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 September 30, 2013, in millions)

Cost

Gains

Losses

Value

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

2,069

2,109

Obligations of states, municipalities and political subdivisions:

Pre-refunded

9,141

489

9,629

All other

25,817

1,137

333

26,621

Total obligations of states, municipalities and political subdivisions

34,958

1,626

334

36,250

Debt securities issued by foreign governments

1,937

1,974

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

2,337

191

2,516

All other corporate bonds

18,633

833

245

19,221

Redeemable preferred stock

—

Total

59,960

2,744

602

62,102

	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 $9.63 billion and $9.03 billion at September 30, 2013 and December 31, 2012, respectively, are bonds for which states or municipalities have established irrevocable trusts, almost exclusively comprised of U.S. Treasury securities, which were created to satisfy their responsibility for payments of principal and interest.

Equity Securities

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

			Gross Unrealized				Fair
(at September 30, 2013, in millions)	Cost		Gains		Losses		Value
Common stock	$	380	$	205	$	1	$	584
Non-redeemable preferred stock	90		35		1		124
Total	$	470	$	240	$	2	$	708

			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 September 30, 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 September 30, 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	$	238	$	8	$	—	$	—	$	238	$	8
Obligations of states, municipalities and political subdivisions	4,852		333		11		1		4,863		334
Debt securities issued by foreign governments	420		3		—		—		420		3
Mortgage-backed securities, collateralized mortgage obligations and pass-through securities	436		10		22		2		458		12
All other corporate bonds	5,481		231		107		14		5,588		245
Total fixed maturities	11,427		585		140		17		11,567		602

Equity securities
Common stock	37		1		—		—		37		1
Non-redeemable preferred stock	28		1		—		—		28		1
Total equity securities	65		2		—		—		65		2
Total	$	11,492	$	587	$	140	$	17	$	11,632	$	604

	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 September 30, 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	5		2		—		4		11
Total fixed maturities	5		2		—		4		11
Equity securities	1		—		—		—		1
Total	$	6	$	2	$	—	$	4	$	12

These unrealized losses at September 30, 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 (losses) in the consolidated statement of income were as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
(in millions)	2013		2012		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	—		—		2		3
All other corporate bonds	—		1		—		4
Redeemable preferred stock	—		—		—		—
Total fixed maturities	—		1		2		7
Equity securities
Common stock	2		1		3		1
Non-redeemable preferred stock	—		1		—		1
Total equity securities	2		2		3		2
Other investments	1		—		5		2
Total	$	3	$	3	$	10	$	11

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:

	2013
(for the three months ended September 30, 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	$	67	$	—	$	—	$	—	$	2	$	69
All other corporate bonds	104		—		—		—		1		105
Total fixed maturities	$	171	$	—	$	—	$	—	$	3	$	174

(for the nine months ended September 30, in millions)
Fixed maturities
Mortgage-backed securities, collateralized mortgage obligations and pass-through securities	$	63	$	—	$	2	$	—	$	4	$	69
All other corporate bonds	102		—		—		—		3		105
Total fixed maturities	$	165	$	—	$	2	$	—	$	7	$	174

	2012
(for the three months ended September 30, 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	$	61	$	—	$	—	$	(1	)	$	1	$	61
All other corporate bonds	99		—		1		—			1		101
Total fixed maturities	$	160	$	—	$	1	$	(1	)	$	2	$	162

(for the nine months ended September 30, in millions)
Fixed maturities
Mortgage-backed securities, collateralized mortgage obligations and pass-through securities	$	58	$	—	$	3	$	(1	)	$	1	$	61
All other corporate bonds	94		—		4		—			3		101
Total fixed maturities	$	152	$	—	$	7	$	(1	)	$	4	$	162

Derivative Financial Instruments

From time to time, the Company enters into U.S. Treasury 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, 2013 and December 31, 2012, the Company had $0 and $800 million notional value of open U.S. Treasury futures contracts, respectively. Net realized investment gains (losses) in the three months ended September 30, 2013 and 2012 included net gains of $0 and net losses of $8 million, respectively, related to U.S. Treasury futures contracts. Net realized investment gains (losses) in the nine months ended September 30, 2013 and 2012 included net gains of $115 million and net losses of $15 million, respectively, related to U.S. Treasury futures contracts.