Humana 2011 Annual Report Download - page 88

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Gross unrealized losses and fair values 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, 2011:
Less than 12 months 12 months or more Total
Fair
Value
Gross
Unrealized
Losses
Fair
Value
Gross
Unrealized
Losses
Fair
Value
Gross
Unrealized
Losses
(in millions)
December 31, 2011
U.S. Treasury and other U.S. government
corporations and agencies:
U.S. Treasury and agency obligations .... $117 $ 0 $ 0 $ 0 $117 $ 0
Mortgage-backed securities ............ 67 (1) 18 (1) 85 (2)
Tax-exempt municipal securities ............ 53 0 48 (2) 101 (2)
Mortgage-backed securities:
Residential ......................... 3 0 24 (2) 27 (2)
Commercial ........................ 14 0 0 0 14 0
Asset-backed securities ................... 16 0 4 0 20 0
Corporate debt securities .................. 355 (10) 41 (1) 396 (11)
Total debt securities .............. $625 $(11) $135 $(6) $760 $(17)
Under the 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 other-than-temporary
impairment 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 declines in fair value may occur and additional material
realized losses from sales or other-than-temporary impairments may be recorded in future periods.
The recoverability of our residential and commercial mortgage-backed securities is supported by factors
such as seniority, underlying collateral characteristics and credit enhancements. Our residential and commercial
78