INVESTMENTS

3 Months Ended

Mar. 31, 2016

5. 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, 2016
Bonds available for sale:
U.S. government and government sponsored entities	$	1,835	$	207	$	(1)	$	2,041	$	-
Obligations of states, municipalities and political subdivisions		26,014		1,798		(54)		27,758		2
Non-U.S. governments		17,676		1,119		(180)		18,615		-
Corporate debt		132,514		8,779		(2,345)		138,948		(104)
Mortgage-backed, asset-backed and collateralized:
RMBS		34,056		2,672		(506)		36,222		1,018
CMBS		13,813		722		(98)		14,437		93
CDO/ABS		15,822		344		(402)		15,764		31
Total mortgage-backed, asset-backed and collateralized		63,691		3,738		(1,006)		66,423		1,142
Total bonds available for sale^(b)		241,730		15,641		(3,586)		253,785		1,040
Equity securities available for sale:
Common stock		891		1,396		(13)		2,274		-
Preferred stock		19		4		-		23		-
Mutual funds		419		56		(2)		473		-
Total equity securities available for sale		1,329		1,456		(15)		2,770		-
Total	$	243,059	$	17,097	$	(3,601)	$	256,555	$	1,040
December 31, 2015
Bonds available for sale:
U.S. government and government sponsored entities	$	1,698	$	155	$	(9)	$	1,844	$	-
Obligations of states, municipalities and political subdivisions		26,003		1,424		(104)		27,323		19
Non-U.S. governments		17,752		805		(362)		18,195		-
Corporate debt		133,513		6,462		(3,987)		135,988		(87)
Mortgage-backed, asset-backed and collateralized:
RMBS		33,878		2,760		(411)		36,227		1,326
CMBS		13,139		561		(129)		13,571		185
CDO/ABS		14,985		360		(248)		15,097		39
Total mortgage-backed, asset-backed and collateralized		62,002		3,681		(788)		64,895		1,550
Total bonds available for sale^(b)		240,968		12,527		(5,250)		248,245		1,482
Equity securities available for sale:
Common stock		913		1,504		(16)		2,401		-
Preferred stock		19		3		-		22		-
Mutual funds		447		53		(8)		492		-
Total equity securities available for sale		1,379		1,560		(24)		2,915		-
Total	$	242,347	$	14,087	$	(5,274)	$	251,160	$	1,482

(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 fair value of such securities subsequent to the impairment measurement date.

(b) At March 31, 2016 and December 31, 2015, bonds available for sale held by us that were below investment grade or not rated totaled $35.6 billion and $34.9 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, 2016
Bonds available for sale:
U.S. government and government sponsored entities	$	2	$	-	$	11	$	1	$	13	$	1
Obligations of states, municipalities and political
subdivisions		550		25		545		29		1,095		54
Non-U.S. governments		1,400		52		1,212		128		2,612		180
Corporate debt		17,937		1,053		9,297		1,292		27,234		2,345
RMBS		5,087		151		4,828		355		9,915		506
CMBS		1,340		46		863		52		2,203		98
CDO/ABS		8,208		258		2,221		144		10,429		402
Total bonds available for sale		34,524		1,585		18,977		2,001		53,501		3,586
Equity securities available for sale:
Common stock		69		13		-		-		69		13
Mutual funds		93		2		-		-		93		2
Total equity securities available for sale		162		15		-		-		162		15
Total	$	34,686	$	1,600	$	18,977	$	2,001	$	53,663	$	3,601
December 31, 2015
Bonds available for sale:
U.S. government and government sponsored entities	$	483	$	9	$	1	$	-	$	484	$	9
Obligations of states, municipalities and political
subdivisions		2,382		87		268		17		2,650		104
Non-U.S. governments		4,327		203		832		159		5,159		362
Corporate debt		41,317		2,514		5,428		1,473		46,745		3,987
RMBS		7,215		133		4,318		278		11,533		411
CMBS		4,138		108		573		21		4,711		129
CDO/ABS		7,064		104		2,175		144		9,239		248
Total bonds available for sale		66,926		3,158		13,595		2,092		80,521		5,250
Equity securities available for sale:
Common stock		91		16		-		-		91		16
Mutual funds		200		8		-		-		200		8
Total equity securities available for sale		291		24		-		-		291		24
Total	$	67,217	$	3,182	$	13,595	$	2,092	$	80,812	$	5,274

At March 31, 2016, we held 9,760 and 128 individual fixed maturity and equity securities, respectively, that were in an unrealized loss position, of which 2,931 individual fixed maturity securities were in a continuous unrealized loss position for 12 months or more. We did not recognize the unrealized losses in earnings on these fixed maturity securities at March 31, 2016 because 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, 2016	Available for Sale				Position Available for Sale
(in millions)		Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in one year or less	$	8,930	$	9,092	$	732	$	723
Due after one year through five years		49,341		52,088		6,357		6,084
Due after five years through ten years		51,660		53,355		10,954		9,972
Due after ten years		68,108		72,827		15,491		14,175
Mortgage-backed, asset-backed and collateralized		63,691		66,423		23,553		22,547
Total	$	241,730	$	253,785	$	57,087	$	53,501
December 31, 2015
Due in one year or less	$	9,176	$	9,277	$	1,122	$	1,103
Due after one year through five years		47,230		49,196		9,847		9,494
Due after five years through ten years		54,120		54,459		22,296		20,686
Due after ten years		68,440		70,418		26,235		23,755
Mortgage-backed, asset-backed and collateralized		62,002		64,895		26,271		25,483
Total	$	240,968	$	248,245	$	85,771	$	80,521

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:

		2016				2015
		Gross		Gross		Gross		Gross
Three Months Ended March 31,	Realized		Realized		Realized		Realized
(in millions)		Gains		Losses		Gains		Losses
Fixed maturity securities	$	187	$	549	$	149	$	118
Equity securities		32		8		496		5
Total	$	219	$	557	$	645	$	123

For the three-month periods ended March 31, 2016 and 2015, respectively, the aggregate fair value of available for sale securities sold was $6.1 billion and $6.9 billion, respectively, which resulted in net realized capital losses of $338 million and net realized capital gains of $522 million, 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, 2016				December 31, 2015
		Fair	Percent			Fair	Percent
(in millions)		Value	of Total			Value	of Total
Fixed maturity securities:
U.S. government and government sponsored entities	$	3,403	21	%	$	3,369	19	%
Obligations of states, municipalities and political subdivisions		-	-			75	-
Non-U.S. governments		53	-			50	-
Corporate debt		1,879	12			2,035	12
Mortgage-backed, asset-backed and collateralized:
RMBS		1,953	12			2,230	13
CMBS		687	4			750	4
CDO/ABS and other collateralized^*		7,369	46			8,273	47
Total mortgage-backed, asset-backed and collateralized		10,009	62			11,253	64
Total fixed maturity securities		15,344	95			16,782	95
Equity securities		877	5			921	5
Total	$	16,221	100	%	$	17,703	100	%

* Includes $592 million and $712 million of U.S. Government agency-backed ABS at March 31, 2016 and December 31, 2015, respectively.

Net Investment Income

The following table presents the components of Net investment income:

Three Months Ended March 31,
(in millions)		2016		2015
Fixed maturity securities, including short-term investments	$	2,936	$	2,883
Equity securities		(22)		15
Interest on mortgage and other loans		389		339
Alternative investments^*		(366)		586
Real estate		53		26
Other investments		137		141
Total investment income		3,127		3,990
Investment expenses		114		152
Net investment income	$	3,013	$	3,838

* Beginning in the first quarter of 2016, the presentation of income on alternative investments has been refined to include only income from hedge funds, private equity funds and affordable housing partnerships. Prior period disclosures have been reclassified to conform to this presentation. Hedge funds for which we elected the fair value option are recorded as of the balance sheet date. Other hedge funds are generally reported on a one-month lag, while private equity funds are generally reported on a one-quarter lag.

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)		2016		2015
Sales of fixed maturity securities	$	(362)	$	31
Sales of equity securities		24		491
Other-than-temporary impairments:
Severity		(2)		(2)
Change in intent		(29)		(24)
Foreign currency declines		(6)		(29)
Issuer-specific credit events		(131)		(68)
Adverse projected cash flows		(36)		(5)
Provision for loan losses		30		24
Foreign exchange transactions		(520)		254
Derivative instruments		(84)		208
Impairments on investments in life settlements		(157)		(70)
Other^*		167		531
Net realized capital gains (losses)	$	(1,106)	$	1,341

* 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)		2016		2015
Increase (decrease) in unrealized appreciation (depreciation) of investments:
Fixed maturity securities	$	4,778	$	2,156
Equity securities		(95)		(382)
Other investments		(148)		(503)
Total increase (decrease) in unrealized appreciation (depreciation) of investments	$	4,535	$	1,271

Evaluating Investments for Other-Than-Temporary Impairments

For a discussion of our policy for evaluating investments for other-than-temporary impairments, see Note 5 to the Consolidated Financial Statements in the 2015 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)		2016		2015
Balance, beginning of year	$	1,747	$	2,659
Increases due to:
Credit impairments on new securities subject to impairment losses		110		15
Additional credit impairments on previously impaired securities		55		22
Reductions due to:
Credit impaired securities fully disposed for which there was no
prior intent or requirement to sell		(150)		(42)
Accretion on securities previously impaired due to credit^*		(239)		(188)
Other		-		-
Balance, end of period	$	1,523	$	2,466

* 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)	$	33,999
Cash flows expected to be collected^*		27,609
Recorded investment in acquired securities		18,476

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

(in millions)	March 31, 2016		December 31, 2015
Outstanding principal balance	$	17,011	$	16,871
Amortized cost		12,442		12,303
Fair value		12,979		13,164

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

Three Months Ended March 31,
(in millions)		2016		2015
Balance, beginning of period	$	6,846	$	6,865
Newly purchased PCI securities		206		245
Disposals		-		-
Accretion		(214)		(220)
Effect of changes in interest rate indices		(299)		(138)
Net reclassification to/(from) non-accretable difference,
including effects of prepayments		83		13
Balance, end of period	$	6,622	$	6,765

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. Our secured financing transactions also include those that involve the transfer of securities to financial institutions in exchange for cash (securities lending agreements). In all of these secured financing transactions, the securities transferred by us (pledged collateral) may be sold or repledged by the counterparties. These agreements are recorded at their contracted amounts plus accrued interest, other than those that are accounted for at fair value.

Pledged collateral levels are monitored daily and are generally maintained at an agreed-upon percentage of the fair value of the amounts borrowed during the life of the transactions. In the event of a decline in the fair value of the pledged collateral under these secured financing transactions, we may be required to transfer cash or additional securities as pledged collateral under these agreements. At the termination of the transactions, we and our counterparties are obligated to return the amounts borrowed and the securities transferred, respectively.

The following table presents the fair value of securities pledged to counterparties under secured financing transactions, including repurchase and securities lending agreements:

(in millions)		March 31, 2016		December 31, 2015
Fixed maturity securities available for sale	$	1,455	$	1,145
Other bond securities, at fair value	$	1,897	$	1,740

At March 31, 2016 and December 31, 2015, amounts borrowed under repurchase and securities lending agreements totaled $3.4 billion and $2.9 billion, respectively.

The following table presents the fair value of securities pledged under our repurchase agreements by collateral type and by remaining contractual maturity:

	Remaining Contractual Maturity of the Agreements
(in millions)		Overnight and Continuous		up to 30 days		31 - 90 days		91 - 364 days		365 days or greater		Total
March 31, 2016
Other bond securities:
Non-U.S. governments	$	-	$	-	$	-	$	52	$	-	$	52
Corporate debt		-		229		447		1,131		-		1,807
Total	$	-	$	229	$	447	$	1,183	$	-	$	1,859

December 31, 2015
Bonds available for sale:
Non-U.S. governments	$	-	$	50	$	-	$	-	$	-	$	50
Other bond securities:
Non-U.S. governments		-		-		-		49		-		49
Corporate debt		-		33		332		1,326		-		1,691
Total	$	-	$	83	$	332	$	1,375	$	-	$	1,790

The following table presents the fair value of securities pledged under our securities lending agreements by collateral type and by remaining contractual maturity:

	Remaining Contractual Maturity of the Agreements
(in millions)		Overnight and Continuous		up to 30 days		31 - 90 days		91 - 364 days		365 days or greater		Total
March 31, 2016
Bonds available for sale:
Non-U.S. governments	$	-	$	-	$	-	$	54	$	-	$	54
Corporate debt		-		101		674		167		8		950
RMBS		-		-		-		451		-		451
Other bond securities:
U.S. government and government sponsored entities		30		-		-		-		-		30
RMBS		-		-		-		8		-		8
Total	$	30	$	101	$	674	$	680	$	8	$	1,493

December 31, 2015
Bonds available for sale:
Non-U.S. governments	$	-	$	-	$	57	$	-	$	-	$	57
Corporate debt		-		-		914		-		-		914
RMBS		-		-		-		124		-		124
Total	$	-	$	-	$	971	$	124	$	-	$	1,095

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. 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, 2016		December 31, 2015
Securities collateral pledged to us	$	1,282	$	1,742
Amount sold or repledged by us	$	140	$	-

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 $5.5 billion and $4.9 billion at March 31, 2016 and December 31, 2015, respectively.

Other Pledges and Restrictions

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 $47 million of stock in FHLBs at both March 31, 2016 and December 31, 2015. In addition, our subsidiaries have pledged securities available for sale with a fair value of $2.1 billion and $1.2 billion at March 31, 2016 and December 31, 2015, 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 $2.4 billion at both March 31, 2016 and December 31, 2015. 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.

Short-term investments held in escrow accounts or otherwise subject to restriction as to their use were $496 million and $439 million at March 31, 2016 and December 31, 2015, respectively.

- Definition

The entire disclosure for investments in certain debt and equity securities.

+ References + Details