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, 2014, in millions)

Cost

Gains

Losses

Value

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

2,050

2,074

Obligations of states, municipalities and political subdivisions:

Pre-refunded

7,459

348

—

7,807

All other

24,787

1,336

26,090

Total obligations of states, municipalities and political subdivisions

32,246

1,684

33,897

Debt securities issued by foreign governments

2,435

2,468

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

2,114

167

2,274

All other corporate bonds

22,072

828

126

22,774

Redeemable preferred stock

126

—

135

Total

61,043

2,753

174

63,622

	Amortized		Gross Unrealized				Fair
(at December 31, 2013, in millions)	Cost		Gains		Losses		Value
U.S. Treasury securities and obligations of U.S. government and government agencies and authorities	$	2,288	$	39	$	12	$	2,315
Obligations of states, municipalities and political subdivisions:
Pre-refunded	9,074		445		1		9,518
All other	25,414		991		361		26,044
Total obligations of states, municipalities and political subdivisions	34,488		1,436		362		35,562
Debt securities issued by foreign governments	2,552		33		8		2,577
Mortgage-backed securities, collateralized mortgage obligations and pass-through securities	2,263		179		18		2,424
All other corporate bonds	20,472		767		299		20,940
Redeemable preferred stock	133		6		1		138
Total	$	62,196	$	2,460	$	700	$	63,956

Pre-refunded bonds of $7.81 billion and $9.52 billion at September 30, 2014 and December 31, 2013, respectively, were 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, 2014, in millions)	Cost		Gains		Losses		Value
Public common stock	$	396	$	312	$	—	$	708
Non-redeemable preferred stock	213		30		2		241
Total	$	609	$	342	$	2	$	949

			Gross Unrealized				Fair
(at December 31, 2013, in millions)	Cost		Gains		Losses		Value
Public common stock	$	385	$	226	$	1	$	610
Non-redeemable preferred stock	301		34		2		333
Total	$	686	$	260	$	3	$	943

Unrealized Investment Losses

The following tables summarize, for all investments in an unrealized loss position at September 30, 2014 and December 31, 2013, 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, 2014, 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	$	172	$	2	$	105	$	5	$	277	$	7
Obligations of states, municipalities and political subdivisions	1,033		1		1,736		32		2,769		33
Debt securities issued by foreign governments	226		—		143		1		369		1
Mortgage-backed securities, collateralized mortgage obligations and pass-through securities	157		1		257		6		414		7
All other corporate bonds	3,161		34		2,658		92		5,819		126
Total fixed maturities	4,749		38		4,899		136		9,648		174
Equity securities
Public common stock	36		—		1		—		37		—
Non-redeemable preferred stock	108		2		—		—		108		2
Total equity securities	144		2		1		—		145		2
Total	$	4,893	$	40	$	4,900	$	136	$	9,793	$	176

	Less than 12 months				12 months or longer				Total
(at December 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	$	433	$	12	$	—	$	—	$	433	$	12
Obligations of states, municipalities and political subdivisions	4,785		298		432		64		5,217		362
Debt securities issued by foreign governments	907		8		1		—		908		8
Mortgage-backed securities, collateralized mortgage obligations and pass-through securities	542		17		21		1		563		18
All other corporate bonds	6,887		253		421		46		7,308		299
Redeemable preferred stock	82		1		—		—		82		1
Total fixed maturities	13,636		589		875		111		14,511		700
Equity securities
Public common stock	53		1		—		—		53		1
Non-redeemable preferred stock	147		2		—		—		147		2
Total equity securities	200		3		—		—		200		3
Total	$	13,836	$	592	$	875	$	111	$	14,711	$	703

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, 2014, 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
(at September 30, 2014, 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	—		—		2		2		4
Total fixed maturities	—		—		2		2		4
Equity securities	—		—		—		—		—
Total	$	—	$	—	$	2	$	2	$	4

These unrealized losses at September 30, 2014 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)	2014		2013		2014		2013

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		2
All other corporate bonds	9		—		12		—
Redeemable preferred stock	—		—		—		—
Total fixed maturities	9		—		13		2
Equity securities
Public common stock	1		2		6		3
Non-redeemable preferred stock	—		—		—		—
Total equity securities	1		2		6		3
Other investments	—		1		1		5
Total	$	10	$	3	$	20	$	10

The following tables present the cumulative amount of and the changes during the reporting period in the credit losses 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:

	2014
(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	$	43	$	—	$	—	$	—		$	1	$	44
All other corporate bonds	66		—		—		(5		)	—		61
Total fixed maturities	$	109	$	—	$	—	$	(5	)	$	1	$	105

(for the nine months ended September 30, in millions)
Fixed maturities
Mortgage-backed securities, collateralized mortgage obligations and pass-through securities	$	53	$	—	$	1	$	(3	)	$	(7	)	$	44
All other corporate bonds	65		—		3		(5		)	(2		)	61
Total fixed maturities	$	118	$	—	$	4	$	(8	)	$	(9	)	$	105

	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	$	55	$	—	$	—	$	—	$	(2	)	$	53
All other corporate bonds	70		—		—		—		(1		)	69
Total fixed maturities	$	125	$	—	$	—	$	—	$	(3	)	$	122

(for the nine months ended September 30, in millions)
Fixed maturities
Mortgage-backed securities, collateralized mortgage obligations and pass-through securities	$	55	$	—	$	2	$	—	$	(4	)	$	53
All other corporate bonds	72		—		—		—		(3		)	69
Total fixed maturities	$	127	$	—	$	2	$	—	$	(7	)	$	122

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, 2014 and December 31, 2013, the Company had $100 million and $0 notional value of open U.S. Treasury futures contracts, respectively. Net realized investment gains (losses) in both the three months ended September 30, 2014 and 2013 included net losses of approximately $0 million related to U.S. Treasury futures contracts. Net realized investment gains (losses) in the nine months ended September 30, 2014 and 2013 included net losses of $0.3 million and net gains of $115 million, respectively, related to U.S. Treasury futures contracts.