Centene Corporation Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

Fair Value Measurements

Fair Value Measurements

9 Months Ended

Sep. 30, 2017

Assets and liabilities recorded at fair value in the Consolidated Balance Sheets are categorized based upon observable or unobservable inputs used to estimate fair value. Level inputs are as follows:



Level Input:		Input Definition:
Level I		Inputs are unadjusted, quoted prices for identical assets or liabilities in active markets at the measurement date.

Level II		Inputs other than quoted prices included in Level I that are observable for the asset or liability through corroboration with market data at the measurement date.

Level III		Unobservable inputs that reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date.

The following table summarizes fair value measurements by level at September 30, 2017, for assets and liabilities measured at fair value on a recurring basis ($ in millions):



	Level I		Level II		Level III		Total
Assets
Cash and cash equivalents	$	4,281	$	—	$	—	$	4,281
Investments available for sale:
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	201	$	—	$	—	$	201
Corporate securities	—		2,110		—		2,110
Municipal securities	—		1,989		—		1,989
Asset-backed securities	—		378		—		378
Residential mortgage-backed securities	—		306		—		306
Commercial mortgage-backed securities	—		236		—		236
Total investments	$	201	$	5,019	$	—	$	5,220
Restricted deposits available for sale:
Cash and cash equivalents	$	6	$	—	$	—	$	6
Certificates of deposit	4		—		—		4
U.S. Treasury securities and obligations of U.S. government corporations and agencies	128		—		—		128
Total restricted deposits	$	138	$	—	$	—	$	138
Other long-term assets: Interest rate swap agreements	$	—	$	4	$	—	$	4
Total assets at fair value	$	4,620	$	5,023	$	—	$	9,643
Liabilities
Other long-term liabilities:
Interest rate swap agreements	$	—	$	53	$	—	$	53
Total liabilities at fair value	$	—	$	53	$	—	$	53

The following table summarizes fair value measurements by level at December 31, 2016, for assets and liabilities measured at fair value on a recurring basis ($ in millions):



	Level I		Level II		Level III		Total
Assets
Cash and cash equivalents	$	3,930	$	—	$	—	$	3,930
Investments available for sale:
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	221	$	15	$	—	$	236
Corporate securities	—		1,932		—		1,932
Municipal securities	—		1,733		—		1,733
Asset-backed securities	—		317		—		317
Residential mortgage-backed securities	—		215		—		215
Commercial mortgage-backed securities	—		338		—		338
Total investments	$	221	$	4,550	$	—	$	4,771
Restricted deposits available for sale:
Cash and cash equivalents	$	6	$	—	$	—	$	6
Certificates of deposit	5		—		—		5
U.S. Treasury securities and obligations of U.S. government corporations and agencies	127		—		—		127
Total restricted deposits	$	138	$	—	$	—	$	138
Other long-term assets:
Interest rate swap agreements	$	—	$	4	$	—	$	4
Total assets at fair value	$	4,289	$	4,554	$	—	$	8,843
Liabilities
Other long-term liabilities:
Interest rate swap agreements	$	—	$	62	$	—	$	62
Total liabilities at fair value	$	—	$	62	$	—	$	62

The Company periodically transfers U.S. Treasury securities and obligations of U.S. government corporations and agencies between Level I and Level II fair value measurements dependent upon the level of trading activity for the specific securities at the measurement date. The Company’s policy regarding the timing of transfers between Level I and Level II is to measure and record the transfers at the end of the reporting period. At September 30, 2017, there were no transfers from Level I to Level II and $14 million of transfers from Level II to Level I. The Company utilizes matrix pricing services to estimate fair value for securities which are not actively traded on the measurement date. The Company designates these securities as Level II fair value measurements. The aggregate carrying amount of the Company’s life insurance contracts and other non-majority owned investments, which approximates fair value, was $302 million and $279 million as of September 30, 2017 and December 31, 2016, respectively.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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