Humana 2010 Annual Report Download - page 39

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. Our state regulated
subsidiaries had aggregate statutory capital and surplus of approximately $4.3 billion and $3.8 billion as of
December 31, 2010 and 2009, respectively, which exceeded aggregate minimum regulatory requirements. The
amount of dividends that may be paid to our parent company in 2011 without prior approval by state regulatory
authorities is approximately $740 million in the aggregate. This compares to dividends that were able to be paid
in 2010 without prior regulatory approval of approximately $720 million.
Any failure to manage administrative costs could hamper profitability.
The level of our administrative expenses impacts our profitability. While we proactively attempt to
effectively manage such expenses, increases or decreases in staff-related expenses, additional investment in new
products (including our opportunities in the Medicare programs), greater emphasis on small group and individual
health insurance products, expansion into new specialty markets, acquisitions, new taxes and assessments, and
implementation of regulatory requirements may occur from time to time.
There can be no assurance that we will be able to successfully contain our administrative expenses in line
with our membership and this may result in a material adverse effect on our results of operations, financial
position, and cash flows.
Any failure by us to manage acquisitions and other significant transactions successfully may have a
material adverse effect on our results of operations, financial position, and cash flows.
As part of our business strategy, we frequently engage in discussions with third parties regarding possible
investments, acquisitions, strategic alliances, joint ventures, and outsourcing transactions and often enter into
agreements relating to such transactions in order to further our business objectives. In order to pursue this
strategy successfully, we must identify suitable candidates for and successfully complete transactions, some of
which may be large and complex, and manage post-closing issues such as the integration of acquired companies
or employees. Integration and other risks can be more pronounced for larger and more complicated transactions,
or if multiple transactions are pursued simultaneously. In 2010, we acquired Concentra Inc., in 2008, we acquired
UnitedHealth Group’s Las Vegas, Nevada individual SecureHorizons Medicare Advantage HMO business, OSF
Health Plans, Inc., Metcare Health Plans, Inc., and PHP Companies, Inc. (d/b/a Cariten Healthcare), and in late
2007, we acquired KMG America Corporation and CompBenefits Corporation. The failure to successfully
integrate these entities and businesses or failure to produce results consistent with the financial model used in the
analysis of the acquisition may have a material adverse effect on our results of operations, financial position, and
cash flows. If we fail to identify and complete successfully transactions that further our strategic objectives, we
may be required to expend resources to develop products and technology internally. We may also be at a
competitive disadvantage or we may be adversely affected by negative market perceptions, any of which may
have a material adverse effect on our results of operations, financial position, and cash flows.
If we fail to develop and maintain satisfactory relationships with the providers of care to our members,
our business may be adversely affected.
We contract with physicians, hospitals and other providers to deliver health care to our members. Our
products encourage or require our customers to use these contracted providers. These providers may share
medical cost risk with us or have financial incentives to deliver quality medical services in a cost-effective
manner.
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