Debt Securities

6 Months Ended

Jun. 30, 2022

Note 3 – Debt Securities

Investments in debt securities, classified as available-for-sale, are as follows:

(in millions)	Amortized cost		Gross unrealized					Estimated fair value
(in millions)	Amortized cost		Gains		Losses			Estimated fair value
June 30, 2022
U.S. Treasury bonds	$	155	$	—	$	(8	)	$	147
Municipal bonds		1,609		2		(149	)		1,462
Foreign government bonds		217		—		(17	)		200
Governmental agency bonds		141		—		(12	)		129
Governmental agency mortgage-backed securities		5,539		3		(492	)		5,050
U.S. corporate debt securities		1,096		—		(93	)		1,003
Foreign corporate debt securities		500		—		(41	)		459
	$	9,257	$	5	$	(812	)	$	8,450
December 31, 2021
U.S. Treasury bonds	$	123	$	1	$	(1	)	$	123
Municipal bonds		1,607		59		(17	)		1,649
Foreign government bonds		228		2		(3	)		227
Governmental agency bonds		175		3		(1	)		177
Governmental agency mortgage-backed securities		5,620		34		(47	)		5,607
U.S. corporate debt securities		1,071		19		(9	)		1,081
Foreign corporate debt securities		493		9		(4	)		498
	$	9,317	$	127	$	(82	)	$	9,362

Sales of debt securities resulted in realized gains of $1 million and $4 million, realized losses of $8 million and $12 million, and proceeds of $161 million and $457 million for the three and six months ended June 30, 2022, respectively. Sales of debt securities resulted in realized gains of $13 million and $18 million, realized losses of $7 million, and proceeds of $489 million and $680 million for the three and six months ended June 30, 2021, respectively.

Investments in debt securities in an unrealized loss position, based on length of time in such position, are as follows:

	Less than 12 months					12 months or longer					Total
(in millions)	Estimated fair value		Unrealized losses			Estimated fair value		Unrealized losses			Estimated fair value		Unrealized losses
June 30, 2022
U.S. Treasury bonds	$	114	$	(7	)	$	10	$	(1	)	$	124	$	(8	)
Municipal bonds		1,213		(136	)		58		(13	)		1,271		(149	)
Foreign government bonds		136		(10	)		33		(7	)		169		(17	)
Governmental agency bonds		125		(11	)		4		(1	)		129		(12	)
Governmental agency mortgage-backed securities		4,304		(414	)		477		(78	)		4,781		(492	)
U.S. corporate debt securities		887		(88	)		30		(5	)		917		(93	)
Foreign corporate debt securities		420		(38	)		21		(3	)		441		(41	)
	$	7,199	$	(704	)	$	633	$	(108	)	$	7,832	$	(812	)
December 31, 2021
U.S. Treasury bonds	$	76	$	(1	)	$	—	$	—		$	76	$	(1	)
Municipal bonds		684		(17	)		—		—			684		(17	)
Foreign government bonds		103		(1	)		33		(2	)		136		(3	)
Governmental agency bonds		73		(1	)		—		—			73		(1	)
Governmental agency mortgage-backed securities		4,036		(47	)		—		—			4,036		(47	)
U.S. corporate debt securities		533		(9	)		—		—			533		(9	)
Foreign corporate debt securities		234		(4	)		—		—			234		(4	)
	$	5,739	$	(80	)	$	33	$	(2	)	$	5,772	$	(82	)

Based on the Company’s review of its debt securities in an unrealized loss position for which an allowance for credit losses has not been recorded, it determined that the losses were due to non-credit factors. As such, the Company does not consider these securities to be credit impaired at June 30, 2022. As of June 30, 2022, the Company did not intend to sell any debt securities in an unrealized loss position and it is not more likely than not that the Company will be required to sell any debt securities before recovery of their amortized cost basis.

In determining credit losses on its debt securities in an unrealized loss position, the Company considers certain factors which may include, among others, severity of the unrealized loss, security type, industry sector, credit rating, profitability and stock performance.

Investments in debt securities at June 30, 2022, by contractual maturities, are as follows:

(in millions)	Due in one year or less		Due after one through five years		Due after five through ten years		Due after ten years		Total
U.S. Treasury bonds
Amortized cost	$	60	$	59	$	25	$	11	$	155
Estimated fair value	$	60	$	55	$	22	$	10	$	147
Municipal bonds
Amortized cost		21		146		813		629		1,609
Estimated fair value		21		141		744		556		1,462
Foreign government bonds
Amortized cost		26		108		71		12		217
Estimated fair value		26		105		60		9		200
Governmental agency bonds
Amortized cost		1		74		7		59		141
Estimated fair value		1		69		7		52		129
U.S. corporate debt securities
Amortized cost		47		648		310		91		1,096
Estimated fair value		47		603		278		75		1,003
Foreign corporate debt securities
Amortized cost		35		297		116		52		500
Estimated fair value		35		278		103		43		459
Total debt securities excluding mortgage-backed securities
Amortized cost	$	190	$	1,332	$	1,342	$	854	$	3,718
Estimated fair value	$	190	$	1,251	$	1,214	$	745	$	3,400
Total mortgage-backed securities
Amortized cost										5,539
Estimated fair value										5,050
Total debt securities
Amortized cost									$	9,257
Estimated fair value									$	8,450

Mortgage-backed securities, which include contractual terms to maturity, are not categorized by contractual maturity as borrowers may have the right to call or prepay obligations with, or without, call or prepayment penalties.

The composition of the debt securities portfolio at June 30, 2022, by credit rating, is as follows:

	A- or higher				BBB+ to BBB-				Non-Investment Grade				Total
(dollars in millions)	Estimated fair value		Percentage		Estimated fair value		Percentage		Estimated fair value		Percentage		Estimated fair value
U.S. Treasury bonds	$	147		100.0	$	—		—	$	—		—	$	147
Municipal bonds		1,417		96.9		45		3.1		—		—		1,462
Foreign government bonds		192		96.0		5		2.5		3		1.5		200
Governmental agency bonds		129		100.0		—		—		—		—		129
Governmental agency mortgage-backed securities		5,050		100.0		—		—		—		—		5,050
U.S. corporate debt securities		434		43.3		390		38.9		179		17.8		1,003
Foreign corporate debt securities		187		40.7		235		51.2		37		8.1		459
	$	7,556		89.4	$	675		8.0	$	219		2.6	$	8,450

Included in debt securities at June 30, 2022, were bank loans totaling $152 million, of which $148 million were non-investment grade; high yield corporate debt securities totaling $62 million, all of which were non-investment grade; and emerging market debt securities totaling $68 million, of which $9 million were non-investment grade.

The composition of the debt securities portfolio in an unrealized loss position at June 30, 2022, by credit rating, is as follows:

	A- or higher				BBB+ to BBB-				Non-Investment Grade				Total
(dollars in millions)	Estimated fair value		Percentage		Estimated fair value		Percentage		Estimated fair value		Percentage		Estimated fair value
U.S. Treasury bonds	$	124		100.0	$	—		—	$	—		—	$	124
Municipal bonds		1,231		96.9		40		3.1		—		—		1,271
Foreign government bonds		161		95.2		5		3.0		3		1.8		169
Governmental agency bonds		129		100.0		—		—		—		—		129
Governmental agency mortgage-backed securities		4,781		100.0		—		—		—		—		4,781
U.S. corporate debt securities		380		41.4		359		39.2		178		19.4		917
Foreign corporate debt securities		180		40.8		224		50.8		37		8.4		441
	$	6,986		89.2	$	628		8.0	$	218		2.8	$	7,832

Debt securities in an unrealized loss position at June 30, 2022, included bank loans totaling $151 million, of which $147 million were non-investment grade; high yield corporate debt securities totaling $62 million, all of which were non-investment grade; and emerging market debt securities totaling $66 million, of which $9 million were non-investment grade.

The credit ratings in the above tables reflect published ratings obtained from globally recognized securities rating agencies. If a security was rated differently among the rating agencies, the lowest rating was selected. Governmental agency mortgage-backed securities are not rated by any of the ratings agencies; however, these securities have been included in the above table in the “A- or higher” rating category because the payments of principal and interest are guaranteed by the governmental agency that issued the security.