Humana 2013 Annual Report Download - page 94

Revenue for other healthcare services is recognized on a fee-for-service basis at estimated collectible
amounts at the time services are rendered. Our fees are determined in advance for each type of service
performed.
Investment Securities
Investment securities totaled $9.8 billion, or 47.3% of total assets at December 31, 2013, and $9.8 billion, or
49% of total assets at December 31, 2012. Debt securities, detailed below, comprised this entire investment
portfolio at December 31, 2013 and at December 31, 2012. The fair value of debt securities were as follows at
December 31, 2013 and 2012:
December 31,
2013
Percentage
of Total
December 31,
2012
Percentage
of Total
(dollars in millions)
U.S. Treasury and other U.S. government corporations and
agencies:
U.S. Treasury and agency obligations ............. $ 584 6.0% $ 618 6.3%
Mortgage-backed securities ..................... 1,820 18.6% 1,603 16.3%
Tax-exempt municipal securities ..................... 2,971 30.3% 3,071 31.2%
Mortgage-backed securities:
Residential .................................. 22 0.2% 34 0.3%
Commercial ................................. 673 6.9% 659 6.7%
Asset-backed securities ............................ 63 0.6% 68 0.7%
Corporate debt securities ........................... 3,667 37.4% 3,794 38.5%
Total debt securities ....................... $9,800 100% $9,847 100.0%
Approximately 95% of our debt securities were investment-grade quality, with a weighted average credit
rating of AA- by S&P at December 31, 2013. Most of the debt securities that were below investment-grade were
rated BB, the higher end of the below investment-grade rating scale. Our investment policy limits investments in
a single issuer and requires diversification among various asset types.
Tax-exempt municipal securities included pre-refunded bonds of $222 million at December 31, 2013 and
$311 million at December 31, 2012. These pre-refunded bonds were secured by an escrow fund consisting of
U.S. government obligations sufficient to pay off all amounts outstanding at maturity. The ratings of these pre-
refunded bonds generally assume the rating of the government obligations at the time the fund is established.
Tax-exempt municipal securities that were not pre-refunded were diversified among general obligation bonds of
U.S. states and local municipalities as well as special revenue bonds. General obligation bonds, which are backed
by the taxing power and full faith of the issuer, accounted for $1.1 billion of these municipals in the
portfolio. Special revenue bonds, issued by a municipality to finance a specific public works project such as
utilities, water and sewer, transportation, or education, and supported by the revenues of that project, accounted
for $1.7 billion of these municipals. Our general obligation bonds are diversified across the U.S. with no
individual state exceeding 12%. In addition, certain monoline insurers guarantee the timely repayment of bond
principal and interest when a bond issuer defaults and generally provide credit enhancement for bond issues
related to our tax-exempt municipal securities. We have no direct exposure to these monoline insurers. We
owned $548 million and $627 million at December 31, 2013 and 2012, respectively, of tax-exempt securities
guaranteed by monoline insurers. The equivalent weighted average S&P credit rating of these tax-exempt
securities without the guarantee from the monoline insurer was AA-.
Our direct exposure to subprime mortgage lending is limited to investment in residential mortgage-backed
securities and asset-backed securities backed by home equity loans. The fair value of securities backed by Alt-A
and subprime loans was $1 million at December 31, 2013 and $2 million at December 31, 2012. There are no
collateralized debt obligations or structured investment vehicles in our investment portfolio.
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