70670201820100100 2018 ANNUAL STATEMENT Document Code: 201 For the Year Ending DECEMBER 31, 2018 OF THE CONDITION AND AFFAIRS OF THE Health Care Service Corporation, a Mutual Legal Reserve Company NAIC Group Code 0917 , 0917 (Current Period) NAIC Company Code 70670 Employer's ID Number 36-1236610 (Prior Period) Organized under the Laws of Illinois Country of Domicile , State of Domicile or Port of Entry IL United States of America Licensed as business type: Life, Accident & Health[X] Dental Service Corporation[ ] Other[ ] Incorporated/Organized Property/Casualty[ ] Hospital, Medical & Dental Service or Indemnity[ ] Vision Service Corporation[ ] Health Maintenance Organization[ ] Is HMO Federally Qualified? Yes[ ] No[X] N/A[ ] 10/01/1936 Statutory Home Office Commenced Business 300 East Randolph Street 01/01/1937 , Chicago, IL, US 60601-5099 (Street and Number) (City or Town, State, Country and Zip Code) Main Administrative Office 300 East Randolph Street (Street and Number) Chicago, IL, US 60601-5099 (312)653-6000 (City or Town, State, Country and Zip Code) Mail Address (Area Code) (Telephone Number) 300 East Randolph Street , Chicago, IL, US 60601-5099 (Street and Number or P.O. Box) (City or Town, State, Country and Zip Code) Primary Location of Books and Records 300 East Randolph Street (Street and Number) Chicago, IL, US 60601-5099 (312)653-6000 (City or Town, State, Country and Zip Code) (Area Code) (Telephone Number) Internet Website Address www.hcsc.net Statutory Statement Contact James Edward Walsh (312)653-7443 (Name) (Area Code)(Telephone Number)(Extension) James_Walsh@bcbsil.com (312)653-1103 (E-Mail Address) (Fax Number) OFFICERS Name Paula Amy Steiner Eric Ansel Feldstein Blair Williams Todt Steven Betts, Senior Vice President Opella Finley Ernest, M.D., Senior Vice President Michael Eugene Frank, Senior Vice President Michael Ted Haynes, President- Oklahoma Division James Lawrence Kadela, Senior Vice President Douglas Lynch, Senior Vice President & Chief Actuary Carl Raymond McDonald, Treasurer Nazneen Razi, Senior Vice President Maurice Shena Smith, President-Illinois Division Illinois Cook OTHERS Kevin MacKenzie Cassidy, President- Employer Solutions Joel Mark Farran, Senior Vice President Stephen Farrell Hamman, Senior Vice President Robert Todd Hitchcock, President- Govt & Consumer Solutions Thomas Charles Lubben, Senior Vice President Danny Ken McCoy, M.D., President- Texas Division Andre Antonio Napoli, Senior Vice President Kurt Bryce Shipley, President- New Mexico Division Jeffrey Richard Tikkanen, SVP, President Plan Solutions & Market Development DIRECTORS OR TRUSTEES Timothy Lee Burke Dennis Joseph Gannon Marlin Ray Perryman, Ph.D. State of County of Title President & Chief Executive Officer SVP & Chief Financial Officer SVP Legal, Compliance, Bus Perf Officer & Secty Milton Carroll Dianne Brewer Gasbarra, M.D. Paula Amy Steiner Michelle Lynn Collins David John Lesar Gregory David Wasson Monte Eric Ford Elaine Marie Mendoza ss The officers of this reporting entity being duly sworn, each depose and say that they are the described officers of the said reporting entity, and that on the reporting period stated above, all of the herein described assets were the absolute property of the said reporting entity, free and clear from any liens or claims thereon, except as herein stated, and that this statement, together with related exhibits, schedules and explanations therein contained, annexed or referred to, is a full and true statement of all the assets and liabilities and of the condition and affairs of the said reporting entity as of the reporting period stated above, and of its income and deductions therefrom for the period ended, and have been completed in accordance with the NAIC Annual Statement Instructions and Accounting Practices and Procedures manual except to the extent that: (1) state law may differ; or, (2) that state rules or regulations require differences in reporting not related to accounting practices and procedures, according to the best of their information, knowledge and belief, respectively. Furthermore, the scope of this attestation by the described officers also includes the related corresponding electronic filing with the NAIC, when required, that is an exact copy (except for formatting differences due to electronic filing) of the enclosed statement. The electronic filing may be requested by various regulators in lieu of or in addition to the enclosed statement. (Signature) (Signature) (Signature) Paula Amy Steiner Eric Ansel Feldstein Blair Williams Todt (Printed Name) 1. (Printed Name) 2. (Printed Name) 3. President & Chief Executive Officer SVP & Chief Financial Officer SVP Legal, Compliance, Bus Perf Officer & Secty (Title) (Title) (Title) Subscribed and sworn to before me this 26th day of February , 2019 (Notary Public Signature) a. Is this an original filing? b. If no, 1. State the amendment number 2. Date filed 3. Number of pages attached Yes[X] No[ ] ANNUAL STATEMENT FOR THE YEAR 2018 OF THE Health Care Service Corporation, a Mutual Legal Reserve Company ASSETS 1 1. 2. Bonds (Schedule D) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Stocks (Schedule D): 2.1 Preferred stocks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.2 Common Stocks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3. Mortgage loans on real estate (Schedule B): 3.1 First liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.2 Other than first liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4. Real estate (Schedule A): 4.1 Properties occupied by the company (less $...............0 encumbrances) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.2 Properties held for the production of income (less $...............0 encumbrances) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.3 Properties held for sale (less $...............0 encumbrances) . . . . . . . . . . . 5. Cash ($...(534,001,422), Schedule E Part 1), cash equivalents ($.....201,737,123, Schedule E Part 2) and short-term investments ($......14,703,392, Schedule DA) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6. Contract loans (including $...............0 premium notes) . . . . . . . . . . . . . . . . . . . . . . . . . 7. Derivatives (Schedule DB) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8. Other invested assets (Schedule BA) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9. Receivables for securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10. Securities Lending Reinvested Collateral Assets (Schedule DL) . . . . . . . . . . . . . 11. Aggregate write-ins for invested assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12. Subtotals, cash and invested assets (Lines 1 to 11) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13. Title plants less $...............0 charged off (for Title insurers only) . . . . . . . . . . . . . 14. Investment income due and accrued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15. Premiums and considerations: 15.1 Uncollected premiums and agents' balances in the course of collection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.2 Deferred premiums, agents' balances and installments booked but deferred and not yet due (Including $...............0 earned but unbilled premiums) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.3 Accrued retrospective premiums ($......23,796,627) and contracts subject to redetermination ($.....672,256,342) . . . . . . . . . . . . . . . . . . . . . . . . . . . 16. Reinsurance: 16.1 Amounts recoverable from reinsurers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16.2 Funds held by or deposited with reinsured companies . . . . . . . . . . . . . . . . 16.3 Other amounts receivable under reinsurance contracts . . . . . . . . . . . . . . . 17. Amounts receivable relating to uninsured plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.1 Current federal and foreign income tax recoverable and interest thereon . . . 18.2 Net deferred tax asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19. Guaranty funds receivable or on deposit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20. Electronic data processing equipment and software . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21. Furniture and equipment, including health care delivery assets ($...............0) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22. Net adjustment in assets and liabilities due to foreign exchange rates . . . . . . 23. Receivables from parent, subsidiaries and affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24. Health care ($.....864,224,698) and other amounts receivable . . . . . . . . . . . . . . . . 25. Aggregate write-ins for other than invested assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26. TOTAL assets excluding Separate Accounts, Segregated Accounts and Protected Cell Accounts (Lines 12 to 25) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27. From Separate Accounts, Segregated Accounts and Protected Cell Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28. TOTAL (Lines 26 and 27) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . DETAILS OF WRITE-INS 1101. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1102. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1103. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1198. Summary of remaining write-ins for Line 11 from overflow page . . . . . . . . . . . . . . 1199. TOTALS (Lines 1101 through 1103 plus 1198) (Line 11 above) . . . . . . . . . . . . . . 2501. PREPAID PENSION ASSET AND INTANGIBLE ASSET . . . . . . . . . . . . . . . . . . . . . . 2502. PREPAID ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2503. GOODWILL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2598. Summary of remaining write-ins for Line 25 from overflow page . . . . . . . . . . . . . . 2599. TOTALS (Lines 2501 through 2503 plus 2598) (Line 25 above) . . . . . . . . . . . . . . 2 ... Assets 10,558,079,081 Current Year 2 Nonadmitted Assets 3 Net Admitted Assets (Cols.1-2) 10,558,079,081 Prior Year 4 Net Admitted Assets . . . . . 9,276,153,567 ....................... ... ....................... ....................... ....................... ..... ....................... ....................... ....................... ....................... ....................... ....................... ....................... ....................... ....................... ....... ....................... ....................... ....................... ....................... ....................... ....................... ....................... ....................... ....................... ..... 1,942,178,920 ....... ..... 788,888,685 (317,560,855) 1,942,178,920 788,888,685 (317,560,855) ....................... ..... 2,223,330,565 ....... (654,879,064) ....................... ..... ....................... ....................... ....................... ....................... ....................... ....................... ....................... ....................... 230,153,313 . . . . . . . . . . 4,664,668 ....................... ....... ....... ....................... 230,153,313 . . . . . . . . . . 4,664,668 ....................... ....................... ....................... ....................... ....................... ....................... ....................... ....................... ....................... ... ....................... ....................... 77,399,819 ....................... ......... 926,848,037 ....................... ....... 1,530,785,314 ....................... ..... ....... ... 13,206,403,811 ....................... ......... ....... ..... ....... 700,152,969 .......... 1,040,713 .......... 4,100,000 13,206,403,811 77,399,819 926,848,037 1,530,785,314 ....... 696,052,969 1,040,713 ..... 810,110,597 233,652,350 11,613,093 ......... ... 11,899,981,107 ....................... ......... ....... ..... 63,018,356 728,206,952 1,550,274,872 ....... 367,393,563 .......... ....................... ....................... ....................... ....................... ....................... ....................... ....................... 5,128,543,068 . . . . . 1,574,366,277 . . . . . 2,684,154,443 . . . . . . . . . 45,259,681 . . . . . . . 119,031,056 ....... 112,411,318 ....... ..... ....... 544,388,241 4,584,154,827 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,574,366,277 . . . . . . . 507,834,308 . . . . . 2,176,320,135 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45,259,681 . . . . . . . . . 74,858,840 . . . . . . . . . 44,172,216 112,411,318 ..... ......... 49,612,662 ....................... ....................... ..... 4,008,297,590 ....................... 1,547,921,005 44,394,173 . . . . . . . . . 14,619,637 ..... ......... ....................... ....................... ....................... ....................... ....................... ....................... 420,403,252 . . . . . 1,964,136,838 . . . . . . . 881,414,625 .......... 9,726,939 . . . . . 1,083,743,440 . . . . . . . 309,723,899 ....... ....... ... 29,372,351,220 ....................... ... 29,372,351,220 ..... 2,646,786,984 ....................... ..... 2,646,786,984 ....... ....... ... 410,676,313 880,393,398 571,690,727 26,725,564,236 ....................... ... 26,725,564,236 ....... ....... ....... ... 372,663,088 820,169,030 561,604,395 22,028,156,429 ....................... ... 22,028,156,429 ....................... ....................... ....................... ....................... ....................... ....................... ....................... ....................... ....................... ....................... ....................... ....................... ....................... ....................... ....................... ....................... ....................... ....................... ....................... ....................... 515,285,776 . . . . . . . 171,973,355 . . . . . . . 134,297,629 . . . . . . . . . 59,857,866 . . . . . . . 881,414,625 ....... ....... ....... 137,750,544 171,973,355 ....... 377,535,232 ....................... 134,297,629 59,857,866 571,690,727 ....... 343,111,214 ....................... ....... ....................... ......... ......... ....... ....... ....... 309,723,899 ....... 166,951,682 51,541,499 561,604,395 ....................... ANNUAL STATEMENT FOR THE YEAR 2018 OF THE Health Care Service Corporation, a Mutual Legal Reserve Company LIABILITIES, CAPITAL AND SURPLUS 1 Covered Current Year 2 Uncovered Prior Year 4 Total 3 Total 1. Claims unpaid (less $......18,047,000 reinsurance ceded) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,981,074,887 2. Accrued medical incentive pool and bonus amounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 311,699,000 . . . . . . . . . . . . . . . . . . ... 311,699,000 ... 218,771,800 3. Unpaid claims adjustment expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 160,263,000 . . . . . . . . . . . . . . . . . . ... 160,263,000 ... 150,263,000 4. Aggregate health policy reserves, including the liability of $......83,893,500 for medical loss .................. 2,981,074,887 2,981,721,680 ratio rebate per the Public Health Service Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,718,670,655 .................. 5. Aggregate life policy reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .................. .................. .................. .................. 6. Property/casualty unearned premium reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .................. .................. .................. .................. 7. Aggregate health claim reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .................. .................. .................. .................. 8. Premiums received in advance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 540,993,371 . . . . . . . . . . . . . . . . . . 9. General expenses due or accrued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,853,616,230 10.1 Current federal and foreign income tax payable and interest thereon (including $...............0 .................. 1,718,670,655 1,772,456,681 ... 540,993,371 ... 348,629,199 1,853,616,230 1,956,081,039 on realized capital gains (losses)) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .................. .................. .................. ... 10.2 Net deferred tax liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .................. .................. .................. .................. 11. Ceded reinsurance premiums payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ........ .................. ........ 12. Amounts withheld or retained for the account of others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 175,730,917 . . . . . . . . . . . . . . . . . . ... 175,730,917 ... 179,975,220 13. Remittances and items not allocated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 723,343,197 . . . . . . . . . . . . . . . . . . ... 723,343,197 ... 570,108,994 14. Borrowed money (including $.....872,667,574 current) and interest thereon $.......1,476,134 (including $.......1,476,134 current) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 874,143,708 . . . . . . . . . . . . . . . . . . ... 874,143,708 1,063,439,351 15. Amounts due to parent, subsidiaries and affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .... 16. Derivatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .................. 17. Payable for securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .... 18. Payable for securities lending . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19. Funds held under reinsurance treaties (with $...............0 authorized reinsurers, 459,554 72,100,788 459,554 72,100,788 121,812,132 ...... 10,957,784 .................. .... .................. .................. .................. .... .................. .................. .................. .................. $...............0 unauthorized reinsurers and $...............0 certified reinsurers) . . . . . . . . . . . . . . . . . . . . . . . .................. .................. .................. .................. 20. Reinsurance in unauthorized and certified ($...............0) companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .................. .................. .................. .................. 21. Net adjustments in assets and liabilities due to foreign exchange rates . . . . . . . . . . . . . . . . . . . . . . . . . . .................. .................. .................. .................. 22. Liability for amounts held under uninsured plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .... .................. .... 23. Aggregate write-ins for other liabilities (including $.....313,870,571 current) . . . . . . . . . . . . . . . . . . . . . . . . . 341,095,993 . . . . . . . . . . . . . . . . . . 24. TOTAL Liabilities (Lines 1 to 23) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,866,225,164 .................. 25. Aggregate write-ins for special surplus funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..... X X X .... ..... X X X .... .................. ... 26. Common capital stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..... X X X .... ..... X X X .... .................. .................. 27. Preferred capital stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..... X X X .... ..... X X X .... .................. .................. 28. Gross paid in and contributed surplus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..... X X X .... ..... X X X .... .................. .................. 29. Surplus notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..... X X X .... ..... X X X .... .................. .................. 30. Aggregate write-ins for other than special surplus funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..... X X X .... ..... X X X .... ........ 31. Unassigned funds (surplus) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..... X X X .... ..... X X X . . . . 16,858,462,806 11,470,205,094 32. Less treasury stock, at cost: 33. 23,257,000 89,776,864 ... 23,257,000 89,776,864 341,095,993 .... 1,318,795 .................. .... .... ... 76,990,370 92,182,808 434,481,881 9,866,225,164 9,979,190,736 876,267 577,828,765 ........ 931,834 32.1 ...............0 shares common (value included in Line 26 $...............0) . . . . . . . . . . . . . . . . . . . . ..... X X X .... ..... X X X .... .................. .................. 32.2 ...............0 shares preferred (value included in Line 27 $...............0) . . . . . . . . . . . . . . . . . . . ..... X X X .... ..... X X X .... .................. .................. TOTAL Capital and Surplus (Lines 25 to 31 minus Line 32) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..... X X X .... ..... X X X . . . . 16,859,339,073 12,048,965,693 ..... X X X .... ..... X X X . . . . 26,725,564,236 22,028,156,429 .... 93,191,844 34. TOTAL Liabilities, Capital and Surplus (Lines 24 and 33) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . DETAILS OF WRITE-INS 2301. UNCLAIMED PROPERTY AND UNCASHED CHECKS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2302. PAYABLE TO OTHER PLANS AND PROGRAMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2303. COST SHARE REDUCTION LIABILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2398. Summary of remaining write-ins for Line 23 from overflow page . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2399. TOTALS (Lines 2301 through 2303 plus 2398) (Line 23 above) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2501. 2018 HEALTH INSURER FEE ESTIMATE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2502. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2503. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2598. Summary of remaining write-ins for Line 25 from overflow page . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2599. TOTALS (Lines 2501 through 2503 plus 2598) (Line 25 above) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3001. HMO RESTRICTED SURPLUS FUND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3002. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3003. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3098. Summary of remaining write-ins for Line 30 from overflow page . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3099. TOTALS (Lines 3001 through 3003 plus 3098) (Line 30 above) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 .................. . . . 198,413,125 . . . . . . . . . . . . . . . . . . 10,591,057 38,899,966 . . . 341,095,993 ..... X X X .... ..... X X X .... ..... X X X .... ..... X X X .... ..... X X X .... ..... X X X .... ..... X X X .... ..... X X X .... ..... X X X .... ..... X X X .... .... .................. .... .................. .................. ..... ..... ..... ..... ..... ..... ..... ..... ..... ..... X X X .... X X X .... X X X .... X X X .... X X X .... X X X .... X X X .... X X X .... X X X .... X X X .... .... 93,191,844 198,413,125 . . . . 10,591,057 . . . . 38,899,966 . . . 341,095,993 .... ... ... .................. ... .................. .................. .................. .................. .................. .................. .................. ... ........ 876,267 87,856,320 222,021,072 . . . 124,604,489 .................. ... 434,481,881 577,828,765 577,828,765 931,834 ........ .................. .................. .................. .................. .................. .................. ........ 876,267 ........ 931,834 ANNUAL STATEMENT FOR THE YEAR 2018 OF THE Health Care Service Corporation, a Mutual Legal Reserve Company STATEMENT OF REVENUE AND EXPENSES Current Year 1 2 Uncovered Total 105,450,910 Prior Year 3 Total 1. Member Months . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ....... X X X ....... ....... 2. Net premium income (including $...............0 non-health premium income) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ....... X X X ....... ... 3. Change in unearned premium reserves and reserve for rate credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ....... X X X ....... ....... 4. Fee-for-service (net of $...............0 medical expenses) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ....... X X X ....... ....................... ....................... 5. Risk revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ....... X X X ....... ....................... ....................... 6. Aggregate write-ins for other health care related revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ....... X X X ....... ....................... ....................... 7. Aggregate write-ins for other non-health revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ....... X X X ....... ....................... ....................... 8. TOTAL Revenues (Lines 2 to 7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ....... X X X ....... ... 35,927,196,695 ... 32,603,541,267 24,050,764,070 ... 22,479,430,696 35,971,137,177 (43,940,482) ....... ... 102,063,636 32,717,620,999 ..... (114,079,732) Hospital and Medical: 9. Hospital/medical benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ....................... ... 10. Other professional services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ....................... ....................... ....................... 11. Outside referrals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ....................... ....................... ....................... 12. Emergency room and out-of-area . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ....................... ....................... ....................... 13. Prescription drugs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ....................... ..... 14. Aggregate write-ins for other hospital and medical . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ....................... ....................... 15. Incentive pool, withhold adjustments and bonus amounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ....................... ....... 16. Subtotal (Lines 9 to 15) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ....................... ... 17. Net reinsurance recoveries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ....................... ......... 18. TOTAL Hospital and Medical (Lines 16 minus 17) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ....................... ... 19. Non-health claims (net) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ....................... ....................... 20. Claims adjustment expenses, including $...1,060,811,626 cost containment expenses . . . . . . . . . . . . . . . ....................... ..... 1,293,440,274 ..... 1,060,838,589 21. General administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ....................... ..... 3,099,221,947 ..... 2,459,284,914 22. Increase in reserves for life and accident and health contracts (including $...............0 increase in reserves for life only) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ....................... ..... (149,129,010) ....... 23. TOTAL Underwriting Deductions (Lines 18 through 22) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ....................... ... 24. Net underwriting gain or (loss) (Lines 8 minus 23) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ....... 25. Net investment income earned (Exhibit of Net Investment Income, Line 17) . . . . . . . . . . . . . . . . . . . . . . . . . . . . ....................... ....... 26. Net realized capital gains (losses) less capital gains tax of $...............0 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ....................... ..... 27. Net investment gains (losses) (Lines 25 plus 26) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ....................... ....... 28. Net gain or (loss) from agents' or premium balances charged off [(amount recovered $...............0) (amount charged off $...............0)] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ....................... ....................... 29. Aggregate write-ins for other income or expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ....................... .......... 30. Net income or (loss) after capital gains tax and before all other federal income taxes (Lines 24 4,843,209,926 356,834,958 29,250,808,954 ..... 4,645,002,203 ....................... ....... ... 286,008,657 27,410,441,556 Less: X X X ....... 60,839,343 29,189,969,611 33,433,502,822 ..... 2,493,693,873 422,733,072 (506,301,753) (83,568,681) 3,968,297 ... 114,628,341 27,295,813,215 ....................... ... 230,883,000 31,046,819,718 ..... 1,556,721,549 ....... ..... 323,447,954 (122,391,972) ....... 201,055,982 ....................... ....... (28,264,612) plus 27 plus 28 plus 29) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ....... X X X ....... ..... Federal and foreign income taxes incurred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ....... X X X ....... ... 32. Net income (loss) (Lines 30 minus 31) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . DETAILS OF WRITE-INS 0601. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0602. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0603. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0698. Summary of remaining write-ins for Line 6 from overflow page . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0699. TOTALS (Lines 0601 through 0603 plus 0698) (Line 6 above) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0701. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0702. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0703. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0798. Summary of remaining write-ins for Line 7 from overflow page . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0799. TOTALS (Line 0701 through 0703 plus 0798) (Line 7 above) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1401. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1402. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1403. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1498. Summary of remaining write-ins for Line 14 from overflow page . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1499. TOTALS (Lines 1401 through 1403 plus 1498) (Line 14 above) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2901. OTHER INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2902. OTHER EXPENSES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2903. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2998. Summary of remaining write-ins for Line 29 from overflow page . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2999. TOTALS (Line 2901 through 2903 plus 2998) (Line 29 above) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ....... X X X ....... ..... ....... X X X ....... X X X ....... X X X ....... X X X ....... X X X ....... X X X ....... X X X ....... X X X ....... X X X ....... X X X ....... ....................... ....................... ....................... ....................... ....................... ....................... ....................... ....................... ....................... ....................... ....................... ....................... ....................... ....................... ....................... ....................... ....................... ....................... ....................... ....................... ....................... ....................... ....................... ....................... ....................... ....................... ....................... ....................... ....................... ....................... ....................... ....................... ....................... ....................... ....................... ....................... ......... .......... ....................... 43,694,372 . . . . . . . (39,726,075) ....................... ....................... ....................... ....................... ....................... ....................... ....................... .......... 31. 4 ....... ....... ....... ....... ....... ....... ....... ....... ....... 2,414,093,489 ....... (1,700,626,509) 4,114,719,998 3,968,297 ..... 1,729,512,919 ....... ..... 466,921,697 1,262,591,222 ....... ....... 7,255,015 (35,519,627) (28,264,612) ANNUAL STATEMENT FOR THE YEAR 2018 OF THE Health Care Service Corporation, a Mutual Legal Reserve Company STATEMENT OF REVENUE AND EXPENSES (Continued) 1 Current Year 2 Prior Year CAPITAL & SURPLUS ACCOUNT 33. Capital and surplus prior reporting year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ... 34. Net income or (loss) from Line 32 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..... 35. Change in valuation basis of aggregate policy and claim reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ....................... 36. Change in net unrealized capital gains (losses) less capital gains tax of $....(66,105,390) . . ....... 37. Change in net unrealized foreign exchange capital gain or (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ....................... 38. Change in net deferred income tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ... 39. Change in nonadmitted assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..... 40. Change in unauthorized and certified reinsurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ....................... ....................... 41. Change in treasury stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ....................... ....................... 42. Change in surplus notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ....................... ....................... 43. Cumulative effect of changes in accounting principles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ....................... ....................... 44. Capital Changes: 45. 12,048,965,693 ..... 9,535,944,774 4,114,719,998 ..... 1,262,591,222 147,368,033 (1,134,262,585) 1,706,983,806 ....................... ....... 370,883,112 ....................... ..... ... 3,186,758,408 (2,344,549,088) 44.1 Paid in . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ....................... ....................... 44.2 Transferred from surplus (Stock Dividend) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ....................... ....................... 44.3 Transferred to surplus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ....................... ....................... Surplus adjustments: 45.1 Paid in . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ....................... ....................... 45.2 Transferred to capital (Stock Dividend) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ....................... ....................... 45.3 Transferred from capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ....................... ....................... 46. Dividends to stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ....................... ....................... 47. Aggregate write-ins for gains or (losses) in surplus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ....... 48. Net change in capital and surplus (Lines 34 to 47) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..... 49. Capital and surplus end of reporting year (Line 33 plus 48) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . DETAILS OF WRITE-INS 4701. CHANGE IN BENEFIT PLAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4702. CHANGE IN HMO RESERVES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4703. OTHER ADJUSTMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4798. Summary of remaining write-ins for Line 47 from overflow page . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4799. TOTALS (Lines 4701 through 4703 plus 4798) (Line 47 above) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 ... (24,435,873) 4,810,373,379 16,859,339,073 ..... ... 37,337,265 2,513,020,919 12,048,965,692 ....................... 37,574,320 (237,115) . . . . . . . . . . . . . . . . . . . . 60 ....................... ....................... ....... (24,380,305) (55,568) ......... ............ ....... (24,435,873) ......... ........... ......... 37,337,265 ANNUAL STATEMENT FOR THE YEAR 2018 OF THE Health Care Service Corporation, a Mutual Legal Reserve Company CASH FLOW 1 Current Year 2 Prior Year Cash from Operations 1. Premiums collected net of reinsurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ... 35,677,000,775 2. Net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ....... 3. Miscellaneous income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ....................... 4. TOTAL (Lines 1 through 3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ... 36,076,289,676 ... 32,851,036,611 5. Benefit and loss related payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ... 29,236,200,108 ... 26,832,935,882 6. Net transfers to Separate Accounts, Segregated Accounts and Protected Cell Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ....................... 7. Commissions, expenses paid and aggregate write-ins for deductions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..... 8. Dividends paid to policyholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ....................... 9. Federal and foreign income taxes paid (recovered) net of $...............0 tax on capital gains (losses) . . . . . . . . . . . . . . . . . . . . ....... 10. TOTAL (Lines 5 through 9) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ... 11. Net cash from operations (Line 4 minus Line 10) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..... 2,033,483,753 ..... 1,880,412,151 3,187,977,982 ..... 5,315,254,124 399,288,901 4,849,271,611 (42,665,796) 34,042,805,923 ... 32,513,570,476 ....... 337,466,134 ....................... ....................... ..... 3,685,571,034 ....................... ....... ... 452,117,544 30,970,624,460 Cash from Investments 12. 13. Proceeds from investments sold, matured or repaid: 12.1 Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..... 12.2 Stocks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ....... 12.3 Mortgage loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ....................... ....................... 12.4 Real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ....................... ....................... 12.5 Other invested assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .......... 12.6 Net gains or (losses) on cash, cash equivalents and short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ....................... 12.7 Miscellaneous proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .......... 12.8 TOTAL Investment proceeds (Lines 12.1 to 12.7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..... 3,718,827,375 ..... 6,060,744,216 4,574,385,639 ..... 7,530,027,694 524,333,055 4,162,218 2,354,120 ....... 666,113,795 ......... 21,303,892 ....................... ......... 58,072,405 Cost of investments acquired (long-term only): 13.1 Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..... 13.2 Stocks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ....... 13.3 Mortgage loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ....................... 13.4 Real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ......... 11,121,826 ......... 21,069,675 13.5 Other invested assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ......... 71,668,000 ......... 21,357,657 13.6 Miscellaneous applications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ......... 49,407,193 .......... 13.7 TOTAL Investments acquired (Lines 13.1 to 13.6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..... 555,805,181 5,262,387,840 14. Net increase (decrease) in contract loans and premium notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ....................... 15. Net cash from investments (Line 12.8 minus Line 13.7 minus Line 14) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ... (1,543,560,464) ....... 965,670,065 ....................... ..... 2,229,090 8,540,354,181 ....................... ... (2,479,609,964) Cash from Financing and Miscellaneous Sources 16. 17. Cash provided (applied): 16.1 Surplus notes, capital notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ....................... ....................... 16.2 Capital and paid in surplus, less treasury stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ....................... ....................... 16.3 Borrowed funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..... 16.4 Net deposits on deposit-type contracts and other insurance liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ....................... ....................... 16.5 Dividends to stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ....................... ....................... 16.6 Other cash provided (applied) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ......... Net cash from financing and miscellaneous sources (Lines 16.1 to 16.4 minus Line 16.5 plus Line 16.6) . . . . . . . . . . . . . . ..... (201,537,104) ....... 487,906,381 48,932,024 ....... (13,524,363) (152,605,080) ....... 474,382,018 RECONCILIATION OF CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS 18. Net change in cash, cash equivalents and short-term investments (Line 11, plus Lines 15 and 17) . . . . . . . . . . . . . . . . . . . . . . 19. Cash, cash equivalents and short-term investments: ....... 337,318,209 ..... (124,815,796) 19.1 Beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..... (654,879,064) ..... (530,063,268) 19.2 End of year (Line 18 plus Line 19.1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ..... (317,560,855) ..... (654,879,064) Note: Supplemental Disclosures of Cash Flow Information for Non-Cash Transactions: 20.0001 Stocks and other invested assets contributed to subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20.0002 Tax assets received as return of capital from subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20.0003 Bonds contributed to subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 3,020,034 ....................... .......... ......... ....................... 31,890,524 . . . . . . . . . . . . . 371,719 ....................... ANNUAL STATEMENT FOR THE YEAR 2018 OF THE Health Care Service Corporation, a Mutual Legal Reserve Company ANALYSIS OF OPERATIONS BY LINES OF BUSINESS 1 7 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. Net premium income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Change in unearned premium reserves and reserve for rate credit . Fee-for-service (net of $...............0 medical expenses) . . . . . . . . . . . . . . Risk revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Aggregate write-ins for other health care related revenues . . . . . . . . . . Aggregate write-ins for other non-health care related revenues . . . . . TOTAL Revenues (Lines 1 to 6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Hospital/medical benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other professional services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Outside referrals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Emergency room and out-of-area . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Prescription drugs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Aggregate write-ins for other hospital and medical . . . . . . . . . . . . . . . . . . . Incentive pool, withhold adjustments and bonus amounts . . . . . . . . . . . Subtotal (Lines 8 to 14) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Net reinsurance recoveries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . TOTAL Hospital and Medical (Lines 15 minus 16) . . . . . . . . . . . . . . . . . . . Non-health claims (net) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Claims adjustment expenses including $...1,060,811,626 cost containment expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . General administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Increase in reserves for accident and health contracts . . . . . . . . . . . . . . . Increase in reserves for life contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . TOTAL Underwriting Deductions (Lines 17 to 22) . . . . . . . . . . . . . . . . . . . . Net underwriting gain or (loss) (Line 7 minus Line 23) . . . . . . . . . . . . . . . 2 Comprehensive (Hospital & Total Medical) . 35,971,137,177 . 23,948,696,130 . . . . (43,940,482) . . (117,295,598) 3 4 5 7 8 Title XVIII Medicare . . 1,305,856,248 . . . . . . . (598,391) Title XIX Medicaid . . 2,814,587,682 .................. 6 Federal Employees Health Benefits Plan . . 5,171,891,211 . . . . . 90,255,559 Medicare Supplement . . 1,613,857,003 . . . . . (7,231,927) Dental Only . . . . 293,865,643 . . . . . . . . . 970,003 Vision Only .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. Other Non-Health .................. Other Health . . . . 822,383,260 . . . . (10,040,128) .................. .................. .................. ..... .................. .................. .................. .................. ..... .................. .................. .................. .................. ..... ..... X X X ..... . . 1,305,257,857 . . 1,154,707,604 ..... X X X ..... . . 2,814,587,682 . . 2,410,709,418 ..... .................. .... .................. .................. X X X ..... . . 5,262,146,770 . . 3,787,686,432 .................. ..... .. .... .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. ..... .................. .................. .................. .................. .................. .................. .................. .................. .................. ..... .................. .................. .................. .................. .................. .................. .................. .................. .................. ..... .................. .................. .. .................. .................. .................. .................. .................. .................. .................. .................. ....... 7,200,660 . . 4,883,294,655 ..... .. 4,843,209,926 .................. .. 3,304,898,495 .................. 356,834,958 . . . . 316,562,958 . 29,250,808,942 . 18,226,410,141 . . . . . 60,839,343 . . . . . 55,428,373 . 29,189,969,599 . 18,170,981,768 .................. ..... X X X ..... .... .. .. .. 1,293,440,273 3,099,221,947 (149,129,010) 721,888,231 2,386,422,567 .. 194,964,721 .................. 1,088,407,563 .................. 1,281,001,339 ..... X X X ..... .... 194,964,721 ..... X X X ..... .................. 21,767,454 27,713,462 .................. .... .................. .... .. XXX ..... 92,098,139 .................. .................. .................. X X X ..... . . 1,510,275,214 . . . . . 96,349,862 ..... X X X ..... . . . . 244,445,637 . . . . . 50,390,009 ..... .................. 89,171,530 94,494,824 . . . . . . . . . . . . . . . . . . . . . . (12,754,000) ..... X X X ..... ..... X X X ..... . . 5,245,661,775 . . 1,450,072,623 . . . . . 16,484,995 . . (144,814,766) .... 49,849,675 179,424,200 ..... ..... 32,679,015 . . 1,279,484,758 . . . . . . . . . . . . . . . . . . . . . . . . . . . 324,489 . . 4,883,294,655 . . 1,279,160,269 ..... X X X ..... ..... X X X ..... .................. ..... ..... .... ..... .................. .. .................. 2,165,408 1,281,001,339 .... X X X ..... . 33,433,502,809 . 21,279,292,566 . . 2,493,693,886 . . 2,552,107,966 .................. ....... .... ..... ..... ..... ..... XXX ..... .................. 112,911,880 249,455,240 .... 350,705,550 .... X X X ..... 812,343,132 618,911,264 .................. ..... .. XXX .................. ..... ..... X X X ..... 294,835,646 194,964,721 10 X X X ..... . 35,927,196,695 . 23,831,400,532 . 24,050,764,058 . 14,604,948,688 .................. X X X ..... 1,606,625,076 1,278,835,931 9 ....... 4,934,771 ..... ..... .................. .................. ..... 392,325 . . 2,761,807,293 . . . . . (1,691,691) . . 2,763,498,984 ..... X X X ..... .................. ..... 623,846,035 . . . . . . . 6,778,172 . . . . 617,067,863 ..... X X X ..... ..... ......... .... ..... ..... XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX ..... ..... ..... ..... ..... ..... ..... ..... ..... ..... ..... ..... ..... .................. ..... .... 249,082,124 163,811,577 . . (134,300,000) ..... X X X ..... . . 3,042,092,685 . . (227,505,003) ..... .... 48,769,379 (2,099,923) . . . . . (2,075,010) ..... X X X ..... . . . . 661,662,309 . . . . 150,680,823 .................. ..... ..... .................. ..... XXX ..... .................. .................. .................. DETAILS OF WRITE-INS 0501. 0502. 0503. 0598. 0599. 0601. 0602. 0603. 0698. 0699. 1301. 1302. 1303. 1398. 1399. .......................................................................... .................. .................. .................. .................. .................. .................. .................. .................. .................. ..... .......................................................................... .................. .................. .................. .................. .................. .................. .................. .................. .................. ..... .......................................................................... .................. .................. .................. .................. .................. .................. .................. .................. .................. ..... ...... .................. .................. .................. .................. .................. .................. .................. .................. .................. ..... ...... .................. .................. .................. .................. .................. .................. .................. .................. .................. ..... Summary of remaining write-ins for Line 5 from overflow page TOTALS (Lines 0501 through 0503 plus 0598) (Line 5 above) .......................................................................... .................. ..... .......................................................................... .................. ..... .......................................................................... .................. ..... Summary of remaining write-ins for Line 6 from overflow page TOTALS (Lines 0601 through 0603 plus 0698) (Line 6 above) ...... .................. ..... ...... .................. ..... XXX XXX XXX XXX XXX ..... ..... ..... ..... ..... ..... ..... ..... ..... ..... XXX XXX XXX XXX XXX ..... ..... ..... ..... ..... ..... ..... ..... ..... ..... XXX XXX XXX XXX XXX ..... ..... ..... ..... ..... ..... ..... ..... ..... ..... XXX XXX XXX XXX XXX ..... ..... ..... ..... ..... ..... ..... ..... ..... ..... XXX XXX XXX XXX XXX ..... ..... ..... ..... ..... ..... ..... ..... ..... ..... XXX XXX XXX XXX XXX ..... ..... ..... ..... ..... ..... ..... ..... ..... ..... XXX XXX XXX XXX XXX ..... ..... ..... ..... ..... ..... ..... ..... ..... ..... XXX XXX XXX XXX XXX ..... ..... ..... ..... ..... ..... .................. ..... .................. ..... .................. ..... .................. ..... .................. .......................................................................... .................. .................. .................. .................. .................. .................. .................. .................. .................. ..... .......................................................................... .................. .................. .................. .................. .................. .................. .................. .................. .................. ..... .......................................................................... .................. .................. .................. .................. .................. .................. .................. .................. .................. ..... .... .................. .................. .................. .................. .................. .................. .................. .................. .................. ..... .... .................. .................. .................. .................. .................. .................. .................. .................. .................. ..... Summary of remaining write-ins for Line 13 from overflow page TOTALS (Lines 1301 through 1303 plus 1398) (Line 13 above) XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX ..... ..... ..... ..... ..... ANNUAL STATEMENT FOR THE YEAR 2018 OF THE Health Care Service Corporation, a Mutual Legal Reserve Company UNDERWRITING AND INVESTMENT EXHIBIT PART 1 - PREMIUMS 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. Line of Business Comprehensive (hospital and medical) . . . . . . . . . . . Medicare Supplement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Dental only . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Vision only . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Federal Employees Health Benefits Plan . . . . . . . . . Title XVIII - Medicare . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Title XIX - Medicaid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Other health . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Health subtotal (Lines 1 through 8) . . . . . . . . . . . . . . . . Life . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Property/casualty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . TOTALS (Lines 9 to 11) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 2 3 4 Net Premium Income Direct Reinsurance Reinsurance (Columns Business Assumed Ceded 1 + 2 - 3) . . . . . . 24,011,977,380 . . . . . . . . . . . . 2,325,856 . . . . . . . . . . . 65,602,405 . . . . . . 23,948,700,831 . . . . . . . 1,613,857,003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,613,857,003 . . . . . . . . . 293,865,643 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 293,865,643 ......................... ......................... ......................... 5,171,891,211 . . . . . . . 1,306,273,647 . . . . . . . 2,811,720,398 . . . . . . . . . 824,150,535 . . . . . . 36,033,735,817 ......................... ......................... ......................... ............... ......................... ......................... ......................... ......................... ......................... ......................... ......................... ......................... ....... ......................... 5,171,891,211 1,305,856,248 . . . . . . . . . . . . 2,867,284 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,814,587,682 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,767,275 . . . . . . . . . 822,383,260 . . . . . . . . . . . . 5,193,140 . . . . . . . . . . . 67,787,078 . . . . . . 35,971,141,879 . . . . . . 36,033,735,817 . . . . . . . . . . . . 5,193,140 ........... 417,399 67,787,078 ....... ....... . . . . . . 35,971,141,879 8 ANNUAL STATEMENT FOR THE YEAR 2018 OF THE Health Care Service Corporation, a Mutual Legal Reserve Company UNDERWRITING AND INVESTMENT EXHIBIT PART 2 - CLAIMS INCURRED DURING THE YEAR 1 Total 9 1. Payments during the year: 1.1 Direct . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28,972,856,309 1.2 Reinsurance assumed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,658,623 1.3 Reinsurance ceded . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111,096,912 1.4 Net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28,864,418,020 2. Paid medical incentive pools and bonuses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 263,907,758 3. Claim liability December 31, current year from Part 2A: 3.1 Direct . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,997,631,887 3.2 Reinsurance assumed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,490,000 3.3 Reinsurance ceded . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,047,000 3.4 Net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,981,074,887 4. Claim reserve December 31, current year from Part 2D: 4.1 Direct . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.2 Reinsurance assumed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.3 Reinsurance ceded . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.4 Net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5. Accrued medical incentive pools and bonuses, current year . . . . . . . . . . . . 311,699,000 6. Net healthcare receivables (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79,208,533 7. Amounts recoverable from reinsurers December 31, current year . . . . . . . . 1,040,713 8. Claim liability December 31, prior year from Part 2A: 8.1 Direct . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,997,305,680 8.2 Reinsurance assumed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 892,000 8.3 Reinsurance ceded . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,476,000 8.4 Net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,981,721,680 9. Claim reserve December 31, prior year from Part 2D: 9.1 Direct . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.2 Reinsurance assumed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.3 Reinsurance ceded . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.4 Net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10. Accrued medical incentive pools and bonuses, prior year . . . . . . . . . . . . . . . 218,771,800 11. Amounts recoverable from reinsurers December 31, prior year . . . . . . . . . 49,612,659 12. Incurred benefits: 12.1 Direct . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28,893,973,983 12.2 Reinsurance assumed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,256,623 12.3 Reinsurance ceded . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64,095,966 12.4 Net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28,833,134,640 13. Incurred medical incentive pools and bonuses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 356,834,958 (a) Excludes $...............0 loans or advances to providers not yet expensed. 2 3 Comprehensive (Hospital Medicare & Medical) Supplement 18,026,621,068 1,271,144,339 . . . . . . 1,811,932 . . . . . . . . . . . . . . . . . . . . . 105,381,251 . . . . . . . . . . . . . . . . . . 17,923,051,749 1,271,144,339 . . . 251,508,758 . . . . . . . . . . . . . . . . . . 5 Dental Only Vision Only . . . 194,286,721 . . . . . . . . . . . . . . . . . . .................. .................. . . . 194,286,721 . . . . . . . . . . . . . . . . . . . . . 137,795,000 . . . . .................. .................. .................. .................. .................. 13,786,000 7 8 9 10 Title XVIII Medicare Title XIX Medicaid Other Health Other Non-Health .................. .................. .................. 6 Federal Employees Health Benefits Plan 4,820,025,130 1,263,114,923 2,743,717,331 . . . . . . . . . . . . . . . . . . . . . . . . . . 846,691 . . . . . . . . . . . . . . . . . . . . . . . . . . 317,489 . . . . . . . . . . . . . . . . . . 4,820,025,130 1,262,797,434 2,744,564,022 . . . . . . . . 942,660 . . . . 11,317,015 . . . . . . . . 139,325 .................. 1,654,607,694 112,000 . . . . . . . . 184,000 1,654,535,694 ........ 4 .................. . . . 653,946,797 . . . . . . . . . . . . . . . . . . .................. . . . 648,548,625 . . . . . . . . . . . . . . . . . . .................. .................. . . . 524,180,193 . . . 239,334,000 . . . 360,828,000 . . . . .................. .................. .................. .................. .................. .................. .................. .................. .................. ...... 1,378,000 .................. . . . . . . 5,398,172 . . . . . . . . . . . . . . . . . . 67,101,000 .................. .................. .................. .................. .................. 7,000 . . . 524,180,193 . . . 239,327,000 .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. 278,952,000 . . . 118,218,261 . . . . . . 1,040,713 .................. .................. .................. ...... .... ........ .................. .................. .................. .................. .................. 6,578,000 . . . . . . 1,253,967 .. .. ........ .................. .................. .................. .................. .................. ... 1,653,163,319 359,000 . . . 137,795,000 . . . . . . . 362,206,000 . . . . 549,000 (15,386,637) .................. .................. . . . 466,857,361 . . . 280,771,000 . . . 358,517,000 . . . . .................. .................. .................. .................. ........ .................. .................. .................. .................. .................. .................. .................. .................. . . . 466,857,361 . . . 280,771,000 . . . 359,050,000 . . . . 13,108,000 533,000 250,763 .................. .................. . . . 127,938,000 . . . . 13,108,000 25,620,000 (25,127,821) .... ........ 1,653,522,319 . . . 127,938,000 . . . . 13,786,000 ........... 17,856,000 49,245,000 .................. 96,951,000 .................. .... 16,476,000 80,475,000 .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. 213,897,800 . . . . 49,612,659 .................. .................. .................. ........ .................. .................. .................. .................. .................. .................. .................. .................. ... 17,909,847,182 1,281,001,339 . . . . . . 1,564,932 . . . . . . . . . . . . . . . . . . . . . . 56,993,305 . . . . . . . . . . . . . . . . . . 17,854,418,809 1,281,001,339 . . . 316,562,958 . . . . . . . . . . . . . . . . . . . . . 194,964,721 . . . . . . . . . . . . . . . . . . .................. .................. .................. .................. . . . 194,964,721 . . . . . . . . . . . . . . . . . . .................. .................. 320,000 ...... 4,258,000 .................. ........ 296,000 .................. 4,876,093,995 1,246,805,744 2,761,414,968 . . . . . . . . . . . . . . . . . . . . . . . . 1,691,691 . . . . . . . . . . . . . . . . . . . . . . . . . . 324,489 . . . . . . . . . . . . . . . . . . 4,876,093,995 1,246,481,255 2,763,106,659 . . . . . . 7,200,660 . . . . 32,679,015 . . . . . . . . 392,325 .................. . . . 623,846,034 . . . . . . . . . . . . . . . . . . .................. .................. . . . . . . 6,778,172 . . . . . . . . . . . . . . . . . . . . . 617,067,862 . . . . . . . . . . . . . . . . . . .................. .................. ANNUAL STATEMENT FOR THE YEAR 2018 OF THE Health Care Service Corporation, a Mutual Legal Reserve Company UNDERWRITING AND INVESTMENT EXHIBIT PART 2A - CLAIMS LIABILITY END OF CURRENT YEAR 1 2 Comprehensive (Hospital & Medical) Total 10 1. Reported in Process of Adjustment: 1.1 Direct . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.2 Reinsurance assumed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.3 Reinsurance ceded . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.4 Net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. Incurred but Unreported: 2.1 Direct . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.2 Reinsurance assumed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.3 Reinsurance ceded . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.4 Net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3. Amounts Withheld from Paid Claims and Capitations: 3.1 Direct . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.2 Reinsurance assumed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.3 Reinsurance ceded . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.4 Net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4. TOTALS 4.1 Direct . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.2 Reinsurance assumed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.3 Reinsurance ceded . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.4 Net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 541,792,694 51,000 . . . . . 17,202,000 . . . 524,641,694 354,025,694 51,000 . . . . . . . . . . 46,000 . . . 354,030,694 3 4 5 Medicare Supplement Dental Only Vision Only 8 9 10 Title XVIII Medicare Title XIX Medicaid Other Health Other Non-Health ... ...... 1,608,000 ................... ..... .......... .......... ................... ................... ................... ................... ................... ................... ................... ................... ................... . . . . . . . . . . . . 1,000 . . . . . . . . . . . . . . . . . . . 1,608,000 ................... ..... 8,432,000 ...... 89,733,000 ..... 39,759,000 39,758,000 21,177,000 ................... ..... 21,177,000 . . . . . 27,058,000 . . . . . . . . . . . . . . . . . . . ................... ................... . . . . . 17,155,000 . . . . . . . . . . . . . . . . . . . ...... 9,903,000 ................... 2,455,839,193 . 1,300,582,000 1,439,000 . . . . . . . . . . 61,000 . . . . . . . . . 845,000 . . . . . . . . . 138,000 . 2,456,433,193 . 1,300,505,000 ... 12,178,000 ................... ... ................... ................... ................... ................... 339,651,000 1,378,000 . . . . . 40,043,000 . . . . . . . . . . . . . . . . . . . ................... ................... ................... ................... ................... . . . . . . . . . . . . 6,000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 701,000 . . . . . . . . . . . . . . . . . . . 12,178,000 ................... ... ................... ................... ................... ................... ................... ................... ................... ................... ................... ................... ................... ................... ................... ................... ................... ................... ................... ................... ................... ................... ................... ................... ................... ................... ................... ................... ................... ................... ................... ................... ................... ................... ................... ................... ................... ................... ................... ................... ................... ................... 2,997,631,887 . 1,654,607,694 1,490,000 . . . . . . . . . 112,000 . . . . . 18,047,000 . . . . . . . . . 184,000 . 2,981,074,887 . 1,654,535,694 129,363,000 434,447,193 199,569,000 ... 341,029,000 ................... ................... . . . . . 39,342,000 . . . . . . . . . . . . . . . . . . . ... 13,786,000 ................... ... ................... ................... ................... ................... 360,828,000 1,378,000 . . . . . 67,101,000 . . . . . . . . . . . . . . . . . . . ................... ................... ................... ................... ................... . . . . . . . . . . . . 7,000 . . . . . . . . . . . . . . . . . . . . . . . . 17,856,000 . . . . . . . . . . . . . . . . . . . 13,786,000 ................... ... 137,795,000 ..... 524,180,193 ... ... 239,334,000 ...... ...... ..... 524,180,193 ... ... . ... 137,795,000 ..... ... 199,575,000 ..... ...... ..... 434,447,193 ..... . ... 129,363,000 ...... 89,733,000 7 ... ...... 8,432,000 6 Federal Employees Health Benefits Plan 239,327,000 ... ...... ... 362,206,000 ................... ................... . . . . . 49,245,000 . . . . . . . . . . . . . . . . . . . ANNUAL STATEMENT FOR THE YEAR 2018 OF THE Health Care Service Corporation, a Mutual Legal Reserve Company UNDERWRITING AND INVESTMENT EXHIBIT PART 2B - ANALYSIS OF CLAIMS UNPAID-PRIOR YEAR-NET OF REINSURANCE 11 Line of Business 1. Comprehensive (hospital and medical) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. Medicare Supplement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3. Dental only . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4. Vision only . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5. Federal Employees Health Benefits Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6. Title XVIII - Medicare . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7. Title XIX - Medicaid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8. Other health . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9. Health subtotal (Lines 1 to 8) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10. Healthcare receivables (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11. Other non-health . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12. Medical incentive pool and bonus amounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13. TOTALS (Lines 9 - 10 + 11 + 12) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (a) Excludes $.....117,244,097 loans or advances to providers not yet expensed. Claim Reserve and Claim Claims Liability December 31 Paid During the Year of Current Year 1 2 3 4 On On On Claims Incurred Claims Incurred On Claims Unpaid Claims Incurred Prior to January 1 During the December 31 of During the of Current Year Year Prior Year Year . . . . . . . . . . . 26,584,969 . . . . . . 17,945,038,726 . . . . . . . . . . . 37,501,000 . . . . . . . 1,617,034,694 . . . . . . . . . 127,735,157 . . . . . . . 1,143,409,182 . . . . . . . . . . . . 1,981,000 . . . . . . . . . 135,814,000 . . . . . . . . . . . 11,441,906 . . . . . . . . . 182,844,815 . . . . . . . . . . . . . . . 256,000 . . . . . . . . . . . 13,530,000 Estimated Claim Reserve and Claims Incurred Claim Liability in Prior Years December 31 of (Columns 1 + 3) Prior Year . . . . . . . . . . . 64,085,969 . . . . . . . 1,653,522,319 . . . . . . . . . 129,716,157 . . . . . . . . . 127,938,000 . . . . . . . . . . . 11,697,906 . . . . . . . . . . . 13,108,000 ......................... ......................... ......................... ......................... ......................... ......................... 327,184,097 . . . . . . . . . 157,515,246 . . . . . . . . . 334,473,737 . . . . . . . . . . . 60,629,615 . . . . . . . 1,045,564,727 . . . . . . . . . . . 39,597,550 ....... 4,492,841,034 . . . . . . . 1,105,282,187 . . . . . . . 2,410,090,286 . . . . . . . . . 587,919,010 . . . . . . 27,867,425,240 . . . . . . . 1,560,693,206 ............ 6,546,000 . . . . . . . . . . . 32,446,000 . . . . . . . . . . . 21,308,000 . . . . . . . . . . . . 1,562,000 . . . . . . . . . 101,600,000 ......... 517,634,193 . . . . . . . . . 206,881,000 . . . . . . . . . 340,898,000 . . . . . . . . . . . 47,683,000 . . . . . . . 2,879,474,887 ......... ......... ......................... ......................... 333,730,097 . . . . . . . . . 189,961,246 . . . . . . . . . 355,781,737 . . . . . . . . . . . 62,191,615 . . . . . . . 1,147,164,727 . . . . . . . . . . . 39,597,550 ......................... ......................... ......................... ......................... ......................... ......................... 76,307,759 . . . . . . 26,383,039,793 ........... ......... ......... ......... ......... ....... ....... ....... ......... 187,599,999 1,193,567,176 ......... ....... ........... 45,191,000 146,791,000 266,508,000 3,145,982,887 5 232,790,999 1,340,358,176 6 466,857,361 280,771,000 . . . . . . . . . 359,050,000 . . . . . . . . . . . 80,475,000 . . . . . . . 2,981,721,680 . . . . . . . 1,521,082,223 ......... 218,771,800 1,679,411,257 ANNUAL STATEMENT FOR THE YEAR 2018 OF THE Health Care Service Corporation, a Mutual Legal Reserve Company UNDERWRITING AND INVESTMENT EXHIBIT PART 2C - DEVELOPMENT OF PAID AND INCURRED HEALTH CLAIMS ($000 Omitted) Grand Total Section A - Paid Health Claims Year in Which Losses Were Incurred 1. 2. 3. 4. 5. 6. Prior . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 2014 . . . . . . . . . . . 19,239,350 . . . . . . . . . . . 22,797,594 ........ X X X ........ ........ X X X ........ ........ X X X ........ ........ X X X ........ Cumulative Net Amounts Paid 2 3 4 2015 2016 2017 . . . . . . . . . . . 19,232,878 . . . . . . . . . . . 19,232,586 . . . . . . . . . . . 19,226,329 . . . . . . . . . . . 23,757,340 . . . . . . . . . . . 23,755,797 . . . . . . . . . . . 23,752,843 . . . . . . . . . . . 27,313,551 . . . . . . . . . . . 28,189,790 . . . . . . . . . . . 28,059,083 . . . . . . . . X X X . . . . . . . . . . . . . . . . . . . 25,378,081 . . . . . . . . . . . 26,594,614 . . . . . . . . X X X . . . . . . . . . . . . . . . . X X X . . . . . . . . . . . . . . . . . . . 25,960,045 ........ X X X ........ ........ X X X ........ ........ X X X ........ 5 2018 . . . . . . . . . . . 19,226,329 . . . . . . . . . . . 23,749,678 . . . . . . . . . . . 28,055,176 . . . . . . . . . . . 26,600,085 . . . . . . . . . . . 27,194,812 . . . . . . . . . . . 27,943,733 Section B - Incurred Health Claims 12 Grand Total Year in Which Losses Were Incurred 1. 2. 3. 4. 5. 6. Prior . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Sum of Cumulative Net Amount Paid and Claim Liability, Claim Reserve and Medical Incentive Pool and Bonuses Outstanding at End of Year 1 2 3 4 5 2014 2015 2016 2017 2018 . . . . . . . . . . . 19,281,225 . . . . . . . . . . . 19,235,457 . . . . . . . . . . . 19,232,586 . . . . . . . . . . . 19,226,329 . . . . . . . . . . . 19,226,329 . . . . . . . . . . . 25,262,910 . . . . . . . . . . . 23,815,347 . . . . . . . . . . . 23,764,251 . . . . . . . . . . . 23,752,843 . . . . . . . . . . . 23,749,678 . . . . . . . . X X X . . . . . . . . . . . . . . . . . . . 30,021,707 . . . . . . . . . . . 28,270,214 . . . . . . . . . . . 28,065,731 . . . . . . . . . . . 28,055,176 . . . . . . . . X X X . . . . . . . . . . . . . . . . X X X . . . . . . . . . . . . . . . . . . . 28,109,732 . . . . . . . . . . . 26,658,774 . . . . . . . . . . . 26,612,781 . . . . . . . . X X X . . . . . . . . . . . . . . . . X X X . . . . . . . . . . . . . . . . X X X . . . . . . . . . . . . . . . . . . . 29,089,730 . . . . . . . . . . . 27,328,907 . . . . . . . . X X X . . . . . . . . . . . . . . . . X X X . . . . . . . . . . . . . . . . X X X . . . . . . . . . . . . . . . . X X X . . . . . . . . . . . . . . . . . . . 31,089,716 Section C - Incurred Year Health Claims and Claims Adjustment Expense Ratio 1 Years in Which Premiums were Earned and Claims were Incurred 1. 2. 3. 4. 5. 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Premiums Earned . . . . . . . 27,705,480 . . . . . . . 31,185,324 . . . . . . . 30,335,796 . . . . . . . 32,603,542 . . . . . . . 35,927,198 2 3 4 Claims Payments . . . . . . . 23,749,678 . . . . . . . 28,055,176 . . . . . . . 26,600,085 . . . . . . . 27,194,812 . . . . . . . 27,943,733 Claim Adjustment Expense Payments . . . . . . . . 1,029,044 . . . . . . . . 1,083,088 . . . . . . . . 1,039,097 . . . . . . . . 1,149,343 . . . . . . . . 1,089,062 (Col. 3/2) Percent . . . . . . . . . . . . . . 4.333 . . . . . . . . . . . . . . 3.861 . . . . . . . . . . . . . . 3.906 . . . . . . . . . . . . . . 4.226 . . . . . . . . . . . . . . 3.897 5 Claim and Claim Adjustment Expense Payments (Col. 2 + 3) . . . . . . . 24,778,722 . . . . . . . 29,138,264 . . . . . . . 27,639,182 . . . . . . . 28,344,155 . . . . . . . 29,032,795 6 7 8 (Col. 5/1) Percent . . . . . . . . . . . . 89.436 . . . . . . . . . . . . 93.436 . . . . . . . . . . . . 91.111 . . . . . . . . . . . . 86.936 . . . . . . . . . . . . 80.810 Claims Unpaid Unpaid Claims Adjustment Expenses ..................... ..................... ..................... ..................... 12,696 . . . . . . . . . . . 134,095 . . . . . . . . 3,145,983 .............. ............ 1,322 6,843 . . . . . . . . . . . 152,098 .............. 9 Total Claims and Claims Adjustment Expense Incurred (Col. 5 + 7 + 8) . . . . . . . 24,778,722 . . . . . . . 29,138,264 . . . . . . . 27,653,200 . . . . . . . 28,485,093 . . . . . . . 32,330,876 10 (Col. 9/1) Percent . . . . . . . . . . . . 89.436 . . . . . . . . . . . . 93.436 . . . . . . . . . . . . 91.157 . . . . . . . . . . . . 87.368 . . . . . . . . . . . . 89.990 ANNUAL STATEMENT FOR THE YEAR 2018 OF THE Health Care Service Corporation, a Mutual Legal Reserve Company UNDERWRITING AND INVESTMENT EXHIBIT PART 2C - DEVELOPMENT OF PAID AND INCURRED HEALTH CLAIMS ($000 Omitted) Hospital and Medical Section A - Paid Health Claims Year in Which Losses Were Incurred 1. 2. 3. 4. 5. 6. Prior . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 2014 . . . . . . . . . . . 13,781,693 . . . . . . . . . . . 17,092,768 ........ X X X ........ ........ X X X ........ ........ X X X ........ ........ X X X ........ Cumulative Net Amounts Paid 2 3 4 2015 2016 2017 . . . . . . . . . . . 13,777,736 . . . . . . . . . . . 13,778,947 . . . . . . . . . . . 13,776,187 . . . . . . . . . . . 17,480,537 . . . . . . . . . . . 17,468,366 . . . . . . . . . . . 17,466,695 . . . . . . . . . . . 20,247,925 . . . . . . . . . . . 20,454,141 . . . . . . . . . . . 20,314,119 . . . . . . . . X X X . . . . . . . . . . . . . . . . . . . 17,430,335 . . . . . . . . . . . 17,824,808 . . . . . . . . X X X . . . . . . . . . . . . . . . . X X X . . . . . . . . . . . . . . . . . . . 17,013,461 ........ X X X ........ ........ X X X ........ ........ X X X ........ 5 2018 . . . . . . . . . . . 13,776,187 . . . . . . . . . . . 17,464,144 . . . . . . . . . . . 20,310,282 . . . . . . . . . . . 17,799,062 . . . . . . . . . . . 17,255,232 . . . . . . . . . . . 18,013,495 Section B - Incurred Health Claims 12 Hospital and Medical Year in Which Losses Were Incurred 1. 2. 3. 4. 5. 6. Prior . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Sum of Cumulative Net Amount Paid and Claim Liability, Claim Reserve and Medical Incentive Pool and Bonuses Outstanding at End of Year 1 2 3 4 5 2014 2015 2016 2017 2018 . . . . . . . . . . . 13,815,456 . . . . . . . . . . . 13,779,330 . . . . . . . . . . . 13,778,947 . . . . . . . . . . . 13,776,187 . . . . . . . . . . . 13,776,187 . . . . . . . . . . . 18,763,625 . . . . . . . . . . . 17,524,216 . . . . . . . . . . . 17,473,393 . . . . . . . . . . . 17,466,695 . . . . . . . . . . . 17,464,144 . . . . . . . . X X X . . . . . . . . . . . . . . . . . . . 22,027,734 . . . . . . . . . . . 20,501,067 . . . . . . . . . . . 20,315,571 . . . . . . . . . . . 20,310,282 . . . . . . . . X X X . . . . . . . . . . . . . . . . X X X . . . . . . . . . . . . . . . . . . . 19,069,182 . . . . . . . . . . . 17,858,125 . . . . . . . . . . . 17,800,262 . . . . . . . . X X X . . . . . . . . . . . . . . . . X X X . . . . . . . . . . . . . . . . X X X . . . . . . . . . . . . . . . . . . . 18,846,112 . . . . . . . . . . . 17,324,948 . . . . . . . . X X X . . . . . . . . . . . . . . . . X X X . . . . . . . . . . . . . . . . X X X . . . . . . . . . . . . . . . . X X X . . . . . . . . . . . . . . . . . . . 19,881,391 Section C - Incurred Year Health Claims and Claims Adjustment Expense Ratio 1 Years in Which Premiums were Earned and Claims were Incurred 1. 2. 3. 4. 5. 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Premiums Earned . . . . . . . 20,474,122 . . . . . . . 22,457,969 . . . . . . . 20,549,678 . . . . . . . 21,848,679 . . . . . . . 23,831,401 2 3 4 Claims Payments . . . . . . . 17,464,144 . . . . . . . 20,310,282 . . . . . . . 17,799,062 . . . . . . . 17,255,232 . . . . . . . 18,013,495 Claim Adjustment Expense Payments . . . . . . . . . . . 760,456 . . . . . . . . . . . 758,705 . . . . . . . . . . . 567,244 . . . . . . . . . . . 629,801 . . . . . . . . . . . 614,745 (Col. 3/2) Percent . . . . . . . . . . . . . . 4.354 . . . . . . . . . . . . . . 3.736 . . . . . . . . . . . . . . 3.187 . . . . . . . . . . . . . . 3.650 . . . . . . . . . . . . . . 3.413 5 Claim and Claim Adjustment Expense Payments (Col. 2 + 3) . . . . . . . 18,224,600 . . . . . . . 21,068,987 . . . . . . . 18,366,306 . . . . . . . 17,885,033 . . . . . . . 18,628,240 6 7 8 (Col. 5/1) Percent . . . . . . . . . . . . 89.013 . . . . . . . . . . . . 93.815 . . . . . . . . . . . . 89.375 . . . . . . . . . . . . 81.859 . . . . . . . . . . . . 78.167 Claims Unpaid Unpaid Claims Adjustment Expenses ..................... ..................... ..................... ..................... 1,200 . . . . . . . . . . . . 69,716 . . . . . . . . 1,867,896 ................ .............. 182 1,453 64,705 .............. ............ 9 Total Claims and Claims Adjustment Expense Incurred (Col. 5 + 7 + 8) . . . . . . . 18,224,600 . . . . . . . 21,068,987 . . . . . . . 18,367,688 . . . . . . . 17,956,202 . . . . . . . 20,560,841 10 (Col. 9/1) Percent . . . . . . . . . . . . 89.013 . . . . . . . . . . . . 93.815 . . . . . . . . . . . . 89.382 . . . . . . . . . . . . 82.184 . . . . . . . . . . . . 86.276 ANNUAL STATEMENT FOR THE YEAR 2018 OF THE Health Care Service Corporation, a Mutual Legal Reserve Company UNDERWRITING AND INVESTMENT EXHIBIT PART 2C - DEVELOPMENT OF PAID AND INCURRED HEALTH CLAIMS ($000 Omitted) Medicare Supplement Section A - Paid Health Claims Year in Which Losses Were Incurred 1. 2. 3. 4. 5. 6. Prior . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 2014 . . . . . . . . . . . . . . . 934,832 . . . . . . . . . . . . . . . 897,617 ........ X X X ........ ........ X X X ........ ........ X X X ........ ........ X X X ........ Cumulative Net Amounts Paid 2 3 4 2015 2016 2017 . . . . . . . . . . . . . . . 937,000 . . . . . . . . . . . . . . . 936,884 . . . . . . . . . . . . . . . 936,896 . . . . . . . . . . . . 1,007,304 . . . . . . . . . . . . 1,008,302 . . . . . . . . . . . . 1,009,040 . . . . . . . . . . . . . . . 984,890 . . . . . . . . . . . . 1,101,525 . . . . . . . . . . . . 1,105,107 . . . . . . . . X X X . . . . . . . . . . . . . . . . . . . . 1,025,603 . . . . . . . . . . . . 1,154,767 . . . . . . . . X X X . . . . . . . . . . . . . . . . X X X . . . . . . . . . . . . . . . . . . . . 1,093,090 ........ X X X ........ ........ X X X ........ ........ X X X ........ 5 2018 . . . . . . . . . . . . . . . 936,896 . . . . . . . . . . . . 1,010,047 . . . . . . . . . . . . 1,105,989 . . . . . . . . . . . . 1,156,649 . . . . . . . . . . . . 1,217,054 . . . . . . . . . . . . 1,143,409 Section B - Incurred Health Claims 12 Medicare Supplement Year in Which Losses Were Incurred 1. 2. 3. 4. 5. 6. Prior . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Sum of Cumulative Net Amount Paid and Claim Liability, Claim Reserve and Medical Incentive Pool and Bonuses Outstanding at End of Year 1 2 3 4 5 2014 2015 2016 2017 2018 . . . . . . . . . . . . . . . 935,933 . . . . . . . . . . . . . . . 937,175 . . . . . . . . . . . . . . . 936,884 . . . . . . . . . . . . . . . 936,896 . . . . . . . . . . . . . . . 936,896 . . . . . . . . . . . . 1,031,490 . . . . . . . . . . . . 1,008,659 . . . . . . . . . . . . 1,008,446 . . . . . . . . . . . . 1,009,040 . . . . . . . . . . . . 1,010,047 . . . . . . . . X X X . . . . . . . . . . . . . . . . . . . . 1,113,110 . . . . . . . . . . . . 1,102,621 . . . . . . . . . . . . 1,105,333 . . . . . . . . . . . . 1,105,989 . . . . . . . . X X X . . . . . . . . . . . . . . . . X X X . . . . . . . . . . . . . . . . . . . . 1,157,203 . . . . . . . . . . . . 1,155,522 . . . . . . . . . . . . 1,156,912 . . . . . . . . X X X . . . . . . . . . . . . . . . . X X X . . . . . . . . . . . . . . . . X X X . . . . . . . . . . . . . . . . . . . . 1,220,047 . . . . . . . . . . . . 1,218,772 . . . . . . . . X X X . . . . . . . . . . . . . . . . X X X . . . . . . . . . . . . . . . . X X X . . . . . . . . . . . . . . . . X X X . . . . . . . . . . . . . . . . . . . . 1,279,223 Section C - Incurred Year Health Claims and Claims Adjustment Expense Ratio 1 Years in Which Premiums were Earned and Claims were Incurred 1. 2. 3. 4. 5. 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Premiums Earned . . . . . . . . 1,366,302 . . . . . . . . 1,404,492 . . . . . . . . 1,494,618 . . . . . . . . 1,586,984 . . . . . . . . 1,606,625 2 3 4 Claims Payments . . . . . . . . 1,010,047 . . . . . . . . 1,105,989 . . . . . . . . 1,156,649 . . . . . . . . 1,217,054 . . . . . . . . 1,143,409 Claim Adjustment Expense Payments . . . . . . . . . . . . 43,452 . . . . . . . . . . . . 40,430 . . . . . . . . . . . . 46,664 . . . . . . . . . . . . 48,986 . . . . . . . . . . . . 42,670 (Col. 3/2) Percent . . . . . . . . . . . . . . 4.302 . . . . . . . . . . . . . . 3.656 . . . . . . . . . . . . . . 4.034 . . . . . . . . . . . . . . 4.025 . . . . . . . . . . . . . . 3.732 5 Claim and Claim Adjustment Expense Payments (Col. 2 + 3) . . . . . . . . 1,053,499 . . . . . . . . 1,146,419 . . . . . . . . 1,203,313 . . . . . . . . 1,266,040 . . . . . . . . 1,186,079 6 7 8 (Col. 5/1) Percent . . . . . . . . . . . . 77.106 . . . . . . . . . . . . 81.625 . . . . . . . . . . . . 80.510 . . . . . . . . . . . . 79.776 . . . . . . . . . . . . 73.824 Claims Unpaid Unpaid Claims Adjustment Expenses ..................... ..................... ..................... ..................... 263 . . . . . . . . . . . . . . 1,718 . . . . . . . . . . . 135,814 . . . . . . . . . . . . . . . . . . 11 ................ . . . . . . . . . . . . . . . . . . 64 .............. 5,039 9 Total Claims and Claims Adjustment Expense Incurred (Col. 5 + 7 + 8) . . . . . . . . 1,053,499 . . . . . . . . 1,146,419 . . . . . . . . 1,203,587 . . . . . . . . 1,267,822 . . . . . . . . 1,326,932 10 (Col. 9/1) Percent . . . . . . . . . . . . 77.106 . . . . . . . . . . . . 81.625 . . . . . . . . . . . . 80.528 . . . . . . . . . . . . 79.889 . . . . . . . . . . . . 82.591 ANNUAL STATEMENT FOR THE YEAR 2018 OF THE Health Care Service Corporation, a Mutual Legal Reserve Company UNDERWRITING AND INVESTMENT EXHIBIT PART 2C - DEVELOPMENT OF PAID AND INCURRED HEALTH CLAIMS ($000 Omitted) Dental Only Section A - Paid Health Claims Year in Which Losses Were Incurred 1. 2. 3. 4. 5. 6. Prior . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 2014 . . . . . . . . . . . . . . . 152,559 . . . . . . . . . . . . . . . 151,224 ........ X X X ........ ........ X X X ........ ........ X X X ........ ........ X X X ........ Cumulative Net Amounts Paid 2 3 4 2015 2016 2017 . . . . . . . . . . . . . . . 152,771 . . . . . . . . . . . . . . . 152,781 . . . . . . . . . . . . . . . 152,781 . . . . . . . . . . . . . . . 160,988 . . . . . . . . . . . . . . . 161,200 . . . . . . . . . . . . . . . 161,208 . . . . . . . . . . . . . . . 157,304 . . . . . . . . . . . . . . . 167,349 . . . . . . . . . . . . . . . 167,585 . . . . . . . . X X X . . . . . . . . . . . . . . . . . . . . . . . 150,680 . . . . . . . . . . . . . . . 160,992 . . . . . . . . X X X . . . . . . . . . . . . . . . . X X X . . . . . . . . . . . . . . . . . . . . . . . 157,261 ........ X X X ........ ........ X X X ........ ........ X X X ........ 5 2018 . . . . . . . . . . . . . . . 152,781 . . . . . . . . . . . . . . . 161,203 . . . . . . . . . . . . . . . 167,600 . . . . . . . . . . . . . . . 161,253 . . . . . . . . . . . . . . . 168,432 . . . . . . . . . . . . . . . 182,845 Section B - Incurred Health Claims 12 Dental Only Year in Which Losses Were Incurred 1. 2. 3. 4. 5. 6. Prior . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Sum of Cumulative Net Amount Paid and Claim Liability, Claim Reserve and Medical Incentive Pool and Bonuses Outstanding at End of Year 1 2 3 4 5 2014 2015 2016 2017 2018 . . . . . . . . . . . . . . . 152,740 . . . . . . . . . . . . . . . 152,823 . . . . . . . . . . . . . . . 152,781 . . . . . . . . . . . . . . . 152,781 . . . . . . . . . . . . . . . 152,781 . . . . . . . . . . . . . . . 163,187 . . . . . . . . . . . . . . . 161,274 . . . . . . . . . . . . . . . 161,212 . . . . . . . . . . . . . . . 161,208 . . . . . . . . . . . . . . . 161,203 . . . . . . . . X X X . . . . . . . . . . . . . . . . . . . . . . . 167,295 . . . . . . . . . . . . . . . 167,573 . . . . . . . . . . . . . . . 167,613 . . . . . . . . . . . . . . . 167,600 . . . . . . . . X X X . . . . . . . . . . . . . . . . X X X . . . . . . . . . . . . . . . . . . . . . . . 160,749 . . . . . . . . . . . . . . . 161,258 . . . . . . . . . . . . . . . 161,274 . . . . . . . . X X X . . . . . . . . . . . . . . . . X X X . . . . . . . . . . . . . . . . X X X . . . . . . . . . . . . . . . . . . . . . . . 170,075 . . . . . . . . . . . . . . . 168,667 . . . . . . . . X X X . . . . . . . . . . . . . . . . X X X . . . . . . . . . . . . . . . . X X X . . . . . . . . . . . . . . . . X X X . . . . . . . . . . . . . . . . . . . . . . . 196,375 Section C - Incurred Year Health Claims and Claims Adjustment Expense Ratio 1 Years in Which Premiums were Earned and Claims were Incurred 1. 2. 3. 4. 5. 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Premiums Earned . . . . . . . . . . . 264,363 . . . . . . . . . . . 283,252 . . . . . . . . . . . 261,299 . . . . . . . . . . . 252,061 . . . . . . . . . . . 294,836 2 3 4 Claims Payments . . . . . . . . . . . 161,203 . . . . . . . . . . . 167,600 . . . . . . . . . . . 161,253 . . . . . . . . . . . 168,432 . . . . . . . . . . . 182,845 Claim Adjustment Expense Payments . . . . . . . . . . . . 10,053 . . . . . . . . . . . . 10,649 . . . . . . . . . . . . 20,498 . . . . . . . . . . . . 19,399 . . . . . . . . . . . . 18,934 (Col. 3/2) Percent . . . . . . . . . . . . . . 6.236 . . . . . . . . . . . . . . 6.354 . . . . . . . . . . . . 12.712 . . . . . . . . . . . . 11.517 . . . . . . . . . . . . 10.355 5 Claim and Claim Adjustment Expense Payments (Col. 2 + 3) . . . . . . . . . . . 171,256 . . . . . . . . . . . 178,249 . . . . . . . . . . . 181,751 . . . . . . . . . . . 187,831 . . . . . . . . . . . 201,779 6 (Col. 5/1) Percent . . . . . . . . . . . . 64.781 . . . . . . . . . . . . 62.929 . . . . . . . . . . . . 69.557 . . . . . . . . . . . . 74.518 . . . . . . . . . . . . 68.438 7 8 9 Total Claims and Claims Unpaid Claims Adjustment Claims Adjustment Expense Incurred Unpaid Expenses (Col. 5 + 7 + 8) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 171,256 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 178,249 . . . . . . . . . . . . . . . . . . 21 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 181,772 . . . . . . . . . . . . . . . . 235 . . . . . . . . . . . . . . . . . . . 8 . . . . . . . . . . . 188,074 . . . . . . . . . . . . 13,530 . . . . . . . . . . . . . . . . 508 . . . . . . . . . . . 215,817 10 (Col. 9/1) Percent . . . . . . . . . . . . 64.781 . . . . . . . . . . . . 62.929 . . . . . . . . . . . . 69.565 . . . . . . . . . . . . 74.614 . . . . . . . . . . . . 73.199 ANNUAL STATEMENT FOR THE YEAR 2018 OF THE Health Care Service Corporation, a Mutual Legal Reserve Company UNDERWRITING AND INVESTMENT EXHIBIT PART 2C - DEVELOPMENT OF PAID AND INCURRED HEALTH CLAIMS ($000 Omitted) Vision Only Section A - Paid Health Claims Year in Which Losses Were Incurred 1. 2. 3. 4. 5. 6. Prior . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Cumulative Net Amounts Paid 3 2016 1 2014 2 2015 4 2017 5 2018 ......................... ......................... ......................... ......................... ......................... ......................... ......................... ......................... ......................... X X X ........ X X X ........ X X X ........ X X X ........ ......................... ......................... ......................... ......................... ......................... X X X ........ X X X ........ X X X ........ ......................... ......................... ......................... X X X ........ X X X ........ ......................... ......................... X X X ........ ......................... NONE ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ Section B - Incurred Health Claims Sum of Cumulative Net Amount Paid and Claim Liability, Claim Reserve and Medical Incentive Pool and Bonuses Outstanding at End of Year 1 2 3 4 5 2014 2015 2016 2017 2018 12 Vision Only Year in Which Losses Were Incurred 1. 2. 3. 4. 5. 6. Prior . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ......................... ......................... ......................... ......................... ......................... ......................... ......................... ......................... ......................... ......................... X X X ........ X X X ........ X X X ........ X X X ........ ......................... ......................... ......................... ......................... X X X ........ X X X ........ X X X ........ ......................... ......................... ......................... X X X ........ X X X ........ ......................... ......................... X X X ........ ......................... NONE ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ Section C - Incurred Year Health Claims and Claims Adjustment Expense Ratio 1 Years in Which Premiums were Earned and Claims were Incurred 1. 2. 3. 4. 5. 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 3 4 6 7 (Col. 3/2) Percent 5 Claim and Claim Adjustment Expense Payments (Col. 2 + 3) Premiums Earned Claims Payments Claim Adjustment Expense Payments ..................... ..................... ..................... ..................... ..................... (Col. 5/1) Percent Claims Unpaid ..................... ..................... ..................... ..................... ..................... ..................... ..................... ..................... ..................... ..................... ..................... ..................... ..................... ..................... ..................... ..................... ..................... ..................... ..................... ..................... ..................... ..................... ..................... ..................... ..................... ..................... ..................... ..................... ..................... ..................... ..................... ..................... ..................... ..................... ..................... ..................... ..................... ..................... ..................... ..................... ..................... ..................... ..................... ..................... ..................... NONE 8 9 Total Claims and Claims Unpaid Claims Adjustment Adjustment Expense Incurred Expenses (Col. 5 + 7 + 8) 10 (Col. 9/1) Percent ANNUAL STATEMENT FOR THE YEAR 2018 OF THE Health Care Service Corporation, a Mutual Legal Reserve Company UNDERWRITING AND INVESTMENT EXHIBIT PART 2C - DEVELOPMENT OF PAID AND INCURRED HEALTH CLAIMS ($000 Omitted) Federal Employees Health Benefits Plan Premiums Section A - Paid Health Claims Year in Which Losses Were Incurred 1. 2. 3. 4. 5. 6. Prior . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 2014 . . . . . . . . . . . . 3,854,985 . . . . . . . . . . . . 3,897,729 ........ X X X ........ ........ X X X ........ ........ X X X ........ ........ X X X ........ Cumulative Net Amounts Paid 2 3 4 2015 2016 2017 . . . . . . . . . . . . 3,849,433 . . . . . . . . . . . . 3,847,914 . . . . . . . . . . . . 3,844,262 . . . . . . . . . . . . 4,173,525 . . . . . . . . . . . . 4,168,179 . . . . . . . . . . . . 4,165,328 . . . . . . . . . . . . 4,149,997 . . . . . . . . . . . . 4,448,537 . . . . . . . . . . . . 4,442,067 . . . . . . . . X X X . . . . . . . . . . . . . . . . . . . . 4,289,178 . . . . . . . . . . . . 4,574,250 . . . . . . . . X X X . . . . . . . . . . . . . . . . X X X . . . . . . . . . . . . . . . . . . . . 4,364,124 ........ X X X ........ ........ X X X ........ ........ X X X ........ 5 2018 . . . . . . . . . . . . 3,844,262 . . . . . . . . . . . . 4,162,139 . . . . . . . . . . . . 4,436,938 . . . . . . . . . . . . 4,571,307 . . . . . . . . . . . . 4,703,513 . . . . . . . . . . . . 4,492,841 Section B - Incurred Health Claims 12 Fed Emp HBPP Year in Which Losses Were Incurred 1. 2. 3. 4. 5. 6. Prior . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Sum of Cumulative Net Amount Paid and Claim Liability, Claim Reserve and Medical Incentive Pool and Bonuses Outstanding at End of Year 1 2 3 4 5 2014 2015 2016 2017 2018 . . . . . . . . . . . . 3,858,823 . . . . . . . . . . . . 3,849,639 . . . . . . . . . . . . 3,847,914 . . . . . . . . . . . . 3,844,262 . . . . . . . . . . . . 3,844,262 . . . . . . . . . . . . 4,323,567 . . . . . . . . . . . . 4,175,764 . . . . . . . . . . . . 4,168,643 . . . . . . . . . . . . 4,165,328 . . . . . . . . . . . . 4,162,139 . . . . . . . . X X X . . . . . . . . . . . . . . . . . . . . 4,590,046 . . . . . . . . . . . . 4,452,149 . . . . . . . . . . . . 4,442,841 . . . . . . . . . . . . 4,436,938 . . . . . . . . X X X . . . . . . . . . . . . . . . . X X X . . . . . . . . . . . . . . . . . . . . 4,714,013 . . . . . . . . . . . . 4,577,596 . . . . . . . . . . . . 4,571,712 . . . . . . . . X X X . . . . . . . . . . . . . . . . X X X . . . . . . . . . . . . . . . . X X X . . . . . . . . . . . . . . . . . . . . 4,827,181 . . . . . . . . . . . . 4,709,656 . . . . . . . . X X X . . . . . . . . . . . . . . . . X X X . . . . . . . . . . . . . . . . X X X . . . . . . . . . . . . . . . . X X X . . . . . . . . . . . . . . . . . . . . 5,011,727 Section C - Incurred Year Health Claims and Claims Adjustment Expense Ratio 1 Years in Which Premiums were Earned and Claims were Incurred 1. 2. 3. 4. 5. 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Premiums Earned . . . . . . . . 4,574,900 . . . . . . . . 4,836,413 . . . . . . . . 4,941,748 . . . . . . . . 4,838,359 . . . . . . . . 5,262,147 2 3 4 Claims Payments . . . . . . . . 4,162,139 . . . . . . . . 4,436,938 . . . . . . . . 4,571,307 . . . . . . . . 4,703,513 . . . . . . . . 4,492,841 Claim Adjustment Expense Payments . . . . . . . . . . . 170,666 . . . . . . . . . . . 152,013 . . . . . . . . . . . 107,984 . . . . . . . . . . . 109,846 . . . . . . . . . . . . 96,651 (Col. 3/2) Percent . . . . . . . . . . . . . . 4.100 . . . . . . . . . . . . . . 3.426 . . . . . . . . . . . . . . 2.362 . . . . . . . . . . . . . . 2.335 . . . . . . . . . . . . . . 2.151 5 Claim and Claim Adjustment Expense Payments (Col. 2 + 3) . . . . . . . . 4,332,805 . . . . . . . . 4,588,951 . . . . . . . . 4,679,291 . . . . . . . . 4,813,359 . . . . . . . . 4,589,492 6 7 8 (Col. 5/1) Percent . . . . . . . . . . . . 94.708 . . . . . . . . . . . . 94.883 . . . . . . . . . . . . 94.689 . . . . . . . . . . . . 99.483 . . . . . . . . . . . . 87.217 Claims Unpaid Unpaid Claims Adjustment Expenses ..................... ..................... ..................... ..................... 405 . . . . . . . . . . . . . . 6,143 . . . . . . . . . . . 518,886 . . . . . . . . . . . . . . . . . . 14 ................ 208 17,511 ................ ............ 9 Total Claims and Claims Adjustment Expense Incurred (Col. 5 + 7 + 8) . . . . . . . . 4,332,805 . . . . . . . . 4,588,951 . . . . . . . . 4,679,710 . . . . . . . . 4,819,710 . . . . . . . . 5,125,889 10 (Col. 9/1) Percent . . . . . . . . . . . . 94.708 . . . . . . . . . . . . 94.883 . . . . . . . . . . . . 94.697 . . . . . . . . . . . . 99.615 . . . . . . . . . . . . 97.411 ANNUAL STATEMENT FOR THE YEAR 2018 OF THE Health Care Service Corporation, a Mutual Legal Reserve Company UNDERWRITING AND INVESTMENT EXHIBIT PART 2C - DEVELOPMENT OF PAID AND INCURRED HEALTH CLAIMS ($000 Omitted) Title XVIII - Medicare Section A - Paid Health Claims Year in Which Losses Were Incurred 1. 2. 3. 4. 5. 6. Cumulative Net Amounts Paid 3 4 2016 2017 . . . . . . . . . . . . . . . . 37,735 . . . . . . . . . . . . . . . . 37,599 . . . . . . . . . . . . . . . . 37,764 . . . . . . . . . . . . . . . . 37,791 . . . . . . . . . . . . . . . 231,064 . . . . . . . . . . . . . . . 309,008 . . . . . . . . . . . . . . . 319,405 . . . . . . . . . . . . . . . 319,875 . . . . . . . . X X X . . . . . . . . . . . . . . . . . . . . . . . 729,537 . . . . . . . . . . . . . . . 836,749 . . . . . . . . . . . . . . . 845,240 . . . . . . . . X X X . . . . . . . . . . . . . . . . X X X . . . . . . . . . . . . . . . . . . . . . . . 879,774 . . . . . . . . . . . . . . . 995,539 . . . . . . . . X X X . . . . . . . . . . . . . . . . X X X . . . . . . . . . . . . . . . . X X X . . . . . . . . . . . . . . . . . . . . 1,228,163 ........ X X X ........ ........ X X X ........ ........ X X X ........ ........ X X X ........ 1 2014 Prior . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 2015 5 2018 37,791 320,623 . . . . . . . . . . . . . . . 847,482 . . . . . . . . . . . . 1,008,418 . . . . . . . . . . . . 1,373,275 . . . . . . . . . . . . 1,113,134 ................ ............... Section B - Incurred Health Claims 12 Title XVIII-Medicare Year in Which Losses Were Incurred 1. 2. 3. 4. 5. 6. Prior . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Sum of Cumulative Net Amount Paid and Claim Liability, Claim Reserve and Medical Incentive Pool and Bonuses Outstanding at End of Year 1 2 3 4 5 2014 2015 2016 2017 2018 . . . . . . . . . . . . . . . . 37,925 . . . . . . . . . . . . . . . . 37,601 . . . . . . . . . . . . . . . . 37,764 . . . . . . . . . . . . . . . . 37,791 . . . . . . . . . . . . . . . . 37,791 . . . . . . . . . . . . . . . 309,211 . . . . . . . . . . . . . . . 316,597 . . . . . . . . . . . . . . . 321,525 . . . . . . . . . . . . . . . 319,875 . . . . . . . . . . . . . . . 320,623 . . . . . . . . X X X . . . . . . . . . . . . . . . . . . . . . . . 896,861 . . . . . . . . . . . . . . . 855,668 . . . . . . . . . . . . . . . 846,599 . . . . . . . . . . . . . . . 847,482 . . . . . . . . X X X . . . . . . . . . . . . . . . . X X X . . . . . . . . . . . . . . . . . . . . 1,086,114 . . . . . . . . . . . . 1,005,803 . . . . . . . . . . . . 1,016,714 . . . . . . . . X X X . . . . . . . . . . . . . . . . X X X . . . . . . . . . . . . . . . . X X X . . . . . . . . . . . . . . . . . . . . 1,501,569 . . . . . . . . . . . . 1,409,199 . . . . . . . . X X X . . . . . . . . . . . . . . . . X X X . . . . . . . . . . . . . . . . X X X . . . . . . . . . . . . . . . . X X X . . . . . . . . . . . . . . . . . . . . 1,333,861 Section C - Incurred Year Health Claims and Claims Adjustment Expense Ratio 1 Years in Which Premiums were Earned and Claims were Incurred 1. 2. 3. 4. 5. 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Premiums Earned . . . . . . . . . . . 319,580 . . . . . . . . . . . 886,194 . . . . . . . . 1,104,235 . . . . . . . . 1,511,143 . . . . . . . . 1,305,258 2 3 4 Claims Payments . . . . . . . . . . . 320,623 . . . . . . . . . . . 847,482 . . . . . . . . 1,008,418 . . . . . . . . 1,373,275 . . . . . . . . 1,113,134 Claim Adjustment Expense Payments . . . . . . . . . . . . 13,537 . . . . . . . . . . . . 53,901 . . . . . . . . . . . 104,360 . . . . . . . . . . . 112,849 . . . . . . . . . . . . 76,663 (Col. 3/2) Percent . . . . . . . . . . . . . . 4.222 . . . . . . . . . . . . . . 6.360 . . . . . . . . . . . . 10.349 . . . . . . . . . . . . . . 8.218 . . . . . . . . . . . . . . 6.887 5 Claim and Claim Adjustment Expense Payments (Col. 2 + 3) . . . . . . . . . . . 334,160 . . . . . . . . . . . 901,383 . . . . . . . . 1,112,778 . . . . . . . . 1,486,124 . . . . . . . . 1,189,797 6 7 8 (Col. 5/1) Percent . . . . . . . . . . . 104.562 . . . . . . . . . . . 101.714 . . . . . . . . . . . 100.774 . . . . . . . . . . . . 98.344 . . . . . . . . . . . . 91.154 Claims Unpaid Unpaid Claims Adjustment Expenses ..................... ..................... ..................... ..................... 8,296 . . . . . . . . . . . . 35,924 . . . . . . . . . . . 220,727 ................ .............. 936 2,972 24,500 .............. ............ 9 Total Claims and Claims Adjustment Expense Incurred (Col. 5 + 7 + 8) . . . . . . . . . . . 334,160 . . . . . . . . . . . 901,383 . . . . . . . . 1,122,010 . . . . . . . . 1,525,020 . . . . . . . . 1,435,024 10 (Col. 9/1) Percent . . . . . . . . . . . 104.562 . . . . . . . . . . . 101.714 . . . . . . . . . . . 101.610 . . . . . . . . . . . 100.918 . . . . . . . . . . . 109.942 ANNUAL STATEMENT FOR THE YEAR 2018 OF THE Health Care Service Corporation, a Mutual Legal Reserve Company UNDERWRITING AND INVESTMENT EXHIBIT PART 2C - DEVELOPMENT OF PAID AND INCURRED HEALTH CLAIMS ($000 Omitted) Title XIX - Medicaid Section A - Paid Health Claims Year in Which Losses Were Incurred 1. 2. 3. 4. 5. 6. Cumulative Net Amounts Paid 3 4 2016 2017 . . . . . . . . . . . . . . . . 46,252 . . . . . . . . . . . . . . . . 46,738 . . . . . . . . . . . . . . . . 46,663 . . . . . . . . . . . . . . . . 46,663 . . . . . . . . . . . . . . . . 81,139 . . . . . . . . . . . . . . . 117,326 . . . . . . . . . . . . . . . 120,939 . . . . . . . . . . . . . . . 121,176 . . . . . . . . X X X . . . . . . . . . . . . . . . . . . . . . . . 580,306 . . . . . . . . . . . . . . . 660,445 . . . . . . . . . . . . . . . 661,422 . . . . . . . . X X X . . . . . . . . . . . . . . . . X X X . . . . . . . . . . . . . . . . . . . . 1,139,990 . . . . . . . . . . . . 1,358,882 . . . . . . . . X X X . . . . . . . . . . . . . . . . X X X . . . . . . . . . . . . . . . . X X X . . . . . . . . . . . . . . . . . . . . 1,644,682 ........ X X X ........ ........ X X X ........ ........ X X X ........ ........ X X X ........ 1 2014 Prior . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 2015 5 2018 46,663 121,856 . . . . . . . . . . . . . . . 663,247 . . . . . . . . . . . . 1,376,140 . . . . . . . . . . . . 1,959,533 . . . . . . . . . . . . 2,410,090 ................ ............... Section B - Incurred Health Claims 12 Title XIX-Medicaid Year in Which Losses Were Incurred 1. 2. 3. 4. 5. 6. Prior . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Sum of Cumulative Net Amount Paid and Claim Liability, Claim Reserve and Medical Incentive Pool and Bonuses Outstanding at End of Year 1 2 3 4 5 2014 2015 2016 2017 2018 . . . . . . . . . . . . . . . . 46,257 . . . . . . . . . . . . . . . . 46,764 . . . . . . . . . . . . . . . . 46,663 . . . . . . . . . . . . . . . . 46,663 . . . . . . . . . . . . . . . . 46,663 . . . . . . . . . . . . . . . 127,346 . . . . . . . . . . . . . . . 119,061 . . . . . . . . . . . . . . . 120,989 . . . . . . . . . . . . . . . 121,176 . . . . . . . . . . . . . . . 121,856 . . . . . . . . X X X . . . . . . . . . . . . . . . . . . . . . . . 675,785 . . . . . . . . . . . . . . . 669,269 . . . . . . . . . . . . . . . 663,424 . . . . . . . . . . . . . . . 663,247 . . . . . . . . X X X . . . . . . . . . . . . . . . . X X X . . . . . . . . . . . . . . . . . . . . 1,369,769 . . . . . . . . . . . . 1,374,241 . . . . . . . . . . . . 1,377,796 . . . . . . . . X X X . . . . . . . . . . . . . . . . X X X . . . . . . . . . . . . . . . . X X X . . . . . . . . . . . . . . . . . . . . 1,986,667 . . . . . . . . . . . . 1,979,185 . . . . . . . . X X X . . . . . . . . . . . . . . . . X X X . . . . . . . . . . . . . . . . X X X . . . . . . . . . . . . . . . . X X X . . . . . . . . . . . . . . . . . . . . 2,751,537 Section C - Incurred Year Health Claims and Claims Adjustment Expense Ratio 1 Years in Which Premiums were Earned and Claims were Incurred 1. 2. 3. 4. 5. 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Premiums Earned . . . . . . . . . . . 142,337 . . . . . . . . . . . 717,484 . . . . . . . . 1,362,910 . . . . . . . . 1,924,450 . . . . . . . . 2,814,588 2 3 4 Claims Payments . . . . . . . . . . . 121,856 . . . . . . . . . . . 663,247 . . . . . . . . 1,376,140 . . . . . . . . 1,959,533 . . . . . . . . 2,410,090 Claim Adjustment Expense Payments . . . . . . . . . . . . . . 9,770 . . . . . . . . . . . . 45,890 . . . . . . . . . . . 153,762 . . . . . . . . . . . 189,531 . . . . . . . . . . . 207,023 (Col. 3/2) Percent . . . . . . . . . . . . . . 8.018 . . . . . . . . . . . . . . 6.919 . . . . . . . . . . . . 11.173 . . . . . . . . . . . . . . 9.672 . . . . . . . . . . . . . . 8.590 5 Claim and Claim Adjustment Expense Payments (Col. 2 + 3) . . . . . . . . . . . 131,626 . . . . . . . . . . . 709,137 . . . . . . . . 1,529,902 . . . . . . . . 2,149,064 . . . . . . . . 2,617,113 6 7 8 (Col. 5/1) Percent . . . . . . . . . . . . 92.475 . . . . . . . . . . . . 98.837 . . . . . . . . . . . 112.253 . . . . . . . . . . . 111.672 . . . . . . . . . . . . 92.984 Claims Unpaid Unpaid Claims Adjustment Expenses ..................... ..................... ..................... ..................... 1,656 . . . . . . . . . . . . 19,652 . . . . . . . . . . . 341,447 ................ .............. 179 2,124 36,608 .............. ............ 9 Total Claims and Claims Adjustment Expense Incurred (Col. 5 + 7 + 8) . . . . . . . . . . . 131,626 . . . . . . . . . . . 709,137 . . . . . . . . 1,531,737 . . . . . . . . 2,170,840 . . . . . . . . 2,995,168 10 (Col. 9/1) Percent . . . . . . . . . . . . 92.475 . . . . . . . . . . . . 98.837 . . . . . . . . . . . 112.387 . . . . . . . . . . . 112.803 . . . . . . . . . . . 106.416 ANNUAL STATEMENT FOR THE YEAR 2018 OF THE Health Care Service Corporation, a Mutual Legal Reserve Company UNDERWRITING AND INVESTMENT EXHIBIT PART 2C - DEVELOPMENT OF PAID AND INCURRED HEALTH CLAIMS ($000 Omitted) Other Section A - Paid Health Claims Year in Which Losses Were Incurred 1. 2. 3. 4. 5. 6. Prior . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 2014 . . . . . . . . . . . . . . . 431,294 . . . . . . . . . . . . . . . 446,053 ........ X X X ........ ........ X X X ........ ........ X X X ........ ........ X X X ........ Cumulative Net Amounts Paid 2 3 4 2015 2016 2017 . . . . . . . . . . . . . . . 431,601 . . . . . . . . . . . . . . . 431,633 . . . . . . . . . . . . . . . 431,749 . . . . . . . . . . . . . . . 508,652 . . . . . . . . . . . . . . . 509,406 . . . . . . . . . . . . . . . 509,521 . . . . . . . . . . . . . . . 463,592 . . . . . . . . . . . . . . . 521,044 . . . . . . . . . . . . . . . 523,543 . . . . . . . . X X X . . . . . . . . . . . . . . . . . . . . . . . 462,521 . . . . . . . . . . . . . . . 525,376 . . . . . . . . X X X . . . . . . . . . . . . . . . . X X X . . . . . . . . . . . . . . . . . . . . . . . 459,264 ........ X X X ........ ........ X X X ........ ........ X X X ........ 5 2018 . . . . . . . . . . . . . . . 431,749 . . . . . . . . . . . . . . . 509,666 . . . . . . . . . . . . . . . 523,638 . . . . . . . . . . . . . . . 527,256 . . . . . . . . . . . . . . . 517,773 . . . . . . . . . . . . . . . 587,919 Section B - Incurred Health Claims Year in Which Losses Were Incurred 12 Other 1. 2. 3. 4. 5. 6. Prior . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Sum of Cumulative Net Amount Paid and Claim Liability, Claim Reserve and Medical Incentive Pool and Bonuses Outstanding at End of Year 1 2 3 4 5 2014 2015 2016 2017 2018 . . . . . . . . . . . . . . . 434,091 . . . . . . . . . . . . . . . 432,125 . . . . . . . . . . . . . . . 431,633 . . . . . . . . . . . . . . . 431,749 . . . . . . . . . . . . . . . 431,749 . . . . . . . . . . . . . . . 544,484 . . . . . . . . . . . . . . . 509,776 . . . . . . . . . . . . . . . 510,043 . . . . . . . . . . . . . . . 509,521 . . . . . . . . . . . . . . . 509,666 . . . . . . . . X X X . . . . . . . . . . . . . . . . . . . . . . . 550,876 . . . . . . . . . . . . . . . 521,867 . . . . . . . . . . . . . . . 524,350 . . . . . . . . . . . . . . . 523,638 . . . . . . . . X X X . . . . . . . . . . . . . . . . X X X . . . . . . . . . . . . . . . . . . . . . . . 552,702 . . . . . . . . . . . . . . . 526,229 . . . . . . . . . . . . . . . 528,111 . . . . . . . . X X X . . . . . . . . . . . . . . . . X X X . . . . . . . . . . . . . . . . X X X . . . . . . . . . . . . . . . . . . . . . . . 538,079 . . . . . . . . . . . . . . . 518,480 . . . . . . . . X X X . . . . . . . . . . . . . . . . X X X . . . . . . . . . . . . . . . . X X X . . . . . . . . . . . . . . . . X X X . . . . . . . . . . . . . . . . . . . . . . . 635,602 Section C - Incurred Year Health Claims and Claims Adjustment Expense Ratio 1 Years in Which Premiums were Earned and Claims were Incurred 1. 2. 3. 4. 5. 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Premiums Earned . . . . . . . . . . . 563,876 . . . . . . . . . . . 599,520 . . . . . . . . . . . 621,308 . . . . . . . . . . . 641,866 . . . . . . . . . . . 812,343 2 3 4 Claims Payments . . . . . . . . . . . 509,666 . . . . . . . . . . . 523,638 . . . . . . . . . . . 527,256 . . . . . . . . . . . 517,773 . . . . . . . . . . . 587,919 Claim Adjustment Expense Payments . . . . . . . . . . . . 21,110 . . . . . . . . . . . . 21,500 . . . . . . . . . . . . 38,585 . . . . . . . . . . . . 38,931 . . . . . . . . . . . . 32,376 (Col. 3/2) Percent . . . . . . . . . . . . . . 4.142 . . . . . . . . . . . . . . 4.106 . . . . . . . . . . . . . . 7.318 . . . . . . . . . . . . . . 7.519 . . . . . . . . . . . . . . 5.507 5 Claim and Claim Adjustment Expense Payments (Col. 2 + 3) . . . . . . . . . . . 530,776 . . . . . . . . . . . 545,138 . . . . . . . . . . . 565,841 . . . . . . . . . . . 556,704 . . . . . . . . . . . 620,295 6 (Col. 5/1) Percent . . . . . . . . . . . . 94.130 . . . . . . . . . . . . 90.929 . . . . . . . . . . . . 91.073 . . . . . . . . . . . . 86.732 . . . . . . . . . . . . 76.359 7 8 9 Total Claims and Claims Unpaid Claims Adjustment Claims Adjustment Expense Incurred Unpaid Expenses (Col. 5 + 7 + 8) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 530,776 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 545,138 . . . . . . . . . . . . . . . . 855 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 566,696 . . . . . . . . . . . . . . . . 707 . . . . . . . . . . . . . . . . . . 14 . . . . . . . . . . . 557,425 . . . . . . . . . . . . 47,683 . . . . . . . . . . . . . . 3,227 . . . . . . . . . . . 671,205 10 (Col. 9/1) Percent . . . . . . . . . . . . 94.130 . . . . . . . . . . . . 90.929 . . . . . . . . . . . . 91.210 . . . . . . . . . . . . 86.844 . . . . . . . . . . . . 82.626 ANNUAL STATEMENT FOR THE YEAR 2018 OF THE Health Care Service Corporation, a Mutual Legal Reserve Company UNDERWRITING AND INVESTMENT EXHIBIT PART 2D - AGGREGATE RESERVE FOR ACCIDENT AND HEALTH CONTRACTS ONLY 1 1. 2. 3. 4. 2 Comprehensive (Hospital & Total Medical) 1,204,991,663 . . . . 52,861,973 . . . 256,701,000 . . . . . . . . . . . . . . . . . . 13 Unearned premium reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Additional policy reserves (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Reserve for future contingent benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Reserve for rate credits or experience rating refunds (including $...............0 for investment income) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 238,744,500 5. Aggregate write-ins for other policy reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43,792,492 6. TOTALS (Gross) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,744,229,655 7. Reinsurance ceded . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,559,000 8. TOTALS (Net) (Page 3, Line 4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,718,670,655 9. Present value of amounts not yet due on claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10. Reserve for future contingent benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11. Aggregate write-ins for other claim reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12. TOTALS (Gross) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13. Reinsurance ceded . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14. TOTALS (Net) (Page 3, Line 7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . DETAILS OF WRITE-INS 0501. ACA RISK ADJUSTMENT LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43,792,492 0502. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0503. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0598. Summary of remaining write-ins for Line 5 from overflow page . . . . . . . . . . . . . . . . . . . . . . 0599. TOTALS (Lines 0501 through 0503 plus 0598) (Line 5 above) . . . . . . . . 43,792,492 1101. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1102. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1103. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1198. Summary of remaining write-ins for Line 11 from overflow page . . . . . . . . . . . . . . . . . . . . 1199. TOTALS (Lines 1101 through 1103 plus 1198) (Line 11 above) . . . . . . . . . . . . . . . . . . . . (a) Includes $.....222,690,000 premium deficiency reserve. 3 4 5 6 7 8 Title XVIII Medicare . . . . . . 2,396,737 Title XIX Medicaid .................. 9 Medicare Supplement . . . 153,541,511 Dental Only Vision Only .................. .................. Federal Employees Health Benefits Plan . . . 984,622,314 .................. .................. .................. .................. .................. . . . 222,690,000 . . . . .................. .................. .................. .................. .................. .................. .................. . . . 238,744,500 . . . . . . . . . . . . . . . . . . .................. .................. .................. .................. .................. .................. 43,792,492 . . . 335,398,965 .................. .................. .................. .................. .................. .................. .................. . . . 153,541,511 . . . . . . . . . . . . . . . . . . .................. . . . 984,622,314 . . . . . . 2,396,737 . . . 222,690,000 . . . . .................. .................. .................. .................. .................. . . . 335,398,965 . . . 153,541,511 . . . . . . . . . . . . . . . . . . .................. . . . 984,622,314 . . . . . . 2,396,737 . . . 222,690,000 . . . . .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .... .... 43,792,492 .................. .................. .... .... Other 11,569,128 34,011,000 45,580,128 25,559,000 20,021,128 .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .................. .... 43,792,492 ANNUAL STATEMENT FOR THE YEAR 2018 OF THE Health Care Service Corporation, a Mutual Legal Reserve Company UNDERWRITING AND INVESTMENT EXHIBIT PART 3 - ANALYSIS OF EXPENSES 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. Claim Adjustment Expenses 1 2 Cost Other Claim Containment Adjustment Expenses Expenses . . . . . . . 16,670,414 . . . . . . . 27,192,173 . . . . . 613,132,576 . . . . . 622,035,869 3 4 General Administrative Expenses . . . . . . . 78,056,368 . . . 1,115,550,271 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 923,673,274 . . . . . . . 20,112,499 . . . . . . . . . (170,487) . . . . . . . 13,492,398 Rent ($......86,953,143 for occupancy of own building) . . . . . . . . . . . . . . . . . Salaries, wages and other benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Commissions (less $...............0 ceded plus $...............0 assumed) . . Legal fees and expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Certifications and accreditation fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Auditing, actuarial and other consulting services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,966 Traveling expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,113,324 Marketing and advertising . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 211,855 Postage, express and telephone . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,566,239 Printing and office supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,335,680 Occupancy, depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 996,265 Cost or depreciation of EDP equipment and software . . . . . . . . . . . . . . . . . . . . . . . . . 51,618,642 Outsourced services including EDP, claims, and other services . . . . . . . . . . . 149,984,292 Boards, bureaus and association fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 963,045 Insurance, except on real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Collection and bank service charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Group service and administration fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 453,773,878 Reimbursements by uninsured plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (268,853,822) Reimbursements from fiscal intermediaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Real estate expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Real estate taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Taxes, licenses and fees: 23.1 State and local insurance taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23.2 State premium taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23.3 Regulatory authority licenses and fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23.4 Payroll taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23.5 Other (excluding federal income and real estate taxes) . . . . . . . . . . . . . . . . . . . . . . . . . . 24. Investment expenses not included elsewhere . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25. Aggregate write-ins for expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 169,770 26. TOTAL Expenses Incurred (Lines 1 to 25) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,060,811,626 27. Less expenses unpaid December 31, current year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28. Add expenses unpaid December 31, prior year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29. Amounts receivable relating to uninsured plans, prior year . . . . . . . . . . . . . . . . . 666,718,865 30. Amounts receivable relating to uninsured plans, current year . . . . . . . . . . . . . . 798,912,277 31. TOTAL Expenses Paid (Lines 26 minus 27 plus 28 minus 29 plus 30) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,193,005,039 DETAILS OF WRITE-INS 2501. SUNDRY EXPENSES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 169,770 2502. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2503. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2598. Summary of remaining write-ins for Line 25 from overflow page . . . . . . . . . . . . . . . . . . . . . . . . . . 2599. TOTALS (Lines 2501 through 2503 plus 2598) (Line 25 above) . . . . . . . . . . . . . . . . 169,770 (a) Includes management fees of $...............0 to affiliates and $...............0 to non-affiliates. 14 5 Investment Expenses . . . . . . . . . . . 168,499 . . . . . . . . 2,794,242 Total 122,087,454 . . . 2,353,512,959 . . . . . . . . . . . . . . . . . . . . . . . . . . 923,673,274 . . . . . . . . . . . . . . . . . . . 0 . . . . . . . 33,434,409 ..... ..................... .................... ..................... .................... 1,766 . . . . . . . . 8,527,728 . . . . . . . . . . . 174,230 . . . . . . . 74,650,734 . . . . . . . 54,236,729 . . . . . . . . . . . . . . 1,759 . . . . . . . 98,906,012 . . . . . . . 54,559,695 . . . . . 469,715,029 . . . . . . . . . . . 434,307 ........ 3,588,590 . . . . . . . 36,604,897 . . . . . . . 41,853,080 . . . . . . . . 2,402,242 . . . . . . . 95,842,964 . . . . . . . 40,980,702 . . . . . . . 17,547,224 . . . . . . . 23,243,164 . . . . . 706,824,286 . . . . . . . 21,704,437 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,926,571 . . . . . . . . . . . . . . 9,040 . . . . . . . 10,754,748 . . . . . 253,370,611 . . . . . . . . . . . . . . . . . 21 . (1,440,934,514) . (1,441,821,286) ..................... ........ 60,074 . . . . . . . . . . . . . . . . 384 . . . . . . . . . . . . 34,138 . . . . . . . . . . . . 24,679 ................... 0 ................... 0 . . . . . . . . . . . . 84,026 . . . . . . . . . . . 318,194 . . . . . . . . . . . . 21,217 . . . . . . . 53,306,022 ..................... .................... ..................... .................... ..................... . . . . . . . 32,158,268 . . . . . . . . . . . . . . . . . . . . . ..................... ................... ..................... .................... .............. 0 ............ 3,607,322 . . . . . . . 42,239,548 . . . . . . . 86,653,353 ..... 154,440,052 . . . . . . . 40,982,464 117,449,501 129,505,527 . . . 1,326,841,801 . . . . . . . 23,123,005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,926,571 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,763,789 . . . . . . . . . . . . . . . . (21) . . . . . 707,144,488 . . . . . . . (4,251,670) . (3,155,861,292) ....... 21,751,254 ..... ..... . . . . . . . 32,158,268 . . . . . . . 21,751,254 ..................... .................... 286,358,263 . . . . . . . . 9,820,965 . . . . . . . . . . 822,151 . . . . . . . . . . . . . . . . . . . . . . . . . . 121,318,493 . . . . . . . . . . . . . . . . . . . . . . . . . . 822,819,236 ..................... ..... ..................... 97,004 . . . . . 232,628,648 . . . . . 160,263,000 . . . . . 150,263,000 . . . . . 999,372,397 . . . 1,025,502,824 ..... ..................... ............ ..... 248,759,075 ............ 97,004 ..... ................... 0 286,358,263 . . . . . . . 10,643,115 121,318,493 822,819,236 ..................... ..... ..................... ..... .................... ..................... .................... 137,521,588 . . . 3,099,221,947 . . . 1,829,853,259 . . . 1,934,173,971 . . . 2,342,206,328 . . . 2,759,739,726 ....... 3,621,076,057 ....... 65,065,736 ... 137,521,588 ....... 45,916,623 ..... ... ..... 45,916,623 . . . . . 183,704,984 . . . . . . . 66,921,639 (a)4,459,583,861 . . . . . . . 23,762,971 . . . 2,013,879,230 . . . . . . . 21,907,068 . . . 2,106,344,039 . . . . . . . . . . . . . . . . . . . . . . . . 4,008,297,590 . . . . . . . . . . . . . . . . . . . . . . . . 4,584,154,827 5,127,905,907 183,704,984 ..................... .................... ..................... .................... ..................... .................... ..................... .................... ..................... .................... ..................... .................... ............ 97,004 ..... 137,521,588 ....... 45,916,623 ..... 183,704,984 ANNUAL STATEMENT FOR THE YEAR 2018 OF THE Health Care Service Corporation, a Mutual Legal Reserve Company EXHIBIT OF NET INVESTMENT INCOME 1 Collected During Year (a). . . . . 37,743,129 (a). . . . . . . . . . . . . . . . . . . (a). . . . 271,147,413 (a). . . . . . . . . . . . . . . . . . . (b). . . . . . . . . . . . . . . . . . . (b). . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,168,441 . . . . . . . . . 52,880,946 (c). . . . . . . . . . . . . . . . . . . (d). . . . . 87,852,259 2 Earned During Year . . . . . . . . . 38,518,165 1. U.S. Government bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1 Bonds exempt from U.S. tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ....................... 1.2 Other bonds (unaffiliated) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 284,992,349 1.3 Bonds of affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ....................... 2.1 Preferred stocks (unaffiliated) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ....................... 2.11 Preferred stocks of affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ....................... 2.2 Common stocks (unaffiliated) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,168,441 2.21 Common stocks of affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52,880,946 3. Mortgage loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ....................... 4. Real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87,852,259 5. Contract loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6. Cash, cash equivalents and short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (e). . . . . 11,325,668 . . . . . . . . . 11,088,984 7. Derivative instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (f). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8. Other invested assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,128,209 . . . . . . . . . 15,128,209 9. Aggregate write-ins for investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,217,962 . . . . . . . . . 20,217,962 10. TOTAL gross investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 520,464,027 . . . . . . . 534,847,315 11. Investment expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (g). . . . . 66,921,639 12. Investment taxes, licenses and fees, excluding federal income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (g). . . . . . . . . . . . . . . . . . . 13. Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (h). . . . . 12,835,879 14. Depreciation on real estate and other invested assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (i). . . . . . 32,356,725 15. Aggregate write-ins for deductions from investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16. TOTAL Deductions (Lines 11 through 15) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112,114,243 17. Net Investment income (Line 10 minus Line 16) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 422,733,072 DETAILS OF WRITE-INS 0901. FEP INVESTMENT INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,071,585 . . . . . . . . . 20,071,585 0902. OTHER INTEREST INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 146,377 . . . . . . . . . . . . . 146,377 0903. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0998. Summary of remaining write-ins for Line 9 from overflow page . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0999. TOTALS (Lines 0901 through 0903 plus 0998) (Line 9 above) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,217,962 . . . . . . . . . 20,217,962 1501. AMORTIZATION OF DISCOUNT - BONDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1502. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1503. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1598. Summary of remaining write-ins for Line 15 from overflow page . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1599. TOTALS (Lines 1501 through 1503 plus 1598) (Line 15 above) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (a) Includes $.......8,448,024 accrual of discount less $......42,127,547 amortization of premium and less $......20,781,372 paid for accrued interest on purchases. (b) Includes $...............0 accrual of discount less $...............0 amortization of premium and less $...............0 paid for accrued dividends on purchases. (c) Includes $...............0 accrual of discount less $...............0 amortization of premium and less $...............0 paid for accrued interest on purchases. (d) Includes $......86,953,143 for company's occupancy of its own buildings; and excludes $...............0 interest on encumbrances. (e) Includes $.......1,174,458 accrual of discount less $.......2,275,678 amortization of premium and less $.........170,630 paid for accrued interest on purchases. (f) Includes $...............0 accrual of discount less $...............0 amortization of premium. (g) Includes $...............0 investment expenses and $...............0 investment taxes, licenses and fees, excluding federal income taxes, attributable to segregated and Separate Accounts. (h) Includes $...............0 interest on surplus notes and $...............0 interest on capital notes. (i) Includes $......32,356,725 depreciation on real estate and $...............0 depreciation on other invested assets. EXHIBIT OF CAPITAL GAINS (LOSSES) 1. U.S. Government bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.1 Bonds exempt from U.S. tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.2 Other bonds (unaffiliated) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.3 Bonds of affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.1 Preferred stocks (unaffiliated) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.11 Preferred stocks of affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.2 Common stocks (unaffiliated) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.21 Common stocks of affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3. Mortgage loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4. Real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5. Contract loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6. Cash, cash equivalents and short-term investments . . . . . . . . . . . . . . . 7. Derivative instruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8. Other invested assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9. Aggregate write-ins for capital gains (losses) . . . . . . . . . . . . . . . . . . . . . . . 10. TOTAL Capital gains (losses) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . DETAILS OF WRITE-INS 0901. Release Deferred Gain-Related Party Transaction (Other Invested Assets) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0902. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0903. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0998. Summary of remaining write-ins for Line 9 from overflow page . . 0999. TOTALS (Lines 0901 through 0903 plus 0998) (Line 9 above) . . 1 2 Realized Gain (Loss) on Sales or Maturity . . . . . . . . (8,238,142) Other Realized Adjustments ...................... 3 4 5 Total Realized Change in Capital Gain Change in Unrealized Foreign (Loss) Unrealized Capital Exchange Capital (Columns 1 + 2) Gain (Loss) Gain (Loss) . . . . . . . . (8,238,142) . . . . . . . . . . . . 281,468 . . . . . . . . . . . . . . . . . . . . . . ...................... ...................... ...................... ...... (12,617,237) ........ (4,164,650) ...... (16,781,887) ...................... ...... (47,936,440) ...................... ...................... ...................... ...................... ...................... ...................... ...................... ...................... ...................... ...................... ...................... ...................... ...................... ...................... ...................... ...................... ...................... ........ 87,968,926 . . . . . . . . (3,749,581) ........ (1,788,905) . . . . . (567,043,490) ........ 86,180,021 . . . . . (570,793,071) ..... (189,344,831) . . . . . . . 392,621,791 ...................... ...................... ...................... ...................... ...................... ...................... ...................... ...................... ...................... ...................... ...................... ...................... ...................... ...................... ...................... ...................... ...................... ............ ...................... ...................... ............ (79,052) ...................... (79,052) ................ (139) ...................... (70,772,879) . . . . . . . . . . 3,410,379 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,410,379 . . . . . . . . (3,410,379) . . . . . . . . 66,695,293 . . . . . (572,997,045) . . . . . (506,301,752) . . . . . . . . 81,438,591 ...................... .......... 3,410,379 ...................... ...................... 3,410,379 ...... (3,410,379) ...................... ...................... ...................... ...................... ...................... ...................... .......... ...................... ...................... ...................... ...................... ...................... ...................... ...................... ...................... ...................... ...................... ...................... ...................... ...................... ...................... ...................... ...................... .......... .......... 3,410,379 15 3,410,379 ........ ...................... ........ (3,410,379) ...................... ...................... ANNUAL STATEMENT FOR THE YEAR 2018 OF THE Health Care Service Corporation, a Mutual Legal Reserve Company EXHIBIT OF NONADMITTED ASSETS 3 Change in Total Current Year Total Prior Year Total Nonadmitted Assets Nonadmitted Assets Nonadmitted Assets (Col. 2 - Col. 1) 1. 2. Bonds (Schedule D) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Stocks (Schedule D): 2.1 Preferred stocks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.2 Common stocks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3. Mortgage loans on real estate (Schedule B): 3.1 First liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.2 Other than first liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4. Real estate (Schedule A): 4.1 Properties occupied by the company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.2 Properties held for the production of income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.3 Properties held for sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5. Cash (Schedule E-Part 1), cash equivalents (Schedule E-Part 2) and short-term investments (Schedule DA) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6. Contract loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7. Derivatives (Schedule DB) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8. Other invested assets (Schedule BA) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9. Receivables for securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10. Securities lending reinvested collateral assets (Schedule DL) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11. Aggregate write-ins for invested assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12. Subtotals, cash and invested assets (Lines 1 to 11) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13. Title plants (for Title insurers only) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14. Invested income due and accrued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15. Premium and considerations: 15.1 Uncollected premiums and agents' balances in the course of collection . . . . . . . . . . . . . 15.2 Deferred premiums, agents' balances and installments booked but deferred and not yet due . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.3 Accrued retrospective premiums and contracts subject to redetermination . . . . . . . . . . 16. Reinsurance: 16.1 Amounts recoverable from reinsurers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16.2 Funds held by or deposited with reinsured companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16.3 Other amounts receivable under reinsurance contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17. Amounts receivable relating to uninsured plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.1 Current federal and foreign income tax recoverable and interest thereon . . . . . . . . . . . . . . . . . . . . . . 18.2 Net deferred tax asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19. Guaranty funds receivable or on deposit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20. Electronic data processing equipment and software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21. Furniture and equipment, including health care delivery assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22. Net adjustment in assets and liabilities due to foreign exchange rates . . . . . . . . . . . . . . . . . . . . . . . . . 23. Receivables from parent, subsidiaries and affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24. Health care and other amounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25. Aggregate write-ins for other than invested assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26. TOTAL Assets excluding Separate Accounts, Segregated Accounts and Protected Cell Accounts (Lines 12 to 25) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27. From Separate Accounts, Segregated Accounts and Protected Cell Accounts . . . . . . . . . . . . . . . 28. TOTAL (Lines 26 and 27) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . DETAILS OF WRITE-INS 1101. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1102. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1103. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1198. Summary of remaining write-ins for Line 11 from overflow page . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1199. TOTALS (Lines 1101 through 1103 plus 1198) (Line 11 above) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2501. PREPAID PENSION ASSET AND INTANGIBLE ASSET . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2502. PREPAID ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2503. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2598. Summary of remaining write-ins for Line 25 from overflow page . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2599. TOTALS (Lines 2501 through 2503 plus 2598) (Line 25 above) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 1 2 ....................... ....................... ....................... ....................... ....................... ....................... ....................... ....................... ....................... ....................... ....................... ....................... ....................... ....................... ....................... ....................... ....................... ....................... ....................... ....................... ....................... ....................... ....................... ....................... ....................... ....................... ....................... ....................... ....................... ....................... ....................... ....................... ....................... ....................... ....................... ....................... ....................... ....................... ....................... ....................... ....................... ....................... ....................... ....................... ....................... ....................... ....................... ....................... ....................... ....................... ....................... ....................... ....................... ....................... ....................... ....................... ....................... ....................... ....................... ....................... 4,100,000 ....................... ........ ....................... ....................... ....................... ....................... ....................... ....................... ....................... ....................... ....................... .......... ....... 544,388,241 ....................... ....... 507,834,308 ....................... 74,858,840 112,411,318 ....... 590,530,495 ....................... ..... 2,197,909,792 ....................... 79,764,605 126,028,212 ......... (4,100,000) 46,142,254 ....................... ..... 1,690,075,484 ....................... 4,905,765 13,616,895 ......... ......... .......... ....... ....... ......... ....................... ....................... ....................... 9,726,939 . . . . . 1,083,743,440 . . . . . . . 309,723,899 .......... 8,428,962 . . . . . 1,057,899,254 . . . . . . . 293,209,470 ........ .......... ..... 2,646,786,984 ....................... ..... 2,646,786,984 ..... 4,353,770,790 ....................... ..... 4,353,770,790 (1,297,977) (25,844,187) . . . . . . . (16,514,428) ....... ..... 1,706,983,806 ....................... ..... 1,706,983,806 ....................... ....................... ....................... ....................... ....................... ....................... ....................... ....................... ....................... ....................... ....................... ....................... ....................... ....................... ....................... ....... ....... 137,750,544 171,973,355 ....... ....... 113,563,440 179,646,030 ....... (24,187,104) 7,672,676 .......... ....................... ....................... ....................... ....................... ....................... ....................... ....... 309,723,899 ....... 293,209,470 ....... (16,514,428) ANNUAL STATEMENT FOR THE YEAR 2018 OF THE Health Care Service Corporation, a Mutual Legal Reserve Company EXHIBIT 1 - ENROLLMENT BY PRODUCT TYPE FOR HEALTH BUSINESS ONLY Source of Enrollment 1. Health Maintenance Organizations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. Provider Service Organizations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3. Preferred Provider Organizations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4. Point of Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5. Indemnity Only . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6. Aggregate write-ins for other lines of business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7. TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . DETAILS OF WRITE-INS 0601. Dental . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0602. Stop Loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0603. Long Term Care . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0698. Summary of remaining write-ins for Line 6 from overflow page . . . . . . . . . . . . . . . . . 0699. TOTALS (Lines 0601 through 0603 plus 0698) (Line 6 above) . . . . . . . . . . . . . . . . . 1 Prior Year . . . . . . 1,085,910 Total Members at End of 2 3 4 First Second Third Quarter Quarter Quarter . . . . . . 1,061,080 . . . . . . 1,037,958 . . . . . . 1,028,362 6 5 Current Year Current Member Year Months . . . . . . 1,023,093 . . . . 12,505,569 .................. .................. .................. 3,476,600 . . . . . . . . . . 52,811 . . . . . . . . 646,335 . . . . . . 3,175,418 . . . . . . 8,437,074 . . . . . . 3,524,231 . . . . . . 3,510,717 . . . . . . 3,524,138 . . . . . . 3,590,125 . . . . ........ 766,685 1,842,317 . . . . . . . . . . . 1,314 . . . . . . . . 565,102 . . . . . . 3,175,418 ........ ...... . . . . . . 2,033,253 . . . . . . 2,062,740 . . . . . . 2,052,410 . . . . . . 2,065,950 . . . . 24,613,465 1,487 . . . . . . . . 589,100 . . . . . . 3,440,979 41,749,652 ...... .................. .................. .................. 42,423,481 . . . . . . . . . . 88,785 . . . . . . . . . . 83,658 . . . . . . . . . . 79,537 . . . . . . . . . . 75,680 . . . . . . 1,002,900 ........ 648,233 ........ 646,563 ........ 646,901 ........ 644,242 . . . . . . 7,769,308 . . . . . . 3,440,979 . . . . . . 3,499,326 . . . . . . 3,475,063 . . . . . . 3,484,071 . . . . 41,749,652 . . . . . . 8,763,308 . . . . . . 8,778,222 . . . . . . 8,754,001 . . . . . . 8,817,211 . . . 105,450,910 817,139 ........... ........ 816,881 1,467 . . . . . . . . 618,238 . . . . . . 3,499,326 ........... ........ 834,608 1,446 . . . . . . . . 586,599 . . . . . . 3,475,063 ........... ........ 859,417 1,423 . . . . . . . . 557,281 . . . . . . 3,484,071 ........... . . . . . . 9,980,576 . . . . . . . . . . 17,481 . . . . . . 7,138,130 .... 17 ANNUAL STATEMENT FOR THE YEAR 2018 OF THE Health Care Service Corporation, a Mutual Legal Reserve Company Notes to Financial Statements 1. Summary of Significant Accounting Policies and Going Concern A. Accounting Practices The financial statements of Health Care Service Corporation, a Mutual Legal Reserve Company (the Corporation) are presented in conformity with accounting practices and procedures of the National Association of Insurance Commissioners as prescribed or permitted by the Illinois Department of Insurance. The Illinois Department of Insurance recognizes only statutory practices prescribed or permitted by the State of Illinois for determining and reporting the financial condition and results of operations of an insurance company, and for determining its solvency under Illinois Insurance Law. The National Association of Insurance Commissioners’ (NAIC) Accounting Practices and Procedures Manual, (SAP), has been adopted as a component of prescribed or permitted practices by the State of Illinois. For both 2018 and 2017, the Corporation did not have any prescribed or permitted practice exceptions. SSAP # NET INCOME (1) The Corporation state basis (Pg. 4, Line 32, Columns 2 & 3) XXX (2) State Prescribed Practices that are an increase/(decrease) NAIC SAP: (3) State Permitted Practices that are an increase/(decrease) NAIC SAP: (4) NAIC SAP (1-2-3=4) XXX SURPLUS (5) The Corporation state basis (Page 3, Line 33, Columns 3 & 4) XXX (6) State Prescribed Practices that are an increase/(decrease) NAIC SAP: (7) State Permitted Practices that are an increase/(decrease) NAIC SAP: (8) NAIC SAP (5-6-7=8) XXX F/S Page # F/S Line # XXX XXX XXX XXX XXX XXX XXX XXX 2018 2017 $ 4,114,719,998 $ 4,114,719,998 $ 1,262,591,222 $ 1,262,591,222 $ 16,859,339,073 $ 16,859,339,073 $ 12,048,965,692 $ 12,048,965,692 B. Use of Estimates in the Preparation of the Financial Statements The preparation of financial statements in conformity with SAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities. It also requires disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the period. Actual results could differ from those estimates. C. Accounting Policies Investments Investments are stated at values prescribed or permitted by the NAIC as follows: (1) Cash and cash equivalents, including money market mutual funds, are investments with original maturities of three months or less. Cash and cash equivalents are principally stated at amortized cost, which approximates fair value. All money market mutual funds are stated at fair value. Short term investments are those investments that, when purchased, have a maturity between three months and one year and are stated at amortized cost, which approximates fair value. (2) Bonds not backed by other loans are stated at amortized cost using the interest rate method, except for those bonds with a NAIC 3-6 designation, which are carried at the lower of amortized cost or fair value. All NAIC Securities Valuation Office (SVO) identified bond exchange traded funds (ETF) held by the Corporation are reported at fair value. Fair values are calculated based on the market prices published by the NAIC SVO. If there is no market price published by the SVO, the fair value is calculated based on market prices provided by the custodian. If there are no market prices published by the SVO or provided by the custodian, the fair value is calculated by the Corporation in conjunction with its investment advisors. (3) Common stocks of nonaffiliates and bond and stock mutual funds are stated at fair value. Fair values are based on valuations as prescribed by the SVO. If there is no market price published by the SVO, the fair value is calculated based on market prices provided by third-party pricing services. (4) Preferred stocks. Not Applicable. (5) Mortgage loans. Not Applicable. (6) Loan-backed securities are carried at amortized cost, except for those loan backed securities with a NAIC 3-6 designation, which are carried at the lower of amortized cost or fair value. Certain residential 26 ANNUAL STATEMENT FOR THE YEAR 2018 OF THE Health Care Service Corporation, a Mutual Legal Reserve Company Notes to Financial Statements mortgage backed securities and commercial mortgage backed securities are stated at the carrying value method prescribed in Statement of Statutory Accounting Principles (SSAP) No. 43R, Loan-Backed and Structured Securities. Prepayment assumptions for loan-backed securities are obtained from Bloomberg L.P., and the retrospective adjustment method is used. Once a loan-backed security is other-than temporarily impaired (OTTI) the security is prospectively accreted over its remaining life to the undiscounted estimate of principal recovery. (7) Investments in the Corporation’s unconsolidated insurance subsidiaries are reported in the accompanying balance sheets as common stocks based on their underlying statutory capital and surplus. Investments in the Corporation’s unconsolidated noninsurance subsidiaries are reported in the accompanying balance sheets based on their underlying GAAP equity, with certain valuation adjustments. Changes in investments in unconsolidated subsidiaries are recorded as a direct addition or reduction to policyholders’ surplus. Investments in the Corporation’s limited liability companies (LLC) and limited partnerships (LP) subsidiaries are reported as other invested assets. Dividends received from unconsolidated subsidiaries are recorded as investment income in the statements of revenues and expenses. (8) Investments in LLC and LP are initially recorded at cost on the funding date. Carrying value of these investments will be equal to cost plus subsequent capital contributions to the investee, plus the Corporation’s proportional share of audited U.S. generally accepted accounting principles (GAAP) basis earnings or losses of the investee after the date of acquisition adjusted for any distributions received. (9) Derivatives. Not Applicable Other Investment Accounting Policies: The net unrealized capital gains (losses) on investments carried at fair value are reported in policyholders’ surplus and are not recognized in income, unless there is deemed to be an OTTI decline in value, in which case the loss is charged to income. Realized gains and losses are determined on a specific lot identification basis. Security transactions are accounted for on a trade-date basis, with any unsettled transactions recorded as due to or due from investment broker and included in receivables for securities and payable for securities in the balance sheets. Impairments are recognized for investments where the decline in fair value is determined to be other-thantemporary. Investments in bonds not backed by other loans, common stocks, or preferred stocks are written down to fair value as the new cost basis. Investments in bonds backed by other loans are written down to the present value of cash flows expected to be collected, discounted at the loan-backed securities’ effective yield immediately preceding the OTTI determination. In all cases, the amount of the write-down is accounted for as a realized loss in the Corporation’s statements of revenues and expenses. In addition, unrealized losses would be considered realized for interest-related declines in fair value should the Corporation lack the intent and ability to hold these securities. Other Accounting Policies (10) Premium Deficiency Reserves (PDR) The Corporation assesses the underwriting gains of contracts providing insurance coverage to members, further examining segments of business where current operating results and forecasts indicate probable future losses. The Corporation establishes a PDR in current operations to the extent that the sum of expected future claims and incurred costs, including claims adjustment expenses and administration costs, exceed related future premiums. For purposes of determining premium deficiencies, contracts are grouped in a manner consistent with the method in which the Corporation manages, prices and markets such contracts. As of December 31, 2018, and 2017, the Corporation had liabilities of $222,690,000 and $369,851,000, respectively, related to PDRs. The PDRs established in 2018 related to Medicaid while in 2017 the PDRs were mainly related to Medicaid, but also related to Medicare Advantage and standalone Medicare Part D business. The PDR was established for policies the Corporation was committed to for 2019 and 2018, and was driven by a higher anticipated risk and associated cost of claims and expenses than were anticipated in the premium rates. The Corporation did not consider anticipated investment income when calculating PDRs. 26.1 ANNUAL STATEMENT FOR THE YEAR 2018 OF THE Health Care Service Corporation, a Mutual Legal Reserve Company Notes to Financial Statements (11) Claims Unpaid, Unpaid Claims Adjustment Liability, and Accident and Health Policy Reserves Claims unpaid and unpaid claims adjustment liabilities on insured policies represent management’s best estimate of the ultimate net cost to process and pay all reported and unreported claims incurred through December 31. The Corporation does not discount unpaid claims and claims adjustment liabilities. Although such amounts are based on estimates, management believes that the reserves are reasonable and adequate. These estimates are continually reviewed, and, as adjustments to these liabilities become necessary, such adjustments are reflected in current operations. Changes in assumptions for such items as medical cost, as well as changes in actual experience, could cause these estimates to change in the near term. Reserves for unearned premium income (including deferred Federal Employee Program (FEP) premiums disclosed in the FEP accounting policy); liabilities for experience rating refunds; PDRs; risk adjustment payables, and the accrual for customer rebates, pursuant to the Public Health Service Act, are shown as accident and health policy reserves on the balance sheets. An estimate of future claim payments is not recorded for uninsured plans. (12) Changes in Capitalization Policy. The Corporation has not made any significant changes to its capitalization policy from the prior period. (13) Pharmacy Rebate Receivables The Corporation contracts mainly with Prime Therapeutics, LLC (Prime), an affiliated Pharmacy Benefit Manager (PBM), for the administration of pharmaceutical drug claims. Pharmacy rebate receivables are based on the PBM’s estimate of the actual amounts due to the Corporation and an estimated amount calculated by the Corporation. The Corporation’s estimated amount is based on the claims processed by the PBM in the prior quarter multiplied by a contractual rate based on utilization. Pharmacy rebate receivables are included in amounts receivable related to self-funded groups and health care receivables in the balance sheets depending on the type of business. Premium Revenue Insurance premiums are recorded on the accrual basis of accounting and are recognized as income during the period of coverage. Uninsured plans The Corporation charges uninsured plans an administrative fee, which is usually calculated on a per subscriber basis, for processing claims and administering the plan. Administrative fee revenue is shown as a reduction of claims adjustment expenses and general and administrative expenses in the statements of revenues and expenses, while the claims processed, and associated claims reimbursements received from uninsured plans are excluded from the statements of revenues and expenses. The type of uninsured plan contracts for which the Corporation receives an administrative fee for providing services is Administrative Services Contracts (ASC). ASC includes business where the Corporation pays benefits on behalf of employers using the Corporation’s check stock. Health Care Receivables Health care receivables, generally representing amounts due from contracted medical providers, are recorded on an incurred basis. Consistent with prescribed accounting practices, these health care receivables have been included in the Corporation’s balance sheets. The portion of these receivables related to insured plans is reported as health care receivables, while the portion related to uninsured plans is reported in the Corporation’s balance sheets as amounts receivable relating to uninsured plans. Electronic Data Processing Equipment and Software The Corporation capitalizes the cost of electronic data processing equipment, including operating system software. At December 31, 2018 and 2017, operating system software classified as electronic data processing equipment had an admitted asset balance of $44,172,216 and $14,619,637, respectively. Electronic data processing equipment is depreciated on a straight-line basis over the lesser of three years or its remaining useful life. Nonoperating system software is depreciated on a straight-line basis over the lesser of five years or its remaining useful life, with the remaining undepreciated balance being nonadmitted. Depreciation expense for electronic data processing equipment, nonoperating system software, and operating system software was $64,260,088 and $66,422,477 for 2018 and 2017, 26.2 ANNUAL STATEMENT FOR THE YEAR 2018 OF THE Health Care Service Corporation, a Mutual Legal Reserve Company Notes to Financial Statements respectively. Accumulated depreciation was $729,623,363 and $665,409,042 at year end 2018 and 2017, respectively. The Corporation capitalizes internally developed software which is all nonoperating system software. Development costs for internally developed software are capitalized if the total capitalizable internal and external development costs are expected to exceed $2,500,000 per project. Once operational, internally developed software is depreciated on a straight-line basis over the lesser of five years or its remaining useful life, with the remaining undepreciated balance being nonadmitted. At December 31, 2018 and 2017, capitalized internally developed software was $52,474,431 and $79,764,605, respectively, with the net carrying amounts being nonadmitted. The related depreciation expense was $23,821,951 and $24,705,104 for 2018 and 2017, respectively, and is reported as general and administrative expenses in the statements of revenues and expenses. Furniture, Equipment, and Leasehold Improvements The Corporation capitalizes the cost of furniture and equipment and depreciates these assets on a straightline basis generally over a five-year life. The capitalization threshold for furniture and equipment is $5,000 per item. Depreciation expense was $6,522,246 and $6,314,853 for 2018 and 2017, respectively. The Corporation also capitalizes the cost of leasehold improvements and amortizes that cost over the shorter of the life of the lease or the economic useful life of the leasehold improvements. Amortization expense for leasehold improvements was $7,201,076 and $6,522,338 for 2018 and 2017, respectively. The remaining net carrying amounts of furniture, equipment, and leasehold improvements are nonadmitted. Real Estate The Corporation’s real estate primarily consists of its headquarters buildings and corporate data center. All the real estate is categorized as properties occupied by the company and is carried at depreciated cost. There are no mortgages. The buildings and building components are being depreciated over their useful lives, which range from 5 to 40 years. Under statutory accounting practices, insurance companies are required to calculate imputed rental income and rental expense for owner-occupied real estate. The method for calculating imputed rental income and expense is based on estimated current market value per square foot multiplied by rentable square feet. These imputed amounts are reported as both investment income and general and administrative expenses in the statements of revenues and expenses as if the Corporation had paid itself rent of $86,953,143 and $86,946,357 in 2018 and 2017, respectively. Federal Employee Program (FEP) The FEP is a national contract between Blue Cross Blue Shield plans (participating plans) and the U.S. Office of Personnel Management under which participating plans provide health coverage to U.S. government employees. The contract is underwritten on an insured basis by the participating plans. The Corporation provides insurance coverage for FEP members in Illinois, Montana, New Mexico, Oklahoma, and Texas. The Blue Cross Blue Shield Association (BCBSA) acts as the agent for the various participating plans. In its capacity as agent, BCBSA coordinates billing, claims processing, and investment activity, and reports the financial results to each participating plan. The Corporation reports revenues, expenses, assets, and liabilities related to its share of the contract in its financial statements. Deferred FEP premiums, which are reported in the accompanying balance sheets as accident and health policy reserves, represent funds being held in a letter of credit account maintained specifically for FEP benefits. As claim payments clear its bank account, the Corporation reimburses itself by drawing funds from the FEP letter of credit account. Pension and Postretirement Benefits The Corporation measures the postretirement benefits liability using the accumulated postretirement benefit obligation (APBO) and measures the pension liability using the projected benefit obligation (PBO). The valuation for both pension and postretirement benefit obligations includes non-vested individuals, including not-yet eligible employees. In addition, the difference between the APBO and the fair value of plan assets for the postretirement benefits plan, and the PBO and the fair value of plan assets for the pension plans, are recorded as an asset or liability, with the corresponding change recorded as a direct addition or reduction to policyholders’ surplus. 26.3 ANNUAL STATEMENT FOR THE YEAR 2018 OF THE Health Care Service Corporation, a Mutual Legal Reserve Company Notes to Financial Statements Income Taxes Deferred income taxes are provided for differences between the financial statement and the tax bases of assets and liabilities. Changes in deferred tax assets and liabilities are recorded as an addition or reduction to policyholders’ surplus. Deferred taxes do not include amounts for state taxes. The application of SSAP No. 101—Income Taxes (SSAP No. 101) requires a company to evaluate the recoverability of deferred tax assets and to establish a valuation allowance if necessary to reduce the deferred tax asset to an amount that is more likely than not to be realized. The admissibility of deferred tax assets is limited to (1) the amount of federal income taxes paid in prior years that can be recovered through loss carrybacks for existing temporary differences that reverse within three years of the balance sheet date; plus (2) the lesser of the remaining gross deferred tax assets expected to be realized within three years of the balance sheet date, or an amount that is no greater than the applicable percentage of policyholders’ surplus as required to be shown on the statutory balance sheet of the reporting entity for the current reporting period’s statement filed with the domiciliary state commissioner adjusted to exclude any net deferred tax assets, electronic data processing equipment and operating system software, and any net positive goodwill; plus (3) the amount of remaining gross deferred tax assets that can be offset against existing gross deferred tax liabilities. The remaining deferred tax assets are nonadmitted. Income Tax Accounting Implications of the Tax Cuts and Jobs Act On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the Tax Act). The Tax Act made broad and complex changes to the U.S. tax code, including, but not limited to, (1) reducing the U.S. federal corporate tax rate from 35 percent to 21 percent; (2) eliminating the corporate alternative minimum tax (AMT) and changing how existing AMT credits can be realized; (3) creating a new limitation on deductible interest expense; and (4) changing rules related to uses and limitations of net operating loss carryforwards created in tax years beginning after December 31, 2017. The Corporation was required to recognize the effect of the tax law changes in the period of enactment. In February 2018, the National Association of Insurance Commissioners adopted INT 18-01: Updated Tax Estimates under the Tax Cuts and Jobs Act (INT 18-01), which allows reporting entities to record provisional amounts during a measurement period not to extend beyond December 31, 2018, the date the interpretation will be automatically nullified. The Corporation applied the guidance in INT 18-01 when accounting for the enactment-date effects of the Tax Act in 2017 and throughout 2018. During 2018 the Corporation completed its accounting for all of the enactment-date income tax effects of the Tax Act. See Footnote 9 for additional information. Accounting for the Risk Adjustment Program of the Affordable Care Act The permanent risk adjustment program transfers funds from qualified individual and small group insurance plans with lower risk to those respective plans with higher risk in the same risk pool within a state. Based on the risk of the Corporation’s qualified plan members compared to the risk of members of other qualified plans in comparable markets, the Corporation estimates its risk adjustment receivable or payable and reports the year-to-date impact as an adjustment to premium income. The risk adjustment receivable and payable is reported in premiums and considerations receivable and aggregate health policy reserves, respectively. The process for deriving receivables and payables related to the risk adjustment program requires management to make estimates and assumptions, which could change in the future as more information becomes known. This could affect the amounts reported and disclosed. The Corporation will perform a final reconciliation with HHS of the current year risk adjustment programs in the subsequent year. Estimated receivables for the risk adjustment are to be recorded on the balance sheets as they are due from the federal government program. The impact of risk sharing provisions of the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 (ACA), on admitted assets, liabilities, revenue, and expenses for the current year is outlined in Note 24E. Medicare Standalone Part D and Medicare Advantage Prescription Drug The Corporation offers standalone Medicare Part D prescription drug insurance coverage and Medicare Advantage and Prescription Drug (MAPD) under contracts with CMS. These contracts consist of an insurance component where the insurance company assumes the risk for individuals in exchange for a fixed premium that is paid in part by CMS and in part by the covered individual. These amounts are reported as insurance premiums and claims. After the end of each calendar year, for the standalone Medicare Part D and the Medicare Part D portion of the MAPD contract (Part D), the net gain or loss on each Part D contract is calculated and a settlement amount is determined. Based upon the agreed upon formula, a portion of any gains in excess of the target are returned to CMS and are reported as a reduction to premium 26.4 ANNUAL STATEMENT FOR THE YEAR 2018 OF THE Health Care Service Corporation, a Mutual Legal Reserve Company Notes to Financial Statements revenues. Any losses outside the agreed upon target result in an additional premium payment from CMS to the Corporation and are reported as an increase to premium revenues. CMS also pays 80% of all Part D net claim costs in excess of a predetermined threshold per person, per year. Amounts received from CMS are reported as deposits and are not included in the statements of revenues and expenses. Instead, they are reported as uninsured payments pursuant to SSAP No. 47, Uninsured Plans which pertains to accounting for uninsured business. The claim amounts over the threshold are reported as receivables due from CMS, and payments received from CMS are reported as collection of the receivable. Lastly, for certain low-income members, CMS is responsible for part or all of the members’ cost sharing amounts, such as deductibles. This program is known as Low Income Member Cost share. CMS pays the Corporation each month an amount that is expected to cover these cost sharing amounts. The Corporation pays these claims on behalf of CMS and then settles with CMS based on actual experience after the end of the contract year. Revenues and claims under this arrangement are reported as deposits, and, as such, are excluded from the statements of revenues and expenses. In addition, CMS implemented the Coverage GAP Discount Program, in which the drug manufacturers provide a 50% discount on brand drugs to Part D members in the coverage gap. CMS pays monthly cash advances to the Corporation and then on a quarterly basis, after the manufacturers have reimbursed the Corporation for the actual cost of the 50% discount, nets the actual cost against the next advance. Revenues and claims under this arrangement are reported as deposits and, as such, are excluded from the statements of revenues and expenses. ACA Cost Sharing Subsidies CMS paid the Corporation a portion of the health care costs for low-income individual members that CMS is responsible for, in accordance with the ACA, for the 2014 through 2017 benefit years. The Corporation accounted for the Cost Sharing Reduction (CSR) as a deposit in the accompanying balance sheets. The Corporation did not recognize premium revenues or benefit expenses for the CSRs. The Corporation and CMS performed a reconciliation in 2018 and settlement in 2019 following the 2017 benefit year. In October 2017, an executive order to discontinue federal funding of these CSR benefits was issued. ACA Advance Premium Tax Credit (APTC) CMS pays some portion of all of the member’s monthly premiums to the Corporation on the member’s behalf for qualifying low-income members who purchased Qualified Health Plans. The Corporation accounts for these APTCs as premium revenues, which are recognized as income during the period of coverage. The Corporation recognized $3,649,214,670 and $2,575,021,358 of APTCs for the year ended December 31, 2018 and 2017. Under ACA, these members have a three-month grace period to pay their premiums. During the first month of the grace period, insurers are entitled to keep the APTC and must pay for the member’s claims. D. Going Concern Based upon its evaluation of relevant conditions and events, management did not have substantial doubt about the Corporation’s ability to continue as a going concern as of December 31, 2018. 2. Accounting Changes and Correction of Errors SSAP No. 35R, Guaranty Fund and Other Assessments, was revised effective January 1, 2017. The standard requires discounting of guaranty fund assessments, and related assets, resulting from the insolvencies of insurers that wrote long-term care contracts. In addition, the standard allows accrual of the premium tax credit asset based on in-force short-term health contract renewals in instances when retrospective-premiumbased assessments are imposed on short-term health contracts for the insolvencies of insurers that wrote longterm care contracts. The Corporation adopted this guidance effective January 1, 2017. The adoption of this new guidance did not have a material impact on the Corporation’s financial position or operating results. See Note 14B. Assessments SSAP No. 26R, Bonds, and Issue Paper No. 156, Bonds, were revised effective December 31, 2017. The revisions remove SVO-identified instruments from the definition of “bond” and provide separate accounting guidance for these instruments. The revisions also incorporate the definition of “security” within the definition of “bond,” and incorporate definitions for “non-bond, fixed income instruments.” The adoption of this new guidance did not have a material impact on the Corporation’s financial position or operating results. SSAP No. 2R, Cash, Cash Equivalents, Drafts, and Short-Term Investments and Issue Paper No. 155, Classification of Money Market Mutual Funds as Cash Equivalents, were revised, effective December 31, 2017. These revisions reclassify money market mutual funds from short-term investments to cash equivalents and require that all money market mutual funds be reported at fair value (allowing net asset value 26.5 ANNUAL STATEMENT FOR THE YEAR 2018 OF THE Health Care Service Corporation, a Mutual Legal Reserve Company Notes to Financial Statements as a practical expedient), with any unrealized gains and losses recorded as a charge to surplus. The adoption of this new guidance did not have a material impact on the Corporation’s financial position or operating results. SSAP No. 55, Unpaid Claims, Losses and Loss Adjustment Expenses, was revised, effective December 31, 2017. The revision added additional disclosures concerning significant changes in methodologies and assumptions used in calculating the liability for unpaid claims, losses and loss adjustment expenses, including reasons for the change and the effects on the financial statements for the most recent reporting period presented. The Corporation adopted this guidance effective December 31, 2017. The adoption of this new guidance did not have an impact on the Corporation’s financial position or operating results. SSAP No. 107, Risk-Sharing Provisions of the Affordable Care Act, effective for the 2018 benefit plan year. Beginning in 2018, calculations for risk adjustments and distributions under ACA included the high-cost risk pool aspects of the ACA program. The high-cost risk pooling adds a reinsurance-like element to the risk adjustment program, as the high-cost risk pools exclude a percentage of costs above a certain threshold, determined by the U.S. Department of Health and Human Services (HHS), in the calculation of enrollee-level plan liability risk scores. There are two national high-cost risk pools, one for individuals and one for small groups. For 2018, HHS established two new high-cost risk pool parameters: a $1.0 million threshold and a coinsurance rate of 60%. In the calculation of each issuer's annual risk adjustment transfer amount, the issuer will be reimbursed for a portion of actual enrollee-level claims above the threshold. The accounting for individual and small group high-cost risk pools shall be consistent with the rest of the ACA risk adjustment program. High-cost risk pool assessment payable by the reporting entity shall be accounted for as a decrease to written premium subject to redetermination; while high-cost risk pool distributions shall be accounted for as an increase to written premium subject to redetermination. Note, risk assessments and distributions shall be reported on a net basis. The adoption of this new guidance did not have a material impact on the Corporation’s financial position or operating results as of December 31, 2018. 3. Business Combinations and Goodwill A. Statutory Purchase Method Not Applicable. B. Statutory Merger Not Applicable. C. Assumption Reinsurance Effective May 31, 2014, the Corporation completed transactions with Lovelace Health System, Inc. and Lovelace Insurance Corporation (together, d/b/a Lovelace Health Plan) to acquire certain assets, including fully insured commercial individual and group policies, administrative service contracts and its Medicare Advantage contract, which collectively covered approximately 90,000 members. The Corporation paid $221,409,083 for the business, which was all considered goodwill. Goodwill amortization for this transaction was $22,140,908 in 2018 and 2017. The goodwill is being amortized over ten years to operations. This transaction was treated as assumption reinsurance in the financial statements. Effective July 31, 2013, the Corporation completed an asset purchase agreement with Blue Cross Blue Shield of Montana (BCBSMT) for the insurance and ASC operations of BCBSMT. BCBSMT was a health insurer and third-party administrator with approximately 246,000 members at the close of the transaction. The Corporation paid $35,929,000 for the business, resulting in goodwill of $56,771,175. Goodwill amortization for this transaction was $9,461,863 in 2018 and 2017. The goodwill is being amortized over six years to operations. This transaction was treated as assumption reinsurance in the financial statements. D. Impairment Loss The Corporation did not recognize an impairment loss on the transactions described above. 4. Discontinued Operations Not Applicable. 26.6 ANNUAL STATEMENT FOR THE YEAR 2018 OF THE Health Care Service Corporation, a Mutual Legal Reserve Company Notes to Financial Statements 5. Investments A. Mortgage Loans, including Mezzanine Real Estate Loans Not Applicable. B. Debt Restructuring Not Applicable. C. Reverse Mortgages Not Applicable. D. Loan-Backed Securities (1) Prepayment assumptions for loan-backed securities were obtained from Bloomberg L.P. twelve-month constant prepayment rates, twelve-month public securities association standard prepayment model (PSA) speeds, and twelve-month asset-backed securities (ABS) rates were used for single-class mortgage-backed securities (MBS), multi-class MBS, and ABS, respectively. (2) The Corporation recognized $2,661,091 during the third and fourth quarters of 2018 in other-thantemporary impairments (OTTIs) on loan-backed securities as detailed in the following table of which $155,659 is classified as intent to sell and $2,505,432 is classified as inability or lack of intent to retain the investment in the security for a period of time sufficient to recover the amortized cost basis. The Corporation recognized no OTTIs in the first and second quarters of 2018, or in 2017. 1 2 Amortized Cost Basis Before Other-than-Temporary Impairment Other-thanRecognized in Loss Temporary Impairment OTTI recognized 3rd Quarter a. Intent to Sell b. Inability or lack of intent to retain the investment in the security for a period of time sufficient to recover the amortized cost basis Total 3rd Quarter c. OTTI recognized 4th Quarter d. Intent to Sell e. f. Inability or lack of intent to retain the investment in the security for a period of time sufficient to recover the amortized cost basis Total 4th Quarter g. Annual Aggregate Total $ 5,692,489 $ $ - 5,692,489 $ - $ $ $ $ 155,659 - 155,659 - 3 Fair Value (1-2) $ $ $ $ 5,536,830 - 5,536,830 - $ 8,137,673 $ 2,505,432 $ 5,632,241 $ 8,137,673 $ 2,505,432 $ 5,632,241 $ 2,661,091 (3) The Corporation recognized the following OTTI on loan-backed securities in 2018, and there were no OTTIs in 2017. (1) (2) (3) Book/Adjusted Carrying Value Amortized Cost Present Value Before Currrent of Projected CUSIP Period OTTI Cash Flows 12668WAD9 $ 5,692,489 $ 5,536,830 41284LAA2 8,137,673 5,632,241 Total xxx xxx 26.7 (4) Recognized Other-ThanTemporary Impairment $ 155,659 2,505,432 $ 2,661,091 (5) (6) (7) Amortized Date of Cost After Financial Other-Than- Fair Value Statement Temporary at time of Where Impairment OTTI Reported $ 5,536,830 $ 5,536,830 9/30/2018 5,632,241 5,632,241 12/31/2018 xxx xxx xxx ANNUAL STATEMENT FOR THE YEAR 2018 OF THE Health Care Service Corporation, a Mutual Legal Reserve Company Notes to Financial Statements (4) All securities with an unrealized loss (fair value is less than cost or amortized cost) for which an OTTI has not been recognized in earnings as a realized loss (including securities with a recognized OTTI for non-interest related declines when a non-recognized interest related impairment remains), segregated by the amount of time the securities have been in an unrealized loss position, are as follows: a. The aggregate amount of unrealized losses: 1. 2. Less than 12 months $ 12 Months or Longer $ 14,991,059 25,273,046 1. 2. Less than 12 months $ 1,033,650,748 12 Months or Longer $ 995,076,551 b. The aggregate related fair value of securities with unrealized losses: (5) The Corporation believes that all unrealized losses on individual securities are the result of normal price fluctuations due to market conditions and are not an indication of OTTI. Market conditions include interest rate fluctuations, credit quality, supply, and demand. This determination is made in conjunction with impairment criteria prescribed by NAIC standards. E. Dollar Repurchase Agreements and/or Securities Lending Transactions (1) For repurchase agreements, the Corporation requires securities with both the highest rating from a Nationally Recognized Statistical Rating Organization and a minimum market value of 102% of the cash surrendered to be maintained as collateral under the agreement. The securities received as collateral are retained by the seller in a segregated account and identified as subject to the repurchase agreement as required by applicable laws. (2-7) Not Applicable. F. Repurchase Agreements Transactions Accounted for as Secured Borrowing Not Applicable. G. Reverse Repurchase Agreements Transactions Accounted for as Secured Borrowing Not Applicable. H. Repurchase Agreements Transactions Accounted for as a Sale Not Applicable. I. Reverse Repurchase Agreements Transactions Accounted for as a Sale Not Applicable. J. Real Estate (1-5) Not Applicable. K. Low-Income Housing Tax Credits (LIHTC) Not Applicable. 26.8 ANNUAL STATEMENT FOR THE YEAR 2018 OF THE Health Care Service Corporation, a Mutual Legal Reserve Company Notes to Financial Statements L. Restricted Assets (1) Restricted Assets (Including Pledged) a. b. c. d. e. f. g. h. i. j. k. l. m. Restricted Asset Category Subject to contractual obligation for which liability is not shown 2 Total Gross (Admitted & Nonadmited) Restricted from Current Year Total Gross (Admitted & Nonadmited) Restricted From Prior Year $ Collateral held under security lending agreements Subject to repurchase agreements Subject to reverse repurchase agreements Subject to dollar repurchase agreements Subject to dollar reverse repurchase agreements Placed under option contracts Letter stock or securities restricted as to sale - excluding FHLB capital stock FHLB capital stock On deposit with states On deposit with other regulatory bodies Pledged as collateral to FHLB (including assets backing funding agreements) Pledged as collateral not captured in other categories n. Other restricted assets1 o. Total Restricted Assets 1 1 - - 4 5 Increase/ (Decrease) (1 minus 2) Total Current Year Nonadmited Restricted Total Current Year Admitted Restricted (1 minus 4) $ - - - - - - - - - - - - - - - - - - - - - - - - 18,766,000 6,746,835 - 33,842,338 6,879,981 - (15,076,338) (133,146) - - 18,766,000 6,746,835 - 0.06% 0.02% - 0.07% 0.03% - 861,152,622 1,092,059,904 (230,907,282) - 861,152,622 2.93% 3.22% - - - - - - - 615,064,386 392,471,406 222,592,980 - 615,064,386 2.09% 2.30% - $ 1,501,729,843 5.11% 5.62% $ 1,525,253,629 $ (23,523,786) $ - $ $ 6 7 Percentage Gross Percentage (Admitted & Admitted Nonadmited) Restricted to Restricted to Total Admitted Total Assets Assets (a) (b) - $ 1,501,729,843 $ 3 Related to FHLB borrowing arrangement (see note 11.B.) (2) Detail of Assets Pledged as Collateral Not Captured in Other Categories Not Applicable. (3) Detail of Other Restricted Assets (Contracts that Share Similar Characteristics, Such as Reinsurance and Derivatives, Are Reported in the Aggregate) Description of Assets Assets held in restricted accounts in excess of 1 FHLB collateral pledge requirement Total (a) 1 1 2 Total Gross (Admitted & Nonadmited) Restricted from Current Year Total Gross (Admitted & Nonadmited) Restricted from Prior Year 615,064,386 615,064,386 392,471,406 392,471,406 Related to FHLB borrowing arrangement (see note 11.B.) (4) Collateral Received Not Applicable. M. Working Capital Finance Investments Not Applicable. N. Offsetting and Netting of Assets and Liabilities Not Applicable. O. Structured Notes Not Applicable. 26.9 3 Increase/ (Decrease) (1 minus 2) 222,592,980 222,592,980 4 5 6 Total Current Year Admitted Restricted Gross (Admitted & Nonadmited) Restricted to Total Assets Admitted Restricted to Total Admitted Assets 2.09% 2.09% 2.30% 2.30% 615,064,386 615,064,386 ANNUAL STATEMENT FOR THE YEAR 2018 OF THE Health Care Service Corporation, a Mutual Legal Reserve Company Notes to Financial Statements P. 5GI* Securities Number of 5* Securities Investment Current Year Prior Year (1) Bonds – AC 1 (2) Bonds – FV 1 (3) LB&SS - AC (4) LB&SS - FV (5) Preferred Stock - AC (6) Preferred Stock - FV Total (1+2+3+4+5+6) 2 AC – Amortized Cost FV – Fair Value LB - Loan-backed SS – Structured Securities - Aggregate BACV Current Year Prior Year $ 1,273,647 $ 1,604,002 $ 2,877,649 $ - Aggregate Fair Value Current Year Prior Year $ 1,277,067 $ 1,604,002 $ 2,881,069 $ - Q. Short Sales Not Applicable. R. Prepayment Penalty and Acceleration Fees 2018 General Account (1) Number of CUSIPs 139 (2) Aggregate Amount of Investment Income $ 3,200,676 These prepayment penalties and acceleration fees are related to calls on bonds in which the Corporation had invested. 6. Joint Ventures, Partnerships and LLCs A. The Corporation has no investments in joint ventures, partnerships or LLCs that exceed 10% of its admitted assets. B. The Corporation did not recognize any impairment in its investments in joint ventures, partnerships and LLC companies in 2018. 7. Investment Income A. All investment income due and accrued was included in policyholders’ surplus at December 31, 2018 and 2017. B. Not applicable. 8. Derivative Instruments Not applicable. 26.10 ANNUAL STATEMENT FOR THE YEAR 2018 OF THE Health Care Service Corporation, a Mutual Legal Reserve Company Notes to Financial Statements 9. Income Taxes A. SSAP No. 101 Paragraph 22 Disclosure (1) The components of the net deferred tax asset/(liability) at December 31, 2018 are as follows: Gross Deferred Tax Assets Statutory Valuation Allowance Adjustments Adjusted Gross Deferred Tax Assets (1a - 1b) Deferred Tax Assets Nonadmitted Subtotal Net Admitted Deferred Tax Asset (1c - 1d) Deferred Tax Liabilities Net Admitted Deferred Tax Asset/(Net Deferred Tax Liability) (1e - 1f) (1) 12/31/2018 (2) Ordinary Capital (3) (Col. 1+2) Total $ 3,072,621,967 $ (230,230,949) 2,842,391,018 (507,834,308) 2,334,556,710 (119,869,949) 21,176,661 $ 3,093,798,628 (230,230,949) 21,176,661 2,863,567,679 (507,834,308) 21,176,661 2,355,733,371 (59,543,287) (179,413,236) $ 2,214,686,761 $ (38,366,626) $ 2,176,320,135 The components of the net deferred tax asset/(liability) at December 31, 2017 are as follows: Gross Deferred Tax Assets Statutory Valuation Allowance Adjustments Adjusted Gross Deferred Tax Assets (1a - 1b) Deferred Tax Assets Nonadmitted Subtotal Net Admitted Deferred Tax Asset (1c - 1d) Deferred Tax Liabilities Net Admitted Deferred Tax Asset/(Net Deferred Tax Liability) (1e - 1f) (4) 12/31/2017 (5) Ordinary Capital $ 4,986,665,267 $ 21,280,905 $ 5,007,946,172 (1,012,861,621) (16,276,308) (1,029,137,929) 3,973,803,646 5,004,597 3,978,808,243 (2,197,909,792) (2,197,909,792) 1,775,893,854 5,004,597 1,780,898,451 (107,786,058) (125,191,388) (232,977,446) $ 1,668,107,796 $ (120,186,791) $ 1,547,921,005 (7) (Col.1-4) Ordinary Gross Deferred Tax Assets Statutory Valuation Allowance Adjustments Adjusted Gross Deferred Tax Assets (1a - 1b) Deferred Tax Assets Nonadmitted Subtotal Net Admitted Deferred Tax Asset (1c - 1d) Deferred Tax Liabilities Net Admitted Deferred Tax Asset/(Net Deferred Tax Liability) (1e - 1f) (6) (Col. 4+5) Total Change During 2018 (8) (Col.2-5) Capital $ (1,914,043,300) $ 782,630,672 (1,131,412,628) 1,690,075,484 558,662,856 (12,083,891) $ 546,578,965 $ 26.11 (9) (Col.7+8) Total (104,244) $ (1,914,147,544) 16,276,308 798,906,980 16,172,064 (1,115,240,564) 1,690,075,484 16,172,064 574,834,920 65,648,101 53,564,210 81,820,165 $ 628,399,130 ANNUAL STATEMENT FOR THE YEAR 2018 OF THE Health Care Service Corporation, a Mutual Legal Reserve Company Notes to Financial Statements (2) Admission Calculation Components SSAP No. 101 12/31/2018 (2) (1) Ordinary Admission Calculation Components SSAP No. 101 (a) Federal Income Taxes Paid in Prior Years Recoverable Through Loss Carrybacks $ $ (b) Adjusted Gross Deferred Tax Assets Expected To Be Realized (Excluding The Amount Of Deferred Tax Assets From 2(a) Above) After Application of 2,175,682,364 the Threshold Limitation. (The Lesser of 2(b)1 and 2(b)2 Below) 1. Adjusted Gross Deferred Tax Assets Expected to be Realized Following the Balance Sheet Date 2,488,073,586 2. Adjusted Gross Deferred Tax Assets Allowed per Limitation Threshold XXX (c) Adjusted Gross Deferred Tax Assets (Excluding The Amount Of Deferred Tax Assets From 2(a) and 2(b) above) Offset by Gross Deferred Tax Liabilities 158,874,346 (d) Deferred Tax Assets Admitted as the result of $ 2,334,556,710 $ application of SSAP No. 101 Total (2(a)+2(b)+2(c)) Capital 637,771 $ - 637,771 2,175,682,364 1,232,145 2,489,305,731 XXX 2,175,682,364 20,538,890 179,413,236 21,176,661 $ 2,355,733,371 (4) 12/31/2017 (5) Ordinary Capital Admission Calculation Components SSAP No. 101 (a) Federal Income Taxes Paid in Prior Years Recoverable Through Loss Carrybacks $ $ (b) Adjusted Gross Deferred Tax Assets Expected To Be Realized (Excluding The Amount Of Deferred Tax Assets From 2(a) Above) After Application of 1,547,921,005 the Threshold Limitation. (The Lesser of 2(b)1 and 2(b)2 Below) 1. Adjusted Gross Deferred Tax Assets Expected to be Realized Following the Balance Sheet Date 3,270,204,320 2. Adjusted Gross Deferred Tax Assets Allowed per Limitation Threshold XXX (c) Adjusted Gross Deferred Tax Assets (Excluding The Amount Of Deferred Tax Assets From 2(a) and 2(b) above) Offset by Gross Deferred Tax Liabilities 227,972,849 (d) Deferred Tax Assets Admitted as the result of $ 1,775,893,854 $ application of SSAP No. 101 Total (2(a)+2(b)+2(c)) 26.12 (3) (Col. 1+2) Total - (6) (Col. 4+5) Total $ - - 1,547,921,005 - 3,270,204,320 XXX 5,004,597 1,547,921,005 232,977,446 5,004,597 $ 1,780,898,451 ANNUAL STATEMENT FOR THE YEAR 2018 OF THE Health Care Service Corporation, a Mutual Legal Reserve Company Notes to Financial Statements Change During 2018 (8) (Col.2-5) Capital (7) (Col.1-4) Ordinary Admission Calculation Components SSAP No. 101 (a) Federal Income Taxes Paid in Prior Years Recoverable Through Loss Carrybacks $ $ (b) Adjusted Gross Deferred Tax Assets Expected To Be Realized (Excluding The Amount Of Deferred Tax Assets From 2(a) Above) After Application of 627,761,359 the Threshold Limitation. (The Lesser of 2(b)1 and 2(b)2 Below) 1. Adjusted Gross Deferred Tax Assets Expected to be Realized Following the Balance Sheet Date (782,130,734) 2. Adjusted Gross Deferred Tax Assets Allowed per Limitation Threshold XXX (c) Adjusted Gross Deferred Tax Assets (Excluding The Amount Of Deferred Tax Assets From 2(a) and 2(b) above) Offset by Gross Deferred Tax Liabilities (69,098,503) (d) Deferred Tax Assets Admitted as the result of application of SSAP No. 101 Total (2(a)+2(b)+2(c)) $ 558,662,856 $ (9) (Col.7+8) Total 637,771 $ - 637,771 627,761,359 1,232,145 (780,898,589) XXX 627,761,359 15,534,293 (53,564,210) 16,172,064 $ 574,834,920 (3) The following table provides the authorized control level risk-based capital ratio percentage and the amount of adjusted policyholders’ surplus, excluding deferred tax assets, used to determine the recovery period and threshold limitation amounts under SSAP No. 101 paragraphs 11.b.i and 11.b.ii as of December 31: 2018 (a) Ratio Percentage Used To Determine Recovery Period And Threshold Limitation Amount (b) Amount Of Adjusted Capital And Surplus Used To Determine Recovery Period And Threshold Limitation in 2(b)2 Above $ 2017 1118% 14,683,018,938 872% $ 10,501,044,688 (4) Impact of Tax Planning Strategies 12/31/2018 12/31/2017 2018 Change (1) (2) (3) (4) (5) (6) Ordinary Capital Ordinary Capital (Col 1-3) Ordinary (Col 2-4) Capital (a) Determination of Adjusted Gross Deferred Tax Assets and Net Admitted Deferred Tax Assets, By Tax Character As a Percentage. 1. Adjusted Gross DTAs Amount From Note 9A1(c) 2. Percentage Of Adjusted Gross DTAs By Tax Character Attributable To The Impact Of Tax Planning Strategies $ 2,842,391,018 $ 0.00% 3. Net Admitted Adjusted Gross DTAs Amount From Note 9A1(e) $ 2,334,556,710 4. Percentage Of Net Admitted Adjusted Gross DTAs By Tax Character Admitted Because Of The Impact Of Tax Planning Strategies 0.00% $ 21,176,661 $ 3,973,803,646 0.00% 0.00% 21,176,661 $ 1,775,893,854 0.00% 0.00% $ $ 5,004,597 $ (1,131,412,628) 0.00% 0.00% 5,004,597 0.00% (b) Does the Corporation's tax-planning strategies include the use of reinsurance? Yes 26.13 $ 558,662,856 0.00% No X $ 16,172,064 0.00% $ 16,172,064 0.00% ANNUAL STATEMENT FOR THE YEAR 2018 OF THE Health Care Service Corporation, a Mutual Legal Reserve Company Notes to Financial Statements B. SSAP No 101 Paragraph 23 Disclosure At December 31, 2018 and 2017, the Corporation had no unrecognized deferred tax liabilities. C. SSAP No. 101 Paragraph 24 Disclosure Current income taxes incurred consist of the following major components: 1. Current Income Tax (1) a. b. c. d. e. f. g. (2) 12/31/2018 Federal $ (1,700,626,509) Foreign Subtotal (1,700,626,509) Federal income tax on net capital gains Utilization of capital loss carry-forwards Other Federal and foreign income taxes incurred $ (1,700,626,509) 12/31/2017 $ 466,921,697 466,921,697 (11,566,735) $ 455,354,962 (3) Col (1-2) Change $ (2,167,548,206) (2,167,548,206) 11,566,735 $ (2,155,981,471) The tax effects of the change in temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are as follows: Note s 9C 02 - 9C 04 2. Deferred Tax Assets: (a) Ordinary: (1) Discounting of unpaid losses (2) Unearned premium reserve (3) Policyholder reserves (4) Investments (5) Deferred acquisition costs (6) Policyholder dividends accrual (7) Fixed assets (8) Compensation and benefits accrual (9) Pension accrual (10) Receivables - nonadmitted (11) Net operating loss carryforward (12) Tax credit carry-forward (13) AMT credit (14) Other (including items <5% of total ordinary tax assets) (15) Contingent Liabilities (16) Salvage and Subrogation Recoverable (17) Benefit Plan AML (OCI) (18) Intangible assets (99) Subtotal (b) Statutory valuation allowance adjustment (c) Nonadmitted (d) Admitted ordinary deferred tax assets (2a99 - 2b - 2c) (e) Capital: (1) Investments (2) Net capital loss carry-forward (3) Real estate (4) Other (including items <5% of total capital tax assets) (99) Subtotal (f) Statutory valuation allowance adjustment (g) Nonadmitted (h) Admitted capital deferred tax assets (2e99 - 2f - 2g) (i) Admitted deferred tax assets (2d + 2h) 3. Deferred Tax Liabilities: (a) Ordinary: (1) Investments (2) Fixed assets (3) Deferred and uncollected premium (4) Policyholder reserves (5) Other (including items <5% of total ordinary tax liabilities) (6) Pension (99) Subtotal (b) Capital: (1) Investments (2) Real estate (3) Other (including items <5% of total capital tax liabilties) (99) Subtotal (c) Deferred tax liabilities (3a99 + 3b99) 4. Net deferred tax assets/liabilities (2i - 3c) $ $ $ $ $ $ $ $ $ (1) (2) 12/31/2018 12/31/2017 61,797,725 90,332,649 76,009,220 189,835,273 30,641,641 1,901,987,765 60,113,624 189,347,962 317,383,600 94,516,612 60,655,896 3,072,621,967 (230,230,949) (507,834,308) 2,334,556,710 $ 21,176,661 21,176,661 21,176,661 2,355,733,371 $ $ $ $ $ $ $ 83,737,677 136,977,821 73,812,327 195,098,269 26,767,462 3,745,830,796 69,753,631 180,265,857 328,596,764 88,035,771 57,788,892 4,986,665,267 (1,012,861,621) (2,197,909,792) 1,775,893,854 $ 21,280,905 21,280,905 (16,276,308) 5,004,597 1,780,898,451 $ $ $ $ $ (21,939,952) (46,645,172) 2,196,893 (5,262,996) 3,874,179 (1,843,843,031) (9,640,007) 9,082,105 (11,213,164) 6,480,841 2,867,004 (1,914,043,300) 782,630,672 1,690,075,484 558,662,856 $ $ (104,244) (104,244) 16,276,308 16,172,064 574,834,920 $ (11,659,936) (108,210,013) (119,869,949) $ $ (11,884,381) (95,901,677) (107,786,058) $ 224,445 (12,308,336) (12,083,891) (59,543,287) $ (59,543,287) $ (179,413,236) $ (125,191,388) $ (125,191,388) $ (232,977,446) $ 65,648,101 65,648,101 53,564,210 2,176,320,135 26.14 $ $ $ $ (3) Col. (1 - 2) Change $ $ $ $ 1,547,921,005 $ $ 628,399,130 ANNUAL STATEMENT FOR THE YEAR 2018 OF THE Health Care Service Corporation, a Mutual Legal Reserve Company Notes to Financial Statements Income Tax Accounting Implications of the Tax Cuts and Jobs Act At December 31, 2017, the Corporation had not completed its accounting for all of the enactment-date income tax effects of the Tax Act and made reasonable estimates of the effects on its existing deferred tax balances. Certain deferred tax assets and liabilities were remeasured based on the rates at which they are expected to reverse in the future, which was generally 21%. The provisional amount recorded at December 31, 2017 related to the deferred tax balance was $3,700,000,000. During 2018 the Corporation completed its accounting for all of the enactment-date income tax effects of the Tax Act and made no material adjustments to its provisional amounts. The Corporation has elected in accordance with INT 18-03, Additional Elements under the Tax Cuts and Jobs Act, to recognize its AMT credit as a deferred tax asset. In January 2019, the Internal Revenue Service ("IRS") announced that certain AMT credit refunds for taxable years beginning after December 31, 2017 will not be subject to sequestration under the Balanced Budget and Emergency Deficit Control Act of 1985, as amended. As of December 31, 2018 the Corporation has reduced the AMT credit carryforward by a valuation allowance of $104,000,000 for sequestration. The Corporation has recognized as a federal current income tax benefit $1,694,000,000 in AMT credits during the year, net of sequestration of $112,000,000. The Corporation will reverse the financial impact of sequestration in the first quarter of 2019, the period of the IRS announcement. The change in net deferred income taxes is comprised of the following: 12/31/2018 Total of adjusted gross deferred tax assets, including valuation allowance Total of all deferred tax liabilities Net deferred tax asset Less: Change in unrealized capital gains/losses & benefit plan AML Change in deferred tax asset recorded in surplus $ $ 2,863,567,679 $ (179,413,236) 2,684,154,443 $ Col. (1 - 2) Change 12/31/2017 3,978,808,243 $ (232,977,446) 3,745,830,797 $ (1,115,240,564) 53,564,210 (1,061,676,354) $ (72,586,231) (1,134,262,585) D. SSAP No. 101 Paragraph 25 Disclosure The provision for federal income taxes incurred is different from that which would be obtained by applying the statutory federal income tax rate to income before income taxes. The significant items causing this difference for 2018 are as follows: Provision Computed at Statutory Rate Special Deduction Change in Valuation Allowance Budgetary Sequestration Nondeductible §162(m)(6) Expense Nondeductible Health Insurer Fee Other Total $ $ Federal Income Taxes Incurred Change in Net Deferred Income Taxes Total Statutory Income Taxes $ Effective Tax Rate Amount Perce ntage 506,959,633 21.0 % (686,865,414) (28.4) (798,906,980) (33.1) 111,996,294 4.6 30,205,441 1.3 126,951,438 5.3 143,295,664 5.9 (566,363,924) (23.4) % (1,700,626,509) 1,134,262,585 (70.4) 47.0 (566,363,924) (23.4) % E. SSAP No. 101 Paragraph 26 Disclosure (1) At December 31, 2018, the Corporation had $891,000,000 of net operating loss carryforwards, and $31,000,000 of general business tax credits which expire in 2020 and later. (2) The amount of federal income taxes incurred in the current year and the preceding two years, which are available for recoupment in the event of future net losses are: 2018 2017 2016 Total $ $ 1,507,930 1,507,930 (3) The Corporation has not made any protective tax deposits under IRC §6603 of which it reasonably expects to recover in a subsequent period. F. SSAP No. 101 Paragraph 28 Disclosure 26.15 ANNUAL STATEMENT FOR THE YEAR 2018 OF THE Health Care Service Corporation, a Mutual Legal Reserve Company Notes to Financial Statements The Corporation files a consolidated federal income tax return with the following subsidiaries: Academic HealthPlans, Inc. (AHP) Blue Cross and Blue Shield of New Mexico Insurance Company (NM PPO) CMH Technology Subsidiary, LLC CollaboraCare Consortium, LLC Dearborn National Life Insurance Company (DNL) Dearborn National Life Insurance Company of New York Dental Network of America, LLC (DNoA) Dental Solutions, Inc. DenteMax, LLC GHS General Insurance Agency, Inc. GHS Health Maintenance Organization, Inc. (GHS HMO or BlueLincs) GHS Insurance Company (GHSIC) GHS Managed Health Care Plans, Inc. (GHS MHCP) HCSC Insurance Services Company (HISC) HCSC ITC, LLC HCSC Purchasing, LLC HCSC Ventures, Inc. (HCSCV) HX Technologies, Inc. Illinois Blue Cross Blue Shield Insurance Company (IL PPO) Innovista, LLC MEDecision, Inc. (Medecision) MEDecision Investments, Inc. Montana Blue Insurance Company (MT PPO) Oklahoma Blue Insurance Company (OK PPO) OPTIMED Medical Systems, LLC Texas Blue Cross Blue Shield Insurance Company (TX PPO) Unlimited Innovations, Inc. USB HTC Fund 2017-2, LLC USB RETC Fund 2017-2, LLC The method of allocation between the companies is subject to a written agreement, approved by the Corporation's Board of Directors, whereby allocation is made primarily on a separate return basis, with a current credit for net operating losses or other items utilized in the consolidated return. Pursuant to this agreement, the Corporation has the enforceable right to recoup federal income taxes paid in prior years in the event of future net losses, which it may incur, or to recoup its net losses carried forward as an offset to future net income subject to federal income taxes. G. SSAP No. 101 Paragraph 27 Disclosure The Corporation classifies all interest and penalties related to unrecognized tax positions as income tax expense. There is $43,900,000 of interest and penalties recognized in the statutory basis balance sheets as of December 31, 2018, of which $10,500,000 is recognized in the statutory basis statements of revenues and expenses for the year ended December 31, 2018. As of December 31, 2018, there were no material positions for which management believes it is reasonably possible that the total amounts of unrecognized tax positions will significantly increase or decrease within 12 months of the reporting date. As of December 31, 2018, management considers the Corporation’s open tax years to include returns filed for 2007, 2009 through 2017, as well as the return that will be filed for 2018. 10. Information Concerning Parent, Subsidiaries, Affiliates and Other Related Parties A. The Corporation is a mutual legal reserve company domiciled in Illinois. It is the parent organization of a group of entities, which includes wholly-owned and partially-owned subsidiary entities, and other affiliates. B. In March 2018, the Corporation completed the sale of the stock of AHP, the Corporation’s wholly-owned subsidiary, to AHP’s founder (from which the Corporation acquired AHP in 2012). AHP is a broker of student health plans for the Corporation and third parties. The Corporation recognized a net realized capital loss of $7,971,222, which is classified as such in the statement of revenues and expenses as of December 31, 2018. As part of the transaction, the Corporation entered into new multi-year services agreements with AHP to continue providing marketing and administrative services for the Corporation’s student health insurance business. The sale of AHP received all applicable regulatory approvals. The Corporation received cash dividend payments in 2018 and 2017 of $15,000,000 and $37,000,000, respectively, from DNoA. The Corporation received dividends from DNL in 2018 in the form of cash of $40,000,000 and dividends in 2017 in the form of cash and bonds totaling $40,000,000. The dividends were reported in net investment income. The Corporation may make capital contributions or loans to the subsidiaries from time to time to fund subsidiary growth or meet regulatory requirements. Those transactions considered significant for the years ended December 31, 2018 and 2017 are discussed below. The Corporation made cash capital contributions of $150,000,000 and $188,000,000 to HISC in 2018 and 2017, respectively. The contributions are reflected in the statutory carrying value of the subsidiaries. In June 2017, the Corporation entered into a definitive stock purchase agreement with Cognizant Domestic Holdings Corporation (Cognizant) to sell TMG Health, Inc. (TMG), the Corporation’s wholly owned subsidiary. The sale of TMG was effective as of August 26, 2017. The Corporation recognized a net realized capital loss of $181,111,683, which is classified as such in the 2017 statement of revenues and expenses. On completion of the sale, the Master Service Agreement between HCSC and TMG terminated and the parties entered into a new multi-year service agreement under which TMG will continue providing government programs business process outsourcing services to HCSC and certain subsidiaries. The agreement has received all applicable regulatory approval. C. Not Applicable 26.16 ANNUAL STATEMENT FOR THE YEAR 2018 OF THE Health Care Service Corporation, a Mutual Legal Reserve Company Notes to Financial Statements D. The Corporation reported $338,575,525 and $361,705,304 as admitted amounts due from parent, subsidiaries and affiliates, net of amounts due to parents, subsidiaries and affiliates, at December 31, 2018 and 2017, respectively. E. The Corporation has agreed to provide guarantees or undertakings, written or otherwise with a number of affiliates. The disclosures related to these guarantees are reflected within Note 14, paragraph A, (2) and (3). F. The Corporation has administrative agreements with many of its subsidiaries whereby the Corporation may provide any combination of management, administrative, marketing, or claims processing services. Amounts billed by the Corporation to the subsidiaries under these agreements, based on actual costs incurred, were $ 223,094,915 and $173,018,333 in 2018 and 2017, respectively. The Corporation also has administrative agreements with certain subsidiaries for various services that the Corporation may receive from its subsidiaries, such as claims processing and underwriting services. Amounts billed by the subsidiaries to the Corporation under these agreements, based on actual costs incurred, were $225,550,308 and $273,099,337 in 2018 and 2017, respectively. These amounts are included in claims adjustment expenses and general and administrative expenses in the Corporation’s statements of revenues and expenses. At December 31, 2018 and 2017, the Corporation had receivables from subsidiaries of $410,676,313 and $372,663,088, respectively, and payables to subsidiaries of $72,100,788 and $10,957,784, respectively. G. Not Applicable. H. Not Applicable. I. Not Applicable. J. In December 2018, the Corporation recognized realized capital losses on its wholly-owned subsidiary investments in HISC, GHSIC and BlueLincs, of $470,246,534, $55,768,315 and $41,028,640, respectively; as their future estimated earnings would not be sufficient to recover prior unrealized losses in an estimable period of time. In December 2017, the Corporation recognized a realized capital loss on its investment in TMA, a partially owned subsidiary, of $10,000,000 as TMA’s future estimated earnings would not be sufficient to recover prior unrealized losses in an estimable period of time. There was no impact on policyholder’ surplus from the recognition of these unrealized losses. K. Not Applicable. L. The Corporation utilizes the look through approach in valuing its investment in HCSCV, a non-insurance holding company, which had a carrying value of $181,339,947 and $120,348,083 as of December 31, 2018 and 2017, respectively. HCSCV’s financial statements are not audited, so the Corporation limited the value of its investment in HCSCV to the underlying GAAP equity, with certain valuation adjustments, of the audited entities owned by HCSCV. M. All SCA investments (1) Balance Sheet Value (Admitted and Nonadmitted) All SCAs (Except 8bi Entities) SCA Entity a. SSAP No. 97 8a Entities Total SSAP No. 97 8a Entities b. SSAP No. 97 8b(ii) Entities Medecision Percentage of SCA Ownership 1 AHP DNoA Prime Therapeutics LLC Availity, LLC Total SSAP No. 97 8b(ii) Entities c. SSAP No. 97 8b(iii) Entities HCSCV GHS General Insurance Agency, Inc. TriWest Alliance, Inc. HCSC Purchasing, LLC Health Intelligence Company LLC D/B/A Blue Health Intelligence Innovista, LLC TMA Total SSAP No. 97 8b(iii) Entities d. SSAP No. 97 8b(iv) Entities Total SSAP No. 97 8b(iv) Entities e. Total SSAP No. 97 8b Entities (b+c+d) f. Aggregate Total (a+f) 1 Gross Amount XXX $ 100.00% $ 51,447,000 $ 49,009,000 222,900,747 62,194,979 385,551,726 0.00% 100.00% 39.94% 21.65% XXX 100.00% 100.00% 12.75% 100.00% 10.64% 100.00% 35.00% XXX XXX XXX XXX See Note 10B for disclosure related to sale of AHP in 2018. 26.17 $ $ $ $ - 184,453,669 1,291,703 30,187,444 588,484 8,679,000 24,756,185 249,956,485 635,508,211 635,508,211 Admitted Amount $ - $ 5,143,872 $ 21,234,400 135,255,356 39,681,129 201,314,757 $ $ $ $ 181,339,947 30,187,444 8,679,000 24,756,185 244,962,576 446,277,333 446,277,333 Nonadmitted Amount $ - $ (46,303,128) $ (27,774,600) (87,645,391) (22,513,850) (184,236,969) $ $ $ $ (3,113,722) (1,291,703) (588,484) (4,993,909) (189,230,878) (189,230,878) ANNUAL STATEMENT FOR THE YEAR 2018 OF THE Health Care Service Corporation, a Mutual Legal Reserve Company Notes to Financial Statements (2) NAIC Filing Response Information SCA Entity (Should be same entities as shown in M(1) above.) a. SSAP No. 97 8a Entities Total SSAP No. 97 8a Entities b. SSAP No. 97 8b(ii) Entities Medecision 1 AHP DNoA Prime Therapeutics LLC Availity, LLC Total SSAP No. 97 8b(ii) Entities c. SSAP No. 97 8b(iii) Entities HCSCV GHS General Insurance Agency, Inc. TriWest Alliance, Inc. (Legacy common shares) TriWest Alliance, Inc. (Tracking common shares) HCSC Purchasing, LLC BH Assets LLC Health Intelligence Company LLC D/B/A Blue Health Intelligence Innovista, LLC TMA Total SSAP No. 97 8b(iii) Entities d. SSAP No. 97 8b(iv) Entities Total SSAP No. 97 8b(iv) Entities e. Total SSAP No. 97 8b Entities (except 8bi entities) (b+c+d) f. Aggregate Total (a+e) Type of NAIC Filing* Date of Filing to the NAIC XXX XXX $ S2 8/22/2018 $ S2 N/A N/A N/A XXX 8/22/2018 S2 N/A S2 S2 N/A N/A N/A N/A N/A XXX 8/30/2018 XXX XXX XXX NAIC Valuation Amount*** NAIC Method Response Resubmission Received Required Y/N Y/N Code** - XXX XXX - XXX Y N Y XXX N $ 5,651,667 5,651,667 XXX $ 120,348,082 1,692,226 23,761,225 145,801,533 Y Y Y XXX XXX XXX XXX XXX XXX $ $ $ 151,453,200 151,453,200 XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX 8/28/2018 8/22/2018 - - XXX N N N - XXX 1 See Note 10B for disclosure related to the sale of AHP in 2018. * S1 – Sub-1, S2 – Sub-2 or RDF – Resubmission of Disallowed Filing, N/A – NAIC Filings not required for Joint Ventures, Partnerships and Limited Liability Companies investments within the scope of SSAP 48. ** I – Immaterial or M – Material for NAIC disallowed entities where valuation method resubmission is required. *** NAIC does not assign a valuation amount for Sub-1 filings N. Investments in Insurance SCAs Not Applicable. O. SCA Loss Tracking Not Applicable. See footnote 14 for additional disclosures related to our subsidiaries, controlled or affiliated companies. 11. Debt A. Debt and Holding Company Obligations, including Capital Notes The Corporation renewed its five-year, $400,000,000 senior unsecured revolving credit facility with a group of eight major U.S. banks. As of December 31, 2018 and 2017, no funds have been drawn on this facility. The renewed facility will mature on October 4, 2021. During 2018, the Corporation entered into Loan and Security Agreements with IRT Funding Trust II (the Trust), whereby the Corporation borrowed funds from the Trust secured by certain State of Illinois (the State) Medicaid receivables. Proceeds from the payment of the receivables by the State will be used to repay the borrowings from the Trust. During 2018, the Corporation borrowed $171,350,171 from the Trust. As of December 31, 2018, the Corporation had $49,367,574 in outstanding debt under these agreements. In January 2019, the State paid all receivables owed to the Corporation used to secure this borrowing, and the loan was simultaneously repaid in full. No gain or loss was reported on these transactions. (See Note 21C for additional information on the State Medicaid receivable.) B. Federal Home Loan Bank (FHLB) Agreements (1) The Corporation is a member of the FHLB. Through its membership, the Corporation has immediate access to short-term and long-term credit products, on a secured basis. It is part of the Corporation’s strategy to utilize these funds as a source of liquidity. Maximum borrowing capacity of $1,750,000,000 is based on HCSC’s borrowing resolution supported by the Corporation’s current and potential acquisition of FHLB membership and activity stock. The borrowing capacity is primarily determined by collateral pledged and can be no greater than 25% of admitted assets. The maximum capacity is subject to annual review or if there is a material change in credit performance. All borrowings must be sufficiently over-collateralized per the FHLB collateral guidelines in place at the time of borrowing, and the Corporation must continue to meet FHLB credit underwriting guidelines. As of December 31, 2018 and 2017, the Corporation had borrowed $823,300,000 and $1,062,241,901, respectively, from the FHLB. These overnight borrowings have a variable rate of interest that changes each day based on a daily rate published by the FHLB. The rate in effect on December 31, 2018 was 2.52%. Interest is paid monthly on the fifth day following each month end. For the years ended December 31, 2018 and 2017, the Company paid interest of $11,716,039 and $4,627,130 respectively. 26.18 ANNUAL STATEMENT FOR THE YEAR 2018 OF THE Health Care Service Corporation, a Mutual Legal Reserve Company Notes to Financial Statements (2) FHLB Capital Stock a. Aggregate Totals 1) Current Year-end Total (a) Membership Stock - Class A 2) $ - (b) Membership Stock - Class B (c) Activity Stock 2,701,400 13,764,600 (d) Excess Stock (e) Aggregate Total (a+b+c+d) (f) Actual or estimated borrowing capacity as determined by the Insurer Corporation $ 2,300,000 18,766,000 $ 1,750,000,000 Prior Year-end Total (a) Membership Stock - Class A (b) (c) (d) (e) (f) $ Membership Stock - Class B Activity Stock Excess Stock Aggregate Total (a+b+c+d) Actual or estimated borrowing capacity as determined by the Insurer Corporation - $ 1,744,700 32,097,638 33,842,338 $ 1,062,241,901 b. Membership Stock (Class A and B) Eligible for Redemption as of December 31, 2018 1 2 Eligible for Redemption 3 4 5 Current Not Eligible 6 Months to 1 to Less Membership Year Total for Less Than Less than 1 than 3 Stock (2+3+4+5+6) Redemption 6 Months Year Years 1. Class A $ $ $ - $ - $ 2. Class B $ 2,701,400 $ 2,701,400 $ - $ - $ - 6 3 to 5 Years $ $ - (3) Collateral Pledged to FHLB a. Amount Pledged as of December 31, 2018 and 2017 1. Current Year Total Collateral Pledged 2. Prior Year-end Total Collateral Pledged $ $ Aggre gate Total Fair Value Carrying Value Borrowing 847,701,477 $ 861,152,622 $ 823,300,000 1,090,502,798 $ 1,092,059,904 $ 1,062,241,901 b. Maximum Amount Pledged during the year ended December 31, 2018 and 2017 Fair Value 1. Current Year Total Maximum Collateral $ Pledged 2. Prior Year-end Total Maximum $ Collateral Pledged Carrying Value Amount Borrowed at Time of Maximum Collateral 1,382,495,092 $ 1,426,521,251 $ 1,346,800,000 1,284,091,493 $ 1,284,543,953 $ 1,255,091,901 As of December 31, 2018 and 2017, the Corporation held $1,476,217,008 and $1,484,531,310 in restricted accounts related to its borrowing arrangement with FHLB of which $861,152,622 and $1,092,059,904 was pledged to support borrowing at December 31, 2018 and 2017. 26.19 ANNUAL STATEMENT FOR THE YEAR 2018 OF THE Health Care Service Corporation, a Mutual Legal Reserve Company Notes to Financial Statements (4) Borrowing from FHLB a. Amount as of December 31, 2018 and December 31, 2017 Total 1. Current Year-end (a) Debt (b) Funding Agreements (c) Other (d) Aggregate Total $ $ 2. Prior Year-end (a) Debt (b) Funding Agreements (c) Other (d) Aggregate Total $ $ Funding Agreements 823,300,000 $ 823,300,000 $ - 1,062,241,901 $ 1,062,241,901 $ - b. Maximum Amount during the twelve months ended December 31, 2018 1. Debt 2. Funding Agreements 3. Other 4. Aggregate Total (Lines 1+2+3) $ $ Total 1,346,800,000 1,346,800,000 c. FHLB – Prepayment Obligations Does the company have prepayment obligations under the following arrangements (YES/NO)? 1. Debt 2. Funding Agreements 3. Other NO NO NO 12. Retirement Plans, Deferred Compensation, Postemployment Benefits and Compensated Absences and Other Postretirement Benefit Plans. The Corporation sponsors a noncontributory defined benefit pension plan; a defined contribution plan, including an employer match; and a retiree health and life plan, including retiree cost sharing. A. Noncontributory Defined Benefit Pension Plan The Corporation offers a qualified defined benefit pension plan, covering the majority of eligible employees during 2018 and 2017. The plan covers the majority of the Corporation’s employees (including certain Chicago based union employees in service prior to 2017) as well as employees of DNL. Retirement benefits are primarily a function of a formula of credits and interest, the number of years of service or age and the level of compensation. The current provisions of the plan require one year of service for eligibility and three years of service for vesting. The Corporation’s policy is to fund the plan as needed on a current basis to the extent that the contribution is deductible under existing federal tax law. The Corporation met regulatory (limited to required minimum contribution under Internal Revenue Service (IRS) rules) pension contribution requirements for 2018 and 2017, which were zero for both years. The Corporation made additional contributions to the HCSC Employees Pension Plan (Plan) during 2018 and 2017 totaling $120,000,000 and $120,000,000 respectively. The Corporation expects to contribute an estimated $120,000,000 to the plan during 2019 which will cover any minimum required and maintain target funded ratios, but may contribute in excess of that. Other Benefits - Retiree Health and Life Benefit Plan The Corporation provides certain health care benefits (including prescription drug coverage meeting the qualifications under the Medicare Act) and term life insurance benefits for certain eligible retired employees of the Corporation and certain eligible retired employees of DNL. 26.20 ANNUAL STATEMENT FOR THE YEAR 2018 OF THE Health Care Service Corporation, a Mutual Legal Reserve Company Notes to Financial Statements The majority of the Corporation’s active employees (excluding the majority of union employees effective November 1, 2016) as well as employees of DNL are eligible for postretirement benefits if they are at least 55 years old and have at least 10 years of service when they terminate employment. These benefits are subject to deductibles, co-payment provisions, coordination with Medicare and other coverages, and limitations. Covered employees pay for a percentage of the cost of their own health and pharmacy benefit coverage, a higher percentage of their covered dependent’s health and pharmacy benefit coverage based on a schedule of age and years of service prior to retirement and if covered pay 100% of the cost of any dental benefit offering elected. The Corporation pays the cost of varying levels of term life insurance coverage provided to existing retirees as of December 31, 2015, and future retiring employees who were active, eligible, and at least 55 years old and had at least 10 years of service as of December 31, 2015. Otherwise no term life coverage is provided. There is no pre-funding requirement for the post retirement benefit plan and the Corporation expects to contribute on a pay-as-you-go basis $30,000,000 before subsidies, retiree contributions or reimbursements to pay benefits under the Post Retirement Benefit Plan (Plan) during 2019. The Corporation did not make any contribution directly to a VEBA Trust in 2017 but made a one-time $200,000,000 contribution to the restated Retired Employees Welfare Benefit Trust (VEBA) in 2018 (based on the current proportion of liability attributable to those already retired under the Plan). Any future direct trust contributions are not yet forecasted. The Corporation paid a portion of the current cost of retiree health claims and life premiums (net of any retiree contributions) directly from corporate assets during 2018 and 2017. The Corporation elected to reimburse a portion of retiree health claims costs (net of any retiree or subsidy contributions) from trust assets during 2018 and 2017. The Corporation intends to pay a material portion of the current cost of retiree health claims and life premiums (net of any retiree contributions) directly from corporate assets during 2019. The Corporation may elect to reimburse retiree health claim costs or life premiums (net of any retiree or subsidy contributions) from trust assets for previous, current or future periods during any current or future period. Effective January 1, 2014, the Corporation refined its retiree health rating approach based on actual retiree group experience, which increased the amounts retirees pay for any coverage option offered and, at that time, the Corporation limited the level of annual rate increase it will absorb each year going forward, effective January 1, 2018. During 2015, the Corporation introduced additional coverages available for 2016, including group insured Medicare related MAPD and Plan F/Plan D offerings. While other PPO/HMO self-funded options remain available for retirees under age 65 or currently as a coordinated benefit for those over age 65, these group insured Medicare related MAPD and Plan F/Plan D offerings or similar variations are expected to increase in use through 2020; and in 2021 become the over age 65 offering (when retirees are expected to pay the difference if traditional coverages are offered/elected). The Corporation reserves the right to amend or change provisions, eligibility, coverage type offered, rates and cost sharing related to existing or future retirees at any time. The estimated impact of any relevant changes in Society of Actuaries Mortality Tables in 2018 and 2017 is reflected in the roll forward of PBO/APBO disclosed as of December 31, 2018. 2019 actuarial valuations and accounting expense measurement will reflect results based on any prescribed adjusted tables, methods, populations and forecasted mix of plan features or coverage offerings applicable. 26.21 ANNUAL STATEMENT FOR THE YEAR 2018 OF THE Health Care Service Corporation, a Mutual Legal Reserve Company Notes to Financial Statements The following tables provide a reconciliation of the changes in the plans’ benefit obligations and fair market value of the plans’ assets and a statement of the plans’ funded status as of December 31, 2018 and 2017: Overfunded 2018 Underfunded 2017 2018 2017 (1) Change in benefit obligation a. Pension Benefits 1. 2. 3. 4. 5. 6. 7. 8. 9. Benefit obligation at beginning of year $ 1,441,641,369 $ 1,585,920,084 $ Service Cost 66,563,580 60,967,826 Interest Cost 51,134,059 56,175,717 Contribution by plan participants Actuarial (gain) loss (71,747,084) 89,937,309 Foreign currency exchange rate changes Benefits paid (96,605,374) (351,359,567) Plan amendments Business combinations, divestitures, curtailments, settlements and special termination benefits 10. Benefit obligation at end of year $ 1,390,986,550 $ 1,441,641,369 $ - $ - $ b. Postretirement Benefits* 1. 2. 3. 4. 5. 6. 7. 8. 9. Benefit obligation at beginning of year $ $ $ 440,167,336 $ 441,592,575 Service Cost 8,671,595 8,167,158 Interest Cost 16,464,906 19,190,308 Contribution by plan participants 9,108,289 7,801,410 Actuarial (gain) loss 2,727,785 194,507 Foreign currency exchange rate changes Benefits paid (40,912,007) (36,778,622) Plan amendments Business combinations, divestitures, curtailments, settlements and special termination benefits 10. Benefit obligation at end of year $ $ $ 436,227,904 $ 440,167,336 * There is no "funding requirement" for the Post Retirement Benefit plan (retiree health and life plan). Any contributions remains the sole discretion of the Corporation - Sponser/Employer. c. Special or Contractual Benefits Per SSAP No. 11 Not Applicable. (2) Change in Plan Assets Pension Benefits 2018 2017 a. b. c. d. e. f. g. Fair value of plan assets at beginning of year $ Actual return on plan assets Foreign currency exchange rate changes Reporting entity contribution Plan participants’ contributions Benefits paid Business combinations, divestitures and settlements h. Fair value of plan assets at end of year* $ Postretirement Benefits 2018 2017 1,555,204,809 $ (49,862,341) 120,000,000 (96,605,374) 1,585,880,817 $ 200,683,559 120,000,000 (351,359,567) 14,790,241 $ 40,504,364 (231,891) 844,452 222,890,116 2,418,637 9,108,289 7,801,410 (40,912,007) (36,778,622) 1,528,737,094 $ 1,555,204,809 $ 205,644,748 $ *Special or Contractual Benefits per SSAP No. 11 are not applicable to the Corporation. 26.22 14,790,241 ANNUAL STATEMENT FOR THE YEAR 2018 OF THE Health Care Service Corporation, a Mutual Legal Reserve Company Notes to Financial Statements (3) Funded Status (4) Components of net periodic benefit cost Pension Benefits a. b. c. d. e. f. g. Service cost Interest cost Expected return on plan assets Transition (asset) or obligation (Gains) and losses Prior service cost or (credit) (Gain) or loss recognized due $ 1 to a settlement or curtailment h. Total net periodic benefit cost $ Postretirement Benefits 2018 2017 2018 2017 66,563,580 $ 51,134,059 (79,122,853) 5,155,778 16,190,243 1,468,071 60,967,826 $ 56,175,717 (86,311,274) 5,155,778 25,321,218 1,473,908 8,671,595 $ 16,464,906 (739,512) 929,079 8,167,158 19,190,308 (2,025,218) 929,079 78,992,098 141,775,271 25,326,068 26,261,327 61,388,878 $ $ $ 1 Largely related to making a higher than normal volume of lump-sum equivalent pension benefit payments for plan participants who accepted the Corporation's voluntary separation plan in 2016. (5) Amounts in unassigned funds (surplus) recognized as components of net periodic benefit cost Pension Benefits 2018 2017 a. Items not yet recognized as a component of net periodic benefit cost – prior year b. Net transition asset (obligation) recognized c. Net prior service cost (credit) arising during the period d. Net prior service (cost) credit recognized e. Net (gain) loss arising during the period f. Net gain (loss) recognized g. Items not yet recognized as a component of net periodic cost – current year Postretirement Benefits 2018 2017 $ 343,111,214 $ 478,489,192 $ (5,155,778) (5,155,778) - - (1,468,071) 57,238,110 (16,190,243) $ 377,535,232 27,246,276 - 26,800,082 - - (1,473,908) (24,434,976) (104,313,316) $ 343,111,214 $ - (929,079) 3,699,188 $ 30,016,385 (929,079) 1,375,273 $ 27,246,276 (6) Amounts in unassigned funds (surplus) expected to be recognized in the next fiscal year as components of net periodic benefit cost Pension Benefits 2018 2017 a. Net transition (asset) obligation b. Net prior service cost (credit) c. Net recognized (gains) losses $ 2,896,044 $ 1,381,982 $ 22,530,756 26.23 $ $ $ 5,155,778 1,468,072 16,154,244 Postretirement Benefits 2018 2017 $ $ $ 929,079 - $ $ $ 929,079 - ANNUAL STATEMENT FOR THE YEAR 2018 OF THE Health Care Service Corporation, a Mutual Legal Reserve Company Notes to Financial Statements (7) Amounts in unassigned funds (surplus) that have not yet been recognized as components of net periodic benefit cost Pension Benefits Postretirement Benefits 2018 2017 2018 2017 a. Net transition (asset) obligation b. Net prior service cost (credit) c. Net recognized (gains) losses $ 3,070,112 $ 8,225,890 $ $ 1,384,359 $ 2,852,430 $ $ 373,080,761 $ 332,032,894 $ $ 8,864,356 $ 9,793,435 21,152,029 $ 17,452,842 (8) The following actuarial assumptions were used at December 31 in determining the reported plan benefit obligations and net periodic benefit costs for the majority of employees: Weighted average assumptions used to determine net periodic cost as of December 31 Pension Benefits Postretirement Benefits 2018 2017 2018 2017 a. Weighted-average discount rate Expected long-term rate of return b. on plan assets c. Rate of compensation increase 3.75% 4.25% 3.75% 4.25% 5.00% 4.50% 6.00% 4.50% 5.00% 4.50% 5.00% 4.50% Weighted-average assumptions used to determine net projected benefit obligations as of December 31 Pension Benefits Postretirement Benefits 2018 2017 2018 2017 d. Weighted-average discount rate e. Rate of compensation increase 4.25% 4.50% 3.75% 4.50% 4.25% 4.50% 3.75% 4.50% (9) See row 10 of the table in section 12A(1)a/b of this note for PBO or APBO required for this disclosure. The relative values underlying Pension Benefits (12A(1)a.10.) represented as accumulated benefit obligations (ABO) are $1,278,412,707 and $1,316,467,448 for 2018 and 2017, respectively. The relative embedded values underlying Postretirement Benefits (12A(1)b.10) represented as APBO for “not yet fully eligible actives” are $102,827,406 and $118,969,267 for 2018 and 2017, respectively. (10) Not Applicable. (11) Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. Given assumed Corporation pricing and retiree utilization rates, it is assumed that trend rates and utilization rates will have an inverse relationship. Therefore, a one-percentage change in assumed health care cost trend rates would have the following effects: 1 Percentage 1 Percentage Point Increase Point Decrease a. Effect on total of service and interest cost components $ b. Effect on postretirement benefit obligation $ (1,266,510) $ (13,723,408) $ 1,629,217 17,804,943 (12) The following estimated future pension benefit payments, which reflect expected future service, as appropriate, are expected to be paid in the years indicated: a. b. c. d. e. f. Years 2019 2020 2021 2022 2023 2024 through 2028 26.24 $ $ $ $ $ $ Amount 173,610,319 107,916,321 107,987,586 114,757,640 112,792,563 586,590,870 ANNUAL STATEMENT FOR THE YEAR 2018 OF THE Health Care Service Corporation, a Mutual Legal Reserve Company Notes to Financial Statements The following estimated expected future postretirement benefit payments net of Medicare subsidy are expected to be paid in the years indicated: a. b. c. d. e. f. Years 2019 2020 2021 2022 2023 2024 through 2028 $ $ $ $ $ $ Amount 28,592,094 25,983,164 25,932,238 25,337,370 25,042,459 121,733,513 (13) Reference section A. above for contribution information (14) – (20) Net periodic pension costs of approximately $61,388,878 and $141,775,271 in 2018 and 2017, respectively, include allocations to DNL of approximately $2,551,670 and $3,115,201 in 2018 and 2017, respectively. Net periodic postretirement benefit retiree health and life costs of approximately $25,326,068 and $26,261,327 in 2018 and 2017, respectively, include allocations to DNL of approximately $1,018,648 and $1,171,092 in 2018 and 2017, respectively. For retiree health, prior service costs are amortized over the average future lifetime of participating employees expected to receive benefits under the plan. Gains and losses are amortized to the extent they exceed 10% of the APBO, over the average remaining service period of participating employees expected to receive benefits under the plan. For measurement purposes, a 6.50% annual rate of increase in the per capita cost of covered health care benefits was assumed for 2018, grading down each year by 0.22% for 7 years reaching 5.0% for 2025 and thereafter. (21) Not Applicable. B. Investment Policies & Strategies The Corporation’s investment policy is to employ a suitable combination of investment risk and rate of return to support the plans’ emerging obligations. The Corporation uses a long-term approach to obtain a stable level of return based upon a diversified portfolio. The defined benefit pension plan trust asset allocation as of the measurement date, December 31, 2018 and 2017, and the target asset allocation, presented as a percentage of total plan assets were as follows: a. Debt Securities b. Equity Securities c. Total 2018 60% 40% 100% 2017 43% 57% 100% Target Allocation 30% - 50% 50% - 70% At December 31, 2018, the Corporation’s pension plan assets were invested approximately 51% in “Return Seeking” category vehicles and 49% in “Liability Hedging” category vehicles which underpins the above surface ratio. Effective 2018 the pure equity commitment allocation has a target of 35% but is combined with a target of 10% Higher Risk Fixed Income and 10% Alternatives, such as private equity or real estate funds, equating to a combined target of 55% referred to as “Return Seeking” with the remaining target commitment to traditional fixed income, including traditional forms of debt at 45%. During periods of relative market volatility, equity commitments may fall outside this range and during periods of investment selection distributions may fall outside this range. For 2019 reporting the Target Allocation range will be adjusted to reflect the Master Pension Trust’s longer-term investment strategy of Fixed Income and Return Seeking. At December 31, 2017, the Corporation held more short-term debt securities to cover near term expected benefit payments and reallocated cash, as such, the shift from equity securities to short-term debt securities skewed the allocation at December 31, 2017 to appear as 49% for debt securities and 51% for equity securities, which was still within the Corporation’s target range. The 2018 and 2017 ending periods do not precisely reflect the longer-term investment strategy of the Pension Master Trust. 26.25 ANNUAL STATEMENT FOR THE YEAR 2018 OF THE Health Care Service Corporation, a Mutual Legal Reserve Company Notes to Financial Statements C. Fair Value All investment information disclosed in the below table of assets held at December 31, 2018 represent holdings within the separate HCSC Master Pension Trust reported or derived from information supplied to the Plan administrator, certified as complete and accurate by the Trustee consistent with Employee Retirement Income Security Act (ERISA) Reporting requirements. Investments held in the Master Trust are stated at fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (an exit price). To measure fair value, a hierarchy has been established that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs. As such, the hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets and liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). (1) Fair Value Measurement of Pension Plan Assets at Reporting Date (2) Not Applicable (3) Common stocks are valued at the closing market prices of the principal market on which the stocks are traded. Corporate debt instruments and U.S. Government securities are valued at the last quoted bid price. Shares of registered investment companies are valued based on published market prices, which represent the net asset value (NAV) of shares held by the Master Trust at year end. Investments in common/collective trusts, and pooled separated accounts have been estimated using the NAV per share, as a practical expedient. D. Estimates and Assumptions Used to Determine Benefit Obligations and Costs The preparation of financial statements in conformity with accounting practices prescribed or permitted by the DOI requires various estimates and assumptions that affect the reporting of net periodic benefit cost, plan assets, and plan obligations at the date of the financial statements. Significant estimates that relate to the calculation of benefit plan obligations are the discount rate and expected long-term rate of return on plan assets. The discount rate used to determine the present value of the plan benefit obligations as of December 31 is based upon published investment grade, long-term corporate bond yields. The expected long-term rate of return on the plan assets is based on an analysis of expected plan assets and recent economic conditions with a longer-term view. E. Defined Contribution Plans The Corporation sponsored one primary and one secondary smaller materially identical defined contribution 401(k) plan during 2018 and during 2017 a secondary plan coexisted, together covering the majority of its employees. The primary plan covers the Illinois, Montana, Texas, New Mexico and Oklahoma based employees as well as DNL. Note, the separate but materially identical small plan currently covers Medecision and Innovista employees, which Innovista, LLC adopted effective January 26.26 ANNUAL STATEMENT FOR THE YEAR 2018 OF THE Health Care Service Corporation, a Mutual Legal Reserve Company Notes to Financial Statements 2018. Chicago-based and Naperville Unit-based union employees are covered by the primary plan effective January 1, 2018 when the secondary plan was combined. The 401(k) plans allow immediate eligibility and provide an automatic enrollment feature. Participants may elect to contribute a portion of their salary, which will be matched (subject to vesting), in part, by the Corporation. The total expense incurred by the Corporation related to matching employee contributions was $49,592,247 and $45,610,000 in 2018 and 2017, respectively (excluding DNL, Medecision, Innovista and 2017 AHP portions of $2,515,038 and $3,850,000 for 2018 and 2017, respectively). At December 31, 2018 and 2017, the fair value of plan assets was $1,828,560,515 and $1,877,688,000, respectively, excluding participant account loans of $48,145,545 and $44,600,000, respectively. The Corporation also provides a non-qualified deferred compensation plan for a select group of employees, and a non-qualified excess benefit plan (non-qualified pension benefit restoration plan) for certain highly compensated employees limited in their qualified defined benefit by IRS rules. The Corporation continues to administer-out any benefits in pay status assumed as a liability for smaller closed non-qualified benefit restoration type plans resulting from mergers or acquisitions in past. F. Multiemployer Plans Not Applicable. G. Consolidated/Holding Company Plans Not applicable. H. Postemployment Benefits and Compensated Absence The Corporation accrues a liability for “Paid Time Off” based on Corporate policies and procedures, until used, lost or paid (while active or at termination). The Corporation also makes a provision for full value of any unpredictable short-term liability that arises if a selected individual would be paid any salary allowance post termination. I. Impact of Medicare Modernization Act on Postretirement Benefits (INT 04-17) The Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the Act) was signed into law in December 2003. The Act expanded Medicare to include coverage for prescription drugs. This change can affect the measurement of the APBO and the net periodic postretirement cost for the plan because this legislation will reduce the Corporation’s costs for some of the benefit programs it sponsors. The Corporation has been initially approved to claim a subsidy from the federal government for 2018 and 2017, having received approximately $1,200,000 in both years. This amount is included as a reduction to 2018 and 2017 net periodic benefit costs and is included in the plan participant contribution line item. The accrued cost result without the Medicare savings reflected at December 31, 2018, is estimated to have been approximately $260,000,000. 13. Capital and Surplus, Shareholders’ Dividend Restrictions and Quasi-Reorganizations (1- 8) Information regarding capital stock, dividends, dividend restrictions and surplus restrictions. Not Applicable. (9) Special Surplus Funds. Special surplus funds are the estimated pro-rata amount of the ACA health insurer fee payable expected to be paid in the following year. There was no health insurer fee payable as of December 31, 2018 as the H.R. 195, Division D – Suspension of Certain Health-Related Taxes, § 4003 suspended collection of the health insurance provider fee for the 2019 calendar year. The Corporation reported special surplus funds of $577,828,765 as of December 31, 2017 as the fee was payable in 2018. The Corporation has an HMO Restricted Surplus fund of $876,267 and $931,834 as of December 31, 2018 and 2017, respectively. The fund is to be used to improve medical care in Illinois with an emphasis on preventative health services. (10) Portion of unassigned funds (surplus) represented by net unrealized gains. $245,037,251 as of December 31, 2018. (11) Surplus Notes. Not Applicable. 26.27 ANNUAL STATEMENT FOR THE YEAR 2018 OF THE Health Care Service Corporation, a Mutual Legal Reserve Company Notes to Financial Statements (12-13) Quasi-Reorganizations Not Applicable 14. Liabilities, Contingencies and Assessments A. (1) Contingent Commitments The Corporation and its wholly owned subsidiary, Medecision, are parties to a Loan Agreement with a maximum aggregate loan amount of up to $30,000,000 and a maturity date of June 30, 2020. As of December 31, 2018 and 2017, Medecision had no outstanding loan balance with the Corporation. Therefore, the principal amount available for borrowing by Medecision was $30,000,000 as of December 31, 2018. The Corporation and its wholly owned subsidiary Innovista, LLC are parties to a Loan Agreement with a maximum aggregate loan amount of up to $5,000,000 and a maturity date of April 1, 2020. As of December 31, 2018, Innovista, LLC had no outstanding loan balance with the Corporation. Therefore, the principal amount available for borrowing by Innovista, LLC was $5,000,000 as of December 31, 2018. In acquisitions (through merger or otherwise), the Corporation has or may have agreed to pay or guarantee the obligations of the acquired entity to (a) maintain existing indemnification rights for a period of time to the current or former officers, directors or employees of the acquired entity for liabilities for acts or omissions occurring at or prior to the date of the acquisition, and (b) purchase “tail” insurance coverage on behalf of the acquired entity’s officers and directors with an extended reporting period of claims from the date of acquisition. Some of these commitments may continue to be in effect and the potential for future payments is unknown. The Corporation has not recorded any liabilities to cover these types of agreements or commitments. (2) Guarantees 1 2 Liability recognition of guarantee. (Include amount recognized at Nature and inception. If no circumstances of initial recognition, guarantee and key document attributes, including date exception allowed and duration of under SSAP No. agreement. 5R.) Under certain ASC agreements (and a small number of agreements related to insured contracts), the Corporation has provided guarantees related to its operational and financial performance. The Corporation’s primary $34,954,511 responsibilities relate to claims processing, provider discounts and trend guarantees. The Corporation recorded an estimated liability of $34,954,511 for this guarantee as of December 31, 2018. 3 Ultimate financial statement impact if action under the guarantee is required. Expense 26.28 4 5 Maximum potential amount of future payments (undiscounted) the guarantor could be required to make under the guarantee. If unable to develop Current status of payment or an estimate, this performance risk of guarantee. should be specifically Also provide additional noted. discussion as warranted. No limitation to maximum The Corporation believes it has recognized all obligations under these agreements at December 31, 2018. ANNUAL STATEMENT FOR THE YEAR 2018 OF THE Health Care Service Corporation, a Mutual Legal Reserve Company Notes to Financial Statements The Corporation has guaranteed, to the full extent of its assets, all the contractual and financial obligations to the customers of its 14 wholly owned health insurance subsidiaries for liabilities arising while they are licensed under BCBSA. The Corporation has not recorded any liabilities to cover these types of agreements and commitments. A) The Corporation has an on-going obligation under a 100% indemnity reinsurance agreement with BlueLincs. The reinsurance agreement automatically expires without notice on December 31, 2020. B) Guarantee the payment of authorized and covered health claims in the event of the insolvency or cessation of business of BlueLincs. This guarantee does not terminate. In acquisitions (through merger or otherwise), the Corporation has or may have agreed to pay or guarantee the obligations of the acquired entity (see accompanying disclosure). Some of these commitments may continue to be in effect and the potential for future payments is unknown. Under various vendor contracts, the vendor provides products or services to the Corporation and certain subsidiaries and affiliates, and the Corporation may explicitly or implicitly guarantee the obligations of these subsidiaries and affiliates. The Corporation has not recorded any liabilities to cover these types of agreements or commitments. Total $0 Investment in SCA No limitation to maximum No action is anticipated under any of these guarantees. $0 Investment in SCA No limitation to maximum No action is anticipated under these guarantees. However, the Corporation has a $112,000 liability recorded for reinsurance payable on paid and unpaid losses as of December 31, 2018. $0 Expense or Investment in SCA No limitation to maximum No action is anticipated under any of these guarantees. $0 Investment in SCA No limitation to maximum No future payments under these guarantees are anticipated. $ 34,954,511 $- XXX (3) Aggregate Compilation of Guarantees a. Aggregate Maximum Potential of Future Payments of All Guarantees (undiscounted) the guarantor could be required to make under guarantees. (Should equal total of Column 4 for (2) above.) $ b. Current Liability Recognized in F/S: 1. Noncontingent Liabilities 2. Contingent Liabilities $ $ 26.29 -0- 34,954,511 -0- ANNUAL STATEMENT FOR THE YEAR 2018 OF THE Health Care Service Corporation, a Mutual Legal Reserve Company Notes to Financial Statements c. Ultimate Financial Statement Impact if action under the guarantee is required. 1. 2. 3. 4. 5. 6. Investments in SCA Joint Venture Dividends to Stockholders (capital contribution) Expense Other Total (Should equal (3)a.) $ $ $ $ $ $ -0-0-0-0-0-0- B. Assessments (1) On March 1, 2017, the Commonwealth Court of Pennsylvania approved the Order of Liquidation for Network America Insurance Company and its subsidiary, American Network Insurance Company, (collectively, Penn Treaty). The Corporation and other insurers are required to pay a portion of Penn Treaty’s policyholder claims through state guaranty association assessments and pursuant to applicable state laws. Based on available information, the Corporation’s share of the assessment obligations on a discounted basis is approximately $39,755,000, net of $43,800,000 estimated premium tax credits, which was charged to operations in 2017. See (3) for additional information on the assessment payable and related assets. Other Consumer Operated and Oriented Plan (Co-Op) programs and long-term care insurance companies (LTC) in various states have established premiums that may be insufficient to cover the cost of care and administrative expenses for their members, which may result in increased insolvencies covered by state insolvency or guaranty association laws. In that event, the Corporation may experience increased guaranty association assessments, the amount and timing of which is uncertain. Given this uncertainty around whether, and to what extent, there may be an increase in Co-op or LTC insolvencies, and if so, the amount and timing of any associated future guaranty fund assessments and the availability and amount of any potential premium tax credits and other offsets, the Corporation currently cannot estimate its net exposure, if any, to potential liquidations of Co-Op programs or LTC in various states. At the time of a formal order of liquidation being entered, the Corporation will assess the need to record an estimated liability and expense for the applicable reporting period, which could be material to the Corporation’s operating results. (2) a. Assets recognized from paid and accrued premium tax offsets and policy surcharges prior year-end b. Decreases current year: $ Credits Utilized 3,923,011 1,824,125 c. Increases current year: Accruals 2,128,230 d. Assets recognized from paid and accrued premium tax offsets and policy surcharges current year-end $ 4,227,116 (3) a. Discount rate applied 3.50% b. The Undiscounted and Discounted Amount of the Guaranty Fund Assessments Payables and Related Assets related to guaranty fund assessments as of December 31, 2018. Name of the Insolvency Penn Treaty Guaranty Fund Assessment Related Assets Undiscounted Discounted Undiscounted Discounted $ 22,459,466 $ 18,971,752 $ 50,689,854 $ 45,259,681 26.30 ANNUAL STATEMENT FOR THE YEAR 2018 OF THE Health Care Service Corporation, a Mutual Legal Reserve Company Notes to Financial Statements c. Number of Jurisdictions, Ranges of Years Used to Discount and Weighted Average Number of Years of the Discounting Time Period for Payables and Recoverables by Insolvency as of December 31, 2018. Name of the Insolvency Penn Treaty C. Payables Number of Range of Jurisdictions Years 1 7 Recoverables Weighted Average Number of Years Number of Range of Jurisdictions Years 7 22 5 to 20 Weighted Average Number of Years 6 Gain Contingencies Not Applicable D. Claims Related Extra Contractual Obligation and Bad Faith Losses Stemming from Lawsuits No claims related to extra contractual obligations and bad faith losses stemming from lawsuits were material, individually or in the aggregate. E. Joint and Several Liabilities Not Applicable F. All Other Contingencies In re Blue Cross Blue Shield Antitrust Litigation, Multidistrict Litigation (MDL) 2406. This matter pending in the U.S. District Court for the Northern District of Alabama relates to a series of now consolidated putative antitrust class actions filed on behalf of both an alleged provider class (Conway, et al.) and an alleged subscriber class (Galactic Funk Touring, et al.), against all Blue Cross and Blue Shield Plans, including the Corporation’s five divisions, various related entities and the Association (collectively, the Defendants). The provider cases generally seek to certify two national classes: an injunction class of all providers in the country and a damages class of all providers who provided services to a Blue Plan subscriber. The subscriber class seeks to certify a nationwide class seeking injunctive relief relating to certain Blue Cross and Blue Shield Association rules and regulations, and state damages classes of subscribers who bought individual or small group health insurance from the Blues Plans operating in at least 20 different states, including BCBSTX, BCBSMT, BCBSOK, and BCBSIL. The Court denied Defendants’ motions to dismiss both complaints in June 2014. Both classes filed amended complaints in late 2014 and again in April 2017. The Court denied Defendants’ motion to dismiss the amended provider complaint filed in April 2017. On April 5, 2018, the Court granted Plaintiffs’ motion for summary judgment and concluded that certain aspects of the Blue system in the aggregate will be reviewed under the per se standard of review. On April 16, 2018, Defendants filed a motion under 28 U.S.C. § 1292(b) seeking to have the Court amend and certify its April 5th order for immediate interlocutory appeal. The Court granted Defendants’ § 1292(b) motion on June 12, 2018. Defendants subsequently filed their petition for permission to appeal the District Court ruling to the Eleventh Circuit on June 22, 2018. On July 9, 2018, Defendants filed a motion for leave to file a reply in support of their petition to the Eleventh Circuit. On December 12, 2018, the Eleventh Circuit denied Defendants’ petition for permission to appeal the District Court’s April 5, 2018 ruling under 28 U.S.C. § 1292(b). The Court will soon issue a scheduling order setting dates up to trial. Piercy, Deborah and Lisa Tomazolli, on behalf of themselves and others similarly situated v. HCSC d/b/a Blue Cross Blue Shield of Illinois, Case No. 12-L-28. This is a putative class action lawsuit served in September 2012 and filed in the Circuit Court for the First Judicial Circuit, Union County, Illinois against BCBSIL. The complaint alleges violations of Illinois antitrust law and unjust enrichment, and challenges certain alleged provisions of BCBSIL provider contracts. Plaintiffs seek to certify an Illinois statewide class of persons and entities who paid health insurance premiums for individual or small group full-service commercial health insurance. The Association moved to intervene in the case as a defendant, and the Court granted the Association’s motion. On January 7, 2013, BCBSIL and the Association filed a Motion to Transfer the case to the Circuit Court of Cook County, Illinois, which is pending. A joint Motion to Dismiss filed by BCBSIL and the Association remains pending in Union County. This case has not been consolidated in the Northern District of Alabama due to a lack of federal jurisdiction as currently pled. The parties have stipulated that the case will be stayed through the disposition of all pretrial proceedings in the multidistrict antitrust litigation pending in the Northern District of Alabama. 26.31 ANNUAL STATEMENT FOR THE YEAR 2018 OF THE Health Care Service Corporation, a Mutual Legal Reserve Company Notes to Financial Statements Haley Murphy, Individually, and as a Class of Representatives on behalf of the Class Constituting all similarly situated citizens and residents of Oklahoma who are insured by Blue Cross Blue Shield of Oklahoma, Inc. v. Blue Cross Blue Shield of Oklahoma, Inc., Case No. CJ-2005-85. This is a putative class action lawsuit filed on February 9, 2005 in the District Court of Canadian County, State of Oklahoma. The suit alleges BCBSOK violated the Insurance Code and consumer protection statutes relating to a policy pregnancy maternity benefit waiting period. Plaintiff alleged breach of contract, unjust enrichment and bad faith claims, seeking compensatory and punitive damages and injunctive relief. This matter was stayed for several years to allow the Oklahoma Department of Insurance to address certain issues presented in the case, which were deemed by the Court to be within the Department’s jurisdiction. The case reactivated in October 2013 when the Court granted plaintiff’s motion to lift the stay and plaintiff filed their First Amended Petition. On April 15, 2014, the Court granted BCBSOK’s motion to dismiss with regard to Plaintiff’s bad faith, breach of contract, and injunctive relief claims, leaving only Plaintiff’s unjust enrichment claim proceeding in the case. On July 25, 2014, BCBSOK filed a motion to reinstate the stay, which was granted on August 29, 2014. On March 16, 2016, Plaintiff filed a second motion to lift the stay, and the Corporation’s response was filed April 4, 2016. On April 22, 2016, the Court granted Plaintiff’s motion to lift the stay, and the case is proceeding on the remaining unjust enrichment claim. Elizabeth A. Craft; and Jane Doe, a minor, by her next friend and parent, Elizabeth A. Craft; on their own behalves and on behalf of all others similarly situated v. Health Care Service Corporation, Case No. 1:14-cv05853. This is a putative class action filed on July 30, 2014 in the United States District Court for the Northern District of Illinois. The suit contends ERISA and federal mental health parity rule violations. Plaintiffs withdrew their motion for preliminary injunction without prejudice, but the complaint remains pending. On March 25, 2015, the Court denied the Corporation’s motion to dismiss. Plaintiffs’ amended complaint was filed on May 15, 2015, and the Corporation filed its motion to dismiss and motion to sever on June 12, 2015. On March 31, 2016 the Court granted in part and denied in part the motion to dismiss and granted the Corporation’s motion to sever. As a result of the order on the motion to sever, new complaints were filed in Craft and the matter of Doe, et al. v. Health Care Service Corporation. See Doe, et al. v. HCSC, infra. The Corporation’s answer to the new Craft complaint was filed on May 23, 2016. Discovery is proceeding. Plaintiffs filed their motion for class certification on January 13, 2017. At the request of the parties, the Court stayed additional briefing to allow the parties to discuss possible resolution. The case has now settled and a hearing on the motion for preliminary approval took place on September 20, 2017, where the Court entered the preliminary settlement approval order. The Court entered the final settlement approval order on February 26, 2018. On September 14, 2018, Plaintiffs moved to modify administration of the settlement by extending distribution deadline. On October 26, 2018, the Court granted the motion and allowed additional time to complete distributions to class members who had not yet cashed their settlement distributions. Susan Priddy, Craig Fischer, Jan Yard, Prairie Analytical Systems, Inc., Metro Chicago Surgical Oncology, LLC, Mark Schacht, M.D., Neil Friedman, M.D., Suraj Demla, Jeffrey Rose, Ad-Libs Advertising, Inc. and Michael Biebler, individually and on behalf of all other individuals similarly situated who are beneficiaries or dependents of beneficiaries of health care coverage provided or administered by Defendant and employers or individuals who purchased on their own behalf or on behalf of their employees and their beneficiaries health insurance coverage underwritten, administered, or otherwise provided by Health Care Service Corporation, an Illinois Mutual Reserve Insurance Company d/b/a Blue Cross and Blue Shield of Illinois, Blue Cross and Blue Shield of Montana, Blue Cross and Blue Shield of New Mexico, Blue Cross and Blue Shield of Oklahoma, and Blue Cross and Blue Shield of Texas v. Health Care Service Corporation, an Illinois Mutual Reserve Insurance Company d/b/a Blue Cross and Blue Shield of Illinois, Blue Cross and Blue Shield of Montana, Blue Cross and Blue Shield of New Mexico, Blue Cross and Blue Shield of Oklahoma, and Blue Cross and Blue Shield of Texas and by and through its various affiliates and related entities, Case No. 3:14cv-03360-SEM-TSH. This is a putative class action lawsuit filed on November 21, 2014 in the United States District Court for the Central District of Illinois. The suit alleges that the provider discounts and profits received from affiliates and subsidiaries are “benefits” that the Corporation allegedly kept for itself in violation of ERISA and state law and that such practices have allegedly resulted in excessive co-payments, coinsurance, premiums, and administration fees for Plaintiffs. Plaintiffs seek to certify five separate classes along with several kinds of relief, including compensatory damages, appointment of a receiver, an accounting, and a “reformation” of plan documents to reflect that participants and beneficiaries are required to pay coinsurance based on “the actual and eventual payment by [the Corporation]” to the Corporationcontracted providers or drug suppliers. Plaintiffs filed an amended complaint on February 10, 2015. On March 22, 2016, the Court granted in part and denied in part the Corporation’s motion to dismiss, allowing certain ERISA claims and Illinois common law claims to proceed. On April 4, 2016, the Corporation filed an answer denying the material allegations in the complaint and also filed a motion for reconsideration of` a portion of the Court’s ruling. On March 24, 2016, Plaintiffs filed a motion to certify the classes of the individual Plaintiffs, which was granted on October 11, 2016. On August 31, 2017, the United States District 26.32 ANNUAL STATEMENT FOR THE YEAR 2018 OF THE Health Care Service Corporation, a Mutual Legal Reserve Company Notes to Financial Statements Court for the Seventh Circuit reversed the district court’s certification order, and the case was reassigned to United States District Judge Sara Darrow and Magistrate Judge Jonathan Hawley for all future proceedings in the district court. Class discovery is pending pursuant to a June 25, 2018 order and is scheduled to be complete by August 27, 2018. All discovery is to be complete by May 25, 2019, and a jury trial is currently set for November 18, 2019. Foley & Kelly, LLC, derivatively on behalf of Health Care Service Corporation, Patricia Hemingway Hall, Colleen Reitan, and Paula Steiner, No. 15-CH-695. This is derivative action filed on October 8, 2015 in the Circuit Court of St. Clair County, Illinois. The plaintiff purports to sue derivatively on behalf of the Corporation and alleges that Hall, Reitan and Steiner breached fiduciary and other obligations by not having the Corporation share profits from subsidiaries and affiliates, including Prime Therapeutics, with owners of the Corporation. A second amended complaint was filed on March 11, 2016, substituting Foley & Kelly, LLC as plaintiff and adding Paula Steiner as a defendant. Defendants filed a motion to dismiss which was granted in part and denied in part on December 21, 2016. The Corporation and the individual defendants answered the remaining claims on February 10, 2017. A motion for leave to file a third amended complaint was filed on May 22, 2017 and granted on August 11, 2017. On May 11, 2017, Defendants filed a Motion to Transfer for Forum Non Conveniens to the Circuit Court of Cook County, Illinois. On September 1, 2017, the Corporation filed a motion to dismiss Count IV of the third amended complaint. On September 26, 2017, the Corporation filed a motion to stay discovery with respect to Count IV. On October 31, 2018, the court denied Defendants’ Motion to Transfer for Forum Non Conveniens. A petition for leave to appeal that order to the Fifth District Appellate court was denied on January 3, 2019. On January 14, 2019, the Court set a discovery deadline of January 24, 2020, with dispositive motions due February 21, 2020. Trial is currently scheduled for May 2020. The Depot, Inc., a Montana Corporation, Union Club Bar, Inc. a Montana Corporation, and Trail Head, Inc., a Montana Corporation, on behalf of themselves and all those similarly situated, v. Caring for Montanans, Inc., f/k/a Blue Cross and Blue Shield of Montana, Inc., Health Care Service Corp., and John Does I-X., Case. No. 9:16-cv-00074-DLC. This is a putative class action filed on June 13, 2016 in the United States District Court for the District of Montana. The suit alleges that BCBSMT (between 2006 and 2013) and the Corporation (between 2013 and 2014) charged employers participating in the Montana Chamber of Commerce “Chamber Choices” insurance product surcharge amounts in excess of the medical premium, which amounts were paid back to the Montana Chamber of Commerce. Plaintiffs also seek to hold the Corporation responsible for BCBSMT’s actions prior to 2013. Plaintiffs assert claims under ERISA, for fraudulent inducement, constructive fraud, negligent misrepresentation, and unjust enrichment, and under the Montana Unfair Trade Practices Act. Plaintiffs seek to certify a class of “all employers who purchased Chamber Choices health insurance policies from [Defendants] and who made premium payments that included surcharges in excess of the medical premium as described herein within the applicable limitations periods.” The Corporation filed a motion to dismiss and motion to stay discovery on August 11, 2016. The Court granted the motion to dismiss, without prejudice, on February 14, 2017. Plaintiffs filed an amended complaint on March 8, 2017. The Court granted Defendants’ motion to dismiss that amended complaint on June 23, 2017, with prejudice. Plaintiffs appealed, and on February 6, 2019, the Ninth Circuit Court of Appeals issued a decision affirming in part and reversing in part the dismissal, and remanding the case to the district court. Michael Sullivan, individually and as a taxpayer of Waukegan Community School District #60 and on behalf of all other individuals or other entities in Illinois similarly situated v. Health Care Service Corporation et al., Case No. 16 CH 1246. This is a putative class action filed on August 18, 2016 in the Circuit Court of the 19th Judicial Circuit, Lake County, Illinois. The suit alleges that the Corporation has collected and continues to collect unauthorized charges on billings it submits to the Waukegan Community School District #60. Plaintiff also alleges that the Corporation has improperly inflated the prices for prescription drugs supplied to Waukegan Community School District #60 employees through companies affiliated with HCSC. The Corporation was served on August 22, 2016, and its motion to dismiss was filed on October 21, 2016. The motion was due to be fully briefed by November 15, 2016, and a hearing was held on December 2, 2016. On February 3, 2017, the first amended complaint was dismissed without prejudice. Plaintiffs filed a second amended complaint on February 24, 2017 adding several individual Corporation officers and directors as defendants, and the Corporation filed its motion to dismiss on March 17, 2017. The individual defendants’ motions to dismiss were filed on May 15, 2017. On September 22, 2017, the court granted the individual defendants’ motion to dismiss in its entirety, and the individual defendants were dismissed with prejudice. On that same date, the court granted in part the Corporation’s motion to dismiss in its entirety other than Count III of the second amended complaint. On October 20, 2017, the Corporation filed its answer in response to that count. Plaintiff filed motions for class certification, partial summary judgment and preliminary injunction on November 21, 2017. A hearing on Plaintiff’s motions for partial summary judgment and preliminary injunction was held between April 16 and 18, 2018, and the Court entered orders denying these motions on May 30, 2018. On June 11, 2018, plaintiff filed a notice of interlocutory appeal of the court's May 30 orders. 26.33 ANNUAL STATEMENT FOR THE YEAR 2018 OF THE Health Care Service Corporation, a Mutual Legal Reserve Company Notes to Financial Statements The briefing on that interlocutory appeal is complete. In the trial court, the court denied plaintiff’s motion for class certification on September 14, 2018. Laura Briscoe and Kristin Magierski, and Emily Adams, on behalf of themselves and all others similarly situated v. Health Care Service Corporation; and Blue Cross and Blue Shield of Illinois, Case No. 1:16-cv10294. This is a putative class action filed on November 2, 2016 in the United States District Court for the Northern District of Illinois. Plaintiffs allege that the Corporation did not comply with ACA mandates by failing to establish a network of trained providers of comprehensive lactation support and counseling services, which Plaintiffs allege resulted in women either foregoing preventative services or paying more by going out-of-network to obtain the services. Plaintiffs amended the original complaint to add Plaintiff Adams and filed a Second Amended Complaint following the court’s dismissal of three of the five original counts. The court also dismissed ERISA claims made on behalf of Adams. The Second Amended Complaint now contains two counts. Count I, brought on behalf of ERISA members and beneficiaries, including Briscoe, alleges a violation of ERISA for breach of fiduciary duty alleging that the Corporation has failed to “provide either in-network lactation service providers within a reasonable distance of the plan participants and/or beneficiaries or full coverage of out-of-network lactation service providers for plan participants and/or beneficiaries who do not have in-network lactation service providers within a reasonable distance.” Count II, purportedly brought on behalf of non-ERISA members and beneficiaries including Magerski and Adams (whose claims were repled in this manner), alleges the Corporation violated the ACA mandate relating to comprehensive lactation support and counseling services. The Plaintiffs seek to certify two classes – one based on ERISA members and beneficiaries and one based on non-ERISA members and beneficiaries of nonGrandfathered health plans insured or administered by the Corporation since August 1, 2012 who did not receive full coverage and/or reimbursement for comprehensive lactation benefits. The close of fact discovery is scheduled for March 27, 2019, and the close of expert discovery is set for July 26, 2019. Briefing on motions for class certification is scheduled to be complete by October 18, 2019, and a hearing on class certification is set for November 7, 2019. Nora Candelaria, and all others similarly situated under 29 USC § 216(b) v. Health Care Service Corporation, Case No. 2:17-cv-404. This is a putative class and collective action filed on April 3, 2017 in the United States District Court for the District of New Mexico. Plaintiff was formerly employed as a Member Care Coordinator at Blue Cross and Blue Shield of New Mexico. Plaintiff alleges that the Corporation misclassified the Member Care Coordinator position as exempt from overtime requirements and that she is owed unpaid overtime. On a Fair Labor Standards Act claim, Plaintiff seeks to represent a collective of all Member Care Coordinators (and other employees who perform care or utilization coordination or management job duties) employed by the Corporation since April 3, 2014, and on a New Mexico state-law claim, she seeks to represent a class of all Member Care Coordinators (and other employees who perform similar job duties) employed by the Corporation in New Mexico since April 3, 2014. The Corporation filed an answer on April 26, 2017. A number of additional former and current employees have opted in as plaintiffs since the filing of the suit. These opt-in plaintiffs hold or held several job titles other than Member Care Coordinator. Plaintiffs filed an amended complaint on August 23, 2017, to which the Corporation filed an answer on September 7, 2017. The deadline for Plaintiffs to file a motion for conditional certification of the collective action is currently stayed to permit the parties to engage in mediation. Aperion Care, Inc, Bria Health Services, LLC, Everest Care Group, LLC, Grand Lifestyles, LLC, ICare Financial Services, Inc., Itex Company, Inc. Legacy Healthcare Financial Services, LLC, Maestro Consulting Services, LLC a/k/a Symphony Post-Acute Network, Villa Financial Services, LLC v. Illinois Department of Healthcare and Family Services, Aetna Medicaid Administrators, LLC, Meridian Health Plan, Inc., Community Care Alliance of Illinois, LLC, Illinicare Health Plan, Inc., Cook County, Cook County Health and Hospitals System, and CountyCare Health Plan, NextLevel Health Partners, Inc., WellCare Health Plans, Inc., Cigna Corporation, Humana, Inc., and Molina Healthcare of Illinois, Inc., Case No. 1:17-cv08920. This is a putative class action filed on December 12, 2017 in the United States District Court for the Northern District of Illinois. The named plaintiffs operate long-term care (LTC) facilities in Illinois and filed on behalf of 37 Medicaid recipients against the Illinois Department of Healthcare and Family Services (HFS) and ten separate Illinois Medicaid managed care organizations (MCOs), including the Corporation. Of the 37 residents identified in the complaint, four are alleged to be Blue Cross and Blue Shield of Illinois Medicaid members. Plaintiffs allege that the defendant MCOs have failed to reimburse Medicaid claims within the time periods mandated by federal law and that such nonpayment violates the Federal Medicaid Act, the Americans with Disabilities Act (ADA), the Rehabilitation Act of 1973, and the United States Constitution. Plaintiffs seek to represent a class of Medicaid recipients at any of the plaintiff LTC facilities in obtaining a declaratory judgment ruling that the defendant MCOs are to, among other things, adhere to the federal statutes at issue. They also seek a temporary restraining order and preliminary injunctive relief. The Corporation filed a motion to dismiss on February 23, 2018, which the Court granted on August 29, 2018. Plaintiffs appealed, and the appellate briefing is scheduled to be complete by March 29, 2019. 26.34 ANNUAL STATEMENT FOR THE YEAR 2018 OF THE Health Care Service Corporation, a Mutual Legal Reserve Company Notes to Financial Statements Christina and Jeffrey Terry, husband and wife, each individually and on behalf of their minor child, G. Terry, and on behalf of all others similarly situated v. Health Care Service Corporation, a mutual legal reserve company, d/b/a Blue Cross and Blue Shield of Oklahoma, Case No. 5:18-cv-00415c. This is a putative class action filed on April 27, 2018 in the United States District Court for the Western District of Oklahoma. Plaintiffs allege that their claim for emergency air ambulance services from Rocky Mountain Holdings was improperly adjudicated. Plaintiffs allege breach of contract, bad faith, fraud, constructive fraud and misrepresentation, and also seek declaratory judgment. They seek to represent a class generally described as those who participated in BCBSOK individual policies from January 1, 2014 through the present who were balance billed for emergency services for an air ambulance provider and the claim was not retroactively made subject to the Rocky Mountain Holdings rate agreement or the balance bill exceeded the member’s annual out of pocket limit. The Corporation filed a motion to dismiss on July 13, 2018, and the Court granted in part and denied in part the motion to dismiss on September 25, 2018. A scheduling conference took place on November 1, 2018. The Corporation filed a Motion for Summary Judgment and a Motion to Stay Proceedings on February 13, 2019. Discovery is to be complete by August 1, 2019, and trial is scheduled to begin on October 8, 2019. Michael Komerski v. National Health Direct, LLC, a Florida limited liability corporation, Health Care Service Corporation, a Delaware corporation, Case No. 1:18-cv-5837. This is a putative class action filed in the Circuit Court of Cook County, Illinois on June 4, 2018. Plaintiff Michael Komerski alleges National Health Direct and the Corporation placed multiple unauthorized calls to consumers' cellular telephones. He seeks to recover damages and obtain injunctive relief under the Telephone Consumer Protection Act and seeks class status for his claims. Defendants removed the matter to federal court in August 2018, and the Plaintiff voluntarily dismissed the claim without prejudice on November 9, 2018. J.R., by and through his parents and guardians, Ju.R. and Ja.R., individually, on behalf of similarly situated individuals, v. Blue Cross and Blue Shield of Illinois; Catholic Health Initiatives Medical Plan; and Catholic Health Initiatives, Case No. 2:18-cv-1191. This is a putative class action filed in the United States District Court for the Western District of Washington on August 14, 2018. Plaintiff J.R. alleges that the exclusion of coverage for Applied Behavior Analysis (“ABA”) therapy to treat autism spectrum disorder (“ASD”) in the Catholic Health Initiatives Medical Plan (the “Plan”) is a violation of the Federal Mental Health Parity Act. Plaintiff seeks to represent a class of all individuals who have been, are or will be participants or beneficiaries under the Plan in effect or renewed on or after August 10, 2012 and who have received, require, or are expected to require ABA therapy for the treatment of ASD. Plaintiff, on behalf of himself and the putative class, asserts claims under ERISA and seeks, among other things, processing and reprocessing of previously excluded ABA therapy services on eligible claims on or after August 10, 2012, and an injunction to prevent any future or ongoing efforts by Defendants to enforce Plan exclusions or limitations of ABA therapy to treat ASD. The Corporation filed an answer on December 5, 2018. On January 15, 2019, the court set a deadline for completing discovery on class certification as July 19, 2019, and a deadline for Plaintiff to file a motion for class certification as August 19, 2019. Kathleen Harper, as a Taxpayer of the City of Chicago, an Illinois Municipal Corporation and suing derivatively on behalf of the City of Chicago, an Illinois Municipal Corporation and as a Taxpayer of Cook County, Illinois, an entity of local government, and suing derivatively on behalf of the City of Chicago, an Illinois Municipal Corporation as well as Cook County, v. Health Care Service Corporation, an Illinois Corporation, Case No. 2018-L-010842. This is a putative class action filed in the Circuit Court of Cook County, Illinois on October 5, 2018. Plaintiff Kathleen Harper, as a taxpayer of the City of Chicago and Cook County, derivatively alleges that Illinois law prevents the City of Chicago and Cook County (the “City and County”) from entering into a contract where the Corporation receives public funds in an amount that is not limited or disclosed to the public. She contends that the Corporation, as Third-Party Administrator for City and County employee health care plan(s), has collected and continues to collect unauthorized charges and/or imposes unauthorized surcharges on billings it submits to the City which are paid for out of public funds provided to the City and County by Plaintiff and other taxpayers similarly situated. Plaintiff further alleges the Corporation has improperly inflated charges for prescription drugs supplied to the City and County through companies it owns and/or controls. Plaintiff seeks monetary damages in an amount necessary to compensate Plaintiff, all other taxpayers of Chicago and Cook County, and on behalf of the City of Chicago and Cook County itself for the loss caused by the alleged conduct of the Corporation. On October 25, 2018, the Court granted Plaintiff leave to file a second amended complaint. The Corporation filed a motion to dismiss on January 4, 2019. A hearing is currently scheduled for February 19, 2019. United States ex rel. Kuriyan v. Health Care Service Corporation, et al., No. 1:16-cv-01148-CG-KK (D.N.M.). On October 18, 2016, relator Jacob Kuriyan filed a complaint in the United States District Court for New Mexico on behalf of the United States and the State of New Mexico against Health Care Service Corporation, Molina Healthcare of New Mexico, Inc., Presbyterian Health Plan, Inc. and United Healthcare of New Mexico, Inc. The relator alleges that each of the defendants served as a Managed Care Organization 26.35 ANNUAL STATEMENT FOR THE YEAR 2018 OF THE Health Care Service Corporation, a Mutual Legal Reserve Company Notes to Financial Statements (“MCO”) for New Mexico’s Medicaid program in 2014. The relator contends that each of the MCOs failed to meet the minimum 85 percent medical expense ratio in 2014 and failed to remit the balance to the state of New Mexico. The relator alleges that the MCOs, in total, owe a refund to the state of New Mexico of approximately $248 million. The relator asserts claims under the False Claims Act, the New Mexico Medicaid False Claims Act, and the New Mexico Fraud Against Taxpayers Act. On December 4, 2018, the United States and the state of New Mexico declined to intervene in the lawsuit, and the lawsuit was unsealed on December 12, 2018. HCSC has not been served. The Corporation is also subject to legal and regulatory matters arising in the normal course of business. The Corporation believes that any liability that may result from any of these actions is unlikely to have a material adverse effect on the Corporation’s financial position or results of operations. 15. Leases A. Lessee Leasing Arrangements Lessee operating leases are primarily for electronic data processing equipment with lease terms of one to five years and for office space with lease terms of one to fifteen years. Rental expense for 2018 and 2017 was approximately $146,310,207 and $158,981,766, respectively. Certain rental commitments have renewal options with some of these renewals being subject to adjustments in future periods. At December 31, 2018, the minimum aggregate rental commitments are as follows: 1. 2. 3. 4. 5. 6. 7. Year Ending December 31 2019 2020 2021 2022 2023 Subsequent to 2023 Total of all future years Operating Leases $ 49,244,225 46,126,019 24,653,638 17,190,251 14,682,704 28,208,617 $ 180,105,454 The amounts above include lease payments related to the current lease of the Corporation’s former Richardson, Texas, headquarters building. These payments, which total approximately $8,302,080 from 2019 through 2020, will be paid by a third party as part of an agreement to lease a new building in Richardson, Texas, which the Corporation subsequently purchased in December 2010. The third party deposited $45,000,000 of the purchase price into an escrow fund at closing to satisfy the remaining lease obligations. The current market value of the fund is $12,854,032. However, the Corporation is still contingently liable if the third party does not make these payments. B. Lessor Leasing Arrangements Not Applicable. 16. Information about Financial Instruments with Off-Balance Sheet Risk and Financial Instruments with Concentrations of Credit Risk Not Applicable. 17. Sale, Transfer and Servicing of Financial Assets and Extinguishments of Liabilities A. Transfer of Receivables Reported as Sales (1 - 2) See Note 21C for disclosure related to the sale of a portion of the Corporation’s receivable due from the State of Illinois. B. Transfer and Servicing of Financial Assets See Note 11A for disclosure related to the borrowed funds secured by the Corporation’s Medicaid premium receivable due from the State of Illinois. 26.36 ANNUAL STATEMENT FOR THE YEAR 2018 OF THE Health Care Service Corporation, a Mutual Legal Reserve Company Notes to Financial Statements C. Wash Sales (1 - 2) Not Applicable. 18. Gain or Loss to the Reporting Entity from Uninsured Plans and the Uninsured Portion of Partially Insured Plans A. Administrative Services Only Plans (ASO) The claim payments related to MAPD’s ASO uninsured plans and the uninsured portion of partially insured plans is as follows during 2018: ASO Uninsured Plans a. Net reimbursement for administrative expenses (including administrative fees) in excess of actual expenses b. Total net other income or expenses (including interest paid to or received from plans) c. Net gain or loss from operations d. Total claim payment volume $ - Uninsured Uninsured Portion of Partially Insured Plans $ 135,677,911 - Total ASO $ - - 135,677,911 B. ASC Plans The loss from operations from ASC uninsured plans and the uninsured portion of partially insured plans was as follows during 2018: ASC Uninsured Plans a. Gross reimbursement for medical cost incurred b. Gross administrative fees accrued c. Other income or expenses (including interest paid to or received from plans) d. Gross expenses incurred (claims and administrative) e. Total net gain or loss from operations $ Uninsured Portion of Partially Insured Plans 57,695,483,461 $ 2,878,609,203 - $ 60,617,622,862 (43,530,198) $ - Total ASC $ - 2,878,609,203 - 57,695,483,461 - $ 60,617,622,862 (43,530,198) C. Medicare or Other Similarly Structured Cost-Based Reimbursement Contracts (1) Revenue from the Corporation’s Indian Health Service contract for the year ended December 31, 2018 consisted of $14,094,583 for administrative fee income and there was no revenue for medical and hospital related services. (2) As of December 31, 2018, the Corporation has recorded receivables from Indian Health Service of $2,344,082 and there are no receivables due from Medicare A. (3) There were no allowances and reserves for adjustment of recorded revenues at December 31, 2018 in connection with the Corporation’s Indian Health Service and Medicare A service contracts. The Corporation has made no adjustment to revenue resulting from the audit of receivables related to revenues recorded in the prior period. 19. Direct Premium Written/Produced by Managing General Agents/Third Party Administrators Not Applicable. 26.37 ANNUAL STATEMENT FOR THE YEAR 2018 OF THE Health Care Service Corporation, a Mutual Legal Reserve Company Notes to Financial Statements 20. Fair Value Measurements A. Fair Value Measurement Techniques and Inputs Fair values are based on quoted market prices when available. When market prices are not available, fair value is generally estimated using discounted cash flow analyses, incorporating current market inputs for similar financial instruments with comparable terms and credit quality (matrix pricing). In instances where there is little or no market activity for the same or similar instruments, the Corporation estimates fair value using methods, models, and assumptions that management believes market participants would use to determine a current transaction price. These valuation techniques involve some level of management estimation and judgment, which become significant with increasingly complex instruments or pricing models. Where appropriate, adjustments are included to reflect the risk inherent in a particular methodology, model, or input used. The Corporation’s financial assets and liabilities carried at fair value have been classified, for disclosure purposes, based on a hierarchy that gives the highest ranking to fair values determined using unadjusted quoted prices in active markets for identical assets and liabilities (Level 1) and the lowest ranking to fair values determined using methodologies and models with unobservable inputs (Level 3). An asset’s or a liability’s classification is based on the lowest-level input that is significant to its measurement. For example, a Level 3 fair value measurement may include inputs that are both observable (Levels 1 and 2) and unobservable (Level 3). There were no changes in valuation techniques from the prior period. The levels of the fair value hierarchy are as follows: Level Input Definition Level 1 – Values are unadjusted quoted prices for identical assets and liabilities in active markets accessible at the measurement date. Level 2 – Inputs include quoted prices for similar assets or liabilities in active markets, quoted prices from those willing to trade in markets that are not active, or other inputs that are observable or can be corroborated by market data for the term of the instrument. Such inputs include market interest rates and volatilities, spreads, and yield curves. Level 3 – Certain inputs are unobservable (supported by little or no market activity) and significant to the fair value measurement. Unobservable inputs reflect the Corporation’s best estimate of what hypothetical market participants would use to determine a transaction price for the asset or liability at the reporting date. NAV – NAV per share is the amount of net assets attributable to each share of capital stock (other than senior equity securities, that is, preferred stock) outstanding at the close of the period. It excludes the effects of assuming conversion of outstanding convertible securities, whether or not their conversion would have a diluting effect. (1) Fair Value Measurements at Reporting Date The following tables summarize fair value measurements by level as of December 31, 2018 for assets carried at fair value: Description for each class of asset or liability (Level 1) (Level 2) (Level 3) NAV Total a. Assets at fair value Money Market Mutual Funds $ Bonds Non-US Governments Industrial and Misc Hybrid Securities Exchange Traded Funds as Identified by the SVO Bank Loans Total Bonds - $ 288,019,877 288,019,877 Non-Affiliated Common Stock Total assets at fair value 70,522,231 $ 358,542,108 $ b. Liabilities at fair value Total liabilities at fair value $ $ $ $ (2-5) Not Applicable. 26.38 - - $ - $ 196,639,866 $ 65,425,037 503,993,921 9,863,657 238,677,410 817,960,025 - 26,751,286 844,711,311 $ - 867,203,550 $ 1,063,843,416 964,477,067 $ 2,267,096,835 - $ $ $ $ - $ $ - 196,639,866 - 65,425,037 503,993,921 9,863,657 288,019,877 238,677,410 1,105,979,902 - ANNUAL STATEMENT FOR THE YEAR 2018 OF THE Health Care Service Corporation, a Mutual Legal Reserve Company Notes to Financial Statements B. Other Fair Value Disclosures Not Applicable. C. The following table provides the aggregate fair value for all financial instruments, excluding those accounted for under the equity method, by fair value hierarchy level as of December 31, 2018: Aggregate Fair Value Type or Class of Financial Instrument Bonds U.S. Governments All Other Governments U.S. States, Territories and Possessions $ U.S. Political Subdivisions of States, Territories and Possessions U.S. Special Revenue, Special Assessment 1,779,178,402 147,994,130 Admitted Assets $ 1,795,105,381 147,006,627 (Level 1) $ (Level 2) - $ (Level 3) 1,779,178,402 147,994,130 $ - - - 248,781,473 247,301,635 - 248,781,473 - - - - 639,985,233 6,915,945,805 40,059,652 - - - - - - 288,019,877 268,787,255 10,558,079,117 288,019,877 288,019,877 268,835,841 10,134,270,092 Non-Affiliated Common Stock 983,243,067 983,243,067 70,522,231 45,517,286 - 518,461 539,463 - 518,461 - 14,703,447 14,703,447 - 14,703,447 - 196,639,866 196,639,866 - $ - 93,489,556 288,019,877 268,835,841 10,422,289,969 Total $ - 649,214,851 7,026,762,993 42,620,327 Money Market Mutual Funds - 93,260,171 639,985,233 6,915,945,805 40,059,652 Short Term Investments $ Not Practical (Carrying Value) 93,489,556 Industrial and Misc Hybrid Securities Exchange Traded Funds as Identified by the SVO Bank Loans Total Bonds Other Invested Assets Net Value Asset (NAV) 11,617,394,810 $ 11,753,204,960 $ 358,542,108 $ 10,195,009,286 867,203,550 $ - - - - - - 196,639,866 $ 1,063,843,416 $ - D. Explanation if Fair Value is not practicable Not Applicable. E. Explanation if Fair Value is Measured by Using the NAV Practical Expedient Not Applicable. 21. Other Items A. Unusual or Infrequent Items Not Applicable. B. Troubled Debt Restructuring: Debtors Not Applicable. C. Other Disclosures Organization The Corporation operates as a mutual insurance company in Illinois. The Corporation is an independent licensee of the BCBSA and does business as Blue Cross and Blue Shield of Illinois (BCBSIL), Blue Cross and Blue Shield of Montana (BCBSMT), Blue Cross and Blue Shield of New Mexico (BCBSNM), Blue Cross and Blue Shield of Oklahoma (BCBSOK), and Blue Cross and Blue Shield of Texas (BCBSTX). The Corporation underwrites and administers medical and dental insurance business through its operating divisions in the states of Illinois, Montana, New Mexico, Oklahoma, and Texas. The Corporation provides group and individual indemnity health insurance and managed health care products such as health maintenance organizations, participating provider/preferred provider options, point-of-service plans, and consumer-driven health plans. In addition, it also sells other products such as Medicare supplemental coverage, ASC, Medicaid, standalone Medicare Part D, MAPD, dual eligible, managed behavioral health, prescription drug, and vision coverages. 26.39 ANNUAL STATEMENT FOR THE YEAR 2018 OF THE Health Care Service Corporation, a Mutual Legal Reserve Company Notes to Financial Statements Patient Protection and Affordable Care Act The ACA created significant changes to health care coverage in the U.S., and subsequent regulatory actions and challenges to the ACA similarly had significant impact to the health care coverage market. Consumers are protected by regulations that require a specific proportion of premium revenues be spent on clinical services and quality improvements. The ACA imposes minimum MLR for insured plans of 85% for the large group market and 80% for the individual and small group markets on an annual basis, requiring insurers to issue rebates to employers and/or members for the amount under the minimum. The ACA requires that insurers guarantee issuance of coverage to all individuals, regardless of health status, and limits how individual and small group health insurance is rated. The ACA risk adjustment program transfers funds to compensate insurers for enrolling higher risk members in the individual and small group markets. Most individuals are required under the ACA to obtain coverage or be subject to financial penalty, although such penalty has been repealed, effective in 2019. The ACA provides for premium and cost-sharing subsidies for individual health insurance to eligible persons through public exchanges. However, in October 2017, the decision to discontinue federal funding of these cost-sharing subsidies was announced. The ACA expanded Medicaid eligibility. The ACA imposes an annual fee on health insurance companies (however, the annual fee was suspended for 2017 and will be suspended for 2019). These and other provisions of the ACA are having significant effects on the Corporation’s current financial position and results of operations (particularly as the Corporation continues to offer exchange products in every county of all five states in which it operates), some effects of which are uncertain and could be material. As a result of the complexity of the ACA and its impact on the health care system, as well as the continually evolving legislative, regulatory, and litigation landscape surrounding the ACA, the Corporation continues to monitor the ACA’s impact on the Corporation’s financial position and results of operations, which could have a material impact on the Corporation’s financial position or operating results. Affordable Care Act Risk Adjustment In February 2018, a U.S. District Court for the District of New Mexico (“District Court”) vacated the use of statewide average premium in the 2014-2018 regulations for the Affordable Care Act’s (“ACA”) risk adjustment methodology in New Mexico Health Connections v. U.S. Department of Health and Human Services, et al., Case No. 1:16-cv-00878 JB/JHR (“NMHC v. HHS I”). In response, the Centers for Medicare and Medicaid Services (“CMS”) suspended collections and payments under the ACA risk adjustment program for the 2017 benefit year in July 2018. However, CMS subsequently resumed risk adjustment collections and payments for the 2017 benefit year after CMS published a Final Rule (“2017 Final Rule”) re-adopting the risk adjustment methodology for the 2017 benefit year (including the use of statewide average premium in that methodology). In December 2018, CMS also published a Final Rule re-adopting the risk adjustment methodology for the 2018 benefit year (including the use of state wide average premium in that methodology). In August 2018, a separate legal action was filed in the District Court seeking to, among other things, vacate the 2017 Final Rule in New Mexico Health Connections v. U.S. Department of Health and Human Services, et al., Case No. 1:18-cv-00773 JB/KM (“NMHC v. HHS II”). In December 2018, the Defendants in NMHC v. HHS I filed a notice of appeal to the U.S. Court of Appeals for the Tenth Circuit. In February 2019, the parties in NMHC v. HHS II proposed to maintain the stay in that case until the resolution of NMHC v. HHS I in the Court of Appeals. As of December 31, 2018, the Corporation's financial statements reflect the risk adjustment balances for the rules currently in effect for the 2018 and 2017 benefit years. State of Illinois Premium Receivables The Corporation is a provider of health insurance coverage to the State of Illinois (the State) employees and their dependents. In 2009, the State notified the Corporation of the State’s significant budget deficit. The State subsequently limited group premium payments to the Corporation based on its available cash. Additionally, the State operated without a budget from July 1, 2015 through July 5, 2017, which limited the State’s Medicaid premium payments to the Corporation. In 2017, the Corporation sold, without recourse, $397,014,443 of its receivable balance for the State employer group (group premiums). In 2018, the Corporation sold, without recourse, an additional $291,332,241 of its premium receivable balance for the group premiums. No gain or loss was reported on these transactions. (See Note 11A for information on the transfer of the State Medicaid receivable through a non-recourse loan.) As of December 31, 2018, the Corporation has a total outstanding receivable balance from the State of $589,282,030. The total is comprised of $103,352,935 of employer group premiums, past due approximately three months, and $485,929,095 of Medicaid premiums, past due approximately two months. As of December 31, 2017, the Corporation had an outstanding receivable from the State of 26.40 ANNUAL STATEMENT FOR THE YEAR 2018 OF THE Health Care Service Corporation, a Mutual Legal Reserve Company Notes to Financial Statements $406,377,041, which was comprised of $143,336,460 of group premiums, past due approximately three months, and $263,040,581 of Medicaid premiums, past due approximately two months. The receivable is being treated as an admitted asset in its entirety in accordance with statutory accounting principles for receivables from government entities. Comment on General Interrogatories Part 2 - Health Interrogatories 4.1 and 4.2. The Corporation actively solicits health business in its five division states, Illinois, Montana, New Mexico, Oklahoma and Texas. To the best of its knowledge, all agreements within the scope of this question have been filed as required with the appropriate regulatory agency in Illinois, Montana, New Mexico, Oklahoma and Texas and the appropriate federal agency, with the exception of certain filings that are pending in the ordinary course of business. With respect to individual policies, some residents of other states hold individual health policies that have not been filed in their state of residence because generally the policy was originally issued and delivered in Illinois, Montana, New Mexico, Oklahoma or Texas and the individual subsequently moved to that state after the policy was issued. With respect to certificates provided to individual subscribers under agreements with group policyholders located in Illinois, Montana, New Mexico, Oklahoma or Texas, the Corporation has undertaken an initiative to file, as required by regulatory agencies of other states, certificate riders for health benefits and other patient rights mandated by such states for its residents who are insured under group insurance policies issued in Illinois, Montana, New Mexico, Oklahoma and Texas. The Corporation does not market or issue insurance policies in these other states. This filing initiative in other states is an on-going process. To date, the Corporation has focused on filing with appropriate regulatory agencies of other states certificate riders with medical benefits required for residents insured under Illinois, New Mexico, Oklahoma and Texas group policies. Other benefits or other requirements, such as medical benefits for residents insured under Montana group policies, dental, and other state mandates may require additional filings. As the Corporation has obtained Certificates of Authority in additional states, it is in the process of filing or refiling certificate riders as required by those states, as well as filing stop loss policy forms in states where required. Either these stop loss policies are currently written by an affiliated insurance company or the Corporation had previously written these stop loss policies as an unauthorized insurer under applicable exemptions to that state’s certificate of authority requirements. Comment on General Interrogatories Part 2 – Health Interrogatories 11.3 and 11.4 - minimum net worth of $1,500,000 required by State of Illinois Illinois risk-based capital provisions may require substantially more net worth. Other states may also have minimum net worth requirements that apply to a foreign insurer. D. Business Interruption Insurance Recoveries Not Applicable. E. State Transferable and Non-transferable Tax Credits (1) Carrying Value of Transferable and Non-transferable State Tax Credits Gross of any Related Tax Liabilities and Total Unused Transferable and Non-transferable State Tax Credits by State and in Total. Description of State Transferable and Non-transferable Tax Credits State Transferable State Credits Non-transferable state tax credits Total OK NM Carrying Value $ $ $ 2,250,372 4,227,116 6,477,488 Unused Amount $ $ $ 2,250,372 4,227,116 6,477,488 (2) Method of Estimating Utilization of Remaining Transferable and Non-transferable State Tax Credits Not Applicable. (3) Impairment Loss There is no impairment loss related to this asset. 26.41 ANNUAL STATEMENT FOR THE YEAR 2018 OF THE Health Care Service Corporation, a Mutual Legal Reserve Company Notes to Financial Statements (4) State Tax Credits Admitted and Nonadmitted a. Transferable b. Non-Transferable F. Total Admitte d Total Nonadmitte d $ 2,250,372 $ $ 4,227,116 $ - Subprime-Mortgage-Related Risk Exposure (1) The Corporation has defined its sub-prime related risk exposure as any investment which has exposure to underlying residential mortgage loans where the borrowers did not qualify for conventional prime rate loans because of, but not limited to, low credit ratings and/or less than conventional documentation of their income and/or net assets. The Corporation, along with its investment advisors, regularly reviews its investments to determine its exposure to sub-prime related investments. The Corporation also holds an equity interest in its subsidiary DNL which has sub-prime mortgage related risk exposure. For all sub-prime investments, the exposure to unrealized losses consists of possible future changes in interest rates, credit spreads and other factors that could affect fair value. The exposure to realized losses consists of changes in anticipated future cash flows or the need to recognize future OTTIs. The Corporation regularly reviews its investments and monitors changes that could affect valuation. (2) Not Applicable - The Corporation does not engage in sub-prime mortgage lending. (3) Direct exposure through other investments. Actual Cost a. Residential mortgage backed securities $ 53,718,663 b. Commercial mortgage backed securities c. Collateralized debt obligations d. Structured securities 14,567,786 e. Equity investment in SCAs * 4,518,175 f. Other assets g. Total $ 72,804,624 Book/Adjusted Carrying Value (excluding interest) $ 53,604,654 14,716,351 4,564,012 $ 72,885,017 Fair Value $ 52,937,375 15,928,823 4,590,815 $ 73,457,013 Other- ThanTemporary Impairment Losses Recognized $ $ - *The Corporation’s subsidiary has investments in subprime mortgages. These investments comprise less than 0.20% of the Corporation’s invested assets. (4) Not Applicable – The Corporation does not engage in Mortgage Guaranty nor Financial Guaranty insurance coverage or underwriting G. Retained Assets Not Applicable. H. Insurance-Linked Securities (ILS) Contracts Not Applicable. 22. Events Subsequent Management of the Corporation has evaluated all events occurring after December 31, 2018 through February 28, 2019, the date the statutory-basis financial statements were available to be issued, to determine whether any event required either recognition or disclosure in the financial statements. Based on this evaluation, no significant subsequent events occurred other than those disclosed in the financial statements. Type I – Recognized Subsequent Events: Not Applicable. Type II – Non-recognized Subsequent Events: Annual Fee Under Section 9010 of ACA 26.42 ANNUAL STATEMENT FOR THE YEAR 2018 OF THE Health Care Service Corporation, a Mutual Legal Reserve Company Notes to Financial Statements On January 1, 2019, the Corporation will not be subject to an annual fee under Section 9010 of the ACA. H.R. 195, Division D – Suspension of Certain Health-Related Taxes, § 4003, suspends collection of the fee for the 2019 calendar year only. Thus, health insurance issuers are not required to pay these fees for 2019. Health insurers are required to pay these fees in 2020. This annual fee is allocated to individual health insurers based on the ratio of the amount of the entity’s net premiums written during the preceding calendar year to the amount of health insurance for any U.S. health risk that is written during the preceding calendar year. A health insurance entity’s portion of the annual fee becomes payable once the entity provides health insurance for any U.S. health risk for each calendar year beginning on or after January 1 of the year the fee is due. As of December 31, 2018, the Corporation has written health insurance subject to the ACA assessment and expects to conduct health insurance business in 2019, however, the Corporation will not pay this fee since it was suspended. Correspondingly, there will be no impact on special surplus or risk-based capital (RBC). Reporting the ACA assessment as of December 31, 2018, would not have triggered an RBC action level. A. Did the reporting entity write accident and health insurance premium that is subject to Section 9010 of the federal Affordable Care Act (YES/NO)? B. ACA fee assessment payable for the upcoming year* C. ACA fee assessment paid D. Premium written subject to ACA 9010 assessment* E. Total Adjusted Capital before surplus adjustment (Five-Year Historical Line 14) F. Total Adjusted Capital after surplus adjustment (Five-Year Historical Line 14 minus 22B above) G. Authorized Control Level (Five-Year Historical Line 15) Would reporting the ACA assessment as of December 31, H. 2018, have triggered an RBC action level (YES/NO)? $ 2018 2017 YES YES $ 577,828,765 $ 30,555,458,804 604,530,655 16,875,909,359 16,875,909,359 1,313,396,159 NO *Premium written subject to ACA 9010 assessment was calculated using the 2016 Supplemental Health Care Exhibit (SHCE). At the time of the filing of the 2017 Annual Statement, the Corporation had not filed the 2017 SHCE, therefore, the ACA fee assessment for the upcoming year was an estimate. In 2018, the Corporation reported there is no ACA fee assessment payable for the upcoming year due to the moratorium on the ACA fee for the 2019 calendar year. Effective January 1, 2019, the Corporation entered into a reinsurance agreement with HISC, in which the Corporation shall assume 100% of HISC’s total incurred medical liability for dates of service beginning January 1, 2019 under HISC’s Medicaid agreement with the New Mexico Human Services Department (NM HSD). HISC shall pay a reinsurance premium in an amount equal to 93.1% of all Medicaid premiums earned under the NM HSD agreement, for the earned period beginning January 1, 2019. The agreement reprices annually. In 2019, the Corporation will be preparing formal notices to applicable Entities’ domiciliary states to seek regulatory approval of the dissolution of some of its wholly-owned or controlled insurance entities. As a result of changing business strategy, the Corporation has determined that it no longer plans to move business into some of these entities and has decided not to continue to maintain entities that no longer serve a business purpose. Those entities that no longer serve a business purpose are noted below. BCBSIL GP HMO, NFP BCBSNM GOVERNMENT PROGRAMS HMO, NFP BCBSTX GOVERNMENT PROGRAMS HMO BCBSOK GOVERNMENT PROGRAMS HMO COMPANY OKLAHOMA BLUE INSURANCE COMPANY MONTANA BLUE GOVERNMENT PROGRAMS HMO MONTANA BLUE INSURANCE COMPANY 23. Reinsurance A. Ceded Reinsurance Report Section 1 – General Interrogatories (1) No (2) No 26.43 ANNUAL STATEMENT FOR THE YEAR 2018 OF THE Health Care Service Corporation, a Mutual Legal Reserve Company Notes to Financial Statements Section 2 – Ceded Reinsurance Report – Part A (1) No (2) No Section 3 – Ceded Reinsurance Report – Part B (1) As of December 31, 2018, the Corporation had $1,040,713 of paid loss recoverable due from HHS under the transitional reinsurance program. In addition, the Corporation had $17,856,000 of unpaid loss recoverable due from Genworth Life Insurance Company as of December 31, 2018 and $191,000 from EyeMed Insurance. (2) No. B. Uncollectible Reinsurance Not Applicable. C. Commutation of Ceded Reinsurance Not Applicable. D. Certified Reinsurer Rating Downgraded or Status Subject to Revocation Not Applicable. 24. Retrospectively Rated Contracts & Contracts Subject to Redetermination A. The Corporation estimates accrued retrospective premium adjustments for certain contracts such as MAPD, Medicaid, ACA in the individual and small group market and group health insurance business with experience rated contracts through using various mathematical approaches, including where allowed, an algorithm of the Corporation’s underwriting rules and experience rating practices. The ACA Risk Adjustment Program and the Part D portion of its MAPD contract and the standalone Part D are subjected to “risk share settlement” with CMS which is settled subsequent to the end of the plan year. B. The retrospective premium and accrued risk share settlements are recorded as an adjustment to premium earned. C. The amount of net premiums written by the Corporation at December 31, 2018 and 2017, that are subject to retrospective rating features is $ 32,956,852,257 and $29,930,142,655, respectively, which is primarily related to premiums subject to minimum MLR rebates and risk adjustment for ACA, MAPD and Medicaid premiums. This represented 92% and 91% of the total net premiums written in 2018 and 2017, respectively. D. There were MLR rebates amounting to $83,893,500 pursuant to the Public Health Service Act that were incurred but not paid in 2018. Current Reporting Year-to-Date (7) Medical loss ratio rebates incurred (8) Medical loss ratio rebates paid (9) Medical loss ratio rebates unpaid (10) Plus reinsurance assumed amounts (11) Less reinsurance ceded amounts (12) Rebates unpaid net of reinsurance 1 2 Individual Small Group Employer 4 Other Large Categories Group with Employer rebates $ $ $ 71,765,700 71,765,700 XXX XXX XXX 12,127,800 12,127,800 XXX XXX XXX 3 XXX XXX XXX $ XXX XXX XXX 5 Total $ 83,893,500 83,893,500 $ 83,893,500 There were no MLR rebates pursuant to the Public Health Service Act that were incurred or paid in 2017. E. Risk - Sharing Provisions of the ACA (1) Did the reporting entity write accident and health insurance premium that is subject to the ACA risk-sharing provisions (YES/NO)? YES 26.44 ANNUAL STATEMENT FOR THE YEAR 2018 OF THE Health Care Service Corporation, a Mutual Legal Reserve Company Notes to Financial Statements (2) Impact of Risk Sharing Provisions of ACA on Admitted Assets, Liabilities and Revenue for the Current Year a. Permanent ACA Risk Adjustment Program As of Assets 1. Premium adjustments receivable due to ACA Risk Adjustment (including high-risk pool payments) Liabilities 2. Risk adjustment user fees payable for ACA Risk Adjustment 3. Premium adjustments payable due to ACA Risk Adjustment (including high-risk pool payments) December 31, 2017 $ 618,380,191 $ 259,594,555 $ 2,789,077 $ 2,629,954 $ 43,792,492 $ - For the period ended December 31, 2018 December 31, 2017 Operations (Revenue & Expense) 4. Reported as revenue in premium for accident and health contracts (written/collected) due to ACA Risk Adjustment 5. Reported in expenses as ACA risk adjustment user fees (incurred/p aid) b. December 31, 2018 $ 921,772,549 $ 299,349,294 $ 2,793,164 $ 2,672,548 $ December 31, 2018 1,040,713 $ December 31, 2017 49,612,659 Transitional ACA Reinsurance Program As of Assets 1. Amounts recoverable for claims paid due to ACA Reinsurance 2. Amounts recoverable for claims unpaid due to ACA Reinsurance (Contra Liability) 3. Amounts receivable relating to uninsured plans for contribution for ACA Reinsurance Liabilities 4. Liabilities for contributions payable due to ACA Reinsurance – not reported as ceded premium 5. Ceded reinsurance premiums payable due to ACA Reinsurance 6. Liabilities for amounts held under uninsured plans contributions for ACA Reinsurance 7. Ceded reinsurance premiums due to ACA Reinsurance Operations (Revenue & Expense) 8. Reinsurance recoveries (income statement) due to ACA Reinsurance payments or expected payments, reduction to claims 9. ACA Reinsurance contributions – not reported as ceded premium 10 ACA Reinsurance contributions – not reported as ceded premium c. $ - $ - $ - $ - $ $ - $ $ - $ $ - $ $ - For the period ended December 31, 2018 December 31, 2017 $ (161) $ $ - $ (50,583,878) - $ - - $ - Temporary ACA Risk Corridors Program As of Assets 1. Accrued retrospective premium due to ACA Risk Corridors Liabilities 2. Reserve for rate credits or p olicy experience rating refunds due to ACA Risk Corridors December 31, 2018 $ - $ $ - $ December 31, 2017 5,404,348 - For the period ended December 31, 2018 December 31, 2017 Operations (Revenue & Expense) 3. Effect of ACA Risk Corridors on net premium income (paid/received) 4. Effect of ACA Risk Corridors on change in reserves for rate credits $ (369,332) $ - $ (13,282,028) $ - (3) Roll-forward of prior year ACA risk-sharing provisions for the following asset (gross of any nonadmission) and liability balances, along with the reasons for adjustments to prior year balance. Accrued During the Prior Year on Received or Paid as of the Current Year Differences Business Written Before December 31 on Business Written Before December Prior Year Prior Year Accrued of the Prior Year 31 of the Prior Year Accrued Less Less Payments (Col Payments (Col 2 1 - 3) 4) 1 2 3 4 5 6 Receivable (Payable) Receivable (Payable) Receivable (Payable) a. Permanent ACA Risk Adjustment Program 1. Premium adjustments receivable (including high-risk pool payments) 2. Premium adjustments (payable) (including high-risk pool payments) 3. Subtotal ACA Permanent Risk Adjustment Program $ 259,594,555 $ - $ 606,952,070 $ - $ (347,357,515) $ - - To Prior Year Balances 7 Receivable Unsettled Balances as of the Cumulative Cumulative Balance from Balance from Prior Years (Col Prior Years (Col 1 – 3 +7) 2 – 4 +8) 9 10 Ref* Receivable (Payable) To Prior Year Balances 8 (Payable) $381,465,850 $ A (172,665) B - - - (172,664) - 606,952,070 (172,664) 49,612,659 - 48,572,106 - - 161 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 172,664 - - 259,594,555 (347,357,515) 172,664 Adjustments $ 34,108,335 $ - - (1) 34,108,335 (1) 1,040,714 - - - - - - - - - - - - - - 381,465,850 (172,665) b. Transitional ACA Reinsurance Program 1. Amounts recoverable for claims paid 2. Amounts recoverable for claims unpaid (contra liability) 3. Amounts receivable relating to uninsured plans 4. Liabilities for contributions payable due to ACA Reinsurance – not reported as ceded premium 5. Ceded reinsurance premiums payable 6. Liability for amounts held under uninsured plans 7. Subtotal ACA Transitional Reinsurance Program c. Temporary ACA Risk Corridors Program 1. Accrued retrospective premium 2. Reserve for rate credits or policy experience rating refunds 3. Subtotal ACA Risk Corridors Program d. Total for ACA Risk Sharing Provisions $ 1,040,553 C - - - - - - - - - 49,612,659 - 48,572,106 - 1,040,553 - 161 - 1,040,714 - 5,404,348 - 5,035,017 - 369,331 - (369,332) - - - - - 5,404,348 - 5,035,017 - 314,611,562 $ - $ 660,559,193 $ (172,664) $ 369,331 (345,947,631) $ 172,664 $ (369,332) 381,096,679 $ - - - - (1) - (172,665) *Explanations of Adjustments A. Adjustments were made to reflect the ending balance as reported in the CMS "Summary Report on Transitional Reinsurance Payments and Permanent Risk Adjustment Transfers for the 2016 Benefit Year". B. The amount held as amounts recoverable for claims unpaid has since been considered "paid". Therefore, it is reflected in amounts recoverable for paid claims as it is no longer considered "unpaid". C. Increase made to reflect a change in the official 2016 Reinsurance coinsurance from CMS. D. Release of remaining Risk Corridor balance based on correspondence from CMS. 26.45 (1) - D $ 35,149,048 $ (1) ANNUAL STATEMENT FOR THE YEAR 2018 OF THE Health Care Service Corporation, a Mutual Legal Reserve Company Notes to Financial Statements (4) Roll-Forward of Risk Corridors Asset and Liability Balances by Program Benefit Year. Risk Corridors Program Year: Accrued During the Prior Year on Business Received or Paid as of the Current Year on Written Before December 31 of the Prior Business Written Before December 31 of Year the Prior Year Differences Unsettled Balances as of the Reporting Date Prior Year Accrued Less Payments (Col 1 - 3) a. 2014 1. Accrued retrospective premium 2. Reserve for rate credits or policy experience rating refunds b. 2015 1. Accrued retrospective premium 2. Reserve for rate credits or policy experience rating refunds $ Adjustments Prior Year Accrued Less Payments (Col 2 - 4) To Prior Year Balances 1 2 3 4 5 6 7 8 Receivable (Payable) Receivable (Payable) Receivable (Payable) Receivable (Payable) 5,404,348 $ - $ 5,035,017 $ - $ 369,332 $ - $ - - - - - - - - - - - - - - - - - - - - - - - - Cumulative Balance Cumulative Balance from Prior Years from Prior Years (Col 1 – 3 +7) (Col 2 – 4 +8) To Prior Year Balances (369,332) $ Ref* 9 10 Receivable (Payable) - A $ - $ - - - - - - - - - - - - - - - - - - - - - - - c. 2016 - 1. Accrued retrospective premium 2. Reserve for rate credits or policy experience rating refunds d. Total for ACA Risk Corridors $ 5,404,348 $ - $ 5,035,017 $ - $ 369,332 $ - $ (369,332) $ - $ - - - - $ - *Explanations of Adjustments A. Release of remaining Risk Corridor balance based on correspondence from CMS. (5) ACA Risk Corridors Receivable as of Reporting Date 1 Risk Corridors Program Year: a. 2014 b. 2015 c. 2016 d. Total 2 3 Estimated Amount Non-Accrued to be Filed or Final Amounts for Amount Filed with Impairment or Amounts received CM S Other Reasons from CM S $ 575,951,453 $ 479,505,784 $ 96,445,669 1,095,082,371 1,095,082,371 379,265,738 379,265,738 $ 2,050,299,561 $ 1,953,853,893 $ 96,445,669 4 Asset Balance (Gross of Nonadmissions) (1-2-3) $ $ - 5 Non-admitted Amount $ $ - 6 Net Admitted Asset (4-5) $ $ - 25. Change in Incurred Claims & Claim Adjustment Expenses A. Provisions for incurred claims and claim adjustment expenses attributable to insured events of prior years did not change materially in calendar year 2018, with no significant impact on surplus. Reserves for incurred claims and claims adjustment expenses attributable to insured events of prior years are periodically updated. This increase (decrease) is the result of ongoing analysis of recent loss development trends. Original estimates are increased (decreased) as additional claims related information becomes available. B. There were no significant changes in methodologies or assumptions used in calculating the liability for unpaid losses and loss adjustment expenses. 26. Intercompany Pooling Arrangements Not Applicable. 27. Structured Settlements Not Applicable. 28. Health Care Receivables A. Pharmaceutical Rebate Receivables: The total pharmacy rebate receivable at December 31, 2018, 2017 and 2016, was $746,326,224, $583,342,533, and $522,304,882, respectively. Of these amounts, $14,483,125, $11,425,196 and $28,085,386 were nonadmitted for 2018, 2017 and 2016, respectively. The net admitted assets of $731,843,100, $571,917,337 and $494,219,496 at December 31, 2018, 2017 and 2016, respectively, are included in the amounts receivable related to uninsured plans and healthcare receivables in the statutorybasis balance sheets depending on the type of business. The billed or confirmed pharmacy rebates owed to the Corporation in 2018, 2017 and 2016, were $1,420,827,275, $1,097,889,528, and $988,966,580, respectively. 26.46 ANNUAL STATEMENT FOR THE YEAR 2018 OF THE Health Care Service Corporation, a Mutual Legal Reserve Company Notes to Financial Statements In 2018, 2017 and 2016, the Corporation collected pharmacy rebates of $1,275,453,857, $1,034,653,788, and $995,892,421, respectively. The chart below contains further detail regarding pharmacy rebate receivables and collections for 2016-2018. Quarter Estimated Pharmacy Rebates Pharmacy Rebates Actual Rebates as Reported on as Billed or Actual Rebates Received Within Financial Otherwise Received Within 91 to 180 Days of Statements Confirmed 90 Days of Billing Billing 12/31/2018 9/30/2018 6/30/2018 3/31/2018 $ 370,597,375 370,557,121 355,891,145 323,781,633 $ 370,597,375 370,557,121 355,891,145 323,781,633 $ 529,708 350,942,313 318,439,853 $ 2,394,408 2,294,147 Actual Rebates Received More Than 180 Days After Billing $ 42,964 12/31/2017 9/30/2017 6/30/2017 3/31/2017 287,430,243 287,453,697 275,362,289 247,643,298 287,430,243 287,453,697 275,362,289 247,643,298 310,895,090 283,217,484 267,423,628 237,021,033 1,974,847 2,455,214 4,861,127 4,709,307 3,404,029 559,300 1,650,850 4,007,880 12/31/2016 9/30/2016 6/30/2016 3/31/2016 256,894,908 256,699,160 236,993,866 238,378,646 256,894,908 256,699,160 236,993,866 238,378,646 254,903,448 248,014,177 230,708,085 228,728,041 3,792,282 2,218,553 2,537,177 4,375,463 1,126,206 2,902,208 3,536,491 4,851,650 B. Risk Sharing Receivables The Corporation had no material risk sharing receivables, individually or in the aggregate. 29. Participating Policies Not Applicable. 30. PDRs 1. Liability carried for PDRs as of December 31, 2018 2. Date of the most recent evaluation of this liability 3. Was anticipated investment income utilized in the calculation? $ 222,690,000 12/31/2018 Yes p No ü 31. Anticipated Salvage and Subrogation The Corporation took into account estimated anticipated salvage and subrogation in its determination of the net liability for unpaid losses and reduced such liability by $877,704,000. The following table illustrates the significance of the amounts: Gross Loss Reserves Offset for anticipated Salvage & Subrogation Reserve for Unpaid Losses [Page 3, lines 1-2] Net Losses Unpaid (U & I Exhibit Part 2, col. 1, lines 3-5) 26.47 $4,170,477,887 877,704,000 3,292,773,887 $3,292,773,887 ANNUAL STATEMENT FOR THE YEAR 2018 OF THE Health Care Service Corporation, a Mutual Legal Reserve Company GENERAL INTERROGATORIES PART 1 - COMMON INTERROGATORIES GENERAL 1.1 Is the reporting entity a member of an Insurance Holding Company System consisting of two or more affiliated persons, one or more of which is an insurer? If yes, complete Schedule Y, Parts 1, 1A and 2. 1.2 If yes, did the reporting entity register and file with its domiciliary State Insurance Commissioner, Director or Superintendent or with such regulatory official of the state of domicile of the principal insurer in the Holding Company System, a registration statement providing disclosure substantially similar to the standards adopted by the National Association of Insurance Commissioners (NAIC) in its Model Insurance Holding Company System Regulatory Act and model regulations pertaining thereto, or is the reporting entity subject to standards and disclosure requirements substantially similar to those required by such Act and regulations? 1.3 State Regulating? 1.4 Is the reporting entity publicly traded or a member of a publicly traded group? 1.5 If the response to 1.4 is yes, provide the CIK (Central Index Key) code issued by the SEC for the entity/group. Yes[X] No[ ] Yes[X] No[ ] N/A[ ] . . . . . . . . . Illinois ................ Yes[ ] No[X] ......................... 2.1 Has any change been made during the year of this statement in the charter, by-laws, articles of incorporation, or deed of settlement of the reporting entity? 2.2 If yes, date of change: Yes[ ] No[X] ......................... 3.1 State as of what date the latest financial examination of the reporting entity was made or is being made. 3.2 State the as of date that the latest financial examination report became available from either the state of domicile or the reporting entity. This date should be the date of the examined balance sheet and not the date the report was completed or released. 3.3 State as of what date the latest financial examination report became available to other states or the public from either the state of domicile or the reporting entity. This is the release date or completion date of the examination report and not the date of the examination (balance sheet date). 3.4 By what department or departments? State of Illinois Department of Insurance 3.5 Have all financial statement adjustments within the latest financial examination report been accounted for in a subsequent financial statement filed with departments? 3.6 Have all of the recommendations within the latest financial examination report been complied with? . . . . . . 12/31/2017 ................... . . . . . . 12/31/2013 ................... . . . . . . 06/17/2015 ................... Yes[ ] No[ ] N/A[X] Yes[ ] No[ ] N/A[X] 4.1 During the period covered by this statement, did any agent, broker, sales representative, non-affiliated sales/service organization or any combination thereof under common control (other than salaried employees of the reporting entity) receive credit or commissions for or control a substantial part (more than 20 percent of any major line of business measured on direct premiums) of: 4.11 sales of new business? 4.12 renewals? 4.2 During the period covered by this statement, did any sales/service organization owned in whole or in part by the reporting entity or an affiliate, receive credit or commissions for or control a substantial part (more than 20 percent of any major line of business measured on direct premiums) of: 4.21 sales of new business? 4.22 renewals? Yes[ ] No[X] Yes[ ] No[X] Yes[ ] No[X] Yes[ ] No[X] 5.1 Has the reporting entity been a party to a merger or consolidation during the period covered by this statement? If yes, complete and file the merger history data file with the NAIC. 5.2 If yes, provide the name of the entity, NAIC company code, and state of domicile (use two letter state abbreviation) for any entity that has ceased to exist as a result of the merger or consolidation. 1 Name of Entity ........................................................................ 2 NAIC Company Code ...................................... Yes[ ] No[X] 3 State of Domicile ...................................... 6.1 Has the reporting entity had any Certificates of Authority, licenses or registrations (including corporate registration, if applicable) suspended or revoked by any governmental entity during the reporting period? 6.2 If yes, give full information: Yes[ ] No[X] 7.1 Does any foreign (non-United States) person or entity directly or indirectly control 10% or more of the reporting entity? 7.2 If yes, 7.21 State the percentage of foreign control 7.22 State the nationality(s) of the foreign person(s) or entity(s); or if the entity is a mutual or reciprocal, the nationality of its manager or attorney-in-fact and identify the type of entity(s) (e.g., individual, corporation, government, manager or attorney-in-fact). 8.1 8.2 8.3 8.4 Yes[ ] No[X] . . . . . . . . . . . . . . . . . . 0.000% 1 Nationality 2 Type of Entity ........................................................................ ........................................................................ Is the company a subsidiary of a bank holding company regulated by the Federal Reserve Board? If response to 8.1 is yes, please identify the name of the bank holding company. Is the company affiliated with one or more banks, thrifts or securities firms? If response to 8.3 is yes, please provide the names and locations (city and state of the main office) of any affiliates regulated by a federal financial regulatory services agency [i.e. the Federal Reserve Board (FRB), the Office of the Comptroller of the Currency (OCC), the Federal Deposit Insurance Corporation (FDIC) and the Securities Exchange Commission (SEC) and identify the affiliate's primary federal regulator. 1 Affiliate Name 2 Location (City, State) ...................................... ...................................... 3 FRB ........ No . . . . . . . 4 OCC ........ No . . . . . . . 5 FDIC ........ No . . . . . . . Yes[ ] No[X] Yes[ ] No[X] 6 SEC ........ No . . . . . . . 9. What is the name and address of the independent certified public accountant or accounting firm retained to conduct the annual audit? Ernst & Young LLP., 155 North Wacker Drive Chicago, IL 60606-1787, USA 10.1 Has the insurer been granted any exemptions to the prohibited non-audit services provided by the certified independent public accountant requirements as allowed in Section 7H of the Annual Financial Reporting Model Regulation (Model Audit Rule), or substantially similar state law or regulation? 10.2 If response to 10.1 is yes, provide information related to this exemption: 10.3 Has the insurer been granted any exemptions related to the other requirements of the Annual Financial Reporting Model Regulation as allowed for in Section 18A of the Model Regulation, or substantially similar state law or regulation? 10.4 If response to 10.3 is yes, provide information related to this exemption: 10.5 Has the reporting entity established an Audit Committee in compliance with the domiciliary state insurance laws? 10.6 If the response to 10.5 is no or n/a please explain: 11. What is the name, address and affiliation (officer/employee of the reporting entity or actuary/consultant associated with an actuarial consulting firm) of the individual providing the statement of actuarial opinion/certification? Douglas Lynch, FSA, MAAA - S.V.P and Chief Actuary of Health Care Service Corporation, 300 E. Randolph Street 15th Floor, 60601 27 Yes[ ] No[X] Yes[ ] No[X] Yes[X] No[ ] N/A[ ] ANNUAL STATEMENT FOR THE YEAR 2018 OF THE Health Care Service Corporation, a Mutual Legal Reserve Company GENERAL INTERROGATORIES (Continued) 12.1 Does the reporting entity own any securities of a real estate holding company or otherwise hold real estate indirectly? 12.11 Name of real estate holding company 12.12 Number of parcels involved 12.13 Total book/adjusted carrying value 12.2 If yes, provide explanation 13. FOR UNITED STATES BRANCHES OF ALIEN REPORTING ENTITIES ONLY: 13.1 What changes have been made during the year in the United States manager or the United States trustees of the reporting entity? 13.2 Does this statement contain all business transacted for the reporting entity through its United States Branch on risks wherever located? 13.3 Have there been any changes made to any of the trust indentures during the year? 13.4 If answer to (13.3) is yes, has the domiciliary or entry state approved the changes? Yes[ ] No[X] ....................... 0 $. . . . . . . . . . . . . . . . . . . . . . . 0 Yes[ ] No[ ] N/A[X] Yes[ ] No[ ] N/A[X] Yes[ ] No[ ] N/A[X] 14.1 Are the senior officers (principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions) of the reporting entity subject to a code of ethics, which includes the following standards? Yes[X] No[ ] a. Honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships; b. Full, fair, accurate, timely and understandable disclosure in the periodic reports required to be filed by the reporting entity; c. Compliance with applicable governmental laws, rules and regulations; d. The prompt internal reporting of violations to an appropriate person or persons identified in the code; and e. Accountability for adherence to the code. 14.11 If the response to 14.1 is no, please explain: 14.2 Has the code of ethics for senior managers been amended? Yes[X] No[ ] 14.21 If the response to 14.2 is yes, provide information related to amendment(s). The Corporation's Code of Business Ethics and Conduct is reviewed annually, typically during the fourth quarter of each year. Any amendments are approved by the Board of Directors and are distributed to all employees including senior management. 14.3 Have any provisions of the code of ethics been waived for any of the specified officers? Yes[ ] No[X] 14.31 If the response to 14.3 is yes, provide the nature of any waiver(s). 15.1 Is the reporting entity the beneficiary of a Letter of Credit that is unrelated to reinsurance where the issuing or confirming bank is not on the SVO Bank List? 15.2 If the response to 15.1 is yes, indicate the American Bankers Association (ABA) Routing Number and the name of the issuing or confirming bank of the Letter of Credit and describe the circumstances in which the Letter of Credit is triggered. Yes[ ] No[X] 1 American Bankers Association (ABA) Routing Number 2 3 4 Issuing or Confirming Bank Name Circumstances That Can Trigger the Letter of Credit Amount .................. .................................................... ............................................................................................. ....................... BOARD OF DIRECTORS 16. Is the purchase or sale of all investments of the reporting entity passed upon either by the Board of Directors or a subordinate committee thereof? Yes[X] No[ ] 17. Does the reporting entity keep a complete permanent record of the proceedings of its Board of Directors and all subordinate committees thereof? Yes[X] No[ ] 18. Has the reporting entity an established procedure for disclosure to its board of directors or trustees of any material interest or affiliation on the part of any of its officers, directors, trustees or responsible employees that is in conflict or is likely to conflict with the official duties of such person? Yes[X] No[ ] FINANCIAL 19. Has this statement been prepared using a basis of accounting other than Statutory Accounting Principles (e.g., Generally Accepted Accounting Principles)? 20.1 Total amount loaned during the year (inclusive of Separate Accounts, exclusive of policy loans): 20.11 To directors or other officers 20.12 To stockholders not officers 20.13 Trustees, supreme or grand (Fraternal only) 20.2 Total amount of loans outstanding at end of year (inclusive of Separate Accounts, exclusive of policy loans): 20.21 To directors or other officers 20.22 To stockholders not officers 20.23 Trustees, supreme or grand (Fraternal only) 21.1 Were any assets reported in this statement subject to a contractual obligation to transfer to another party without the liability for such obligation being reported in the statement? 21.2 If yes, state the amount thereof at December 31 of the current year: 21.21 Rented from others 21.22 Borrowed from others 21.23 Leased from others 21.24 Other Yes[ ] No[X] $. . . . . . . . . . . . . . . . . . . . . . . 0 $. . . . . . . . . . . . . . . . . . . . . . . 0 $. . . . . . . . . . . . . . . . . . . . . . . 0 $. . . . . . . . . . . . . . . . . . . . . . . 0 $. . . . . . . . . . . . . . . . . . . . . . . 0 $. . . . . . . . . . . . . . . . . . . . . . . 0 Yes[ ] No[X] $. . . . . . . . . . . . . . . . . . . . . . . $. . . . . . . . . . . . . . . . . . . . . . . $. . . . . . . . . . . . . . . . . . . . . . . $. . . . . . . . . . . . . . . . . . . . . . . 0 0 0 0 22.1 Does this statement include payments for assessments as described in the Annual Statement Instructions other than guaranty fund or guaranty association assessments? 22.2 If answer is yes: 22.21 Amount paid as losses or risk adjustment 22.22 Amount paid as expenses 22.23 Other amounts paid $. . . . . . . . . . . . . . . . . . . . . . . 0 $. . . . . . . . . . . 40,658,185 $. . . . . . . . . . . . . . . . . . . . . . . 0 23.1 Does the reporting entity report any amounts due from parent, subsidiaries or affiliates on Page 2 of this statement? 23.2 If yes, indicate any amounts receivable from parent included in the Page 2 amount: Yes[X] No[ ] $. . . . . . . . . . . . . . . . . . . . . . . 0 Yes[X] No[ ] INVESTMENT 24.01 Were all the stocks, bonds and other securities owned December 31 of current year, over which the reporting entity has exclusive control, in the actual possession of the reporting entity on said date? (other than securities lending programs addressed in 24.03) 24.02 If no, give full and complete information, relating thereto 24.03 For security lending programs, provide a description of the program including value for collateral and amount of loaned securities, and whether collateral is carried on or off-balance sheet. (an alternative is to reference Note 17 where this information is also provided) 24.04 Does the Company's security lending program meet the requirements for a conforming program as outlined in the Risk-Based Capital Instructions? 24.05 If answer to 24.04 is yes, report amount of collateral for conforming programs. 24.06 If answer to 24.04 is no, report amount of collateral for other programs. 24.07 Does your securities lending program require 102% (domestic securities) and 105% (foreign securities) from the counterparty at the outset of the contract? 24.08 Does the reporting entity non-admit when the collateral received from the counterparty falls below 100%? 27.1 Yes[X] No[ ] Yes[ ] No[ ] N/A[X] $. . . . . . . . . . . . . . . . . . . . . . . 0 $. . . . . . . . . . . . . . . . . . . . . . . 0 Yes[ ] No[ ] N/A[X] Yes[ ] No[ ] N/A[X] ANNUAL STATEMENT FOR THE YEAR 2018 OF THE Health Care Service Corporation, a Mutual Legal Reserve Company GENERAL INTERROGATORIES (Continued) 24.09 Does the reporting entity or the reporting entity's securities lending agent utilize the Master Securities Lending Agreement (MSLA) to conduct securities lending? 24.10 For the reporting entity's security lending program, state the amount of the following as of December 31 of the current year: 24.101 Total fair value of reinvested collateral assets reported on Schedule DL, Parts 1 and 2. 24.102 Total book/adjusted carrying value of reinvested collateral assets reported on Schedule DL, Parts 1 and 2. 24.103 Total payable for securities lending reported on the liability page. 25.1 Were any of the stocks, bonds or other assets of the reporting entity owned at December 31 of the current year not exclusively under the control of the reporting entity, or has the reporting entity sold or transferred any assets subject to a put option contract that is currently in force? (Exclude securities subject to Interrogatory 21.1 and 24.03). 25.2 If yes, state the amount thereof at December 31 of the current year: 25.21 Subject to repurchase agreements 25.22 Subject to reverse repurchase agreements 25.23 Subject to dollar repurchase agreements 25.24 Subject to reverse dollar repurchase agreements 25.25 Placed under option agreements 25.26 Letter stock or securities restricted as to sale - excluding FHLB Capital Stock 25.27 FHLB Capital Stock 25.28 On deposit with states 25.29 On deposit with other regulatory bodies 25.30 Pledged as collateral - excluding collateral pledged to an FHLB 25.31 Pledged as collateral to FHLB - including assets backing funding agreements 25.32 Other 25.3 For category (25.26) provide the following: 1 Nature of Restriction Yes[ ] No[ ] N/A[X] $. . . . . . . . . . . . . . . . . . . . . . . 0 $. . . . . . . . . . . . . . . . . . . . . . . 0 $. . . . . . . . . . . . . . . . . . . . . . . 0 Yes[X] No[ ] $. . . . . . . . . . . . . . . . . . . . . . . 0 $. . . . . . . . . . . . . . . . . . . . . . . 0 $. . . . . . . . . . . . . . . . . . . . . . . 0 $. . . . . . . . . . . . . . . . . . . . . . . 0 $. . . . . . . . . . . . . . . . . . . . . . . 0 $. . . . . . . . . . . . . . . . . . . . . . . 0 $. . . . . . . . . . . 18,766,000 $. . . . . . . . . . . . 6,746,835 $. . . . . . . . . . . . . . . . . . . . . . . 0 $. . . . . . . . . . . . . . . . . . . . . . . 0 $. . . . . . . . . 861,152,622 $. . . . . . . . . 615,064,386 2 Description ..................................................................................... 3 Amount ..................................................................................... ....................... 26.1 Does the reporting entity have any hedging transactions reported on Schedule DB? 26.2 If yes, has a comprehensive description of the hedging program been made available to the domiciliary state? If no, attach a description with this statement. Yes[ ] No[X] Yes[ ] No[ ] N/A[X] 27.1 Were any preferred stocks or bonds owned as of December 31 of the current year mandatorily convertible into equity, or, at the option of the issuer, convertible into equity? 27.2 If yes, state the amount thereof at December 31 of the current year. Yes[ ] No[X] $. . . . . . . . . . . . . . . . . . . . . . . 0 28. Excluding items in Schedule E - Part 3 - Special Deposits, real estate, mortgage loans and investments held physically in the reporting entity's offices, vaults or safety deposit boxes, were all stocks, bonds and other securities, owned throughout the current year held pursuant to a custodial agreement with a qualified bank or trust company in accordance with Section I, III - General Examination Considerations, F. Outsourcing of Critical Functions, Custodial or Safekeeping Agreements of the NAIC Financial Condition Examiners Handbook? 28.01 For agreements that comply with the requirements of the NAIC Financial Condition Examiners Handbook, complete the following: 1 Name of Custodian(s) Yes[X] No[ ] 2 Custodian's Address Northern Trust Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 South LaSalle Street, Chicago, IL 60603 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28.02 For all agreements that do not comply with the requirements of the NAIC Financial Condition Examiners Handbook, provide the name, location and a complete explanation: 1 Name(s) 2 Location(s) 3 Complete Explanation(s) .................................................... .................................................... .................................................... 28.03 Have there been any changes, including name changes, in the custodian(s) identified in 28.01 during the current year? 28.04 If yes, give full and complete information relating thereto: 1 Old Custodian .................................................................. 2 New Custodian Yes[ ] No[X] 3 Date of Change .................................................................. .................. 4 Reason ...................................... 28.05 Investment management - Identify all investment advisors, investment managers, broker/dealers, including individuals that have the authority to make investment decisions on behalf of the reporting entity. For assets that are managed internally by employees of the reporting entity, note as such. ["…that have access to the investment accounts"; "…handle securities"] 1 Name of Firm or Individual Carl Raymond McDonald . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Securian Asset Management, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Ariel Investments, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Guggenheim Partners Investment Management, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . J.P. Morgan Investment Management Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Longfellow Investment Management Co. LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Neuberger Berman Investment Advisers LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Patterson Capital Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . PGIM, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Richmond Capital Management, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . SKBA Capital Management, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Wellington Management Company LLP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Wells Capital Management Incorporated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Western Asset Management Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Affiliation ........... ........... ........... ........... ........... ........... ........... ........... ........... ........... ........... ........... ........... ........... I ........... U .......... U .......... U .......... U .......... U .......... U .......... U .......... U .......... U .......... U .......... U .......... U .......... U .......... 28.0597 For those firms/individuals listed in the table for Question 28.05, do any firms/individuals unaffiliated with the reporting entity (i.e. designated with a "U") manage more than 10% of the reporting entity's assets? 28.0598 For firms/individuals unaffiliated with the reporting entity (i.e. designated with a "U") listed in the table for Question 28.05, does the total assets under management aggregate to more than 50% of the reporting entity's assets? 27.2 Yes[X] No[ ] Yes[ ] No[X] ANNUAL STATEMENT FOR THE YEAR 2018 OF THE Health Care Service Corporation, a Mutual Legal Reserve Company GENERAL INTERROGATORIES (Continued) 28.06 For those firms or individuals listed in the table for 28.05 with an affiliation code of "A" (affiliated) or "U" (unaffiliated), provide the information for the table below. 1 Central Registration Depository Number 2 3 Legal Entity Identifier (LEI) Registered With ...................................... SEC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .......... DS . . . . . . . . . 549300XWQLVNUK615E79 . . . . SEC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .......... NO . . . . . . . . . 549300W78QHV4XMM6K69 . . . SEC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .......... DS . . . . . . . . . 2549000QCWZH3CTEME48 . . . SEC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .......... DS . . . . . . . . . 8PSZVUUKYGCPW2RDO373 . SEC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .......... NO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . SEC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5493009SX8QJBZYIGB87 . . . . . SEC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .......... .......... NO . . . . . . . . . NO . . . . . . . . . 2549000Y1PM6HPB5PO60 . . . . SEC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .......... DS . . . . . . . . . 5URRAMPU5ELNW8AQJB87 . SEC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .......... NO . . . . . . . . . SEC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .......... NO . . . . . . . . . 549300YHP12TEZNLCX41 . . . . . SEC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .......... DS . . . . . . . . . 549300B3H21002L85190 . . . . . . . SEC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .......... DS . . . . . . . . . SEC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .......... NO . . . . . . . . . Name of Firm or Individual 108211 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Ariel Investments, LLC . . . . . . . . . . 137432 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Guggenheim Partners Investment Management, LLC . 107038 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . J.P. Morgan Investment Management Inc. . . . . . . . . . . . . . . . . . 104945 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Longfellow Investment Management Co. LLC . . . . . . . . . . . 2908 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Neuberger Berman Investment Advisers LLC . . . . . . . . . . . . . . . . . . . . . . 105507 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . The Patterson Capital Corporation . . . . . . . . . . . . . . . . . . . . . . . . 105676 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . PGIM, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . 104636 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Richmond Capital Management, Inc. . . . . . . . . . . . . . . . . 109905 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Securian Asset Management, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108542 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . SKBA Capital Management, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106595 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Wellington Management Company LLP . . . . . . . . . . . . . . . . . . . . . 104973 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Wells Capital Management Incorporated . . . . . . . . . . . . . . . . . . . . . . . 110441 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Western Asset Management Company . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 ...................................... ...................................... 5 Investment Management Agreement (IMA) Filed 29.1 Does the reporting entity have any diversified mutual funds reported in Schedule D - Part 2 (diversified according to the Securities and Exchange Commission (SEC) in the Investment Company Act of 1940 [Section 5 (b)(1)])? 29.2 If yes, complete the following schedule: ..... ..... ..... ..... 1 2 CUSIP # Name of Mutual Fund 922040407 . . . . 922908355 . . . . 922908801 . . . . 921909776 . . . . ......................... Yes[X] No[ ] 3 Book/Adjusted Carrying Value VANGUARD INST TOTAL STOCK MKT INDX (VITPX) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . VANGUARD TOTAL STOCK MRKT INDX (VSMPX) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . VANGUARD TOTAL STOCK MRKT INDX (VITSX) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . VANGUARD TOTAL INTERNATIONAL STOCK MARKET INDEX . . . . . . . . . . . . . . . . . . . . . . . . . . .......................................................................................................... 29.2999 Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44,291,383 566,323,885 . . . . . . . . . . 6,789,588 . . . . . . . 249,798,694 ......... ....... ....................... ....... 867,203,550 29.3 For each mutual fund listed in the table above, complete the following schedule: 1 2 3 Amount of Mutual Fund's Book/Adjusted Carrying Value Attributable to the Holding Name of Mutual Fund (from above table) Name of Significant Holding of the Mutual Fund VANGUARD INST TOTAL STOCK MKT INDX (VITPX) . . . . . . . . VANGUARD INST TOTAL STOCK MKT INDX (VITPX) . . . . . . . . VANGUARD INST TOTAL STOCK MKT INDX (VITPX) . . . . . . . . VANGUARD INST TOTAL STOCK MKT INDX (VITPX) . . . . . . . . VANGUARD INST TOTAL STOCK MKT INDX (VITPX) . . . . . . . . VANGUARD TOTAL STOCK MRKT INDX (VSMPX) . . . . . . . . . . . VANGUARD TOTAL STOCK MRKT INDX (VSMPX) . . . . . . . . . . . VANGUARD TOTAL STOCK MRKT INDX (VSMPX) . . . . . . . . . . . VANGUARD TOTAL STOCK MRKT INDX (VSMPX) . . . . . . . . . . . VANGUARD TOTAL STOCK MRKT INDX (VSMPX) . . . . . . . . . . . VANGUARD TOTAL STOCK MRKT INDX (VITSX) . . . . . . . . . . . . . VANGUARD TOTAL STOCK MRKT INDX (VITSX) . . . . . . . . . . . . . VANGUARD TOTAL STOCK MRKT INDX (VITSX) . . . . . . . . . . . . . VANGUARD TOTAL STOCK MRKT INDX (VITSX) . . . . . . . . . . . . . VANGUARD TOTAL STOCK MRKT INDX (VITSX) . . . . . . . . . . . . . VANGUARD TOTAL INTERNATIONAL STOCK MARKET . . . . VANGUARD TOTAL INTERNATIONAL STOCK MARKET . . . . VANGUARD TOTAL INTERNATIONAL STOCK MARKET . . . . VANGUARD TOTAL INTERNATIONAL STOCK MARKET . . . . VANGUARD TOTAL INTERNATIONAL STOCK MARKET . . . . MICROSOFT CORP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . APPLE INC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . AMAZON.COM INC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . BERKSHIRE HATHAWAY INC CLASS B . . . . . . . . . . . . . . . . . . . . . . . . . JOHNSON & JOHNSON . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . MICROSOFT CORP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . APPLE INC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . AMAZON.COM INC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . BERKSHIRE HATHAWAY INC CLASS B . . . . . . . . . . . . . . . . . . . . . . . . . JOHNSON & JOHNSON . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . MICROSOFT CORP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . APPLE INC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . AMAZON.COM INC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . BERKSHIRE HATHAWAY INC CLASS B . . . . . . . . . . . . . . . . . . . . . . . . . JOHNSON & JOHNSON . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . NESTLE SA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . TENCENT HOLDINGS LTC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . NOVARTIS AG . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ROCHE HOLDING AG . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . TAIWAN SEMICONDUCTOR MANUFACTURING CO LTD . . . ........................................................................... ........................................................................... 2 Statement 30.1 30.2 27.3 (Admitted) Value Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Preferred stocks ... 10,577,879,821 ... Date of Valuation .......... 1,381,981 1,182,580 . . . . . . . . . . 1,098,426 . . . . . . . . . . . . . 682,087 . . . . . . . . . . . . . 606,792 . . . . . . . . . 17,669,305 . . . . . . . . . 15,177,480 . . . . . . . . . 14,044,832 . . . . . . . . . . 8,664,755 . . . . . . . . . . 7,815,270 . . . . . . . . . . . . . 211,835 . . . . . . . . . . . . . 181,961 . . . . . . . . . . . . . 168,382 . . . . . . . . . . . . . 103,881 . . . . . . . . . . . . . . 93,696 . . . . . . . . . . 2,822,725 . . . . . . . . . . 2,647,866 . . . . . . . . . . 2,148,269 . . . . . . . . . . 1,998,390 . . . . . . . . . . 1,998,390 ... .......... ... ....................... ..................... 30. Provide the following information for all short-term and long-term bonds and all preferred stocks. Do not substitute amortized value or statement value for fair value. 1 4 3 Excess of Statement over Fair Value (-), Fair or Fair Value over Value Statement (+) 10,442,090,673 . . . . . (135,789,148) ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... ... 12/31/2018 . . 12/31/2018 . . 12/31/2018 . . 12/31/2018 . . 12/31/2018 . . 12/31/2018 . . 12/31/2018 . . 12/31/2018 . . 12/31/2018 . . 12/31/2018 . . 12/31/2018 . . 12/31/2018 . . 12/31/2018 . . 12/31/2018 . . 12/31/2018 . . 12/31/2018 . . 12/31/2018 . . 12/31/2018 . . 12/31/2018 . . 12/31/2018 . . ANNUAL STATEMENT FOR THE YEAR 2018 OF THE Health Care Service Corporation, a Mutual Legal Reserve Company GENERAL INTERROGATORIES (Continued) 1 30.1 30.2 30.3 Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Preferred stocks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Totals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 3 Excess of Statement over Fair Value (-), Fair or Fair Value over Value Statement (+) 10,442,090,673 . . . . . (135,789,148) Statement (Admitted) Value . . . 10,577,879,821 ... ....................... ....................... ... 10,577,879,821 ... 10,442,090,673 ....................... ..... (135,789,148) 30.4 Describe the sources or methods utilized in determining the fair values: Fair values are calculated based on the market prices published by the NAIC Securities Valuation Office (SVO). If there is no market price published by the SVO, the fair value is calculated based on market prices provided by Northern Trust Bank (The Custodian). If there are no market prices published by the SVO or provided by the Custodian, the fair value is calculated by the insurer based on the industry recognized valuation technique of determining the present value of estimated future cash flows. 31.1 Was the rate used to calculate fair value determined by a broker or custodian for any of the securities in Schedule D? 31.2 If the answer to 31.1 is yes, does the reporting entity have a copy of the broker's or custodian's pricing policy (hard copy or electronic copy) for all brokers or custodians used as a pricing source? 31.3 If the answer to 31.2 is no, describe the reporting entity's process for determining a reliable pricing source for purposes of disclosure of fair value for Schedule D: Yes[X] No[ ] Yes[X] No[ ] N/A[ ] 32.1 Have all the filing requirements of the Purposes and Procedures Manual of the NAIC Investment Analysis Office been followed? 32.2 If no, list exceptions: 33. By self-designation 5GI securities, the reporting entity is certifying the following elements for each self-designated 5GI security: a. Documentation necessary to permit a full credit analysis of the security does not exist or an NAIC CRP credit rating for an FE or PL security is not available. b. Issuer or obligor is current on all contracted interest and principal payments. c. The insurer has an actual expectation of ultimate payment of all contracted interest and principal. Yes[X] No[ ] Has the reporting-entity self-designated 5GI securities? 34. By self-designating PLGI securities, the reporting entity is certifying the following elements of each self-designated PLGI security: a. The security was purchased prior to January 1, 2018. b. The reporting entity is holding capital commensurate with the NAIC Designation reported for the security c. The NAIC Designation was derived from the credit rating assigned by an NAIC CRP in its legal capacity as an NRSRO which is shown on a current private letter rating held by the insurer and available for examination by state insurance regulators. d. The reporting entity is not permitted to share this credit rating of the PL security with the SVO. Yes[X] No[ ] Has the reporting entity self-designated PLGI securities? Yes[ ] No[X] OTHER 35.1 Amount of payments to Trade Associations, Service Organizations and Statistical or Rating Bureaus, if any? 35.2 List the name of the organization and the amount paid if any such payment represented 25% or more of the total payments to Trade Associations, Service Organizations and Statistical or Rating Bureaus during the period covered by this statement. 1 Name $. . . . . . . . . . . 17,322,782 2 Amount Paid BLUE CROSS BLUE SHIELD ASSOCIATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ......... 10,727,106 36.1 Amount of payments for legal expenses, if any? 36.2 List the name of the firm and the amount paid if any such payments represented 25% or more of the total payments for legal expenses during the period covered by this statement. 1 Name $. . . . . . . . . . . 31,783,977 2 Amount Paid KIRKLAND & ELLIS LLP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . REED SMITH LLP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ......... 10,222,192 9,947,534 .......... 37.1 Amount of payments for expenditures in connection with matters before legislative bodies, officers or department of government, if any? 37.2 List the name of firm and the amount paid if any such payment represented 25% or more of the total payment expenditures in connection with matters before legislative bodies, officers or departments of government during the period covered by this statement. 1 Name 2 Amount Paid ..................................................................................................................................... ....................... 27.4 $. . . . . . . . . . . . 2,332,138 ANNUAL STATEMENT FOR THE YEAR 2018 OF THE Health Care Service Corporation, a Mutual Legal Reserve Company GENERAL INTERROGATORIES (Continued) PART 2 - HEALTH INTERROGATORIES 1.1 Does the reporting entity have any direct Medicare Supplement Insurance in force? 1.2 If yes, indicate premium earned on U.S. business only: 1.3 What portion of Item (1.2) is not reported on the Medicare Supplement Insurance Experience Exhibit? 1.31 Reason for excluding: 1.4 Indicate amount of earned premium attributable to Canadian and/or Other Alien not included in Item (1.2) above. 1.5 Indicate total incurred claims on all Medicare Supplement insurance. 1.6 Individual policies - Most current three years: 1.61 TOTAL Premium earned 1.62 TOTAL Incurred claims 1.63 Number of covered lives All years prior to most current three years: 1.64 TOTAL Premium earned 1.65 TOTAL Incurred claims 1.66 Number of covered lives 1.7 Group policies - Most current three years: 1.71 TOTAL Premium earned 1.72 TOTAL Incurred claims 1.73 Number of covered lives All years prior to most current three years: 1.74 TOTAL Premium earned 1.75 TOTAL Incurred claims 1.76 Number of covered lives Yes[X] No[ ] $. . . . . . . . 1,606,625,076 $. . . . . . . . . . . . . . . . . . . . . . . 0 $. . . . . . . . . . . . . . . . . . . . . . . 0 $. . . . . . . . 1,281,001,339 $. . . . . . . . . . . 311,264,952 $. . . . . . . . . . . 282,226,867 . . . . . . . . . . . . . . . 164,794 $. . . . . . . . 1,286,488,725 $. . . . . . . . . . . 991,895,706 . . . . . . . . . . . . . . . 470,733 $. . . . . . . . . . . . . . . 867,158 $. . . . . . . . . . . . . . . 733,054 . . . . . . . . . . . . . . . . . . . . 365 $. . . . . . . . . . . . . 8,004,240 $. . . . . . . . . . . . . 6,145,712 . . . . . . . . . . . . . . . . . . 1,925 2. Health Test 2.1 2.2 2.3 2.4 2.5 2.6 Premium Numerator . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Premium Denominator . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Premium Ratio (2.1 / 2.2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Reserve Numerator . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Reserve Denominator . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Reserve Ratio (2.4 / 2.5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Current Year . . . . . 35,971,137,177 . . . . . 35,971,137,177 . . . . . . . . . . . . . . . . 1.000 . . . . . . . 5,011,444,542 . . . . . . . 5,011,444,542 . . . . . . . . . . . . . . . . 1.000 2 Prior Year . . . . . 32,717,621,002 . . . . . 32,717,620,999 . . . . . . . . . . . . . . . . 1.000 . . . . . . . 4,972,950,162 . . . . . . . 4,972,950,162 . . . . . . . . . . . . . . . . 1.000 3.1 Has the reporting entity received any endowment or gift from contracting hospitals, physicians, dentists, or others that is agreed will be returned when, as and if the earnings of the reporting entity permits? 3.2 If yes, give particulars: Yes[ ] No[X] 4.1 Have copies of all agreements stating the period and nature of hospitals', physicians', and dentists' care offered to subscribers and dependents been filed with the appropriate regulatory agency? 4.2 If not previously filed, furnish herewith a copy(ies) of such agreement(s). Do these agreements include additional benefits offered? Yes[X] No[ ] Yes[ ] No[ ] N/A[X] 5.1 Does the reporting entity have stop-loss reinsurance? Yes[ ] No[X] 5.2 If no, explain: HCSC maintains a very strong surplus position in addition to claim liabilities which incorporate catastrophic claim payments into underlying experience. For a Corporation of its size, in light of these statements, senior management deems that stop loss reinsurance is not needed. 5.3 Maximum retained risk (see instructions): 5.31 Comprehensive Medical $. . . . . . . . . . . . . . . . . . . . . . . 0 5.32 Medical Only $. . . . . . . . . . . . . . . . . . . . . . . 0 5.33 Medicare Supplement $. . . . . . . . . . . . . . . . . . . . . . . 0 5.34 Dental & Vision $. . . . . . . . . . . . . . . . . . . . . . . 0 5.35 Other Limited Benefit Plan $. . . . . . . . . . . . . . . . . . . . . . . 0 5.36 Other $. . . . . . . . . . . . . . . . . . . . . . . 0 6. Describe arrangement which the reporting entity may have to protect subscribers and their dependents against the risk of insolvency including hold harmless provisions, conversion privileges with other carriers, agreements with providers to continue rendering services, and any other agreements: HMO provider contracts and certain other provider contracts contain member hold harmless provisions, which prohibit the provider from billing the member for any covered services (apart from applicable deductibles, coinsurance, or co-payments) for any reason, including non-payment due to insolvency of HCSC, or similar provisions. Transition of care provisions also appear in HMO and PPO provider contracts, as well as certain other provider contracts, which allow for transition of care to occur in accordance with the rates of the participation agreement upon termination or expiration of the participation agreement. 7.1 Does the reporting entity set up its claim liability for provider services on a service date basis? 7.2 If no, give details: 8. Provide the following information regarding participating providers: 8.1 Number of providers at start of reporting year 8.2 Number of providers at end of reporting year Yes[X] No[ ] ............... ............... 9.1 Does the reporting entity have business subject to premium rate guarantees? 9.2 If yes, direct premium earned: 9.21 Business with rate guarantees between 15-36 months 9.22 Business with rate guarantees over 36 months 233,241 251,046 Yes[ ] No[X] ....................... ....................... 10.1 Does the reporting entity have Incentive Pool, Withhold or Bonus Arrangements in its provider contracts? 10.2 If yes: 10.21 Maximum amount payable bonuses 10.22 Amount actually paid for year bonuses 10.23 Maximum amount payable withholds 10.24 Amount actually paid for year withholds 11.1 Is the reporting entity organized as: 11.12 A Medical Group/Staff Model, 11.13 An Individual Practice Association (IPA), or, 11.14 A Mixed Model (combination of above)? 11.2 Is the reporting entity subject to Statutory Minimum Capital and Surplus Requirements? 11.3 If yes, show the name of the state requiring such minimum capital and surplus. Illinois 11.4 If yes, show the amount required. 11.5 Is this amount included as part of a contingency reserve in stockholder's equity? 11.6 If the amount is calculated, show the calculation. 0 0 Yes[X] No[ ] $. . . . . . . . . . . . . . . . . . . . . . . 0 $. . . . . . . . . . . 263,907,758 $. . . . . . . . . . . . . . . . . . . . . . . 0 $. . . . . . . . . . . . . . . . . . . . . . . 0 Yes[ ] No[X] Yes[ ] No[X] Yes[ ] No[X] Yes[X] No[ ] $. . . . . . . . . . . . . 1,500,000 Yes[ ] No[X] 12. List service areas in which the reporting entity is licensed to operate: 1 Name of Service Area See Schedule T. 13.1 13.2 13.3 13.4 ................................................................................................................... Do you act as a custodian for health savings accounts? If yes, please provide the amount of custodial funds held as of the reporting date: Do you act as an administrator for health savings accounts? If yes, please provide the balance of the funds administered as of the reporting date: Yes[ ] No[X] $. . . . . . . . . . . . . . . . . . . . . . . 0 Yes[ ] No[X] $. . . . . . . . . . . . . . . . . . . . . . . 0 28 ANNUAL STATEMENT FOR THE YEAR 2018 OF THE Health Care Service Corporation, a Mutual Legal Reserve Company GENERAL INTERROGATORIES (Continued) 14.1 Are any of the captive affiliates reported on Schedule S, Part 3, as authorized reinsurers? 14.2 If the answer to 14.1 is yes, please provide the following: 1 Company Name 2 NAIC Company Code ............................................................................... ............... Yes[ ] No[ ] N/A[X] 3 4 Domiciliary Jurisdiction Reserve Credit ............... .................. Assets Supporting Reserve Credit 5 6 7 Letters Trust of Credit Agreements Other .................. .................. 15. Provide the following for individual ordinary life insurance* policies (U.S. business only) for the current year (prior to reinsurance assumed or ceded) 15.1 Direct Premium Written 15.2 Total incurred claims 15.2 Number of covered lives .................. $. . . . . . . . . . . . . . . . . . . . . . . 0 $. . . . . . . . . . . . . . . . . . . . . . . 0 ....................... 0 *Ordinary Life Insurance Includes Term (whether full underwriting, limited underwriting, jet issue, "short form app") Whole Life (whether full underwriting, limited underwriting, jet issue, "short form app") Variable Life (with or without Secondary Guarantee) Universal Life (with or without Secondary Guarantee) Variable Universal Life (with or without Secondary Guarantee) 16. Is the reporting entity licensed or chartered, registered, qualified, eligible or writing business in at least two states? 16.1 If no, does the reporting entity assume reinsurance business that covers risks residing in at least one state other than the state of domicile of the reporting entity? 28.1 Yes[X] No[ ] Yes[ ] No[X] ANNUAL STATEMENT FOR THE YEAR 2018 OF THE Health Care Service Corporation, a Mutual Legal Reserve Company FIVE-YEAR HISTORICAL DATA 1 2018 2 2017 3 2016 4 2015 5 2014 BALANCE SHEET (Pages 2 and 3) 1. TOTAL Admitted Assets (Page 2, Line 28) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 26,725,564,236 2. TOTAL Liabilities (Page 3, Line 24) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .... 3. Statutory minimum capital and surplus requirement . . . . . . . . . . . . . . . . . . . . . . . . . . ......... 4. TOTAL Capital and Surplus (Page 3, Line 33) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 16,859,339,073 .. 12,048,965,693 .... 5. TOTAL Revenues (Line 8) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 35,927,196,695 .. 32,603,541,267 .. 30,335,796,229 .. 31,185,323,709 .. 27,705,479,809 6. TOTAL Medical and Hospital Expenses (Line 18) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 29,189,969,611 .. 27,295,813,215 .. 26,387,406,850 .. 28,185,178,971 .. 23,954,073,266 7. Claims adjustment expenses (Line 20) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .... 1,293,440,274 .... 1,060,838,589 ...... 8. TOTAL Administrative Expenses (Line 21) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .... 3,099,221,947 .... 2,459,284,914 .... .... 2,986,959,977 .... 2,772,043,829 9. Net underwriting gain (loss) (Line 24) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .... 2,493,693,873 .... 1,556,721,549 . . . . . . . . 68,475,082 . . . . (279,652,689) .... (387,245,269) 10. Net investment gain (loss) (Line 27) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...... 11. TOTAL Other Income (Lines 28 plus 29) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ......... 12. Net income or (loss) (Line 32) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .... 4,114,719,998 .... 2,033,483,753 9,866,225,164 1,500,000 .. 22,028,156,429 .... 9,979,190,736 ......... 1,500,000 .. 18,036,100,777 .... 8,500,156,003 ......... 1,500,000 9,535,944,774 .. 17,661,069,333 .... 8,216,115,730 ......... .... 1,500,000 9,444,953,603 .. 17,829,420,895 .... 7,887,174,434 ......... .... 1,500,000 9,942,246,461 INCOME STATEMENT (Page 4) 863,559,559 2,984,406,738 ...... 866,402,450 (83,568,681) ...... 201,055,982 ...... 269,149,856 ...... 228,459,432 3,968,297 ...... (28,264,612) ...... (20,528,669) ......... .... 1,262,591,222 ...... 106,348,244 ...... .... 1,880,412,151 ...... 531,518,880 .. 1,558,342 (65,881,379) ...... ...... 968,881,983 200,310,118 . . . . . . . . 13,746,551 .... (281,884,099) Cash Flow (Page 6) 13. Net cash from operations (Line 11) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,138,997,820) ...... (66,516,082) RISK-BASED CAPITAL ANALYSIS 14. TOTAL Adjusted Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 16,875,909,359 15. Authorized control level risk-based capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .... 1,313,396,159 .. 12,065,942,307 .... 9,552,892,216 .... 9,460,443,276 .... 9,964,406,240 1,203,946,550 .... 1,179,613,870 .... 1,234,760,421 .... 1,042,487,785 .... ENROLLMENT (Exhibit 1) 16. TOTAL Members at End of Period (Column 5, Line 7) . . . . . . . . . . . . . . . . . . . . . . . ......... 17. TOTAL Members Months (Column 6, Line 7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...... 8,817,211 105,450,910 ......... ...... 8,437,074 102,063,636 ......... ...... 8,816,613 108,505,734 ......... ...... 9,706,366 118,276,416 ......... ...... 9,663,704 113,187,473 OPERATING PERCENTAGE (Page 4) (Item divided by Page 4, sum of Lines 2, 3 and 5) x 100.0 18. Premiums earned plus risk revenue (Line 2 plus Lines 3 and 5) . . . . . . . . . . . . . . . . . . . . . . . . . . . 100.0 . . . . . . . . . . . . . . . 100.0 . . . . . . . . . . . . . . . 100.0 . . . . . . . . . . . . . . . 100.0 . . . . . . . . . . . . . . . 100.0 19. TOTAL Hospital and Medical plus other non-health (Lines 18 plus Line 19) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ................ 81.2 ................ 83.7 ................ 87.0 ................ 90.4 ................ 86.5 20. Cost containment expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .................. 3.0 .................. 2.6 .................. 2.3 .................. 2.2 .................. 2.3 21. Other claims adjustment expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .................. 0.6 .................. 0.7 .................. 0.5 .................. 0.5 .................. 1.2 22. TOTAL Underwriting Deductions (Line 23) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ................ 23. TOTAL Underwriting Gain (Loss) (Line 24) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .................. 93.1 6.9 ................ 95.2 .................. 4.8 ................ 99.8 .................. 0.2 . . . . . . . . . . . . . . . 100.9 . . . . . . . . . . . . . . . 101.4 ................ (0.9) ................ (1.4) UNPAID CLAIMS ANALYSIS (U&I Exhibit, Part 2B) 24. TOTAL Claims Incurred for Prior Years (Line 13, Column 5) . . . . . . . . . . . . . . . . .... 1,340,358,176 .... 1,097,193,537 ...... 25. Estimated liability of unpaid claims-[prior year (Line 13, Column 6)] . . . . . . . .... 1,679,411,257 .... 1,420,255,750 .... 904,003,476 1,279,000,607 949,639,301 ...... 826,034,525 1,344,735,044 ...... 990,456,703 ...... .... INVESTMENTS IN PARENT, SUBSIDIARIES AND AFFILIATES 26. Affiliated bonds (Sch. D Summary, Line 12, Column 1) . . . . . . . . . . . . . . . . . . . . . . ...................... ...................... ...................... ...................... ...................... 27. Affiliated preferred stocks (Sch. D Summary, Line 18, Column 1) . . . . . . . . . . ...................... ...................... ...................... ...................... ...................... 28. Affiliated common stocks (Sch. D Summary, Line 24, Column 1) . . . . . . . . . . ...... 958,935,853 ...... 921,477,957 ...... 785,349,238 ...... 785,175,997 ...... 794,811,112 29. Affiliated short-term investments (subtotal included in Sch. DA Verification, Col. 5, Line 10) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...................... ...................... ...................... ...................... ...................... 30. Affiliated mortgage loans on real estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...................... ...................... ...................... ...................... ...................... 31. All other affiliated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ...... 32. TOTAL of Above Lines 26 to 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .... 229,606,070 1,188,541,923 ...... .... 233,104,289 1,154,582,246 . . . . . . . . 76,737,346 . . . . . . . . 68,469,469 . . . . . . ...... 862,086,584 ...... 853,645,466 ...... 115,824,771 910,635,883 33. TOTAL Investment in Parent Included in Lines 26 to 31 above . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . NOTE: If a party to a merger, have the two most recent years of this exhibit been restated due to a merger in compliance with the disclosure requirements of SSAP No. 3 Accounting Changes and Correction of Errors? Yes[ ] No[ ] N/A[X] If no, please explain: 29 ANNUAL STATEMENT FOR THE YEAR 2018 OF THE Health Care Service Corporation, a Mutual Legal Reserve Company SCHEDULE T - PREMIUMS AND OTHER CONSIDERATIONS ALLOCATED BY STATES AND TERRITORIES 1 State, Etc. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26. 27. 28. 29. 30. 31. 32. 33. 34. 35. 36. 37. 38. 39. 40. 41. 42. 43. 44. 45. 46. 47. 48. 49. 50. 51. 52. 53. 54. 55. 56. 57. 58. 59. 60. 61. Alabama (AL) . . . . . . . . . . . . . . . . . . . . . . Alaska (AK) . . . . . . . . . . . . . . . . . . . . . . . . Arizona (AZ) . . . . . . . . . . . . . . . . . . . . . . . Arkansas (AR) . . . . . . . . . . . . . . . . . . . . . California (CA) . . . . . . . . . . . . . . . . . . . . . Colorado (CO) . . . . . . . . . . . . . . . . . . . . . Connecticut (CT) . . . . . . . . . . . . . . . . . . Delaware (DE) . . . . . . . . . . . . . . . . . . . . . District of Columbia (DC) . . . . . . . . . . Florida (FL) . . . . . . . . . . . . . . . . . . . . . . . . Georgia (GA) . . . . . . . . . . . . . . . . . . . . . . Hawaii (HI) . . . . . . . . . . . . . . . . . . . . . . . . . Idaho (ID) . . . . . . . . . . . . . . . . . . . . . . . . . . Illinois (IL) . . . . . . . . . . . . . . . . . . . . . . . . . . Indiana (IN) . . . . . . . . . . . . . . . . . . . . . . . . Iowa (IA) . . . . . . . . . . . . . . . . . . . . . . . . . . . Kansas (KS) . . . . . . . . . . . . . . . . . . . . . . . Kentucky (KY) . . . . . . . . . . . . . . . . . . . . . Louisiana (LA) . . . . . . . . . . . . . . . . . . . . . Maine (ME) . . . . . . . . . . . . . . . . . . . . . . . . Maryland (MD) . . . . . . . . . . . . . . . . . . . . . Massachusetts (MA) . . . . . . . . . . . . . . Michigan (MI) . . . . . . . . . . . . . . . . . . . . . . Minnesota (MN) . . . . . . . . . . . . . . . . . . . Mississippi (MS) . . . . . . . . . . . . . . . . . . . Missouri (MO) . . . . . . . . . . . . . . . . . . . . . Montana (MT) . . . . . . . . . . . . . . . . . . . . . Nebraska (NE) . . . . . . . . . . . . . . . . . . . . . Nevada (NV) . . . . . . . . . . . . . . . . . . . . . . . New Hampshire (NH) . . . . . . . . . . . . . New Jersey (NJ) . . . . . . . . . . . . . . . . . . . New Mexico (NM) . . . . . . . . . . . . . . . . . New York (NY) . . . . . . . . . . . . . . . . . . . . North Carolina (NC) . . . . . . . . . . . . . . . North Dakota (ND) . . . . . . . . . . . . . . . . Ohio (OH) . . . . . . . . . . . . . . . . . . . . . . . . . . Oklahoma (OK) . . . . . . . . . . . . . . . . . . . . Oregon (OR) . . . . . . . . . . . . . . . . . . . . . . . Pennsylvania (PA) . . . . . . . . . . . . . . . . . Rhode Island (RI) . . . . . . . . . . . . . . . . . South Carolina (SC) . . . . . . . . . . . . . . . South Dakota (SD) . . . . . . . . . . . . . . . . Tennessee (TN) . . . . . . . . . . . . . . . . . . . Texas (TX) . . . . . . . . . . . . . . . . . . . . . . . . . Utah (UT) . . . . . . . . . . . . . . . . . . . . . . . . . . Vermont (VT) . . . . . . . . . . . . . . . . . . . . . . Virginia (VA) . . . . . . . . . . . . . . . . . . . . . . . Washington (WA) . . . . . . . . . . . . . . . . . West Virginia (WV) . . . . . . . . . . . . . . . . Wisconsin (WI) . . . . . . . . . . . . . . . . . . . . Wyoming (WY) . . . . . . . . . . . . . . . . . . . . American Samoa (AS) . . . . . . . . . . . . Guam (GU) . . . . . . . . . . . . . . . . . . . . . . . . Puerto Rico (PR) . . . . . . . . . . . . . . . . . . U.S. Virgin Islands (VI) . . . . . . . . . . . . Northern Mariana Islands (MP) . . . Canada (CAN) . . . . . . . . . . . . . . . . . . . . . Aggregate other alien (OT) . . . . . . . Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . Reporting entity contributions for Employee Benefit Plans . . . . . . . . . . TOTAL (Direct Business) . . . . . . . . . Active Status (a) 2 3 4 Accident & Health Premiums Medicare Title XVIII Medicaid Title XIX Direct Business Only 5 6 Federal Life & Annuity Employees Health Premiums & Benefits Plan Other Premiums Considerations 7 8 9 Property/ Casualty Premiums Total Columns 2 Through 7 Deposit - Type Contracts .. N . ................. ................ ................ L . . . . . . . . 4,081,329 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . L . . . . . . . . 4,488,896 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . L . . . . . . 30,366,194 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. N . ................. ................ ................ . . L . . . . . . . . 1,631,339 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . L . . . . . . . . . . 139,783 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . L . . . . . . . . 4,168,915 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . L . . . . . . . . . . . 77,115 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . L . . . . . 126,296,433 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . L . . . . . . . . . . 987,339 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. N . ................. ................ ................ . . L . . . . . . . . . . 236,025 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . L . . 11,884,590,724 . . 894,732,544 2,553,767,310 . . L . . . . . . . . 5,382,217 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. N . ................. ................ ................ .. N . ................. ................ ................ . . L . . . . . . 22,453,941 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. N . ................. ................ ................ . . L . . . . . . . . . . . 87,123 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . L . . . . . . 11,416,356 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . L . . . . . . . . . . 297,973 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . L . . . . . . . . 1,401,111 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . L . . . . . . 49,515,750 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. N . ................. ................ ................ . . L . . . . . . . . 1,871,688 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . L . . . . . 506,555,129 . . 177,054,579 . . . . . . . . . . . . . . . . . . L . . . . . . . . 2,852,329 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N . . . . . 26,819,272 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N . . . . . . . 6,884,504 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . L . . . . . . . . . . 229,448 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . L . . . . . 305,117,696 . . 233,704,114 . . . . . . . . . . . . . . . . .. N . ................. ................ ................ .. N . ................. ................ ................ .. N . ................. ................ ................ . . L . . . . . . . . . . 739,541 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . L . . . 2,430,511,484 . . . . . . 782,409 . . . . . . . . . . . . . . . . . . L . . . . . . . . . . 317,050 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . L . . . . . . . . 1,036,389 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. N . ................. ................ ................ . . L . . . . . . . . . . 682,634 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. N . ................. ................ ................ . . N . . . . . 43,378,731 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . L . . 10,326,077,597 . . . . . . . . . . . . . . . . . . 257,953,088 . . L . . . . . . 16,177,309 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. N . ................. ................ ................ . . L . . . . . . . . . . 697,805 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. N . ................. ................ ................ . . L . . . . . . . . . . . 64,964 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . L . . . . . . . . 4,076,548 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. N . ................. ................ ................ .. N . ................. ................ ................ .. N . ................. ................ ................ .. N . ................. ................ ................ .. N . ................. ................ ................ .. N . ................. ................ ................ .. N . ................. ................ ................ X X X . . . 922,141,879 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . X X X 26,743,850,562 1,306,273,647 2,811,720,398 .................. ............... ............... ................. ............... .. .................. ............... ............... ...... ............... .................. ............... ............... .................. ............... ............... 4,081,329 . . . . . . 4,488,896 . . . . 30,366,194 .................. ............... ............... ................. ............... .................. ............... ............... ...... ............... .................. ............... ............... .................. ............... ............... .................. ............... ............... .................. ............... ............... .................. ............... ............... 1,631,339 . . . . . . . . 139,783 . . . . . . 4,168,915 . . . . . . . . . 77,115 . . . 126,296,433 . . . . . . . . 987,339 .................. ............... ............... ................. ............... .................. ............... ............... ............... ............... ............... .................. ............... ............... 236,025 16,458,261,665 . . . . . . 5,382,217 .................. ............... ............... ................. ............... .................. ............... ............... ................. ............... .................. ............... ............... .... .................. ............... ............... ................. ............... .................. ............... ............... ......... ............... .................. ............... ............... .................. ............... ............... .................. ............... ............... .................. ............... ............... 87,123 . . . . 11,416,356 . . . . . . . . 297,973 . . . . . . 1,401,111 . . . . 49,515,750 .................. ............... ............... ................. ............... .................. ............... ............... ...... ............... ............... ............... .................. ............... ............... .................. ............... ............... .................. ............... ............... .................. ............... ............... ............... ............... 1,871,688 . . . 881,674,935 . . . . . . 2,852,329 . . . . 26,819,272 . . . . . . 6,884,504 . . . . . . . . 229,448 . . . 805,212,462 .................. ............... ............... ................. ............... .................. ............... ............... ................. ............... .................. ............... ............... ................. ............... .................. ............... ............... ........ ............... ............... ............... .................. ............... ............... .................. ............... ............... 739,541 . 3,164,081,904 . . . . . . . . 317,050 . . . . . . 1,036,389 .................. ............... ............... ................. ............... .................. ............... ............... ........ .................. ............... ............... ................. ............... .................. ............... ............... ............... ............... ............... .................. ............... ............... 43,378,731 13,433,506,920 . . . . 16,177,309 .................. ............... ............... ................. ............... .................. ............... ............... ........ .................. ............... ............... ................. ............... .................. ............... ............... ......... ............... .................. ............... ............... 64,964 . . . . . . 4,076,548 .................. ............... ............... ................. ............... .................. ............... ............... ................. ............... .................. ............... ............... ................. ............... .................. ............... ............... ................. ............... .................. ............... ............... ................. ............... .................. ............... ............... ................. ............... .................. ............... ............... ................. ............... .................. ............... ............... ............... ............... ............... 922,141,879 36,033,735,818 X X X ................. ................ ................ X X X 26,743,850,562 1,306,273,647 2,811,720,398 .................. ............... ............... ................. ............... ............... ............... 36,033,735,818 ............... XXX XXX XXX . . . 922,141,879 . . . . . . . . . . . . . . . . ................. ................ ................. ................ ................ ................ ................ .................. .................. .................. ............... ............... ............... ............... ............... ............... . . . 922,141,879 . . . . . . . . . . . . . . . ................. ............... ................. ............... XXX ................. ................ ................ .................. ............... ............... ................. XXX ... ................ ................ .................. ............... ............... ... .. 1,125,171,086 .... .... .... .. .. .. 198,065,227 266,390,652 732,788,011 2,849,476,235 5,171,891,211 5,171,891,211 ........ 22,453,941 682,634 .... 697,805 ... ............... ............... ............... ............... ............... ............... ............... ............... ............... ............... ............... ............... ............... ............... ............... ............... ............... ............... ............... ............... ............... ............... ............... ............... ............... ............... ............... ............... ............... DETAILS OF WRITE-INS 58001.ZZZ Other Alien . . . . . . . . . . . . . . . . . . . 58002. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58003. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58998.Summary of remaining write-ins for Line 58 from overflow page . . . 58999.TOTALS (Lines 58001 through 58003 plus 58998) (Line 58 above) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 922,141,879 (a) Active Status Counts: L - Licensed or Chartered - Licensed insurance carrier or domiciled RRG E - Eligible - Reporting entities eligible or approved to write surplus lines in the state N - None of the above - Not allowed to write business in the state 33 922,141,879 ............... ............... R - Registered - Non-domiciled RRGs Q - Qualified - Qualified or accredited reinsurer 24 Explanation of basis of allocation by state, premiums by state, etc.: (1) Group and individual premiums are allocated according to the individual and group health insurance standards in the NAIC Health Annual Statement Blank Instructions and the methods on file with the Illinois DOI, which methods take into account state specific requirements. (2) The write-ins for "Other Alien" in Line 58 are the adjustment for ACA Risk Adjustment and Risk Corridor. 38 ANNUAL STATEMENT FOR THE YEAR 2018 OF THE Health Care Service Corporation, a Mutual Legal Reserve Company SCHEDULE Y - INFORMATION CONCERNING ACTIVITIES OF INSURER MEMBERS OF A HOLDING COMPANY GROUP PART 1 - ORGANIZATIONAL CHART FEDERAL ID COMPANY DOMICILED PERCENTAGE OWNED NAIC CODE NUMBERS STATE 70670 36-1236610 IL 71129 36-2598882 IL 100.00% 85090 22-3026145 NY 100.00% 36-3339483 DE 100.00% 38-2612298 DE 100.00% 20-1067299 MI 100.00% 36-4186601 DE 100.00% 73-1350270 IL 100.00% PRIME THERAPEUTICS LLC 26-0076803 DE 39.94% AVAILITY, LLC 59-3715944 DE 21.65% 73-1507369 OK 100.00% 73-1514691 OK 100.00% 11814 73-1191843 OK 100.00% 14048 27-4183696 OK 100.00% 23-2530889 PA 100.00% COLLABORACARE CONSORTIUM, LLC 84-1683303 PA 100.00% OPTIMED MEDICAL SYSTEMS, LLC 23-2530889 PA 100.00% HX TECHNOLOGIES, INC. 11-3644814 DE 100.00% UNLIMITED INNOVATIONS, INC. 33-0711280 CA 100.00% CMH TECHNOLOGY SUBSIDIARY, LLC 82-4418148 DE 100.00% TMA PRACTICEEDGE, LLC 20-5426675 TX 35.00% HEALTH INTELLIGENCE COMPANY LLC D/B/A BLUE HEALTH INTELLIGENCE 27-4269034 DE 10.64% INNOVISTA, LLC 30-0802612 DE 100.00% GENESIS MEDICAL GROUP MANAGEMENT COMPANY, LLC. 83-2055033 TX 49.00% VERITY HEALTHNET, LLC 45-0510673 LA 25.00% TRIWEST ALLIANCE INC. 86-0813402 DE 12.75% HCSC VENTURES, INC. 37-1789176 DE 100.00% ALACURA HOLDINGS, INC.* 83-2215567 DE 20.30% AVALON HEALTH SERVICES, LLC 46-3019902 DE 19.45% BH ASSETS, LLC. 27-1038374 DE 35.66% BLUECROSS BLUESHIELD VENTURES, INC. 26-2930757 DE 21.55% 26-2936839 DE 1.00% BLUECROSS BLUESHIELD VENTURE PARTNERS, L.P. 26-2936839 DE 21.34% COGITATIVO, INC. 47-1692551 DE 18.23% HCSC ITC, LLC 82-1682951 DE 100.00% USB RETC FUND 2017-2, LLC 82-1285164 DE 100.00% USB HTC FUND 2017-2, LLC 82-3349261 DE 100.00% HEALTHBOX CHICAGO III LLC 47-0970280 DE 36.27% HEALTH CARE SERVICE CORPORATION, A MUTUAL LEGAL RESERVE COMPANY DEARBORN NATIONAL LIFE INSURANCE COMPANY DEARBORN NATIONAL LIFE INSURANCE COMPANY OF NEW YORK DENTAL NETWORK OF AMERICA, LLC DENTEMAX, LLC DENTAL SOLUTIONS, INC. HCSC PURCHASING, LLC HCSC INSURANCE SERVICES COMPANY GHS INSURANCE COMPANY 78611 29718 GHS GENERAL INSURANCE AGENCY, INC. GHS HEALTH MAINTENANCE ORGANIZATION, INC. D/B/A BLUELINCS HMO GHS MANAGED HEALTH CARE PLANS, INC. MEDECISION, INC. 40 BLUECROSS BLUESHIELD VENTURE PARTNERS, L.P. BY PARENT – 12/31/2018 ILLINOIS BLUE CROSS BLUE SHIELD INSURANCE COMPANY 16013 61-1782332 IL 100.00% MONTANA BLUE INSURANCE COMPANY 16022 61-1790731 MT 100.00% ANNUAL STATEMENT FOR THE YEAR 2018 OF THE Health Care Service Corporation, a Mutual Legal Reserve Company SCHEDULE Y - INFORMATION CONCERNING ACTIVITIES OF INSURER MEMBERS OF A HOLDING COMPANY GROUP PART 1 - ORGANIZATIONAL CHART BLUE CROSS AND BLUE SHIELD OF NEW MEXICO INSURANCE COMPANY 16359 38-3984430 NM 100.00% OKLAHOMA BLUE INSURANCE COMPANY 15907 30-0892376 OK 100.00% TEXAS BLUE CROSS BLUE SHIELD INSURANCE COMPANY 15941 36-4836697 TX 100.00% 47-4840919 IL 0.00% 47-4875772 IL 0.00% 47-4862340 IL 0.00% HCSC GOVERNMENT PROGRAMS HOLDING COMPANY, NFP BCBSIL GP HMO, NFP 16030 BLUE CROSS AND BLUE SHIELD OF NEW MEXICO GOVERNMENT PROGRAMS HMO, NFP BCBSTX GOVERNMENT PROGRAMS HMO 15964 47-4889581 TX 0.00% BCBSOK GOVERNMENT PROGRAMS HMO COMPANY 15851 47-5287374 OK 0.00% MONTANA BLUE GOVERNMENT PROGRAMS HMO 15958 47-4907557 MT 0.00% CARING FOR CHILDREN FOUNDATION OF TEXAS, INC. 75-2393811 TX 0.00% THE OKLAHOMA CARING FOUNDATION, INC. 73-1470846 OK 0.00% THE CARING FOUNDATION OF MONTANA, INC. 35-2613131 MT 0.00% PLANITES CREDIT UNION 36-6057472 IL 0.00% LIFETIME FEDERAL CREDIT UNION 75-6020171 TX 0.00% *Includes 4.74% passive investment through a private equity entity 40.1 ANNUAL STATEMENT FOR THE YEAR 2018 OF THE Health Care Service Corporation, a Mutual Legal Reserve Company INDEX TO HEALTH ANNUAL STATEMENT Analysis of Operations By Lines of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . 7 Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Cash Flow . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 Exhibit 1 - Enrollment By Product Type for Health Business Only . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Exhibit 2 - Accident and Health Premiums Due and Unpaid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Exhibit 3 - Health Care Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Exhibit 3A - Analysis of Health Care Receivables Collected and Accrued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Exhibit 4 - Claims Unpaid and Incentive Pool, Withhold and Bonus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . 21 Exhibit 5 - Amounts Due From Parent, Subsidiaries and Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Exhibit 6 - Amounts Due To Parent, Subsidiaries and Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . 23 Exhibit 7 - Part 1 - Summary of Transactions With Providers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . 24 Exhibit 7 - Part 2 - Summary of Transactions With Intermediaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . 24 Exhibit 8 - Furniture, Equipment and Supplies Owned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . 25 Exhibit of Capital Gains (Losses) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . 15 Exhibit of Net Investment Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Exhibit of Nonadmitted Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Exhibit of Premiums, Enrollment and Utilization (State Page) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 Five-Year Historical Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 General Interrogatories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . 27 Jurat Page . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . 1 Liabilities, Capital and Surplus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Notes To Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Overflow Page For Write-ins . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 Schedule A - Part 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . E01 Schedule A - Part 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . E02 Schedule A - Part 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . E03 Schedule A - Verification Between Years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . SI02 Schedule B - Part 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . E04 Schedule B - Part 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . E05 Schedule B - Part 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . E06 Schedule B - Verification Between Years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . SI02 Schedule BA - Part 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . E07 Schedule BA - Part 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . E08 Schedule BA - Part 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . E09 Schedule BA - Verification Between Years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . SI03 Schedule D - Part 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . E10 Schedule D - Part 1A - Section 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . SI05 Schedule D - Part 1A - Section 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . SI08 Schedule D - Part 2 - Section 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . E11 Schedule D - Part 2 - Section 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . E12 Schedule D - Part 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . E13 Schedule D - Part 4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . E14 Schedule D - Part 5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . E15 Schedule D - Part 6 - Section 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . E16 Schedule D - Part 6 - Section 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . E16 Schedule D - Summary By Country . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . SI04 Schedule D - Verification Between Years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . SI03 Schedule DA - Part 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . E17 Schedule DA - Verification Between Years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . SI10 Schedule DB - Part A - Section 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . E18 Schedule DB - Part A - Section 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . E19 Schedule DB - Part A - Verification Between Years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . SI11 Schedule DB - Part B - Section 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . E20 Schedule DB - Part B - Section 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . E21 Schedule DB - Part B - Verification Between Years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . SI11 Schedule DB - Part C - Section 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . SI12 Schedule DB - Part C - Section 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . SI13 Schedule DB - Part D - Section 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . E22 Schedule DB - Part D - Section 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . E23 INDEX ANNUAL STATEMENT FOR THE YEAR 2018 OF THE Health Care Service Corporation, a Mutual Legal Reserve Company INDEX TO HEALTH ANNUAL STATEMENT Schedule DB - Verification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . SI14 Schedule DL - Part 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . E24 Schedule DL - Part 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . E25 Schedule E - Part 1 - Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . E26 Schedule E - Part 2 - Cash Equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . E27 Schedule E - Part 2 - Verification Between Years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . SI15 Schedule E - Part 3 - Special Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . E28 Schedule S - Part 1 - Section 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 Schedule S - Part 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 Schedule S - Part 3 - Section 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 Schedule S - Part 4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 Schedule S - Part 5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 Schedule S - Part 6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 Schedule S - Part 7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 Schedule T - Part 2 - Interstate Compact . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 Schedule T - Premiums and Other Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . 38 Schedule Y - Part 1 - Information Concerning Activities of Insurer Members of a Holding Company Group . . . . . . . . . . . . . . . . . . . . . . 40 Schedule Y - Part 1A - Detail of Insurance Holding Company System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . 41 Schedule Y - Part 2 - Summary of Insurer's Transactions With Any Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 Statement of Revenue and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Summary Investment Schedule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . SI01 Supplemental Exhibits and Schedules Interrogatories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . 43 Underwriting and Investment Exhibit - Part 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . 8 Underwriting and Investment Exhibit - Part 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . 9 Underwriting and Investment Exhibit - Part 2A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Underwriting and Investment Exhibit - Part 2B . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Underwriting and Investment Exhibit - Part 2C . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . 12 Underwriting and Investment Exhibit - Part 2D . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . 13 Underwriting and Investment Exhibit - Part 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . 14 INDEX.1