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Investment Securities

9 Months Ended

Sep. 30, 2011

6.	Investment Securities

Our portfolio of securities includes bonds, equity securities, asset- and mortgage-backed securities, notes, interests in securitization trusts, and other investments. The cost, fair value, and gross unrealized gains and losses on available-for-sale securities were as follows.


	September 30, 2011									December 31, 2010
	Cost		Gross unrealized					Fair value		Cost		Gross unrealized					Fair value
($ in millions)	Cost		gains		losses			Fair value		Cost		gains		losses			Fair value
Available-for-sale securities
Debt securities
U.S. Treasury and federal agencies	$	1,041	$	6	$	(2	)	$	1,045	$	3,307	$	22	$	(11	)	$	3,318
States and political subdivisions		1		—		—			1		3		—		(1	)		2
Foreign government		894		33		—			927		1,231		19		(2	)		1,248
Mortgage-backed residential (a)		6,624		96		(36	)		6,684		5,844		60		(79	)		5,825
Asset-backed		2,423		36		(6	)		2,453		1,934		15		(1	)		1,948
Corporate debt		1,210		14		(29	)		1,195		1,537		34		(13	)		1,558
Other		564		1		—			565		152		—		(1	)		151

Total debt securities (b)		12,757		186		(73	)		12,870		14,008		150		(108	)		14,050
Equity securities		1,334		39		(262	)		1,111		766		60		(30	)		796

Total available-for-sale securities (c)	$	14,091	$	225	$	(335	)	$	13,981	$	14,774	$	210	$	(138	)	$	14,846

(a)	Residential mortgage-backed securities include agency-backed bonds totaling $5,533 million and $4,503 million at September 30, 2011, and December 31, 2010, respectively.

(b)	In connection with certain borrowings and letters of credit relating to certain assumed reinsurance contracts, $56 million and $153 million of primarily U.K. Treasury securities were pledged as collateral at September 30, 2011, and December 31, 2010, respectively.

(c)	Certain entities related to our Insurance operations are required to deposit securities with state regulatory authorities. These deposited securities totaled $12 million at both September 30, 2011, and December 31, 2010, respectively.

The maturity distribution of available-for-sale debt securities outstanding is summarized in the following tables. Prepayments may cause actual maturities to differ from scheduled maturities.


	Total					Due in one year or less					Due after one year through five years					Due after five years through ten years					Due after ten years (a)
($ in millions)	Amount		Yield			Amount		Yield			Amount		Yield			Amount		Yield			Amount		Yield
September 30, 2011
Fair value of available-for-sale debt securities (b)
U.S. Treasury and federal agencies	$	1,045		1.4	%	$	219		1.1	%	$	824		2.3	%	$	2		3.2	%	$	—		—	%
States and political subdivisions		1		5.5			—		—			—		—			—		—			1		5.5
Foreign government		927		4.1			49		5.2			633		4.4			234		3.2			11		3.7
Mortgage-backed residential		6,684		2.6			—		—			2		6.3			263		1.8			6,419		2.6
Asset-backed		2,453		2.1			—		—			1,553		2.1			461		1.3			439		3.0
Corporate debt		1,195		5.1			12		5.1			483		4.9			557		5.5			143		4.0
Other		565		1.6			554		1.5			—		—			11		4.9			—		—


Total available-for-sale debt securities	$	12,870		2.7		$	834		1.6		$	3,495		3.1		$	1,528		2.6		$	7,013		2.7

Amortized cost of available-for-sale debt securities	$	12,757				$	834				$	3,461				$	1,520				$	6,942

December 31, 2010
Fair value of available-for-sale debt securities (b)
U.S. Treasury and federal agencies	$	3,318		1.4	%	$	124		1.2	%	$	3,094		1.3	%	$	100		3.7	%	$	—		—	%
States and political subdivisions		2		8.7			—		—			—		—			—		—			2		8.7
Foreign government		1,248		3.1			7		2.2			1,092		3.1			149		3.5			—		—
Mortgage-backed residential		5,825		3.8			—		—			57		3.2			64		4.4			5,704		3.8
Asset-backed		1,948		2.5			—		—			1,146		2.2			500		2.4			302		4.0
Corporate debt		1,558		3.9			22		5.7			811		3.5			593		4.3			132		4.0
Other		151		1.5			151		1.5			—		—			—		—			—		—


Total available-for-sale debt securities	$	14,050		3.0		$	304		1.7		$	6,200		2.1		$	1,406		3.5		$	6,140		3.8

Amortized cost of available-for-sale debt securities	$	14,008				$	305				$	6,152				$	1,388				$	6,163

(a)	Investments with no stated maturities are included as contractual maturities of greater than 10 years. Actual maturities may differ due to call or prepayment options.

(b)	Yields on tax-exempt obligations are computed on a tax-equivalent basis.

The balances of cash equivalents were $8.2 billion and $5.3 billion at September 30, 2011, and December 31, 2010, respectively, and were composed primarily of money market accounts and short-term securities, including U.S. Treasury bills.

The following table presents gross gains and losses realized upon the sales of available-for-sale securities. During the three months and nine months ended September 30, 2011, we did not recognize other-than-temporary impairment on available-for-sale securities.


	Three months ended September 30,						Nine months ended September 30,
($ in millions)	2011			2010			2011			2010
Gross realized gains	$	90		$	102		$	288		$	381
Gross realized losses		(15	)		(2	)		(37	)		(25	)
Other-than-temporary impairment		—			—			—			(1	)

Net realized gains	$	75		$	100		$	251		$	355

The following table presents interest and dividends on available-for-sale securities.


	Three months ended September 30,				Nine months ended September 30,
($ in millions)	2011		2010		2011		2010
Taxable interest	$	97	$	81	$	298	$	252
Taxable dividends		6		5		17		13
Interest and dividends exempt from U.S. federal income tax		—		—		—		10

Total interest and dividends on available-for-sale securities	$	103	$	86	$	315	$	275

The table below summarizes available-for-sale securities in an unrealized loss position in accumulated other comprehensive income. Based on the methodology described below that was applied to these securities, we believe that the unrealized losses relate to factors other than credit losses in the current market environment. As of September 30, 2011, we did not have the intent to sell the debt securities with an unrealized loss position in accumulated other comprehensive income, and it is not more likely than not that we will be required to sell these securities before recovery of their amortized cost basis. As of September 30, 2011, we had the ability and intent to hold equity securities with an unrealized loss position in accumulated other comprehensive income. As a result, we believe that the securities with an unrealized loss position in accumulated other comprehensive income are not considered to be other-than-temporarily impaired at September 30, 2011. Refer to Note 1 to the Consolidated Financial Statements in our 2010 Annual Report on Form 10-K for additional information related to investment securities and our methodology for evaluating potential other-than-temporary impairments.


	September 30, 2011										December 31, 2010
	Less than 12 months					12 months or longer					Less than 12 months					12 months or longer
($ in millions)	Fair value		Unrealized loss			Fair value		Unrealized loss			Fair value		Unrealized loss			Fair value		Unrealized loss
Available-for-sale securities
Debt securities
U.S. Treasury and federal agencies	$	288	$	(2	)	$	—	$	—		$	702	$	(11	)	$	—	$	—
States and political subdivisions		—		—			—		—			2		(1	)		—		—
Foreign government		58		—			—		—			323		(2	)		—		—
Mortgage-backed residential		2,005		(35	)		6		(1	)		3,159		(77	)		11		(2	)
Asset-backed		463		(6	)		1		—			238		(1	)		2		—
Corporate debt		628		(29	)		14		—			653		(13	)		5		—
Other		57		—			—		—			80		(1	)		—		—

Total temporarily impaired debt securities		3,499		(72	)		21		(1	)		5,157		(106	)		18		(2	)
Temporarily impaired equity securities		964		(262	)		—		—			250		(27	)		26		(3	)

Total temporarily impaired available-for-sale securities	$	4,463	$	(334	)	$	21	$	(1	)	$	5,407	$	(133	)	$	44	$	(5	)