INVESTMENTS

Fixed Maturities

The amortized cost and fair value of investments in fixed maturities classified as available for sale were as follows:



	Amortized		Gross Unrealized				Fair
(at September 30, 2018, in millions)	Cost		Gains		Losses		Value
U.S. Treasury securities and obligations of U.S. government and government agencies and authorities	$	2,045	$	1	$	29	$	2,017
Obligations of states, municipalities and political subdivisions:
Local general obligation	14,272		135		233		14,174
Revenue	9,730		113		147		9,696
State general obligation	1,328		13		21		1,320
Pre-refunded	2,911		81		1		2,991
Total obligations of states, municipalities and political subdivisions	28,241		342		402		28,181
Debt securities issued by foreign governments	1,286		4		11		1,279
Mortgage-backed securities, collateralized mortgage obligations and pass-through securities	2,502		51		62		2,491
All other corporate bonds	28,825		134		592		28,367
Redeemable preferred stock	86		3		—		89
Total	$	62,985	$	535	$	1,096	$	62,424



	Amortized		Gross Unrealized				Fair
(at December 31, 2017, in millions)	Cost		Gains		Losses		Value
U.S. Treasury securities and obligations of U.S. government and government agencies and authorities	$	2,080	$	4	$	8	$	2,076
Obligations of states, municipalities and political subdivisions:
Local general obligation	13,488		444		26		13,906
Revenue	11,307		338		19		11,626
State general obligation	1,443		44		3		1,484
Pre-refunded	3,758		142		1		3,899
Total obligations of states, municipalities and political subdivisions	29,996		968		49		30,915
Debt securities issued by foreign governments	1,505		14		10		1,509
Mortgage-backed securities, collateralized mortgage obligations and pass-through securities	2,334		87		11		2,410
All other corporate bonds	25,311		478		100		25,689
Redeemable preferred stock	90		5		—		95
Total	$	61,316	$	1,556	$	178	$	62,694

Pre-refunded bonds of $2.99 billion and $3.90 billion at September 30, 2018 and December 31, 2017, respectively, were bonds for which states or municipalities have established irrevocable trusts, almost exclusively comprised of U.S. Treasury securities and obligations of U.S. government and government agencies and authorities. These trusts were created to fund the payment of principal and interest due under the bonds.

Proceeds from sales of fixed maturities classified as available for sale were $3.19 billion and $860 million during the nine months ended September 30, 2018 and 2017, respectively. Gross gains of $47 million and $28 million and gross losses of $16 million and $6 million were realized on those sales during the nine months ended September 30, 2018 and 2017, respectively.

Equity Securities

The cost and fair value of investments in equity securities were as follows:



							Fair
(at September 30, 2018, in millions)	Cost		Gross Gains		Gross Losses		Value
Public common stock	$	336	$	19	$	8	$	347
Non-redeemable preferred stock	72		10		3		79
Total	$	408	$	29	$	11	$	426



							Fair
(at December 31, 2017, in millions)	Cost		Gross Gains		Gross Losses		Value
Public common stock	$	332	$	8	$	1	$	339
Non-redeemable preferred stock	108		12		6		114
Total	$	440	$	20	$	7	$	453

For the nine months ended September 30, 2018, the Company recognized $5 million of net gains on equity securities still held as of September 30, 2018.

Proceeds from sales of equity securities previously classified as available for sale were $340 million during the nine months ended September 30, 2017. Gross gains of $146 million and gross losses of $1 million were realized on those sales during the nine months ended September 30, 2017.

Real Estate

At September 30, 2018, the Company had a real estate investment held for sale with a carrying value of $53 million. In October 2018, the investment was sold, resulting in a pre-tax realized investment gain of approximately $20 million that will be recognized in the fourth quarter of 2018.

Unrealized Investment Losses

The following tables summarize, for all investments in an unrealized loss position at September 30, 2018 and December 31, 2017, the aggregate fair value and gross unrealized loss by length of time those securities have been continuously in an unrealized loss position. The fair value amounts reported in the tables are estimates that are prepared using the process described in note 4 herein and in note 4 of notes to the consolidated financial statements in the Company’s 2017 Annual Report. The Company also relies upon estimates of several factors in its review and evaluation of individual investments, using the process described in note 1 of notes to the consolidated financial statements in the Company’s 2017 Annual Report to determine whether such investments are other-than-temporarily impaired.



	Less than 12 months				12 months or longer				Total
(at September 30, 2018, in millions)	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
Fixed maturities
U.S. Treasury securities and obligations of U.S. government and government agencies and authorities	$	1,241	$	20	$	625	$	9	$	1,866	$	29
Obligations of states, municipalities and political subdivisions	10,078		216		3,063		186		13,141		402
Debt securities issued by foreign governments	504		3		294		8		798		11
Mortgage-backed securities, collateralized mortgage obligations and pass-through securities	1,265		33		661		29		1,926		62
All other corporate bonds	17,490		398		3,862		194		21,352		592
Total fixed maturities	$	30,578	$	670	$	8,505	$	426	$	39,083	$	1,096



	Less than 12 months				12 months or longer				Total
(at December 31, 2017, in millions)	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
Fixed maturities
U.S. Treasury securities and obligations of U.S. government and government agencies and authorities	$	1,150	$	5	$	470	$	3	$	1,620	$	8
Obligations of states, municipalities and political subdivisions	505		2		2,959		47		3,464		49
Debt securities issued by foreign governments	394		6		111		4		505		10
Mortgage-backed securities, collateralized mortgage obligations and pass-through securities	1,021		7		250		4		1,271		11
All other corporate bonds	6,062		48		1,990		52		8,052		100
Total fixed maturities	9,132		68		5,780		110		14,912		178
Equity securities
Public common stock	18		—		34		1		52		1
Non-redeemable preferred stock	3		—		56		6		59		6
Total equity securities	21		—		90		7		111		7
Total	$	9,153	$	68	$	5,870	$	117	$	15,023	$	185

At September 30, 2018, the amount of gross unrealized losses for all fixed maturity investments reported at fair value for which fair value was less than 80% of amortized cost was not significant.

Impairment Charges

Impairment charges included in net realized investment gains in the consolidated statement of income were $0 million and $5 million for the three months ended September 30, 2018 and 2017, respectively, and $1 million and $12 million for the nine months ended September 30, 2018 and 2017, respectively.

The cumulative amount of credit losses on fixed maturities held at September 30, 2018 and 2017 that were recognized in the consolidated statement of income from other-than-temporary impairments (OTTI) and for which a portion of the OTTI was recognized in other comprehensive income (loss) in the consolidated balance sheet was $54 million and $82 million, respectively. These credit losses represent less than 1% of the fixed maturity portfolio on a pre-tax basis and less than 1% of shareholders’ equity on an after-tax basis at both dates. There were no significant changes in the credit component of OTTI during the nine months ended September 30, 2018 and 2017 from that disclosed in note 3 of notes to the consolidated financial statements in the Company’s 2017 Annual Report.

Derivative Financial Instruments

From time to time, the Company enters into U.S. Treasury note futures contracts to modify the effective duration of specific assets within the investment portfolio. U.S. Treasury futures contracts require a daily mark-to-market and settlement with the broker. At September 30, 2018 and December 31, 2017, the Company had $50 million and $400 million notional value of open U.S. Treasury futures contracts, respectively. Net realized investment gains and losses related to U.S. Treasury futures contracts for the three months and nine months ended September 30, 2018 and 2017 were not significant.