WELLPOINT, INC | 2013 | FY | 3

Investments
A summary of current and long-term investments, available-for-sale, at December 31, 2013 and 2012 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
 
 
December 31, 2013:
 
 
 
 
 
 
 
 
 
 
 
Fixed maturity securities:
 
 
 
 
 
 
 
 
 
 
 
United States Government securities
$
300.8

 
$
2.5

 
$
(3.4
)
 
$
—

 
$
299.9

 
$
—

Government sponsored securities
174.4

 
0.4

 
(1.3
)
 
—

 
173.5

 
—

States, municipalities and political subdivisions, tax-exempt
5,899.5

 
202.9

 
(90.1
)
 
(9.6
)
 
6,002.7

 
(0.6
)
Corporate securities
7,614.1

 
205.2

 
(95.2
)
 
(15.5
)
 
7,708.6

 
(0.1
)
Options embedded in convertible securities
89.2

 
—

 
—

 
—

 
89.2

 
—

Residential mortgage-backed securities
2,269.4

 
48.0

 
(41.4
)
 
(7.1
)
 
2,268.9

 
—

Commercial mortgage-backed securities
479.0

 
10.5

 
(2.6
)
 
(0.3
)
 
486.6

 
—

Other debt securities
456.2

 
5.8

 
(2.5
)
 
(0.8
)
 
458.7

 
(0.1
)
Total fixed maturity securities
17,282.6

 
475.3

 
(236.5
)
 
(33.3
)
 
17,488.1

 
$
(0.8
)
Equity securities
1,195.9

 
578.9

 
(8.0
)
 
—

 
1,766.8

 
 
Total investments, available-for-sale
$
18,478.5

 
$
1,054.2

 
$
(244.5
)
 
$
(33.3
)
 
$
19,254.9

 
 
December 31, 2012
 
 
 
 
 
 
 
 
 
 
 
Fixed maturity securities:
 
 
 
 
 
 
 
 
 
 
 
United States Government securities
$
330.3

 
$
13.1

 
$
(0.2
)
 
$
—

 
$
343.2

 
$
—

Government sponsored securities
153.6

 
2.6

 
—

 
—

 
156.2

 
—

States, municipalities and political subdivisions, tax-exempt
5,501.3

 
388.2

 
(5.7
)
 
(1.6
)
 
5,882.2

 
—

Corporate securities
7,642.0

 
387.0

 
(17.0
)
 
(8.0
)
 
8,004.0

 
(1.7
)
Options embedded in convertible securities
67.2

 
—

 
—

 
—

 
67.2

 
—

Residential mortgage-backed securities
2,204.7

 
103.1

 
(1.1
)
 
(1.9
)
 
2,304.8

 
(0.4
)
Commercial mortgage-backed securities
323.2

 
22.5

 
—

 
—

 
345.7

 
—

Other debt securities
236.8

 
7.6

 
(0.2
)
 
(3.1
)
 
241.1

 
(1.3
)
Total fixed maturity securities
16,459.1

 
924.1

 
(24.2
)
 
(14.6
)
 
17,344.4

 
$
(3.4
)
Equity securities
897.0

 
358.0

 
(12.5
)
 
—

 
1,242.5

 
 
Total investments, available-for-sale
$
17,356.1

 
$
1,282.1

 
$
(36.7
)
 
$
(14.6
)
 
$
18,586.9

 
 

At December 31, 2013, we owned $2,755.5 of mortgage-backed securities and $423.8 of asset-backed securities out of a total available-for-sale investment portfolio of $19,254.9. These securities included sub-prime and Alt-A securities with fair values of $32.2 and $102.4, respectively. These sub-prime and Alt-A securities had accumulated net unrealized gains of $1.7 and $6.4, respectively. The average credit rating of the sub-prime and Alt-A securities was “BB” and “CCC”, respectively.
The following tables summarize for fixed maturity securities and equity securities in an unrealized loss position at December 31, 2013 and 2012, the aggregate fair value and gross unrealized loss by length of time those securities have been continuously in an unrealized loss position.
 
Less than 12 Months
 
12 Months or Greater
 
Number of
Securities
 
Estimated
Fair Value
 
Gross
Unrealized
Loss
 
Number of
Securities
 
Estimated
Fair Value
 
Gross
Unrealized
Loss
(Securities are whole amounts)
 
 
 
 
 
 
 
 
 
 
 
December 31, 2013:
 
 
 
 
 
 
 
 
 
 
 
Fixed maturity securities:
 
 
 
 
 
 
 
 
 
 
 
United States Government securities
27

 
$
179.2

 
$
(3.4
)
 
—

 
$
—

 
$
—

Government sponsored securities
22

 
73.4

 
(1.3
)
 
—

 
—

 
—

States, municipalities and political subdivisions, tax-exempt
806

 
2,070.9

 
(90.1
)
 
42

 
82.4

 
(9.6
)
Corporate securities
1,448

 
2,586.6

 
(95.2
)
 
107

 
81.3

 
(15.5
)
Residential mortgage-backed securities
605

 
1,243.0

 
(41.4
)
 
80

 
116.2

 
(7.1
)
Commercial mortgage-backed securities
52

 
177.7

 
(2.6
)
 
4

 
5.6

 
(0.3
)
Other debt securities
65

 
185.3

 
(2.5
)
 
17

 
16.2

 
(0.8
)
Total fixed maturity securities
3,025

 
6,516.1

 
(236.5
)
 
250

 
301.7

 
(33.3
)
Equity securities
426

 
120.8

 
(8.0
)
 
—

 
—

 
—

Total fixed maturity and equity securities
3,451

 
$
6,636.9

 
$
(244.5
)
 
250

 
$
301.7

 
$
(33.3
)
December 31, 2012
 
 
 
 
 
 
 
 
 
 
 
Fixed maturity securities:
 
 
 
 
 
 
 
 
 
 
 
United States Government securities
17

 
$
48.5

 
$
(0.2
)
 
—

 
$
—

 
$
—

States, municipalities and political subdivisions, tax-exempt
184

 
420.1

 
(5.7
)
 
1

 
46.9

 
(1.6
)
Corporate securities
457

 
1,066.5

 
(17.0
)
 
74

 
52.6

 
(8.0
)
Residential mortgage-backed securities
79

 
211.0

 
(1.1
)
 
44

 
25.5

 
(1.9
)
Commercial mortgage-backed securities
4

 
10.1

 
—

 
3

 
4.1

 
—

Other debt securities
7

 
5.4

 
(0.2
)
 
21

 
28.9

 
(3.1
)
Total fixed maturity securities
748

 
1,761.6

 
(24.2
)
 
143

 
158.0

 
(14.6
)
Equity securities
961

 
149.6

 
(12.5
)
 
—

 
—

 
—

Total fixed maturity and equity securities
1,709

 
$
1,911.2

 
$
(36.7
)
 
143

 
$
158.0

 
$
(14.6
)

The amortized cost and fair value of fixed maturity securities at December 31, 2013, 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
$
423.9

 
$
426.3

Due after one year through five years
4,580.5

 
4,712.1

Due after five years through ten years
5,105.4

 
5,196.6

Due after ten years
4,424.4

 
4,397.6

Mortgage-backed securities
2,748.4

 
2,755.5

Total available-for-sale fixed maturity securities
$
17,282.6

 
$
17,488.1


The major categories of net investment income for the years ended December 31 are as follows:

2013

2012

2011
Fixed maturity securities
$
638.9


$
671.2


$
692.4

Equity securities
45.9


38.4


34.0

Cash and cash equivalents
1.0


2.5


3.7

Other
19.8


16.2


2.4

Investment income
705.6


728.3


732.5

Investment expense
(46.5
)

(42.2
)

(28.8
)
Net investment income
$
659.1


$
686.1


$
703.7


Net realized investment gains/losses and net change in unrealized appreciation/depreciation in investments for the years ended December 31 are as follows:
 
2013
 
2012
 
2011
Net realized gains (losses) on investments:
 
 
 
 
 
Fixed maturity securities:
 
 
 
 
 
Gross realized gains from sales
$
225.9

 
$
401.0

 
$
289.2

Gross realized losses from sales
(125.7
)
 
(54.8
)
 
(65.1
)
Net realized gains from sales of fixed maturity securities
100.2

 
346.2

 
224.1

Equity securities:
 
 
 
 
 
Gross realized gains from sales
224.1

 
82.0

 
75.4

Gross realized losses from sales
(100.5
)
 
(93.8
)
 
(68.0
)
Net realized gains (losses) from sales of equity securities
123.6

 
(11.8
)
 
7.4

Other realized gains on investments
48.1

 
0.5

 
3.6

Net realized gains on investments
271.9

 
334.9

 
235.1

 
 
 
 
 
 
Other-than-temporary impairment losses recognized in income:
 
 
 
 
 
Fixed maturity securities
(42.5
)
 
(11.8
)
 
(24.2
)
Equity securities
(13.9
)
 
(17.5
)
 
(27.9
)
Other invested assets, long-term
(42.5
)
 
(8.5
)
 
(41.2
)
Other-than-temporary impairment losses recognized in income
(98.9
)
 
(37.8
)
 
(93.3
)
 
 
 
 
 
 
Change in net unrealized (losses) gains on investments:
 
 
 
 
 
Fixed maturity securities
(679.8
)
 
199.8

 
155.9

Equity securities
225.4

 
94.7

 
(124.6
)
Total change in net unrealized (losses) gains on investments
(454.4
)
 
294.5

 
31.3

Deferred income tax benefit (expense)
159.7

 
(104.6
)
 
(10.7
)
Net change in net unrealized (losses) gains on investments
(294.7
)
 
189.9

 
20.6

 
 
 
 
 
 
Net realized gains on investments, other-than-temporary impairment losses recognized in income and net change in net unrealized (losses) gains on investments
$
(121.7
)
 
$
487.0

 
$
162.4


A primary objective in the management of our fixed maturity and equity portfolios is to maximize total return relative to underlying liabilities and respective liquidity needs. In achieving this goal, assets may be sold to take advantage of market conditions or other investment opportunities as well as tax considerations. Sales will generally produce realized gains and losses. 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) expectations 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.
Proceeds from fixed maturity securities, equity securities and other invested assets and the related gross realized gains and gross realized losses for the years ended December 31 are as follows:
 
2013
 
2012
 
2011
Proceeds
$
13,662.8

 
$
15,915.6

 
$
12,654.3

Gross realized gains
498.1

 
483.5

 
368.2

Gross realized losses
(226.2
)
 
(148.6
)
 
(133.1
)

A significant judgment in the valuation of investments is the determination of when an other-than-temporary decline in value has occurred. We follow a consistent and systematic process for recognizing impairments on securities that sustain other-than-temporary declines in value. We have established a committee responsible for the impairment review process. The decision to impair a security incorporates both quantitative criteria and qualitative information. The impairment review process considers a number of factors including, but not limited to: (i) the length of time and the extent to which the fair value has been less than book value, (ii) the financial condition and near term prospects of the issuer, (iii) our intent and ability to retain impaired equity security investments for a period of time sufficient to allow for any anticipated recovery in fair value, (iv) our intent to sell or the likelihood that we will need to sell a fixed maturity security before recovery of its amortized cost basis, (v) whether the debtor is current on interest and principal payments, (vi) the reasons for the decline in value (i.e., credit event compared to liquidity, general credit spread widening, currency exchange rate or interest rate factors) and (vii) general market conditions and industry or sector specific factors. For securities that are deemed to be other-than-temporarily impaired, the security is adjusted to fair value and the resulting losses are recognized in the consolidated statements of income. The new cost basis of the impaired securities is not increased for future recoveries in fair value.
Other-than-temporary impairments recorded in 2013, 2012 and 2011 were primarily the result of the continued credit deterioration on specific issuers in the bond markets and certain equity securities’ fair values remaining below cost for an extended period of time. There were no individually significant other-than-temporary impairment losses on investments by issuer during 2013, 2012 or 2011.
Investment securities are exposed to various risks, such as interest rate, market and credit. Due to the level of risk associated with certain investment securities and the level of uncertainty related to changes in the value of investment securities, it is possible that changes in these risk factors in the near term could have an adverse material impact on our results of operations or shareholders’ equity.
The changes in the amount of the credit component of other-than-temporary impairment losses on fixed maturity securities recognized in income, for which a portion of the other-than-temporary impairment losses was recognized in other comprehensive income, was not material for the years ended December 31, 2013, 2012 or 2011.
At December 31, 2013 and 2012, no investments exceeded 10% of shareholders’ equity.
As of December 31, 2013 we did not hold any fixed maturity investments that did not produce income during 2013. The carrying value of fixed maturity investments that did not produce income during 2012 was $1.8 at December 31, 2012.
As of December 31, 2013 we had committed approximately $341.6 to future capital calls from various third-party investments in exchange for an ownership interest in the related entity.
At December 31, 2013 and 2012, securities with carrying values of approximately $449.9 and $431.5, respectively, were deposited by our insurance subsidiaries under requirements of regulatory authorities.

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