Humana 2008 Annual Report Download - page 61

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.
Although 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. Based on the statutory
financial statements as of December 31, 2008, we maintained aggregate statutory capital and surplus of
$3.5 billion in our state regulated subsidiaries, $1.4 billion above the aggregate $2.1 billion in applicable
statutory requirements which would trigger any regulatory action by the respective states.
Contractual Obligations
We are contractually obligated to make payments for years subsequent to December 31, 2008 as follows:
Payments Due by Period
Total
Less than
1 Year 1-3 Years 3-5 Years
More than 5
Years
(in thousands)
Debt ................................... $1,838,068 $ 540 $250,987 $ 333 $1,586,208
Interest(1) .............................. 1,433,818 114,289 226,762 218,583 874,184
Operating leases(2) ....................... 548,231 143,446 230,215 104,741 69,829
Purchase obligations(3) .................... 148,609 52,142 68,935 24,293 3,239
Future policy benefits payable and other
long-term liabilities(4) ................... 932,747 37,673 105,003 98,090 691,981
Total ........................... $4,901,473 $348,090 $881,902 $446,040 $3,225,441
(1) Interest includes the estimated contractual interest payments under our debt agreements.
(2) We lease facilities, computer hardware, and other equipment under long-term operating leases that are
noncancelable and expire on various dates through 2019. We sublease facilities or partial facilities to third
party tenants for space not used in our operations which partially mitigates our operating lease
commitments. An operating lease, accounted for under the provisions of SFAS No. 13, Accounting for
Leases, is a type of off-balance sheet arrangement. Assuming we acquired the asset, rather than leased such
asset, we would have recognized a liability for the financing of these assets. See also Note 16 to the
consolidated financial statements included in Item 8.—Financial Statements and Supplementary Data.
(3) Purchase obligations include agreements to purchase services, primarily information technology related
services, or to make improvements to real estate, in each case that are enforceable and legally binding on us
and that specify all significant terms, including: fixed or minimum levels of service to be purchased; fixed,
minimum or variable price provisions; and the appropriate timing of the transaction. Purchase obligations
exclude agreements that are cancelable without penalty.
(4) Excludes future policy benefits payable ceded to third parties through a 100% coinsurance agreement as
more fully described in Note 18 to the consolidated financial statements included in Item 8.—Financial
Statements and Supplementary Data. The reinsurance carrier, not us, is responsible for cash flows associated
with the reinsured contract. Our reinsured reserves are supported by reinsurance recoverables included in
other long-term assets. Our potential liability is limited to the credit exposure which exists should the
reinsurer be unable to meet its obligations assumed under these reinsurance arrangements. We evaluate the
financial condition of these reinsurers on a regular basis.
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