Health Net 2002 Annual Report Download - page 50

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48 | HEALTH NET, INC.
(Amounts in millions) 2003 2004 2005 2006 2007 Thereafter Total
Fixed-rate borrowing:
Principal $ – $ – $ – $ – $ – $ 400.0 $ 400.0
Interest 33.5 33.5 33.5 33.5 33.5 117.3 284.8
Cash outflow on fixed-rate borrowing $ 33.5 $ 33.5 $ 33.5 $ 33.5 $ 33.5 $ 517.3 $ 684.8
The Company assumed a portfolio disposition period
of 30 days with a confidence level of 95 percent for the
2002 computation of VAR. The computation further
assumes that the distribution of returns is normal. Based
on such methodology and assumptions, the computed VAR
was approximately $5.3 million as of December 31, 2002.
The Company’s calculated value-at-risk exposure
represents an estimate of reasonably possible net losses
that could be recognized on its investment portfolios
assuming hypothetical movements in future market rates
and are not necessarily indicative of actual results which
may occur. It does not represent the maximum possible
loss nor any expected loss that may occur, since actual
future gains and losses will differ from those estimated,
based upon actual fluctuations in market rates, operating
exposures, and the timing thereof, and changes in the
Company’s investment portfolios during the year. The
Company, however, believes that any loss incurred would
be substantially offset by the effects of interest rate move-
ments on the Company’s liabilities, since these liabilities
are affected by many of the same factors that affect asset
performance; that is, economic activity, inflation and
interest rates, as well as regional and industry factors.
In addition to the market risk associated with its
investments, the Company has some interest rate market
risk due to its floating rate borrowings. Notes payable
totaled $398.8 million as of December 31, 2002 with a
related interest rate of 8.375%. The interest rate on
borrowings under the revolving credit facility, for which
there are none as of December 31, 2002, is subject to
change because of the varying interest rates that apply to
borrowings under the credit facilities. See a description of
the credit facilities under “Liquidity and Capital
Resources.”
The floating rate borrowings, if any, are presumed to
have equal book and fair values because the interest rates
paid on these accounts are based on prevailing market
rates. The fair value of our fixed rate borrowing as of
December 31, 2002 was approximately $458 million
which was based on bid quotations from third-party data
providers. The following table presents the expected
cash outflows relating to market risk sensitive debt obliga-
tions as of December 31, 2002. These cash outflows
include both expected principal and interest payments
consistent with the terms of the outstanding debt as of
December 31, 2002.