	$	1	$	—	$	329
Gross realized gains		—		—		14
Gross realized losses		—		—		1
Equity securities:
Cash proceeds	$	5	$	—	$	—
Gross realized gains		—		—		—
Gross realized losses		—		—		—