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EX-32.2 - EXHIBIT 32.2 - Anthem, Inc.exhibit322-20170630forq2.htm
EX-32.1 - EXHIBIT 32.1 - Anthem, Inc.exhibit321-20170630forq2.htm
EX-31.2 - EXHIBIT 31.2 - Anthem, Inc.exhibit312-20170630forq2.htm
EX-31.1 - EXHIBIT 31.1 - Anthem, Inc.exhibit311-20170630forq2.htm
EX-10.2 - EXHIBIT 10.2 - Anthem, Inc.exhibit102-20170630forq2.htm
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 2017
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)
 
 
120 MONUMENT CIRCLE
INDIANAPOLIS, INDIANA
(Address of principal executive offices)
 
46204-4903
(Zip Code)
Registrant’s telephone number, including area code: (317) 488-6000
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
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 x No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).    Yes  x    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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
x
 
  
Accelerated filer
¨
Non-accelerated filer
¨
 (Do not check if a smaller reporting company)
  
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  x
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
Title of Each Class
 
Outstanding at July 13, 2017
Common Stock, $0.01 par value
 
262,584,689 shares
 
 
 



Anthem, Inc.
Quarterly Report on Form 10-Q
For the Period Ended June 30, 2017
Table of Contents
 
 
 
Page
PART I. FINANCIAL INFORMATION
 
 
 
 
ITEM 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
ITEM 2.
ITEM 3.
ITEM 4.
PART II. OTHER INFORMATION
 
ITEM 1.
ITEM 1A.
ITEM 2.
ITEM 3.
ITEM 4.
ITEM 5.
ITEM 6.

-1-



PART I. FINANCIAL INFORMATION
ITEM 1.
FINANCIAL STATEMENTS
Anthem, Inc.
Consolidated Balance Sheets
 
June 30,
2017
 
December 31,
2016
(In millions, except share data)
(Unaudited)
 
 
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
4,561.2

 
$
4,075.3

Investments available-for-sale, at fair value:
 
 
 
Fixed maturity securities (amortized cost of $18,560.5 and $16,991.8)
18,948.2

 
17,163.1

Equity securities (cost of $1,378.3 and $1,076.1)
1,823.8

 
1,468.5

Other invested assets, current
19.1

 
15.8

Accrued investment income
158.2

 
164.5

Premium and self-funded receivables
6,105.7

 
5,860.8

Other receivables
2,525.4

 
2,536.6

Income taxes receivable

 
168.7

Securities lending collateral
1,214.5

 
1,079.8

Other current assets
1,774.6

 
1,781.8

Total current assets
37,130.7

 
34,314.9

Long-term investments available-for-sale, at fair value:
 
 
 
Fixed maturity securities (amortized cost of $516.7 and $524.6)
524.8

 
524.4

Equity securities (cost of $27.3 and $27.2)
32.3

 
31.4

Other invested assets, long-term
2,352.1

 
2,240.5

Property and equipment, net
1,975.7

 
1,977.9

Goodwill
17,561.2

 
17,561.2

Other intangible assets
7,882.4

 
7,964.9

Other noncurrent assets
778.4

 
467.9

Total assets
$
68,237.6

 
$
65,083.1

 
 
 
 
Liabilities and shareholders’ equity
 
 
 
Liabilities
 
 
 
Current liabilities:
 
 
 
Policy liabilities:
 
 
 
Medical claims payable
$
7,969.5

 
$
7,892.6

Reserves for future policy benefits
69.6

 
71.8

Other policyholder liabilities
2,447.5

 
2,221.1

Total policy liabilities
10,486.6

 
10,185.5

Unearned income
1,837.8

 
971.9

Accounts payable and accrued expenses
3,815.7

 
4,014.9

Income taxes payable
113.0

 

Security trades pending payable
227.8

 
93.5

Securities lending payable
1,213.7

 
1,078.9

Short-term borrowings
580.0

 
440.0

Current portion of long-term debt
624.4

 
928.4

Other current liabilities
3,668.9

 
3,581.3

Total current liabilities
22,567.9

 
21,294.4

Long-term debt, less current portion
15,088.0

 
14,358.5

Reserves for future policy benefits, noncurrent
619.0

 
666.1

Deferred tax liabilities, net
2,632.7

 
2,779.9

Other noncurrent liabilities
898.3

 
883.8

Total liabilities
41,805.9

 
39,982.7

 
 
 
 
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 –
263,095,951 and 263,747,395
2.6

 
2.6

Additional paid-in capital
8,897.0

 
8,805.1

Retained earnings
17,667.0

 
16,560.6

Accumulated other comprehensive loss
(134.9
)
 
(267.9
)
Total shareholders’ equity
26,431.7

 
25,100.4

Total liabilities and shareholders’ equity
$
68,237.6

 
$
65,083.1


See accompanying notes.

-2-



Anthem, Inc.
Consolidated Statements of Income
(Unaudited) 
 
Three Months Ended 
 June 30
 
Six Months Ended 
 June 30
(In millions, except per share data)
2017
 
2016
 
2017
 
2016
Revenues
 
 
 
 
 
 
 
Premiums
$
20,813.1

 
$
19,948.0

 
$
41,764.4

 
$
38,936.9

Administrative fees
1,378.9

 
1,315.8

 
2,742.1

 
2,626.8

Other revenue
6.0

 
10.7

 
11.0

 
20.2

Total operating revenue
22,198.0

 
21,274.5

 
44,517.5

 
41,583.9

Net investment income
200.2

 
194.9

 
407.4

 
366.0

Net realized gains (losses) on financial instruments
16.2

 
12.5

 
23.5

 
(112.6
)
Other-than-temporary impairment losses on investments:
 
 
 
 
 
 
 
Total other-than-temporary impairment losses on investments
(7.3
)
 
(33.8
)
 
(16.9
)
 
(119.0
)
Portion of other-than-temporary impairment losses recognized in other comprehensive income
0.1

 
8.1

 
1.6

 
26.4

Other-than-temporary impairment losses recognized in income
(7.2
)
 
(25.7
)
 
(15.3
)
 
(92.6
)
Total revenues
22,407.2

 
21,456.2

 
44,933.1

 
41,744.7

Expenses
 
 
 
 
 
 
 
Benefit expense
17,917.2

 
16,805.2

 
35,460.0

 
32,344.0

Selling, general and administrative expense:
 
 
 
 
 
 
 
Selling expense
345.5

 
351.5

 
694.1

 
701.4

General and administrative expense
2,708.3

 
2,617.6

 
5,551.0

 
5,467.9

Total selling, general and administrative expense
3,053.8

 
2,969.1

 
6,245.1

 
6,169.3

Interest expense
189.9

 
185.7

 
424.9

 
372.8

Amortization of other intangible assets
40.6

 
47.9

 
82.4

 
98.3

Total expenses
21,201.5

 
20,007.9

 
42,212.4

 
38,984.4

Income before income tax expense
1,205.7

 
1,448.3

 
2,720.7

 
2,760.3

Income tax expense
350.4

 
667.7

 
855.5

 
1,276.7

Net income
$
855.3

 
$
780.6

 
$
1,865.2

 
$
1,483.6

Net income per share
 
 
 
 
 
 
 
Basic
$
3.23

 
$
2.97

 
$
7.05

 
$
5.65

Diluted
$
3.16

 
$
2.91

 
$
6.89

 
$
5.54

Dividends per share
$
0.65

 
$
0.65

 
$
1.30

 
$
1.30











See accompanying notes.

-3-



Anthem, Inc.
Consolidated Statements of Comprehensive Income
(Unaudited) 
 
Three Months Ended 
 June 30
 
Six Months Ended 
 June 30
(In millions)
2017
 
2016
 
2017
 
2016
Net income
$
855.3

 
$
780.6

 
$
1,865.2

 
$
1,483.6

Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
Change in net unrealized gains/losses on investments
100.9

 
209.8

 
181.1

 
382.1

Change in non-credit component of other-than-temporary impairment losses on investments
0.9

 
(5.4
)
 
4.5

 
(7.1
)
Change in net unrealized losses on cash flow hedges
(79.8
)
 
(190.0
)
 
(62.8
)
 
(455.5
)
Change in net periodic pension and postretirement costs
4.2

 
3.8

 
8.1

 
7.6

Foreign currency translation adjustments
0.7

 
(0.7
)
 
2.1

 
0.6

Other comprehensive income (loss)
26.9

 
17.5

 
133.0

 
(72.3
)
Total comprehensive income
$
882.2

 
$
798.1

 
$
1,998.2

 
$
1,411.3


































See accompanying notes.

-4-


Anthem, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
 
Six Months Ended 
 June 30
(In millions)
2017
 
2016
Operating activities
 
 
 
Net income
$
1,865.2

 
$
1,483.6

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Net realized (gains) losses on financial instruments
(23.5
)
 
112.6

Other-than-temporary impairment losses recognized in income
15.3

 
92.6

Loss on disposal of assets
0.4

 
0.6

Deferred income taxes
(209.9
)
 
99.7

Amortization, net of accretion
385.0

 
399.4

Depreciation expense
54.5

 
51.7

Share-based compensation
87.1

 
82.4

Excess tax benefits from share-based compensation

 
(46.0
)
Changes in operating assets and liabilities:
 
 
 
Receivables, net
(134.7
)
 
(332.8
)
Other invested assets
(22.4
)
 
(13.2
)
Other assets
(322.4
)
 
(284.5
)
Policy liabilities
254.0

 
54.1

Unearned income
865.9

 
(312.7
)
Accounts payable and accrued expenses
(53.0
)
 
343.1

Other liabilities
81.5

 
(17.1
)
Income taxes
281.7

 
338.2

Other, net
(43.4
)
 
(22.3
)
Net cash provided by operating activities
3,081.3

 
2,029.4

Investing activities
 
 
 
Purchases of fixed maturity securities
(7,637.0
)
 
(5,509.3
)
Proceeds from fixed maturity securities:
 
 
 
Sales
5,152.9

 
4,246.3

Maturities, calls and redemptions
966.4

 
590.5

Purchases of equity securities
(506.0
)
 
(1,032.3
)
Proceeds from sales of equity securities
214.7

 
486.4

Purchases of other invested assets
(162.3
)
 
(261.1
)
Proceeds from sales of other invested assets
121.8

 
219.4

Change in collateral and settlements of non-hedging derivatives
(2.1
)
 
14.7

Changes in securities lending collateral
(134.8
)
 
(211.2
)
Purchases of property and equipment
(297.5
)
 
(251.2
)
Proceeds from sales of property and equipment
3.3

 

Other, net
11.8

 

Net cash used in investing activities
(2,268.8
)
 
(1,707.8
)
Financing activities
 
 
 
Net proceeds from (repayments of) commercial paper borrowings
1,347.8

 
(225.2
)
Repayments of long-term borrowings
(929.9
)
 

Proceeds from short-term borrowings
2,190.0

 
1,420.0

Repayments of short-term borrowings
(2,050.0
)
 
(1,520.0
)
Changes in securities lending payable
134.8

 
211.1

Changes in bank overdrafts
(146.2
)
 
15.2

Repurchase and retirement of common stock
(509.0
)
 

Change in collateral and settlements of debt-related derivatives
(128.4
)
 
(467.5
)
Cash dividends
(344.0
)
 
(341.6
)
Proceeds from issuance of common stock under employee stock plans
151.0

 
71.7

Taxes paid through withholding of common stock under employee stock plans
(45.6
)
 
(63.1
)
Excess tax benefits from share-based compensation

 
46.0

Net cash used in financing activities
(329.5
)
 
(853.4
)
Effect of foreign exchange rates on cash and cash equivalents
2.9

 
1.0

Change in cash and cash equivalents
485.9

 
(530.8
)
Cash and cash equivalents at beginning of period
4,075.3

 
2,113.5

Cash and cash equivalents at end of period
$
4,561.2

 
$
1,582.7

See accompanying notes.

-5-


Anthem, Inc.
Consolidated Statements of Shareholders’ Equity
(Unaudited)
 
Common Stock
 
Additional
Paid-in
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
(Loss) Income
 
Total
Shareholders’
Equity
(In millions)
Number of
Shares
 
Par
Value
 
January 1, 2017
263.7

 
$
2.6

 
$
8,805.1

 
$
16,560.6

 
$
(267.9
)
 
$
25,100.4

Net income

 

 

 
1,865.2

 

 
1,865.2

Other comprehensive income

 

 

 

 
133.0

 
133.0

Repurchase and retirement of common stock
(2.8
)
 

 
(95.0
)
 
(414.0
)
 

 
(509.0
)
Dividends and dividend equivalents

 

 

 
(344.8
)
 

 
(344.8
)
Issuance of common stock under employee stock plans, net of related tax benefits
2.2

 

 
188.0

 

 

 
188.0

Convertible debenture repurchases and conversions

 

 
(1.1
)
 

 

 
(1.1
)
June 30, 2017
263.1

 
$
2.6

 
$
8,897.0

 
$
17,667.0

 
$
(134.9
)
 
$
26,431.7

 
 
 
 
 
 
 
 
 
 
 
 
January 1, 2016
261.2

 
$
2.6

 
$
8,555.6

 
$
14,778.5

 
$
(292.6
)
 
$
23,044.1

Net income

 

 

 
1,483.6

 

 
1,483.6

Other comprehensive loss

 

 

 

 
(72.3
)
 
(72.3
)
Dividends and dividend equivalents

 

 

 
(343.7
)
 

 
(343.7
)
Issuance of common stock under employee stock plans, net of related tax benefits
2.0

 

 
121.6

 

 

 
121.6

Equity Units issuance costs adjustment

 

 
0.3

 

 

 
0.3

June 30, 2016
263.2

 
$
2.6

 
$
8,677.5

 
$
15,918.4

 
$
(364.9
)
 
$
24,233.6




















See accompanying notes.

-6-


Anthem, Inc.
Notes to Consolidated Financial Statements
(Unaudited)
June 30, 2017
(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.
We are one of the largest health benefits companies in the United States in terms of medical membership, serving 40.4 medical members through our affiliated health plans as of June 30, 2017. We offer a broad spectrum of network-based managed care plans to large and small employer, individual, Medicaid and Medicare markets. Our managed care plans include: preferred provider organizations, or PPOs; health maintenance organizations, or HMOs; point-of-service, or POS, plans; traditional indemnity plans and other hybrid plans, including consumer-driven health plans, or CDHPs; 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, underwriting, 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 dental, vision, life and disability insurance benefits, radiology benefit management and analytics-driven personal health care. We also provide services to the federal government in connection with the Federal Employee 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 (as BCBS in 10 New York City metropolitan and surrounding counties, and as Blue Cross or BCBS in selected upstate counties), 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, Blue Cross and Blue Shield of Georgia, and Empire Blue Cross Blue Shield or Empire Blue Cross (in our New York service areas). We also conduct business through arrangements with other BCBS licensees in South Carolina and western New York. Through our AMERIGROUP Corporation subsidiary and other subsidiaries, we conduct business in Florida, Georgia, Iowa, Kansas, Louisiana, Maryland, Nevada, New Jersey, New Mexico, New York, Tennessee, Texas and Washington. In addition, we conduct business through our Simply Healthcare Holdings, Inc. subsidiary in Florida. We also serve customers throughout the country as HealthLink, UniCare (including a non-risk arrangement with Massachusetts), and in certain Arizona, California, Nevada and Virginia markets through our CareMore Health Group, Inc., or CareMore, subsidiary. We are licensed to conduct insurance operations in all 50 states 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 2016 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. 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 and six months ended June 30, 2017 and 2016 have been recorded. The results of operations for the three and six months ended June 30, 2017 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2017. These unaudited consolidated financial statements should be read in conjunction with our audited consolidated financial statements for the year ended December 31, 2016 included in our 2016 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. Additionally, we control a number of bank accounts that are used exclusively to hold customer funds for the administration of customer benefits. At June 30, 2017 and December 31, 2016, we held $166.1 and $157.0, respectively, of customer funds with an offsetting liability in other current liabilities.
Recently Adopted Accounting Guidance: In March 2016, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update No. 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, or ASU 2016-09. The amendments in this update simplify several aspects of accounting for and reporting on share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. We adopted the amendments in ASU 2016-09 on January 1, 2017. We prospectively recognized tax benefits of $5.2, or $0.02 per diluted share, for the three months ended June 30, 2017 and $25.2, or $0.09 per diluted share, for the six months ended June 30, 2017 in our consolidated statement of income, which previously would have been recorded to additional paid-in capital. In addition, we prospectively recognized excess tax benefits as an operating activity within the cash flow statement for the six months ended June 30, 2017. Finally, we retrospectively recognized taxes paid on the employees' behalf through the withholding of common stock as a financing activity within the cash flow statements for the six months ended June 30, 2017 and 2016.
Recent Accounting Guidance Not Yet Adopted: In May 2017, the FASB issued Accounting Standards Update No. 2017-09, Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting, or ASU 2017-09. This amendment provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. ASU 2017-09 is effective for interim and annual reporting periods beginning after December 15, 2017, with early adoption permitted. The guidance is to be applied prospectively to an award modified on or after the adoption date. The adoption of ASU 2017-09 is not expected to have a material impact on our consolidated financial position, results of operations or cash flows.
In March 2017, the FASB issued Accounting Standards Update No. 2017-08, Receivables—Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities, or ASU 2018-08. This amendment changes the amortization period for certain purchased callable debt securities held at a premium by shortening the amortization period for the premium to the earliest call date. Under current guidance, the premium is generally amortized over the contractual life of the instrument. ASU 2017-08 is effective for interim and annual reporting periods beginning after December 15, 2018, with early adoption permitted. Upon adoption, the amendments are to be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. The adoption of ASU 2017-08 is not expected to have a material impact on our consolidated financial position, results of operations or cash flows.
In March 2017, the FASB issued Accounting Standards Update No. 2017-07, Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, or ASU 2017-07. This amendment requires entities to disaggregate the service cost component from the other components of the benefit cost and present the service cost component in the same income statement line item as other employee compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations. In addition, the amendment allows only the service cost component to be eligible for asset capitalization. Upon adoption, the guidance on the presentation of the components of net periodic benefit cost in the income statement is to be applied retrospectively and the guidance limiting the capitalization of net periodic benefit cost in assets to the service cost component is to be applied prospectively. ASU 2017-07 is effective for interim and annual reporting periods beginning after December 15, 2017, with early adoption permitted. We are currently evaluating the effects the adoption of ASU 2017-07 will have upon our consolidated financial position, results of operations and cash flows.
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 amendment removes Step 2 of the goodwill impairment test under current guidance which requires 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. Upon adoption, the guidance is to be applied prospectively. ASU 2017-04 is effective for us on January 1, 2020, with early

-8-


adoption permitted. The adoption of ASU 2017-04 is not expected to have a material impact on our consolidated financial position, results of operations or cash flows.
In December 2016, the FASB issued Accounting Standards Update No. 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers, or ASU 2016-20. In May 2016, the FASB issued Accounting Standards Update No. 2016-12, Revenue from Contracts With Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients, or ASU 2016-12. In April 2016, the FASB issued Accounting Standards Update No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, or ASU 2016-10. In March 2016, the FASB issued Accounting Standards Update No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross verses Net), or ASU 2016-08. These updates provide additional clarification and implementation guidance on the previously issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606), or ASU 2014-09. The amendments in ASU 2016-20 provide technical corrections to various implementation examples and clarifying guidance on the treatment of capitalized advertising costs, impairment testing of capitalized contract costs, performance obligation disclosures and scope exceptions. The amendments in ASU 2016-12 provide clarifying guidance on assessing collectability; noncash consideration; presentation of sales taxes; and transition. The amendments in ASU 2016-10 provide clarifying guidance on the materiality and evaluation of performance obligations; treatment of shipping and handling costs; and determining whether an entity's promise to grant a license provides a customer with either a right to use or a right to access an entity's intellectual property. The amendments in ASU 2016-08 clarify how an entity should identify the specified good or service for the principal versus agent evaluation and how it should apply the control principle to certain types of arrangements. Collectively, these updates will require a company to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The adoption of ASU 2016-20, ASU 2016-12, ASU 2016-10 and ASU 2016-08 is to coincide with an entity's adoption of ASU 2014-09, which we intend to adopt for interim and annual reporting periods beginning after December 15, 2017. Upon the effective date, these updates will supersede almost all existing revenue recognition guidance under GAAP, with certain exceptions, including an exception for our premium revenues, recorded on the Premiums line item on our consolidated statements of income, which will continue to be accounted for in accordance with the provisions of Accounting Standards Codification, or ASC, Topic 944, Financial Services - Insurance. Our administrative service and other contracts that will be subject to these Accounting Standards Updates are recorded in the Administrative fees and Other revenue line items on our consolidated statements of income and represent approximately 6.0% of our consolidated total operating revenue. The new guidance permits adoption through either a full retrospective approach or a modified retrospective approach with a cumulative effect adjustment to retained earnings. We intend to use the modified retrospective approach upon adoption and are still in the process of evaluating the impact that these updates will have on our results of operations, cash flows, consolidated financial position and related disclosures.
There were no other new accounting pronouncements that were issued or became effective since the issuance of our 2016 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
Termination of Agreement and Plan of Merger with Cigna Corporation
On July 24, 2015, we and Cigna Corporation, or Cigna, announced that we entered into an Agreement and Plan of Merger, or Merger Agreement, dated as of July 23, 2015, to acquire all outstanding shares of Cigna, or the Acquisition. On May 12, 2017, we delivered to Cigna a notice terminating the Merger Agreement. For additional information, see the “Litigation” section of Note 11, “Commitments and Contingencies.”
4.
Investments
We evaluate our investment securities for other-than-temporary declines based on qualitative and quantitative factors. Other-than-temporary impairment losses recognized in income totaled $7.2 and $25.7 for the three months ended June 30, 2017 and 2016, respectively. Other-than-temporary impairment losses recognized in income totaled $15.3 and $92.6 for the six months ended June 30, 2017 and 2016, respectively. There were no individually significant other-than-temporary impairment losses on investments during the three and six months ended June 30, 2017 and 2016. We continue to review our

-9-


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 further declines in fair value may occur and additional material other-than-temporary impairment losses on investments may be recorded in future periods.
A summary of current and long-term investments, available-for-sale, at June 30, 2017 and December 31, 2016 is as follows:
 
 
 
 
 
 
 
 
 
Non-Credit
Component of
Other-Than-
Temporary
Impairments
Recognized in
AOCI
 
Cost or
Amortized
Cost
 
Gross
Unrealized
Gains
 
Gross Unrealized Losses
 
Estimated
Fair Value
 
 
 
 
Less than
12 Months
 
12 Months
or Greater
 
 
June 30, 2017
 
 
 
 
 
 
 
 
 
 
 
Fixed maturity securities:
 
 
 
 
 
 
 
 
 
 
 
United States Government securities
$
379.5

 
$
2.2

 
$
(2.4
)
 
$

 
$
379.3

 
$

Government sponsored securities
47.4

 
0.4

 
(0.3
)
 
(0.1
)
 
47.4

 

States, municipalities and political subdivisions, tax-exempt
5,758.7

 
197.2

 
(15.0
)
 
(1.7
)
 
5,939.2

 

Corporate securities
9,678.6

 
221.8

 
(22.3
)
 
(13.1
)
 
9,865.0

 
(0.2
)
Residential mortgage-backed securities
2,218.5

 
37.0

 
(10.8
)
 
(3.3
)
 
2,241.4

 

Commercial mortgage-backed securities
99.2

 
1.0

 
(0.1
)
 
(2.3
)
 
97.8

 

Other securities
895.3

 
10.7

 
(0.7
)
 
(2.4
)
 
902.9

 

Total fixed maturity securities
19,077.2

 
470.3

 
(51.6
)
 
(22.9
)
 
19,473.0

 
$
(0.2
)
Equity securities
1,405.6

 
471.3

 
(20.8
)
 

 
1,856.1

 
 
Total investments, available-for-sale
$
20,482.8

 
$
941.6

 
$
(72.4
)
 
$
(22.9
)
 
$
21,329.1

 
 
December 31, 2016
 
 
 
 
 
 
 
 
 
 
 
Fixed maturity securities:
 
 
 
 
 
 
 
 
 
 
 
United States Government securities
$
561.7

 
$
2.5

 
$
(5.7
)
 
$

 
$
558.5

 
$

Government sponsored securities
40.1

 
0.3

 
(0.3
)
 
(0.1
)
 
40.0

 

States, municipalities and political subdivisions, tax-exempt
6,024.6

 
139.1

 
(55.2
)
 
(3.2
)
 
6,105.3

 
(3.8
)
Corporate securities
8,011.7

 
159.5

 
(49.5
)
 
(27.1
)
 
8,094.6

 
(3.4
)
Residential mortgage-backed securities
1,916.9

 
32.3

 
(15.3
)
 
(4.6
)
 
1,929.3

 

Commercial mortgage-backed securities
216.8

 
1.2

 
(0.3
)
 
(3.4
)
 
214.3

 

Other securities
744.6

 
6.4

 
(1.5
)
 
(4.0
)
 
745.5

 

Total fixed maturity securities
17,516.4

 
341.3

 
(127.8
)
 
(42.4
)
 
17,687.5

 
$
(7.2
)
Equity securities
1,103.3

 
407.3

 
(10.7
)
 

 
1,499.9

 
 
Total investments, available-for-sale
$
18,619.7

 
$
748.6

 
$
(138.5
)
 
$
(42.4
)
 
$
19,187.4

 
 

-10-


For available-for-sale securities in an unrealized loss position at June 30, 2017 and December 31, 2016, 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
June 30, 2017
 
 
 
 
 
 
 
 
 
 
 
Fixed maturity securities:
 
 
 
 
 
 
 
 
 
 
 
United States Government securities
35

 
$
277.7

 
$
(2.4
)
 
1

 
$
0.5

 
$

Government sponsored securities
17

 
24.8

 
(0.3
)
 
3

 
2.1

 
(0.1
)
States, municipalities and political subdivisions, tax-exempt
510

 
949.9

 
(15.0
)
 
28

 
58.4

 
(1.7
)
Corporate securities
1,018

 
1,987.6

 
(22.3
)
 
103

 
255.0

 
(13.1
)
Residential mortgage-backed securities
441

 
981.8

 
(10.8
)
 
98

 
98.6

 
(3.3
)
Commercial mortgage-backed securities
11

 
20.1

 
(0.1
)
 
14

 
27.8

 
(2.3
)
Other securities
72

 
232.2

 
(0.7
)
 
25

 
42.4

 
(2.4
)
Total fixed maturity securities
2,104

 
4,474.1

 
(51.6
)
 
272

 
484.8

 
(22.9
)
Equity securities
522

 
205.9

 
(20.8
)
 

 

 

Total investments, available-for-sale
2,626

 
$
4,680.0

 
$
(72.4
)
 
272

 
$
484.8

 
$
(22.9
)
December 31, 2016
 
 
 
 
 
 
 
 
 
 
 
Fixed maturity securities:
 
 
 
 
 
 
 
 
 
 
 
United States Government securities
51

 
$
359.9

 
$
(5.7
)
 

 
$

 
$

Government sponsored securities
18

 
26.4

 
(0.3
)
 
1

 
1.0

 
(0.1
)
States, municipalities and political subdivisions, tax-exempt
1,022

 
1,849.0

 
(55.2
)
 
28

 
60.7

 
(3.2
)
Corporate securities
1,272

 
2,640.6

 
(49.5
)
 
203

 
422.8

 
(27.1
)
Residential mortgage-backed securities
430

 
905.8

 
(15.3
)
 
114

 
136.9

 
(4.6
)
Commercial mortgage-backed securities
19

 
61.2

 
(0.3
)
 
24

 
60.8

 
(3.4
)
Other securities
66

 
144.3

 
(1.5
)
 
55

 
133.8

 
(4.0
)
Total fixed maturity securities
2,878

 
5,987.2

 
(127.8
)
 
425

 
816.0

 
(42.4
)
Equity securities
452

 
233.1

 
(10.7
)
 

 

 

Total investments, available-for-sale
3,330

 
$
6,220.3

 
$
(138.5
)
 
425

 
$
816.0

 
$
(42.4
)
The amortized cost and fair value of available-for-sale fixed maturity securities at June 30, 2017, 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
$
358.2

 
$
359.5

Due after one year through five years
4,576.8

 
4,663.4

Due after five years through ten years
5,576.3

 
5,726.2

Due after ten years
6,248.2

 
6,384.7

Mortgage-backed securities
2,317.7

 
2,339.2

Total available-for-sale fixed maturity securities
$
19,077.2

 
$
19,473.0


-11-


Proceeds from sales, maturities, calls or redemptions of fixed maturity securities, equity securities and other invested assets and the related gross realized gains and gross realized losses for the three and six months ended June 30, 2017 and 2016 are as follows:
 
Three Months Ended 
 June 30
 
Six Months Ended 
 June 30
 
2017
 
2016
 
2017
 
2016
Proceeds
$
2,941.8

 
$
2,480.5

 
$
6,455.8

 
$
5,542.6

Gross realized gains
50.9

 
108.4

 
110.7

 
229.8

Gross realized losses
(20.1
)
 
(31.0
)
 
(50.3
)
 
(123.7
)
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.
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 $1,213.7 and $1,078.9 at June 30, 2017 and December 31, 2016, respectively. The value of the collateral represented 103% of the market value of the securities on loan at June 30, 2017 and December 31, 2016. We recognize the collateral as an asset under the caption “Securities lending collateral” on our consolidated balance sheets and we recognize a corresponding liability for the obligation to return the collateral to the borrower under the caption “Securities lending payable.” 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 within shareholders’ equity.
The remaining contractual maturity of our securities lending agreements at June 30, 2017 is as follows:
 
Overnight and Continuous
 
Less than 30 days
 
30-90 days
 
Greater Than 90 days
 
Total
Securities lending transactions
 
 
 
 
 
 
 
 
 
United States Government securities
$
66.1

 
$
4.2

 
$

 
$
6.6

 
$
76.9

Government sponsored securities
6.2

 

 

 

 
6.2

Corporate securities
782.4

 

 

 

 
782.4

Equity securities
348.2

 

 

 

 
348.2

Total
$
1,202.9

 
$
4.2

 
$

 
$
6.6

 
$
1,213.7

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.

-12-


5.
Derivative Financial Instruments
We primarily invest in the following types of derivative financial instruments: interest rate swaps, futures, forward contracts, put and call options, swaptions, embedded derivatives and warrants. We also enter into master netting agreements which reduce credit risk by permitting net settlement of transactions. At June 30, 2017, we had posted collateral of $139.6 and received collateral of $84.8 related to our derivative financial instruments. In addition to collateral posted for derivative transactions, from time to time, we may have cash on deposit to meet certain regulatory requirements, which are included in cash and cash equivalents on the consolidated balance sheets. At June 30, 2017 and December 31, 2016, we had cash on deposit of $224.8 and $405.3, respectively.
A summary of the aggregate contractual or notional amounts and estimated fair values related to derivative financial instruments at June 30, 2017 and December 31, 2016 is as follows:
 
Contractual/
Notional
Amount
 
Balance Sheet Location
 
Estimated Fair Value
 
Asset
 
(Liability)
June 30, 2017
 
 
 
 
 
 
 
Hedging instruments
 
 
 
 
 
 
 
Interest rate swaps - fixed to floating
$
1,235.0

 
Other assets/other liabilities
 
$
2.9

 
$
(1.1
)
Interest rate swaps - forward starting pay fixed
4,625.0

 
Other assets/other liabilities
 
4.3

 
(69.2
)
Subtotal hedging
5,860.0

 
Subtotal hedging
 
7.2

 
(70.3
)
Non-hedging instruments
 
 
 
 
 
 
 
Interest rate swaps
325.1

 
Equity securities 
 
4.1

 
(0.1
)
Options
11,147.0

 
Other assets/other liabilities
 
300.0

 
(310.8
)
Futures
169.2

 
Equity securities 
 
0.4

 
(1.0
)
Subtotal non-hedging
11,641.3

 
Subtotal non-hedging
 
304.5

 
(311.9
)
Total derivatives
$
17,501.3

 
Total derivatives
 
311.7

 
(382.2
)
 
 
 
Amounts netted
 
(147.4
)
 
147.4

 
 
 
Net derivatives
 
$
164.3

 
$
(234.8
)
 
 
 
 
 
 
 
 
December 31, 2016
 
 
 
 
 
 
 
Hedging instruments
 
 
 
 
 
 
 
Interest rate swaps - fixed to floating
$
1,385.0

 
Other assets/other liabilities
 
$
4.0

 
$
(0.7
)
Interest rate swaps - forward starting pay fixed
4,775.0

 
Other assets/other liabilities
 
528.8

 
(6.0
)
Subtotal hedging
6,160.0

 
Subtotal hedging
 
532.8

 
(6.7
)
Non-hedging instruments
 
 
 
 
 
 
 
Interest rate swaps
209.4

 
Equity securities 
 
4.7

 
(0.2
)
Options
10,280.2

 
Other assets/other liabilities
 
220.7

 
(233.9
)
Futures
185.3

 
Equity securities 
 
0.5

 
(1.1
)
Subtotal non-hedging
10,674.9

 
Subtotal non-hedging
 
225.9

 
(235.2
)
Total derivatives
$
16,834.9

 
Total derivatives
 
758.7

 
(241.9
)
 
 
 
Amounts netted
 
(92.8
)
 
92.8

 
 
 
Net derivatives
 
$
665.9

 
$
(149.1
)

-13-


Fair Value Hedges
We have entered into various interest rate swap contracts to convert a portion of our interest rate exposure on our long-term debt from fixed rates to floating rates. The floating rates payable on all of our fair value hedges are benchmarked to LIBOR. A summary of our outstanding fair value hedges at June 30, 2017 and December 31, 2016 is as follows:
Type of Fair Value Hedges
 
Year
Entered
Into
 
Outstanding Notional Amount
 
Interest Rate
Received
 
Expiration Date
 
June 30, 2017
 
December 31, 2016
 
Interest rate swap
 
2017
 
$
50.0

 
$

 
4.350
%
 
August 15, 2020
Interest rate swap
 
2015
 
200.0

 
200.0

 
4.350
 
 
August 15, 2020
Interest rate swap
 
2014
 
150.0

 
150.0

 
4.350
 
 
August 15, 2020
Interest rate swap
 
2013
 
10.0

 
10.0

 
4.350
 
 
August 15, 2020
Interest rate swap
 
2012
 
200.0

 
200.0

 
4.350
 
 
August 15, 2020
Interest rate swap
 
2012
 
625.0

 
625.0

 
1.875
 
 
January 15, 2018
Interest rate swap
 
2012
 

 
200.0

 
2.375
 
 
February 15, 2017
Total notional amount outstanding
 
 
 
$
1,235.0

 
$
1,385.0

 
 
 
 
 
A summary of the effect of fair value hedges on our income statement for the three and six months ended June 30, 2017 and 2016 is as follows:
Type of Fair Value Hedges
 
Income Statement
Location of Hedge
Gain (Loss)
 
Hedge
Gain (Loss)
Recognized
 
Hedged Item
 
Income Statement
Location of
Hedged Item
Gain (Loss)
 
Hedged 
Item
Gain (Loss)
Recognized
Three months ended June 30, 2017
 
 
 
 
 
 
 
 
 
 
Interest rate swaps
 
Interest expense
 
$
0.1

 
Fixed rate debt
 
Interest expense
 
$
(0.1
)
Three months ended June 30, 2016
 
 
 
 
 
 
 
 
 
 
Interest rate swaps
 
Interest expense
 
$
2.2

 
Fixed rate debt
 
Interest expense
 
$
(2.2
)
Six months ended June 30, 2017
 
 
 
 
 
 
 
 
 
 
Interest rate swaps
 
Interest expense
 
$
(0.2
)
 
Fixed rate debt
 
Interest expense
 
$
0.2

Six months ended June 30, 2016
 
 
 
 
 
 
 
 
 
 
Interest rate swaps
 
Interest expense
 
$
4.6

 
Fixed rate debt
 
Interest expense
 
$
(4.6
)
Cash Flow Hedges
We have entered into a series of forward starting pay fixed interest rate swaps with the objective of eliminating the variability of cash flows in the interest payments on anticipated future financings. During the six months ended June 30, 2017, swaps in the notional amount of $5,525.0 were terminated. We received an aggregate of $476.1 from the swap counterparties upon termination. Following the termination of these swaps, we entered into a new series of forward starting pay fixed interest rate swaps to replace the terminated swaps. We had $4,625.0 and $4,775.0 in notional amounts outstanding under forward starting pay fixed interest rate swaps at June 30, 2017 and December 31, 2016, respectively.
For the six months ended June 30, 2017, following a final effectiveness test upon the terminated swaps, we recorded a net realized loss on financial instruments of $12.0 related to ineffectiveness and missed forecasted transactions. The unrecognized loss for all outstanding, expired and terminated cash flow hedges included in accumulated other comprehensive loss, net of tax, was $231.2 and $168.4 at June 30, 2017 and December 31, 2016, respectively. As of June 30, 2017, the total amount of amortization over the next twelve months for all cash flow hedges is estimated to increase interest expense by approximately $12.3.

-14-


A summary of the effect of cash flow hedges on our financial statements for the three and six months ended June 30, 2017 and 2016 is as follows:
 
 
Effective Portion
 
 
 
 
Pretax
Hedge Loss
Recognized
in Other
Comprehensive
Income (Loss)
 
Income Statement
Location of
Loss
Reclassification
from Accumulated
Other
Comprehensive
Loss
 
Hedge Loss
Reclassified from
Accumulated
Other
Comprehensive
Loss
 
Ineffective Portion
Type of Cash Flow Hedge
 
 
 
 
Income Statement Location of
Loss Recognized
 
Hedge Loss
Recognized
Three months ended June 30, 2017
 
 
 
 
 
 
 
 
 
 
Forward starting pay fixed interest rate swaps
 
$
(118.0
)
 
Interest expense
 
$
(1.5
)
 
None
 
$

Three months ended June 30, 2016
 
 
 
 
 
 
 
 
 
 
Forward starting pay fixed interest rate swaps
 
$
(293.8
)
 
Interest expense
 
$
(1.5
)
 
None
 
$

Six months ended June 30, 2017
 
 
 
 
 
 
 
 
 
 
Forward starting pay fixed interest rate swaps
 
$
(99.7
)
 
Interest expense
 
$
(3.0
)
 
Net realized gains (losses) on financial instruments
 
$
(12.0
)
Six months ended June 30, 2016
 
 
 
 
 
 
 
 
 
 
Forward starting pay fixed interest rate swaps
 
$
(703.6
)
 
Interest expense
 
$
(2.9
)
 
None
 
$

We test for cash flow hedge effectiveness at hedge inception and re-assess at the end of each reporting period. No amounts were excluded from the assessment of hedge effectiveness, and no ineffectiveness was recognized, except for the amounts described above related to the expired interest rate swaps.

-15-


Non-Hedging Derivatives
A summary of the effect of non-hedging derivatives on our income statement for the three and six months ended June 30, 2017 and 2016 is as follows:
Type of Non-hedging Derivatives
 
Income Statement Location of Loss Recognized
 
Derivative
Loss
Recognized
Three months ended June 30, 2017
 
 
 
 
Interest rate swaps
 
Net realized gains (losses) on financial instruments
 
$
(2.0
)
Options
 
Net realized gains (losses) on financial instruments
 
(10.6
)
Futures
 
Net realized gains (losses) on financial instruments
 
(2.0
)
Total
 
 
 
$
(14.6
)
Three months ended June 30, 2016
 
 
 
 
Interest rate swaps
 
Net realized gains (losses) on financial instruments
 
$
(9.4
)
Options
 
Net realized gains (losses) on financial instruments
 
(53.7
)
Futures
 
Net realized gains (losses) on financial instruments
 
(1.8
)
Total
 
 
 
$
(64.9
)
Six months ended June 30, 2017
 
 
 
 
Interest rate swaps
 
Net realized gains (losses) on financial instruments
 
$
(1.4
)
Options
 
Net realized gains (losses) on financial instruments
 
(21.1
)
Futures
 
Net realized gains (losses) on financial instruments
 
(2.4
)
Total
 
 
 
$
(24.9
)
Six months ended June 30, 2016
 
 
 
 
Interest rate swaps
 
Net realized gains (losses) on financial instruments
 
$
(26.3
)
Options
 
Net realized gains (losses) on financial instruments
 
(190.1
)
Futures
 
Net realized gains (losses) on financial instruments
 
(2.3
)
Total
 
 
 
$
(218.7
)
6.
Fair Value
Assets and liabilities recorded at fair value in the consolidated balance sheets are categorized based upon the level of judgment associated with the inputs used to measure their fair value. Level inputs, as defined by FASB guidance for fair value measurements and disclosures, are as follows:
Level Input
 
Input Definition
Level I
 
Inputs are unadjusted, quoted prices for identical assets or liabilities in active markets at the measurement date.
Level II
 
Inputs other than quoted prices included in Level I that are observable for the asset or liability through corroboration with market data at the measurement date.
Level III
 
Unobservable inputs that reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date.
The following methods, assumptions and inputs were used to determine the fair value of each class of the following assets and liabilities recorded at fair value in the consolidated balance sheets:
Cash equivalents: Cash equivalents primarily consist of highly rated money market funds with maturities of three months or less and are purchased daily at par value with specified yield rates. Due to the high ratings and short-term nature of the funds, we designate all cash equivalents as Level I.
Fixed maturity securities, available-for-sale: Fair values of available-for-sale fixed maturity securities are based on quoted market prices, where available. These fair values are obtained primarily from third party pricing services, which

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generally use Level I or Level II inputs for the determination of fair value to facilitate fair value measurements and disclosures. United States Government securities represent Level I securities, while Level II securities primarily include corporate securities, securities from states, municipalities and political subdivisions, mortgage-backed securities and certain other asset-backed securities. For securities not actively traded, the pricing services may use quoted market prices of comparable instruments or discounted cash flow analyses, incorporating inputs that are currently observable in the markets for similar securities. We have controls in place to review the pricing services’ qualifications and procedures used to determine fair values. In addition, we periodically review the pricing services’ pricing methodologies, data sources and pricing inputs to ensure the fair values obtained are reasonable. Inputs that are often used in the valuation methodologies include, but are not limited to, broker quotes, benchmark yields, credit spreads, default rates and prepayment speeds. We also have certain fixed maturity securities, primarily corporate debt securities, that are designated Level III securities. For these securities, the valuation methodologies may incorporate broker quotes or discounted cash flow analyses using assumptions for inputs such as expected cash flows, benchmark yields, credit spreads, default rates and prepayment speeds that are not observable in the markets.
Equity securities, available-for-sale: Fair values of equity securities are generally designated as Level I and are based on quoted market prices. For certain equity securities, quoted market prices for the identical security are not always available and the fair value is estimated by reference to similar securities for which quoted prices are available. These securities are designated Level II. We also have certain equity securities, including private equity securities, for which the fair value is estimated based on each security’s current condition and future cash flow projections. Such securities are designated Level III. The fair values of these private equity securities are generally based on either broker quotes or discounted cash flow projections using assumptions for inputs such as the weighted-average cost of capital, long-term revenue growth rates and earnings before interest, taxes, depreciation and amortization, and/or revenue multiples that are not observable in the markets.
Other invested assets, current: Other invested assets, current include securities held in rabbi trusts that are classified as trading. These securities are designated Level I securities as fair values are based on quoted market prices.
Securities lending collateral: Fair values of securities lending collateral are based on quoted market prices, where available. These fair values are obtained primarily from third party pricing services, which generally use Level I or Level II inputs for the determination of fair value, to facilitate fair value measurements and disclosures.
Derivatives: Fair values are based on the quoted market prices by the financial institution that is the counterparty to the derivative transaction. We independently verify prices provided by the counterparties using valuation models that incorporate market observable inputs for similar derivative transactions. Derivatives are designated as Level II securities. Derivatives presented within the fair value hierarchy table below are presented on a gross basis and not on a master netting basis by counterparty.

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A summary of fair value measurements by level for assets and liabilities measured at fair value on a recurring basis at June 30, 2017 and December 31, 2016 is as follows:
 
Level I
 
Level II
 
Level III
 
Total
June 30, 2017
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
Cash equivalents
$
2,625.2

 
$

 
$

 
$
2,625.2

Investments available-for-sale:
 
 
 
 
 
 
 
Fixed maturity securities:
 
 
 
 
 
 
 
United States Government securities
379.3

 

 

 
379.3

Government sponsored securities
5.0

 
42.4

 

 
47.4

States, municipalities and political subdivisions, tax-exempt

 
5,939.2

 

 
5,939.2

Corporate securities
737.6

 
8,889.2

 
238.2

 
9,865.0

Residential mortgage-backed securities
3.1

 
2,235.4

 
2.9

 
2,241.4

Commercial mortgage-backed securities

 
97.8

 

 
97.8

Other securities
53.4

 
814.7

 
34.8

 
902.9

Total fixed maturity securities
1,178.4

 
18,018.7

 
275.9

 
19,473.0

Equity securities
1,509.4

 
102.2

 
244.5

 
1,856.1

Other invested assets, current
19.1

 

 

 
19.1

Securities lending collateral
857.0

 
357.5

 

 
1,214.5

Derivatives

 
311.7

 

 
311.7

Total assets
$
6,189.1

 
$
18,790.1

 
$
520.4

 
$
25,499.6

Liabilities:
 
 
 
 
 
 
 
Derivatives
$

 
$
(382.2
)
 
$

 
$
(382.2
)
Total liabilities
$

 
$
(382.2
)
 
$

 
$
(382.2
)
 
 
 
 
 
 
 
 
December 31, 2016
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
Cash equivalents
$
1,546.0

 
$

 
$

 
$
1,546.0

Investments available-for-sale:
 
 
 
 
 
 
 
Fixed maturity securities:
 
 
 
 
 
 
 
United States Government securities
558.5

 

 

 
558.5

Government sponsored securities

 
40.0

 

 
40.0

States, municipalities and political subdivisions, tax-exempt

 
6,105.3

 

 
6,105.3

Corporate securities
79.9

 
7,775.9

 
238.8

 
8,094.6

Residential mortgage-backed securities

 
1,917.3

 
12.0

 
1,929.3

Commercial mortgage-backed securities

 
214.3

 

 
214.3

Other securities
53.4

 
649.3

 
42.8

 
745.5

Total fixed maturity securities
691.8

 
16,702.1

 
293.6

 
17,687.5

Equity securities
1,200.2

 
111.9

 
187.8

 
1,499.9

Other invested assets, current
15.8

 

 

 
15.8

Securities lending collateral
726.0

 
353.8

 

 
1,079.8

Derivatives

 
758.7

 

 
758.7

Total assets
$
4,179.8

 
$
17,926.5

 
$
481.4

 
$
22,587.7

Liabilities: