UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended March 31, 2020

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                     to                     

Commission file number: 001-16751

ANTHEM, INC.

(Exact name of registrant as specified in its charter)

Indiana	35-2145715
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)

220 Virginia Avenue

Indianapolis, Indiana 46204

(Address of principal executive offices) (Zip Code)

Registrant’s telephone number, including area code: (800) 331-1476

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading symbol(s)	Name of each exchange on which registered
Common Stock, $0.01 par value	ANTM	New York Stock Exchange

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes ☒ No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act:

Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒

As of April 22, 2020, 252,116,097 shares of the Registrant’s Common Stock were outstanding.

Anthem, Inc.

Quarterly Report on Form 10-Q

For the Period Ended March 31, 2020

Table of Contents

		Page
PART I. FINANCIAL INFORMATION
ITEM 1.	FINANCIAL STATEMENTS
	Consolidated Balance Sheets as of March 31, 2020 (Unaudited) and December 31, 2019	2
	Consolidated Statements of Income (Unaudited) for the Three Months Ended March 31, 2020 and 2019	3
	Consolidated Statements of Comprehensive Income (Unaudited) for the Three Months Ended March 31, 2020 and 2019	4
	Consolidated Statements of Cash Flows (Unaudited) for the Three Months Ended March 31, 2020 and 2019	5
	Consolidated Statements of Shareholders’ Equity (Unaudited) for the Three Months Ended March 31, 2020 and 2019	6
	Notes to Consolidated Financial Statements (Unaudited)	7
ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	38
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	54
ITEM 4.	CONTROLS AND PROCEDURES	54
PART II. OTHER INFORMATION
ITEM 1.	LEGAL PROCEEDINGS	54
ITEM 1A.	RISK FACTORS	54
ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	56
ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	56
ITEM 4.	MINE SAFETY DISCLOSURES	56
ITEM 5.	OTHER INFORMATION	56
ITEM 6.	EXHIBITS	57
SIGNATURES		58

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Anthem, Inc.

Consolidated Balance Sheets

	March 31, 2020			December 31, 2019
(In millions, except share data)	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	5,345		$	4,937
Fixed maturity securities (amortized cost of $20,211 and $19,021; allowance for credit losses of $51 and $0)	19,881			19,676
Equity securities	570			1,009
Premium receivables	5,786			5,014
Self-funded receivables	2,613			2,570
Other receivables	2,926			2,807
Other current assets	4,135			3,020
Total current assets	41,256			39,033
Long-term investments:
Fixed maturity securities (amortized cost of $489 and $487; allowance for credit losses of $0 and $0)	505			505
Other invested assets	4,181			4,258
Property and equipment, net	3,350			3,133
Goodwill	21,661			20,500
Other intangible assets	9,613			8,674
Other noncurrent assets	1,833			1,350
Total assets	$	82,399		$	77,453
Liabilities and shareholders’ equity
Liabilities
Current liabilities:
Medical claims payable	$	9,902		$	8,842
Other policyholder liabilities	3,252			3,050
Unearned income	947			1,017
Accounts payable and accrued expenses	5,058			4,198
Short-term borrowings	1,075			700
Current portion of long-term debt	1,603			1,598
Other current liabilities	5,202			4,127
Total current liabilities	27,039			23,532
Long-term debt, less current portion	19,005			17,787
Reserves for future policy benefits	754			759
Deferred tax liabilities, net	2,213			2,227
Other noncurrent liabilities	1,695			1,420
Total liabilities	50,706			45,725
Commitment and contingencies – Note 11
Shareholders’ equity
Preferred stock, without par value, shares authorized – 100,000,000; shares issued and outstanding – none	—			—
Common stock, par value $0.01, shares authorized – 900,000,000; shares issued and outstanding – 252,020,028 and 252,922,161	3			3
Additional paid-in capital	9,338			9,448
Retained earnings	23,360			22,573
Accumulated other comprehensive loss	(1,008		)	(296		)
Total shareholders’ equity	31,693			31,728
Total liabilities and shareholders’ equity	$	82,399		$	77,453

See accompanying notes.

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Anthem, Inc.

Consolidated Statements of Income

(Unaudited) 

	Three Months Ended   March 31
(In millions, except per share data)	2020			2019
Revenues
Premiums	$	25,517		$	22,843
Product revenue	2,344			—
Administrative fees and other revenue	1,587			1,545
Total operating revenue	29,448			24,388
Net investment income	254			210
Net realized (losses) gains on financial instruments	(24		)	78
Impairment losses on investments:
Total impairment losses on investments	(101		)	(13		)
Portion of impairment losses recognized in other comprehensive income	44			3
Impairment losses recognized in income	(57		)	(10		)
Total revenues	29,621			24,666
Expenses
Benefit expense	21,489			19,282
Cost of products sold	1,984			—
Selling, general and administrative expense	3,781			3,166
Interest expense	194			187
Amortization of other intangible assets	83			87
Loss (gain) on extinguishment of debt	1			(1		)
Total expenses	27,532			22,721
Income before income tax expense	2,089			1,945
Income tax expense	566			394
Net income	$	1,523		$	1,551
Net income per share
Basic	$	6.03		$	6.03
Diluted	$	5.94		$	5.91
Dividends per share	$	0.95		$	0.80

See accompanying notes.

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Anthem, Inc.

Consolidated Statements of Comprehensive Income

(Unaudited) 

	Three Months Ended   March 31
(In millions)	2020			2019
Net income	$	1,523		$	1,551
Other comprehensive (loss) income, net of tax:
Change in net unrealized losses/gains on investments	(689		)	357
Change in non-credit component of impairment losses on investments	(32		)	—
Change in net unrealized gains/losses on cash flow hedges	3			3
Change in net periodic pension and postretirement costs	7			3
Foreign currency translation adjustments	(1		)	—
Other comprehensive (loss) income	(712		)	363
Total comprehensive income	$	811		$	1,914

See accompanying notes.

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Anthem, Inc.

Consolidated Statements of Cash Flows

(Unaudited)

	Three Months Ended   March 31
(In millions)	2020			2019
Operating activities
Net income	$	1,523		$	1,551
Adjustments to reconcile net income to net cash provided by operating activities:
Net realized losses (gains) on financial instruments	24			(78		)
Depreciation and amortization	270			289
Deferred income taxes	57			55
Share-based compensation	67			70
Changes in operating assets and liabilities:
Receivables, net	(639		)	(753		)
Other invested assets	63			(21		)
Other assets	(525		)	(125		)
Policy liabilities	692			791
Unearned income	(109		)	96
Accounts payable and other liabilities	588			(354		)
Income taxes	491			115
Other, net	13			(6		)
Net cash provided by operating activities	2,515			1,630
Investing activities
Purchases of investments	(3,896		)	(6,069		)
Proceeds from sale of investments	2,728			5,236
Maturities, calls and redemptions from investments	597			393
Purchases of subsidiaries, net of cash acquired	(1,908		)	—
Purchases of property and equipment	(204		)	(234		)
Other, net	(101		)	22
Net cash used in investing activities	(2,784		)	(652		)
Financing activities
Net proceeds from commercial paper borrowings	905			178
Proceeds from long-term borrowings	300			2
Repayments of long-term borrowings	(52		)	(63		)
Proceeds from short-term borrowings	1,075			2,710
Repayments of short-term borrowings	(700		)	(2,760		)
Repurchase and retirement of common stock	(529		)	(294		)
Cash dividends	(240		)	(206		)
Proceeds from issuance of common stock under employee stock plans	44			76
Taxes paid through withholding of common stock under employee stock plans	(107		)	(78		)
Other, net	(17		)	6
Net cash provided by (used in) financing activities	679			(429		)
Effect of foreign exchange rates on cash and cash equivalents	(2		)	(1		)
Change in cash and cash equivalents	408			548
Cash and cash equivalents at beginning of period	4,937			3,934
Cash and cash equivalents at end of period	$	5,345		$	4,482

See accompanying notes.

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Anthem, Inc.

Consolidated Statements of Shareholders’ Equity

(Unaudited)

	Common Stock				Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Loss			Total Shareholders’ Equity
(In millions)	Number of Shares		Par Value
December 31, 2019 (audited)	252.9		$	3	$	9,448		$	22,573		$	(296	)	$	31,728
Adoption of Accounting Standards Update No. 2016-13 (Note 2)	—		—		—			(35		)	—			(35		)
January 1, 2020	252.9		3		9,448			22,538			(296		)	31,693
Net income	—		—		—			1,523			—			1,523
Other comprehensive loss	—		—		—			—			(712		)	(712		)
Repurchase and retirement of common stock	(1.9	)	—		(71		)	(458		)	—			(529		)
Dividends and dividend equivalents	—		—		—			(243		)	—			(243		)
Issuance of common stock under employee stock plans, net of related tax benefits	1.0		—		3			—			—			3
Convertible debenture repurchases and conversions	—		—		(42		)	—			—			(42		)
March 31, 2020	252.0		$	3	$	9,338		$	23,360		(1,008		)	$	31,693
December 31, 2018 (audited)	257.4		$	3	$	9,536		$	19,988		$	(986	)	$	28,541
Adoption of Accounting Standards Update No. 2016-02 (Note 2)	—		—		—			26			—			26
January 1, 2019	257.4		3		9,536			20,014			(986		)	28,567
Net income	—		—		—			1,551			—			1,551
Other comprehensive income	—		—		—			—			363			363
Repurchase and retirement of common stock	(1.1	)	—		(71		)	(223		)	—			(294		)
Dividends and dividend equivalents	—		—		—			(206		)	—			(206		)
Issuance of common stock under employee stock plans, net of related tax benefits	1.1		—		69			—			—			69
Convertible debenture repurchases and conversions	—		—		(52		)	—			—			(52		)
March 31, 2019	257.4		$	3	$	9,482		$	21,136		$	(623	)	$	29,998

See accompanying notes.

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Anthem, Inc.

Notes to Consolidated Financial Statements

(Unaudited)

March 31, 2020

(In Millions, Except Per Share Data or As Otherwise Stated Herein)

1. Organization

References to the terms “we,” “our,” “us” or “Anthem” used throughout these Notes to Consolidated Financial Statements refer to Anthem, Inc., an Indiana corporation, and unless the context otherwise requires, its direct and indirect subsidiaries. References to the “states” include the District of Columbia, unless the context otherwise requires.

We are one of the largest health benefits companies in the United States in terms of medical membership, serving approximately 42 million medical members through our affiliated health plans as of March 31, 2020. We offer a broad spectrum of network-based managed care plans to Large Group, Small Group, Individual, Medicaid and Medicare markets. Our managed care plans include: Preferred Provider Organizations, or PPOs; Health Maintenance Organizations, or HMOs; Point-of-Service plans; traditional indemnity plans and other hybrid plans, including Consumer-Driven Health Plans; and hospital only and limited benefit products. In addition, we provide a broad array of managed care services to self-funded customers, including claims processing, stop loss insurance, actuarial services, provider network access, medical cost management, disease management, wellness programs and other administrative services. We provide an array of specialty and other insurance products and services such as pharmacy benefits management, or PBM, dental, vision, life and disability insurance benefits, radiology benefit management and analytics-driven personal healthcare. We also provide services to the federal government in connection with our Federal Health Products & Services business, which administers the Federal Employees Health Benefits, or FEHB, Program.

We are an independent licensee of the Blue Cross and Blue Shield Association, or BCBSA, an association of independent health benefit plans. We serve our members as the Blue Cross licensee for California and as the Blue Cross and Blue Shield, or BCBS, licensee for Colorado, Connecticut, Georgia, Indiana, Kentucky, Maine, Missouri (excluding 30 counties in the Kansas City area), Nevada, New Hampshire, New York (in the New York City metropolitan area and upstate New York), Ohio, Virginia (excluding the Northern Virginia suburbs of Washington, D.C.) and Wisconsin. In a majority of these service areas, we do business as Anthem Blue Cross, Anthem Blue Cross and Blue Shield, and Empire Blue Cross Blue Shield or Empire Blue Cross. We also conduct business through arrangements with other BCBS licensees as well as other strategic partners. Through our subsidiaries, we also serve customers in numerous states across the country as AIM Specialty Health, Amerigroup, Aspire Health, Beacon Health, CareMore, Freedom Health, HealthLink, HealthSun, Optimum HealthCare, Simply Healthcare, and/or Unicare. Also, in the second quarter of 2019, we began providing PBM services through our IngenioRx subsidiary. We are licensed to conduct insurance operations in all 50 states and the District of Columbia through our subsidiaries.

2. Basis of Presentation and Significant Accounting Policies

Basis of Presentation: The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles, or GAAP, for interim financial reporting. Accordingly, they do not include all of the information and footnotes required by GAAP for annual financial statements. We have omitted certain footnote disclosures that would substantially duplicate the disclosures in our 2019 Annual Report on Form 10-K, unless the information contained in those disclosures materially changed or is required by GAAP. Certain prior year amounts have been reclassified to conform to the current year presentation. For additional information on prior year reclassifications, see Note 15, “Segment Information.” In the opinion of management, all adjustments, including normal recurring adjustments, necessary for a fair statement of the consolidated financial statements as of and for the three months ended March 31, 2020 and 2019 have been recorded. The results of operations for the three months ended March 31, 2020 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2020, or any other period. These unaudited consolidated financial statements should be read in conjunction with our audited consolidated financial statements as of and for the year ended December 31, 2019 included in our 2019 Annual Report on Form 10-K.

Certain of our subsidiaries operate outside of the United States and have functional currencies other than the U.S. dollar, or USD. We translate the assets and liabilities of those subsidiaries to USD using the exchange rate in effect at the end of the

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period. We translate the revenues and expenses of those subsidiaries to USD using the average exchange rates in effect during the period. The net effect of these translation adjustments is included in “Foreign currency translation adjustments” in our consolidated statements of comprehensive income.

Cash and Cash Equivalents: We control a number of bank accounts that are used exclusively to hold customer funds for the administration of customer benefits and we have cash and cash equivalents on deposit to meet certain regulatory requirements. These amounts totaled $221 and $215 at March 31, 2020 and December 31, 2019, respectively, and are included in the cash and cash equivalents line on our consolidated balance sheets.

Investments: Prior to 2020, our fixed maturities were evaluated for other-than-temporary impairment where credit related impairments were presented within the other-than-temporary impairment losses recognized in our consolidated statements of income with an adjustment to the security’s amortized cost basis. Effective January 1, 2020, if a fixed maturity security is in an unrealized loss position and we have the intent to sell the fixed maturity security, or it is more likely than not that we will have to sell the fixed maturity security before recovery of its amortized cost basis, we write down the fixed maturity security’s cost basis to fair value and record an impairment loss in our consolidated statements of income. For impaired fixed maturity securities that we do not intend to sell or if it is more likely than not that we will not have to sell such securities, but we expect that we will not fully recover the amortized cost basis, we recognize the credit component of the impairment as an allowance for credit loss in our consolidated balance sheets and record an impairment loss in our consolidated statements of income. The non-credit component of the impairment is recognized in accumulated other comprehensive loss. Furthermore, unrealized losses entirely caused by non-credit related factors related to fixed maturity securities for which we expect to fully recover the amortized cost basis continue to be recognized in accumulated other comprehensive loss.

The credit component of an impairment is determined primarily by comparing the net present value of projected future cash flows with the amortized cost basis of the fixed maturity security. The net present value is calculated by discounting our best estimate of projected future cash flows at the effective interest rate implicit in the fixed maturity security at the date of purchase. For mortgage-backed and asset-backed securities, cash flow estimates are based on assumptions regarding the underlying collateral, including prepayment speeds, vintage, type of underlying asset, geographic concentrations, default rates, recoveries and changes in value. For all other securities, cash flow estimates are driven by assumptions regarding probability of default, including changes in credit ratings and estimates regarding timing and amount of recoveries associated with a default.

For asset-backed securities included in fixed maturity securities, we recognize income using an effective yield based on anticipated prepayments and the estimated economic life of the securities. When estimates of prepayments change, the effective yield is recalculated to reflect actual payments to date and anticipated future payments. The net investment in the securities is adjusted to the amount that would have existed had the new effective yield been applied since the purchase date of the securities. Such adjustments are reported within net investment income.

In accordance with the Financial Accounting Standards Board, or FASB guidance, the changes in fair value of our marketable equity securities are recognized in our results of operations within net realized gains and losses on financial instruments.

We have corporate-owned life insurance policies on certain participants in our deferred compensation plans and other members of management. The cash surrender value of the corporate-owned life insurance policies is reported under the caption “Other invested assets” in our consolidated balance sheets.

We use the equity method of accounting for investments in companies in which our ownership interest enables us to influence the operating or financial decisions of the investee company. Our proportionate share of equity in net income of these unconsolidated affiliates is reported within net investment income. The equity method investments are reported under the caption “Other invested assets” in our consolidated balance sheets.

Investment income is recorded when earned. 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.

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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. Under FASB guidance related to accounting for transfers and servicing of financial assets and extinguishments of liabilities, we recognize the collateral as an asset, which is reported under the caption “Other current assets” in our consolidated balance sheets, and we record a corresponding liability for the obligation to return the collateral to the borrower, which is reported under the caption “Other current liabilities” in our consolidated balance sheets. The securities on loan are reported in the applicable investment category on our consolidated balance sheets. Unrealized gains or losses on securities lending collateral are included in accumulated other comprehensive loss as a separate component of shareholders’ equity. 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 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.

Receivables: Premium receivables include the uncollected amounts from insured groups, individuals and government programs. Premium receivables are reported net of an allowance for doubtful accounts of $234 and $237 at March 31, 2020 and December 31, 2019, respectively. Self-funded receivables include administrative fees, claims and other amounts due from self-funded customers. Self-funded receivables are reported net of an allowance for doubtful accounts of $55 and $46 at March 31, 2020 and 2019, respectively. The allowance for doubtful accounts is based on historical collection trends, future forecasts and our judgment regarding the ability to collect specific accounts.

Other receivables include pharmacy rebates, provider advances, claims recoveries, reinsurance receivables, proceeds due from brokers on investment trades, other government receivables and other miscellaneous amounts due to us. These receivables are reported net of an allowance for doubtful accounts of $282 and $242 at March 31, 2020 and December 31, 2019, respectively, which is based on historical collection trends, future forecasts and our judgment regarding the ability to collect specific accounts.

Revenue Recognition: For our non-fully-insured contracts, we had no material contract assets, contract liabilities or deferred contract costs recorded on our consolidated balance sheet at March 31, 2020. For the three months ended March 31, 2020, revenue recognized from performance obligations related to prior periods, such as due to changes in transaction price, was not material. For contracts that have an original expected duration of greater than one year, revenue expected to be recognized in future periods related to unfulfilled contractual performance obligations and contracts with variable consideration related to undelivered performance obligations is not material.

Recently Adopted Accounting Guidance: In November 2019, the FASB issued Accounting Standards Update No. 2019-11, Codification Improvements to Topic 326, Financial Instruments - Credit Losses. In May 2019, the FASB issued Accounting Standards Update No. 2019-05, Financial Instruments - Credit Losses (Topic 326): Targeted Transition Relief. In April 2019, the FASB issued Accounting Standards Update No. 2019-04, Codification Improvements to Topic 326, Financial Instruments - Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments. In November 2018, the FASB issued Accounting Standards Update No. 2018-19, Codification Improvements to Topic 326, Financial Instruments - Credit Losses. These updates provide an option to irrevocably elect to measure certain individual financial assets at fair value instead of amortized cost and provide additional clarification and implementation guidance on certain aspects of the previously issued Accounting Standards Update No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, or ASU 2016-13, and have the same effective date and transition requirements as ASU 2016-13. ASU 2016-13 introduces a current expected credit loss model for measuring expected credit losses for certain types of financial instruments held at the reporting date based on historical experience, current conditions and reasonable supportable forecasts. ASU 2016-13 replaces the current incurred loss model for measuring expected credit losses, requires expected losses on available-for-sale debt securities to be recognized through an allowance for credit losses rather than as reductions in the amortized cost of the securities and provides for additional disclosure requirements. ASU 2016-13 requires a cumulative-effect adjustment to the opening balance of retained earnings on the statement of financial position at the date of adoption and a prospective transition approach for debt securities for which an other-than-temporary impairment had been recognized before the adoption date. The effect of a prospective transition approach is to maintain the same amortized cost basis before and after the date of adoption. We adopted ASU 2016-13 on January 1, 2020, and

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recognized a cumulative-effect adjustment of $35 to our opening retained earnings for credit related allowances on receivables. The adoption did not have an impact on our consolidated statements of income or cash flows.

In August 2018, the FASB issued Accounting Standards Update No. 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract, or ASU 2018-15. The amendments in ASU 2018-15 require implementation costs incurred by customers in cloud computing arrangements to be deferred and recognized over the term of the arrangement, if those costs would be capitalized by the customer in a software licensing arrangement under the internal-use software guidance. The amendments also require an entity to disclose the nature of its hosting arrangements and adhere to certain presentation requirements in its balance sheet, income statement and statement of cash flows. We adopted ASU 2018-15 on January 1, 2020 using a prospective approach for all implementation costs incurred after the date of adoption, and the adoption did not have an impact on our consolidated financial position, results of operations or cash flows.

In August 2018, the FASB issued Accounting Standards Update No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement, or ASU 2018-13. The amendments in ASU 2018-13 eliminate, add, and modify certain disclosure requirements for fair value measurements. The amendments are effective for interim and annual periods beginning after December 15, 2019, with early adoption permitted for either the entirety of ASU 2018-13 or only the provisions that eliminate or modify disclosure requirements. We early adopted the provisions that eliminate and modify disclosure requirements, on a retrospective basis, effective in our 2018 Annual Report on Form 10-K. We adopted the new disclosure requirements on January 1, 2020, on a prospective basis.

In January 2017, the FASB issued Accounting Standards Update No. 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, or ASU 2017-04. This update removes Step 2 of the goodwill impairment test under current guidance, which required a hypothetical purchase price allocation. The new guidance requires an impairment charge to be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value. We adopted ASU 2017-04 on January 1, 2020, and the adoption did not have an impact on our consolidated financial position, results of operations or cash flows.

Recent Accounting Guidance Not Yet Adopted: In March 2020, the FASB issued Accounting Standards Update No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, or ASU 2020-04. ASU 2020-04 provides optional expedients and exceptions for applying GAAP to contract modifications and hedging relationships, subject to meeting certain criteria, that reference the London Interbank Offered Rate, or LIBOR, or another reference rate expected to be discontinued because of the reference rate reform. The provisions must be applied at a Topic, Subtopic, or Industry Subtopic level for all transactions other than derivatives, which may be applied at a hedging relationship level. The provisions within ASU 2020-04 are available until December 31, 2022, when the reference rate replacement activity is expected to have been completed. We are currently evaluating the provisions within ASU 2020-04.

In December 2019, the FASB issued Accounting Standards Update No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, or ASU 2019-12. The amendments in ASU 2019-12 remove certain exceptions to the general principles in ASC Topic 740. The amendments also clarify and amend existing guidance to improve consistent application. The amendments are effective for our annual reporting periods beginning after December 15, 2020, with early adoption permitted. The transition method (retrospective, modified retrospective, or prospective basis) related to the amendments depends on the applicable guidance, and all amendments for which there is no transition guidance specified are to be applied on a prospective basis. We are currently evaluating the effects the adoption of ASU 2019-12 will have on our consolidated financial statements.

In August 2018, the FASB issued Accounting Standards Update No. 2018-14, Compensation—Retirement Benefits - Defined Benefit Plans—General (Subtopic 715-20): Disclosure Framework—Changes to the Disclosure Requirements for Defined Benefit Plans, or ASU 2018-14. The amendments in ASU 2018-14 eliminate, add, and modify certain disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. The amendments are effective for our annual reporting periods beginning after December 15, 2020, with early adoption permitted. The guidance is to be applied on a retrospective basis to all periods presented. We are currently evaluating the effects the adoption of ASU 2018-14 will have on our disclosures.

In August 2018, the FASB issued Accounting Standards Update No. 2018-12, Financial Services—Insurance (Topic 944): Targeted Improvements to the Accounting for Long-Duration Contracts, or ASU 2018-12. The amendments in ASU

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2018-12 make changes to a variety of areas to simplify or improve the existing recognition, measurement, presentation and disclosure requirements for long-duration contracts issued by an insurance entity. The amendments require insurers to annually review the assumptions they make about their policyholders and update the liabilities for future policy benefits if the assumptions change. The amendments also simplify the amortization of deferred contract acquisition costs and add new disclosure requirements about the assumptions insurers use to measure their liabilities and how they may affect future cash flows. The amendments in ASU 2018-12 will be effective for our interim and annual reporting periods beginning after December 15, 2021. The amendments related to the liability for future policy benefits for traditional and limited-payment contracts and deferred acquisition costs are to be applied to contracts in force as of the beginning of the earliest period presented, with an option to apply such amendments retrospectively with a cumulative-effect adjustment to the opening balance of retained earnings as of the earliest period presented. The amendments for market risk benefits are to be applied retrospectively. We are currently evaluating the effects the adoption of ASU 2018-12 will have on our consolidated financial position, results of operations, cash flows, and related disclosures.

There were no other new accounting pronouncements that were issued or became effective since the issuance of our 2019 Annual Report on Form 10-K that had, or are expected to have, a material impact on our consolidated financial position, results of operations or cash flows.

3. Business Acquisition

Beacon Health Options, Inc.

On February 28, 2020, we completed our acquisition of Beacon Health Options, Inc., or Beacon, the largest independently held behavioral health organization in the country. At the time of acquisition, Beacon served more than thirty-four million individuals across all fifty states. This acquisition aligns with our strategy to diversify into health services and deliver both integrated solutions and care delivery models that personalize care for people with complex and chronic conditions.

In accordance with FASB accounting guidance for business combinations, the consideration transferred was allocated to the preliminary fair value of Beacon’s assets acquired and liabilities assumed, including identifiable intangible assets. The excess of the consideration transferred over the preliminary fair value of net assets acquired resulted in preliminary goodwill of $1,049 at March 31, 2020, all of which was allocated to our Other segment. Preliminary goodwill recognized from the acquisition of Beacon primarily relates to the future economic benefits arising from the assets acquired and is consistent with our stated intentions and strategy. Any additional payments or receipts of cash resulting from contractual purchase price adjustments or any subsequent adjustments made to the assets acquired or liabilities assumed during the measurement period will be recorded as an adjustment to goodwill.

The preliminary fair value of the net assets acquired from Beacon includes $752 of other intangible assets at March 31, 2020, which primarily consist of finite-lived customer relationships with amortization periods ranging from 9 to 21 years. The results of operations of Beacon are included in our consolidated financial statements within our Other segment for the period following February 28, 2020. The pro forma effects of this acquisition for prior periods were not material to our consolidated results of operations.

4. 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.

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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	)

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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.

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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

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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	)	$