Quarterly report pursuant to Section 13 or 15(d)

Short-Term And Long-Term Investments And Restricted Deposits

v3.4.0.3
Short-Term And Long-Term Investments And Restricted Deposits
 3 Months Ended
Mar. 31, 2016
Investments, Debt and Equity Securities [Abstract]  
Short term and Long term Investments, Restricted Deposits
Short term and Long term Investments, Restricted Deposits

Short term and long term investments and restricted deposits by investment type consist of the following ($ in millions):
 
March 31, 2016
 
December 31, 2015
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized Losses
 
Fair
Value
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized Losses
 
Fair
Value
U.S. Treasury securities and obligations of U.S. government corporations and agencies
$
339

 
$
2

 
$
—

 
$
341

 
$
431

 
$
—

 
$
(2
)
 
$
429

Corporate securities
1,607

 
14

 
(3
)
 
1,618

 
859

 
2

 
(8
)
 
853

Restricted certificates of deposit
5

 
—

 
—

 
5

 
5

 
—

 
—

 
5

Restricted cash equivalents
70

 
—

 
—

 
70

 
78

 
—

 
—

 
78

Municipal securities
1,406

 
12

 
(1
)
 
1,417

 
496

 
2

 
(1
)
 
497

Asset-backed securities
273

 
1

 
(1
)
 
273

 
163

 
—

 
(1
)
 
162

Residential mortgage-backed securities
279

 
2

 
—

 
281

 
66

 
1

 
—

 
67

Commercial mortgage-backed securities
223

 
5

 
(5
)
 
223

 
40

 
—

 
—

 
40

Cost and equity method investments
141

 
—

 
—

 
141

 
71

 
—

 
—

 
71

Life insurance contracts
16

 
—

 
—

 
16

 
16

 
—

 
—

 
16

Total
$
4,359

 
$
36

 
$
(10
)
 
$
4,385

 
$
2,225

 
$
5

 
$
(12
)
 
$
2,218



The Company’s investments are classified as available-for-sale with the exception of life insurance contracts and certain cost and equity method investments.  The Company’s investment policies are designed to provide liquidity, preserve capital and maximize total return on invested assets with the focus on high credit quality securities.  The Company limits the size of investment in any single issuer other than U.S. treasury securities and obligations of U.S. government corporations and agencies. As of March 31, 2016, 94% of the Company’s investments in rated securities carry an investment grade rating by S&P and Moody's.  At March 31, 2016, the Company held certificates of deposit, life insurance contracts and cost and equity method investments which did not carry a credit rating.

The Company's residential mortgage-backed securities are all issued by the Federal National Mortgage Association, Government National Mortgage Association or Federal Home Loan Mortgage Corporation, which carry implicit or explicit guarantees of the U.S. government. The Company's commercial mortgage-backed securities are primarily senior tranches with a weighted average rating of AA and a weighted average duration of 2.9 years at March 31, 2016.

In January 2016, the Company completed a 19% investment in a data analytics business and as a result, issued 1.1 million shares of Centene common stock to the selling stockholders, valued at $68 million. The investment will be accounted for using the equity method of accounting.

The fair value of available-for-sale investments with gross unrealized losses by investment type and length of time that individual securities have been in a continuous unrealized loss position were as follows ($ in millions):
 
March 31, 2016
 
December 31, 2015
 
Less Than 12 Months
 
12 Months or More
 
Less Than 12 Months
 
12 Months or More
 
Unrealized Losses
 
Fair
Value
 
Unrealized Losses
 
Fair
Value
 
Unrealized Losses
 
Fair
Value
 
Unrealized Losses
 
Fair
Value
U.S. Treasury securities and obligations of U.S. government corporations and agencies
$
—

 
$
13

 
$
—

 
$
—

 
$
(2
)
 
$
294

 
$
—

 
$
14

Corporate securities
(2
)
 
280

 
(1
)
 
82

 
(6
)
 
561

 
(2
)
 
41

Municipal securities
(1
)
 
245

 
—

 
21

 
(1
)
 
208

 
—

 
5

Asset-backed securities
(1
)
 
118

 
—

 
10

 
(1
)
 
121

 
—

 
8

Residential mortgage-backed securities
—

 
11

 
—

 
—

 
—

 
30

 
—

 
—

Commercial mortgage-backed securities
(5
)
 
31

 
—

 
—

 
—

 
34

 
—

 
—

Total
$
(9
)
 
$
698

 
$
(1
)
 
$
113

 
$
(10
)
 
$
1,248

 
$
(2
)
 
$
68



As of March 31, 2016, the gross unrealized losses were generated from 503 positions out of a total of 2,274 positions.  The change in fair value of fixed income securities is a result of movement in interest rates subsequent to the purchase of the security.

For each security in an unrealized loss position, the Company assesses whether it intends to sell the security or if 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 the security meets this criterion, the decline in fair value is other-than-temporary and is recorded in earnings.  The Company does not intend to sell these securities prior to maturity and it is not likely that the Company will be required to sell these securities prior to maturity; therefore, there is no indication of other-than-temporary impairment for these securities.

The contractual maturities of short term and long term investments and restricted deposits are as follows ($ in millions):
 
March 31, 2016
 
December 31, 2015
 
Investments
 
Restricted Deposits
 
Investments
 
Restricted Deposits
 
Amortized
Cost
 
Fair
Value
 
Amortized
Cost
 
Fair
Value
 
Amortized
Cost
 
Fair
Value
 
Amortized
Cost
 
Fair
Value
One year or less
$
269

 
$
269

 
$
112

 
$
112

 
$
176

 
$
176

 
$
93

 
$
93

One year through five years
1,833

 
1,845

 
31

 
31

 
1,662

 
1,654

 
22

 
22

Five years through ten years
853

 
860

 
—

 
—

 
267

 
268

 
—

 
—

Greater than ten years
487

 
491

 
—

 
—

 
5

 
5

 
—

 
—

Asset-backed securities
775

 
777

 
—

 
—

 
—

 
—

 
—

 
—

Total
$
4,217

 
$
4,242

 
$
143

 
$
143

 
$
2,110

 
$
2,103

 
$
115

 
$
115


 
Actual maturities may differ from contractual maturities due to call or prepayment options.  Cost and equity method investments and life insurance contracts are included in the five years through ten years category.  The Company has an option to redeem at amortized cost substantially all of the securities included in the greater than ten years category listed above.

The Company continuously monitors investments for other-than-temporary impairment.  Certain investments have experienced a decline in fair value due to changes in credit quality, market interest rates and/or general economic conditions.  The Company recognizes an impairment loss for cost and equity method investments when evidence demonstrates that it is other-than-temporarily impaired.  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.