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Variable Interest Entities
3 Months Ended
Mar. 31, 2016
Variable Interest Entities [Abstract]  
Variable interest entities

Note 10 – Variable Interest Entities

 

When the Company becomes involved with a variable interest entity, as well as when there is a change in the Company's involvement with an entity, the Company evaluates the following to determine if it is the primary beneficiary and must consolidate the entity:

 

  • the structure and purpose of the entity;
  • the risks and rewards created by and shared through the entity; and
  • the Company's ability to direct its activities, receive its benefits and absorb its losses relative to the other parties involved with the entity including its sponsors, equity holders, guarantors, creditors and servicers.

 

In the normal course of its investing activities, the Company makes passive investments in securities that are issued by variable interest entities for which the Company is not the sponsor or manager. These investments are predominantly asset-backed securities primarily collateralized by foreign bank obligations or mortgage-backed securities. The asset-backed securities largely represent fixed-rate debt securities issued by trusts that hold perpetual floating-rate subordinated notes issued by foreign banks. The mortgage-backed securities represent senior interests in pools of commercial or residential mortgages created and held by special-purpose entities to provide investors with diversified exposure to these assets. The Company owns senior securities issued by several entities and receives fixed-rate cash flows from the underlying assets in the pools. The Company's maximum potential exposure to loss related to these investments is limited to the carrying amount of $0.6 billion as of March 31, 2016, that is reported in fixed maturities. The Company's combined ownership interests are insignificant relative to the total principal amounts issued by these entities.

 

The Company also owns interests in security and real estate limited partnerships that are variable interest entities. These partnerships make investments in the equity or mezzanine debt of privately held companies and real estate properties. General partners unaffiliated with the Company control decisions that most significantly impact the partnership's operations and the limited partners do not have substantive kick-out or participating rights. The Company's maximum exposure to these entities of $1.9 billion across approximately 90 limited partnerships includes $1.0 billion reported in other long-term investments and commitments to contribute an additional $0.9 billion as of March 31, 2016. The Company's non-controlling interest in these limited partnerships is generally less than 10%.

 

To provide certain services to its Medicare Advantage customers, the Company contracts with independent physician associations (“IPAs”) that are variable interest entities. Physicians provide health care services to Medicare Advantage customers and the Company provides medical management and administrative services to the IPAs. The Company's maximum exposure to loss related to the IPA arrangements is limited to their liability for incurred but not reported medical costs for the Company's Medicare Advantage customers. These liabilities are not material and are generally secured by deposits maintained by the IPAs.

 

The Company is not the primary beneficiary and does not consolidate these entities because either:

 

  • it has no power to direct the activities that most significantly impact the entities' economic performance; or
  • it has neither the right to receive benefits nor the obligation to absorb losses that could be significant to these variable interest entities.

 

The Company has not provided, and does not intend to provide, financial support to these entities that it is not contractually required to provide. The Company performs ongoing qualitative analyses of its involvement with these variable interest entities to determine if consolidation is required.