Health Net 2011 Annual Report Download - page 51

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 effect 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.
At the closing of the Northeast Sale, we entered into a Non-Competition Agreement with the Buyer that contains
prohibitions which could negatively impact our prospects, business, financial condition or results of operations.
Under the Stock Purchase Agreement, at the closing of the transactions contemplated by the agreement, we
entered into a Non-Competition Agreement with the Buyer, pursuant to which we generally are prohibited from
competing with the acquired business in the States of New York, New Jersey, Connecticut and Rhode Island for
a period of five years from the closing, and from engaging in certain other restricted activities. Although we
currently do not have any intention to engage in such prohibited activities during the term of the Non-
Competition Agreement, circumstances could change and it may become in our best interests to engage in a
business that is prohibited by the agreement. If this were to occur, in order to engage in the business we would be
required to obtain the Buyer’s consent under the Non-Competition Agreement, which the Buyer could withhold
in its discretion. In the event that we are unable to engage in a business due to the terms of the Non-Competition
Agreement, this could have an adverse effect on our prospects, business, financial condition or results of
operations.
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 have implemented 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.
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