INVESTMENTS

9 Months Ended

Sep. 30, 2019

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)
September 30, 2019
Bonds available for sale:
U.S. government and government sponsored entities	$	4,727	$	501	$	(1)	$	5,227	$	-
Obligations of states, municipalities and political subdivisions		14,122		1,640		(17)		15,745		-
Non-U.S. governments		14,456		999		(79)		15,376		-
Corporate debt		138,950		12,956		(534)		151,372		9
Mortgage-backed, asset-backed and collateralized:
RMBS		29,513		3,344		(62)		32,795		1,222
CMBS		13,577		771		(12)		14,336		34
CDO/ABS		18,000		449		(79)		18,370		17
Total mortgage-backed, asset-backed and collateralized		61,090		4,564		(153)		65,501		1,273
Total bonds available for sale(b)	$	233,345	$	20,660	$	(784)	$	253,221	$	1,282
December 31, 2018
Bonds available for sale:
U.S. government and government sponsored entities	$	3,170	$	132	$	(42)	$	3,260	$	-
Obligations of states, municipalities and political subdivisions		15,421		701		(121)		16,001		4
Non-U.S. governments		14,376		451		(302)		14,525		-
Corporate debt		130,436		3,911		(3,647)		130,700		4
Mortgage-backed, asset-backed and collateralized:
RMBS		31,940		2,754		(317)		34,377		1,155
CMBS		12,673		242		(214)		12,701		31
CDO/ABS		17,764		228		(165)		17,827		17
Total mortgage-backed, asset-backed and collateralized		62,377		3,224		(696)		64,905		1,203
Total bonds available for sale(b)	$	225,780	$	8,419	$	(4,808)	$	229,391	$	1,211

(a)Represents the amount of other-than-temporary impairments recognized in Accumulated other comprehensive income (loss). 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 September 30, 2019 and December 31, 2018, bonds available for sale held by us that were below investment grade or not rated totaled $28.0 billion and $28.8 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
September 30, 2019
Bonds available for sale:
U.S. government and government sponsored entities	$	136	$	1	$	43	$	-	$	179	$	1
Obligations of states, municipalities and political
subdivisions		383		6		256		11		639		17
Non-U.S. governments		919		27		443		52		1,362		79
Corporate debt		8,794		294		3,244		240		12,038		534
RMBS		2,671		23		1,778		39		4,449		62
CMBS		640		4		343		8		983		12
CDO/ABS		3,979		51		1,892		28		5,871		79
Total bonds available for sale	$	17,522	$	406	$	7,999	$	378	$	25,521	$	784
December 31, 2018
Bonds available for sale:
U.S. government and government sponsored entities	$	574	$	13	$	873	$	29	$	1,447	$	42
Obligations of states, municipalities and political
subdivisions		1,965		51		1,530		70		3,495		121
Non-U.S. governments		3,851		149		2,422		153		6,273		302
Corporate debt		47,364		2,181		20,056		1,466		67,420		3,647
RMBS		5,231		94		5,641		223		10,872		317
CMBS		2,646		47		4,264		167		6,910		214
CDO/ABS		9,169		144		1,324		21		10,493		165
Total bonds available for sale	$	70,800	$	2,679	$	36,110	$	2,129	$	106,910	$	4,808

At September 30, 2019, we held 5,266 individual fixed maturity securities that were in an unrealized loss position, of which 1,361 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 September 30, 2019 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
September 30, 2019
Due in one year or less	$	10,910	$	11,107	$	1,373	$	1,339
Due after one year through five years		45,243		46,583		5,878		5,631
Due after five years through ten years		43,042		45,877		3,947		3,756
Due after ten years		73,060		84,153		3,651		3,492
Mortgage-backed, asset-backed and collateralized		61,090		65,501		11,456		11,303
Total	$	233,345	$	253,221	$	26,305	$	25,521
December 31, 2018
Due in one year or less	$	9,539	$	9,674	$	2,322	$	2,294
Due after one year through five years		47,400		47,905		17,382		16,844
Due after five years through ten years		42,363		42,045		27,724		26,517
Due after ten years		64,101		64,862		35,319		32,980
Mortgage-backed, asset-backed and collateralized		62,377		64,905		28,971		28,275
Total	$	225,780	$	229,391	$	111,718	$	106,910

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:

	Three Months Ended September 30,								Nine Months Ended September 30,
		2019				2018			2019					2018
		Gross		Gross		Gross		Gross		Gross		Gross		Gross		Gross
	Realized		Realized		Realized		Realized		Realized		Realized		Realized		Realized
(in millions)		Gains		Losses		Gains		Losses		Gains		Losses		Gains		Losses
Fixed maturity securities	$	198	$	70	$	82	$	71	$	464	$	280	$	252	$	244
Equity securities		-		-		-		-		-		-		16		-
Total	$	198	$	70	$	82	$	71	$	464	$	280	$	268	$	244

For the three- and nine-month periods ended September 30, 2019, the aggregate fair value of available for sale securities sold was $4.5 billion and $17.3 billion, respectively, which resulted in net realized capital gains of $128 million and $184 million, respectively.

For the three- and nine-month periods ended September 30, 2018, the aggregate fair value of available for sale securities sold was $6.0 billion and $18.1 billion, respectively, which resulted in net realized capital gains of $11 million and $24 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:

		September 30, 2019				December 31, 2018
		Fair	Percent			Fair	Percent
(in millions)		Value	of Total			Value	of Total
Fixed maturity securities:
U.S. government and government sponsored entities	$	2,296	25	%	$	2,665	21	%
Non-U.S. governments		-	-			45	-
Corporate debt		18	-			1,671	13
Mortgage-backed, asset-backed and collateralized:
RMBS		1,297	14			1,714	14
CMBS		403	5			388	3
CDO/ABS and other collateralized*		4,313	47			4,932	39
Total mortgage-backed, asset-backed and collateralized		6,013	66			7,034	56
Total fixed maturity securities		8,327	91			11,415	90
Equity securities		771	9			1,253	10
Total	$	9,098	100	%	$	12,668	100	%

*There were no U.S. government agency-backed ABS at September 30, 2019. Includes $178 million of U.S. government agency-backed ABS at December 31, 2018.

Other Invested Assets

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

		September 30,		December 31,
(in millions)		2019		2018
Alternative investments(a) (b)	$	8,532	$	8,966
Investment real estate(c)		9,491		8,935
All other investments		1,463		1,440
Total	$	19,486	$	19,341

(a)At September 30, 2019, included hedge funds of $3.5 billion, private equity funds of $4.7 billion and affordable housing partnerships of $336 million. At December 31, 2018, included hedge funds of $4.2 billion, private equity funds of $4.3 billion and affordable housing partnerships of $438 million.

(b)At September 30, 2019, approximately 70 percent of our hedge fund portfolio is available for redemption in 2019. The remaining 30 percent will be available for redemption between 2020 and 2027.

(c)Net of accumulated depreciation of $710 million and $598 million at September 30, 2019 and December 31, 2018, respectively.

Net Investment Income

The following table presents the components of Net investment income:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(in millions)		2019		2018		2019		2018
Available for sale fixed maturity securities, including short-term investments	$	2,698	$	2,629	$	8,052	$	7,775
Other fixed maturity securities(a)		333		60		941		29
Equity securities		(51)		(21)		6		(50)
Interest on mortgage and other loans		495		455		1,511		1,352
Alternative investments(b)		115		329		879		837
Real estate		96		72		227		133
Other investments(a)		(143)		(13)		(203)		11
Total investment income		3,543		3,511		11,413		10,087
Investment expenses		135		115		381		365
Net investment income	$	3,408	$	3,396	$	11,032	$	9,722

(a)In the third quarter of 2019, we reclassified $96 million in net investment income of bonds recorded at fair value from Other investments to Other fixed maturity securities.

(b)Includes income from hedge funds, private equity funds and affordable housing partnerships. Hedge funds are recorded as of the balance sheet date. 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				Nine Months Ended
	September 30,				September 30,
(in millions)		2019		2018		2019		2018
Sales of fixed maturity securities	$	128	$	11	$	184	$	8
Sales of equity securities		-		-		-		16
Other-than-temporary impairments:
Change in intent		-		(3)		(3)		(52)
Foreign currency declines		(6)		(1)		(15)		(13)
Issuer-specific credit events		(17)		(30)		(113)		(92)
Adverse projected cash flows		(1)		(1)		(6)		(1)
Provision for loan losses		(25)		(23)		(35)		(73)
Foreign exchange transactions		(203)		(21)		(242)		(155)
Variable annuity embedded derivatives, net of related hedges		311		(185)		10		(2)
All other derivatives and hedge accounting		466		(1)		601		149
Loss on sale of private equity funds		-		(311)		-		(311)
Other		276		54		506		161
Net realized capital gains (losses)	$	929	$	(511)	$	887	$	(365)

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				Nine Months Ended
	September 30,				September 30,
(in millions)		2019		2018		2019		2018
Increase (decrease) in unrealized appreciation (depreciation) of investments:
Fixed maturity securities	$	4,377	$	(920)	$	16,265	$	(8,858)
Other investments		-		(31)		(68)		(59)
Total increase (decrease) in unrealized appreciation (depreciation) of investments	$	4,377	$	(951)	$	16,197	$	(8,917)

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

Three Months Ended September 30,	2019						2018
				Other						Other
			Invested						Invested
(in millions)		Equities		Assets		Total		Equities		Assets		Total
Net gains and losses recognized during the period on equity securities	$	(51)	$	105	$	54	$	(13)	$	183	$	170
Less: Net gains and losses recognized during the period on equity
securities sold during the period		18		13		31		28		18		46
Unrealized gains and losses recognized during the reporting
period on equity securities still held at the reporting date	$	(69)	$	92	$	23	$	(41)	$	165	$	124
Nine Months Ended September 30,	2019						2018
				Other						Other
			Invested						Invested
(in millions)		Equities		Assets		Total		Equities		Assets		Total
Net gains and losses recognized during the period on equity securities	$	6	$	615	$	621	$	(41)	$	497	$	456
Less: Net gains and losses recognized during the period on equity
securities sold during the period		30		169		199		34		45		79
Unrealized gains and losses recognized during the reporting
period on equity securities still held at the reporting date	$	(24)	$	446	$	422	$	(75)	$	452	$	377

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 2018 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				Nine Months Ended
	September 30,				September 30,
(in millions)		2019		2018		2019		2018
Balance, beginning of period	$	34	$	188	$	-	$	526
Increases due to:
Credit impairments on new securities subject to impairment losses		10		15		105		32
Additional credit impairments on previously impaired securities		8		16		14		61
Reductions due to:
Credit impaired securities fully disposed for which there was no
prior intent or requirement to sell		(3)		(12)		(62)		(143)
Accretion on securities previously impaired due to credit*		(7)		(164)		(15)		(433)
Balance, end of period	$	42	$	43	$	42	$	43

*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)	$	35,522
Cash flows expected to be collected*		29,095
Recorded investment in acquired securities		19,648

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

(in millions)	September 30, 2019		December 31, 2018
Outstanding principal balance	$	11,016	$	12,495
Amortized cost		7,434		8,646
Fair value		9,171		10,280

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

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(in millions)		2019		2018		2019		2018
Balance, beginning of period	$	6,402	$	7,461	$	7,210	$	7,501
Newly purchased PCI securities		4		5		17		32
Accretion		(172)		(176)		(495)		(553)
Effect of changes in interest rate indices		(278)		15		(678)		189
Net reclassification from (to) non-accretable difference,
including effects of prepayments		(162)		93		(260)		229
Balance, end of period	$	5,794	$	7,398	$	5,794	$	7,398

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)		September 30, 2019		December 31, 2018
Fixed maturity securities available for sale	$	2,781	$	1,050
Other bond securities, at fair value	$	-	$	122

At September 30, 2019 and December 31, 2018, amounts borrowed under repurchase and securities lending agreements totaled $2.8 billion and $1.2 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
September 30, 2019
Bonds available for sale:
Non-U.S. governments	$	64	$	61	$	-	$	-	$	-	$	125
Corporate debt		28		104		-		-		-		132
Other bond securities:
U.S. government and government sponsored entities		-		-		-		-		-		-
Non-U.S. governments		-		-		-		-		-		-
Corporate debt		-		-		-		-		-		-
Total	$	92	$	165	$	-	$	-	$	-	$	257
December 31, 2018
Bonds available for sale:
Non-U.S. governments	$	25	$	35	$	-	$	-	$	-	$	60
Corporate debt		51		55		-		-		-		106
Other bond securities:
U.S. government and government sponsored entities		11		-		-		-		-		11
Non-U.S. governments		-		3		-		-		-		3
Corporate debt		17		38		53		-		-		108
Total	$	104	$	131	$	53	$	-	$	-	$	288

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
September 30, 2019
Bonds available for sale:
Obligations of states, municipalities and political
subdivisions	$	-	$	-	$	262	$	128	$	-	$	390
Non-U.S. governments		-		-		-		-		-		-
Corporate debt		-		1,062		635		437		-		2,134
Total	$	-	$	1,062	$	897	$	565	$	-	$	2,524
December 31, 2018
Bonds available for sale:
Obligations of states, municipalities and political
subdivisions	$	-	$	50	$	130	$	-	$	-	$	180
Non-U.S. governments		-		21		8		-		-		29
Corporate debt		-		330		345		-		-		675
Total	$	-	$	401	$	483	$	-	$	-	$	884

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)		September 30, 2019		December 31, 2018
Securities collateral pledged to us	$	2,075	$	426
Amount sold or repledged by us		35		106

At September 30, 2019 and December 31, 2018, amounts loaned under reverse repurchase agreements totaled $2.1 billion and $426 million, 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 $8.4 billion and $7.9 billion at September 30, 2019 and December 31, 2018, 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 $194 million and $202 million of stock in FHLBs at September 30, 2019 and December 31, 2018, 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 $4.6 billion and $1.9 billion, respectively, at September 30, 2019 and $4.2 billion and $2.1 billion, respectively, at December 31, 2018.

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 $1.6 billion at both September 30, 2019 and December 31, 2018. 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 $273 million, comprised of bonds available for sale and short term investments at both September 30, 2019 and December 31, 2018.