INVESTMENTS

3 Months Ended

Mar. 31, 2015

INVESTMENTS

INVESTMENTS

6. INVESTMENTS

Securities Available for Sale

The following table presents the amortized cost or cost and fair value of our available for sale securities:

										Other-Than-
		Amortized		Gross		Gross				Temporary
		Cost or		Unrealized		Unrealized		Fair		Impairments
(in millions)		Cost		Gains		Losses		Value		in AOCI(a)
March 31, 2015
Bonds available for sale:
U.S. government and government sponsored entities	$	2,557	$	222	$	(5)	$	2,774	$	-
Obligations of states, municipalities and political subdivisions		26,088		1,783		(36)		27,835		-
Non-U.S. governments		18,857		1,149		(117)		19,889		-
Corporate debt		133,066		11,923		(847)		144,142		57
Mortgage-backed, asset-backed and collateralized:
RMBS		34,551		3,466		(285)		37,732		1,698
CMBS		12,503		971		(31)		13,443		224
CDO/ABS		14,492		665		(150)		15,007		38
Total mortgage-backed, asset-backed and collateralized		61,546		5,102		(466)		66,182		1,960
Total bonds available for sale(b)		242,114		20,179		(1,471)		260,822		2,017
Equity securities available for sale:
Common stock		1,000		2,071		(11)		3,060		-
Preferred stock		21		4		-		25		-
Mutual funds		662		63		(44)		681		-
Total equity securities available for sale		1,683		2,138		(55)		3,766		-
Total	$	243,797	$	22,317	$	(1,526)	$	264,588	$	2,017
December 31, 2014
Bonds available for sale:
U.S. government and government sponsored entities	$	2,806	$	204	$	(18)	$	2,992	$	-
Obligations of states, municipalities and political subdivisions		25,979		1,729		(49)		27,659		(13)
Non-U.S. governments		20,280		966		(151)		21,095		-
Corporate debt		134,961		10,594		(1,122)		144,433		64
Mortgage-backed, asset-backed and collateralized:
RMBS		34,377		3,435		(292)		37,520		1,767
CMBS		12,129		815		(59)		12,885		215
CDO/ABS		12,775		628		(128)		13,275		47
Total mortgage-backed, asset-backed and collateralized		59,281		4,878		(479)		63,680		2,029
Total bonds available for sale(b)		243,307		18,371		(1,819)		259,859		2,080
Equity securities available for sale:
Common stock		1,185		2,461		(17)		3,629		-
Preferred stock		21		4		-		25		-
Mutual funds		724		54		(37)		741		-
Total equity securities available for sale		1,930		2,519		(54)		4,395		-
Total	$	245,237	$	20,890	$	(1,873)	$	264,254	$	2,080

(a) Represents the amount of other-than-temporary impairments recognized in Accumulated other comprehensive income. Amount includes unrealized gains and losses on impaired securities relating to changes in the value of such securities subsequent to the impairment measurement date.

(b) At March 31,2015 and December 31,2014, bonds available for sale held by us that were below investment grade or not rated totaled $36.1 billion and $35.1 billion, respectively.

Securities Available for Sale in a Loss Position

The following table summarizes the fair value and gross unrealized losses on our available for sale securities, aggregated by major investment category and length of time that individual securities have been in a continuous unrealized loss position:

	Less than 12 Months				12 Months or More				Total
				Gross				Gross				Gross
		Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
(in millions)		Value		Losses		Value		Losses		Value		Losses
March 31, 2015
Bonds available for sale:
U.S. government and government sponsored entities	$	120	$	1	$	141	$	4	$	261	$	5
Obligations of states, municipalities and political
subdivisions		1,130		14		460		22		1,590		36
Non-U.S. governments		1,605		47		884		70		2,489		117
Corporate debt		12,048		449		4,563		398		16,611		847
RMBS		5,540		125		2,953		160		8,493		285
CMBS		453		3		603		28		1,056		31
CDO/ABS		3,193		56		1,812		94		5,005		150
Total bonds available for sale		24,089		695		11,416		776		35,505		1,471
Equity securities available for sale:
Common stock		58		11		-		-		58		11
Mutual funds		275		44		-		-		275		44
Total equity securities available for sale		333		55		-		-		333		55
Total	$	24,422	$	750	$	11,416	$	776	$	35,838	$	1,526
December 31, 2014
Bonds available for sale:
U.S. government and government sponsored entities	$	526	$	5	$	281	$	13	$	807	$	18
Obligations of states, municipalities and political
subdivisions		495		9		794		40		1,289		49
Non-U.S. governments		1,606		42		1,690		109		3,296		151
Corporate debt		12,132		450		11,570		672		23,702		1,122
RMBS		4,621		109		3,996		183		8,617		292
CMBS		220		1		2,087		58		2,307		59
CDO/ABS		3,857		50		1,860		78		5,717		128
Total bonds available for sale		23,457		666		22,278		1,153		45,735		1,819
Equity securities available for sale:
Common stock		88		16		2		1		90		17
Mutual funds		280		37		64		-		344		37
Total equity securities available for sale		368		53		66		1		434		54
Total	$	23,825	$	719	$	22,344	$	1,154	$	46,169	$	1,873

At March 31,2015, we held 4,983 and 112individual fixed maturity and equity securities, respectively, that were in an unrealized loss position, of which 1,351individual fixed maturity securitieswere in a continuous unrealized loss position for longer than 12 months. We did not recognize the unrealized losses in earnings on these fixed maturity securities at March 31,2015because we neither intend to sell the securities nor do we believe that it is more likely than not that we will be required to sell these securities before recovery of their amortized cost basis. For fixed maturity securities with significant declines, we performed fundamental credit analyses on a security-by-security basis, which included consideration of credit enhancements, expected defaults on underlying collateral, review of relevant industry analyst reports and forecasts and other available market data.

Contractual Maturities of Fixed Maturity Securities Available for Sale

The following table presents the amortized cost and fair value of fixed maturity securities available for sale by contractual maturity:

	Total Fixed Maturity Securities				Fixed Maturity Securities in a Loss
March 31, 2015	Available for Sale				Position Available for Sale
(in millions)		Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in one year or less	$	10,434	$	10,590	$	655	$	632
Due after one year through five years		48,034		50,920		4,452		4,314
Due after five years through ten years		59,209		62,855		8,569		8,170
Due after ten years		62,891		70,275		8,280		7,835
Mortgage-backed, asset-backed and collateralized		61,546		66,182		15,020		14,554
Total	$	242,114	$	260,822	$	36,976	$	35,505
December 31, 2014
Due in one year or less	$	9,821	$	9,975	$	637	$	620
Due after one year through five years		48,352		50,873		6,669		6,529
Due after five years through ten years		62,685		65,889		12,873		12,338
Due after ten years		63,168		69,442		10,255		9,607
Mortgage-backed, asset-backed and collateralized		59,281		63,680		17,120		16,641
Total	$	243,307	$	259,859	$	47,554	$	45,735

Actual maturities may differ from contractual maturities because certain borrowers have the right to call or prepay certain obligations with or without call or prepayment penalties.

The following table presents the gross realized gains and gross realized losses from sales or maturities of our available for sale securities:

		2015				2014
		Gross		Gross		Gross		Gross
Three Months Ended March 31,	Realized		Realized		Realized		Realized
(in millions)		Gains		Losses		Gains		Losses
Fixed maturity securities	$	149	$	118	$	216	$	31
Equity securities		496		5		30		2
Total	$	645	$	123	$	246	$	33

For the three-month periods ended March 31,2015 and 2014, respectively,the aggregate fair value of available for sale securities sold was $6.9 billion and $6.1 billion, respectively, which resulted in net realized capital gains of $0.5 billion and $0.2 billion, respectively.

Other Securities Measured at Fair Value

The following table presents the fair value of other securities measured at fair value based on our election of the fair value option:

		March 31, 2015				December 31, 2014
		Fair	Percent			Fair	Percent
(in millions)		Value	of Total			Value	of Total
Fixed maturity securities:
U.S. government and government sponsored entities	$	5,483	27	%	$	5,498	27	%
Obligations of states, municipalities and political subdivisions		76	-			122	1
Non-U.S. governments		2	-			2	-
Corporate debt		567	3			719	3
Mortgage-backed, asset-backed and collateralized:
RMBS		2,176	11			2,094	10
CMBS		945	5			1,077	5
CDO/ABS and other collateralized*		9,764	49			10,200	49
Total mortgage-backed, asset-backed and collateralized		12,885	65			13,371	64
Total fixed maturity securities		19,013	95			19,712	95
Equity securities		1,100	5			1,049	5
Total	$	20,113	100	%	$	20,761	100	%

* Includes $825 million and $859 million of U.S. Government agency backed ABS at March 31,2015 and December 31,2014, respectively.

Net Investment Income

The following table presents the components of Net investment income:

Three Months Ended March 31,
(in millions)		2015		2014
Fixed maturity securities, including short-term investments	$	2,883	$	3,131
Equity securities		15		(85)
Interest on mortgage and other loans		339		318
Alternative investments*		689		925
Real estate		26		28
Other investments		38		11
Total investment income		3,990		4,328
Investment expenses		152		132
Net investment income	$	3,838	$	4,196

*Includes hedge funds, private equity funds, affordable housing partnerships, investments in life settlements and other investment partnerships.

Net Realized Capital Gains and Losses

The following table presents the components of Net realized capital gains (losses):

Three Months Ended March 31,
(in millions)		2015		2014
Sales of fixed maturity securities	$	31	$	185
Sales of equity securities		491		28
Other-than-temporary impairments:
Severity		(2)		-
Change in intent		(24)		(5)
Foreign currency declines		(29)		(4)
Issuer-specific credit events		(68)		(49)
Adverse projected cash flows		(5)		(1)
Provision for loan losses		24		5
Foreign exchange transactions		254		26
Derivative instruments		208		(289)
Impairments on investments in life settlements		(70)		(42)
Other*		531		(6)
Net realized capital gains (losses)	$	1,341	$	(152)

* Includes realized gains due to the sale of Class B shares of Prudential Financial, Inc.

Change in Unrealized Appreciation (Depreciation) of Investments

The following table presents the increase (decrease) in unrealized appreciation (depreciation) of our available for sale securities and other investments:

Three Months Ended March 31,
(in millions)		2015		2014
Increase (decrease) in unrealized appreciation (depreciation) of investments:
Fixed maturity securities	$	2,156	$	3,994
Equity securities		(382)		(128)
Other investments		(503)		73
Total increase (decrease) in unrealized appreciation (depreciation) of investments*	$	1,271	$	3,939

* Excludes net unrealized gains attributable to businesses held for sale.

Evaluating Investments for Other-Than-Temporary Impairments

For a discussion of our policy for evaluating investments for other-than-temporary impairments, see Note 6 to the Consolidated Financial Statements in the 2014 Annual Report.

Credit Impairments

The following table presents a rollforward of the cumulative credit losses in other-than-temporary impairments recognized in earnings for available for sale fixed maturity securities:

Three Months Ended March 31,
(in millions)		2015		2014
Balance, beginning of year	$	2,659	$	3,872
Increases due to:
Credit impairments on new securities subject to impairment losses		15		8
Additional credit impairments on previously impaired securities		22		36
Reductions due to:
Credit impaired securities fully disposed for which there was no
prior intent or requirement to sell		(42)		(330)
Accretion on securities previously impaired due to credit*		(188)		(188)
Other		-		(9)
Balance, end of period	$	2,466	$	3,389

* Represents both accretion recognized due to changes in cash flows expected to be collected over the remaining expected term of the credit impaired securities and the accretion due to the passage of time.

Purchased Credit Impaired (PCI) Securities

We purchase certain RMBS securities that have experienced deterioration in credit quality since their issuance. We determine, based on our expectations as to the timing and amount of cash flows expected to be received, whether it is probable at acquisition that we will not collect all contractually required payments for these PCI securities, including both principal and interest after considering the effects of prepayments. At acquisition, the timing and amount of the undiscounted future cash flows expected to be received on each PCI security is determined based on our best estimate using key assumptions, such as interest rates, default rates and prepayment speeds. At acquisition, the difference between the undiscounted expected future cash flows of the PCI securities and the recorded investment in the securities represents the initial accretable yield, which is accreted into Net investment income over their remaining lives on a level-yield basis. Additionally, the difference between the contractually required payments on the PCI securities and the undiscounted expected future cash flows represents the non-accretable difference at acquisition. The accretable yield and the non-accretable difference will change over time, based on actual payments received and changes in estimates of undiscounted expected future cash flows, which are discussed further below.

On a quarterly basis, the undiscounted expected future cash flows associated with PCI securities are re-evaluated based on updates to key assumptions. Declines in undiscounted expected future cash flows due to further credit deterioration as well as changes in the expected timing of the cash flows can result in the recognition of an other-than-temporary impairment charge, as PCI securities are subject to our policy for evaluating investments for other-than-temporary impairment. Changes to undiscounted expected future cash flows due solely to the changes in the contractual benchmark interest rates on variable rate PCI securities will change the accretable yield prospectively. Significant increases in undiscounted expected future cash flows for reasons other than interest rate changes are recognized prospectively as adjustments to the accretable yield.

The following tables present information on our PCI securities, which are included in bonds available for sale:

(in millions)	At Date of Acquisition
Contractually required payments (principal and interest)	$	31,562
Cash flows expected to be collected*		25,480
Recorded investment in acquired securities		16,986

*Represents undiscounted expected cash flows, including both principal and interest.

(in millions)	March 31, 2015		December 31, 2014
Outstanding principal balance	$	17,362	$	16,962
Amortized cost		12,601		12,216
Fair value		13,788		13,462

The following table presents activity for the accretable yield on PCI securities:

Three Months Ended March 31,
(in millions)		2015		2014
Balance, beginning of period	$	6,865	$	6,940
Newly purchased PCI securities		245		522
Disposals		-		-
Accretion		(220)		(212)
Effect of changes in interest rate indices		(138)		(59)
Net reclassification to/(from) non-accretable difference,
including effects of prepayments		13		(21)
Balance, end of period	$	6,765	$	7,170

Pledged Investments

Secured Financing and Similar Arrangements

We enter into secured financing transactions whereby certain securities are sold under agreements to repurchase (repurchase agreements), in which we transfer securities in exchange for cash, with an agreement by us to repurchase the same or substantially similar securities. In the majority of these repurchase agreements, the securities transferred by us may be sold or repledged by the counterparties. Repurchase agreements entered into by the Direct Investment book (DIB) are carried at fair value based on market-observable interest rates. All other repurchase agreements are recorded at their contracted repurchase amounts plus accrued interest.

The following table presents the fair value of securities pledged to counterparties under secured financing transactions:

(in millions)	March 31, 2015	December 31, 2014
Other bond securities	1,180	2,122

We also enter into agreements in which securities are purchased by us under agreements to resell (reverse repurchase agreements), which are accounted for as secured financing transactions and reported as short-term investments or other assets, depending on their terms. These agreements are recorded at their contracted resale amounts plus accrued interest, other than those that are accounted for at fair value. Such agreements entered into by the DIB are carried at fair value based on market observable interest rates. In all reverse repurchase transactions, we take possession of or obtain a security interest in the related securities, and we have the right to sell or repledge this collateral received.

The following table presents information on the fair value of securities pledged to us under reverse repurchase agreements:

(in millions)		March 31, 2015		December 31, 2014
Securities collateral pledged to us	$	4,340	$	2,506
Amount sold or repledged by us		132		131

Insurance - Statutory and Other Deposits

Total carrying values of cash and securities deposited by our insurance subsidiaries under requirements of regulatory authorities or other insurance-related arrangements, including certain annuity-related obligations and certain reinsurance treaties, were $6.5 billion and $5.9 billion at March 31,2015 and December 31,2014, respectively.

Other Pledges

Certain of our subsidiaries are members of Federal Home Loan Banks (FHLBs) and such membership requires the members to own stock in these FHLBs. We owned an aggregate of $41 million and $44 million of stock in FHLBs at March 31,2015 and December 31,2014, respectively. In addition, our subsidiaries have pledged securities available for sale with a fair value of $1.2billion and $0.5 billion at March 31,2015 and December 31,2014, respectively, associated with advances from the FHLBs.

Certain GIAs have provisions that require collateral to be posted or payments to be made by us upon a downgrade of our long-term debt ratings. The actual amount of collateral required to be posted to the counterparties in the event of such downgrades, and the aggregate amount of payments that we could be required to make, depend on market conditions, the fair value of outstanding affected transactions and other factors prevailing at and after the time of the downgrade. The fair value of securities pledged as collateral with respect to these obligations was approximately$3.1 billion and $3.5 billion atMarch 31,2015 and December 31,2014, respectively. This collateral primarily consists of securities of the U.S. government and government sponsored entities and generally cannot be repledged or resold by the counterparties.