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INVESTMENTS

3 Months Ended

Mar. 31, 2018

5. Investments

Securities Available for Sale

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

										Other-Than-
		Amortized		Gross		Gross				Temporary
		Cost or		Unrealized		Unrealized		Fair		Impairments
(in millions)		Cost		Gains		Losses		Value		in AOCI^(b)
March 31, 2018
Bonds available for sale:
U.S. government and government sponsored entities	$	2,764	$	121	$	(52)	$	2,833	$	-
Obligations of states, municipalities and political subdivisions		16,943		941		(73)		17,811		-
Non-U.S. governments		15,350		570		(197)		15,723		-
Corporate debt		127,106		6,020		(1,787)		131,339		13
Mortgage-backed, asset-backed and collateralized:
RMBS		33,131		3,150		(392)		35,889		1,343
CMBS		13,558		273		(222)		13,609		29
CDO/ABS		16,500		284		(74)		16,710		26
Total mortgage-backed, asset-backed and collateralized		63,189		3,707		(688)		66,208		1,398
Total bonds available for sale^(c)		225,352		11,359		(2,797)		233,914		1,411
December 31, 2017
Bonds available for sale:
U.S. government and government sponsored entities	$	2,532	$	160	$	(36)	$	2,656	$	-
Obligations of states, municipalities and political subdivisions		17,377		1,297		(30)		18,644		-
Non-U.S. governments		15,059		717		(117)		15,659		-
Corporate debt		126,310		8,666		(800)		134,176		17
Mortgage-backed, asset-backed and collateralized:
RMBS		34,181		3,273		(220)		37,234		1,568
CMBS		13,538		408		(105)		13,841		42
CDO/ABS		16,464		370		(52)		16,782		29
Total mortgage-backed, asset-backed and collateralized		64,183		4,051		(377)		67,857		1,639
Total bonds available for sale^(c)		225,461		14,891		(1,360)		238,992		1,656
Equity securities available for sale:
Common stock		703		379		(21)		1,061		-
Preferred stock		504		29		-		533		-
Mutual funds		98		16		-		114		-
Total equity securities available for sale		1,305		424		(21)		1,708		-
Total	$	226,766	$	15,315	$	(1,381)	$	240,700	$	1,656

(a) As a result of the adoption of the Financial Instruments Recognition and Measurement Standard on January 1, 2018, equity securities are no longer classified and accounted for as available for sale securities.

(b) 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.

(c) At March 31, 2018 and December 31, 2017, bonds available for sale held by us that were below investment grade or not rated totaled $30.4 billion and $31.5 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^(a):

	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, 2018
Bonds available for sale:
U.S. government and government sponsored entities	$	1,097	$	25	$	529	$	27	$	1,626	$	52
Obligations of states, municipalities and political
subdivisions		2,010		36		599		37		2,609		73
Non-U.S. governments		5,825		127		893		70		6,718		197
Corporate debt		38,072		1,263		6,701		524		44,773		1,787
RMBS		7,716		206		3,349		186		11,065		392
CMBS		6,105		133		1,347		89		7,452		222
CDO/ABS		3,127		34		831		40		3,958		74
Total bonds available for sale	$	63,952	$	1,824	$	14,249	$	973	$	78,201	$	2,797
December 31, 2017
Bonds available for sale:
U.S. government and government sponsored entities	$	770	$	23	$	332	$	13	$	1,102	$	36
Obligations of states, municipalities and political
subdivisions		586		6		646		24		1,232		30
Non-U.S. governments		3,511		54		857		63		4,368		117
Corporate debt		15,578		453		7,291		347		22,869		800
RMBS		6,212		99		3,790		121		10,002		220
CMBS		3,408		46		1,389		59		4,797		105
CDO/ABS		1,455		24		822		28		2,277		52
Total bonds available for sale		31,520		705		15,127		655		46,647		1,360
Equity securities available for sale:
Common stock		136		21		-		-		136		21
Mutual funds		1		-		-		-		1		-
Total equity securities available for sale		137		21		-		-		137		21
Total	$	31,657	$	726	$	15,127	$	655	$	46,784	$	1,381

At March 31, 2018, we held 12,137 individual fixed maturity securities, that were in an unrealized loss position, of which 2,015 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, 2018 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, 2018
Due in one year or less	$	8,393	$	8,524	$	1,881	$	1,872
Due after one year through five years		46,987		48,261		11,548		11,232
Due after five years through ten years		42,637		42,973		22,337		21,507
Due after ten years		64,146		67,948		22,069		21,115
Mortgage-backed, asset-backed and collateralized		63,189		66,208		23,163		22,475
Total	$	225,352	$	233,914	$	80,998	$	78,201
December 31, 2017
Due in one year or less	$	7,932	$	8,071	$	1,526	$	1,515
Due after one year through five years		47,179		49,093		7,764		7,571
Due after five years through ten years		42,617		43,944		11,559		11,143
Due after ten years		63,550		70,027		9,705		9,342
Mortgage-backed, asset-backed and collateralized		64,183		67,857		17,453		17,076
Total	$	225,461	$	238,992	$	48,007	$	46,647

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:

		2018				2017
		Gross		Gross		Gross		Gross
Three Months Ended March 31,	Realized		Realized		Realized		Realized
(in millions)		Gains		Losses		Gains		Losses
Fixed maturity securities	$	70	$	60	$	333	$	178
Equity securities		16		-		17		16
Total	$	86	$	60	$	350	$	194

For the three-month periods ended March 31, 2018 and 2017, the aggregate fair value of available for sale securities sold was $5.5 billion and $15.8 billion, respectively, which resulted in net realized capital gains of $26 million and $156 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, 2018				December 31, 2017
		Fair	Percent			Fair	Percent
(in millions)		Value	of Total			Value	of Total
Fixed maturity securities:
U.S. government and government sponsored entities	$	2,777	20	%	$	2,802	21	%
Non-U.S. governments		54	-			57	1
Corporate debt		1,803	13			1,909	14
Mortgage-backed, asset-backed and collateralized:
RMBS		1,818	13			1,885	14
CMBS		566	4			559	4
CDO/ABS and other collateralized^*		5,379	38			5,560	42
Total mortgage-backed, asset-backed and collateralized		7,763	55			8,004	60
Total fixed maturity securities		12,397	88			12,772	96
Equity securities		1,725	12			589	4
Total	$	14,122	100	%	$	13,361	100	%

* Includes $220 million and $251 million of U.S. government agency-backed ABS at March 31, 2018 and December 31, 2017, respectively.

Other Invested Assets

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

		March 31,		December 31,
(in millions)		2018		2017
Alternative investments^{(a) (b)}	$	11,125	$	11,308
Investment real estate^(c)		8,636		8,258
Aircraft asset investments^(d)		201		206
All other investments		1,221		1,050
Total	$	21,183	$	20,822

(a) At March 31, 2018, included hedge funds of $5.5 billion, private equity funds of $5.2 billion, and affordable housing partnerships of $483 million. At December 31, 2017, included hedge funds of $5.8 billion, private equity funds of $5.0 billion, and affordable housing partnerships of $543 million.

(b) Approximately 69 percent of our hedge fund portfolio is available for redemption in 2018, an additional 31 percent will be available between 2019 and 2027.

(c) Net of accumulated depreciation of $556 million and $515 million in March 31, 2018 and December 31, 2017, 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)		2018		2017
Available for sale fixed maturity securities, including short-term investments	$	2,610	$	2,667
Other fixed maturity securities		(21)		134
Equity securities^(a)		(32)		5
Interest on mortgage and other loans		450		393
Alternative investments^(b)		337		448
Real estate		31		49
Other investments		10		116
Total investment income		3,385		3,812
Investment expenses		124		126
Net investment income	$	3,261	$	3,686

(a) Upon the adoption of the Financial Instruments Recognition and Measurement Standard on January 1, 2018, the change in fair value of all equity securities is included in Net Investment Income.

(b) 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)		2018		2017
Sales of fixed maturity securities	$	10	$	155
Sales of equity securities		16		1
Other-than-temporary impairments:
Severity		-		-
Change in intent		(49)		(1)
Foreign currency declines		(6)		(10)
Issuer-specific credit events		(32)		(57)
Adverse projected cash flows		-		-
Provision for loan losses		(24)		6
Foreign exchange transactions		53		159
Variable annuity embedded derivatives, net of related hedges		147		(389)
All other derivatives and hedge accounting		(225)		13
Impairments on investments in life settlements		-		(41)
Other		91		49
Net realized capital losses	$	(19)	$	(115)

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)		2018		2017
Increase (decrease) in unrealized appreciation (depreciation) of investments:
Fixed maturity securities	$	(4,969)	$	773
Equity securities^(a)		-		114
Other investments		(25)		(54)
Total increase (decrease) in unrealized appreciation (depreciation) of investments^(b)	$	(4,994)	$	833

(b) Excludes net unrealized losses attributable to businesses held for sale.

The following table summarizes the unrealized gains and losses recognized during the reporting period on equity securities still held at the reporting date*:

Three Months Ended March 31, 2018				Other Invested
(in millions)		Equities		Assets		Total
Net gains and losses recognized during the period on equity securities	$	(31)	$	192	$	161
Less: Net gains and losses recognized during the period on equity securities sold
during the period		(8)		(1)		(9)
Unrealized gains and losses recognized during the reporting period on equity
securities still held at the reporting date	$	(23)	$	193	$	170

* The table includes a gain of $72 million in Other Invested Assets and a loss of $31 million in Equities recorded during the three-month period ended March 31, 2018, as a result of the new Financial Instruments Recognition and Measurement Standard.

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 2017 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)		2018		2017
Balance, beginning of year	$	526	$	1,098
Increases due to:
Credit impairments on new securities subject to impairment losses		14		17
Additional credit impairments on previously impaired securities		17		30
Reductions due to:
Credit impaired securities fully disposed for which there was no
prior intent or requirement to sell		(51)		(11)
Accretion on securities previously impaired due to credit^*		(148)		(188)
Balance, end of period	$	358	$	946

* 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)	$	36,711
Cash flows expected to be collected^*		30,121
Recorded investment in acquired securities		20,334

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

(in millions)	March 31, 2018		December 31, 2017
Outstanding principal balance	$	14,253	$	14,718
Amortized cost		10,141		10,492
Fair value		11,977		12,293

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

Three Months Ended March 31,
(in millions)		2018		2017
Balance, beginning of period	$	7,501	$	7,498
Newly purchased PCI securities		23		88
Disposals		-		(18)
Accretion		(187)		(210)
Effect of changes in interest rate indices		206		21
Net reclassification from (to) non-accretable difference, including effects of prepayments		58		214
Balance, end of period	$	7,601	$	7,593

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, 2018		December 31, 2017
Fixed maturity securities available for sale	$	1,767	$	2,911
Other bond securities, at fair value	$	1,381	$	1,585

At March 31, 2018 and December 31, 2017, amounts borrowed under repurchase and securities lending agreements totaled $3.2 billion and $4.5 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, 2018
Bonds available for sale:
Non-U.S. governments	$	-	$	94	$	18	$	-	$	-	$	112
Corporate debt		-		34		6		-		-		40
Other bond securities:
U.S. government and government sponsored entities		15		-		-		-		-		15
Non-U.S. governments		-		-		3		-		-		3
Corporate debt		-		93		18		-		-		111
Total	$	15	$	221	$	45	$	-	$	-	$	281

December 31, 2017
Bonds available for sale:
Non-U.S. governments	$	-	$	7	$	19	$	-	$	-	$	26
Corporate debt		-		13		35		-		-		48
Other bond securities:
U.S. government and government sponsored entities		44		-		-		-		-		44
Non-U.S. governments		-		-		11		-		-		11
Corporate debt		-		387		1,065		-		-		1,452
Total	$	44	$	407	$	1,130	$	-	$	-	$	1,581

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, 2018
Bonds available for sale:
Non-U.S. governments	$	-	$	-	$	32	$	5	$	-	$	37
Corporate debt		-		235		1,224		119		-		1,578
Other bond securities:
Non-U.S. governments		-		-		7		-		-		7
Corporate debt		-		175		995		75		-		1,245
Total	$	-	$	410	$	2,258	$	199	$	-	$	2,867

December 31, 2017
Bonds available for sale:
Non-U.S. governments	$	-	$	-	$	18	$	-	$	-	$	18
Corporate debt		-		588		2,231		-		-		2,819
Other bond securities:
Non-U.S. governments		-		-		22		-		-		22
Corporate debt		-		-		56		-		-		56
Total	$	-	$	588	$	2,327	$	-	$	-	$	2,915

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, 2018		December 31, 2017
Securities collateral pledged to us	$	5,020	$	2,227
Amount sold or repledged by us	$	97	$	46

At March 31, 2018 and December 31, 2017, amounts loaned under reverse repurchase agreements totaled $5.0 billion and $2.2 billion, respectively.

We do not currently offset any secured financing transactions. All such transactions are collateralized and margined daily consistent with market standards and subject to enforceable master netting arrangements with rights of set off.

Insurance – Statutory and Other Deposits

The total carrying value 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, was $5.2 billion and $4.9 billion at March 31, 2018 and December 31, 2017, 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 $192 million and $93 million of stock in FHLBs at March 31, 2018 and December 31, 2017, respectively. In addition, our subsidiaries have pledged securities available for sale and residential loans associated with borrowings and funding agreements from FHLBs, with a fair value of $4.5 billion and $1.6 billion, respectively, at March 31, 2018 and $2.7 billion and $471 million, respectively, at December 31, 2017.

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 $1.8 billion and $2.0 billion at March 31, 2018 and December 31, 2017, 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.

Investments held in escrow accounts or otherwise subject to restriction as to their use were $242 million and $255 million, comprised of bonds available for sale and short term investments at March 31, 2018 and December 31, 2017, respectively.