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