Quarterly report pursuant to Section 13 or 15(d)

Short term and Long term Investments, Restricted Deposits

v3.5.0.2
Short term and Long term Investments, Restricted Deposits
9 Months Ended
Sep. 30, 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):
 
September 30, 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
$
288

 
$
2

 
$

 
$
290

 
$
431

 
$

 
$
(2
)
 
$
429

Corporate securities
1,915

 
30

 
(2
)
 
1,943

 
859

 
2

 
(8
)
 
853

Restricted certificates of deposit
6

 

 

 
6

 
5

 

 

 
5

Restricted cash equivalents
70

 

 

 
70

 
78

 

 

 
78

Municipal securities
1,638

 
24

 
(1
)
 
1,661

 
496

 
2

 
(1
)
 
497

Asset-backed securities
289

 
2

 

 
291

 
163

 

 
(1
)
 
162

Residential mortgage-backed securities
215

 
3

 
(1
)
 
217

 
66

 
1

 

 
67

Commercial mortgage-backed securities
341

 
15

 
(1
)
 
355

 
40

 

 

 
40

Cost and equity method investments
162

 

 

 
162

 
71

 

 

 
71

Life insurance contracts
116

 

 

 
116

 
16

 

 

 
16

Total
$
5,040

 
$
76

 
$
(5
)
 
$
5,111

 
$
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 September 30, 2016, 95% of the Company’s investments in rated securities carry an investment grade rating by S&P and Moody's.  At September 30, 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 primarily 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 3.3 years at September 30, 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, valued at $68 million, to the selling stockholders. The investment is being 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):
 
September 30, 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
$

 
$
4

 
$

 
$
2

 
$
(2
)
 
$
294

 
$

 
$
14

Corporate securities
(1
)
 
309

 
(1
)
 
80

 
(6
)
 
561

 
(2
)
 
41

Municipal securities
(1
)
 
231

 

 
32

 
(1
)
 
208

 

 
5

Asset-backed securities

 
29

 

 
21

 
(1
)
 
121

 

 
8

Residential mortgage-backed securities
(1
)
 
45

 

 

 

 
30

 

 

Commercial mortgage-backed securities
(1
)
 
119

 

 
1

 

 
34

 

 

Total
$
(4
)
 
$
737

 
$
(1
)
 
$
136

 
$
(10
)
 
$
1,248

 
$
(2
)
 
$
68



As of September 30, 2016, the gross unrealized losses were generated from 569 positions out of a total of 2,731 positions.  The change in fair value of fixed income securities is primarily 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):
 
September 30, 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
$
406

 
$
406

 
$
122

 
$
123

 
$
176

 
$
176

 
$
93

 
$
93

One year through five years
1,978

 
2,000

 
14

 
14

 
1,662

 
1,654

 
22

 
22

Five years through ten years
1,098

 
1,116

 

 

 
267

 
268

 

 

Greater than ten years
577

 
589

 

 

 
5

 
5

 

 

Asset-backed securities
845

 
863

 

 

 

 

 

 

Total
$
4,904

 
$
4,974

 
$
136

 
$
137

 
$
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.