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



	Amortized		Gross Unrealized				Fair
(at December 31, 2019, in millions)	Cost		Gains		Losses		Value
U.S. Treasury securities and obligations of U.S. government and government agencies and authorities	$	2,076	$	19	$	—	$	2,095
Obligations of states, municipalities and political subdivisions:
Local general obligation	15,490		829		4		16,315
Revenue	9,731		586		2		10,315
State general obligation	1,167		64		—		1,231
Pre-refunded	1,968		88		—		2,056
Total obligations of states, municipalities and political subdivisions	28,356		1,567		6		29,917
Debt securities issued by foreign governments	1,167		8		2		1,173
Mortgage-backed securities, collateralized mortgage obligations and pass-through securities	3,192		91		3		3,280
All other corporate bonds	30,442		1,195		18		31,619
Redeemable preferred stock	48		2		—		50
Total	$	65,281	$	2,882	$	29	$	68,134



	Amortized		Gross Unrealized				Fair
(at December 31, 2018, in millions)	Cost		Gains		Losses		Value
U.S. Treasury securities and obligations of U.S. government and government agencies and authorities	$	2,076	$	4	$	16	$	2,064
Obligations of states, municipalities and political subdivisions:
Local general obligation	14,473		219		120		14,572
Revenue	9,755		172		74		9,853
State general obligation	1,329		18		13		1,334
Pre-refunded	2,772		80		—		2,852
Total obligations of states, municipalities and political subdivisions	28,329		489		207		28,611
Debt securities issued by foreign governments	1,255		7		5		1,257
Mortgage-backed securities, collateralized mortgage obligations and pass-through securities	2,557		54		38		2,573
All other corporate bonds	29,307		156		583		28,880
Redeemable preferred stock	77		2		—		79
Total	$	63,601	$	712	$	849	$	63,464

The amortized cost and fair value of fixed maturities by contractual maturity follow. Actual maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.



(at December 31, 2019, in millions)	Amortized Cost		Fair Value
Due in one year or less	$	3,738	$	3,760
Due after 1 year through 5 years	17,729		18,241
Due after 5 years through 10 years	17,262		18,215
Due after 10 years	23,360		24,638
	62,089		64,854
Mortgage-backed securities, collateralized mortgage obligations and pass-through securities	3,192		3,280
Total	$	65,281	$	68,134

Pre-refunded bonds of $2.06 billion and $2.85 billion at December 31, 2019 and 2018, 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.

The Company’s fixed maturity investment portfolio at December 31, 2019 and 2018 included $3.28 billion and $2.57 billion, respectively, of residential mortgage-backed securities, which include pass-through securities and collateralized mortgage obligations (CMOs). Included in the totals at December 31, 2019 and 2018 were $1.52 billion and $859 million, respectively, of GNMA, FNMA, FHLMC (excluding FHA project loans) and Canadian government guaranteed residential mortgage-backed pass-through securities classified as available for sale. Also included in those totals were residential CMOs classified as available for sale with a fair value of $1.76 billion and $1.71 billion at December 31, 2019 and 2018, respectively. Approximately 54% and 52% of the Company’s CMO holdings at December 31, 2019 and 2018, respectively, were guaranteed by or fully collateralized by securities issued by GNMA, FNMA or FHLMC. The weighted average credit rating of the $816 million and $828 million of non-guaranteed CMO holdings at December 31, 2019 and 2018, respectively, was “Aaa/Aa1” and “Aa1,” respectively. The weighted average credit rating of all of the above securities was Aaa/Aa1” at both December 31, 2019 and 2018.

At December 31, 2019 and 2018, the Company held commercial mortgage-backed securities (CMBS, including FHA project loans) of $1.51 billion and $1.22 billion, respectively, which are included in “All other corporate bonds” in the tables above. At December 31, 2019 and 2018, approximately $559 million and $458 million of these securities, respectively, or the loans backing such securities, contained guarantees by the U.S. government or a government-sponsored enterprise. The weighted average credit rating of the $950 million and $759 million of non-guaranteed securities at December 31, 2019 and 2018, respectively, was “Aaa” at both dates. The CMBS portfolio is supported by loans that are diversified across economic sectors and geographical areas. The weighted average credit rating of the CMBS portfolio was “Aaa” at both December 31, 2019 and 2018.

Proceeds from sales of fixed maturities classified as available for sale were $2.19 billion, $3.55 billion and $1.85 billion in 2019, 2018 and 2017, respectively. Gross gains of $67 million, $51 million and $42 million and gross losses of $8 million, $18 million and $38 million were realized on those sales in 2019, 2018 and 2017, respectively.

At December 31, 2019 and 2018, the Company’s insurance subsidiaries had $4.34 billion and $4.23 billion, respectively, of securities on deposit at financial institutions in certain states pursuant to the respective states’ insurance regulatory requirements. Funds deposited with third parties to be used as collateral to secure various liabilities on behalf of insureds, cedants and other creditors had a fair value of $54 million and $37 million at December 31, 2019 and 2018, respectively. Other investments pledged as collateral securing outstanding letters of credit had a fair value of $1 million at both December 31, 2019 and 2018. In addition, the Company utilizes Lloyd’s trust deposits, whereby owned securities with a fair value of approximately $173 million and $115 million held by a wholly-owned subsidiary at December 31, 2019 and 2018, respectively, and $34 million and $33 million held by TRV at December 31, 2019 and 2018, respectively, were pledged into Lloyd’s trust accounts to provide a portion of the capital needed to support the Company’s obligations at Lloyd’s.

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



(at December 31, 2019, in millions)	Cost		Gross Gains		Gross Losses		Fair Value
Public common stock	$	341	$	45	$	3	$	383
Non-redeemable preferred stock	35		7		—		42
Total	$	376	$	52	$	3	$	425

The Company’s real estate investments include warehouses, office buildings and other commercial land and properties that are directly owned. The Company negotiates commercial leases with individual tenants through unrelated, licensed real estate brokers. Negotiated terms and conditions include, among others, rental rates, length of lease period and improvements to the premises to be provided by the landlord.

There were no sales of real estate investments in 2019. Proceeds from the sale of real estate investments were $74 million and $23 million in 2018 and 2017, respectively. Gross gains of $23 million and $10 million were realized on those sales in 2018 and 2017, respectively, and there were no gross losses. Accumulated depreciation on real estate held for investment purposes was $422 million and $383 million at December 31, 2019 and 2018, respectively.

Future minimum rental income on operating leases relating to the Company’s real estate properties is expected to be $110 million, $102 million, $85 million, $61 million and $45 million for 2020, 2021, 2022, 2023 and 2024, respectively, and $71 million for 2025 and thereafter.

The Company’s short-term securities consist of Aaa-rated registered money market funds, U.S. Treasury securities, high-quality commercial paper (primarily A1/P1) and high-quality corporate securities purchased within a year to their maturity with a combined average of 54 days to maturity at December 31, 2019. The amortized cost of these securities, which totaled $4.94 billion and $3.99 billion at December 31, 2019 and 2018, respectively, approximated their fair value.

Entities which do not have sufficient equity at risk to allow the entity to finance its activities without additional financial support or in which the equity investors, as a group, do not have the characteristic of a controlling financial interest are referred to as variable interest entities (VIE). A VIE is consolidated by the variable interest holder that is determined to have the controlling financial interest (primary beneficiary) as a result of having both the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance and the obligation to absorb losses or right to receive benefits from the VIE that could potentially be significant to the VIE. The Company determines whether it is the primary beneficiary of an entity subject to consolidation based on a qualitative assessment of the VIE’s capital structure, contractual terms, nature of the VIE’s operations

The Company is a passive investor in limited partner equity interests issued by third party VIEs. These include certain of the Company’s investments in private equity limited partnerships, hedge funds and real estate partnerships where the Company is not related to the general partner. These investments are generally accounted for under the equity method and reported in the Company’s consolidated balance sheet as other investments unless the Company is deemed the primary beneficiary. These equity interests generally cannot be redeemed. Distributions from these investments are received by the Company as a result of liquidation of the underlying investments of the funds and/or as income distribution. The Company’s maximum exposure to loss with respect to these investments is limited to the investment carrying amounts reported in the Company’s consolidated balance sheet and any unfunded commitment. The Company considers an investment in a VIE in which it has a 20% or greater equity interest as a significant VIE. Neither the Company’s carrying amounts nor the unfunded commitments related to these significant VIE’s are material individually or in the aggregate.

The following tables summarize, for all investments in an unrealized loss position at December 31, 2019 and 2018, 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. The Company also relies upon estimates of several factors in its review and evaluation of individual investments, using the process described in note 1, in determining whether such investments are other-than-temporarily impaired.



	Less than 12 months				12 months or longer				Total
(at December 31, 2019, 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	$	5	$	—	$	193	$	—	$	198	$	—
Obligations of states, municipalities and political subdivisions	668		6		12		—		680		6
Debt securities issued by foreign governments	257		1		147		1		404		2
Mortgage-backed securities, collateralized mortgage obligations and pass-through securities	399		2		131		1		530		3
All other corporate bonds	1,571		10		662		8		2,233		18
Total fixed maturities	$	2,900	$	19	$	1,145	$	10	$	4,045	$	29



	Less than 12 months				12 months or longer				Total
(at December 31, 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	$	484	$	5	$	1,011	$	11	$	1,495	$	16
Obligations of states, municipalities and political subdivisions	5,241		82		3,298		125		8,539		207
Debt securities issued by foreign governments	96		—		328		5		424		5
Mortgage-backed securities, collateralized mortgage obligations and pass-through securities	593		9		1,070		29		1,663		38
All other corporate bonds	12,622		303		6,872		280		19,494		583
Total fixed maturities	$	19,036	$	399	$	12,579	$	450	$	31,615	$	849



(for the year ended December 31, in millions)	2019		2018		2017
Fixed maturities
U.S. Treasury securities and obligations of U.S. government and government agencies and authorities	$	—	$	—	$	—
Obligations of states, municipalities and political subdivisions	—		—		—
Debt securities issued by foreign governments	—		—		—
Mortgage-backed securities, collateralized mortgage obligations and pass-through securities	—		—		—
All other corporate bonds	4		1		4
Redeemable preferred stock	—		—		—
Total fixed maturities	4		1		4
Equity securities
Public common stock	—		—		9
Non-redeemable preferred stock	—		—		—
Total equity securities	—		—		9
Other investments	—		—		1
Total	$	4	$	1	$	14

The following tables present the cumulative amount of, and the changes during the year in, credit losses on fixed maturities held at December 31, 2019 and 2018, 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.



Year ended December 31, 2019 (in millions)	Cumulative OTTI Credit Losses Recognized for Securities Held, Beginning of Period		Additions for OTTI Securities Where No Credit Losses Were Previously Recognized		Additions for OTTI Securities Where Credit Losses Have Been Previously Recognized		Reductions Due to Sales/Defaults of Credit- Impaired Securities			Adjustments to Book Value of Credit- Impaired Securities due to Changes in Cash Flows		Cumulative OTTI Credit Losses Recognized for Securities Still Held, End of Period
Fixed maturities
Mortgage-backed securities, collateralized mortgage obligations and pass-through securities	$	15	$	—	$	—	$	(9	)	$	3	$	9
All other corporate bonds	42		—		—		(49		)	10		3
Total fixed maturities	$	57	$	—	$	—	$	(58	)	$	13	$	12



Year ended December 31, 2018 (in millions)	Cumulative OTTI Credit Losses Recognized for Securities Held, Beginning of Period		Additions for OTTI Securities Where No Credit Losses Were Previously Recognized		Additions for OTTI Securities Where Credit Losses Have Been Previously Recognized		Reductions Due to Sales/Defaults of Credit- Impaired Securities			Adjustments to Book Value of Credit- Impaired Securities due to Changes in Cash Flows		Cumulative OTTI Credit Losses Recognized for Securities Still Held, End of Period
Fixed maturities
Mortgage-backed securities, collateralized mortgage obligations and pass-through securities	$	29	$	—	$	—	$	(18	)	$	4	$	15
All other corporate bonds	46		—		—		(12		)	8		42
Total fixed maturities	$	75	$	—	$	—	$	(30	)	$	12	$	57

Concentrations of credit risk arise from exposure to counterparties that are engaged in similar activities and have similar economic characteristics that could cause their ability to meet contractual obligations to be similarly affected by changes in economic or other conditions. The Company seeks to mitigate credit risk by actively monitoring the creditworthiness of counterparties, obtaining collateral as deemed appropriate and applying controls that include credit approvals, limits of credit exposure and other monitoring procedures.

At December 31, 2019 and 2018, other than U.S. Treasury securities and obligations of U.S. government and government agencies and authorities, the Company was not exposed to any concentration of credit risk of a single issuer greater than 5% of the Company’s shareholders’ equity.

Included in fixed maturities are below investment grade securities totaling $1.46 billion and $1.48 billion at December 31, 2019 and 2018, respectively. The Company defines its below investment grade securities as those securities rated below investment grade by external rating agencies, or the equivalent by the Company when a public rating does not exist. Such securities include below investment grade bonds that are publicly traded and certain other privately issued bonds that are classified as below investment grade loans.



(for the year ended December 31, in millions)	2019		2018		2017
Gross investment income
Fixed maturities	$	2,070	$	1,980	$	1,895
Equity securities	15		16		28
Short-term securities	105		92		62
Real estate investments	55		48		44
Other investments	263		377		406
Gross investment income	2,508		2,513		2,435
Investment expenses	40		39		38
Net investment income	$	2,468	$	2,474	$	2,397



(at and for the year ended December 31, in millions)	2019			2018			2017
Changes in net unrealized investment gains (losses)
Fixed maturities	$	2,990		$	(1,515	)	$	513
Equity securities	—			—			(215		)
Other investments	—			(1		)	4
Change in net pre-tax unrealized gains (losses) on investment securities	2,990			(1,516		)	302
Related tax expense (benefit)	631			(319		)	78
Change in net unrealized gains (losses) on investment securities	2,359			(1,197		)	224
Cumulative effect of adoption of updated accounting guidance for equity financial instruments at January 1, 2018	—			(22		)	—
Reclassification of certain tax effects from accumulated other comprehensive income at January 1, 2018	—			152			—
Balance, beginning of year	(113		)	954			730
Balance, end of year	$	2,246		$	(113	)	$	954

The total impact of net unrealized gains on investment securities was $1.11 billion after-tax at December 31, 2017, which included the $954 million reported in accumulated other comprehensive income shown above, as well as $158 million included in retained earnings that was part of the impact of enactment of the Tax Cuts and Jobs Act of 2017 recorded in earnings.

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 December 31, 2019 and 2018, the Company had no open U.S. Treasury futures contracts. Net realized investment gains and losses related to U.S. Treasury futures contracts in 2019, 2018 and 2017 were not significant.

The Company has a put/call option that was entered into in connection with a business acquisition that allows the Company to acquire the remaining shares of the acquired company at a future date. Net realized investment gains and losses related to this put/call option in 2019 and 2018 were not significant.

The Company also sells a small amount of U.S. equity index put option contracts that are settled for cash upon their expiration or when they are rolled over. Net realized investment losses related to these derivatives in 2019, 2018 and 2017 were not significant.