Molina Healthcare receives insurance premiums, mainly from governments, to arrange and pay for members’ medical care. In the third quarter of 2026, its largest business, Medicaid, earned more premium revenue, but its medical costs increased by more. Company-wide net income fell to $38 million from $79 million a year earlier. Better cash flow gives Molina more room to manage the transition, but restoring profit depends on improving the balance between government payments and the cost of care.
Research cutoff: October 26, 2026, New York time. Company financial results and plans below are verified through the October 22 filing and October 21 earnings release; this is not a claim that every subsequent development has been verified.
Source: Molina Healthcare, September 30, 2026 Form 10-Q, consolidated income statements, p. 3; segment discussion, pp. 29–30; cash-flow discussion, p. 32.
1. Medicaid’s higher revenue left less money after medical care
Medicaid’s revenue growth did not cover the increase in its medical bills. Third-quarter premiums rose by $184 million, while medical costs rose by $246 million. That left $577 million after medical care, down from $639 million. This remainder, called medical margin, must still cover administration and other company costs before becoming profit.
Molina attributed the pressure particularly to outpatient services and expensive drugs, alongside changes in covered programs and the kinds of members enrolled. Higher government payment rates helped, but did not fully offset those pressures. Medicaid generated 78.4% of quarterly premiums, so its performance carries far more weight than improvements in Molina’s smaller businesses. Ending Medicaid membership fell to 4.372 million from 4.639 million a year earlier; rate, program and member-mix changes offset the effect on revenue of serving fewer people.
| Medicaid, US$ millions except percentages | Third quarter 2025 | Third quarter 2026 |
|---|---|---|
| Premium revenue | 8,015 | 8,199 |
| Medical care costs | 7,376 | 7,622 |
| Amount left after medical care | 639 | 577 |
| Medical costs as a share of premiums | 92.0% | 93.0% |
Source: 2026 third-quarter Form 10-Q, Note 8, pp. 16–17; membership, p. 28; Medicaid discussion, p. 29. Revenue increased 2.3%; medical costs increased 3.3%, calculated from the reported amounts.
The pressure has lasted longer than one quarter. In the third quarter of 2024, Medicaid medical costs absorbed 90.5% of premiums. By the latest quarter, they absorbed 93.0%. Put simply, Molina now has about $7 left from each $100 of Medicaid premiums before other expenses, compared with $9.50 two years earlier. Changes in contracts and membership affect that comparison, but it establishes that the business has not returned to its earlier room for profit.
Sources: Molina’s October 22, 2025 earnings release, third-quarter segment table, 2024 comparator; 2026 third-quarter Form 10-Q, pp. 29–30.
Across the whole company, fewer members also reduced the revenue available to cover overhead. The table separates the latest quarter from the first nine months; the cumulative figures show a much sharper decline in profit.
| Consolidated results, US$ millions except per-share amounts and percentages | Third quarter 2025 | Third quarter 2026 | First nine months 2025 | First nine months 2026 |
|---|---|---|---|---|
| Premium revenue | 10,841 | 10,457 | 32,337 | 30,873 |
| Total revenue | 11,477 | 11,082 | 34,051 | 32,752 |
| Operating income | 137 | 106 | 943 | 334 |
| Net income | 79 | 38 | 632 | 112 |
| Diluted earnings per share, US$ | 1.51 | 0.73 | 11.79 | 2.19 |
| Medical costs as a share of premiums | 92.6% | 92.9% | 90.8% | 92.1% |
| Net income as a share of total revenue, calculated | 0.69% | 0.34% | 1.86% | 0.34% |
Source: 2026 third-quarter Form 10-Q, consolidated income statements, p. 3, and financial summary, p. 24. Operating income is profit before interest and income taxes; net income includes them. Total revenue includes investment income and money recorded to cover premium taxes, with equal tax expense.
Administration was not the main cause of the quarterly deterioration. Spending fell to $710 million from $729 million, keeping the reported administration-to-revenue ratio at 6.4%. But over nine months, administrative spending was almost unchanged while revenue fell. Its share of revenue therefore rose to 6.8% from 6.5%.
The larger problem was the $541 million reduction in the amount left after medical care during those nine months. Medicaid accounted for $334 million of that decline. Cost control elsewhere helped, but could not compensate for that loss of medical margin.
Source: 2026 third-quarter Form 10-Q, pp. 3, 25 and 29–30. Calculation notes below reconcile the change in operating income.
2. Molina is accepting fewer members to improve the business it keeps
The smaller Marketplace and traditional Medicare Advantage prescription-drug businesses reflect deliberate changes in products and pricing as well as market pressure. Management’s purpose is to restore margins and focus Medicare on people eligible for both Medicare and Medicaid. The near-term cost is a smaller revenue base over which to spread administration.
Marketplace plans are individual insurance policies sold through government exchanges; most of Molina’s members receive premium subsidies. Membership fell to 267,000 from 713,000 a year earlier, a 62.6% reduction. Quarterly premiums declined 46.4%. Molina plans further reductions in 2027 and estimates that Marketplace premiums will fall by another $1 billion compared with 2026. That is a management forecast, not revenue already lost.
| Segment medical margin, US$ millions; before administration and other company expenses | Third quarter 2025 | Third quarter 2026 | First nine months 2025 | First nine months 2026 |
|---|---|---|---|---|
| Medicaid | 639 | 577 | 2,127 | 1,793 |
| Medicare | 103 | 113 | 436 | 413 |
| Marketplace | 53 | 48 | 411 | 233 |
| Other insurance operations | 2 | 0 | 11 | 5 |
| Consolidated medical margin | 797 | 738 | 2,985 | 2,444 |
Source: 2026 third-quarter Form 10-Q, Note 8, pp. 16–18; membership and strategy, p. 28; segment performance, pp. 29–30. These are medical margins, not segment operating profits; consulting-service margins are separate.
There is some evidence that the Marketplace changes are helping, but the source of the improvement matters. Medical costs absorbed 92.5% of quarterly premiums, compared with 95.6% a year earlier. Molina said favorable revisions to risk-adjustment premiums were the main reason. Those payments redistribute money among insurers according to members’ health risks. Re-estimating them can change revenue even without an improvement in current medical care costs.
Meanwhile, the current Marketplace membership mix required more costly care, and federal checks on eligibility and enrollment continued to affect premiums. Across the first nine months, the medical cost ratio actually worsened to 88.3% from 87.9%. The quarterly improvement therefore provides only partial evidence that the smaller book of business is more profitable.
Source: 2026 third-quarter Form 10-Q, Note 2, p. 9, and Marketplace discussion, p. 30.
In Medicare, Molina intends to leave its traditional Medicare Advantage prescription-drug product for 2027. It is concentrating on members who qualify for both major government programs, where it already operates integrated plans. On January 1, 2026, it completed the transition of existing Medicare-Medicaid Plan members in five states into those integrated products. The predecessor business generated approximately $1.9 billion of premiums in 2025, making this a significant operational transition.
Medicare quarterly medical margin improved by $10 million despite lower ending membership. Yet Molina attributed the better medical cost ratio principally to favorable risk-adjustment premiums and revisions to older claim estimates. The nine-month medical margin still declined. The exit can remove a source of future losses, but the quarter does not establish that the remaining Medicare business has completed its recovery.
Source: 2026 third-quarter Form 10-Q, pp. 27–30. Medicare ending membership was 222,000 versus 266,000 a year earlier; product mix and acquisition timing affect revenue comparisons.
3. Older claims helped earnings, while the Medicare exit reduced asset values
Reported earnings benefited from lower estimates for older medical bills, even as current business results weakened. Insurers record an estimated cost before every bill has arrived. When later information shows that older care cost less than expected, the estimate is reduced and current-period medical expense falls.
During the first nine months of 2026, Molina reduced prior-year claim estimates by $352 million, compared with $124 million in the comparable 2025 period. Medicaid contributed $203 million and Medicare $114 million of the 2026 reduction. Management cited the cushion it includes for worse-than-expected claims, lower-than-expected use of care and improved operating performance.
The $352 million is a gross reduction in medical expense, not an equal increase in net income. Some state contracts require Molina to return money or adjust premiums when medical spending falls below specified levels. The filing says these arrangements absorbed part of the benefit. Without their separate dollar effect, subtracting the entire claim adjustment from earnings would produce a misleading measure of profit.
Source: 2026 third-quarter Form 10-Q, Note 6, pp. 13–14; revenue-sharing arrangements, pp. 8–9; MD&A, p. 25. The complete claims reconciliation appears in the calculation notes.
The planned Medicare exit produced a different accounting effect. Molina concluded that the traditional product’s future cash flows would not support the recorded value of related acquired assets. It wrote off $93 million in the first quarter, principally contract rights and a trade name. This reduced accounting profit without requiring a new cash payment when the charge was recorded.
Goodwill and acquired intangible assets are recorded values tied to purchased businesses, contracts and similar benefits. Their combined balance fell from $2.195 billion to $2.073 billion. The $122 million decline equals the $93 million write-off plus $29 million of amortization, the gradual expense recorded as acquired assets are used. The write-off is evidence that these assets will deliver less benefit than previously carried on the balance sheet. It also lowers future amortization, so a subsequent decline in that expense would not itself demonstrate better health-plan operations.
Sources: 2026 third-quarter Form 10-Q, balance sheet, p. 4; Note 2, p. 9; depreciation and impairment discussion, p. 25; October 21 earnings release, non-GAAP reconciliation, amortization row.
Adjusted nine-month net income still fell 66.4%; removing selected costs does not change the business finding. The reconciliation below preserves the tax effects.
Source: October 21, 2026 earnings release, reconciliation of unaudited non-GAAP financial measures.
Taxes added to the quarterly squeeze. Pretax income fell to $53 million from $88 million, while tax expense increased to $15 million from $9 million. Molina reported effective tax rates of 28.5% and 10.1%, respectively. It cited costs that cannot be deducted for tax purposes, fewer benefits from transferable federal tax credits relative to earnings, and tax items specific to each period. For the first nine months, the reported rate rose to 35.2% from 21.3%. The unusually low prior-year quarterly rate should not be treated as a normal rate for future earnings.
Source: 2026 third-quarter Form 10-Q, income statements, p. 3, and income-tax discussion, p. 26. Reported tax rates use underlying amounts more precise than the rounded millions shown here.
4. Cash improved because settlements absorbed less money
Molina’s cash improvement came mainly from payment and settlement timing, despite lower profit. Operating activities generated $629 million in the first nine months of 2026, compared with a $237 million outflow a year earlier.
Government customers usually pay premiums before Molina pays the related medical bills. However, government settlements and changes in payment dates can reverse that advantage within a reporting period. Molina specifically attributed the improvement to a smaller net cash burden from government receivable and payable settlements.
The accounting movements show the mechanism. Receivables fell, adding $174 million to operating cash flow, whereas they had absorbed $118 million a year earlier. Reductions in amounts owed to governments used $185 million, compared with $467 million. Other movements in unpaid claims, supplier bills and taxes also improved cash flow. These are changes in when money is collected or paid, so the cash improvement does not establish that current medical margins recovered.
| Operating cash reconciliation, consolidated US$ millions | First nine months 2025 | First nine months 2026 |
|---|---|---|
| Net income | 632 | 112 |
| Noncash and other reconciliation adjustments | 213 | 220 |
| Changes in operating receivables, bills, taxes and advance payments | -1,082 | 297 |
| Operating cash flow | -237 | 629 |
Source: 2026 third-quarter Form 10-Q, cash-flow statement, p. 6; liquidity discussion, p. 32. The two grouped adjustment rows are calculated; their components are listed in the calculation notes.
The claims balance needs particular care. Medical claims and benefits payable rose by $101 million, but Molina paid $226 million more in medical claims than the medical expense it recognized. Other amounts included in the liability rose by $327 million. The filing calls these “non-risk and other payables.” That separate increase explains why the total rose; the larger balance alone does not show slower payment of Molina’s insured medical claims.
Source: 2026 third-quarter Form 10-Q, Note 6, p. 14: recognized medical costs of $28,429 million, payments of $28,655 million and other payable movements of $327 million.
The cash reconciliation also adds back $85 million of employee share compensation, compared with $27 million a year earlier. Paying with awards preserves cash at the time the expense is recorded, but those awards can dilute existing ownership.
Source: 2026 third-quarter Form 10-Q, cash-flow statement, p. 6, and Note 3, p. 10.
Cash generation funded $94 million of property, equipment and software purchases and $225 million of net investment purchases. During the first nine months, Molina made no acquisition payments, paid no dividends to public shareholders and bought no shares under its announced repurchase programs. After other investing and financing flows, cash including restricted cash increased by $270 million.
This was a substantial change from the comparable 2025 period, when Molina paid $245 million for acquisitions, net of acquired cash, and $1 billion to repurchase shares. It also raised $740 million through net credit-facility and term-loan borrowing and generated $410 million from net investment sales and maturities. The 2026 pattern preserved more flexibility while earnings were weak.
Source: 2026 third-quarter Form 10-Q, cash-flow statement, p. 6, and investing/financing discussion, p. 32. Net borrowing in the 2025 comparison equals $1,100 million of proceeds less $360 million of repayments.
The earlier spending had distinct purposes. Molina expected ConnectiCare’s added membership to use its existing infrastructure, and describes buybacks as a way to return excess capital to shareholders. Those uses must compete with funding new contracts and keeping adequate capital inside health plans.
Source: 2025 Form 10-K, strategy, p. 4, and Note 4, pp. 67–68; 2026 third-quarter Form 10-Q, funding uses, pp. 33–34.
5. Available funding depends on where the cash sits
Molina has substantial financial assets, but only a small portion is directly available at the parent company. Consolidated cash and investments totaled $8.924 billion at September 30, including restricted investments. The parent itself held $608 million, up from $223 million at year-end. Most of the group’s money supports regulated health plans and their obligations to members and providers.
States require those subsidiaries to retain a financial cushion, called statutory capital and surplus, and limit transfers to the parent. The required minimum cushion totaled approximately $3 billion. Molina reported capital above that minimum, without quantifying the aggregate excess here. Subsidiaries could pay approximately $170 million of additional dividends without prior regulatory approval as of September 30; larger distributions require approval.
During the first nine months, the parent received $329 million in subsidiary dividends and returns of capital and contributed $130 million back to health plans. These internal transfers help explain parent liquidity, but cancel out in the consolidated accounts. They are not dividends paid to Molina’s public shareholders.
Source: 2026 third-quarter Form 10-Q, liquidity and regulatory capital, pp. 30–33.
| Consolidated financial position, US$ millions | December 31, 2025 | September 30, 2026 |
|---|---|---|
| Cash and cash equivalents | 4,248 | 4,479 |
| Current investments | 4,008 | 4,100 |
| Restricted investments | 299 | 345 |
| Receivables | 3,533 | 3,359 |
| Property, equipment and software, net | 301 | 324 |
| Goodwill and acquired intangible assets, net | 2,195 | 2,073 |
| Total assets | 15,564 | 15,652 |
| Medical claims and benefits payable | 4,887 | 4,988 |
| Amounts due government agencies | 1,326 | 1,141 |
| Long-term borrowing, after issuance costs | 3,766 | 3,771 |
| Total liabilities | 11,495 | 11,497 |
| Stockholders’ equity | 4,069 | 4,155 |
Source: 2026 third-quarter Form 10-Q, consolidated balance sheets, p. 4. Selected asset and liability rows are not intended to sum to the totals; full balance-sheet checks appear below.
Government receivables declined by $91 million and accounted for most of the remaining receivable balance. Molina reported an insignificant allowance for nonpayment because its payers are mainly governments. The greater business uncertainty is often the amount ultimately earned after contract adjustments, rather than ordinary customer default. For example, the net Marketplace risk-adjustment payable fell to $78 million from $411 million, reflecting the changing combination of estimates and settlements.
Property, equipment and software increased modestly despite the $94 million of cash purchases, because the balance also reflects depreciation and other asset movements. The reported spending category establishes investment in operating infrastructure; it does not provide a split between maintenance and expansion projects.
Source: 2026 third-quarter Form 10-Q, pp. 4 and 6; Note 2, pp. 8–9. Government receivables were $2,274 million versus $2,365 million.
Investment prices also limited the increase in equity. Securities Molina still held moved from a net market-value gain of $20 million to a loss of $125 million relative to their recorded cost. Molina attributed the change mainly to interest rates, rather than weaker issuer credit, and said it did not expect to need to sell before recovery of their cost. The after-tax loss reduced equity by $110 million, almost offsetting nine-month net income. Only $557 million of the $4.1 billion current investment portfolio was contractually due within one year; “current” classification does not mean all securities mature that soon.
Source: 2026 third-quarter Form 10-Q, comprehensive-income statement, p. 3; Note 5, pp. 12–13; financial condition, p. 32.
Borrowing principal remained $3.8 billion. Nine-month interest expense nevertheless rose to $161 million from $140 million, mainly because of notes issued in November 2025. No senior note comes due before June 2028, and the $1.25 billion revolving facility was undrawn. That gives Molina time, but access to the facility also depends on its earnings and other contractual tests. The interest-coverage test compares earnings, as defined by lenders, with interest costs. In February, lenders temporarily lowered its minimum to 1.75 times for 2026. The minimum rises in stages during 2027 before returning to 3 times.
Molina reported compliance at September 30. Its actual ratio under that lending agreement was not disclosed, and the contractual calculation differs from simply dividing reported operating income by interest expense. The April downgrade of its senior notes by S&P, from BB to BB-, also increases the importance of rebuilding earnings before refinancing. The repayment schedule and covenant steps are set out below.
Source: 2026 third-quarter Form 10-Q, Note 7, p. 15; interest expense, p. 26; debt ratings/covenants, p. 33.
6. New contracts offer growth, but their costs arrive before the full benefit
Molina’s next phase combines new government contracts with deliberate exits from weaker business. Florida’s Children’s Medical Services contract began on October 1, after the reporting quarter. Molina was the sole selected plan and expected to serve approximately 120,000 members through a contract running to December 2030.
Florida’s agency confirms the transfer from Sunshine State Health Plan and requires continuity of existing appointments, prescriptions and authorizations. Winning the contract gives Molina access to a substantial group of members, but it also brings immediate responsibility for their care and claims. The operational benefit depends on administering those services within the payments the state provides.
Sources: 2026 third-quarter Form 10-Q, Florida procurement, p. 27; Florida Agency for Health Care Administration, CMS Plan transition, transition timetable and member/provider protections.
Management forecasts approximately $42 billion in 2026 premiums and GAAP earnings of at least $2.38 per diluted share. Its outlook includes per-share losses of $1.50 for Florida implementation and $1.00 for its traditional Medicare Advantage prescription-drug product.
Source: October 21, 2026 earnings release, “2026 Guidance.”
Other awards extend the opportunity, with new Illinois Medicaid and Wisconsin contracts expected to start in January 2027. However, the Georgia procurement remains delayed by protests, and Molina expects Georgia and the Texas STAR/CHIP implementation in late 2027 or 2028. These delays matter because contract awards cannot support current earnings until operations actually begin. The expiration of Molina’s Virginia Medicaid contract in June 2025 also demonstrates that competitive bidding can remove revenue as well as add it.
Source: 2026 third-quarter Form 10-Q, procurement developments, p. 27, and Medicaid performance, p. 29.
Management sees possible Medicaid improvement from leveling medical cost growth and stronger 2027 rate updates. For that to translate into higher earnings, the cost of members’ care must remain sufficiently stable for higher rates to close the gap.
Source: October 21, 2026 earnings release, chief executive’s commentary.
Competitor evidence gives a mixed picture. Elevance also reported lower Medicaid enrollment in its October 21 results. Its overall medical-benefit expense ratio improved, but it attributed that improvement to Medicare Advantage and individual-market insurance. This supports the view that enrollment pressure is broader than Molina, while showing that recovery can differ across products. Elevance’s more diversified business mix prevents its consolidated ratio from serving as a direct Medicaid benchmark for Molina.
Source: Elevance Health, third-quarter 2026 results, October 21, 2026, consolidated and Health Benefits highlights.
Policy changes add a separate enrollment risk. CMS’s June 2026 rule generally requires states to begin checking qualifying adults’ work or other permitted activities by January 1, 2027, subject to exemptions and implementation provisions. Members who lose eligibility no longer generate premiums for the insurer. Molina estimates that the 2025 budget law will gradually reduce premiums at a compounded annual rate of 2%–3% through 2029, primarily through Medicaid expansion enrollment. That estimate is a policy headwind, not a forecast that total company revenue must fall by the same amount; new contracts and rate changes can offset it.
Management expects only a minor, gradual change in the health needs of the remaining members. That assumption matters: if healthier people leave disproportionately, average medical costs can rise even as enrollment falls. The size of the actual effect depends on state implementation and which members retain coverage.
Sources: CMS, June 1, 2026 community-engagement rule fact sheet, affected populations, implementation and exemptions; 2026 third-quarter Form 10-Q, legislative developments, p. 26.
The filing also reports progress on two lawsuits concerning past disclosures: the securities class action was dismissed with prejudice on October 20, and the derivative plaintiff filed a notice of dismissal with prejudice on October 6. Ordinary provider, employment and other disputes remain. Molina does not disclose a quantified reasonably possible loss range for those matters in this note. The dismissal of the securities action narrows known litigation exposure, while government audits and contractual repayments remain operating risks because they can require the return of previously collected premiums.
Source: 2026 third-quarter Form 10-Q, Note 9, pp. 18–19. The derivative filing is described as a notice, separately from the court’s dismissal of the securities action.
7. Molina has time to repair earnings, but cash alone does not complete the recovery
Molina’s funding position supports its transition; the recovery still depends on earning more from the medical business it retains. The absence of buybacks under announced programs and acquisition payments preserved cash during a weak earnings period. New awards demonstrate that Molina remains able to win government business, and higher Medicaid rates offer a practical route to improvement.
The decisive test is whether those rates leave more money after current medical care while the smaller Marketplace and Medicare operations cover their remaining costs. Successful Florida execution would add another source of earnings over time. Persistently costly outpatient care and drugs, a less favorable member mix, or delayed contract launches would make that repair harder just as lending requirements become stricter. The evidence supports a company with room to execute a recovery, but not one whose profit recovery has already been established.
Sources: 2026 third-quarter Form 10-Q, Note 7 and MD&A, pp. 25–34; October 21 earnings release, outlook. The conclusion draws together the business mechanisms discussed above.
Reporting basis: Molina Healthcare, Inc., CIK 0001179929, Form 10-Q, accession 0001179929-26-000045, filed October 22, 2026, for the period ended September 30, 2026. Financial statements are unaudited, consolidated and prepared under US GAAP, with intercompany transactions eliminated. “Third quarter” means July–September; “first nine months” means January–September. Balance-sheet comparisons use December 31, 2025. Parent-company liquidity is identified separately and is never substituted for consolidated results.
Sources: SEC filing, cover and Note 1; SEC submissions record; SEC company facts. The SEC facts were checked by accession, US-GAAP accounting concept, currency/share unit and exact reporting dates. Quarter and cumulative contexts were kept separate. The supplied complete filing text was the principal research source.
Calculation notes:
A. Earnings and claim estimates. All amounts in the following calculations are US$ millions unless stated otherwise. Percentage changes equal the new amount divided by the comparable prior amount, less one. Ratios use the stated revenue base; medical cost ratios use premium revenue, while operating and net margins use total revenue. Reported earnings per share retain the issuer’s precision rather than being rebuilt from rounded millions.
The nine-month operating-income decline reconciles as follows: prior operating income of 943, less 541 of medical margin, less 21 of investment income, plus 2 of other revenue, plus 1 of administrative savings, plus 34 of lower depreciation/amortization, less 93 of impairment, plus 9 of lower other operating costs, equals 334. Premium-tax revenue and expense offset each other.
The claim-liability reconciliation checks that estimated expenses, actual payments and other movements lead to the reported ending balance. Negative revisions mean earlier estimates were reduced.
| Medical claims and benefits payable, US$ millions | First nine months 2025 | First nine months 2026 |
|---|---|---|
| Opening liability | 4,640 | 4,887 |
| Medical costs for the current year | 29,476 | 28,781 |
| Revisions to prior-year medical costs | -124 | -352 |
| Payments for current-year care | -25,425 | -24,692 |
| Payments for prior-year care | -4,059 | -3,963 |
| Acquired liabilities, net of adjustments | 361 | 0 |
| Changes in non-risk and other payables | -25 | 327 |
| Closing liability | 4,844 | 4,988 |
Source: 2026 third-quarter Form 10-Q, p. 3 and Note 6, p. 14. The 2025 closing liability is September 30, 2025, not the December balance used elsewhere.
B. Management’s adjusted earnings. Add the listed pretax expenses to reported after-tax income, then deduct their tax effect. “Other” mainly covers termination benefits in 2026 and litigation costs in 2025. Claim and premium estimate effects remain included.
| Consolidated reconciliation, US$ millions | First nine months 2025 | First nine months 2026 |
|---|---|---|
| Reported net income | 632 | 112 |
| Acquired-intangible amortization | 73 | 29 |
| Acquisition expenses | 46 | 33 |
| Impairment | 0 | 93 |
| Other adjustments | 1 | 21 |
| Total pretax adjustments | 120 | 176 |
| Tax effect | -28 | -45 |
| Adjusted net income, non-GAAP | 724 | 243 |
Source: October 21 earnings release, non-GAAP reconciliation and footnotes. Add either the individual adjustments or their subtotal to avoid counting the same costs twice.
C. Profit to cash and cash uses. This table identifies the inputs behind the two grouped adjustment rows in Section 4. Positive amounts increase the reconciliation from profit to cash; negative amounts reduce it.
| Cash-flow adjustment, US$ millions | First nine months 2025 | First nine months 2026 |
|---|---|---|
| Depreciation and amortization | 151 | 117 |
| Deferred taxes | 37 | -54 |
| Employee share compensation | 27 | 85 |
| Asset impairment | 0 | 93 |
| Other reconciliation adjustments | -2 | -21 |
| Noncash and other subtotal | 213 | 220 |
| Change in receivables | -118 | 174 |
| Change in prepayments | -25 | 11 |
| Change in claims payable | -157 | 101 |
| Change in government payables | -467 | -185 |
| Change in other payables | -195 | 88 |
| Change in advance revenue | -44 | 16 |
| Income-tax timing | -76 | 92 |
| Operating-balance subtotal | -1,082 | 297 |
The income-tax timing row concerns operating payments and balances. It is separate from the deferred-tax adjustment, which removes a noncash tax effect from earnings.
To check cash allocation, 2026 operating cash of 629 less equipment/software spending of 94 leaves 535. Subtract net investment purchases of 225, other investing uses of 9 and financing uses of 31 to obtain the 270 cash increase. This remainder is not a measure of cash freely distributable from regulated insurance subsidiaries.
Opening cash including restricted cash of 4,348, plus operating inflow of 629, less investing outflow of 328 and financing outflow of 31, equals closing cash of 4,618. That closing amount comprises ordinary cash of 4,479 and restricted cash of 139. For 2025, opening cash of 4,741 less operating outflow of 237, plus investing inflow of 82, less financing outflow of 262, equals 4,324. Restricted cash is already included in restricted investments on the balance sheet and must not be added to them again.
Source: 2026 third-quarter Form 10-Q, cash-flow statement, p. 6, and cash reconciliation, pp. 7–8.
D. Balance-sheet and equity checks. At September 30, assets of 15,652 equal liabilities of 11,497 plus equity of 4,155. At December 31, assets of 15,564 equal liabilities of 11,495 plus equity of 4,069. Current assets less current liabilities were 5,120 and 5,072, respectively.
Deferred tax assets, which represent tax benefits available for future periods, increased from 178 to 267. That 89 increase reconciles at reported precision to the deferred-tax benefit of 54 reflected in the cash-flow reconciliation and the 35 tax effect recorded with investment losses. The latter was recorded outside net income.
| Equity reconciliation, US$ millions | December 31, 2025 | Movement in first nine months 2026 | September 30, 2026 |
|---|---|---|---|
| Paid-in capital from share issuance and awards | 452 | 84 | 536 |
| Retained earnings, or accumulated profits kept | 3,602 | 112 | 3,714 |
| Accumulated investment gains/losses after tax | 15 | -110 | -95 |
| Total equity | 4,069 | 86 | 4,155 |
The paid-in-capital increase is the sum of the equity statement’s share-compensation entries: 19, 40 and 25. This is separate from the 85 expense adjustment in the cash-flow statement and the 15 cash paid for employee share-tax withholding. The filing presents no separate treasury-stock balance and no repurchases under announced programs in 2026.
The nine-month diluted share count—the average used to calculate earnings per share, including eligible share awards—fell to 51.3 million from 53.6 million, reflecting earlier repurchases. This comparison differs from the balance sheet’s rounded ending shares, which rose from 51 million to 52 million during 2026 as share awards were issued. Fewer average shares softened the EPS decline, while new awards continued to dilute ownership. The remaining $500 million repurchase authorization at October 16 permits future spending; it creates no binding payment obligation.
Source: 2026 third-quarter Form 10-Q, statements, pp. 3–6; Note 3, p. 10; repurchases, pp. 33–35.
E. Debt and leases. The schedule distinguishes financing principal from the much larger claims and government liabilities arising in ordinary insurance operations.
| Senior-note maturity | Principal, US$ millions | Annual fixed coupon | Calculated annual coupon cash, US$ millions |
|---|---|---|---|
| June 15, 2028 | 800 | 4.375% | 35.0000 |
| November 15, 2030 | 650 | 3.875% | 25.1875 |
| February 15, 2031 | 850 | 6.500% | 55.2500 |
| May 15, 2032 | 750 | 3.875% | 29.0625 |
| January 15, 2033 | 750 | 6.250% | 46.8750 |
| Total | 3,800 | — | 191.3750 |
Annual coupon cash equals each principal multiplied by its coupon rate. The approximately $191.4 million total excludes lease interest, facility fees and debt-cost amortization. Nine-month reported interest expense was $161 million. Borrowing principal less 29 of unamortized issuance costs equals the reported debt balance of 3,771; the year-end comparison was 3,800 less 34, or 3,766.
After the first 800 maturity in 2028, 1,500 falls due across November 2030 and February 2031. The undrawn revolving facility also expires November 20, 2030. Its 1,250 commitment is separate from 800 of uncommitted potential acquisition financing, which is not assured funding.
The minimum contractual interest-coverage ratio is 1.75 times through December 2026, 2.00 in March 2027, 2.50 in June and 2.75 in September, before the ordinary 3.00 threshold resumes. The debt-to-capital limit is 60%, temporarily 65% after qualifying acquisitions. These are contractual tests, not ratios calculated from this report’s simplified tables.
Source: 2026 third-quarter Form 10-Q, Note 7, p. 15, and liquidity, p. 33.
The latest detailed lease schedule, at December 31, 2025, reported undiscounted payments of $88 million for operating leases and $293 million for finance leases, mainly offices. Scheduled 2026 payments were $18 million and $38 million; these are full-year scheduled amounts, not September remaining obligations. September’s separately reported noncurrent finance-lease liability was $179 million, down from $184 million. The quarterly filing reported no significant unreported change in contractual obligations outside ordinary business.
Sources: 2025 Form 10-K, Note 8, pp. 72–74; 2026 third-quarter Form 10-Q, p. 4 and contractual obligations, p. 34.
This report is for informational purposes and is not investment advice.