Blue Cross Blue Shield of Michigan

Blue Cross Blue Shield of Michigan Mutual Insurance Company and Subsidiaries

Consolidated Financial Statements as of and for the Years Ended December 31, 2018 and 2017, and Independent Auditors' Report

2018

annual report

INDEPENDENT AUDITORS' REPORT

To the Board of Directors of Blue Cross Blue Shield of Michigan Mutual Insurance Company Detroit, Michigan We have audited the accompanying consolidated financial statements of Blue Cross Blue Shield of Michigan Mutual Insurance Company and its subsidiaries, d/b/a Blue Cross Blue Shield of Michigan (the "Corporation"), which comprise the consolidated balance sheets as of December 31, 2018 and 2017; the related consolidated statements of operations, comprehensive income, policyholders' reserves, and cash flows for the years then ended; and related notes to consolidated financial statements. Management's Responsibility for the Consolidated Financial Statements Management is responsible for preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditors' Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Corporation's preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Corporation's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a reasonable basis for our audit opinion.

Blue Cross Blue Shield of Michigan 2018 annual report

Opinion In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Corporation and its subsidiaries as of December 31, 2018 and 2017, and the results of their operations and their cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America. Required Supplementary Information Accounting principles generally accepted in the United States of America require that the disclosure of short-duration contracts included in Note 12 to the financial statements be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Financial Accounting Standards Board, which considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of preparing the information and comparing the information for consistency with management's responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance.

March 27, 2019

- 2 -

Blue Cross Blue Shield of Michigan

2018 annual report

BLUE CROSS BLUE SHIELD OF MICHIGAN MUTUAL INSURANCE COMPANY AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2018 AND 2017 (Amounts in millions)

ASSETS CASH AND CASH EQUIVALENTS

INVESTMENTS: Trading securities Available-for-sale securities

Total investments SECURITIES LENDING CASH COLLATERAL RECEIVABLES (Net of allowance of $16 and $14

in 2018 and 2017, respectively) PROPERTY AND EQUIPMENT--Net NET DEFERRED TAX ASSETS GOODWILL--Net INVESTMENTS IN JOINT VENTURES AND EQUITY INTERESTS OTHER ASSETS TOTAL

2018

2017

$ 1,248

$ 1,378

1,424 6,661 8,085

20

1,232 6,572 7,804

17

3,805 532 588 361

1,028 392

$ 16,059

3,271 543 865 407 774 344

$ 15,403

(Continued)

- 3 -

Blue Cross Blue Shield of Michigan

2018 annual report

BLUE CROSS BLUE SHIELD OF MICHIGAN MUTUAL INSURANCE COMPANY AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2018 AND 2017 (Amounts in millions)

LIABILITIES AND POLICYHOLDERS' RESERVES

LIABILITIES FOR UNPAID CLAIMS AND CLAIM ADJUSTMENT EXPENSES: Health Nonhealth

Total liabilities for unpaid claims and claim adjustment expenses

ACCRUED LIABILITY TO GROUPS

UNEARNED REVENUE

SECURITIES LENDING PAYABLE

OTHER LIABILITIES: Employee expenses Debt Other

Total liabilities

POLICYHOLDERS' RESERVES: Accumulated reserves Accumulated other comprehensive loss

Policyholders' reserves attributable to the Corporation

Noncontrolling interest

Total policyholders' reserves

TOTAL

2018

2017

$ 2,871 2,584

$ 2,399 2,420

5,455 457

1,036 20

1,445 622

1,151 10,186

4,819 355 947 17

1,435 937

1,347 9,857

6,144 (335)

5,809 64

5,873 $ 16,059

5,602 (198)

5,404 142

5,546 $ 15,403

See notes to consolidated financial statements.

(Concluded)

- 4 -

Blue Cross Blue Shield of Michigan

2018 annual report

BLUE CROSS BLUE SHIELD OF MICHIGAN MUTUAL INSURANCE COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017 (Amounts in millions)

PREMIUM AND PREMIUM EQUIVALENT REVENUE: Underwritten premiums earned Self-funded premium equivalent revenue from employer groups Revenue from administrative services

Total revenue

Less amounts attributable to claims under self-funded arrangements

Net premium and administrative fee revenue

COST OF SERVICES: Benefits provided Operating expenses

Total cost of services

OPERATING GAIN INVESTMENT INCOME AND OTHER--Net

ADDITION TO POLICYHOLDERS' RESERVES BEFORE FEDERAL INCOME TAX EXPENSE

INCOME TAX (EXPENSE)/BENEFIT

ADDITION TO POLICYHOLDERS' RESERVES NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTEREST--Net of tax

ADDITION TO POLICYHOLDERS' RESERVES ATTRIBUTABLE TO THE CORPORATION

2018

2017

$ 15,914 13,324 92 29,330

$ 14,105 12,662 178 26,945

(12,326) 17,004

(11,760) 15,185

12,793 3,606

16,399 605 123

11,292 3,508

14,800 385 366

728 (152) 576

751 440 1,191

(10)

$ 566

$ 1,191

See notes to consolidated financial statements.

- 5 -

Blue Cross Blue Shield of Michigan

2018 annual report

BLUE CROSS BLUE SHIELD OF MICHIGAN MUTUAL INSURANCE COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME AS OF DECEMBER 31, 2018 AND 2017 (Amounts in millions)

ADDITION TO POLICYHOLDERS' RESERVES

OTHER COMPREHENSIVE INCOME: Unrealized (losses) gains on available for sale securities: Unrealized holding (losses) gains arising during period Reclassification adjustment for gains (losses) included in net income

Net unrealized (losses) gains on available for sale securities

Defined benefit retirement plans--change in unrecognized pension and postretirement liabilities

Other comprehensive (loss) income--before tax

Income tax benefit (expense) related to items of other comprehensive income

Net stranded effect of tax rate change from 35% to 21%

Consolidation reversal of tax valuation allowance

Prior year tax reclassification to accumulated reserves

Other comprehensive (loss) income attributable to joint ventures--net of tax

Other comprehensive (loss) income--net of tax

COMPREHENSIVE INCOME

COMPREHENSIVE INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS

COMPREHENSIVE INCOME ATTRIBUTABLE TO THE CORPORATION

2018 $ 576

2017 $ 1,191

(218) 30

154 (9)

(188)

145

20 (168)

(142) 3

24

(1)

(8)

8

8

(1) (137) 439

2 4 1,195

(10) $ 429

$ 1,195

See notes to consolidated financial statements.

- 6 -

Blue Cross Blue Shield of Michigan

2018 annual report

BLUE CROSS BLUE SHIELD OF MICHIGAN MUTUAL INSURANCE COMPANY AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF POLICYHOLDERS' RESERVES AS OF DECEMBER 31, 2018 AND 2017 (Amounts in millions)

BALANCES--January 1, 2017

Addition to policyholders' reserves

Capital contribution

Consolidation reversal of tax valuation allowance

Net stranded tax rate change impact

Other comprehensive income

Other adjustments

BALANCES--December 31, 2017

Addition to policyholders' reserves

Purchase of Tessellate NCI

EIN Liquidation

Reclassification of net stranded tax rate change impact

Other comprehensive income

BALANCES--December 31, 2018

Accumulated Reserves

Accumulated Other

Comprehensive (Loss) Income

Noncontrolling Interest

Total

$ 4,400

$ (202)

$ 126

$ 4,324

1,191

1,191

16

16

8

8

8

3 5,602

(8) 4

(198)

4 3

142

5,546

566 (14)

(2)

10 (90)

2

576 (104)

(8) $ 6,144

(137) $ (335)

$ 64

(8) (137) $ 5,873

See notes to consolidated financial statements.

- 7 -

Blue Cross Blue Shield of Michigan

2018 annual report

 ................
................

In order to avoid copyright disputes, this page is only a partial summary.

Google Online Preview   Download