Investments

9 Months Ended

Sep. 30, 2019

Total investments at September 30, 2019 and December 31, 2018 were as follows:



	September 30, 2019						December 31, 2018
In millions	Current		Long-term		Total		Current		Long-term		Total
Debt securities available for sale	$	2,175	$	14,583	$	16,758	$	2,359	$	12,896	$	15,255
Mortgage loans	159		1,131		1,290		145		1,216		1,361
Other investments	—		1,628		1,628		18		1,620		1,638
Total investments	$	2,334	$	17,342	$	19,676	$	2,522	$	15,732	$	18,254

Debt Securities

Debt securities available for sale at September 30, 2019 and December 31, 2018 were as follows:



In millions	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
September 30, 2019
Debt securities:
U.S. government securities	$	1,743	$	83	$	—		$	1,826
States, municipalities and political subdivisions	2,240		114		(1		)	2,353
U.S. corporate securities	7,076		568		(7		)	7,637
Foreign securities	2,095		194		—			2,289
Residential mortgage-backed securities	529		25		—			554
Commercial mortgage-backed securities	645		56		—			701
Other asset-backed securities	1,348		15		(5		)	1,358
Redeemable preferred securities	32		8		—			40
Total debt securities ⁽¹⁾	$	15,708	$	1,063	$	(13	)	$	16,758

December 31, 2018
Debt securities:
U.S. government securities	$	1,662	$	26	$	—		$	1,688
States, municipalities and political subdivisions	2,370		30		(1		)	2,399
U.S. corporate securities	6,444		61		(16		)	6,489
Foreign securities	2,355		31		(3		)	2,383
Residential mortgage-backed securities	567		10		—			577
Commercial mortgage-backed securities	594		11		—			605
Other asset-backed securities	1,097		3		(15		)	1,085
Redeemable preferred securities	30		—		(1		)	29
Total debt securities ⁽¹⁾	$	15,119	$	172	$	(36	)	$	15,255

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(1)

Investment risks associated with the Company’s experience-rated products generally do not impact the Company’s consolidated operating results. At September 30, 2019, debt securities with a fair value of $973 million, gross unrealized capital gains of $85 million and no gross unrealized capital losses and at December 31, 2018, debt securities with a fair value of $916 million, gross unrealized capital gains of $12 million and gross unrealized capital losses of $2 million were included in total debt securities, but support experience-rated products. Changes in net unrealized capital gains (losses) on these securities are not reflected in accumulated other comprehensive income.

The fair value of debt securities at September 30, 2019 is shown below by contractual maturity. Actual maturities may differ from contractual maturities because securities may be restructured, called or prepaid, or the Company intends to sell a security prior to maturity.



In millions	Amortized Cost		Fair Value
Due to mature:
Less than one year	$	1,017	$	1,022
One year through five years	5,378		5,568
After five years through ten years	3,098		3,316
Greater than ten years	3,693		4,239
Residential mortgage-backed securities	529		554
Commercial mortgage-backed securities	645		701
Other asset-backed securities	1,348		1,358
Total	$	15,708	$	16,758

Summarized below are the debt securities the Company held at September 30, 2019 and December 31, 2018 that were in an unrealized capital loss position:



In millions, except number of securities	Number of Securities	Fair Value		Unrealized Losses
September 30, 2019
Debt securities:
U.S. government securities	8	$	41	$	—
States, municipalities and political subdivisions	38	53		1
U.S. corporate securities	217	254		7
Foreign securities	27	39		—
Residential mortgage-backed securities	31	17		—
Other asset-backed securities	327	386		5
Total debt securities	648	$	790	$	13

December 31, 2018
Debt securities:
U.S. government securities	8	$	26	$	—
States, municipalities and political subdivisions	54	86		1
U.S. corporate securities	1,399	1,431		16
Foreign securities	243	314		3
Residential mortgage-backed securities	45	1		—
Other asset-backed securities	516	528		15
Redeemable preferred securities	14	23		1
Total debt securities	2,279	$	2,409	$	36

Since Aetna’s investment portfolio was measured at fair value as of the Aetna Acquisition Date, each of the securities in the table above were in an unrealized loss position for less than 12 months. The Company reviewed the securities in the table above and concluded that these are performing assets generating investment income to support the needs of the Company’s business. In performing this review, the Company considered factors such as the quality of the investment security based on research performed by the Company’s internal credit analysts and external rating agencies and the prospects of realizing the carrying value of the security based on the investment’s current prospects for recovery. As of September 30, 2019, the Company did not intend to sell these securities, and did not believe it was more likely than not that it would be required to sell these securities prior to anticipated recovery of their amortized cost basis.

The maturity dates for debt securities in an unrealized capital loss position at September 30, 2019 were as follows:



	Supporting experience-rated products				Supporting remaining products				Total
In millions	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Due to mature:
Less than one year	$	—	$	—	$	3	$	—	$	3	$	—
One year through five years	1		—		137		2		138		2
After five years through ten years	8		—		128		4		136		4
Greater than ten years	11		—		99		2		110		2
Residential mortgage-backed securities	—		—		17		—		17		—
Other asset-backed securities	10		—		376		5		386		5
Total	$	30	$	—	$	760	$	13	$	790	$	13

Mortgage Loans

The Company’s mortgage loans are collateralized by commercial real estate. The Company did not have any mortgage loans during the three and nine months ended September 30, 2018. During the three and nine months ended September 30, 2019, the Company had the following activity in its mortgage loan portfolio:



In millions	Three Months Ended September 30, 2019		Nine Months Ended September 30, 2019
New mortgage loans	$	12	$	90
Mortgage loans fully repaid	56		127
Mortgage loans foreclosed	—		—

The Company assesses mortgage loans on a regular basis for credit impairments and annually assigns a credit quality indicator to each loan. The Company’s credit quality indicator is internally developed and categorizes its portfolio on a scale from 1 to 7. These indicators are based upon several factors, including current loan to value ratios, property condition, market trends, creditworthiness of the borrower and deal structure. The vast majority of the Company’s mortgage loans fall into categories 2 to 4.


•	Category 1 - Represents loans of superior quality.


•	Categories 2 to 4 - Represent loans where credit risk is minimal to acceptable; however, these loans may display some susceptibility to economic changes.


•	Categories 5 and 6 - Represent loans where credit risk is not substantial, but these loans warrant management’s close attention.


•	Category 7 - Represents loans where collections are potentially at risk; if necessary, an impairment is recorded.

Based upon the Company’s assessments at September 30, 2019 and December 31, 2018, the Company’s mortgage loans were given the following credit quality indicators:



In millions, except credit ratings indicator	September 30, 2019		December 31, 2018
1	$	44	$	42
2 to 4	1,234		1,301
5 and 6	12		18
7	—		—
Total	$	1,290	$	1,361

Net Investment Income

Sources of net investment income for the three and nine months ended September 30, 2019 and 2018 were as follows:



	Three Months Ended September 30,					Nine Months Ended September 30,
In millions	2019			2018		2019			2018
Debt securities	$	145		$	2	$	437		$	5
Mortgage loans	19			—		54			—
Other investments	60			219		163			480
Gross investment income	224			221		654			485
Investment expenses	(10		)	—		(28		)	—
Net investment income (excluding net realized capital gains or losses)	214			221		626			485
Net realized capital gains ⁽¹⁾	49			—		179			—
Net investment income ⁽²⁾	$	263		$	221	$	805		$	485

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(1)	Other-than-temporary impairment (“OTTI”) losses on debt securities recognized in the unaudited condensed consolidated statements of operations were $9 million and $22 million, respectively, for the three and nine months ended September 30, 2019. There were no OTTI losses on debt securities for the three and nine months ended September 30, 2018.


(2)	Net investment income includes $10 million and $33 million for the three and nine months ended September 30, 2019, respectively, related to investments supporting experience-rated products. The Company had no investments supporting experience-rated products during the three and nine months ended September 30, 2018.

The portion of unrealized capital gains and losses recognized during the three and nine months ended September 30, 2019 related to investments in equity securities held as of the reporting date was not material.

The Company did not have any material proceeds from the sale of available for sale debt securities or related gross realized capital gains or losses for the three and nine months ended September 30, 2018. Excluding amounts related to experience-rated products, proceeds from the sale of available for sale debt securities and the related gross realized capital gains and losses for the three and nine months ended September 30, 2019 were as follows:



In millions	Three Months Ended September 30, 2019		Nine Months Ended September 30, 2019
Proceeds from sales	$	1,325	$	4,087
Gross realized capital gains	55		127
Gross realized capital losses	9		13