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Investments | 9 Months Ended
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Sep. 30, 2017
Text Block [Abstract] |
Investments | 3. Investments Net investment income is as follows:
|  | Three Months Ended |  |  |  | Nine Months Ended
|  | September 30, |  |  |  | September 30,
|  | 2017 |  | 2016 |  |  |  | 2017 |  | 2016
(In millions) |  |  |  |  |  |  |  |  |  |
Fixed maturity securities |  |  | $ | 455 |  |  |  | $ | 457 |  |  |  |  |  |  |  |  | $ | 1,367 |  |  |  | $ | 1,352 |
Limited partnership investments |  |  |  | 67 |  |  |  |  | 91 |  |  |  |  |  |  |  |  |  | 206 |  |  |  |  | 98 |
Short term investments |  |  |  | 5 |  |  |  |  | 3 |  |  |  |  |  |  |  |  |  | 13 |  |  |  |  | 8 |
Equity securities |  |  |  | 1 |  |  |  |  | 1 |  |  |  |  |  |  |  |  |  | 4 |  |  |  |  | 8 |
Income from trading portfolio (a) |  |  |  | 34 |  |  |  |  | 11 |  |  |  |  |  |  |  |  |  | 67 |  |  |  |  | 113 |
Other |  |  |  | 10 |  |  |  |  | 12 |  |  |  |  |  |  |  |  |  | 26 |  |  |  |  | 34 |
Total investment income |  |  |  | 572 |  |  |  |  | 575 |  |  |  |  |  |  |  |  |  | 1,683 |  |  |  |  | 1,613 |
Investment expenses |  |  |  | (15 | ) |  |  |  | (14 | ) |  |  |  |  |  |  |  |  | (44 | ) |  |  |  | (43 | )
Net investment income |  |  | $ | 557 |  |  |  | $ | 561 |  |  |  |  |  |  |  |  | $ | 1,639 |  |  |  | $ | 1,570 |
(a) | Net unrealized gains (losses) related to changes in fair value on trading securities still held were $22 and $8 for the three months ended September 30, 2017 and 2016 and $35 and $63 for the nine months ended September 30, 2017 and 2016.
Investment gains (losses) are as follows:
|  | Three Months Ended |  |  |  | Nine Months Ended
|  | September 30, |  |  |  | September 30,
|  | 2017 |  | 2016 |  |  |  | 2017 |  | 2016
(In millions) |  |  |  |  |  |  |  |  |  |
Fixed maturity securities |  |  | $ | 16 |  |  |  | $ | 47 |  |  |  |  |  |  |  |  | $ | 92 |  |  |  | $ | 34 |
Equity securities |  |  |  |  |  |  |  |  | (3 | ) |  |  |  |  |  |  |  |  |  |  |  |  |  | (5 | )
Derivative instruments |  |  |  | (1 | ) |  |  |  | 1 |  |  |  |  |  |  |  |  |  | (3 | ) |  |  |  | (12 | )
Short term investments and other |  |  |  | 1 |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 4 |  |  |  |  | 1 |
Investment gains (a) |  |  | $ | 16 |  |  |  | $ | 45 |  |  |  |  |  |  |  |  | $ | 93 |  |  |  | $ | 18 |
(a) | Gross realized gains on available-for-sale securities were $34 and $68 for the three months ended September 30, 2017 and 2016 and $140 and $157 for the nine months ended September 30, 2017 and 2016. Gross realized losses on available-for-sale securities were $18 and $24 for the three months ended September 30, 2017 and 2016 and $48 and $128 for the nine months ended September 30, 2017 and 2016.
The components of other-than-temporary impairment (“OTTI”) losses recognized in earnings by asset type are as follows:
|  | Three Months Ended |  |  |  | Nine Months Ended
|  | September 30, |  |  |  | September 30,
|  | 2017 |  | 2016 |  |  |  | 2017 |  | 2016
(In millions) |  |  |  |  |  |  |  |  |  |
Fixed maturity securities available-for-sale: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Corporate and other bonds |  |  | $ | 4 |  |  |  | $ | 14 |  |  |  |  |  |  |  |  | $ | 8 |  |  |  | $ | 43 |
Asset-backed: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Residential mortgage-backed |  |  |  | 1 |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 1 |  |  |  |  | 1 |
Other asset-backed |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 3 |
Total asset-backed |  |  |  | 1 |  |  |  |  | - |  |  |  |  |  |  |  |  |  | 1 |  |  |  |  | 4 |
Total fixed maturities available-for-sale |  |  |  | 5 |  |  |  |  | 14 |  |  |  |  |  |  |  |  |  | 9 |  |  |  |  | 47 |
Equity securities available-for-sale - common stock |  |  |  |  |  |  |  |  | 4 |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 9 |
Net OTTI losses recognized in earnings |  |  | $ | 5 |  |  |  | $ | 18 |  |  |  |  |  |  |  |  | $ | 9 |  |  |  | $ | 56 |
The amortized cost and fair values of securities are as follows:
|  | Cost or |  | Gross |  | Gross |  |  |  | Unrealized
|  | Amortized |  | Unrealized |  | Unrealized |  | Estimated |  | OTTI Losses
September 30, 2017 |  | Cost |  | Gains |  | Losses |  | Fair Value |  | (Gains)
(In millions) |  |  |  |  |  |  |  |  |  |
Fixed maturity securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Corporate and other bonds |  | $ | 17,965 |  |  | $ | 1,645 |  |  | $ | 26 |  |  | $ | 19,584 |  |  |  |  |
States, municipalities and political subdivisions |  |  | 12,462 |  |  |  | 1,501 |  |  |  | 7 |  |  |  | 13,956 |  |  | $ | (14 | )
Asset-backed: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Residential mortgage-backed |  |  | 4,906 |  |  |  | 127 |  |  |  | 28 |  |  |  | 5,005 |  |  |  | (28 | )
Commercial mortgage-backed |  |  | 1,858 |  |  |  | 55 |  |  |  | 13 |  |  |  | 1,900 |  |  |  |  |
Other asset-backed |  |  | 1,047 |  |  |  | 18 |  |  |  | 4 |  |  |  | 1,061 |  |  |  |  |
Total asset-backed |  |  | 7,811 |  |  |  | 200 |  |  |  | 45 |  |  |  | 7,966 |  |  |  | (28 | )
U.S. Treasury and obligations of government-sponsored enterprises |  |  | 115 |  |  |  | 3 |  |  |  | 3 |  |  |  | 115 |  |  |  |  |
Foreign government |  |  | 439 |  |  |  | 10 |  |  |  | 4 |  |  |  | 445 |  |  |  |  |
Redeemable preferred stock |  |  | 18 |  |  |  | 2 |  |  |  |  |  |  |  | 20 |  |  |  |  |
Fixed maturities available-for-sale |  |  | 38,810 |  |  |  | 3,361 |  |  |  | 85 |  |  |  | 42,086 |  |  |  | (42 | )
Fixed maturities trading |  |  | 420 |  |  |  | 2 |  |  |  | 1 |  |  |  | 421 |  |  |  |  |
Total fixed maturities |  |  | 39,230 |  |  |  | 3,363 |  |  |  | 86 |  |  |  | 42,507 |  |  |  | (42 | )
Equity securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Common stock |  |  | 16 |  |  |  | 7 |  |  |  | 1 |  |  |  | 22 |  |  |  |  |
Preferred stock |  |  | 102 |  |  |  | 5 |  |  |  |  |  |  |  | 107 |  |  |  |  |
Equity securities available-for-sale |  |  | 118 |  |  |  | 12 |  |  |  | 1 |  |  |  | 129 |  |  |  | - |
Equity securities trading |  |  | 474 |  |  |  | 86 |  |  |  | 79 |  |  |  | 481 |  |  |  |  |
Total equity securities |  |  | 592 |  |  |  | 98 |  |  |  | 80 |  |  |  | 610 |  |  |  | - |
Total |  | $ | 39,822 |  |  | $ | 3,461 |  |  | $ | 166 |  |  | $ | 43,117 |  |  | $ | (42 | )
December 31, 2016 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Fixed maturity securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Corporate and other bonds |  | $ | 17,711 |  |  | $ | 1,323 |  |  | $ | 76 |  |  | $ | 18,958 |  |  | $ | (1 | )
States, municipalities and political subdivisions |  |  | 12,060 |  |  |  | 1,213 |  |  |  | 33 |  |  |  | 13,240 |  |  |  | (16 | )
Asset-backed: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Residential mortgage-backed |  |  | 5,004 |  |  |  | 120 |  |  |  | 51 |  |  |  | 5,073 |  |  |  | (28 | )
Commercial mortgage-backed |  |  | 2,016 |  |  |  | 48 |  |  |  | 24 |  |  |  | 2,040 |  |  |  |  |
Other asset-backed |  |  | 1,022 |  |  |  | 8 |  |  |  | 5 |  |  |  | 1,025 |  |  |  |  |
Total asset-backed |  |  | 8,042 |  |  |  | 176 |  |  |  | 80 |  |  |  | 8,138 |  |  |  | (28 | )
U.S. Treasury and obligations of government-sponsored enterprises |  |  | 83 |  |  |  | 10 |  |  |  |  |  |  |  | 93 |  |  |  |  |
Foreign government |  |  | 435 |  |  |  | 13 |  |  |  | 3 |  |  |  | 445 |  |  |  |  |
Redeemable preferred stock |  |  | 18 |  |  |  | 1 |  |  |  |  |  |  |  | 19 |  |  |  |  |
Fixed maturities available-for-sale |  |  | 38,349 |  |  |  | 2,736 |  |  |  | 192 |  |  |  | 40,893 |  |  |  | (45 | )
Fixed maturities trading |  |  | 598 |  |  |  | 3 |  |  |  |  |  |  |  | 601 |  |  |  |  |
Total fixed maturities |  |  | 38,947 |  |  |  | 2,739 |  |  |  | 192 |  |  |  | 41,494 |  |  |  | (45 | )
Equity securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Common stock |  |  | 13 |  |  |  | 6 |  |  |  |  |  |  |  | 19 |  |  |  |  |
Preferred stock |  |  | 93 |  |  |  | 2 |  |  |  | 4 |  |  |  | 91 |  |  |  |  |
Equity securities available-for-sale |  |  | 106 |  |  |  | 8 |  |  |  | 4 |  |  |  | 110 |  |  |  | - |
Equity securities trading |  |  | 465 |  |  |  | 60 |  |  |  | 86 |  |  |  | 439 |  |  |  |  |
Total equity securities |  |  | 571 |  |  |  | 68 |  |  |  | 90 |  |  |  | 549 |  |  |  | - |
Total |  | $ | 39,518 |  |  | $ | 2,807 |  |  | $ | 282 |  |  | $ | 42,043 |  |  | $ | (45 | )
The net unrealized gains on investments included in the tables above are recorded as a component of Accumulated other comprehensive income (“AOCI”). When presented in AOCI, these amounts are net of tax and noncontrolling interests and any required Shadow Adjustments. To the extent that unrealized gains on fixed income securities supporting certain long term care products would result in a premium deficiency if realized, a related increase in Insurance reserves is recorded, net of tax and noncontrolling interests, as a reduction of net unrealized gains through Other comprehensive income (“Shadow Adjustments”). As of September 30, 2017 and December 31, 2016, the net unrealized gains on investments included in AOCI were correspondingly reduced by Shadow Adjustments of $1.2 billion and $909 million (after tax and noncontrolling interests). The available-for-sale securities in a gross unrealized loss position are as follows:
|  | Less than |  | 12 Months |  |
|  | 12 Months |  | or Longer |  | Total
September 30, 2017 |  | Estimated Fair Value |  | Gross Unrealized Losses |  | Estimated Fair Value |  | Gross Unrealized Losses |  | Estimated Fair Value |  | Gross Unrealized Losses
(In millions) |  |  |  |  |  |  |  |  |  |  |  |
Fixed maturity securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Corporate and other bonds |  | $ | 1,216 |  |  | $ | 21 |  |  | $ | 91 |  |  | $ | 5 |  |  | $ | 1,307 |  |  | $ | 26 |
States, municipalities and political subdivisions |  |  | 583 |  |  |  | 6 |  |  |  | 56 |  |  |  | 1 |  |  |  | 639 |  |  |  | 7 |
Asset-backed: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Residential mortgage-backed |  |  | 1,522 |  |  |  | 25 |  |  |  | 106 |  |  |  | 3 |  |  |  | 1,628 |  |  |  | 28 |
Commercial mortgage-backed |  |  | 378 |  |  |  | 6 |  |  |  | 138 |  |  |  | 7 |  |  |  | 516 |  |  |  | 13 |
Other asset-backed |  |  | 129 |  |  |  | 4 |  |  |  | 10 |  |  |  |  |  |  |  | 139 |  |  |  | 4 |
Total asset-backed |  |  | 2,029 |  |  |  | 35 |  |  |  | 254 |  |  |  | 10 |  |  |  | 2,283 |  |  |  | 45 |
U.S. Treasury and obligations of government-sponsored enterprises |  |  | 67 |  |  |  | 3 |  |  |  | 6 |  |  |  |  |  |  |  | 73 |  |  |  | 3 |
Foreign government |  |  | 191 |  |  |  | 4 |  |  |  | 5 |  |  |  |  |  |  |  | 196 |  |  |  | 4 |
Total fixed maturity securities |  |  | 4,086 |  |  |  | 69 |  |  |  | 412 |  |  |  | 16 |  |  |  | 4,498 |  |  |  | 85 |
Equity securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Common stock |  |  | 2 |  |  |  | 1 |  |  |  |  |  |  |  |  |  |  |  | 2 |  |  |  | 1 |
Preferred stock |  |  | 16 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 16 |  |  |  | - |
Total equity securities |  |  | 18 |  |  |  | 1 |  |  |  | - |  |  |  | - |  |  |  | 18 |  |  |  | 1 |
Total |  | $ | 4,104 |  |  | $ | 70 |  |  | $ | 412 |  |  | $ | 16 |  |  | $ | 4,516 |  |  | $ | 86 |
December 31, 2016 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Fixed maturity securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Corporate and other bonds |  | $ | 2,615 |  |  | $ | 61 |  |  | $ | 254 |  |  | $ | 15 |  |  | $ | 2,869 |  |  | $ | 76 |
States, municipalities and political subdivisions |  |  | 959 |  |  |  | 32 |  |  |  | 23 |  |  |  | 1 |  |  |  | 982 |  |  |  | 33 |
Asset-backed: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Residential mortgage-backed |  |  | 2,136 |  |  |  | 44 |  |  |  | 201 |  |  |  | 7 |  |  |  | 2,337 |  |  |  | 51 |
Commercial mortgage-backed |  |  | 756 |  |  |  | 22 |  |  |  | 69 |  |  |  | 2 |  |  |  | 825 |  |  |  | 24 |
Other asset-backed |  |  | 398 |  |  |  | 5 |  |  |  | 24 |  |  |  |  |  |  |  | 422 |  |  |  | 5 |
Total asset-backed |  |  | 3,290 |  |  |  | 71 |  |  |  | 294 |  |  |  | 9 |  |  |  | 3,584 |  |  |  | 80 |
U.S. Treasury and obligations of government-sponsored enterprises |  |  | 5 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 5 |  |  |  | - |
Foreign government |  |  | 108 |  |  |  | 3 |  |  |  |  |  |  |  |  |  |  |  | 108 |  |  |  | 3 |
Total fixed maturity securities |  |  | 6,977 |  |  |  | 167 |  |  |  | 571 |  |  |  | 25 |  |  |  | 7,548 |  |  |  | 192 |
Equity securities |  |  | 12 |  |  |  |  |  |  |  | 13 |  |  |  | 4 |  |  |  | 25 |  |  |  | 4 |
Total |  | $ | 6,989 |  |  | $ | 167 |  |  | $ | 584 |  |  | $ | 29 |  |  | $ | 7,573 |  |  | $ | 196 |
Based on current facts and circumstances, the Company believes the unrealized losses presented in the September 30, 2017 securities in a gross unrealized loss position table above are not indicative of the ultimate collectibility of the current amortized cost of the securities, but rather are attributable to changes in interest rates, credit spreads and other factors. The Company has no current intent to sell securities with unrealized losses, nor is it more likely than not that it will be required to sell prior to recovery of amortized cost; accordingly, the Company has determined that there are no additional OTTI losses to be recorded as of September 30, 2017. The following table presents the activity related to the pretax credit loss component reflected in Retained earnings on fixed maturity securities still held as of September 30, 2017 and 2016 for which a portion of an OTTI loss was recognized in Other comprehensive income.
|  | Three Months Ended |  |  |  | Nine Months Ended
|  | September 30, |  |  |  | September 30,
|  | 2017 |  | 2016 |  |  |  | 2017 |  | 2016
(In millions) |  |  |  |  |  |  |  |  |  |
Beginning balance of credit losses on fixed maturity securities |  | $ | 30 |  |  | $ | 41 |  |  |  |  |  |  | $ | 36 |  |  | $ | 53 |
Reductions for securities sold during the period |  |  | (2 | ) |  |  | (2 | ) |  |  |  |  |  |  | (8 | ) |  |  | (14 | )
Reductions for securities the Company intends to sell or more likely than not will be required to sell |  |  |  |  |  |  | (1 | ) |  |  |  |  |  |  |  |  |  |  | (1 | )
Ending balance of credit losses on fixed maturity securities |  | $ | 28 |  |  | $ | 38 |  |  |  |  |  |  | $ | 28 |  |  | $ | 38 |
Contractual Maturity The following table presents available-for-sale fixed maturity securities by contractual maturity.
|  | September 30, 2017 |  |  |  | December 31, 2016
|  | Cost or Amortized Cost |  | Estimated Fair Value |  |  |  | Cost or Amortized Cost |  | Estimated Fair Value
(In millions) |  |  |  |  |  |  |  |  |  |
Due in one year or less |  | $ | 1,374 |  |  | $ | 1,404 |  |  |  |  |  |  | $ | 1,779 |  |  | $ | 1,828 |
Due after one year through five years |  |  | 7,931 |  |  |  | 8,293 |  |  |  |  |  |  |  | 7,566 |  |  |  | 7,955 |
Due after five years through ten years |  |  | 15,853 |  |  |  | 16,574 |  |  |  |  |  |  |  | 15,892 |  |  |  | 16,332 |
Due after ten years |  |  | 13,652 |  |  |  | 15,815 |  |  |  |  |  |  |  | 13,112 |  |  |  | 14,778 |
Total |  | $ | 38,810 |  |  | $ | 42,086 |  |  |  |  |  |  | $ | 38,349 |  |  | $ | 40,893 |
Actual maturities may differ from contractual maturities because certain securities may be called or prepaid. Securities not due at a single date are allocated based on weighted average life. Derivative Financial Instruments A summary of the aggregate contractual or notional amounts and gross estimated fair values related to derivative financial instruments follows. The contractual or notional amounts for derivatives are used to calculate the exchange of contractual payments under the agreements and may not be representative of the potential for gain or loss on these instruments. Gross estimated fair values of derivative positions are currently presented in Equity securities, Receivables and Payable to brokers on the Consolidated Condensed Balance Sheets.
|  | September 30, 2017 |  | December 31, 2016
|  | Contractual/ |  |  |  |  |  | Contractual/ |  |  |  |
|  | Notional |  | Estimated Fair Value |  | Notional |  | Estimated Fair Value
|  | Amount |  | Asset |  | (Liability) |  | Amount |  | Asset |  | (Liability)
(In millions) |  |  |  |  |  |  |  |  |  |  |  |
With hedge designation: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest rate swaps |  | $ | 500 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Without hedge designation: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Equity markets: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Options – purchased |  |  | 267 |  |  | $ | 15 |  |  |  |  |  |  |  | $ 223 |  |  | $ | 14 |  |  |  |  |
– written |  |  | 296 |  |  |  |  |  |  | $ | (8 | ) |  |  | 267 |  |  |  |  |  |  | $ | (8 | )
Futures – short |  |  | 249 |  |  |  |  |  |  |  | (1 | ) |  |  | 225 |  |  |  | 1 |  |  |  |  |
Commodity futures – long |  |  | 39 |  |  |  |  |  |  |  |  |  |  |  | 42 |  |  |  |  |  |  |  |  |
Embedded derivative on funds withheld liability |  |  | 170 |  |  |  |  |  |  |  | (1 | ) |  |  | 174 |  |  |  | 3 |  |  |  |  |

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