Humana 2013 Annual Report Download - page 45

In the event that we are unable to provide sufficient capital to fund the obligations of Humana Inc., our
results of operations, financial position, and cash flows may be materially adversely affected.
Downgrades in our debt ratings, should they occur, may adversely affect our business, results of
operations, and financial condition.
Claims paying ability, financial strength, and debt ratings by recognized rating organizations are an
increasingly important factor in establishing the competitive position of insurance companies. Ratings
information is broadly disseminated and generally used throughout the industry. We believe our claims paying
ability and financial strength ratings are an important factor in marketing our products to certain of our
customers. Our 7.20%, 8.15%, 3.15%, and 4.625% senior notes contain a change of control provision that may
require us to purchase the notes under certain circumstances. Our 7.20% and 8.15% senior notes are subject to an
interest rate adjustment if the debt ratings assigned to the notes are downgraded (or subsequently upgraded). In
addition, our debt ratings impact both the cost and availability of future borrowings. Each of the rating agencies
reviews its ratings periodically and there can be no assurance that current ratings will be maintained in the future.
Our ratings reflect each rating agency’s opinion of our financial strength, operating performance, and ability to
meet our debt obligations or obligations to policyholders, but are not evaluations directed toward the protection
of investors in our common stock and should not be relied upon as such.
Historically, rating agencies take action to lower ratings due to, among other things, perceived concerns
about liquidity or solvency, the competitive environment in the insurance industry, the inherent uncertainty in
determining reserves for future claims, the outcome of pending litigation and regulatory investigations, and
possible changes in the methodology or criteria applied by the rating agencies. In addition, rating agencies have
come under regulatory and public scrutiny over the ratings assigned to various fixed-income products. As a
result, rating agencies may (i) become more conservative in their methodology and criteria, (ii) increase the
frequency or scope of their credit reviews, (iii) request additional information from the companies that they rate,
or (iv) adjust upward the capital and other requirements employed in the rating agency models for maintenance
of certain ratings levels.
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 slow economic growth and high unemployment. We
have closely monitored the impact that this volatile economy is having on our operations. Workforce reductions
have caused corresponding membership losses in our fully-insured commercial group business. Continued
weakness in the U.S. economy, and any continued high unemployment, may materially adversely affect our
medical membership, results of operations, financial position, and cash flows.
Additionally, the continued weakness of the U.S. economy has adversely affected the budget of individual
states and of the federal government. This 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. We cannot predict the future funding
levels of, or other such changes to, these programs. Although we could attempt to mitigate or cover our exposure
from 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.
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