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, 2016, in millions)

Cost

Gains

Losses

Value

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

2,128

2,154

Obligations of states, municipalities and political subdivisions:

Local general obligation

13,242

690

13,931

Revenue

9,914

563

10,474

State general obligation

1,944

102

—

2,046

Pre-refunded

5,640

231

—

5,871

Total obligations of states, municipalities and political subdivisions

30,740

1,586

32,322

Debt securities issued by foreign governments

1,794

—

1,846

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

1,799

131

1,929

All other corporate bonds

22,921

834

135

23,620

Redeemable preferred stock

108

—

114

Total

59,490

2,636

141

61,985

	Amortized		Gross Unrealized				Fair
(at December 31, 2015, in millions)	Cost		Gains		Losses		Value
U.S. Treasury securities and obligations of U.S. government and government agencies and authorities	$	2,202	$	8	$	16	$	2,194
Obligations of states, municipalities and political subdivisions:
Local general obligation	12,744		577		3		13,318
Revenue	9,492		472		4		9,960
State general obligation	1,978		97		2		2,073
Pre-refunded	5,813		247		—		6,060
Total obligations of states, municipalities and political subdivisions	30,027		1,393		9		31,411
Debt securities issued by foreign governments	1,829		45		1		1,873
Mortgage-backed securities, collateralized mortgage obligations and pass-through securities	1,863		124		6		1,981
All other corporate bonds	22,854		523		288		23,089
Redeemable preferred stock	103		7		—		110
Total	$	58,878	$	2,100	$	320	$	60,658

Pre-refunded bonds of $5.87 billion and $6.06 billion at March 31, 2016 and December 31, 2015, 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.

Proceeds from sales of fixed maturities classified as available for sale were $421 million and $906 million during the three months ended March 31, 2016 and 2015, respectively. Gross gains of $23 million and $19 million and gross losses of $7 million and $1 million were realized on those sales during the three months ended March 31, 2016 and 2015, respectively.

Equity Securities

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

			Gross Unrealized				Fair
(at March 31, 2016, in millions)	Cost		Gains		Losses		Value
Public common stock	$	383	$	174	$	8	$	549
Non-redeemable preferred stock	145		24		8		161
Total	$	528	$	198	$	16	$	710

			Gross Unrealized				Fair
(at December 31, 2015, in millions)	Cost		Gains		Losses		Value
Public common stock	$	386	$	164	$	7	$	543
Non-redeemable preferred stock	142		26		6		162
Total	$	528	$	190	$	13	$	705

Proceeds from sales of equity securities classified as available for sale were $14 million and $11 million during the three months ended March 31, 2016 and 2015, respectively. Gross gains of $3 million and $2 million and gross losses of $2 million and $0 million were realized on those sales during the three months ended March 31, 2016 and 2015, respectively.

Unrealized Investment Losses

The following tables summarize, for all investments in an unrealized loss position at March 31, 2016 and December 31, 2015, 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 2015 Annual Report.

	Less than 12 months				12 months or longer				Total
(at March 31, 2016, 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	$	171	$	—	$	10	$	1	$	181	$	1
Obligations of states, municipalities and political subdivisions	681		3		141		1		822		4
Debt securities issued by foreign governments	25		—		—		—		25		—
Mortgage-backed securities, collateralized mortgage obligations and pass-through securities	98		—		73		1		171		1
All other corporate bonds	2,010		70		941		65		2,951		135
Redeemable preferred stock	22		—		—		—		22		—
Total fixed maturities	3,007		73		1,165		68		4,172		141
Equity securities
Public common stock	54		8		34		—		88		8
Non-redeemable preferred stock	29		1		59		7		88		8
Total equity securities	83		9		93		7		176		16
Total	$	3,090	$	82	$	1,258	$	75	$	4,348	$	157

	Less than 12 months				12 months or longer				Total
(at December 31, 2015, 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	$	1,820	$	15	$	28	$	1	$	1,848	$	16
Obligations of states, municipalities and political subdivisions	928		7		142		2		1,070		9
Debt securities issued by foreign governments	172		1		—		—		172		1
Mortgage-backed securities, collateralized mortgage obligations and pass-through securities	473		4		57		2		530		6
All other corporate bonds	7,725		197		710		91		8,435		288
Redeemable preferred stock	8		—		—		—		8		—
Total fixed maturities	11,126		224		937		96		12,063		320
Equity securities
Public common stock	48		6		33		1		81		7
Non-redeemable preferred stock	47		3		38		3		85		6
Total equity securities	95		9		71		4		166		13
Total	$	11,221	$	233	$	1,008	$	100	$	12,229	$	333

Unrealized losses 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, 2016 totaled $50 million, representing less than 1% of the combined fixed maturity and equity security portfolios on a pre-tax 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 $18 million and $3 million for the three months ended March 31, 2016 and 2015, respectively.

For fixed maturities held at March 31, 2016 and 2015, the cumulative amount of credit losses recognized in the consolidated statement of income from other-than-temporary impairments (OTTI) was $92 million and $94 million, respectively, on investments for which a portion of the OTTI was recognized in other comprehensive income (loss). 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 three months ended March 31, 2016 and 2015 from that disclosed in note 3 of notes to the consolidated financial statements in the Company’s 2015 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 both March 31, 2016 and December 31, 2015, the Company had $400 million notional value of open U.S. Treasury futures contracts. Net realized investment gains (losses) in the three months ended March 31, 2016 and 2015 included net losses of $19 million and $10 million, respectively, related to U.S. Treasury futures contracts.