Unassociated Document


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

x
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
   
THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2008

OR

¨
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
   
OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period From  ____________  to  _____________

Commission File Number 1-6541


LOEWS CORPORATION
(Exact name of registrant as specified in its charter)

Delaware
 
13-2646102
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)

667 Madison Avenue, New York, N.Y. 10065-8087
(Address of principal executive offices) (Zip Code)

(212) 521-2000
(Registrant’s telephone number, including area code)

NOT APPLICABLE
(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

   
Yes
X
   
No
 
   

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer
X
 
Accelerated filer
   
Non-accelerated filer
   
Smaller reporting company
   

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

   
Yes
 
   
No
X
   

Class
 
Outstanding at October 17, 2008
Common stock, $0.01 par value
 
436,091,267 shares
 


1

 
INDEX


 
Page
 
No.
   
Part I.  Financial Information
   
     
     
Item 1.  Financial Statements (unaudited)
   
     
Consolidated Condensed Balance Sheets
   
September 30, 2008 and December 31, 2007
3
 
     
Consolidated Condensed Statements of Operations
   
Three and nine months ended September 30, 2008 and 2007
4
 
     
Consolidated Condensed Statements of Shareholders’ Equity
   
September 30, 2008 and 2007
6
 
     
Consolidated Condensed Statements of Cash Flows
   
Nine months ended September 30, 2008 and 2007
7
 
     
Notes to Consolidated Condensed Financial Statements
9
 
     
Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations
45
 
     
Item 3.  Quantitative and Qualitative Disclosures about Market Risk
83
 
     
Item 4.  Controls and Procedures
86
 
     
Part II.  Other Information
   
     
Item 1.  Legal Proceedings
87
 
     
Item 1A. Risk Factors
87
 
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
88
 
     
Item 6.  Exhibits
88
 

 
2

 

PART I. FINANCIAL INFORMATION

Item 1.  Financial Statements.

Loews Corporation and Subsidiaries
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)

   
September 30,
   
December 31,
 
   
2008
   
2007
 
(In millions)
           
             
Assets:
           
             
Investments:
           
Fixed maturities, amortized cost of $33,003 and $34,816
  $ 29,733     $ 34,663  
Equity securities, cost of $1,776 and $1,143
    1,516       1,347  
Limited partnership investments
    2,207       2,321  
Other investments
    149       108  
Short term investments
    8,673       8,230  
Total investments
    42,278       46,669  
Cash
    236       140  
Receivables
    12,201       11,469  
Property, plant and equipment
    12,809       10,218  
Deferred income taxes
    1,466       441  
Goodwill and other intangible assets
    1,358       1,353  
Assets of discontinued operations
    1       2,841  
Other assets
    1,481       1,347  
Deferred acquisition costs of insurance subsidiaries
    1,157       1,161  
Separate account business
    430       476  
Total assets
  $ 73,417     $ 76,115  
                 
Liabilities and Shareholders’ Equity:
               
                 
Insurance reserves:
               
Claim and claim adjustment expense
  $ 28,023     $ 28,588  
Future policy benefits
    7,442       7,106  
Unearned premiums
    3,549       3,597  
Policyholders’ funds
    454       930  
Total insurance reserves
    39,468       40,221  
Payable to brokers
    1,593       580  
Collateral on loaned securities
    6       63  
Short term debt
    273       358  
Long term debt
    7,401       6,900  
Reinsurance balances payable
    367       401  
Liabilities of discontinued operations
            1,637  
Other liabilities
    3,970       3,990  
Separate account business
    430       476  
Total liabilities
    53,508       54,626  
Minority interest
    4,168       3,898  
Preferred stock, $0.10 par value,
               
Authorized – 100,000,000 shares
               
Common stock:
               
Loews common stock, $0.01 par value:
               
Authorized – 1,800,000,000 shares
               
Issued – 436,402,567 and 529,683,628 shares
    4       5  
Former Carolina Group stock
            1  
Additional paid-in capital
    3,288       3,967  
Earnings retained in the business
    14,435       13,691  
Accumulated other comprehensive income (loss)
    (1,974 )     (65 )
      15,753       17,599  
Less treasury stock, at cost (314,000 shares of Loews common stock at
               
September 30, 2008 and 340,000 shares of former Carolina Group stock at
               
December 31, 2007)
    12       8  
Total shareholders’ equity
    15,741       17,591  
Total liabilities and shareholders’ equity
  $ 73,417     $ 76,115  

See accompanying Notes to Consolidated Condensed Financial Statements.

 
3

 

Loews Corporation and Subsidiaries
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)

   
Three Months Ended
   
Nine Months Ended
 
   
September 30,
   
September 30,
 
   
2008
   
2007
   
2008
   
2007
 
(In millions, except per share data)
                       
                         
Revenues:
                       
Insurance premiums
  $ 1,799     $ 1,882     $ 5,385     $ 5,616  
Net investment income
    355       647       1,531       2,165  
Investment losses
    (650 )     (54 )     (812 )     (183 )
Gain on issuance of subsidiary stock
                    2       139  
Contract drilling revenues
    882       628       2,589       1,854  
Other
    584       422       1,809       1,119  
Total
    2,970       3,525       10,504       10,710  
                                 
Expenses:
                               
Insurance claims and policyholders’ benefits
    1,519       1,575       4,380       4,496  
Amortization of deferred acquisition costs
    355       384       1,083       1,137  
Contract drilling expenses
    314       281       872       715  
Other operating expenses
    741       566       1,982       1,584  
Interest
    82       81       259       230  
Total
    3,011       2,887       8,576       8,162  
Income (loss) before income tax and minority interest
    (41 )     638       1,928       2,548  
Income tax expense (benefit)
    (56 )     182       537       774  
Minority interest
    159       147       615       482  
Total
    103       329       1,152       1,256  
Income (loss) from continuing operations
    (144 )     309       776       1,292  
Discontinued operations, net:
                               
Results of operations
    7       246       350       685  
Gain on disposal
                    4,362          
Net income (loss)
  $ (137 )   $ 555     $ 5,488     $ 1,977  
                                 
Net income (loss) attributable to:
                               
Loews common stock:
                               
Income (loss) from continuing operations
  $ (144 )   $ 309     $ 776     $ 1,292  
Discontinued operations, net
    7       100       4,501       280  
Loews common stock
    (137 )     409       5,277       1,572  
Former Carolina Group stock - discontinued
                               
operations, net
            146       211       405  
Total
  $ (137 )   $ 555     $ 5,488     $ 1,977  

 
4

 

Loews Corporation and Subsidiaries
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)

   
Three Months Ended
   
Nine Months Ended
 
   
September 30,
   
September 30,
 
   
2008
   
2007
   
2008
   
2007
 
(In millions, except per share data)
                       
                         
                         
Basic net income (loss) per Loews common share:
                       
Income (loss) from continuing operations
  $ (0.33 )   $ 0.58     $ 1.58     $ 2.41  
Discontinued operations, net
    0.02       0.19       9.16       0.52  
Net income (loss)
  $ (0.31 )   $ 0.77     $ 10.74     $ 2.93  
                                 
Diluted net income (loss) per Loews common share:
                               
Income (loss) from continuing operations
  $ (0.33 )   $ 0.58     $ 1.58     $ 2.40  
Discontinued operations, net
    0.02       0.19       9.14       0.52  
Net income (loss)
  $ (0.31 )   $ 0.77     $ 10.72     $ 2.92  
                                 
Basic and Diluted net income per former Carolina Group share:
                               
Discontinued operations, net
  $ -     $ 1.34     $ 1.95     $ 3.73  
                                 
Basic weighted average number of shares outstanding:
                               
Loews common stock
    436.32       531.86       491.19       536.53  
Former Carolina Group stock
    -       108.44       108.47       108.42  
                                 
Diluted weighted average number of shares
                               
  outstanding:
                               
Loews common stock
    436.32       533.19       492.40       537.71  
Former Carolina Group stock
    -       108.58       108.60       108.55  

See accompanying Notes to Consolidated Condensed Financial Statements.

 
5

 

Loews Corporation and Subsidiaries
CONSOLIDATED CONDENSED STATEMENTS OF SHAREHOLDERS’ EQUITY
(Unaudited)

               
Former
         
Earnings
   
Accumulated
   
Common
 
   
Comprehensive
   
Loews
   
Carolina
   
Additional
   
Retained
   
Other
   
Stock
 
   
Income
   
Common
   
Group
   
Paid-in
   
in the
   
Comprehensive
   
Held in
 
   
(Loss)
   
Stock
   
Stock
   
Capital
   
Business
   
Income (Loss)
   
Treasury
 
(In millions, except per share data)
                                         
                                           
Balance, January 1, 2007
        $ 5     $ 1     $ 4,018     $ 12,099     $ 387     $ (8 )
Adjustment to initially apply:
                                                     
FASB Interpretation No. 48,
                                                     
  “Accounting For Uncertainty in
                                                     
  Income Taxes an interpretation of
                                                     
  FASB No. 109,” net of minority
                                                     
  interest
                                  (37 )                
FASB Staff Position Technical
                                                     
  Bulletin No. 85-4-1, “Accounting
                                                     
  For Life Settlement Contracts by
                                                     
  Third-Party Investors,” net of tax
                                                     
  and minority interest
                                  34                  
Balance, January 1, 2007, as adjusted
          5       1       4,018       12,096       387       (8 )
Comprehensive income:
                                                     
Net income
  $ 1,977                               1,977                  
Other comprehensive loss
    (327 )                                     (327 )        
Comprehensive income
  $ 1,650                                                  
Dividends paid:
                                                       
Loews common stock, $0.19
                                                       
per share
                                    (101 )                
Former Carolina Group stock, $1.37
                                                       
per share
                                    (148 )                
Purchase of Loews treasury stock
                                                    (672 )
Issuance of Loews common stock
                            3                          
Issuance of former Carolina Group
                                                       
stock
                            3                          
Stock-based compensation
                            19                          
Other
                            2       (2 )                
Deferred tax benefit related to
                                                       
interest expense imputed on
                                                       
Diamond Offshore’s 1.5%
                                                       
debentures (Note 13)
                            26                          
Balance, September 30, 2007
          $ 5     $ 1     $ 4,071     $ 13,822     $ 60     $ (680 )
                                                         
Balance, January 1, 2008
          $ 5     $ 1     $ 3,967     $ 13,691     $ (65 )   $ (8 )
Comprehensive loss:
                                                       
Net income
  $ 5,488                               5,488                  
Other comprehensive loss
    (1,962 )                                     (1,962 )        
Comprehensive income
  $ 3,526                                                  
Dividends paid:
                                                       
Loews common stock, $0.19
                                                       
per share
                                    (94 )                
Former Carolina Group stock, $0.911
                                                       
per share
                                    (99 )                
Purchase of Loews treasury stock
                                                    (12 )
Issuance of Loews common stock
                            4                          
Redemption of former Carolina
                                                       
Group stock (Note 2)
                    (1 )             (602 )     53       8  
Exchange of Lorillard common stock
                                                       
for Loews common stock (Note 2)
                                                    (4,650 )
Stock-based compensation
                            17                          
Retirement of treasury stock
            (1 )             (700 )     (3,949 )             4,650  
Balance, September 30, 2008
          $ 4     $ -     $ 3,288     $ 14,435     $ (1,974 )   $ (12 )

See accompanying Notes to Consolidated Condensed Financial Statements.

 
6

 

Loews Corporation and Subsidiaries
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)

Nine Months Ended September 30
 
2008
   
2007
 
(In millions)
           
             
             
Operating Activities:
           
             
Net income
  $ 5,488     $ 1,977  
Adjustments to reconcile net income to net cash
               
 provided (used) by operating activities, net
    (2,741 )     (36 )
Changes in operating assets and liabilities, net:
               
Reinsurance receivables
    691       591  
Other receivables
    (131 )     (71 )
Federal income tax
    (360 )     (93 )
Prepaid reinsurance premiums
    (6 )     22  
Deferred acquisition costs
    4       1  
Insurance reserves
    (238 )     (271 )
Reinsurance balances payable
    (34 )     (56 )
Other liabilities
    (172 )     97  
Trading securities
    (1,145 )     1,677  
Other, net
    (121 )     (183 )
Net cash flow operating activities - continuing operations
    1,235       3,655  
Net cash flow operating activities - discontinued operations
    142       719  
Net cash flow operating activities - total
    1,377       4,374  
                 
Investing Activities:
               
                 
Purchases of fixed maturities
    (39,989 )     (53,496 )
Proceeds from sales of fixed maturities
    36,545       53,002  
Proceeds from maturities of fixed maturities
    3,374       3,720  
Purchases of equity securities
    (170 )     (157 )
Proceeds from sales of equity securities
    177       182  
Purchases of property, plant and equipment
    (2,937 )     (1,352 )
Proceeds from sales of property, plant and equipment
    71       13  
Change in collateral on loaned securities
    (57 )     (3,518 )
Change in short term investments
    1,567       196  
Change in other investments
    (147 )     (103 )
Acquisition of business, net of cash acquired
            (4,029 )
Net cash flow investing activities - continuing operations
    (1,566 )     (5,542 )
Net cash flow investing activities - discontinued operations,
               
  including proceeds from dispositions
    620          
Net cash flow investing activities - total
    (946 )     (5,542 )

 
7

 

Loews Corporation and Subsidiaries
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)

Nine Months Ended September 30
 
2008
   
2007
 
(In millions)
           
             
             
Financing Activities:
           
             
Dividends paid
  $ (193 )   $ (249 )
Dividends paid to minority interest
    (354 )     (339 )
Purchases of treasury shares
    (12 )     (672 )
Purchases of treasury shares by subsidiary
    (70 )        
Issuance of common stock
    4       6  
Proceeds from subsidiaries’ equity issuances
    246       315  
Principal payments on debt
    (902 )     (4 )
Issuance of debt
    1,320       2,110  
Receipts of investment contract account balances
    3       2  
Return of investment contract account balances
    (421 )     (59 )
Excess tax benefits from share-based payment arrangements
    4       6  
Other
    26       10  
Net cash flow financing activities - continuing operations
    (349 )     1,126  
Net cash flow financing activities - discontinued operations
            2  
Net cash flow financing activities - total
    (349 )     1,128  
                 
Effect of foreign exchange rate on cash - continuing operations
    (6 )        
                 
Net change in cash
    76       (40 )
Net cash transactions from:
               
Continuing operations to discontinued operations
    782       760  
Discontinued operations to continuing operations
    (782 )     (760 )
Cash, beginning of period
    160       174  
Cash, end of period
  $ 236     $ 134  
                 
Cash, end of period:
               
Continuing operations
  $ 236     $ 116  
Discontinued operations
            18  
Total
  $ 236     $ 134  

See accompanying Notes to Consolidated Condensed Financial Statements.

 
8

 

Loews Corporation and Subsidiaries
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)

1.  Basis of Presentation

Loews Corporation is a holding company. Its subsidiaries are engaged in the following lines of business: commercial property and casualty insurance (CNA Financial Corporation (“CNA”), a 90% owned subsidiary); the operation of offshore oil and gas drilling rigs (Diamond Offshore Drilling, Inc. (“Diamond Offshore”), a 50.4% owned subsidiary); exploration, production and marketing of natural gas and natural gas liquids (HighMount Exploration & Production LLC (“HighMount”), a wholly owned subsidiary); the operation of interstate natural gas transmission pipeline systems (Boardwalk Pipeline Partners, LP (“Boardwalk Pipeline”), a 70% owned subsidiary); and the operation of hotels (Loews Hotels Holding Corporation (“Loews Hotels”), a wholly owned subsidiary). Unless the context otherwise requires, the terms “Company,” “Loews” and “Registrant” as used herein mean Loews Corporation excluding its subsidiaries.

In June of 2008, the Company disposed of its entire ownership interest in its wholly owned subsidiary, Lorillard, Inc. (“Lorillard”). The Consolidated Condensed Financial Statements have been reclassified to reflect Lorillard as a discontinued operation. Accordingly, Lorillard’s assets, liabilities, revenues, expenses and cash flows have been excluded from the respective captions in the Consolidated Condensed Balance Sheets, Consolidated Condensed Statements of Operations, and Consolidated Condensed Statements of Cash Flows and have been included in Assets and Liabilities of discontinued operations, Discontinued Operations, net and Net cash flows - discontinued operations, respectively.

In the opinion of management, the accompanying unaudited Consolidated Condensed Financial Statements reflect all adjustments (consisting of only normal recurring accruals) necessary to present fairly the financial position as of September 30, 2008 and December 31, 2007 and the results of operations for the three and nine months ended September 30, 2008 and 2007 and changes in cash flows for the nine months ended September 30, 2008 and 2007.

Net income (loss) for the third quarter and first nine months of each of the years is not necessarily indicative of net income (loss) for that entire year.

Reference is made to the Notes to Consolidated Financial Statements in the 2007 Annual Report on Form 10-K which should be read in conjunction with these Consolidated Condensed Financial Statements.

Supplementary cash flow information – As discussed in Note 2, in June of 2008, the Company disposed of its entire ownership interest in Lorillard resulting in a non-cash gain on disposal of $4.3 billion. Investing activities include accrued capital expenditures of $168 million and $103 million for the nine months ended September 30, 2008 and 2007.

Accounting changes – In September of 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 157, “Fair Value Measurements.” SFAS No. 157 provides enhanced guidance for using fair value to measure assets and liabilities. The standard also responds to investors’ requests for expanded information about the extent to which companies measure assets and liabilities at fair value, the information used to measure fair value, and the effect of fair value measurements on earnings. A one year deferral has been granted for the implementation of SFAS No. 157 for all nonrecurring fair value measurements of nonfinancial assets and nonfinancial liabilities. As a result, the Company has partially applied the provisions of SFAS No. 157 upon adoption at January 1, 2008. The assets and liabilities that are recognized or disclosed at fair value for which the Company has not applied the provisions of SFAS No. 157 include goodwill, other intangible assets, long term debt and asset retirement obligations. The effect of partially adopting SFAS No. 157 did not have a significant impact on the Company’s financial condition at the date of adoption or the results of operations for the period ended September 30, 2008. See Note 4.

In October of 2008, the FASB issued FASB Staff Position (“FSP”) No. FAS 157- 3, “Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active,” which clarifies the application of SFAS No. 157 in an inactive market. The FSP addresses application issues such as how management’s internal assumptions should be considered when measuring fair value when relevant observable data do not exist; how observable market information in a market that is not active should be considered when measuring fair value and how the use of market quotes should be considered when assessing the relevance of observable and unobservable data available to measure fair value. FSP No. FAS 157-3 was effective upon issuance. The Company’s adoption of FSP No. FAS 157-3 had no impact on the financial condition or results of operations as of or for the three and nine months ended September 30, 2008.

 
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In April of 2007, the FASB issued FSP No. FIN 39-1, “Amendment of FASB Interpretation (“FIN”) No. 39.” FSP FIN No. 39-1 permits a reporting entity to offset fair value amounts recognized for the right to reclaim cash collateral or the obligation to return cash collateral against fair value amounts recognized for derivative instruments executed with the same counterparty under the same master netting arrangement that have been offset in the statement of financial position in accordance with FIN No. 39. Additionally, FSP No. FIN 39-1 requires that a reporting entity shall not offset fair value amounts recognized for derivative instruments without offsetting fair value amounts recognized for the right to reclaim cash collateral or the obligation to return cash collateral. The Company adopted FSP No. FIN 39-1 in 2008, by electing to not offset cash collateral amounts recognized for derivative instruments under the same master netting arrangements and as a result will no longer offset fair value amounts recognized for derivative instruments. The Company presented the effect of adopting FSP No. FIN 39-1 as a change in accounting principle through retrospective application. The effect on the Consolidated Condensed Balance Sheet as of December 31, 2007 was an increase of $36 million in Other investments and Payable to brokers. The adoption of FSP No. FIN 39-1 had no impact on the Company’s financial condition or results of operations as of or for the nine months ended September 30, 2008.

2.  Separation of Lorillard, Inc.

The Company disposed of Lorillard through the following two integrated transactions, collectively referred to as the “Separation”:

 
·
On June 10, 2008, the Company distributed 108,478,429 shares, or approximately 62%, of the outstanding common stock of Lorillard in exchange for and in redemption of all of the 108,478,429 outstanding shares of the Company’s former Carolina Group stock, in accordance with the Company’s Restated Certificate of Incorporation (the “Redemption”); and

 
·
On June 16, 2008, the Company distributed the remaining 65,445,000 shares, or approximately 38%, of the outstanding common stock of Lorillard in exchange for 93,492,857 shares of Loews common stock, reflecting an exchange ratio of 0.70 (the “Exchange Offer”).

As a result of the Separation, Lorillard is no longer a subsidiary of Loews and Loews no longer owns any interest in the outstanding stock of Lorillard. As of the completion of the Redemption, the former Carolina Group and former Carolina Group stock have been eliminated. In addition, at that time all outstanding stock options and stock appreciation rights (“SARs”) awarded under the Company’s former Carolina Group 2002 Stock Option Plan were assumed by Lorillard and converted into stock options and SARs which are exercisable for shares of Lorillard common stock.

The Loews common stock acquired by the Company in the Exchange Offer was recorded as a decrease in the Company’s Shareholders’ equity, reflecting Loews common stock at market value of the shares of Loews common stock delivered in the Exchange Offer. This decline was offset by a $4.3 billion gain to the Company from the Exchange Offer, which was reported as a gain on disposal of the discontinued business.

Prior to the Redemption, the Company had a two class common stock structure: Loews common stock and former Carolina Group stock. Former Carolina Group stock, commonly called a tracking stock, was intended to reflect the performance of a defined group of Loews’s assets and liabilities referred to as the former Carolina Group. The principal assets and liabilities attributable to the former Carolina Group were Loews’s 100% ownership of Lorillard, including all dividends paid by Lorillard to Loews, and any and all liabilities, costs and expenses arising out of or relating to tobacco or tobacco-related businesses. Immediately prior to the Separation, outstanding former Carolina Group stock represented an approximately 62% economic interest in the performance of the former Carolina Group. The Loews Group consisted of all of Loews’s assets and liabilities other than those allocated to the former Carolina Group, including an approximately 38% interest in the former Carolina Group.

 
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3.  Investments

   
Three Months Ended
   
Nine Months Ended
 
   
September 30,
   
September 30,
 
   
2008
   
2007
   
2008
   
2007
 
(In millions)
                       
                         
Net investment income consisted of:
                       
                         
Fixed maturity securities
  $ 501     $ 501     $ 1,495     $ 1,523  
Short term investments
    36       79       125       243  
Limited partnerships
    (77 )     19       (70 )     142  
Equity securities
    18       7       62       18  
Trading portfolio
    (117 )     33       (66 )     221  
Other
    6       19       27       60  
Total investment income
    367       658       1,573       2,207  
Investment expense
    (12 )     (11 )     (42 )     (42 )
Net investment income
  $ 355     $ 647     $ 1,531     $ 2,165  

Investment gains (losses) are as follows:
                       
                         
Fixed maturities
  $ (315 )   $ (39 )   $ (475 )   $ (322 )
Equity securities, including short positions
    (376 )     16       (405 )     30  
Derivative instruments
    35       (45 )     47       94  
Short term investments
    5       7       12       7  
Other, including guaranteed separate account business
    1       7       9       8  
Investment losses
    (650 )     (54 )     (812 )     (183 )
Gain on issuance of subsidiary stock (Note 13)
                    2       139  
      (650 )     (54 )     (810 )     (44 )
Income tax benefit
    227       19       284       14  
Minority interest
    44       3       54       15  
Investment losses, net
  $ (379 )   $ (32 )   $ (472 )   $ (15 )

For the three months ended September 30, 2008, other-than-temporary impairment (“OTTI”) losses of $584 million were recorded primarily in the non-redeemable preferred equity securities and corporate and other taxable bonds sectors. This compared to OTTI losses for the three months ended September 30, 2007 of $188 million recorded primarily in the corporate and other taxable bonds and asset-backed bonds sectors. The OTTI losses for 2008 were primarily driven by credit issues.

For the three months ended September 30, 2008, the Company recorded realized investment losses, including OTTI losses, of $305 million related to securities issued by Federal National Mortgage Association (“Fannie Mae”) and Federal Home Loan Mortgage Corporation (“Freddie Mac”), $100 million related to securities issued by Washington Mutual, $96 million related to securities issued by Icelandic banks and $35 million related to securities issued by American International Group.

Realized investment losses for the nine months ended September 30, 2008 included OTTI losses of $840 million, recorded primarily in the non-redeemable preferred equity securities, corporate and other taxable bonds and asset-backed bonds sectors. This compared to OTTI losses for the nine months ended September 30, 2007 of $451 million recorded primarily in the corporate and other taxable bonds and asset-backed bonds sectors. The OTTI losses for 2008 were primarily driven by credit issues.

The Company’s investment policies emphasize high credit quality and diversification by industry, issuer and issue. Assets supporting interest rate sensitive liabilities are segmented within the general account to facilitate asset/liability duration management.

In 2008, the Company re-evaluated its classification of preferred stocks between redeemable and non-redeemable and determined that certain securities that were previously classified as redeemable preferred stock have characteristics similar to equities. These securities are presented as preferred stock securities included in Equity securities available-for-sale in the September 30, 2008 Consolidated Condensed Balance Sheet.

 
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The amortized cost and market values of securities are as follows:

               
Gross Unrealized Losses
       
   
Amortized
   
Unrealized
   
Less Than
   
12 Months
       
September 30, 2008
 
Cost
   
Gains
   
12 Months
   
or Greater
   
Fair Value
 
(In millions)
                             
                               
Fixed maturity securities:
                             
U.S. government and obligations
                             
of government agencies
  $ 1,431     $ 88     $ 1           $ 1,518  
Asset-backed securities
    9,982       27       484     $ 746       8,779  
States, municipalities and political
                                       
subdivisions-tax exempt
    7,781       21       596       240       6,966  
Corporate
    9,495       73       797       352       8,419  
Other debt
    3,618       59       193       103       3,381  
Redeemable preferred stocks
    72       3       2               73  
Fixed maturities available-for-sale
    32,379       271       2,073       1,441       29,136  
Fixed maturities, trading
    624       1       11       17       597  
Total fixed maturities
    33,003       272       2,084       1,458       29,733  
Equity securities:
                                       
Equity securities available-for-sale
    1,112       187       166       169       964  
Equity securities, trading
    664       53       102       63       552  
Total equity securities
    1,776       240       268       232       1,516  
Short term investments:
                                       
Short term investments available-for-
                                       
sale
    5,387       6       1               5,392  
Short term investments, trading
    3,281