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 June 30, 2017, in millions)

Cost

Gains

Losses

Value

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

2,023

2,028

Obligations of states, municipalities and political subdivisions:

Local general obligation

14,010

410

14,341

Revenue

11,589

317

11,843

State general obligation

1,612

1,646

Pre-refunded

4,112

172

—

4,284

Total obligations of states, municipalities and political subdivisions

31,323

944

153

32,114

Debt securities issued by foreign governments

1,537

1,556

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

1,675

1,767

All other corporate bonds

23,835

589

24,347

Redeemable preferred stock

—

Total

60,482

1,670

245

61,907

	Amortized		Gross Unrealized				Fair
(at December 31, 2016, in millions)	Cost		Gains		Losses		Value
U.S. Treasury securities and obligations of U.S. government and government agencies and authorities	$	2,031	$	9	$	5	$	2,035
Obligations of states, municipalities and political subdivisions:
Local general obligation	13,955		271		182		14,044
Revenue	10,910		215		147		10,978
State general obligation	1,717		36		22		1,731
Pre-refunded	4,968		190		1		5,157
Total obligations of states, municipalities and political subdivisions	31,550		712		352		31,910

Debt securities issued by foreign governments	1,631		34		3		1,662
Mortgage-backed securities, collateralized mortgage obligations and pass-through securities	1,614		100		6		1,708
All other corporate bonds	22,737		508		138		23,107
Redeemable preferred stock	87		6		—		93
Total	$	59,650	$	1,369	$	504	$	60,515

Pre-refunded bonds of $4.28 billion and $5.16 billion at June 30, 2017 and December 31, 2016, 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.

Proceeds from sales of fixed maturities classified as available for sale were $563 million and $739 million during the six months ended June 30, 2017 and 2016, respectively. Gross gains of $17 million and $46 million and gross losses of $4 million and $8 million were realized on those sales during the six months ended June 30, 2017 and 2016, respectively.

Equity Securities

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

			Gross Unrealized				Fair
(at June 30, 2017, in millions)	Cost		Gains		Losses		Value
Public common stock	$	443	$	130	$	6	$	567
Non-redeemable preferred stock	115		23		5		133
Total	$	558	$	153	$	11	$	700

			Gross Unrealized				Fair
(at December 31, 2016, in millions)	Cost		Gains		Losses		Value
Public common stock	$	390	$	216	$	3	$	603
Non-redeemable preferred stock	114		20		5		129
Total	$	504	$	236	$	8	$	732

Proceeds from sales of equity securities classified as available for sale were $200 million and $38 million during the six months ended June 30, 2017 and 2016, respectively. Gross gains of $88 million and $8 million and gross losses of $1 million and $2 million were realized on those sales during the six months ended June 30, 2017 and 2016, respectively.

Unrealized Investment Losses

The following tables summarize, for all investments in an unrealized loss position at June 30, 2017 and December 31, 2016, 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 2016 Annual Report as updated by the Company’s Current Report on Form 8-K filed on June 20, 2017. The Company also relies upon estimates of several factors in its review and evaluation of individual investments, using the process described in note 1 of notes to the consolidated financial statements in the Company’s 2016 Annual Report as updated by the Company’s Current Report on Form 8-K filed on June 20, 2017, in determining whether such investments are other-than-temporarily impaired.

	Less than 12 months				12 months or longer				Total
(at June 30, 2017, 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	$	1,342	$	5	$	5	$	—	$	1,347	$	5
Obligations of states, municipalities and political subdivisions	6,088		142		179		11		6,267		153
Debt securities issued by foreign governments	432		5		—		—		432		5
Mortgage-backed securities, collateralized mortgage obligations and pass-through securities	470		5		37		—		507		5
All other corporate bonds	4,980		66		279		11		5,259		77
Total fixed maturities	13,312		223		500		22		13,812		245
Equity securities
Public common stock	150		3		14		3		164		6
Non-redeemable preferred stock	—		—		61		5		61		5
Total equity securities	150		3		75		8		225		11
Total	$	13,462	$	226	$	575	$	30	$	14,037	$	256

	Less than 12 months							12 months or longer								Total
(at December 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	$		1,124	$			5	$		—		$		—		$		1,124		$		5
Obligations of states, municipalities and political subdivisions	9,781			352				12				—				9,793				352
Debt securities issued by foreign governments	360			3				—				—				360				3
Mortgage-backed securities, collateralized mortgage obligations and pass-through securities	528			5				43				1				571				6
All other corporate bonds	6,470			115				437				23				6,907				138
Total fixed maturities	18,263			480				492				24				18,755				504

Equity securities
Public common stock	45			2				10				1				55				3
Non-redeemable preferred stock	2			—				59				5				61				5
Total equity securities	47			2				69				6				116				8
Total	$	18,310			$	482			$		561		$		30		$		18,871		$		512

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 June 30, 2017 totaled $1 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 in the consolidated statement of income were $5 million and $4 million for the three months ended June 30, 2017 and 2016, respectively, and $7 million and $22 million for the six months ended June 30, 2017 and 2016, respectively.

The cumulative amount of credit losses on fixed maturities held at June 30, 2017 and 2016, 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 was $83 million and $88 million, respectively. 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 six months ended June 30, 2017 and 2016 from that disclosed in note 3 of notes to the consolidated financial statements in the Company’s 2016 Annual Report as updated by the Company’s Current Report on Form 8-K filed on June 20, 2017.

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 June 30, 2017 and December 31, 2016, the Company had $400 million notional value of open U.S. Treasury futures contracts. Net realized investment losses related to U.S. Treasury futures contracts for the three months and six months ended June 30, 2017 and 2016 were not significant.