Securities

6 Months Ended

Jun. 30, 2011


4.	*Securities*

Securities consisted of the following available-for-sale investments:


			Non-Credit
			Loss
			Component			Gross		Gross
	Amortized		of OTTI			Unrealized		Unrealized			Fair
June 30, 2011	Cost		Securities			Gains		Losses			Value

	(in millions)

U.S. Treasury	$	447	$	-		$	10	$	-		$	457
U.S. government sponsored enterprises⁽¹⁾		207		-			5		-			212
U.S. government agency issued or guaranteed		7		-			1		-			8
Obligations of U.S. states and political subdivisions		5		-			-		-			5
Asset-backed securities⁽²⁾		57		(8	)		1		-			50
U.S. corporate debt securities⁽³⁾		1,610		-			86		(3	)		1,693
Foreign debt securities⁽⁴⁾		503		-			17		(1	)		519
Equity securities		9		-			-		-			9
Money market funds		538		-			-		-			538

Subtotal		3,383		(8	)		120		(4	)		3,491
Accrued investment income		27		-			-		-			27

Total securities available-for-sale	$	3,410	$	(8	)	$	120	$	(4	)	$	3,518


			Non-Credit
			Loss
			Component			Gross		Gross
	Amortized		of OTTI			Unrealized		Unrealized			Fair
December 31, 2010	Cost		Securities			Gains		Losses			Value

	(in millions)

U.S. Treasury	$	341	$	-		$	8	$	-		$	349
U.S. government sponsored enterprises⁽¹⁾		282		-			4		(1	)		285
U.S. government agency issued or guaranteed		10		-			1		-			11
Obligations of U.S. states and political subdivisions		29		-			1		-			30
Asset-backed securities⁽²⁾		65		(7	)		2		-			60
U.S. corporate debt securities⁽³⁾		1,714		-			94		(6	)		1,802
Foreign debt securities⁽⁴⁾		424		-			19		(1	)		442
Equity securities		9		-			-		-			9
Money market funds		353		-			-		-			353

Subtotal		3,227		(7	)		129		(8	)		3,341
Accrued investment income		30		-			-		-			30

Total securities available-for-sale	$	3,257	$	(7	)	$	129	$	(8	)	$	3,371


⁽¹⁾		Includes $24 million and $33 million of mortgage-backed securities issued by the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation as of June 30, 2011 and December 31, 2010, respectively.

⁽²⁾		Includes $23 and $31 million of residential mortgage-backed securities at June 30, 2011 and December 31, 2010, respectively.

⁽³⁾		At June 30, 2011 and December 31, 2010, the majority of our U.S. corporate debt securities represent investments in the financial services, consumer products, healthcare and industrials sectors.

⁽⁴⁾		There were no foreign debt securities issued by the governments of Portugal, Ireland, Italy, Greece or Spain at June 30, 2011 or December 31, 2010.

A summary of gross unrealized losses and related fair values as of June 30, 2011 and December 31, 2010, classified as to the length of time the losses have existed follows:


	Less Than One Year							Greater Than One Year
			Gross			Aggregate				Gross			Aggregate
	Number of		Unrealized			Fair Value of		Number of		Unrealized			Fair Value of
June 30, 2011	Securities		Losses			Investments		Securities		Losses			Investments

	(dollars are in millions)

U.S. Treasury		1	$	-		$	20		-	$	-		$	-
U.S. government sponsored enterprises		7		-			60		-		-			-
U.S. government agency issued or guaranteed		-		-			-		-		-			-
Obligations of U.S. states and political subdivisions		3		-			1		-		-			-
Asset-backed securities		-		-			-		6		(8	)		13
U.S. corporate debt securities		106		(2	)		189		3		(1	)		13
Foreign debt securities		50		(1	)		99		-		-			-
Equity Securities		1		-			4		-		-			-

		168	$	(3	)	$	373		9	$	(9	)	$	26


	Less Than One Year							Greater Than One Year
			Gross			Aggregate				Gross			Aggregate
	Number of		Unrealized			Fair Value of		Number of		Unrealized			Fair Value of
December 31, 2010	Securities		Losses			Investments		Securities		Losses			Investments

	(dollars are in millions)

U.S. Treasury		1	$	-		$	25		-	$	-		$	-
U.S. government sponsored enterprises		13		(1	)		139		-		-			-
U.S. government agency issued or guaranteed		-		-			-		-		-			-
Obligations of U.S. states and political subdivisions		4		-			5		-		-			-
Asset-backed securities		-		-			-		8		(7	)		18
U.S. corporate debt securities		100		(5	)		209		6		(1	)		23
Foreign debt securities		24		(1	)		56		-		-			-
Equity Securities		1		-			4		-		-			-

		143	$	(7	)	$	438		14	$	(8	)	$	41

Gross unrealized losses decreased slightly during the first half of 2011 primarily due to the impact of lower interest rates. We have reviewed our securities for which there is an unrealized loss in accordance with our accounting policies for other-than-temporary impairment (“OTTI”). As a result of our reviews, OTTI of less than $1 million was recognized in earnings on certain debt securities during the three and six months ended June 30, 2011 and 2010. During the six months ended June 30, 2011, we recognized a $1 million loss in other comprehensive income relating to the non-credit component of OTTI as compared to a $1 million recovery related to OTTI previously recognized in accumulated other comprehensive income during the year-ago period. We do not consider any other securities to be other-than-temporarily impaired because we expect to recover the entire amortized cost basis of the securities and we neither intend to nor expect to be required to sell the securities prior to recovery, even if that equates to holding securities until their individual maturities. However, additional other-than-temporary impairments may occur in future periods if the credit quality of the securities deteriorates.

On-Going Assessment for Other-Than-Temporary Impairment On a quarterly basis, we perform an assessment to determine whether there have been any events or economic circumstances to indicate that a security with an unrealized loss has suffered other-than-temporary impairment. A debt security is considered impaired if the fair value is less than its amortized cost basis at the reporting date. If impaired, we then assess whether the unrealized loss is other-than-temporary.

An unrealized loss is generally deemed to be other-than-temporary and a credit loss is deemed to exist if the present value of the expected future cash flows is less than the amortized cost basis of the debt security. As a result, the credit loss component of an other-than-temporary impairment write-down for debt securities is recorded in earnings while the remaining portion of the impairment loss is recognized net of tax in other comprehensive income (loss) provided we do not intend to sell the underlying debt security and it is more-likely-than-not that we would not have to sell the debt security prior to recovery.

For all our debt securities, as of the reporting date we do not have the intention to sell these securities and believe we will not be required to sell these securities for contractual, regulatory or liquidity reasons.

We consider the following factors in determining whether a credit loss exists and the period over which the debt security is expected to recover:


	•	The length of time and the extent to which the fair value has been less than the amortized cost basis;

	•	The level of credit enhancement provided by the structure which includes, but is not limited to, credit subordination positions, overcollateralization, protective triggers and financial guarantees provided by monoline wraps;

	•	Changes in the near term prospects of the issuer or underlying collateral of a security, such as changes in default rates, loss severities given default and significant changes in prepayment assumptions;

	•	The level of excess cash flows generated from the underlying collateral supporting the principal and interest payments of the debt securities; and

	•	Any adverse change to the credit conditions of the issuer or the security such as credit downgrades by the rating agencies.

At June 30, 2011, approximately 93 percent of our corporate debt securities are rated A- or better and approximately 62 percent of our asset-backed securities, which totaled $50 million are rated “AAA.” At December 31, 2010, approximately 92 percent of our corporate debt securities were rated A- or better and approximately 66 percent of our asset-backed securities, which totaled $60 million were rated “AAA.” Although OTTI of less than $1 million was recorded in earnings during the six months ended June 30, 2011 and 2010, additional other-than-temporary impairments may occur in future periods.

Proceeds from the sale, call or redemption of available-for-sale investments totaled $339 million and $449 million during the three and six months ended June 30, 2011, respectively, compared to $37 million and $111 million during the three and six months ended June 30, 2010, respectively. We realized gross gains of $12 million and $15 million during the three and six months ended June 30, 2011, respectively, compared to $1 million and $4 million during the three and six months ended June 30, 2010, respectively. We realized gross losses of less than $1 million during both the six months ended June 30, 2011 and 2010.

Contractual maturities of and yields on investments in debt securities for those with set maturities were as follows:


	Due			After 1			After 5
	Within			but Within			but Within			After
June 30, 2011	1 Year			5 Years			10 Years			10 Years			Total

	(dollars are in millions)

U.S. Treasury:
Amortized cost	$	219		$	227		$	1		$	-		$	447
Fair value		220			236			1			-			457
Yield⁽¹⁾		.64	%		2.18	%		4.96	%		-			1.44	%
U.S. government sponsored enterprises:
Amortized cost	$	79		$	76		$	28		$	24		$	207
Fair value		79			77			32			24			212
Yield⁽¹⁾		.13	%		1.07	%		4.67	%		4.71	%		1.62	%
U.S. government agency issued or guaranteed:
Amortized cost	$	-		$	-		$	-		$	7		$	7
Fair value		-			-			-			8			8
Yield⁽¹⁾		-			-			-			4.99	%		4.99	%
Obligations of U.S. states and political subdivisions:
Amortized cost	$	-		$	4		$	-		$	1		$	5
Fair value		-			4			-			1			5
Yield⁽¹⁾		-			4.30	%		-			5.49	%		4.43	%
Asset-backed securities:
Amortized cost	$	-		$	26		$	4		$	27		$	57
Fair value		-			27			4			19			50
Yield⁽¹⁾		-			4.84	%		6.08	%		1.55	%		3.35	%
U.S. corporate debt securities:
Amortized cost	$	99		$	747		$	211		$	553		$	1,610
Fair value		100			781			226			586			1,693
Yield⁽¹⁾		2.98	%		3.65	%		4.99	%		5.33	%		4.36	%
Foreign debt securities:
Amortized cost	$	17		$	411		$	35		$	40		$	503
Fair value		17			425			35			42			519
Yield⁽¹⁾		2.46	%		3.16	%		4.65	%		5.78	%		3.45	%


⁽¹⁾	Computed by dividing annualized interest by the amortized cost of respective investment securities.

- Definition

This item represents the entire disclosure related to Available-for-sale Securities which consist of all investments in certain debt and equity securities neither classified as trading or held-to-maturity securities. A debt security represents a creditor relationship with an enterprise. Debt securities include, among other items, US Treasury securities, US government securities, municipal securities, corporate bonds, convertible debt, commercial paper, and all securitized debt instruments. An equity security represents an ownership interest in an enterprise or the right to acquire or dispose of an ownership interest in an enterprise at fixed or determinable prices. Equity securities include, among other things, common stock, certain preferred stock, warrant rights, call options, and put options, but do not include convertible debt. An entity may opt to provide the reader with additional narrative text to better understand the nature of investments in debt and equity securities which are categorized as Available-for-sale.

+ References+ Details