Health Net 2010 Annual Report Download - page 49

The current economic environment and uncertainty in the U.S. and global capital markets have negatively
impacted the liquidity of investments, such as the debt securities we hold, and a worsening in these markets could
have additional negative effects on the liquidity and value of our investment assets. In addition, such uncertainty
has increased the difficulty of assessing investment impairment and the same influences tend to increase the risk
of potential impairment of these assets.
Over time, the economic and capital market environment may further decline or provide additional insight
regarding the fair value of certain securities, which could change our judgment regarding the impairment of
certain investments. This could result in realized losses relating to other-than-temporary declines being charged
against future income. There is continuing risk that declines in fair value may occur and material other-than-
temporary impairments may result in realized losses in future periods, which could have an adverse effect on our
results of operations, liquidity and financial condition. See “Item 7. Management’s Discussion and Analysis of
Financial Condition and Results of Operations—Liquidity and Capital Resources” for additional information
regarding our investment portfolio.
In addition, our regulated subsidiaries are also subject to state laws and regulations that govern the types of
investments that are allowable and admissible in those subsidiaries’ portfolios. There can be no assurance that
our investment assets will produce total positive returns or that we will not sell investments at prices that are less
than the carrying value of these investments. Changes in the value of our investment assets, as a result of interest
rate fluctuations, illiquidity or otherwise, could have a negative affect on our stockholders’ equity. In addition, if
it became necessary for us to liquidate our investment portfolio on an accelerated basis, it could have an adverse
effect on our results of operations.
If our stock price experiences significant fluctuations or if our market capitalization materially declines, we
could be required to take an impairment charge to reduce the carrying amount of our goodwill. If we were
required to take such a charge, it would be non-cash and would not affect our liquidity or financial condition, but
could have a significant adverse effect on our results of operations in the period in which the charge was taken.
We depend, in part, on independent brokers and sales agents to market our products and services, and
recent regulatory investigations have focused on certain brokerage practices, including broker compensation
arrangements and bid quoting practices.
We market our products and services both through sales people employed by us and through independent
sales agents. Independent sales agents typically do not work with us on an exclusive basis and may market health
care products and services of our competitors. We face intense competition for the services and allegiance of
independent sales agents and we cannot assure you that these agents will continue to market our products at a
reasonable cost. Although we have a number of sales employees and agents, if key sales employees or agents or a
large subset of these individuals were to leave us, our ability to retain existing customers and members could be
impaired.
The ACA includes broker and agent commissions as administrative expenses for purposes of calculating the
minimum medical loss ratio. As a result, these expenses will be under the same cost reduction pressures as other
administrative costs of health insurers, and there is pressure to make changes to existing commission structures
for brokers and agents. For example, some of our competitors have reduced the commissions payable to brokers
and agents for sales in the individual market, and we are to implementing some similar reductions in the
individual market in California. Our relationships with brokers and agents could be adversely impacted by
changes in our business practices to address these pressures, including potential reductions in commissions and
changes in the treatment of consulting fees.
There have been a number of investigations and enforcement actions against insurance brokers and insurers
over the last several years regarding allegedly inappropriate or undisclosed payments made by insurers to brokers
for the placement of insurance business. For example, CMS has increased its scrutiny of insurance brokers and
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