Investments

12 Months Ended

Dec. 31, 2011

Investments

Investments

5.  Investments

Fair values

The amortized cost, gross unrealized gains and losses and fair value for fixed income securities are as follows:

($ in millions)		Amortized		Gross unrealized				Fair
		cost		Gains		Losses		value
December 31, 2011
U.S. government and agencies	$	2,502	$	241	$	--	$	2,743
Municipal		4,380		426		(114)		4,692
Corporate		28,496		2,234		(326)		30,404
Foreign government		927		142		(1)		1,068
RMBS		2,954		74		(314)		2,714
CMBS		1,862		45		(224)		1,683
ABS		2,345		44		(281)		2,108
Redeemable preferred stock		15		1		--		16
Total fixed income securities	$	43,481	$	3,207	$	(1,260)	$	45,428
December 31, 2010
U.S. government and agencies	$	3,258	$	245	$	(9)	$	3,494
Municipal		5,179		88		(294)		4,973
Corporate		27,509		1,510		(369)		28,650
Foreign government		1,962		303		(8)		2,257
RMBS		4,674		132		(451)		4,355
CMBS		2,121		56		(274)		1,903
ABS		2,768		88		(289)		2,567
Redeemable preferred stock		15		--		--		15
Total fixed income securities	$	47,486	$	2,422	$	(1,694)	$	48,214

Scheduled maturities

The scheduled maturities for fixed income securities are as follows as of December 31, 2011:

($ in millions)		Amortized cost		Fair value
Due in one year or less	$	1,604	$	1,626
Due after one year through five years		10,954		11,434
Due after five years through ten years		13,476		14,573
Due after ten years		12,148		12,973
		38,182		40,606
RMBS and ABS		5,299		4,822
Total	$	43,481	$	45,428

Actual maturities may differ from those scheduled as a result of prepayments by the issuers.  Because of the potential for prepayment on RMBS and ABS, they are not categorized by contractual maturity.  CMBS are categorized by contractual maturity because they generally are not subject to prepayment risk.

Net investment income

Net investment income for the years ended December 31 is as follows:

($ in millions)		2011		2010		2009
Fixed income securities	$	2,264	$	2,476	$	2,595
Mortgage loans		345		377		488
Equity securities		7		5		5
Limited partnership interests		49		21		8
Short-term investments		3		3		13
Other		71		(16)		(39)
Investment income, before expense		2,739		2,866		3,070
Investment expense		(102)		(106)		(96)
Net investment income	$	2,637	$	2,760	$	2,974

Realized capital gains and losses

Realized capital gains and losses by asset type for the years ended December 31 are as follows:

($ in millions)		2011		2010		2009
Fixed income securities	$	539	$	(370)	$	(255)
Mortgage loans		(23)		(71)		(143)
Equity securities		14		36		(21)
Limited partnership interests		62		17		(283)
Derivatives		(203)		(124)		357
Other		1		(1)		(75)
Realized capital gains and losses	$	390	$	(513)	$	(420)

Realized capital gains and losses by transaction type for the years ended December 31 are as follows:

($ in millions)		2011		2010		2009
Impairment write-downs	$	(242)	$	(494)	$	(1,009)
Change in intent write-downs		(51)		(142)		(267)
Net other-than-temporary impairment losses recognized in earnings		(293)		(636)		(1,276)
Sales		823		215		637
Valuation of derivative instruments		(224)		(94)		315
Settlements of derivative instruments		22		(31)		41
EMA limited partnership income		62		33		(137)
Realized capital gains and losses	$	390	$	(513)	$	(420)

Gross gains of $835 million, $454 million and $931 million and gross losses of $124 million, $343 million and $267 million were realized on sales of fixed income securities during 2011, 2010 and 2009, respectively.

Other-than-temporary impairment losses by asset type for the years ended December 31 are as follows:

($ in millions)		2011									2010									2009
		Gross			Included in OCI			Net			Gross			Included in OCI			Net			Gross			Included in OCI			Net
Fixed income securities:
Municipal	$	(14	)	$	(3	)	$	(17	)	$	(101	)	$	17		$	(84	)	$	(25	)	$	--		$	(25	)
Corporate		(28	)		6			(22	)		(51	)		1			(50	)		(188	)		(11	)		(199	)
Foreign government		--			--			--			--			--			--			(17	)		--			(17	)
RMBS		(111	)		(20	)		(131	)		(236	)		(20	)		(256	)		(434	)		251			(183	)
CMBS		(66	)		1			(65	)		(93	)		(27	)		(120	)		(411	)		102			(309	)
ABS		(8	)		2			(6	)		(13	)		(16	)		(29	)		(201	)		(26	)		(227	)
Total fixed income securities		(227	)		(14	)		(241	)		(494	)		(45	)		(539	)		(1,276	)		316			(960	)
Mortgage loans		(33	)		--			(33	)		(71	)		--			(71	)		(102	)		--			(102	)
Equity securities		(5	)		--			(5	)		--			--			--			(29	)		--			(29	)
Limited partnership interests		(3	)		--			(3	)		(23	)		--			(23	)		(148	)		--			(148	)
Other		(11	)		--			(11	)		(3	)		--			(3	)		(37	)		--			(37	)
Other-than-temporary impairment losses	$	(279	)	$	(14	)	$	(293	)	$	(591	)	$	(45	)	$	(636	)	$	(1,592	)	$	316		$	(1,276	)

The total amount of other-than-temporary impairment losses included in accumulated other comprehensive income at the time of impairment for fixed income securities, which were not included in earnings, are presented in the following table.  The amount excludes $90 million and $213 million as of December 31, 2011 and 2010, respectively, of net unrealized gains related to changes in valuation of the fixed income securities subsequent to the impairment measurement date.

($ in millions)		December 31, 2011			December 31, 2010
Municipal	$	(5	)	$	(17	)
Corporate		(6	)		(1	)
RMBS		(198	)		(258	)
CMBS		(19	)		(49	)
ABS		(21	)		(41	)
Total	$	(249	)	$	(366	)

Rollforwards of the cumulative credit losses recognized in earnings for fixed income securities held as of December 31 are as follows:

($ in millions)		2011			2010			2009
Beginning balance	$	(701	)	$	(808	)	$	--
Beginning balance of cumulative credit loss for securities held as of April 1, 2009		--			--			(1,059	)
Cumulative effect of change in accounting principle		--			81			--
Additional credit loss for securities previously other-than-temporarily impaired		(76	)		(221	)		(111	)
Additional credit loss for securities not previously other-than-temporarily impaired		(114	)		(183	)		(411	)
Reduction in credit loss for securities disposed or collected		288			399			773
Reduction in credit loss for securities the Company has made the decision to sell or more likely than not will be required to sell		13			27			--
Change in credit loss due to accretion of increase in cash flows		9			4			--
Ending balance	$	(581	)	$	(701	)	$	(808	)

The Company uses its best estimate of future cash flows expected to be collected from the fixed income security, discounted at the security’s original or current effective rate, as appropriate, to calculate a recovery value and determine whether a credit loss exists.  The determination of cash flow estimates is inherently subjective and methodologies may vary depending on facts and circumstances specific to the security.  All reasonably available information relevant to the collectability of the security, including past events, current conditions, and reasonable and supportable assumptions and forecasts, are considered when developing the estimate of cash flows expected to be collected.  That information generally includes, but is not limited to, the remaining payment terms of the security, prepayment speeds, foreign exchange rates, the financial condition and future earnings potential of the issue or issuer, expected defaults, expected recoveries, the value of underlying collateral, vintage, geographic concentration, available reserves or escrows, current subordination levels, third party guarantees and other credit enhancements.  Other information, such as industry analyst reports and forecasts, sector credit ratings, financial condition of the bond insurer for insured fixed income securities, and other market data relevant to the realizability of contractual cash flows, may also be considered.  The estimated fair value of collateral will be used to estimate recovery value if the Company determines that the security is dependent on the liquidation of collateral for ultimate settlement.  If the estimated recovery value is less than the amortized cost of the security, a credit loss exists and an other-than-temporary impairment for the difference between the estimated recovery value and amortized cost is recorded in earnings.  The portion of the unrealized loss related to factors other than credit remains classified in accumulated other comprehensive income.  If the Company determines that the fixed income security does not have sufficient cash flow or other information to estimate a recovery value for the security, the Company may conclude that the entire decline in fair value is deemed to be credit related and the loss is recorded in earnings.

Unrealized net capital gains and losses

Unrealized net capital gains and losses included in accumulated other comprehensive income are as follows:

($ in millions)		Fair			Gross unrealized				Unrealized net
December 31, 2011		value			Gains		Losses		gains (losses)
Fixed income securities	$	45,428		$	3,207	$	(1,260	)	$	1,947
Equity securities		179			38		(2	)		36
Short-term investments		593			--		--			--
Derivative instruments (1)		(12	)		3		(15	)		(12	)
EMA limited partnership interests (2)										1
Unrealized net capital gains and losses, pre-tax										1,972
Amounts recognized for:
Insurance reserves (3)										(637	)
DAC and DSI (4)										(135	)
Amounts recognized										(772	)
Deferred income taxes										(425	)
Unrealized net capital gains and losses, after-tax									$	775

(1)	Included in the fair value of derivative instruments are $(5) million classified as assets and $7 million classified as liabilities.
(2)	Unrealized net capital gains and losses for limited partnership interests represent the Company’s share of EMA limited partnerships’ other comprehensive income. Fair value and gross gains and losses are not applicable.
(3)	The insurance reserves adjustment represents the amount by which the reserve balance would increase if the net unrealized gains in the applicable product portfolios were realized and reinvested at current lower interest rates, resulting in a premium deficiency. Although the Company evaluates premium deficiencies on the combined performance of life insurance and immediate annuities with life contingencies, the adjustment primarily relates to structured settlement annuities with life contingencies, in addition to annuity buy-outs and certain payout annuities with life contingencies.
(4)	The DAC and DSI adjustment balance represents the amount by which the amortization of DAC and DSI would increase or decrease if the unrealized gains or losses in the respective product portfolios were realized.

		Fair			Gross unrealized				Unrealized net
December 31, 2010		value			Gains		Losses		gains (losses)
Fixed income securities	$	48,214		$	2,422	$	(1,694	)	$	728
Equity securities		211			48		(1	)		47
Short-term investments		1,257			--		--			--
Derivative instruments (1)		(17	)		2		(19	)		(17	)
Unrealized net capital gains and losses, pre-tax										758
Amounts recognized for:
Insurance reserves										(41	)
DAC and DSI										98
Amounts recognized										57
Deferred income taxes										(290	)
Unrealized net capital gains and losses, after-tax									$	525

(1) Included in the fair value of derivative instruments are $2 million classified as assets and $19 million classified as liabilities.

Change in unrealized net capital gains and losses

The change in unrealized net capital gains and losses for the years ended December 31 is as follows:

($ in millions)		2011			2010			2009
Fixed income securities	$	1,219		$	2,912		$	4,506
Equity securities		(11	)		23			48
Short-term investments		--			--			(3	)
Derivative instruments		5			1			(32	)
EMA limited partnership interests		1			--			--
Total		1,214			2,936			4,519
Amounts recognized for:
Insurance reserves		(596	)		(41	)		378
DAC and DSI		(233	)		(892	)		(2,503	)
Amounts recognized		(829	)		(933	)		(2,125	)
Deferred income taxes		(135	)		(701	)	$	(834	)
Increase in unrealized net capital gains and losses	$	250		$	1,302		$	1,560

Portfolio monitoring

The Company has a comprehensive portfolio monitoring process to identify and evaluate each fixed income and equity security whose carrying value may be other-than-temporarily impaired.

For each fixed income security in an unrealized loss position, the Company assesses whether management with the appropriate authority has made the decision to sell or whether it is more likely than not the Company will be required to sell the security before recovery of the amortized cost basis for reasons such as liquidity, contractual or regulatory purposes.  If a security meets either of these criteria, the security’s decline in fair value is considered other than temporary and is recorded in earnings.

If the Company has not made the decision to sell the fixed income security and it is not more likely than not the Company will be required to sell the fixed income security before recovery of its amortized cost basis, the Company evaluates whether it expects to receive cash flows sufficient to recover the entire amortized cost basis of the security.  The Company calculates the estimated recovery value by discounting the best estimate of future cash flows at the security’s original or current effective rate, as appropriate, and compares this to the amortized cost of the security.  If the Company does not expect to receive cash flows sufficient to recover the entire amortized cost basis of the fixed income security, the credit loss component of the impairment is recorded in earnings, with the remaining amount of the unrealized loss related to other factors recognized in other comprehensive income.

For equity securities, the Company considers various factors, including whether it has the intent and ability to hold the equity security for a period of time sufficient to recover its cost basis.  Where the Company lacks the intent and ability to hold to recovery, or believes the recovery period is extended, the equity security’s decline in fair value is considered other than temporary and is recorded in earnings.  For equity securities managed by a third party, the Company has contractually retained its decision making authority as it pertains to selling equity securities that are in an unrealized loss position.

The Company’s portfolio monitoring process includes a quarterly review of all securities to identify instances where the fair value of a security compared to its amortized cost (for fixed income securities) or cost (for equity securities) is below established thresholds.  The process also includes the monitoring of other impairment indicators such as ratings, ratings downgrades and payment defaults.  The securities identified, in addition to other securities for which the Company may have a concern, are evaluated for potential other-than-temporary impairment using all reasonably available information relevant to the collectability or recovery of the security.  Inherent in the Company’s evaluation of other-than-temporary impairment for these fixed income and equity securities are assumptions and estimates about the financial condition and future earnings potential of the issue or issuer.  Some of the factors that may be considered in evaluating whether a decline in fair value is other than temporary are: 1) the financial condition, near-term and long-term prospects of the issue or issuer, including relevant industry specific market conditions and trends, geographic location and implications of rating agency actions and offering prices; 2) the specific reasons that a security is in an unrealized loss position, including overall market conditions which could affect liquidity; and 3) the length of time and extent to which the fair value has been less than amortized cost or cost.

The following table summarizes the gross unrealized losses and fair value of fixed income and equity securities by the length of time that individual securities have been in a continuous unrealized loss position.

($ in millions)	Less than 12 months						12 months or more							Total
	Number		Fair		Unrealized		Number		Fair		Unrealized			unrealized
	of issues		value		losses		of issues		value		losses			losses
December 31, 2011
Fixed income securities
Municipal	8	$	67	$	(7	)	97	$	624	$	(107	)	$	(114	)
Corporate	226		2,025		(72	)	100		1,207		(254	)		(326	)
Foreign government	7		41		(1	)	1		1		--			(1	)
RMBS	140		152		(4	)	161		809		(310	)		(314	)
CMBS	42		361		(47	)	68		488		(177	)		(224	)
ABS	32		255		(13	)	107		1,010		(268	)		(281	)
Redeemable preferred stock	1		--		--		--		--		--			--
Total fixed income securities	456		2,901		(144	)	534		4,139		(1,116	)		(1,260	)
Equity securities	3		35		(2	)	--		--		--			(2	)
Total fixed income and equity securities	459	$	2,936	$	(146	)	534	$	4,139	$	(1,116	)	$	(1,262	)
Investment grade fixed income securities	351	$	2,439	$	(111	)	328	$	2,869	$	(626	)	$	(737	)
Below investment grade fixed income securities	105		462		(33	)	206		1,270		(490	)		(523	)
Total fixed income securities	456	$	2,901	$	(144	)	534	$	4,139	$	(1,116	)	$	(1,260	)
December 31, 2010
Fixed income securities
U.S. government and agencies	13	$	348	$	(9	)	--	$	--	$	--		$	(9	)
Municipal	142		1,718		(55	)	170		1,145		(239	)		(294	)
Corporate	340		3,805		(144	)	143		1,951		(225	)		(369	)
Foreign government	16		191		(8	)	1		10		--			(8	)
RMBS	108		143		(3	)	246		1,266		(448	)		(451	)
CMBS	11		123		(2	)	114		836		(272	)		(274	)
ABS	33		262		(4	)	130		1,288		(285	)		(289	)
Total fixed income securities	663		6,590		(225	)	804		6,496		(1,469	)		(1,694	)
Equity securities	3		17		(1	)	--		--		--			(1	)
Total fixed income and equity securities	666	$	6,607	$	(226	)	804	$	6,496	$	(1,469	)	$	(1,695	)
Investment grade fixed income securities	600	$	6,222	$	(209	)	559	$	4,853	$	(782	)	$	(991	)
Below investment grade fixed income securities	63		368		(16	)	245		1,643		(687	)		(703	)
Total fixed income securities	663	$	6,590	$	(225	)	804	$	6,496	$	(1,469	)	$	(1,694	)

As of December 31, 2011, $352 million of unrealized losses are related to securities with an unrealized loss position less than 20% of amortized cost or cost, the degree of which suggests that these securities do not pose a high risk of being other-than-temporarily impaired.  Of the $352 million, $274 million are related to unrealized losses on investment grade fixed income securities.  Investment grade is defined as a security having a rating of Aaa, Aa, A or Baa from Moody’s, a rating of AAA, AA, A or BBB from S&P, Fitch, Dominion or Realpoint, a rating of aaa, aa, a or bbb from A.M. Best, or a comparable internal rating if an externally provided rating is not available.  Unrealized losses on investment grade securities are principally related to widening credit spreads or rising interest rates since the time of initial purchase.

As of December 31, 2011, the remaining $910 million of unrealized losses are related to securities in unrealized loss positions greater than or equal to 20% of amortized cost or cost.  Investment grade fixed income securities comprising $463 million of these unrealized losses were evaluated based on factors such as expected cash flows and the financial condition and near-term and long-term prospects of the issue or issuer and were determined to have adequate resources to fulfill contractual obligations.  Of the $910 million, $447 million are related to below investment grade fixed income securities.  Of these amounts, $305 million of the below investment grade fixed income securities had been in an unrealized loss position greater than or equal to 20% of amortized cost for a period of twelve or more consecutive months as of December 31, 2011.  Unrealized losses on below investment grade securities are principally related to RMBS, CMBS and ABS and were the result of wider credit spreads resulting from higher risk premiums since the time of initial purchase, largely due to macroeconomic conditions and credit market deterioration, including the impact of lower real estate valuations.

RMBS, CMBS and ABS in an unrealized loss position were evaluated based on actual and projected collateral losses relative to the securities’ positions in the respective securitization trusts, security specific expectations of cash flows, and credit ratings.  This evaluation also takes into consideration credit enhancement, measured in terms of (i) subordination from other classes of securities in the trust that are contractually obligated to absorb losses before the class of security the Company owns, (ii) the expected impact of other structural features embedded in the securitization trust beneficial to the class of securities the Company owns, such as overcollateralization and excess spread, and (iii) for RMBS and ABS in an unrealized loss position, credit enhancements from reliable bond insurers, where applicable.  Municipal bonds in an unrealized loss position were evaluated based on the quality of the underlying securities.  Unrealized losses on equity securities are primarily related to temporary equity market fluctuations of securities that are expected to recover.

As of December 31, 2011, the Company has not made the decision to sell and it is not more likely than not the Company will be required to sell fixed income securities with unrealized losses before recovery of the amortized cost basis.  As of December 31, 2011, the Company had the intent and ability to hold equity securities with unrealized losses for a period of time sufficient for them to recover.

Limited partnerships

As of December 31, 2011 and 2010, the carrying value of equity method limited partnership interests totaled $858 million and $610 million, respectively.  The Company recognizes an impairment loss for equity method investments when evidence demonstrates that the loss is other than temporary.  Evidence of a loss in value that is other than temporary may include the absence of an ability to recover the carrying amount of the investment or the inability of the investee to sustain a level of earnings that would justify the carrying amount of the investment.  In 2011, 2010 and 2009, the Company had write-downs related to equity method limited partnership interests of $1 million, $1 million and $5 million, respectively.

As of December 31, 2011 and 2010, the carrying value for cost method limited partnership interests was $754 million and $662 million, respectively.  To determine if an other-than-temporary impairment has occurred, the Company evaluates whether an impairment indicator has occurred in the period that may have a significant adverse effect on the carrying value of the investment.  Impairment indicators may include: significantly reduced valuations of the investments held by the limited partnerships; actual recent cash flows received being significantly less than expected cash flows; reduced valuations based on financing completed at a lower value; completed sale of a material underlying investment at a price significantly lower than expected; or any other adverse events since the last financial statements received that might affect the fair value of the investee’s capital.  Additionally, the Company’s portfolio monitoring process includes a quarterly review of all cost method limited partnerships to identify instances where the net asset value is below established thresholds for certain periods of time, as well as investments that are performing below expectations, for further impairment consideration.  If a cost method limited partnership is other-than-temporarily impaired, the carrying value is written down to fair value, generally estimated to be equivalent to the reported net asset value of the underlying funds.  In 2011, 2010 and 2009, the Company had write-downs related to cost method investments of $2 million, $22 million and $143 million, respectively.

Mortgage loans

The Company’s mortgage loans are commercial mortgage loans collateralized by a variety of commercial real estate property types located throughout the United States and totaled, net of valuation allowance, $6.55 billion as of both December 31, 2011 and 2010.  Substantially all of the commercial mortgage loans are non-recourse to the borrower.  The following table shows the principal geographic distribution of commercial real estate represented in the Company’s mortgage loan portfolio.  No other state represented more than 5% of the portfolio as of December 31.

(% of mortgage loan portfolio carrying value)	2011		2010
California	22.8	%	23.5	%
Illinois	8.9		9.3
New Jersey	7.0		6.6
New York	6.3		6.7
Texas	5.7		5.3
Pennsylvania	5.6		5.6
Massachusetts	5.0		4.1

The types of properties collateralizing the mortgage loans as of December 31 are as follows:

(% of mortgage loan portfolio carrying value)	2011		2010
Office buildings	29.0	%	32.0	%
Retail	26.0		27.5
Warehouse	20.1		21.8
Apartment complex	16.6		12.8
Other	8.3		5.9
Total	100.0	%	100.0	%

The contractual maturities of the mortgage loan portfolio as of December 31, 2011, excluding $43 million of mortgage loans in the process of foreclosure, are as follows:

($ in millions)	Number of loans		Carrying value	Percent
2012	56	$	554	8.5	%
2013	58		454	7.0
2014	69		913	14.0
2015	64		937	14.4
Thereafter	349		3,645	56.1
Total	596	$	6,503	100.0	%

Mortgage loans are evaluated for impairment on a specific loan basis through a quarterly credit monitoring process and review of key credit quality indicators.  Mortgage loans are considered impaired when it is probable that the Company will not collect the contractual principal and interest.  Valuation allowances are established for impaired loans to reduce the carrying value to the fair value of the collateral less costs to sell or the present value of the loan’s expected future repayment cash flows discounted at the loan’s original effective interest rate.  Impaired mortgage loans may not have a valuation allowance when the fair value of the collateral less costs to sell is higher than the carrying value.  Mortgage loan valuation allowances are charged off when there is no reasonable expectation of recovery.  The impairment evaluation is non-statistical in respect to the aggregate portfolio but considers facts and circumstances attributable to each loan.  It is not considered probable that additional impairment losses, beyond those identified on a specific loan basis, have been incurred as of December 31, 2011.

Accrual of income is suspended for mortgage loans that are in default or when full and timely collection of principal and interest payments is not probable.  Cash receipts on mortgage loans on nonaccrual status are generally recorded as a reduction of carrying value.

Debt service coverage ratio is considered a key credit quality indicator when mortgage loans are evaluated for impairment.  Debt service coverage ratio represents the amount of estimated cash flows from the property available to the borrower to meet principal and interest payment obligations.  Debt service coverage ratio estimates are updated annually or more frequently if conditions are warranted based on the Company’s credit monitoring process.

The following table reflects the carrying value of non-impaired fixed rate and variable rate mortgage loans summarized by debt service coverage ratio distribution as of December 31:

($ in millions)		2011						2010
Debt service coverage ratio distribution		Fixed rate mortgage loans		Variable rate mortgage loans		Total		Fixed rate mortgage loans		Variable rate mortgage loans		Total
Below 1.0	$	345	$	--	$	345	$	275	$	--	$	275
1.0 - 1.25		1,488		--		1,488		1,571		16		1,587
1.26 - 1.50		1,475		19		1,494		1,478		--		1,478
Above 1.50		2,847		128		2,975		2,484		546		3,030
Total non-impaired mortgage loans	$	6,155	$	147	$	6,302	$	5,808	$	562	$	6,370

Mortgage loans with a debt service coverage ratio below 1.0 that are not considered impaired primarily relate to instances where the borrower has the financial capacity to fund the revenue shortfalls from the properties for the foreseeable term, the decrease in cash flows from the properties is considered temporary, or there are other risk mitigating circumstances such as additional collateral, escrow balances or borrower guarantees.

The net carrying value of impaired mortgage loans as of December 31 is as follows:

($ in millions)		2011		2010
Impaired mortgage loans with a valuation allowance	$	244	$	168
Impaired mortgage loans without a valuation allowance		--		15
Total impaired mortgage loans	$	244	$	183
Valuation allowance on impaired mortgage loans	$	63	$	84

The average balance of impaired loans was $ 207 million, $ 275 million and $ 313 million during 2011, 2010 and 2009, respectively.

The rollforward of the valuation allowance on impaired mortgage loans for the years ended December 31 is as follows:

($ in millions)		2011		2010		2009
Beginning balance	$	84	$	94	$	3
Net increase in valuation allowance		33		65		96
Charge offs		(54)		(75)		(5)
Ending balance	$	63	$	84	$	94

The carrying value of past due mortgage loans as of December 31 is as follows:

($ in millions)		2011		2010
Less than 90 days past due	$	--	$	12
90 days or greater past due		43		78
Total past due		43		90
Current loans		6,503		6,463
Total mortgage loans	$	6,546	$	6,553

Municipal bonds

The Company maintains a diversified portfolio of municipal bonds.  The following table shows the principal geographic distribution of municipal bond issuers represented in the Company’s portfolio as of December 31.  No other state represents more than 5% of the portfolio.

(% of municipal bond portfolio carrying value)	2011		2010
California	14.1	%	14.7	%
Texas	11.1		11.9
New York	7.7		7.8
Delaware	5.2		5.3

Concentration of credit risk

As of December 31, 2011, the Company is not exposed to any credit concentration risk of a single issuer and its affiliates greater than 10% of the Company’s shareholder’s equity.

Securities loaned

The Company’s business activities include securities lending programs with third parties, mostly large banks.  As of December 31, 2011 and 2010, fixed income securities with a carrying value of $213 million and $448 million, respectively, were on loan under these agreements.  In return, the Company receives cash that it invests and includes in short-term investments and fixed income securities, with an offsetting liability recorded in other liabilities and accrued expenses to account for the Company’s obligation to return the collateral.  Interest income on collateral, net of fees, was $1 million, $2 million and $2 million in 2011, 2010 and 2009, respectively.

Other investment information

Included in fixed income securities are below investment grade assets totaling $3.33 billion and $3.84 billion as of December 31, 2011 and 2010, respectively.

As of December 31, 2011, fixed income securities and short-term investments with a carrying value of $67 million were on deposit with regulatory authorities as required by law.

As of December 31, 2011, the carrying value of fixed income securities and other investments that were non-income producing was $15 million.