Quarterly report pursuant to Section 13 or 15(d)

Short-Term And Long-Term Investments And Restricted Deposits

v3.2.0.727
Short-Term And Long-Term Investments And Restricted Deposits
6 Months Ended
Jun. 30, 2015
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, 2015
 
December 31, 2014
 
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
$
451

 
$
1

 
$
(1
)
 
$
451

 
$
393

 
$
1

 
$
(2
)
 
$
392

Corporate securities
632

 
2

 
(2
)
 
632

 
556

 
2

 
(2
)
 
556

Restricted certificates of deposit
6

 

 

 
6

 
6

 

 

 
6

Restricted cash equivalents
80

 

 

 
80

 
79

 

 

 
79

Municipal securities:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

General obligation
96

 

 

 
96

 
54

 

 

 
54

Pre-refunded
4

 

 

 
4

 
5

 

 

 
5

Revenue
161

 
1

 
(1
)
 
161

 
101

 
1

 

 
102

Variable rate demand notes
28

 

 

 
28

 
14

 

 

 
14

Asset backed securities
162

 

 

 
162

 
180

 

 

 
180

Mortgage backed securities
77

 
1

 

 
78

 
84

 
1

 

 
85

Cost and equity method investments
68

 

 

 
68

 
68

 

 

 
68

Life insurance contracts
16

 

 

 
16

 
16

 

 

 
16

Total
$
1,781

 
$
5

 
$
(4
)
 
$
1,782

 
$
1,556

 
$
5

 
$
(4
)
 
$
1,557



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.  The Company's mortgage backed securities are issued by the Federal National Mortgage Association and carry guarantees by the U.S. government. As of June 30, 2015, 48% of the Company’s investments in securities recorded at fair value that carry a rating by S&P or Moody’s were rated AAA/Aaa, 66% were rated AA-/Aa3 or higher, and 90% were rated A-/A3 or higher.  At June 30, 2015, the Company held certificates of deposit, life insurance contracts and cost and equity method investments which did not carry a credit rating.

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, 2015
 
December 31, 2014
 
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
)
 
$
162

 
$

 
$
16

 
$

 
$
72

 
$
(2
)
 
$
180

Corporate securities
(2
)
 
286

 

 
31

 
(2
)
 
311

 

 
1

Municipal securities:
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

General obligation

 
51

 

 
3

 

 
4

 

 
3

Revenue
(1
)
 
52

 

 
5

 

 
16

 

 
3

Pre-refunded

 

 

 

 

 

 

 
1

Asset backed securities

 
37

 

 
15

 

 
70

 

 
10

Mortgage backed securities

 
37

 

 

 

 
18

 

 

Total
$
(4
)
 
$
625

 
$

 
$
70

 
$
(2
)
 
$
491

 
$
(2
)
 
$
198



As of June 30, 2015, the gross unrealized losses were generated from 122 positions out of a total of 357 positions.  The change in fair value of fixed income securities is 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.

During the six months ended June 30, 2015, the Company recognized $4 million of income from equity method investments.

The contractual maturities of short term and long term investments and restricted deposits are as follows ($ in millions):
 
June 30, 2015
 
December 31, 2014
 
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
$
140

 
$
140

 
$
99

 
$
99

 
$
176

 
$
177

 
$
92

 
$
92

One year through five years
1,325

 
1,326

 
2

 
2

 
1,121

 
1,121

 
8

 
8

Five years through ten years
135

 
135

 

 

 
121

 
120

 

 

Greater than ten years
80

 
80

 

 

 
38

 
39

 

 

Total
$
1,680

 
$
1,681

 
$
101

 
$
101

 
$
1,456

 
$
1,457

 
$
100

 
$
100


 
Actual maturities may differ from contractual maturities due to call or prepayment options.  Asset backed and mortgage backed securities are included in the one year through five years category, while 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.