5. Investments

Fair values

The amortized cost, gross unrealized gains and losses and fair value for fixed income securities are as follows:

($ in millions)			Gross unrealized

($ in millions)	Amortized cost		Gross unrealized					Fair value
	Amortized cost		Gains		Losses			Fair value
December 31, 2012
U.S. government and agencies	$	4,387	$	326	$	—		$	4,713
Municipal		12,139		1,038		(108	)		13,069
Corporate		44,943		3,721		(127	)		48,537
Foreign government		2,290		228		(1	)		2,517
ABS		3,623		108		(107	)		3,624
RMBS		3,000		142		(110	)		3,032
CMBS		1,510		65		(77	)		1,498
Redeemable preferred stock		23		4		—			27

Total fixed income securities	$	71,915	$	5,632	$	(530	)	$	77,017

December 31, 2011
U.S. government and agencies	$	5,966	$	349	$	—		$	6,315
Municipal		13,634		863		(256	)		14,241
Corporate		41,217		2,743		(379	)		43,581
Foreign government		1,866		216		(1	)		2,081
ABS		4,180		73		(287	)		3,966
RMBS		4,532		110		(521	)		4,121
CMBS		1,962		48		(226	)		1,784
Redeemable preferred stock		22		2		—			24

Total fixed income securities	$	73,379	$	4,404	$	(1,670	)	$	76,113

Scheduled maturities

The scheduled maturities for fixed income securities are as follows as of December 31, 2012:

($ in millions)	Amortized cost		Fair value

Due in one year or less	$	3,825	$	3,872
Due after one year through five years		23,168		24,324
Due after five years through ten years		23,808		25,973
Due after ten years		12,981		14,694

		63,782		68,863
ABS, RMBS and CMBS		8,133		8,154

Total	$	71,915	$	77,017

Actual maturities may differ from those scheduled as a result of prepayments by the issuers. ABS, RMBS and CMBS are shown separately because of the potential for prepayment of principal prior to contractual maturity dates.

Net investment income

Net investment income for the years ended December 31 is as follows:

($ in millions)	2012			2011			2010

Fixed income securities	$	3,234		$	3,484		$	3,737
Equity securities		127			122			90
Mortgage loans		374			359			385
Limited partnership interests ⁽¹⁾		348			88			40
Short-term investments		6			6			8
Other		132			95			19

Investment income, before expense		4,221			4,154			4,279
Investment expense		(211	)		(183	)		(177	)

Net investment income	$	4,010		$	3,971		$	4,102

(1): Income from EMA limited partnerships is reported in net investment income in 2012 and realized capital gains and losses in 2011 and 2010.

Realized capital gains and losses

Realized capital gains and losses by asset type for the years ended December 31 are as follows:

($ in millions)	2012			2011			2010

Fixed income securities	$	107		$	712		$	(366	)
Equity securities		183			63			153
Mortgage loans		8			(27	)		(71	)
Limited partnership interests ⁽¹⁾		13			159			57
Derivatives		23			(397	)		(600	)
Other		(7	)		(7	)		—

Realized capital gains and losses	$	327		$	503		$	(827	)

(1): Income from EMA limited partnerships is reported in net investment income in 2012 and realized capital gains and losses in 2011 and 2010.

Realized capital gains and losses by transaction type for the years ended December 31 are as follows:

($ in millions)	2012			2011			2010

Impairment write-downs	$	(185	)	$	(496	)	$	(797	)
Change in intent write-downs		(48	)		(100	)		(204	)

Net other-than-temporary impairment losses recognized in earnings		(233	)		(596	)		(1,001	)
Sales		536			1,336			686
Valuation of derivative instruments		(11	)		(291	)		(427	)
Settlements of derivative instruments		35			(105	)		(174	)
EMA limited partnership income		—			159			89

Realized capital gains and losses	$	327		$	503		$	(827	)

Gross gains of $564 million, $1.27 billion and $819 million and gross losses of $322 million, $240 million and $435 million were realized on sales of fixed income securities during 2012, 2011 and 2010, respectively.

Other-than-temporary impairment losses by asset type for the years ended December 31 are as follows:

($ in millions)	2012									2011									2010

	Gross			Included in OCI			Net			Gross			Included in OCI			Net			Gross			Included in OCI			Net
Fixed income securities:
Municipal	$	(42	)	$	9		$	(33	)	$	(59	)	$	(3	)	$	(62	)	$	(203	)	$	24		$	(179	)
Corporate		(21	)		(2	)		(23	)		(30	)		6			(24	)		(68	)		2			(66	)
Foreign government		—			—			—			(1	)		—			(1	)		—			—			—
ABS		—			—			—			(9	)		2			(7	)		(14	)		(16	)		(30	)
RMBS		(65	)		(4	)		(69	)		(196	)		(39	)		(235	)		(381	)		(47	)		(428	)
CMBS		(22	)		3			(19	)		(66	)		1			(65	)		(94	)		(27	)		(121	)

Total fixed income securities		(150	)		6			(144	)		(361	)		(33	)		(394	)		(760	)		(64	)		(824	)
Equity securities		(75	)		—			(75	)		(139	)		—			(139	)		(57	)		—			(57	)
Mortgage loans		5			—			5			(37	)		—			(37	)		(71	)		—			(71	)
Limited partnership interests		(8	)		—			(8	)		(6	)		—			(6	)		(46	)		—			(46	)
Other		(11	)		—			(11	)		(20	)		—			(20	)		(3	)		—			(3	)

Other-than-temporary impairment losses	$	(239	)	$	6		$	(233	)	$	(563	)	$	(33	)	$	(596	)	$	(937	)	$	(64	)	$	(1,001	)

The total amount of other-than-temporary impairment losses included in accumulated other comprehensive income at the time of impairment for fixed income securities, which were not included in earnings, are presented in the following table. The amount excludes $219 million and $172 million as of December 31, 2012 and 2011, respectively, of net unrealized gains related to changes in valuation of the fixed income securities subsequent to the impairment measurement date.

($ in millions)	December 31, 2012			December 31, 2011

Municipal	$	(20	)	$	(11	)
Corporate		(1	)		(35	)
ABS		(14	)		(21	)
RMBS		(182	)		(353	)
CMBS		(19	)		(19	)

Total	$	(236	)	$	(439	)

Rollforwards of the cumulative credit losses recognized in earnings for fixed income securities held as of December 31 are as follows:

($ in millions)	2012			2011			2010

Beginning balance	$	(944	)	$	(1,046	)	$	(1,187	)
Cumulative effect of change in accounting principle		—			—			81
Additional credit loss for securities previously other-than-temporarily impaired		(58	)		(152	)		(314	)
Additional credit loss for securities not previously other-than-temporarily impaired		(50	)		(150	)		(312	)
Reduction in credit loss for securities disposed or collected		427			379			638
Reduction in credit loss for securities the Company has made the decision to sell or more likely than not will be required to sell		7			15			43
Change in credit loss due to accretion of increase in cash flows		1			10			5

Ending balance	$	(617	)	$	(944	)	$	(1,046	)

The Company uses its best estimate of future cash flows expected to be collected from the fixed income security, discounted at the security's original or current effective rate, as appropriate, to calculate a recovery value and determine whether a credit loss exists. The determination of cash flow estimates is inherently subjective and methodologies may vary depending on facts and circumstances specific to the security. All reasonably available information relevant to the collectability of the security, including past events, current conditions, and reasonable and supportable assumptions and forecasts, are considered when developing the estimate of cash flows expected to be collected. That information generally includes, but is not limited to, the remaining payment terms of the security, prepayment speeds, foreign exchange rates, the financial condition and future earnings potential of the issue or issuer, expected defaults, expected recoveries, the value of underlying collateral, vintage, geographic concentration, available reserves or escrows, current subordination levels, third party guarantees and other credit enhancements. Other information, such as industry analyst reports and forecasts, sector credit ratings, financial condition of the bond insurer for insured fixed income securities, and other market data relevant to the realizability of contractual cash flows, may also be considered. The estimated fair value of collateral will be used to estimate recovery value if the Company determines that the security is dependent on the liquidation of collateral for ultimate settlement. If the estimated recovery value is less than the amortized cost of the security, a credit loss exists and an other-than-temporary impairment for the difference between the estimated recovery value and amortized cost is recorded in earnings. The portion of the unrealized loss related to factors other than credit remains classified in accumulated other comprehensive income. If the Company determines that the fixed income security does not have sufficient cash flow or other information to estimate a recovery value for the security, the Company may conclude that the entire decline in fair value is deemed to be credit related and the loss is recorded in earnings.

Unrealized net capital gains and losses

Unrealized net capital gains and losses included in accumulated other comprehensive income are as follows:

				Gross unrealized

	Fair value			Gross unrealized					Unrealized net gains (losses)
($ in millions) December 31, 2012	Fair value			Gains		Losses			Unrealized net gains (losses)
Fixed income securities	$	77,017		$	5,632	$	(530	)	$	5,102
Equity securities		4,037			494		(34	)		460
Short-term investments		2,336			—		—			—
Derivative instruments ⁽¹⁾		(17	)		2		(24	)		(22	)
EMA limited partnerships ⁽²⁾										7

Unrealized net capital gains and losses, pre-tax										5,547
Amounts recognized for:
Insurance reserves ⁽³⁾										(771	)
DAC and DSI ⁽⁴⁾										(412	)

Amounts recognized										(1,183	)
Deferred income taxes										(1,530	)

Unrealized net capital gains and losses, after-tax									$	2,834

(1): Included in the fair value of derivative instruments are $2 million classified as assets and $19 million classified as liabilities.
(2): Unrealized net capital gains and losses for limited partnership interests represent the Company's share of EMA limited partnerships' other comprehensive income. Fair value and gross gains and losses are not applicable.
(3): The insurance reserves adjustment represents the amount by which the reserve balance would increase if the net unrealized gains in the applicable product portfolios were realized and reinvested at current lower interest rates, resulting in a premium deficiency. Although the Company evaluates premium deficiencies on the combined performance of life insurance and immediate annuities with life contingencies, the adjustment primarily relates to structured settlement annuities with life contingencies, in addition to annuity buy-outs and certain payout annuities with life contingencies.
(4): The DAC and DSI adjustment balance represents the amount by which the amortization of DAC and DSI would increase or decrease if the unrealized gains or losses in the respective product portfolios were realized.

				Gross unrealized

	Fair value			Gross unrealized					Unrealized net gains (losses)
December 31, 2011	Fair value			Gains		Losses			Unrealized net gains (losses)
Fixed income securities	$	76,113		$	4,404	$	(1,670	)	$	2,734
Equity securities		4,363			369		(209	)		160
Short-term investments		1,291			—		—			—
Derivative instruments ⁽¹⁾		(12	)		3		(20	)		(17	)
EMA limited partnerships										2

Unrealized net capital gains and losses, pre-tax										2,879
Amounts recognized for:
Insurance reserves										(594	)
DAC and DSI										(124	)

Amounts recognized										(718	)
Deferred income taxes										(761	)

Unrealized net capital gains and losses, after-tax									$	1,400

(1): Included in the fair value of derivative instruments are $(5) million classified as assets and $7 million classified as liabilities.

Change in unrealized net capital gains and losses

The change in unrealized net capital gains and losses for the years ended December 31 is as follows:

($ in millions)	2012			2011			2010

Fixed income securities	$	2,368		$	1,908		$	3,303
Equity securities		300			(423	)		404
Derivative instruments		(5	)		5			1
EMA limited partnerships		5			2			—

Total		2,668			1,492			3,708
Amounts recognized for:
Insurance reserves		(177	)		(585	)		(9	)
DAC and DSI		(288	)		(209	)		(731	)

Amounts recognized		(465	)		(794	)		(740	)
Deferred income taxes		(769	)		(246	)		(1,037	)

Increase in unrealized net capital gains and losses	$	1,434		$	452		$	1,931

Portfolio monitoring

The Company has a comprehensive portfolio monitoring process to identify and evaluate each fixed income and equity security whose carrying value may be other-than-temporarily impaired.

For each fixed income security in an unrealized loss position, the Company assesses whether management with the appropriate authority has made the decision to sell or whether it is more likely than not the Company will be required to sell the security before recovery of the amortized cost basis for reasons such as liquidity, contractual or regulatory purposes. If a security meets either of these criteria, the security's decline in fair value is considered other than temporary and is recorded in earnings.

If the Company has not made the decision to sell the fixed income security and it is not more likely than not the Company will be required to sell the fixed income security before recovery of its amortized cost basis, the Company evaluates whether it expects to receive cash flows sufficient to recover the entire amortized cost basis of the security. The Company calculates the estimated recovery value by discounting the best estimate of future cash flows at the security's original or current effective rate, as appropriate, and compares this to the amortized cost of the security. If the Company does not expect to receive cash flows sufficient to recover the entire amortized cost basis of the fixed income security, the credit loss component of the impairment is recorded in earnings, with the remaining amount of the unrealized loss related to other factors recognized in other comprehensive income.

For equity securities, the Company considers various factors, including whether it has the intent and ability to hold the equity security for a period of time sufficient to recover its cost basis. Where the Company lacks the intent and ability to hold to recovery, or believes the recovery period is extended, the equity security's decline in fair value is considered other than temporary and is recorded in earnings. For equity securities managed by a third party, the Company has contractually retained its decision making authority as it pertains to selling equity securities that are in an unrealized loss position.

The Company's portfolio monitoring process includes a quarterly review of all securities to identify instances where the fair value of a security compared to its amortized cost (for fixed income securities) or cost (for equity securities) is below established thresholds. The process also includes the monitoring of other impairment indicators such as ratings, ratings downgrades and payment defaults. The securities identified, in addition to other securities for which the Company may have a concern, are evaluated for potential other-than-temporary impairment using all reasonably available information relevant to the collectability or recovery of the security. Inherent in the Company's evaluation of other-than-temporary impairment for these fixed income and equity securities are assumptions and estimates about the financial condition and future earnings potential of the issue or issuer. Some of the factors that may be considered in evaluating whether a decline in fair value is other than temporary are: 1) the financial condition, near-term and long-term prospects of the issue or issuer, including relevant industry specific market conditions and trends, geographic location and implications of rating agency actions and offering prices; 2) the specific reasons that a security is in an unrealized loss position, including overall market conditions which could affect liquidity; and 3) the length of time and extent to which the fair value has been less than amortized cost or cost.

The following table summarizes the gross unrealized losses and fair value of fixed income and equity securities by the length of time that individual securities have been in a continuous unrealized loss position.

($ in millions)	Less than 12 months							12 months or more

	Number of issues		Fair value		Unrealized losses			Number of issues		Fair value		Unrealized losses			Total unrealized losses
December 31, 2012
Fixed income securities
U.S. government and agencies		6	$	85	$	—			—	$	—	$	—		$	—
Municipal		130		1,012		(13	)		80		717		(95	)		(108	)
Corporate		133		1,989		(33	)		70		896		(94	)		(127	)
Foreign government		22		190		(1	)		—		—		—			(1	)
ABS		12		145		(1	)		77		794		(106	)		(107	)
RMBS		117		50		(1	)		336		638		(109	)		(110	)
CMBS		11		68		—			44		357		(77	)		(77	)
Redeemable preferred stock		—		—		—			1		—		—			—

Total fixed income securities		431		3,539		(49	)		608		3,402		(481	)		(530	)
Equity securities		803		284		(27	)		96		69		(7	)		(34	)

Total fixed income and equity securities		1,234	$	3,823	$	(76	)		704	$	3,471	$	(488	)	$	(564	)

Investment grade fixed income securities		387	$	3,141	$	(39	)		409	$	2,172	$	(217	)	$	(256	)
Below investment grade fixed income securities		44		398		(10	)		199		1,230		(264	)		(274	)

Total fixed income securities		431	$	3,539	$	(49	)		608	$	3,402	$	(481	)	$	(530	)

December 31, 2011
Fixed income securities
U.S. government and agencies		4	$	61	$	—			—	$	—	$	—		$	—
Municipal		29		135		(11	)		303		1,886		(245	)		(256	)
Corporate		307		3,439		(113	)		105		1,273		(266	)		(379	)
Foreign government		11		85		(1	)		1		1		—			(1	)
ABS		89		960		(17	)		108		1,020		(270	)		(287	)
RMBS		321		373		(11	)		294		1,182		(510	)		(521	)
CMBS		47		378		(49	)		68		489		(177	)		(226	)
Redeemable preferred stock		1		—		—			—		—		—			—

Total fixed income securities		809		5,431		(202	)		879		5,851		(1,468	)		(1,670	)
Equity securities		1,397		2,120		(203	)		32		30		(6	)		(209	)

Total fixed income and equity securities		2,206	$	7,551	$	(405	)		911	$	5,881	$	(1,474	)	$	(1,879	)

Investment grade fixed income securities		665	$	4,480	$	(145	)		555	$	3,773	$	(700	)	$	(845	)
Below investment grade fixed income securities		144		951		(57	)		324		2,078		(768	)		(825	)

Total fixed income securities		809	$	5,431	$	(202	)		879	$	5,851	$	(1,468	)	$	(1,670	)

As of December 31, 2012, $299 million of unrealized losses are related to securities with an unrealized loss position less than 20% of amortized cost or cost, the degree of which suggests that these securities do not pose a high risk of being other-than-temporarily impaired. Of the $299 million, $192 million are related to unrealized losses on investment grade fixed income securities. Investment grade is defined as a security having a rating of Aaa, Aa, A or Baa from Moody's, a rating of AAA, AA, A or BBB from S&P, Fitch, Dominion, Kroll or Realpoint, a rating of aaa, aa, a or bbb from A.M. Best, or a comparable internal rating if an externally provided rating is not available. Unrealized losses on investment grade securities are principally related to widening credit spreads or rising interest rates since the time of initial purchase.

As of December 31, 2012, the remaining $265 million of unrealized losses are related to securities in unrealized loss positions greater than or equal to 20% of amortized cost or cost. Investment grade fixed income securities comprising $64 million of these unrealized losses were evaluated based on factors such as discounted cash flows and the financial condition and near-term and long-term prospects of the issue or issuer and were determined to have adequate resources to fulfill contractual obligations. Of the $265 million, $187 million are related to below investment grade fixed income securities and $14 million are related to equity securities. Of these amounts, $176 million are related to below investment grade fixed income securities that had been in an unrealized loss position greater than or equal to 20% of amortized cost for a period of twelve or more consecutive months as of December 31, 2012. Unrealized losses on below investment grade securities are principally related to ABS, RMBS and CMBS and were the result of wider credit spreads resulting from higher risk premiums since the time of initial purchase. These wider spreads are largely due to the risk associated with the underlying collateral supporting certain ABS, RMBS and CMBS securities.

ABS, RMBS and CMBS in an unrealized loss position were evaluated based on actual and projected collateral losses relative to the securities' positions in the respective securitization trusts, security specific expectations of cash flows, and credit ratings. This evaluation also takes into consideration credit enhancement, measured in terms of (i) subordination from other classes of securities in the trust that are contractually obligated to absorb losses before the class of security the Company owns, (ii) the expected impact of other structural features embedded in the securitization trust beneficial to the class of securities the Company owns, such as overcollateralization and excess spread, and (iii) for ABS and RMBS in an unrealized loss position, credit enhancements from reliable bond insurers, where applicable. Municipal bonds in an unrealized loss position were evaluated based on the quality of the underlying securities. Unrealized losses on equity securities are primarily related to temporary equity market fluctuations of securities that are expected to recover.

As of December 31, 2012, the Company has not made the decision to sell and it is not more likely than not the Company will be required to sell fixed income securities with unrealized losses before recovery of the amortized cost basis. As of December 31, 2012, the Company had the intent and ability to hold equity securities with unrealized losses for a period of time sufficient for them to recover.

Limited partnerships

As of December 31, 2012 and 2011, the carrying value of equity method limited partnerships totaled $3.52 billion and $3.13 billion, respectively. The Company recognizes an impairment loss for equity method limited partnerships when evidence demonstrates that the loss is other than temporary. Evidence of a loss in value that is other than temporary may include the absence of an ability to recover the carrying amount of the investment or the inability of the investee to sustain a level of earnings that would justify the carrying amount of the investment. The Company had no write-downs related to equity method limited partnerships in 2012. In 2011 and 2010, the Company had write-downs related to equity method limited partnerships of $2 million and $1 million, respectively.

As of December 31, 2012 and 2011, the carrying value for cost method limited partnerships was $1.41 billion and $1.57 billion, respectively. To determine if an other-than-temporary impairment has occurred, the Company evaluates whether an impairment indicator has occurred in the period that may have a significant adverse effect on the carrying value of the investment. Impairment indicators may include: significantly reduced valuations of the investments held by the limited partnerships; actual recent cash flows received being significantly less than expected cash flows; reduced valuations based on financing completed at a lower value; completed sale of a material underlying investment at a price significantly lower than expected; or any other adverse events since the last financial statements received that might affect the fair value of the investee's capital. Additionally, the Company's portfolio monitoring process includes a quarterly review of all cost method limited partnerships to identify instances where the net asset value is below established thresholds for certain periods of time, as well as investments that are performing below expectations, for further impairment consideration. If a cost method limited partnership is other-than-temporarily impaired, the carrying value is written down to fair value, generally estimated to be equivalent to the reported net asset value of the underlying funds. In 2012, 2011 and 2010, the Company had write-downs related to cost method limited partnerships of $8 million, $4 million and $45 million, respectively.

Mortgage loans

The Company's mortgage loans are commercial mortgage loans collateralized by a variety of commercial real estate property types located throughout the United States and totaled, net of valuation allowance, $6.57 billion and $7.14 billion as of December 31, 2012 and 2011, respectively. Substantially all of the commercial mortgage loans are non-recourse to the borrower. The following table shows the principal geographic distribution of commercial real estate represented in the Company's mortgage loan portfolio. No other state represented more than 5% of the portfolio as of December 31.

(% of mortgage loan portfolio carrying value)

California	23.6	22.6	%
Illinois	8.1	9.1
New York	6.4	5.8
Texas	6.4	6.2
New Jersey	6.2	6.5
Pennsylvania	4.9	5.3

The types of properties collateralizing the mortgage loans as of December 31 are as follows:

(% of mortgage loan portfolio carrying value)

Office buildings	26.6	%	27.9	%
Retail	22.7		24.8
Apartment complex	20.6		19.6
Warehouse	19.7		19.4
Other	10.4		8.3

Total	100.0	%	100.0	%

The contractual maturities of the mortgage loan portfolio as of December 31, 2012, excluding $4 million of mortgage loans in the process of foreclosure, are as follows:

($ in millions)		Carrying value

2013	42	$	339	5.2	%
2014	64		758	11.5
2015	67		968	14.7
2016	72		813	12.4
Thereafter	334		3,688	56.2

Total	579	$	6,566	100.0	%

Mortgage loans are evaluated for impairment on a specific loan basis through a quarterly credit monitoring process and review of key credit quality indicators. Mortgage loans are considered impaired when it is probable that the Company will not collect the contractual principal and interest. Valuation allowances are established for impaired loans to reduce the carrying value to the fair value of the collateral less costs to sell or the present value of the loan's expected future repayment cash flows discounted at the loan's original effective interest rate. Impaired mortgage loans may not have a valuation allowance when the fair value of the collateral less costs to sell is higher than the carrying value. Valuation allowances are adjusted for subsequent changes in the fair value of the collateral less costs to sell. Mortgage loans are charged off against their corresponding valuation allowances when there is no reasonable expectation of recovery. The impairment evaluation is non-statistical in respect to the aggregate portfolio but considers facts and circumstances attributable to each loan. It is not considered probable that additional impairment losses, beyond those identified on a specific loan basis, have been incurred as of December 31, 2012.

Accrual of income is suspended for mortgage loans that are in default or when full and timely collection of principal and interest payments is not probable. Cash receipts on mortgage loans on nonaccrual status are generally recorded as a reduction of carrying value.

Debt service coverage ratio is considered a key credit quality indicator when mortgage loans are evaluated for impairment. Debt service coverage ratio represents the amount of estimated cash flows from the property available to the borrower to meet principal and interest payment obligations. Debt service coverage ratio estimates are updated annually or more frequently if conditions are warranted based on the Company's credit monitoring process.

The following table reflects the carrying value of non-impaired fixed rate and variable rate mortgage loans summarized by debt service coverage ratio distribution as of December 31:

($ in millions)	2012						2011

Debt service coverage ratio distribution	Fixed rate mortgage loans		Variable rate mortgage loans		Total		Fixed rate mortgage loans		Variable rate mortgage loans		Total
Below 1.0	$	267	$	—	$	267	$	345	$	—	$	345
1.0 - 1.25		1,208		20		1,228		1,527		44		1,571
1.26 - 1.50		1,458		46		1,504		1,573		24		1,597
Above 1.50		3,268		148		3,416		3,214		168		3,382

Total non-impaired mortgage loans	$	6,201	$	214	$	6,415	$	6,659	$	236	$	6,895

Mortgage loans with a debt service coverage ratio below 1.0 that are not considered impaired primarily relate to instances where the borrower has the financial capacity to fund the revenue shortfalls from the properties for the foreseeable term, the decrease in cash flows from the properties is considered temporary, or there are other risk mitigating circumstances such as additional collateral, escrow balances or borrower guarantees.

The net carrying value of impaired mortgage loans as of December 31 is as follows:

($ in millions)	2012		2011

Impaired mortgage loans with a valuation allowance	$	147	$	244
Impaired mortgage loans without a valuation allowance		8		—

Total impaired mortgage loans	$	155	$	244

Valuation allowance on impaired mortgage loans	$	42	$	63

The average balance of impaired loans was $202 million, $210 million and $278 million during 2012, 2011 and 2010, respectively.

The rollforward of the valuation allowance on impaired mortgage loans for the years ended December 31 is as follows:

($ in millions)	2012			2011			2010

Beginning balance	$	63		$	84		$	95
Net (decrease) increase in valuation allowance		(5	)		37			65
Charge offs		(16	)		(58	)		(76	)

Ending balance	$	42		$	63		$	84

The carrying value of past due mortgage loans as of December 31 is as follows:

($ in millions)	2012		2011

Less than 90 days past due	$	21	$	—
90 days or greater past due		4		43

Total past due		25		43
Current loans		6,545		7,096

Total mortgage loans	$	6,570	$	7,139

Municipal bonds

The Company maintains a diversified portfolio of municipal bonds. The following table shows the principal geographic distribution of municipal bond issuers represented in the Company's portfolio as of December 31. No other state represents more than 5% of the portfolio.

(% of municipal bond portfolio carrying value)

Texas	8.2	%	7.7	%
California	8.1		10.4
Florida	6.5		5.9
New York	5.9		5.3

Concentration of credit risk

As of December 31, 2012, the Company is not exposed to any credit concentration risk of a single issuer and its affiliates greater than 10% of the Company's shareholders' equity.

Securities loaned

The Company's business activities include securities lending programs with third parties, mostly large banks. As of December 31, 2012 and 2011, fixed income and equity securities with a carrying value of $760 million and $406 million, respectively, were on loan under these agreements. Interest income on collateral, net of fees, was $2 million in each of 2012, 2011 and 2010.

Other investment information

Included in fixed income securities are below investment grade assets totaling $6.62 billion and $6.01 billion as of December 31, 2012 and 2011, respectively.

As of December 31, 2012, fixed income securities and short-term investments with a carrying value of $280 million were on deposit with regulatory authorities as required by law.

As of December 31, 2012, the carrying value of fixed income securities and other investments that were non-income producing was $23 million.