Humana 2008 Annual Report Download - page 110

Humana Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Commercial Segment
2008 2007 2006
(in thousands)
Revenues:
Premiums:
Fully-insured:
PPO .......................................... $3,582,692 $3,664,019 $3,684,442
HMO ......................................... 2,586,711 1,998,981 2,019,936
Total fully-insured ........................... 6,169,403 5,663,000 5,704,378
Specialty .......................................... 927,237 534,121 410,986
Total premiums ............................. 7,096,640 6,197,121 6,115,364
Administrative services fees ............................... 366,011 317,856 291,769
Investment income ...................................... 105,053 131,623 175,805
Other revenue .......................................... 207,652 148,183 52,481
Total revenues .............................. 7,775,356 6,794,783 6,635,419
Operating expenses:
Benefits ............................................... 5,700,326 4,990,921 4,997,157
Selling, general and administrative .......................... 1,721,499 1,434,219 1,291,266
Depreciation and amortization ............................. 96,256 76,521 63,527
Total operating expenses ...................... 7,518,081 6,501,661 6,351,950
Income from operations ...................................... 257,275 293,122 283,469
Interest expense ............................................. 49,667 31,353 35,229
Income before income taxes ................................... $ 207,608 $ 261,769 $ 248,240
18. REINSURANCE
Certain blocks of insurance assumed in acquisitions, primarily life, long-term care, and annuities in run-off
status, are subject to reinsurance where some or all of the underwriting risk related to these policies has been
ceded to a third party. In addition, a large portion of our reinsurance takes the form of 100% coinsurance
agreements where, in addition to all of the underwriting risk, all administrative responsibilities, including
premium collections and claim payment, have also been ceded to a third party. We acquired these policies and
related reinsurance agreements with the purchase of stock of companies in which the policies were originally
written. We acquired these companies for business reasons unrelated to these particular policies, including the
companies’ other products and licenses necessary to fulfill strategic plans.
A reinsurance agreement between two entities transfers the underwriting risk of policyholder liabilities to a
reinsurer while the primary insurer retains the contractual relationship with the ultimate insured. As such, these
reinsurance agreements do not completely relieve us of our potential liability to the ultimate insured. However,
given the transfer of underwriting risk, our potential liability is limited to the credit exposure which exists should
the reinsurer be unable to meet its obligations assumed under these reinsurance agreements.
Reinsurance recoverables represent the portion of future policy benefits payable that are covered by
reinsurance. Amounts recoverable from reinsurers are estimated in a manner consistent with the methods used to
determine future policy benefits payable as detailed in Note 2. Reinsurance recoverables, included in other long-
term assets, were $365.8 million at December 31, 2008 and $341.6 million at December 31, 2007. The
percentage of these reinsurance recoverables resulting from 100% coinsurance agreements was 63% at
December 31, 2008 and 70% at December 31, 2007. Premiums ceded were $34.2 million in 2008, $13.4 million
in 2007 and $15.7 million in 2006.
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