INVESTMENTS

3 Months Ended

Mar. 31, 2017

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, 2017
Bonds available for sale:
U.S. government and government sponsored entities	$	2,236	$	149	$	(23)	$	2,362	$	-
Obligations of states, municipalities and political subdivisions		18,877		967		(141)		19,703		-
Non-U.S. governments		13,688		757		(138)		14,307		-
Corporate debt		123,469		7,290		(1,429)		129,330		2
Mortgage-backed, asset-backed and collateralized:
RMBS		33,042		2,648		(403)		35,287		1,317
CMBS		13,374		392		(157)		13,609		53
CDO/ABS		15,943		305		(148)		16,100		35
Total mortgage-backed, asset-backed and collateralized		62,359		3,345		(708)		64,996		1,405
Total bonds available for sale(b)		220,629		12,508		(2,439)		230,698		1,407
Equity securities available for sale:
Common stock		605		386		(5)		986		-
Preferred stock		749		76		-		825		-
Mutual funds		250		39		(1)		288		-
Total equity securities available for sale		1,604		501		(6)		2,099		-
Total	$	222,233	$	13,009	$	(2,445)	$	232,797	$	1,407
December 31, 2016
Bonds available for sale:
U.S. government and government sponsored entities	$	1,870	$	148	$	(26)	$	1,992	$	-
Obligations of states, municipalities and political subdivisions		24,025		1,001		(254)		24,772		-
Non-U.S. governments		14,018		773		(256)		14,535		-
Corporate debt		126,648		7,271		(1,739)		132,180		(31)
Mortgage-backed, asset-backed and collateralized:
RMBS		35,311		2,541		(478)		37,374		1,212
CMBS		14,054		409		(192)		14,271		45
CDO/ABS		16,315		278		(180)		16,413		39
Total mortgage-backed, asset-backed and collateralized		65,680		3,228		(850)		68,058		1,296
Total bonds available for sale(b)		232,241		12,421		(3,125)		241,537		1,265
Equity securities available for sale:
Common stock		708		369		(12)		1,065		-
Preferred stock		748		4		-		752		-
Mutual funds		241		23		(3)		261		-
Total equity securities available for sale		1,697		396		(15)		2,078		-
Total	$	233,938	$	12,817	$	(3,140)	$	243,615	$	1,265

(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 31,2017 and December 31,2016, bonds available for sale held by us that were below investment grade or not rated totaled $32.8 billion and $33.6 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, 2017
Bonds available for sale:
U.S. government and government sponsored entities	$	892	$	23	$	-	$	-	$	892	$	23
Obligations of states, municipalities and political
subdivisions		3,115		111		239		30		3,354		141
Non-U.S. governments		2,983		68		463		70		3,446		138
Corporate debt		24,721		865		4,832		564		29,553		1,429
RMBS		7,752		232		3,363		171		11,115		403
CMBS		4,248		136		333		21		4,581		157
CDO/ABS		3,467		67		1,593		81		5,060		148
Total bonds available for sale		47,178		1,502		10,823		937		58,001		2,439
Equity securities available for sale:
Common stock		56		4		17		1		73		5
Mutual funds		2		-		3		1		5		1
Total equity securities available for sale		58		4		20		2		78		6
Total	$	47,236	$	1,506	$	10,843	$	939	$	58,079	$	2,445
December 31, 2016
Bonds available for sale:
U.S. government and government sponsored entities	$	720	$	26	$	-	$	-	$	720	$	26
Obligations of states, municipalities and political
subdivisions		5,814		221		231		33		6,045		254
Non-U.S. governments		3,865		162		489		94		4,354		256
Corporate debt		28,184		1,013		6,080		726		34,264		1,739
RMBS		8,794		252		4,045		226		12,839		478
CMBS		4,469		152		479		40		4,948		192
CDO/ABS		5,362		102		1,961		78		7,323		180
Total bonds available for sale		57,208		1,928		13,285		1,197		70,493		3,125
Equity securities available for sale:
Common stock		125		12		-		-		125		12
Mutual funds		64		3		-		-		64		3
Total equity securities available for sale		189		15		-		-		189		15
Total	$	57,397	$	1,943	$	13,285	$	1,197	$	70,682	$	3,140

At March 31,2017, we held 8,235 and 63 individual fixed maturity and equity securities, respectively, that were in an unrealized loss position, of which 1,478and sixindividual fixed maturity and equity securities, respectively, 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 31,2017 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
	Available for Sale				Position Available for Sale
(in millions)		Amortized Cost		Fair Value		Amortized Cost		Fair Value
March 31, 2017
Due in one year or less	$	7,064	$	7,266	$	572	$	566
Due after one year through five years		47,682		50,305		5,132		5,016
Due after five years through ten years		41,861		42,976		12,546		12,036
Due after ten years		61,663		65,155		20,726		19,627
Mortgage-backed, asset-backed and collateralized		62,359		64,996		21,464		20,756
Total	$	220,629	$	230,698	$	60,440	$	58,001
December 31, 2016
Due in one year or less	$	7,796	$	7,994	$	604	$	581
Due after one year through five years		49,200		51,958		6,002		5,841
Due after five years through ten years		43,308		44,226		16,045		15,332
Due after ten years		66,257		69,301		25,007		23,629
Mortgage-backed, asset-backed and collateralized		65,680		68,058		25,960		25,110
Total	$	232,241	$	241,537	$	73,618	$	70,493

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:

		2017				2016
		Gross		Gross		Gross		Gross
Three Months Ended March 31,	Realized		Realized		Realized		Realized
(in millions)		Gains		Losses		Gains		Losses
Fixed maturity securities	$	333	$	178	$	187	$	549
Equity securities		17		16		32		8
Total	$	350	$	194	$	219	$	557

For the three-month periods ended March 31,2017 and 2016, the aggregate fair value of available for sale securities sold was $15.8billion and $6.1billion, respectively, which resulted in net realized capital gains (losses) of $156million and $(338)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, 2017				December 31, 2016
		Fair	Percent			Fair	Percent
(in millions)		Value	of Total			Value	of Total
Fixed maturity securities:
U.S. government and government sponsored entities	$	2,931	21	%	$	2,939	20	%
Obligations of states, municipalities and political subdivisions		-	-			-	-
Non-U.S. governments		50	-			51	-
Corporate debt		1,773	12			1,772	12
Mortgage-backed, asset-backed and collateralized:
RMBS		1,971	14			2,025	14
CMBS		536	4			603	4
CDO/ABS and other collateralized*		6,344	45			6,608	47
Total mortgage-backed, asset-backed and collateralized		8,851	63			9,236	65
Total fixed maturity securities		13,605	96			13,998	97
Equity securities		500	4			482	3
Total	$	14,105	100	%	$	14,480	100	%

* Includes $353 million and $421 million of U.S. government agency-backed ABS at March 31,2017 and December 31,2016, respectively.

Other Invested Assets

The following table summarizes the carrying amounts of other invested assets:

		March 31,		December 31,
(in millions)		2017		2016
Alternative investments(a) (b)	$	12,712	$	13,379
Investment real estate(c)		7,057		6,900
Aircraft asset investments(d)		281		321
Investments in life settlements		2,105		2,516
All other investments		1,497		1,422
Total	$	23,652	$	24,538

(a)At March 31,2017, includes hedge funds of $6.9 billion, private equity funds of $5.2 billion, and affordable housing partnerships of $578 million. At December 31, 2016, includes hedge funds of $7.2 billion, private equity funds of $5.5 billion, and affordable housing partnerships of $625 million.

(b) Approximately 64 percent and 21 percent of our hedge fund portfolio is available for redemption in 2017 and 2018, respectively, an additional 10 percent will be available between 2019 and 2024.

(c)Net of accumulated depreciation of $362 million and $451 million in March 31,2017 and December 31, 2016, respectively.

(d)Consists of investments in aircraft equipment held in a consolidated trust.

Net Investment Income

The following table presents the components of Net investment income:

Three Months Ended March 31,
(in millions)		2017		2016
Fixed maturity securities, including short-term investments	$	2,801	$	2,936
Equity securities		5		(22)
Interest on mortgage and other loans		393		389
Alternative investments*		448		(366)
Real estate		49		53
Other investments		116		137
Total investment income		3,812		3,127
Investment expenses		126		114
Net investment income	$	3,686	$	3,013

* Includes income from hedge funds, private equity funds and affordable housing partnerships. 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)		2017		2016
Sales of fixed maturity securities	$	155	$	(362)
Sales of equity securities		1		24
Other-than-temporary impairments:
Severity		-		(2)
Change in intent		(1)		(29)
Foreign currency declines		(10)		(6)
Issuer-specific credit events		(57)		(131)
Adverse projected cash flows		-		(36)
Provision for loan losses		6		30
Foreign exchange transactions		159		(520)
Derivatives and hedge accounting		(376)		(72)
Impairments on investments in life settlements		(41)		(157)
Other *		49		155
Net realized capital losses	$	(115)	$	(1,106)

*Includes $107million of realized gains due to a purchase price adjustment on the sale of Class B shares of Prudential Financial, Inc. for the three months ended March 31,2016.

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)		2017		2016
Increase (decrease) in unrealized appreciation (depreciation) of investments:
Fixed maturity securities	$	773	$	4,778
Equity securities		114		(95)
Other investments		(54)		(148)
Total increase (decrease) in unrealized appreciation (depreciation) of investments*	$	833	$	4,535

* Excludes net unrealized losses 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 2016 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)		2017		2016
Balance, beginning of year	$	1,098	$	1,747
Increases due to:
Credit impairments on new securities subject to impairment losses		17		110
Additional credit impairments on previously impaired securities		30		55
Reductions due to:
Credit impaired securities fully disposed for which there was no
prior intent or requirement to sell		(11)		(150)
Accretion on securities previously impaired due to credit*		(188)		(239)
Other		-		-
Balance, end of period	$	946	$	1,523

* 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 whether it is probable at acquisition that we will not collect all contractually required payments for these PCI securities, including both principal and interest. 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 an effective 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)	$	36,159
Cash flows expected to be collected*		29,575
Recorded investment in acquired securities		19,884

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

(in millions)	March 31, 2017		December 31, 2016
Outstanding principal balance	$	16,270	$	16,728
Amortized cost		11,649		11,987
Fair value		12,754		12,922

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

Three Months Ended March 31,
(in millions)		2017		2016
Balance, beginning of period	$	7,498	$	6,846
Newly purchased PCI securities		88		206
Disposals		(18)		-
Accretion		(210)		(214)
Effect of changes in interest rate indices		21		(299)
Net reclassification from (to) non-accretable difference,
including effects of prepayments		214		83
Balance, end of period	$	7,593	$	6,622

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, 2017		December 31, 2016
Fixed maturity securities available for sale	$	2,405	$	2,389
Other bond securities, at fair value	$	1,776	$	1,799

At March 31,2017 and December 31,2016, amounts borrowed under repurchase and securities lending agreements totaled $4.3billion and $4.2billion, 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, 2017
Other bond securities:
Non-U.S. governments	$	-	$	-	$	51	$	-	$	-	$	51
Corporate debt		-		377		791		557		-		1,725
Total	$	-	$	377	$	842	$	557	$	-	$	1,776

December 31, 2016
Other bond securities:
Non-U.S. governments	$	-	$	-	$	-	$	51	$	-	$	51
Corporate debt		-		163		860		725		-		1,748
Total	$	-	$	163	$	860	$	776	$	-	$	1,799

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, 2017
Bonds available for sale:
Obligations of states, municipalities and political
subdivisions	$	-	$	-	$	-	$	-	$	-	$	-
Non-U.S. governments		-		-		-		52		-		52
Corporate debt		-		439		1,598		316		-		2,353
CMBS		-		-		-		-		-		-
Total	$	-	$	439	$	1,598	$	368	$	-	$	2,405
December 31, 2016
Bonds available for sale:
Obligations of states, municipalities and political
subdivisions	$	-	$	21	$	-	$	-	$	-	$	21
Non-U.S. governments		-		-		50		-		-		50
Corporate debt		-		791		1,466		-		-		2,257
CMBS		-		-		61		-		-		61
Total	$	-	$	812	$	1,577	$	-	$	-	$	2,389

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, 2017		December 31, 2016
Securities collateral pledged to us	$	1,459	$	1,434
Amount sold or repledged by us	$	14	$	11

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 $5.1 billion and $4.9 billion at March 31,2017 and December 31,2016, 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 $116 million and $114 million of stock in FHLBs at March 31,2017 and December 31,2016, respectively. In addition, our subsidiaries have pledged securities available for sale and residential loans associated with advances from FHLB, with a fair value of $4.5 billion and $116 million, respectively, at March 31,2017 and $3.4 billion and $17 million, respectively, at December 31,2016, 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 $2.2 billion at both March 31,2017 and December 31,2016. 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.

Investments held in escrow accounts or otherwise subject to restriction as to their use were $545 million and $523 million, comprised of bonds available for sale and short term investments at March 31,2017 and December 31, 2016, respectively.