Quarterly report pursuant to Section 13 or 15(d)

Short-term and Long-term Investments, Restricted Deposits

v3.10.0.1
Short-term and Long-term Investments, Restricted Deposits
9 Months Ended
Sep. 30, 2018
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, 2018
 
December 31, 2017
 
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
$
259

 
$

 
$
(3
)
 
$
256

 
$
311

 
$

 
$
(2
)
 
$
309

Corporate securities
2,774

 
4

 
(44
)
 
2,734

 
2,208

 
12

 
(10
)
 
2,210

Restricted certificates of deposit
430

 

 

 
430

 
4

 

 

 
4

Restricted cash equivalents
7

 

 

 
7

 
17

 

 

 
17

Municipal securities
2,231

 
2

 
(35
)
 
2,198

 
2,085

 
12

 
(10
)
 
2,087

Asset-backed securities
598

 

 
(4
)
 
594

 
437

 
1

 
(1
)
 
437

Residential mortgage-backed securities
382

 

 
(14
)
 
368

 
337

 
1

 
(6
)
 
332

Commercial mortgage-backed securities
317

 

 
(8
)
 
309

 
272

 
1

 
(2
)
 
271

Private equity investments
382

 

 

 
382

 
176

 

 

 
176

Life insurance contracts
138

 

 

 
138

 
135

 

 

 
135

Total
$
7,518

 
$
6

 
$
(108
)
 
$
7,416

 
$
5,982

 
$
27

 
$
(31
)
 
$
5,978



The Company’s investments are debt securities classified as available-for-sale with the exception of life insurance contracts and certain private equity 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, 2018, 96% of the Company’s investments in rated securities carry an investment grade rating by nationally recognized statistical rating organizations. At September 30, 2018, the Company held certificates of deposit, life insurance contracts and private equity 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 3.8 years at September 30, 2018.

In March 2018, the Company completed a 25% investment in RxAdvance, a full-service pharmacy benefit manager. In May 2018, the Company made an additional investment, bringing the total ownership to 28%. The investment is accounted for using the equity method of accounting. In September 2018, the Company made an additional investment in RxAdvance in the form of convertible preferred stock.

The fair value of available-for-sale debt securities 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, 2018
 
December 31, 2017
 
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
)
 
$
93

 
$
(2
)
 
$
161

 
$
(1
)
 
$
222

 
$
(1
)
 
$
79

Corporate securities
(31
)
 
1,913

 
(13
)
 
337

 
(6
)
 
1,044

 
(4
)
 
185

Municipal securities
(25
)
 
1,518

 
(10
)
 
286

 
(7
)
 
943

 
(3
)
 
175

Asset-backed securities
(3
)
 
409

 
(1
)
 
66

 
(1
)
 
228

 

 
28

Residential mortgage-backed securities
(4
)
 
186

 
(10
)
 
178

 
(1
)
 
109

 
(5
)
 
171

Commercial mortgage-backed securities
(4
)
 
174

 
(4
)
 
90

 
(1
)
 
112

 
(1
)
 
51

Total
$
(68
)
 
$
4,293

 
$
(40
)
 
$
1,118

 
$
(17
)
 
$
2,658

 
$
(14
)
 
$
689



As of September 30, 2018, the gross unrealized losses were generated from 3,200 positions out of a total of 3,954 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, 2018
 
December 31, 2017
 
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
$
517

 
$
515

 
$
201

 
$
201

 
$
474

 
$
474

 
$
48

 
$
47

One year through five years
2,674

 
2,636

 
350

 
349

 
2,424

 
2,420

 
88

 
88

Five years through ten years
2,277

 
2,242

 

 

 
1,773

 
1,779

 

 

Greater than ten years
202

 
202

 

 

 
129

 
130

 

 

Asset-backed securities
1,297

 
1,271

 

 

 
1,046

 
1,040

 

 

Total
$
6,967

 
$
6,866

 
$
551

 
$
550

 
$
5,846

 
$
5,843

 
$
136

 
$
135


 
Actual maturities may differ from contractual maturities due to call or prepayment options. Private equity 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 private equity 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.