Humana 2009 Annual Report Download - page 74

Under the new other-than-temporary impairment model for debt securities held, we recognize an
impairment loss in income in an amount equal to the full difference between the amortized cost basis and the fair
value when we have the intent to sell the debt security or it is more likely than not we will be required to sell the
debt security before recovery of our amortized cost basis. However, if we do not intend to sell the debt security,
we evaluate the expected cash flows to be received as compared to amortized cost and determine if a credit loss
has occurred. In the event of a credit loss, only the amount of the impairment associated with the credit loss is
recognized currently in income with the remainder of the loss recognized in other comprehensive income.
When we do not intend to sell a security in an unrealized loss position, potential OTTI is considered using a
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. For example,
with respect to mortgage and asset-backed securities, such data includes underlying loan level data and structural
features such as seniority and other forms of credit enhancements. A decline in fair value is considered other-
than-temporary when we do not expect to recover the entire amortized cost basis of the security. We estimate the
amount of the credit loss component of a debt security as the difference between the amortized cost and the
present value of the expected cash flows of the security. The present value is determined using the best estimate
of future cash flows discounted at the implicit interest rate at the date of purchase. 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. 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.
Approximately $19.6 million of our unrealized losses at December 31, 2009 relate to our residential and
commercial mortgage-backed securities. Factors such as seniority, underlying collateral characteristics and credit
enhancements support the recoverability of these securities. Residential and commercial mortgage-backed
securities are primarily composed of senior tranches having high credit support, with 99% of the collateral
consisting of prime loans. All commercial mortgage-backed securities are rated AAA at December 31, 2009.
All issuers of securities we own trading at an unrealized loss remain current on all contractual payments.
After taking into account these and other factors previously described, we believe these unrealized losses
primarily were caused by an increase in market interest rates and tighter liquidity conditions in the current
markets than when the securities were purchased. As of December 31, 2009, we do not intend to sell the
securities with an unrealized loss position in accumulated other comprehensive income and it is not likely that we
will be required to sell these securities before recovery of their amortized cost basis, and as a result, we believe
that the securities with an unrealized loss are not other-than-temporarily impaired as of December 31, 2009.
There were no material other-than-temporary impairments in 2009 or 2007. Gross realized losses in 2008
included other-than-temporary impairments of $103.1 million, primarily due to investments in Lehman Brothers
Holdings Inc. and certain of its subsidiaries, which filed for bankruptcy protection in 2008, as well as declines in
the values of securities primarily associated with the financial services industry.
Goodwill and Long-lived Assets
At December 31, 2009, goodwill and other long-lived assets represented 21% of total assets and 50% of
total stockholders’ equity, compared to 23% and 67%, respectively, at December 31, 2008.
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