Investment Securities

6 Months Ended

Jun. 30, 2011

Investment Securities [Abstract]

Investment Securities

3. Investment securities

Substantially all of our investment securities are classified as available-for-sale. These comprise mainly investment grade debt securities supporting obligations to holders of guaranteed investment contracts (GICs) in Trinity, and investment securities at our treasury operations. We do not have any securities classified as held to maturity.

	At
	June 30, 2011								December 31, 2010
			Gross		Gross						Gross		Gross
	Amortized		unrealized		unrealized		Estimated		Amortized		unrealized		unrealized		Estimated
(In millions)	cost		gains		losses		fair value		cost		gains		losses		fair value
Debt
U.S. corporate	$	2,897	$	95	$	(10)	$	2,982	$	3,490	$	169	$	(14)	$	3,645
State and municipal		915		10		(228)		697		918		4		(232)		690
Residential mortgage-backed(a)		1,887		23		(302)		1,608		2,099		14		(355)		1,758
Commercial mortgage-backed		1,523		38		(173)		1,388		1,619		-		(183)		1,436
Asset-backed		3,708		25		(143)		3,590		3,242		7		(190)		3,059
Corporate – non-U.S.		1,441		44		(84)		1,401		1,478		39		(111)		1,406
Government – non-U.S.		2,197		7		(84)		2,120		1,804		8		(58)		1,754
U.S. government and
federal agency		2,597		9		–		2,606		2,663		3		(5)		2,661
Retained interests		32		16		(3)		45		55		10		(26)		39
Equity
Available-for-sale		1,287		204		(31)		1,460		902		194		(9)		1,087
Trading		475		–		–		475		417		-		-		417
Total	$	18,959	$	471	$	(1,058)	$	18,372	$	18,687	$	448	$	(1,183)	$	17,952

• Substantially collateralized by U.S. mortgages. Of our total residential mortgage-backed securities (RMBS) portfolio at June 30, 2011, $788 million relates to securities issued by government sponsored entities and $820 million relates to securities of private label issuers. Securities issued by private label issuers are collateralized primarily by pools of individual direct mortgage loans of individual financial institutions.

The fair value of investment securities increased to $18,372 million at June 30, 2011, from $17,952 million at December 31, 2010, primarily driven by improved market conditions and purchases.

The following tables present the estimated fair values and gross unrealized losses of our available-for-sale investment securities.

	In loss position for
	Less than 12 months					12 months or more
			Gross		(a)			Gross
	Estimated		unrealized			Estimated		unrealized
(In millions)	fair value		losses			fair value		losses		(a)
June 30, 2011
Debt
U.S. corporate	$	151	$	(6)		$	169	$	(4)
State and municipal		93		(15)			447		(213)
Residential mortgage-backed		282		(7)			853		(295)
Commercial mortgage-backed		767		(123)			621		(50)
Asset-backed		58		(4)			875		(139)
Corporate – non-U.S.		116		(4)			731		(80)
Government – non-U.S.		1,105		(3)			128		(81)
U.S. government and federal agency		–		–			–		–
Retained interests		–		–			6		(3)
Equity		69		(31)			–		–
Total	$	2,641	$	(193)		$	3,830	$	(865)
December 31, 2010
Debt
U.S. corporate	$	357	$	(5)		$	337	$	(9)
State and municipal		137		(16)			443		(216)
Residential mortgage-backed		166		(3)			920		(352)
Commercial mortgage-backed		779		(103)			652		(80)
Asset-backed		111		(5)			902		(185)
Corporate – non-U.S.		123		(2)			673		(109)
Government – non-U.S.		642		(6)			105		(52)
U.S. government and federal agency		1,613		(5)			–		–
Retained interests		–		–			34		(26)
Equity		46		(9)			–		–
Total	$	3,974	$	(154)		$	4,066	$	(1,029)

• At June 30, 2011, other-than-temporary impairments previously recognized through other comprehensive income (OCI) on securities still held amounted to ($439) million, of which ($350) million related to RMBS. Gross unrealized losses related to those securities at June 30, 2011 amounted to $(603) million, of which $(545) million related to RMBS.

We regularly review investment securities for impairment using both qualitative and quantitative criteria. We presently do not intend to sell the vast majority of our debt securities and believe that it is not more likely than not that we will be required to sell these securities that are in an unrealized loss position before recovery of our amortized cost. We believe that the unrealized loss associated with our equity securities will be recovered within the foreseeable future. The methodologies and significant inputs used to measure the amount of credit loss for our investment securities during the three and six months ended June 30, 2011 have not changed from those described in our 2010 consolidated financial statements. See Note 3 in our 2010 consolidated financial statements for additional information regarding these methodologies and inputs.

During the second quarter of 2011, we recorded other-than-temporary impairments of $112 million, of which $54 million was recorded through earnings ($5 million relates to equity securities) and $58 million was recorded in accumulated other comprehensive income (AOCI). At April 1, 2011, cumulative impairments recognized in earnings associated with debt securities still held were $368 million. During the second quarter, we recognized first time impairments of $19 million and incremental charges on previously impaired securities of $23 million. These amounts included $18 million related to securities that were subsequently sold.

During the second quarter of 2010, we recorded other-than-temporary impairments of $95 million, of which $53 million was recorded through earnings and $42 million was recorded in AOCI. At April 1, 2010, cumulative impairments recognized in earnings associated with debt securities still held were $200 million. During the second quarter of 2010, we recognized first time impairments of $35 million and incremental charges on previously impaired securities of $16 million. These amounts included $2 million related to securities that were subsequently sold.

During the six months ended June 30, 2011, we recorded other-than-temporary impairments of $177 million, of which $115 million was recorded through earnings ($10 million relates to equity securities) and $62 million was recorded in AOCI. At January 1, 2011, cumulative impairments recognized in earnings associated with debt securities still held were $316 million. During the six months ended June 30, 2011, we recognized first time impairments of $19 million and incremental charges on previously impaired securities of $79 million. These amounts included $21 million related to securities that were subsequently sold.

During the six months ended June 30, 2010, we recorded other-than-temporary impairments of $247 million, of which $126 million was recorded through earnings ($1 million relates to equity securities) and $121 million was recorded in AOCI. At January 1, 2010, cumulative impairments recognized in earnings associated with debt securities still held were $140 million. During the six months ended June 30, 2010, we recognized first time impairments of $90 million and incremental charges on previously impaired securities of $33 million. These amounts included $15 million related to securities that were subsequently sold.

Contractual Maturities of our Investment in Available-for-Sale Debt Securities (Excluding Mortgage-Backed and Asset-Backed Securities)

	Amortized		Estimated
(In millions)	cost		fair value
Due in
2011	$	2,791	$	2,797
2012-2015		4,548		4,609
2016-2020		1,791		1,682
2021 and later		909		710

We expect actual maturities to differ from contractual maturities because borrowers have the right to call or prepay certain obligations.

Supplemental information about gross realized gains and losses on available-for-sale investment securities follows.

	Three months ended June 30,				Six months ended June 30,
(In millions)	2011		2010		2011		2010
Gains	$	43	$	28	$	155	$	106
Losses, including impairments		(56)		(55)		(124)		(129)
Net	$	(13)	$	(27)	$	31	$	(23)

Although we generally do not have the intent to sell any specific securities at the end of the period, in the ordinary course of managing our investment securities portfolio, we may sell securities prior to their maturities for a variety of reasons, including diversification, credit quality, yield and liquidity requirements and the funding of claims and obligations to policyholders. In some of our bank subsidiaries, we maintain a certain level of purchases and sales volume principally of non-U.S. government debt securities. In these situations, fair value approximates carrying value for these securities.

Proceeds from investment securities sales and early redemptions by the issuer totaled $4,722 million and $3,334 million in the three months ended June 30, 2011 and 2010, respectively, and $9,762 million and $6,930 million in the six months ended June 30, 2011 and 2010, respectively, principally from the sales of short-term securities in our bank subsidiaries and treasury operations.

We recognized net pre-tax gains on trading securities of $52 million and $4 million in the three months ended June 30, 2011 and 2010, respectively, and $55 million and $19 million in the six months ended June 30, 2011 and 2010, respectively.