Investments

9 Months Ended

Sep. 30, 2017

Investments disclosure

Investments disclsoure [Text Block]

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, 2017, in millions)	Cost		Gains		Losses		Value
U.S. Treasury securities and obligations of U.S. government and government agencies and authorities	$	2,064	$	9	$	5	$	2,068
Obligations of states, municipalities and political subdivisions:
Local general obligation	13,798		410		67		14,141
Revenue	11,341		324		51		11,614
State general obligation	1,555		45		9		1,591
Pre-refunded	3,666		163		—		3,829
Total obligations of states, municipalities and political subdivisions	30,360		942		127		31,175
Debt securities issued by foreign governments	1,559		17		11		1,565
Mortgage-backed securities, collateralized mortgage obligations and pass-through securities	2,082		97		6		2,173
All other corporate bonds	24,572		587		79		25,080
Redeemable preferred stock	90		6		—		96
Total	$	60,727	$	1,658	$	228	$	62,157

	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 $3.83 billion and $5.16 billion at September 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 $860 million and $865 million during the nine months ended September 30, 2017 and 2016, respectively. Gross gains of $28 million and $60 million and gross losses of $6 million and $10 million were realized on those sales during the nine months ended September 30, 2017 and 2016, respectively.

Equity Securities

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

			Gross Unrealized				Fair
(at September 30, 2017, in millions)	Cost		Gains		Losses		Value
Public common stock	$	392	$	80	$	2	$	470
Non-redeemable preferred stock	117		20		6		131
Total	$	509	$	100	$	8	$	601

			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 $340 million and $71 million during the nine months ended September 30, 2017 and 2016, respectively.  Gross gains of $146 million and $12 million and gross losses of $1 million and $3 million were realized on those sales during the nine months ended September 30, 2017 and 2016, respectively.

Unrealized Investment Losses

The following tables summarize, for all investments in an unrealized loss position at September 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 September 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	$	1,348	$	4	$	72	$	1	$	1,420	$	5
Obligations of states, municipalities and political subdivisions	4,131		58		1,598		69		5,729		127
Debt securities issued by foreign governments	538		11		—		—		538		11
Mortgage-backed securities, collateralized mortgage obligations and pass-through securities	729		5		81		1		810		6
All other corporate bonds	4,896		57		679		22		5,575		79
Total fixed maturities	11,642		135		2,430		93		14,072		228
Equity securities
Public common stock	39		1		6		1		45		2
Non-redeemable preferred stock	—		—		60		6		60		6
Total equity securities	39		1		66		7		105		8
Total	$	11,681	$	136	$	2,496	$	100	$	14,177	$	236

	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 September 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 September 30, 2017 and 2016, respectively, and $12 million and $26 million for the nine months ended September 30, 2017 and 2016, respectively.

The cumulative amount of credit losses on fixed maturities held at September 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 $82 million and $86 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 nine months ended September 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 September 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 nine months ended September 30, 2017 and 2016 were not significant.