Quarterly report pursuant to Section 13 or 15(d)

Short-term and Long-term Investments, Restricted Deposits

v3.7.0.1
Short-term and Long-term Investments, Restricted Deposits
6 Months Ended
Jun. 30, 2017
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):
 
June 30, 2017
 
December 31, 2016
 
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
$
329

 
$

 
$
(1
)
 
$
328

 
$
364

 
$

 
$
(1
)
 
$
363

Corporate securities
2,048

 
17

 
(6
)
 
2,059

 
1,933

 
12

 
(13
)
 
1,932

Restricted certificates of deposit
4

 

 

 
4

 
5

 

 

 
5

Restricted cash equivalents
8

 

 

 
8

 
6

 

 

 
6

Municipal securities
1,923

 
11

 
(8
)
 
1,926

 
1,767

 
1

 
(35
)
 
1,733

Asset-backed securities
373

 
1

 

 
374

 
317

 
1

 
(1
)
 
317

Residential mortgage-backed securities
231

 
1

 
(4
)
 
228

 
219

 
1

 
(5
)
 
215

Commercial mortgage-backed securities
322

 
1

 
(4
)
 
319

 
343

 

 
(5
)
 
338

Cost and equity method investments
167

 

 

 
167

 
163

 

 

 
163

Life insurance contracts
126

 

 

 
126

 
116

 

 

 
116

Total
$
5,531

 
$
31

 
$
(23
)
 
$
5,539

 
$
5,233

 
$
15

 
$
(60
)
 
$
5,188



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 June 30, 2017, 94% of the Company’s investments in rated securities carry an investment grade rating by S&P and Moody’s. At June 30, 2017, 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 3.9 years at June 30, 2017.

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):
 
June 30, 2017
 
December 31, 2016
 
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
$
(1
)
 
$
263

 
$

 
$
3

 
$
(1
)
 
$
215

 
$

 
$
2

Corporate securities
(6
)
 
662

 

 
22

 
(12
)
 
1,020

 
(1
)
 
39

Municipal securities
(8
)
 
743

 

 
36

 
(35
)
 
1,423

 

 
30

Asset-backed securities

 
146

 

 
13

 
(1
)
 
101

 

 
18

Residential mortgage-backed securities
(3
)
 
154

 
(1
)
 
16

 
(5
)
 
188

 

 

Commercial mortgage-backed securities
(2
)
 
188

 
(2
)
 
14

 
(5
)
 
271

 

 

Total
$
(20
)
 
$
2,156

 
$
(3
)
 
$
104

 
$
(59
)
 
$
3,218

 
$
(1
)
 
$
89



As of June 30, 2017, the gross unrealized losses were generated from 1,375 positions out of a total of 3,096 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):
 
June 30, 2017
 
December 31, 2016
 
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
$
524

 
$
524

 
$
82

 
$
82

 
$
500

 
$
500

 
$
91

 
$
91

One year through five years
2,058

 
2,066

 
55

 
55

 
1,982

 
1,974

 
47

 
47

Five years through ten years
1,674

 
1,678

 

 

 
1,101

 
1,089

 

 

Greater than ten years
212

 
213

 

 

 
633

 
617

 

 

Asset-backed securities
926

 
921

 

 

 
879

 
870

 

 

Total
$
5,394

 
$
5,402

 
$
137

 
$
137

 
$
5,095

 
$
5,050

 
$
138

 
$
138


 
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.