Investments

9 Months Ended

Sep. 30, 2020

Fixed Maturity Securities

We evaluate our available-for-sale fixed maturity securities for declines based on qualitative and quantitative factors. We have established an allowance for credit loss and recorded credit loss expense as a reflection of our expected impairment losses. We continue to review our investment portfolios under our impairment review policy. Given the inherent uncertainty of changes in market conditions and the significant judgments involved, there is a continuing risk that declines in fair value may occur and additional material impairment losses on investments may be recorded in future periods.

A summary of current and long-term fixed maturity securities, available-for-sale, at September 30, 2020 and December 31, 2019 is as follows:


	Cost or Amortized Cost												Non-Credit Component of Impairment Recognized in Accumulated Other Comprehensive Loss
			Gross Unrealized Gains		Gross Unrealized Losses				Allowance For Credit Losses		Estimated Fair Value
					Less than 12 Months		12 Months or Greater
September 30, 2020
Fixed maturity securities:
United States Government securities	$	802	$	17	$	(6)	$	—	$	—	$	813	$	—
Government sponsored securities	75		6		—		—		—		81		—
Foreign government securities	296		10		(13)		—		(1)		292		—
States, municipalities and political subdivisions	5,042		339		(18)		—		—		5,363		—
Corporate securities	10,140		579		(114)		(23)		(11)		10,571		(10)

Residential mortgage-backed securities	4,075		151		(48)		(10)		—		4,168		(1)
Commercial mortgage-backed securities	76		3		(1)		(3)		—		75		—
Other securities	1,891		31		(14)		(6)		—		1,902		—
Total fixed maturity securities	$	22,397	$	1,136	$	(214)	$	(42)	$	(12)	$	23,265	$	(11)


December 31, 2019
Fixed maturity securities:
United States Government securities	$	524	$	4	$	(3)	$	—	$	—	$	525	$	—
Government sponsored securities	136		5		—		—		—		141		—
States, municipalities and political subdivisions	4,592		262		(3)		—		—		4,851		—
Corporate securities	8,870		339		(9)		(15)		—		9,185		(3)

Residential mortgage-backed securities	3,654		87		(6)		(3)		—		3,732		—
Commercial mortgage-backed securities	84		2		—		—		—		86		—
Other securities	1,648		21		(3)		(5)		—		1,661		—
Total fixed maturity securities	$	19,508	$	720	$	(24)	$	(23)	$	—	$	20,181	$	(3)

For fixed maturity securities in an unrealized loss position at September 30, 2020 and December 31, 2019, the following table summarizes the aggregate fair values and gross unrealized losses by length of time those securities have continuously been in an unrealized loss position:


	Less than 12 Months					12 Months or Greater
(Securities are whole amounts)	Number of Securities	Estimated Fair Value		Gross Unrealized Loss		Number of Securities	Estimated Fair Value		Gross Unrealized Loss
September 30, 2020
Fixed maturity securities:
United States Government securities	17	$	377	$	(6)	—	$	—	$	—
Government sponsored securities	1	1		—		1	—		—
Foreign government securities	191	141		(13)		—	—		—
States, municipalities and political subdivisions	283	512		(18)		1	3		—
Corporate securities	1,481	2,140		(114)		146	171		(23)
Residential mortgage-backed securities	407	976		(48)		82	108		(10)
Commercial mortgage-backed securities	6	17		(1)		3	4		(3)
Other securities	302	763		(14)		75	185		(6)
Total fixed maturity securities	2,688	$	4,927	$	(214)	308	$	471	$	(42)


December 31, 2019
Fixed maturity securities:
United States Government securities	27	$	250	$	(3)	2	$	1	$	—
Government sponsored securities	14	12		—		3	1		—
States, municipalities and political subdivisions	114	306		(3)		14	11		—
Corporate securities	386	558		(9)		224	286		(15)
Residential mortgage-backed securities	321	635		(6)		189	237		(3)
Commercial mortgage-backed securities	1	3		—		4	8		—
Other securities	166	415		(3)		113	358		(5)
Total fixed maturity securities	1,029	$	2,179	$	(24)	549	$	902	$	(23)

Below are discussions by security type for unrealized losses and credit losses as of September 30, 2020:

Foreign government securities: An allowance for credit loss was established on foreign government security holdings of the Republic of Ecuador. Notification of the request for delayed interest payments, a ratings downgrade and a significant decline in the fair value were factors indicating a credit loss. No other foreign government securities had material unrealized losses or qualitative factors to indicate a credit loss. We do not intend to sell these investments and it is likely we will not be required to sell these investments prior to maturity or recovery of amortized cost.

Corporate securities: An allowance for credit losses on certain retail, travel and entertainment as well as energy sector fixed maturity corporate securities has been determined based on qualitative and quantitative factors including credit rating, decline in fair value and industry condition along with other available market data. With multiple risk factors present, these securities were reviewed for expected future cash flow to determine the portion of unrealized losses that were credit related and to record an allowance for credit losses. Unrealized losses on our other corporate securities were largely due to market conditions relating to the COVID-19 pandemic; however, qualitative factors did not indicate a credit loss as of September 30, 2020. We do not intend to sell these investments and it is likely we will not have to sell these investments prior to maturity or recovery of amortized cost.

As for the remaining securities shown in the table above, unrealized losses on these securities have not been recognized into income because we do not intend to sell these investments and it is likely that we will not be required to sell these investments prior to their anticipated recovery. The decline in fair value is largely due to changes in interest rates and other market conditions. We have evaluated these securities for any change in credit rating and have determined that no allowance is necessary. The fair value is expected to recover as the securities approach maturity.

The table below presents a roll-forward by major security type of the allowance for credit losses on fixed maturity securities available-for-sale held at period end for the three months ended September 30, 2020:


Three Months Ended September 30		Corporate Securities		Foreign Government Securities		Total
Allowance for credit losses:
	Beginning balance	$	23	$	1	$	24
	Additions for securities for which no previous expected credit losses were recognized	1		—		1

	Securities sold during the period	(5)		—		(5)

	Decreases to the allowance for credit losses on securities	(8)		—		(8)


Total allowance for credit losses		$	11	$	1	$	12

The table below presents a roll-forward by major security type of the allowance for credit losses on fixed maturity securities available-for-sale held at period end for the nine months ended September 30, 2020:


Nine Months Ended September 30		Corporate Securities		Foreign Government Securities		Total
Allowance for credit losses:
	Beginning balance	$	—	$	—	$	—
	Additions for securities for which no previous expected credit losses were recognized	61		1		62

	Securities sold during the period	(13)		—		(13)

	Decreases to the allowance for credit losses on securities	(37)		—		(37)


Total allowance for credit losses		$	11	$	1	$	12

The amortized cost and fair value of fixed maturity securities at September 30, 2020, by contractual maturity, are shown below. Expected maturities may differ from contractual maturities because the issuers of the securities may have the right to prepay obligations.


	Amortized Cost		Estimated Fair Value
Due in one year or less	$	772	$	780
Due after one year through five years	5,813		6,023
Due after five years through ten years	6,741		7,023
Due after ten years	4,920		5,196
Mortgage-backed securities	4,151		4,243
Total fixed maturity securities	$	22,397	$	23,265

Proceeds from sales, maturities, calls or redemptions of fixed maturity securities and the related gross realized gains and gross realized losses for the three and nine months ended September 30, 2020 and 2019 are as follows:


	Three Months Ended September 30				Nine Months Ended September 30
	2020		2019		2020		2019
Proceeds	$	4,597	$	2,048	$	9,146	$	5,502
Gross realized gains	51		26		131		66
Gross realized losses	(14)		(9)		(84)		(43)

In the ordinary course of business, we may sell securities at a loss for a number of reasons, including, but not limited to: (i) changes in the investment environment; (ii) expectation that the fair value could deteriorate further; (iii) desire to reduce exposure to an issuer or an industry; (iv) changes in credit quality; or (v) changes in expected cash flow.

All securities sold resulting in investment gains and losses are recorded on the trade date. Realized gains and losses are determined on the basis of the cost or amortized cost of the specific securities sold.

Equity Securities

A summary of marketable equity securities at September 30, 2020 and December 31, 2019 is as follows:


	September 30, 2020		December 31, 2019
Equity securities:
Exchange traded funds	$	2,646	$	44
Fixed maturity mutual funds	143		643
Common equity securities	225		237
Private equity securities	61		85
Total	$	3,075	$	1,009

The gains and losses related to equity securities for the three and nine months ended September 30, 2020 and 2019 are as follows:


	Three Months Ended September 30				Nine Months Ended September 30
	2020		2019		2020		2019
Net realized gains (losses) recognized on equity securities	$	188	$	(16)	$	183	$	75
Less: Net realized gains recognized on equity securities sold during the period	(15)		(6)		(20)		(55)
Unrealized gains (losses) recognized on equity securities still held at September 30	$	173	$	(22)	$	163	$	20

Other Invested Assets

Other invested assets include primarily our investments in limited partnerships, joint ventures and other non-controlled corporations, as well as the cash surrender value of corporate-owned life insurance policies. Investments in limited partnerships, joint ventures and other non-controlled corporations are carried at our share in the entities’ undistributed earnings, which approximates fair value. Financial information for certain of these investments are reported on a one or three month lag due to the timing of when we receive financial information from the companies. Given the recent market volatility, there is a risk that the value of some of these investments may decline in future periods.

Investment Income

At September 30, 2020 and December 31, 2019, accrued investment income totaled $184 and $173, respectively. We recognize accrued investment income under the caption “Other receivables” on our consolidated balance sheets.

Securities Lending Programs

We participate in securities lending programs whereby marketable securities in our investment portfolio are transferred to independent brokers or dealers in exchange for cash and securities collateral. The fair value of the collateral received at the time of the transactions amounted to $1,019 and $351 at September 30, 2020 and December 31, 2019, respectively. The value of the collateral represented 102% and 103% of the market value of the securities on loan at September 30, 2020 and December 31, 2019, respectively. We recognize the collateral as an asset under the caption “Other current assets” in our consolidated balance sheets, and we recognize a corresponding liability for the obligation to return the collateral to the borrower under the caption “Other current liabilities.” The securities on loan are reported in the applicable investment category on our consolidated balance sheets.

The remaining contractual maturity of our securities lending agreements at September 30, 2020 is as follows:


	Overnight and Continuous
Securities lending collateral
Cash	$	898

United States Government securities	121


Total	$	1,019