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Investments
 3 Months Ended
Mar. 31, 2020
Investments [Abstract]  
Investments
Investments
Fixed Maturity Securities
We evaluate our available-for-sale fixed maturity securities for declines based on qualitative and quantitative factors. Our fixed maturity securities have been negatively impacted by the significant market volatility that began in March 2020 due to the COVID-19 global health pandemic, or COVID-19 pandemic, and other market related changes. Declines in fair value have increased the potential for material credit losses. 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 March 31, 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
 
 
 
March 31, 2020
 
 
 
 
 
 
 
 
 
 
 
 
 
Fixed maturity securities:
 
 
 
 
 
 
 
 
 
 
 
 
 
United States Government securities
$
450

 
$
24

 
$
—

 
$
—

 
$
—

 
$
474

 
$
—

Government sponsored securities
369

 
5

 
(48
)
 
—

 
—

 
326

 
—

States, municipalities and political subdivisions
4,768

 
233

 
(14
)
 
—

 
—

 
4,987

 
—

Corporate securities
9,609

 
148

 
(450
)
 
(44
)
 
(51
)
 
9,212

 
(44
)
Residential mortgage-backed securities
3,731

 
93

 
(95
)
 
(7
)
 
—

 
3,722

 
—

Commercial mortgage-backed securities
81

 
1

 
(3
)
 
(1
)
 
—

 
78

 
—

Other securities
1,692

 
6

 
(97
)
 
(14
)
 
—

 
1,587

 
—

Total fixed maturity securities
$
20,700

 
$
510

 
$
(707
)
 
$
(66
)
 
$
(51
)
 
$
20,386

 
$
(44
)
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 March 31, 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
March 31, 2020
 
 
 
 
 
 
 
 
 
 
 
Fixed maturity securities:
 
 
 
 
 
 
 
 
 
 
 
United States Government securities
1

 
$
—

 
$
—

 
—

 
$
—

 
$
—

Government sponsored securities
278

 
224

 
(48
)
 
1

 
—

 
—

States, municipalities and political subdivisions
239

 
509

 
(14
)
 
3

 
4

 
—

Corporate securities
2,773

 
5,003

 
(450
)
 
170

 
176

 
(44
)
Residential mortgage-backed securities
603

 
1,182

 
(95
)
 
63

 
57

 
(7
)
Commercial mortgage-backed securities
14

 
29

 
(3
)
 
3

 
6

 
(1
)
Other securities
520

 
1,175

 
(97
)
 
58

 
142

 
(14
)
Total fixed maturity securities
4,428

 
$
8,122

 
$
(707
)
 
298

 
$
385

 
$
(66
)
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 as of March 31, 2020:
United States Government securities: Unrealized losses on government sponsored securities have not been recognized into income because management does not intend to sell and it is likely that management will not be required to sell these securities 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 the credit ratings of the securities and have determined that no allowance is necessary. The fair value is expected to recover as the securities approach maturity.
Government sponsored securities: There were no material unrealized losses on investments in government sponsored securities. We have no intent to sell these investments, and it is more likely than not that we will not be required to sell the investments before recovery of their amortized cost bases.
States, municipalities and political subdivisions: Unrealized losses on securities of states, municipalities and political subdivisions have not been recognized into income because management does not intend to sell, and it is likely that management will not be required to sell these securities prior to their anticipated recovery, and the decline in fair value is largely due to changes in interest rates and other market conditions. We have evaluated the credit ratings of the securities and have determined that no allowance is necessary. The fair value is expected to recover as the securities approach maturity.
Corporate securities: An allowance for credit losses on certain energy-related fixed maturity corporate securities has been determined based on qualitative and quantitative factors including credit rating, default, industry condition and known information of the issuer 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. No allowance for credit loss was required for the remaining corporate fixed maturity securities at March 31, 2020. Unrealized losses on the remaining corporate securities have not been recognized into income because management does not intend to sell, and it is likely that management will not be required to sell these securities prior to their anticipated recovery, and the decline in fair value is largely due to current market conditions relating to the COVID-19 pandemic and tensions within the energy sector. We have evaluated each corporate security’s credit rating as well as industry risk factors associated with the securities. At this time, no allowance has been deemed necessary. The issuers continue to make timely principal and interest payments on the bonds. The fair value of these securities is expected to recover as they approach maturity.
Residential mortgage-backed securities: Unrealized losses on residential mortgage-backed securities have not been recognized into income because management does not intend to sell, and it is likely that management will not be required to sell the securities prior to their anticipated recovery, and the decline in fair value is largely due to changes in interest rates and other market conditions. We have evaluated the 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.
Commercial mortgage-backed securities: There were no material unrealized losses on investments in commercial mortgage-backed securities. We have no intent to sell these investments, and it is more likely than not that we will not be required to sell the investments before recovery of their amortized cost bases.
Other securities: Unrealized losses on other securities have not been recognized into income because management does not intend to sell, and it is likely that management will not be required to sell these securities prior to their anticipated recovery, and the decline in fair value is largely due to changes in interest rates and other market conditions. Other securities largely consists of asset-backed securities. 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 March 31, 2020:
 
 
 
Corporate Securities
Allowance for credit losses:
 
 
 
 
Beginning balance
 
 
$
—

 
Additions for securities for which no previous expected credit losses were recognized
 
 
51

Total allowance for credit losses
 
 
$
51


The amortized cost and fair value of fixed maturity securities at March 31, 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
$
520

 
$
511

Due after one year through five years
5,730

 
5,583

Due after five years through ten years
6,035

 
5,882

Due after ten years
4,603

 
4,610

Mortgage-backed securities
3,812

 
3,800

Total fixed maturity securities
$
20,700

 
$
20,386


Proceeds from sales, maturities, calls or redemptions of fixed maturity securities and the related gross realized gains and gross realized losses for the three months ended March 31, 2020 and 2019 are as follows:
 
 
Three Months Ended 
 March 31
 
 
2020
 
2019
Proceeds
 
$
1,931

 
$
1,468

Gross realized gains
 
43

 
18

Gross realized losses
 
(20
)
 
(17
)

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 March 31, 2020 and December 31, 2019 is as follows:
 
March 31, 2020
 
December 31, 2019
Equity securities:
 
 
 
Exchange traded funds
$
245

 
$
44

Fixed maturity mutual funds
211

 
643

Common equity securities
32

 
237

Private equity securities
82

 
85

Total
$
570

 
$
1,009


The gains and losses related to equity securities for the three months ended March 31, 2020 and 2019 are as follows:
 
 
Three Months Ended March 31
 
 
2020
 
2019
Net realized (losses) gains recognized on equity securities
 
$
(50
)
 
$
79

Less: Net realized gains recognized on equity securities sold during the period
 
(18
)
 
(21
)
Unrealized (losses) gains recognized on equity securities still held at March 31
 
$
(68
)
 
$
58


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 March 31, 2020 and December 31, 2019, accrued investment income totaled $166 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 $427 and $351 at March 31, 2020 and December 31, 2019, respectively. The value of the collateral represented 103% of the market value of the securities on loan at each of March 31, 2020 and December 31, 2019. 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 March 31, 2020 is as follows:
 
Overnight and Continuous
Securities lending transactions
 
Cash
$
354

United States Government securities
69

Other securities
4

Total
$
427


The market value of loaned securities and that of the collateral pledged can fluctuate in non-synchronized fashions. To the extent the loaned securities’ value appreciates faster or depreciates slower than the value of the collateral pledged, we are exposed to the risk of the shortfall. As a primary mitigating mechanism, the loaned securities and collateral pledged are marked to market on a daily basis and the shortfall, if any, is collected accordingly. Secondarily, the minimum collateral level is set at 102% of the value of the loaned securities, which provides a cushion before any shortfall arises. The investment of the cash collateral is subject to market risk, which is managed by limiting the investments to higher quality and shorter duration instruments.