Humana 2009 Annual Report Download - page 38

We believe that some of our customers place importance on our credit ratings, and we may lose customers
and compete less successfully if our ratings were to be downgraded. In addition, our credit ratings affect our
ability to obtain investment capital on favorable terms. If our credit ratings were to be lowered, our cost of
borrowing likely would increase, our sales and earnings could decrease and our results of operations, financial
position, and cash flows may be materially adversely affected.
Changes in economic conditions may adversely affect our results of operations, financial position, and
cash flows.
The U.S. economy continues to experience a period of recession and increased unemployment. We have
closely monitored the impact that this volatile economy is having on our Commercial segment operations.
Workforce reductions have caused corresponding membership losses in our fully-insured group business.
Continued weakness in the U.S. economy, and any resulting increases in unemployment, may materially
adversely affect our Commercial medical membership, results of operations, financial position, and cash flows.
Additionally, the continued weakness of the U.S. economy may adversely affect the budget of individual
states and of the federal government. That could result in attempts to reduce payments in our federal and state
government health care coverage programs, including the Medicare, military services, and Medicaid programs,
and could result in an increase in taxes and assessments on our activities. Although we could attempt to mitigate
or cover our exposure from such increased costs through, among other things, increases in premiums, there can
be no assurance that we will be able to mitigate or cover all of such costs which may have a material adverse
effect on our results of operations, financial position, and cash flows.
In addition, general inflationary pressures may affect the costs of medical and other care, increasing the
costs of claims expenses submitted to us.
The securities and credit markets may experience volatility and disruption, which may adversely affect
our business.
Volatility or disruption in the securities and credit markets could impact our investment portfolio. We
evaluate our investment securities for impairment on a quarterly basis. This review is subjective and requires a
high degree of judgment. For the purpose of determining gross realized gains and losses, the cost of investment
securities sold is based upon specific identification. For debt securities held, we recognize an impairment loss in
income when the fair value of the debt security is less than the carrying value and we have the intent to sell the
debt security or it is more likely than not that we will be required to sell the debt security before recovery of our
amortized cost basis, or if a credit loss has occurred. When we do not intend to sell a security in an unrealized
loss position, potential other-than-temporary impairments are considered using variety of factors, including the
length of time and extent to which the fair value has been less than cost; adverse conditions specifically related to
the industry, geographic area or financial condition of the issuer or underlying collateral of a security; payment
structure of the security; changes in credit rating of the security by the rating agencies; the volatility of the fair
value changes; and changes in fair value of the security after the balance sheet date. For debt securities, we take
into account expectations of relevant market and economic data. We continuously review our investment
portfolios and 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.
We believe our cash balances, investment securities, operating cash flows, and funds available under our
credit agreement or from other public or private financing sources, taken together, provide adequate resources to
fund ongoing operating and regulatory requirements, future expansion opportunities, and capital expenditures in
the foreseeable future, and to refinance or repay debt. However, continuing adverse securities and credit market
conditions may significantly affect the availability of credit. While there is no assurance in the current economic
environment, we have no reason to believe the lenders participating in our credit agreement will not be willing
and able to provide financing in accordance with the terms of the agreement.
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