Humana 2014 Annual Report Download - page 84

76
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, 2014
U.S. Treasury and other U.S. government
corporations and agencies:
U.S. Treasury and agency
obligations $ 79 $ — $ 80 $ (1) $ 159 $ (1)
Mortgage-backed securities 22 — 320 (5) 342 (5)
Tax-exempt municipal securities 131 (1) 118 (2) 249 (3)
Mortgage-backed securities:
Residential 1 — 4 — 5 —
Commercial 31 (1) 267 (18) 298 (19)
Asset-backed securities 13———13—
Corporate debt securities 219 (6) 128 (7) 347 (13)
Total debt securities $ 496 $ (8) $ 917 $ (33) $ 1,413 $ (41)
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 non-agency residential and commercial mortgage-backed securities is supported by
factors such as seniority, underlying collateral characteristics and credit enhancements. These residential and
commercial mortgage-backed securities at December 31, 2014 primarily were composed of senior tranches having high