Humana 2006 Annual Report Download - page 61

2006, we would have received $6.1 million, net, and future net interest payments would increase assuming
LIBOR does not change. Other than the swap agreements, adverse changes in our credit ratings do not create,
increase, or accelerate any liabilities.
In addition, we operate as a holding company in a highly regulated industry. Our parent company is
dependent upon dividends and administrative expense reimbursements from our subsidiaries, most of which are
subject to regulatory restrictions. Cash, cash equivalents and short-term investments at the parent company
increased $4.8 million to $424.4 million at December 31, 2006 compared to $419.6 million at December 31,
2005 reflecting funding of additional capital into certain subsidiaries during 2006 in conjunction with growth in
Medicare revenues offset by additional borrowings in 2006. See Schedule I to this Form 10-K beginning on
page 106 for our parent company only financial information.
Regulatory Requirements
Certain of our subsidiaries operate in states that regulate the payment of dividends, loans, or other cash
transfers to Humana Inc., our parent company, and require minimum levels of equity as well as limit investments
to approved securities. The amount of dividends that may be paid to Humana Inc. by these subsidiaries, without
prior approval by state regulatory authorities, is limited based on the entity’s level of statutory income and
statutory capital and surplus. In most states, prior notification is provided before paying a dividend even if
approval is not required.
As of December 31, 2006, we maintained aggregate statutory capital and surplus of $2,066.0 million in our
state regulated subsidiaries. Each of these subsidiaries was in compliance with applicable statutory requirements
which aggregated $1,430.3 million. Although the minimum required levels of equity are largely based on
premium volume, product mix, and the quality of assets held, minimum requirements can vary significantly at
the state level. Given our anticipated continued premium growth in 2007, capital requirements will increase. We
expect to fund these increased requirements with capital contributions from Humana Inc., our parent company, in
the range of $325 million to $425 million in 2007.
Most states rely on risk-based capital requirements, or RBC, to define their required levels of equity
discussed above. RBC is a model developed by the National Association of Insurance Commissioners to monitor
an entity’s solvency. This calculation indicates recommended minimum levels of required capital and surplus and
signals regulatory measures should actual surplus fall below these recommended levels. If RBC were adopted by
the remaining states and Puerto Rico at December 31, 2006, each of our subsidiaries would be in substantial
compliance and we would have $516.2 million of aggregate capital and surplus above any of the levels that
require corrective action under RBC, or individual state requirements.
Contractual Obligations
We are contractually obligated to make payments for years subsequent to December 31, 2006 as follows:
Payments Due by Period
Total
Less than
1 Year 1-3 Years 3-5 Years
More than
5 Years
(in thousands)
Debt .................................... $1,253,065 $ 540 $ 1,080 $450,987 $ 800,458
Interest(1) ................................ 633,181 76,880 153,727 141,078 261,496
Operating leases(2) ......................... 284,879 88,196 117,191 64,124 15,368
Purchase and other obligations(3) ............. 49,668 27,395 18,212 4,061 —
Total ............................ $2,220,793 $193,011 $290,210 $660,250 $1,077,322
(1) Interest includes the estimated contractual interest payments under our debt agreements net of the effect of
the associated swap agreements assuming no change in the LIBOR rate as of December 31, 2006.
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