Humana 2014 Annual Report Download - page 83

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75
Investment Securities
Investment securities totaled $9.5 billion, or 41% of total assets at December 31, 2014, and $9.8 billion, or 47%
of total assets at December 31, 2013. Debt securities, detailed below, comprised this entire investment portfolio at
December 31, 2014 and 2013. The fair value of debt securities were as follows at December 31, 2014 and 2013:
December 31,
2014
Percentage
of Total
December 31,
2013
Percentage
of Total
(dollars in millions)
U.S. Treasury and other U.S.
government corporations and agencies:
U.S. Treasury and agency obligations $ 374 3.9% $ 584 6.0%
Mortgage-backed securities 1,498 15.7% 1,820 18.6%
Tax-exempt municipal securities 3,068 32.1% 2,971 30.3%
Mortgage-backed securities:
Residential 17 0.2% 22 0.2%
Commercial 843 8.8% 673 6.9%
Asset-backed securities 29 0.3% 63 0.6%
Corporate debt securities 3,718 39.0% 3,667 37.4%
Total debt securities $ 9,547 100.0% $ 9,800 100.0%
Approximately 96% of our debt securities were investment-grade quality, with a weighted average credit rating
of AA- by S&P at December 31, 2014. 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 $199 million at December 31, 2014 and $222
million at December 31, 2013. 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 $1.0 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 $1.8 billion of these municipals. Our general obligation bonds are
diversified across the U.S. with no individual state exceeding 11%. 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 $484 million and $548 million at December 31, 2014 and 2013, 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, 2014 and 2013. There are no collateralized debt obligations or structured
investment vehicles in our investment portfolio. The percentage of corporate securities associated with the financial
services industry was 21% at December 31, 2014 and 23% at December 31, 2013.
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, 2014: