Investments

12 Months Ended

Dec. 31, 2019

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



	2019						2018
In millions	Current		Long-term		Total		Current		Long-term		Total
Debt securities available for sale	$	2,251	$	14,671	$	16,922	$	2,359	$	12,896	$	15,255
Mortgage loans	122		1,091		1,213		145		1,216		1,361
Other investments	—		1,552		1,552		18		1,620		1,638
Total investments	$	2,373	$	17,314	$	19,687	$	2,522	$	15,732	$	18,254

At December 31, 2019 and 2018, the Company held investments of $537 million and $531 million, respectively, related to the 2012 conversion of an existing group annuity contract from a participating to a non-participating contract. The conversion occurred prior to the Aetna Acquisition. These investments are included in the total investments of large case pensions supporting non-experience-rated products. Although these investments are not accounted for as Separate Accounts assets, they are legally segregated and are not subject to claims that arise out of the Company’s business and only support future policy benefits obligations under that group annuity contract.

Debt Securities

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



In millions	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
December 31, 2019
Debt securities:
U.S. government securities	$	1,791	$	62	$	(1	)	$	1,852
States, municipalities and political subdivisions	2,202		108		(1		)	2,309
U.S. corporate securities	7,167		573		(3		)	7,737
Foreign securities	2,149		200		(1		)	2,348
Residential mortgage-backed securities	508		25		—			533
Commercial mortgage-backed securities	654		46		—			700
Other asset-backed securities	1,397		13		(5		)	1,405
Redeemable preferred securities	30		8		—			38
Total debt securities ⁽¹⁾	$	15,898	$	1,035	$	(11	)	$	16,922

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 December 31, 2019, debt securities with a fair value of $965 million, gross unrealized capital gains of $83 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 amortized cost and fair value of debt securities at December 31, 2019 are 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	$	1,028	$	1,034
One year through five years	5,507		5,702
After five years through ten years	3,081		3,296
Greater than ten years	3,723		4,252
Residential mortgage-backed securities	508		533
Commercial mortgage-backed securities	654		700
Other asset-backed securities	1,397		1,405
Total	$	15,898	$	16,922

Mortgage-Backed and Other Asset-Backed Securities

All of the Company’s residential mortgage-backed securities at December 31, 2019 were issued by the Government National Mortgage Association, the Federal National Mortgage Association or the Federal Home Loan Mortgage Corporation and carry agency guarantees and explicit or implicit guarantees by the U.S. Government. At December 31, 2019, the Company’s residential mortgage-backed securities had an average credit quality rating of AAA and a weighted average duration of 3.3 years.

The Company’s commercial mortgage-backed securities have underlying loans that are dispersed throughout the United States. Significant market observable inputs used to value these securities include loss severity and probability of default. At December 31, 2019, these securities had an average credit quality rating of AAA and a weighted average duration of 6.1 years.

The Company’s other asset-backed securities have a variety of underlying collateral (e.g., automobile loans, credit card receivables, home equity loans and commercial loans). Significant market observable inputs used to value these securities include the unemployment rate, loss severity and probability of default. At December 31, 2019, these securities had an average credit quality rating of AA and a weighted average duration of 1.2 years.

Summarized below are the debt securities the Company held at December 31, 2019 and 2018 that were in an unrealized capital loss position, aggregated by the length of time the investments have been in that position:



	Less than 12 months					Greater than 12 months					Total
In millions, except number of securities	Number of Securities	Fair Value		Unrealized Losses		Number of Securities	Fair Value		Unrealized Losses		Number of Securities	Fair Value		Unrealized Losses
December 31, 2019
Debt securities:
U.S. government securities	52	$	168	$	1	—	$	—	$	—	52	$	168	$	1
States, municipalities and political subdivisions	66	115		1		2	5		—		68	120		1
U.S. corporate securities	181	305		2		2	—		1		183	305		3
Foreign securities	39	75		1		—	—		—		39	75		1
Residential mortgage-backed securities	30	16		—		9	—		—		39	16		—
Commercial mortgage-backed securities	16	49		—		—	—		—		16	49		—
Other asset-backed securities	138	254		1		187	182		4		325	436		5
Total debt securities	522	$	982	$	6	200	$	187	$	5	722	$	1,169	$	11

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

The Company reviewed the securities in the tables above and concluded that they 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 December 31, 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 the anticipated recovery of their amortized cost basis. Since Aetna’s investment portfolio was measured at fair value as of the Aetna Acquisition Date, each of the securities as of December 31, 2018 were in an unrealized loss position for less than 12 months.

The maturity dates for debt securities in an unrealized capital loss position at December 31, 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	$	—	$	—	$	12	$	—	$	12	$	—
One year through five years	3		—		285		1		288		1
After five years through ten years	9		—		151		2		160		2
Greater than ten years	11		—		197		3		208		3
Residential mortgage-backed securities	—		—		16		—		16		—
Commercial mortgage-backed securities	—		—		49		—		49		—
Other asset-backed securities	10		—		426		5		436		5
Total	$	33	$	—	$	1,136	$	11	$	1,169	$	11

Mortgage Loans

The Company’s mortgage loans are collateralized by commercial real estate. During 2019 and subsequent to the Aetna Acquisition Date in 2018, the Company had the following activity in its mortgage loan portfolio:



In millions	2019		2018
New mortgage loans	$	131	$	4
Mortgage loans fully-repaid	234		27
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.


•	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 December 31, 2019 and 2018, the Company’s mortgage loans were given the following credit quality indicators:



In millions, except credit ratings indicator	2019		2018
1	$	58	$	42
2 to 4	1,143		1,301
5 and 6	12		18
7	—		—
Total	$	1,213	$	1,361

At December 31, 2019 scheduled mortgage loan principal repayments were as follows:



In millions
2020	$	122
2021	235
2022	200
2023	81
2024	193
Thereafter	382
Total	$	1,213

Net Investment Income

Sources of net investment income for the years ended December 31, 2019 and 2018 were as follows:



In millions	2019			2018
Debt securities	$	589		$	61
Mortgage loans	71			6
Other investments	194			593
Gross investment income	854			660
Investment expenses	(42		)	(3		)
Net investment income (excluding net realized capital gains or losses)	812			657
Net realized capital gains ⁽¹⁾	199			3
Net investment income ⁽²⁾	$	1,011		$	660

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(1)	Net realized capital gains are net of other-than-temporary impairment (“OTTI”) losses on debt securities recognized in the consolidated statements of operations of $24 million for the year ended December 31, 2019. There were no material OTTI losses on debt securities for the year ended December 31, 2018.


(2)	Net investment income includes $44 million and $4 million for 2019 and 2018, respectively, related to investments supporting experience-rated products.

The Company’s net investment income was $21 million in 2017, relating to interest income on cash equivalents and debt securities. The Company did not have any material realized capital gains or losses during 2017.

Capital gains and losses recognized during the year ended December 31, 2019 related to investments in equity securities held as of December 31, 2019 were not material.

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 in the year ended December 31, 2019 and subsequent to the Aetna Acquisition Date in 2018 were as follows:



In millions	2019			2018
Proceeds from sales	$	4,773		$	389
Gross realized capital gains	146			2
Gross realized capital losses	(17		)	(2		)