Humana 2011 Annual Report Download - page 91
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our investment portfolio, including cash and cash equivalents, was approximately 3.9 years as of December 31,
2011 and 4.0 years as of December 31, 2010. Based on the duration including cash equivalents, a 1% increase in
interest rates would generally decrease the fair value of our securities by approximately $420 million.
We have also evaluated the impact on our investment income and interest expense resulting from a
hypothetical change in interest rates of 100, 200, and 300 basis points over the next twelve-month period, as
reflected in the following table. The evaluation was based on our investment portfolio and our outstanding
indebtedness at December 31, 2011 and 2010. Our investment portfolio consists of cash, cash equivalents and
investment securities. The modeling technique used to calculate the pro forma net change in pretax earnings
considered the cash flows related to fixed income investments and debt, which are subject to interest rate changes
during a prospective twelve-month period. This evaluation measures parallel shifts in interest rates and may not
account for certain unpredictable events that may affect interest income, including unexpected changes of cash
flows into and out of the portfolio, changes in the asset allocation, including shifts between taxable and
tax-exempt securities, and spread changes specific to various investment categories. In the past ten years,
changes in 3 month LIBOR rates during the year have exceeded 300 basis points once, have not changed between
200 and 300 basis points, have changed between 100 and 200 basis points four times, and have changed by less
than 100 basis points five times.
Increase (decrease) in
pretax earnings given an
interest rate decrease of
X basis points
Increase (decrease) in
pretax earnings given an
interest rate increase of
X basis points
(300) (200) (100) 100 200 300
(in millions)
As of December 31, 2011
Investment income ................................... $(26) $(21) $(11) $35 $69 $104
Interest expense (a) ................................... 0 0 0 0 0 0
Pretax ......................................... $(26) $(21) $(11) $35 $69 $104
As of December 31, 2010
Investment income ................................... $(31) $(20) $(10) $36 $71 $107
Interest expense (a) ................................... 0 0 0 0 0 0
Pretax ......................................... $(31) $(20) $(10) $36 $71 $107
(a) The interest rate under our senior notes is fixed. There were no borrowings outstanding under the credit
agreement at December 31, 2011 or December 31, 2010.
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