Quarterly report pursuant to Section 13 or 15(d)

Short-term and Long-term Investments, Restricted Deposits

v3.20.2
Short-term and Long-term Investments, Restricted Deposits
 6 Months Ended
Jun. 30, 2020
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, 2020
 
December 31, 2019
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized Losses
 
Fair
Value
 
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized Losses
 
Fair
Value
Debt securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury securities and obligations of U.S. government corporations and agencies
$
975

 
$
6

 
$
—

 
$
981

 
$
211

 
$
1

 
$
—

 
$
212

Corporate securities
4,841

 
222

 
(32
)
 
5,031

 
3,629

 
108

 
(4
)
 
3,733

Restricted certificates of deposit
104

 
—

 
—

 
104

 
482

 
—

 
—

 
482

Restricted cash equivalents
157

 
—

 
—

 
157

 
8

 
—

 
—

 
8

Short-term time deposits
56

 
—

 
—

 
56

 
—

 
—

 
—

 
—

Municipal securities
2,429

 
111

 
(5
)
 
2,535

 
2,320

 
69

 
(1
)
 
2,388

Asset-backed securities
974

 
10

 
(13
)
 
971

 
741

 
5

 
(2
)
 
744

Residential mortgage-backed securities
888

 
32

 
—

 
920

 
464

 
8

 
(1
)
 
471

Commercial mortgage-backed securities
584

 
23

 
(8
)
 
599

 
380

 
9

 
(1
)
 
388

Equity securities (1)
561

 
—

 
—

 
561

 
—

 
—

 
—

 
—

Private equity investments
778

 
—

 
—

 
778

 
664

 
—

 
—

 
664

Life insurance contracts
146

 
—

 
—

 
146

 
148

 
—

 
—

 
148

Total
$
12,493

 
$
404

 
$
(58
)
 
$
12,839

 
$
9,047

 
$
200

 
$
(9
)
 
$
9,238

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1)    Investments in equity securities primarily consists of exchange traded funds in fixed income securities.

The Company’s investments are debt securities classified as available-for-sale with the exception of equity securities, certain private equity investments and life insurance contracts. 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, 2020, 97% of the Company’s investments in rated securities carry an investment grade rating by nationally recognized statistical rating organizations. At June 30, 2020, the Company held certificates of deposit, equity securities, private equity investments and life insurance contracts, which did not carry a credit rating. Accrued interest income on available for sale debt securities was $75 million at June 30, 2020, and is included in other current assets on the Consolidated Balance Sheets.

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 4 years at June 30, 2020.

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):
 
June 30, 2020
 
December 31, 2019
 
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
Corporate securities
$
(29
)
 
$
627

 
$
(3
)
 
$
21

 
$
(2
)
 
$
192

 
$
(2
)
 
$
48

Municipal securities
(5
)
 
162

 
—

 
1

 
(1
)
 
185

 
—

 
11

Asset-backed securities
(10
)
 
334

 
(3
)
 
105

 
(1
)
 
153

 
(1
)
 
151

Residential mortgage-backed securities
—

 
27

 
—

 
4

 
—

 
44

 
(1
)
 
81

Commercial mortgage-backed securities
(7
)
 
147

 
(1
)
 
9

 
(1
)
 
118

 
—

 
21

Total
$
(51
)
 
$
1,297

 
$
(7
)
 
$
140

 
$
(5
)
 
$
692

 
$
(4
)
 
$
312



As of June 30, 2020, the gross unrealized losses were generated from 1,243 positions out of a total of 5,825 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 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, the Company did not record impairment for these securities.

In addition, the Company continuously monitors investments for credit losses. 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 allowance when evidence demonstrates that it is credit related. Evidence of a credit related loss may include rating agency actions, adverse conditions specifically related to the security, or failure of the issuer of the security to make scheduled payments.

The contractual maturities of short-term and long-term debt securities and restricted deposits are as follows ($ in millions):
 
June 30, 2020
 
December 31, 2019
 
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
$
1,406

 
$
1,414

 
$
881

 
$
882

 
$
750

 
$
752

 
$
550

 
$
550

One year through five years
3,847

 
3,986

 
151

 
154

 
3,034

 
3,106

 
106

 
108

Five years through ten years
2,200

 
2,346

 
13

 
14

 
2,162

 
2,257

 
—

 
—

Greater than ten years
64

 
68

 
—

 
—

 
48

 
50

 
—

 
—

Asset-backed securities
2,446

 
2,490

 
—

 
—

 
1,585

 
1,603

 
—

 
—

Total
$
9,963

 
$
10,304

 
$
1,045

 
$
1,050

 
$
7,579

 
$
7,768

 
$
656

 
$
658


 
Actual maturities may differ from contractual maturities due to call or prepayment options. Equity securities, private equity investments and life insurance contracts are excluded from the table above because they do not have a contractual maturity. 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.