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Invested Assets

6 Months Ended

Jun. 30, 2012

3) Invested Assets

(a) The amortized cost and fair value of fixed maturities and equity securities were as follows:


	June 30, 2012
	Amortized Cost		Gross Unrealized Appreciation		Gross Unrealized Depreciation		Fair Value
	(in millions)
Fixed maturities
Tax exempt	$	18,779	$	1,509	$	28	$	20,260

Taxable
U.S. government and government agency and authority obligations		1,006		71		1		1,076
Corporate bonds		6,591		503		10		7,084
Foreign government and government agency obligations		6,276		385		1		6,660
Residential mortgage-backed securities		579		34		3		610
Commercial mortgage-backed securities		1,744		80		1		1,823

		16,196		1,073		16		17,253


Total fixed maturities	$	34,975	$	2,582	$	44	$	37,513


Equity securities	$	1,261	$	362	$	40	$	1,583


	December 31, 2011
	Amortized Cost		Gross Unrealized Appreciation		Gross Unrealized Depreciation		Fair Value
	(in millions)
Fixed maturities	$	18,786	$	1,462	$	37	$	20,211

Tax exempt
Taxable
U.S. government and government agency and authority obligations		813		57		2		868
Corporate bonds		6,049		440		24		6,465
Foreign government and government agency obligations		6,409		416		2		6,823
Residential mortgage-backed securities		821		41		7		855
Commercial mortgage-backed securities		1,884		79		1		1,962

		15,976		1,033		36		16,973


Total fixed maturities	$	34,762	$	2,495	$	73	$	37,184


Equity securities	$	1,264	$	319	$	71	$	1,512

At December 31, 2011, the gross unrealized depreciation of fixed maturities included $3 million of unrealized other-than-temporary impairment losses recognized in accumulated other comprehensive income.

The fair value and amortized cost of fixed maturities at June 30, 2012 by contractual maturity were as follows:


	Fair Value		Amortized Cost
	(in millions)
Due in one year or less	$	2,353	$	2,326
Due after one year through five years		12,565		11,919
Due after five years through ten years		12,380		11,210
Due after ten years		7,782		7,197

		35,080		32,652
Residential mortgage-backed securities		610		579
Commercial mortgage-backed securities		1,823		1,744


	$	37,513	$	34,975

Actual maturities could differ from contractual maturities because borrowers may have the right to call or prepay obligations.

The Corporation’s equity securities comprise a diversified portfolio of primarily U.S. publicly-traded common stocks.

The Corporation is involved in the normal course of business with variable interest entities (VIEs) primarily as a passive investor in residential mortgage-backed securities, commercial mortgage-backed securities and private equity limited partnerships issued by third party VIEs. The Corporation is not the primary beneficiary of these VIEs. The Corporation’s maximum exposure to loss with respect to these investments is limited to the investment carrying values included in the Corporation’s consolidated balance sheet and any unfunded partnership commitments.

(b) The components of unrealized appreciation or depreciation, including unrealized other-than-temporary impairment losses, of investments carried at fair value were as follows:


	June 30 2012		December 31 2011
	(in millions)
Fixed maturities
Gross unrealized appreciation	$	2,582	$	2,495
Gross unrealized depreciation		44		73

		2,538		2,422

Equity securities
Gross unrealized appreciation		362		319
Gross unrealized depreciation		40		71

		322		248

		2,860		2,670
Deferred income tax liability		1,001		934

	$	1,859	$	1,736

When the fair value of an investment is lower than its cost, an assessment is made to determine whether the decline is temporary or other than temporary. The assessment of other-than-temporary impairment of fixed maturities and equity securities is based on both quantitative criteria and qualitative information and also considers a number of other factors including, but not limited to, the length of time and the extent to which the fair value has been less than the cost, the financial condition and near term prospects of the issuer, whether the issuer is current on contractually obligated interest and principal payments, general market conditions and industry or sector specific factors.

In determining whether fixed maturities are other than temporarily impaired, the Corporation is required to recognize an other-than-temporary impairment loss when it concludes it has the intent to sell or it is more likely than not it will be required to sell an impaired fixed maturity before the security recovers to its amortized cost value or it is likely it will not recover the entire amortized cost value of an impaired security. If the Corporation has the intent to sell or it is more likely than not that the Corporation will be required to sell an impaired fixed maturity before the security recovers to its amortized cost value, the security is written down to fair value and the entire amount of the writedown is included in net income as a realized investment loss. For all other impaired fixed maturities, the impairment loss is separated into the amount representing the credit loss and the amount representing the loss related to all other factors. The amount of the impairment loss that represents the credit loss is included in net income as a realized investment loss and the amount of the impairment loss that relates to all other factors is included in other comprehensive income.

For fixed maturities, the split between the amount of other-than-temporary impairment losses that represents credit losses and the amount that relates to all other factors is principally based on assumptions regarding the amount and timing of projected cash flows. For fixed maturities other than mortgage-backed securities, cash flow estimates are based on assumptions regarding the probability of default and estimates regarding the timing and amount of recoveries associated with a default. For mortgage-backed securities, cash flow estimates are based on assumptions regarding future prepayment rates, default rates, loss severity and timing of recoveries. The Corporation has developed the estimates of projected cash flows using information based on historical market data, industry analyst reports and forecasts and other data relevant to the collectibility of a security.

In determining whether equity securities are other than temporarily impaired, the Corporation considers its intent and ability to hold a security for a period of time sufficient to allow for the recovery of cost. If the decline in the fair value of an equity security is deemed to be other than temporary, the security is written down to fair value and the amount of the writedown is included in net income as a realized investment loss.

The following table summarizes, for all investment securities in an unrealized loss position at June 30, 2012, the aggregate fair value and gross unrealized depreciation, including unrealized other-than-temporary impairment losses, by investment category and length of time that individual securities have continuously been in an unrealized loss position.


	Less Than 12 Months				12 Months or More				Total
	Fair Value		Gross Unrealized Depreciation		Fair Value		Gross Unrealized Depreciation		Fair Value		Gross Unrealized Depreciation
	(in millions)
Fixed maturities
Tax exempt	$	302	$	2	$	141	$	26	$	443	$	28

Taxable
U.S. government and government agency and authority obligations		75		—		19		1		94		1
Corporate bonds		335		4		68		6		403		10
Foreign government and government agency obligations		111		1		13		—		124		1
Residential mortgage-backed securities		6		—		35		3		41		3
Commercial mortgage-backed securities		69		1		1		—		70		1

		596		6		136		10		732		16


Total fixed maturities		898		8		277		36		1,175		44

Equity securities		202		29		41		11		243		40


	$	1,100	$	37	$	318	$	47	$	1,418	$	84

At June 30, 2012, approximately 300 individual fixed maturity and equity securities were in an unrealized loss position, of which approximately 270 were fixed maturities. The Corporation does not have the intent to sell and it is not more likely than not that the Corporation will be required to sell these fixed maturities before the securities recover to their amortized cost value. In addition, the Corporation believes that none of the declines in the fair values of these fixed maturities relate to credit losses. The Corporation has the intent and ability to hold the equity securities in an unrealized loss position for a period of time sufficient to allow for the recovery of cost. The Corporation believes that none of the declines in the fair value of these fixed maturities and equity securities were other than temporary at June 30, 2012.

The following table summarizes, for all investment securities in an unrealized loss position at December 31, 2011, the aggregate fair value and gross unrealized depreciation, including unrealized other-than-temporary impairment losses, by investment category and length of time that individual securities have continuously been in an unrealized loss position.


	Less Than 12 Months				12 Months or More				Total
	Fair Value		Gross Unrealized Depreciation		Fair Value		Gross Unrealized Depreciation		Fair Value		Gross Unrealized Depreciation
	(in millions)
Fixed maturities
Tax exempt	$	81	$	1	$	240	$	36	$	321	$	37

Taxable
U.S. government and government agency and authority obligations		19		1		18		1		37		2
Corporate bonds		489		14		176		10		665		24
Foreign government and government agency obligations		499		1		21		1		520		2
Residential mortgage-backed securities		77		2		22		5		99		7
Commercial mortgage-backed securities		34		1		—		—		34		1

		1,118		19		237		17		1,355		36


Total fixed maturities		1,199		20		477		53		1,676		73

Equity securities		231		45		199		26		430		71


	$	1,430	$	65	$	676	$	79	$	2,106	$	144

The change in unrealized appreciation or depreciation of investments carried at fair value, including the change in unrealized other-than-temporary impairment losses, was as follows:


	Periods Ended June 30
	Second Quarter					Six Months
	2012			2011		2012		2011
	(in millions)
Change in unrealized appreciation of fixed maturities	$	133		$	430	$	116	$	253
Change in unrealized appreciation of equity securities		(28	)		15		74		106

		105			445		190		359
Deferred income tax		37			156		67		126

	$	68		$	289	$	123	$	233


	Periods Ended June 30
	Second Quarter						Six Months
	2012			2011			2012			2011
	(in millions)
Fixed maturities
Gross realized gains	$	24		$	10		$	62		$	23
Gross realized losses		(7	)		(4	)		(10	)		(15	)
Other-than-temporary impairment losses		(1	)		—			(2	)		—

		16			6			50			8


Equity securities
Gross realized gains		6			10			25			29
Gross realized losses		—			(1	)		—			(1	)
Other-than-temporary impairment losses		(30	)		(14	)		(35	)		(16	)

		(24	)		(5	)		(10	)		12


Other invested assets		55			68			63			209


	$	47		$	69		$	103		$	229

(d) As of June 30, 2012 and December 31, 2011, fixed maturities still held by the Corporation for which a portion of their other-than-temporary impairment losses were recognized in other comprehensive income had cumulative credit-related losses of $20 million recognized in net income.