Quarterly report pursuant to Section 13 or 15(d)

Short-term and Long-term Investments, Restricted Deposits

v3.20.1
Short-term and Long-term Investments, Restricted Deposits
3 Months Ended
Mar. 31, 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):
 
March 31, 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
$
771

 
$
7

 
$

 
$
778

 
$
211

 
$
1

 
$

 
$
212

Corporate securities
5,036

 
76

 
(134
)
 
4,978

 
3,629

 
108

 
(4
)
 
3,733

Restricted certificates of deposit
153

 

 

 
153

 
482

 

 

 
482

Restricted cash equivalents
149

 

 

 
149

 
8

 

 

 
8

Short-term time deposits
84

 

 

 
84

 

 

 

 

Municipal securities
2,511

 
77

 
(4
)
 
2,584

 
2,320

 
69

 
(1
)
 
2,388

Asset-backed securities
1,050

 
4

 
(36
)
 
1,018

 
741

 
5

 
(2
)
 
744

Residential mortgage-backed securities
997

 
32

 
(2
)
 
1,027

 
464

 
8

 
(1
)
 
471

Commercial mortgage-backed securities
590

 
10

 
(13
)
 
587

 
380

 
9

 
(1
)
 
388

Equity securities (1)
685

 

 

 
685

 

 

 

 

Private equity investments
748

 

 

 
748

 
664

 

 

 
664

Life insurance contracts
130

 

 

 
130

 
148

 

 

 
148

Total
$
12,904

 
$
206

 
$
(189
)
 
$
12,921

 
$
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, 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 March 31, 2020, 97% of the Company’s investments in rated securities carry an investment grade rating by nationally recognized statistical rating organizations. At March 31, 2020, the Company held certificates of deposit, equity securities, life insurance contracts and private equity investments which did not carry a credit rating. Accrued interest income on available for sale debt securities was $78 million at March 31, 2020, and is included in other current assets on the consolidated balance sheet.

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 March 31, 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):
 
March 31, 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
U.S. Treasury securities and obligations of U.S. government corporations and agencies
$

 
$
374

 
$

 
$

 
$

 
$
11

 
$

 
$
31

Corporate securities
(130
)
 
2,461

 
(4
)
 
16

 
(2
)
 
192

 
(2
)
 
48

Municipal securities
(4
)
 
275

 

 
1

 
(1
)
 
185

 

 
11

Asset-backed securities
(30
)
 
628

 
(6
)
 
102

 
(1
)
 
153

 
(1
)
 
151

Residential mortgage-backed securities
(2
)
 
68

 

 
6

 

 
44

 
(1
)
 
81

Commercial mortgage-backed securities
(13
)
 
280

 

 
3

 
(1
)
 
118

 

 
21

Short-term time deposits

 

 

 
2

 

 

 

 

Total
$
(179
)
 
$
4,086

 
$
(10
)
 
$
130

 
$
(5
)
 
$
703

 
$
(4
)
 
$
343



As of March 31, 2020, the gross unrealized losses were generated from 2,636 positions out of a total of 5,998 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):
 
March 31, 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
$
1,239

 
$
1,237

 
$
841

 
$
842

 
$
750

 
$
752

 
$
550

 
$
550

One year through five years
3,954

 
3,935

 
169

 
172

 
3,034

 
3,106

 
106

 
108

Five years through ten years
2,430

 
2,465

 

 

 
2,162

 
2,257

 

 

Greater than ten years
72

 
74

 

 

 
48

 
50

 

 

Asset-backed securities
2,636

 
2,633

 

 

 
1,585

 
1,603

 

 

Total
$
10,331

 
$
10,344

 
$
1,010

 
$
1,014

 
$
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.