Humana 2007 Annual Report Download - page 59

swap agreement. Assuming these swap agreements had been cancelled on December 31, 2007, we would have
received $18.3 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 $111.3 million to $535.7 million at December 31, 2007 compared to $424.4 million at December 31,
2006 reflecting dividends received net of funding of additional capital into certain subsidiaries during 2007 in
conjunction with growth in Medicare revenues. See Schedule I to this Form 10-K beginning on page 107 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.
Based on the most recent statutory financial statements as of December 31, 2007, we maintained aggregate
statutory capital and surplus of $2,905.2 million in our state regulated subsidiaries. This compares to applicable
statutory requirements which aggregated $1,810.5 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 2008, capital requirements will
increase. We expect to fund these increased requirements with capital contributions from Humana Inc., our parent
company, of approximately $200 million in 2008.
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, 2007, we would have $966.3 million of aggregate capital
and surplus above any of the levels that require corrective action under RBC, or individual state requirements
based on the most recent statutory financial statements as of December 31, 2007.
Contractual Obligations
We are contractually obligated to make payments for years subsequent to December 31, 2007 as follows:
Payments Due by Period
Total
Less than
1 Year 1-3 Years 3-5 Years
More than 5
Years
(in thousands)
Debt ................................... $1,638,608 $ — $ 1,620 $ 800,614 $ 836,374
Interest(1) .............................. 712,307 94,200 188,369 165,313 264,425
Operating leases(2) ....................... 417,814 107,878 176,318 85,779 47,839
Purchase obligations(3) .................... 180,088 57,821 74,210 35,101 12,956
Future policy benefits payable and other
long-term liabilities(4) .................. 757,049 — 93,106 77,805 586,138
Total .......................... $3,705,866 $259,899 $533,623 $1,164,612 $1,747,732
(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, 2007.
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