3. 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 March 31, 2013, in millions)

Cost

Gains

Losses

Value

U.S. Treasury securities and obligations of U.S. government and government agencies and authorities

2,070

2,136

Obligations of states, municipalities and political subdivisions:

Pre-refunded

9,059

589

—

9,648

All other

26,704

1,934

28,598

Total obligations of states, municipalities and political subdivisions

35,763

2,523

38,246

Debt securities issued by foreign governments

2,121

—

2,189

Mortgage-backed securities, collateralized mortgage obligations and pass-through securities

2,532

246

2,776

All other corporate bonds

18,066

1,284

19,319

Redeemable preferred stock

—

Total

60,578

4,195

64,699

	Amortized		Gross Unrealized				Fair
(at December 31, 2012, in millions)	Cost		Gains		Losses		Value
U.S. Treasury securities and obligations of U.S. government and government agencies and authorities	$	2,148	$	75	$	1	$	2,222
Obligations of states, municipalities and political subdivisions:
Pre-refunded	8,458		567		—		9,025
All other	27,405		2,262		11		29,656
Total obligations of states, municipalities and political subdivisions	35,863		2,829		11		38,681
Debt securities issued by foreign governments	2,185		72		—		2,257
Mortgage-backed securities, collateralized mortgage obligations and pass-through securities	2,744		255		2		2,997
All other corporate bonds	17,863		1,360		20		19,203
Redeemable preferred stock	26		7		—		33
Total	$	60,829	$	4,598	$	34	$	65,393

Pre-refunded bonds of $9.65 billion and $9.03 billion at March 31, 2013 and December 31, 2012, respectively, were bonds for which an irrevocable trust (almost exclusively comprised of U.S. Treasury securities) has been established to fund the remaining payments of principal and interest.

Equity Securities

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

			Gross Unrealized				Fair
(at March 31, 2013, in millions)	Cost		Gains		Losses		Value
Common stock	$	352	$	209	$	—	$	561
Non-redeemable preferred stock	94		39		—		133
Total	$	446	$	248	$	—	$	694

			Gross Unrealized				Fair
(at December 31, 2012, in millions)	Cost		Gains		Losses		Value
Common stock	$	366	$	148	$	4	$	510
Non-redeemable preferred stock	96		39		—		135
Total	$	462	$	187	$	4	$	645

Unrealized Investment Losses

The following tables summarize, for all investments in an unrealized loss position at March 31, 2013 and December 31, 2012, 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.

	Less than 12 months				12 months or longer				Total
(at March 31, 2013, 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	$	310	$	1	$	—	$	—	$	310	$	1
Obligations of states, municipalities and political subdivisions	1,928		39		46		1		1,974		40
Debt securities issued by foreign governments	78		—		—		—		78		—
Mortgage-backed securities, collateralized mortgage obligations and pass-through securities	31		—		23		2		54		2
All other corporate bonds	1,619		24		81		7		1,700		31
Total fixed maturities	3,966		64		150		10		4,116		74
Equity securities
Common stock	13		—		—		—		13		—
Non-redeemable preferred stock	29		—		—		—		29		—
Total equity securities	42		—		—		—		42		—
Total	$	4,008	$	64	$	150	$	10	$	4,158	$	74

	Less than 12 months				12 months or longer				Total
(at December 31, 2012, 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	$	589	$	1	$	—	$	—	$	589	$	1
Obligations of states, municipalities and political subdivisions	611		9		45		2		656		11
Debt securities issued by foreign governments	186		—		2		—		188		—
Mortgage-backed securities, collateralized mortgage obligations and pass-through securities	70		—		36		2		106		2
All other corporate bonds	1,097		13		89		7		1,186		20
Total fixed maturities	2,553		23		172		11		2,725		34

Equity securities
Common stock	40		4		—		—		40		4
Non-redeemable preferred stock	13		—		—		—		13		—
Total equity securities	53		4		—		—		53		4
Total	$	2,606	$	27	$	172	$	11	$	2,778	$	38

The following table summarizes, for all fixed maturities and equity securities reported at fair value for which fair value is less than 80% of amortized cost at March 31, 2013, the gross unrealized investment loss by length of time those securities have continuously been in an unrealized loss position of greater than 20% of amortized cost:

	Period For Which Fair Value Is Less Than 80% of Amortized Cost
(in millions)	3 Months or Less		Greater Than 3 Months, 6 Months or Less		Greater Than 6 Months, 12 Months or Less		Greater Than 12 Months		Total
Fixed maturities
Mortgage-backed securities	$	—	$	—	$	—	$	—	$	—
Other	1		—		1		3		5
Total fixed maturities	1		—		1		3		5
Equity securities	—		—		—		—		—
Total	$	1	$	—	$	1	$	3	$	5

These unrealized losses at March 31, 2013 represented less than 1% of the combined fixed maturity and equity security portfolios on a pretax basis and less than 1% of shareholders’ equity on an after-tax basis.

Impairment Charges

Impairment charges included in net realized investment gains in the consolidated statement of income were as follows:

(for the three months ended March 31, in millions)	2013		2012
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	1		1
All other corporate bonds	—		2
Redeemable preferred stock	—		—
Total fixed maturities	1		3

Equity securities
Common stock	—		—
Non-redeemable preferred stock	—		—
Total equity securities	—		—

Other investments	4		1
Total	$	5	$	4

The following tables present the changes during the reporting period in the credit component of other-than-temporary impairments (OTTI) on fixed maturities recognized in the consolidated statement of income for which a portion of the OTTI was recognized in other comprehensive income:

(for the three months ended March 31, 2013, in millions)	Cumulative OTTI Credit Losses Recognized for Securities Held, Beginning of Year		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	$	63	$	—	$	1	$	—	$	1	$	65
All other corporate bonds	102		—		—		—		1		103
Total fixed maturities	$	165	$	—	$	1	$	—	$	2	$	168

(for the three months ended March 31, 2012, in millions)	Cumulative OTTI Credit Losses Recognized for Securities Held, Beginning of Year		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	$	58	$	—	$	1	$	—	$	—	$	59
All other corporate bonds	94		—		2		—		1		97
Total fixed maturities	$	152	$	—	$	3	$	—	$	1	$	156

Derivative Financial Instruments

The Company uses U.S. Treasury note futures transactions to modify the effective duration of specific assets within the investment portfolio. The Company enters into 90-day futures contracts on U.S. Treasury notes which require a daily mark-to-market and settlement with the broker. At March 31, 2013, the Company had $2.0 billion notional value of 10-year U.S. Treasury futures contracts. At December 31, 2012, the Company had $800 million notional value of 5-year U.S. Treasury futures contracts. Net realized investment gains in the three months ended March 31, 2013 and 2012 included net losses of $19 million and net gains of $6 million, respectively, related to U.S. Treasury futures contracts.