Humana 2008 Annual Report Download - page 72

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We participate in a securities lending program where we loan certain investment securities for short periods
of time in exchange for collateral, consisting of cash or U.S. Government securities, initially equal to at least
102% of the fair value of the investment securities on loan. Investment securities with a fair value of $437.1
million at December 31, 2008 and $1,336.1 million at December 31, 2007 were on loan. All collateral from
lending our investment securities was in the form of cash deposited by the borrower with an independent lending
agent. The cash collateral was invested in money market funds, certificates of deposit, and short-term corporate
and asset-backed securities with an average maturity of approximately 250 days. The fair value of securities held
as invested collateral was $402.4 million at December 31, 2008 and $1,337.0 million at December 31, 2007. The
amortized cost of these investment securities was $437.2 million at December 31, 2008 and $1,337.0 million at
December 31, 2007. Unrealized losses of $34.8 million at December 31, 2008 have been included as a
component of stockholders’ equity and comprehensive income.
Gross unrealized losses and fair value of investment securities aggregated by investment category and
length of time that individual securities have been in a continuous unrealized loss position were as follows at
December 31, 2008.
Less than 12 months 12 months or more Total
2008 Fair Value
Unrealized
Losses Fair Value
Unrealized
Losses Fair Value
Unrealized
Losses
(in thousands)
U.S. Government and agency
obligations .................. $ 163,626 $ (228) $ 4,297 $ (57) $ 167,923 $ (285)
Tax exempt municipal securities . . . 409,787 (22,238) 141,730 (17,975) 551,517 (40,213)
Mortgage and asset-backed
securities .................... 542,051 (137,205) 126,354 (33,836) 668,405 (171,041)
Corporate securities ............. 422,005 (64,786) 98,124 (35,056) 520,129 (99,842)
Debt securities ............. 1,537,469 (224,457) 370,505 (86,924) 1,907,974 (311,381)
Non-redeemable preferred stocks . . . 7,388 (1,655) — — 7,388 (1,655)
Total investment securities .... $1,544,857 $(226,112) $370,505 $(86,924) $1,915,362 $(313,036)
We regularly evaluate our investment securities for impairment. We consider factors affecting the issuer,
factors affecting the industry the issuer operates within, and general debt and equity market trends. We consider
the length of time an investment’s fair value has been below carrying value, the severity of the decline, the near
term prospects for recovery to cost, and our intent and ability to hold the investment until maturity or market
recovery is realized. If and when a determination is made that a decline in fair value below the cost basis is other
than temporary, the related investment is written down to its estimated fair value through a charge to earnings.
The risks inherent in assessing the impairment of an investment include the risk that market factors may differ
from our expectations; facts and circumstances factored into our assessment may change with the passage of
time; or we may decide to subsequently sell the investment. The determination of whether a decline in the value
of an investment is other than temporary requires us to exercise significant diligence and judgment. The
discovery of new information and the passage of time can significantly change these judgments. The status of the
general economic environment and significant changes in the national securities markets influence the
determination of fair value and the assessment of investment impairment. Given current market conditions, there
is a continuing risk that further declines in fair value may occur and additional material realized losses from sales
or other-than-temporary impairments may be recorded in future periods.
Unrealized losses at December 31, 2008 resulted from 581 positions out of a total of 1,200 positions held
with approximately 142 positions in an unrealized loss position greater than one year. The unrealized losses at
December 31, 2008 primarily were caused by an increase in interest rate from a widening of credit spreads. All
issuers of securities trading at an unrealized loss remain current on all contractual payments, and we believe it is
probable that we will be able to collect amounts due according to the contractual terms of the debt securities.
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