Health Net 2011 Annual Report Download - page 89

The Senior Notes may be redeemed in whole at any time or in part from time to time, prior to maturity at
our option, at a redemption price equal to the greater of:
• 100% of the principal amount of the Senior Notes then outstanding to be redeemed; or
• the sum of the present values of the remaining scheduled payments of principal and interest on the
Senior Notes to be redeemed (not including any portion of such payments of interest accrued to the
date of redemption) discounted to the date of redemption on a semiannual basis (assuming a 360-day
year consisting of twelve 30-day months) at the applicable treasury rate plus 30 basis points
plus, in each case, accrued and unpaid interest on the principal amount being redeemed to the redemption date.
Each of the following will be an Event of Default under the indenture governing the Senior Notes:
• failure to pay interest for 30 days after the date payment is due and payable; provided that an extension
of an interest payment period by us in accordance with the terms of the Senior Notes shall not
constitute a failure to pay interest;
• failure to pay principal or premium, if any, on any note when due, either at maturity, upon any
redemption, by declaration or otherwise;
• failure to perform any other covenant or agreement in the notes or indenture for a period of 60 days
after notice that performance was required;
• (A) our failure or the failure of any of our subsidiaries to pay indebtedness for money we borrowed or any
of our subsidiaries borrowed in an aggregate principal amount of at least $50 million, at the later of final
maturity and the expiration of any related applicable grace period and such defaulted payment shall not
have been made, waived or extended within 30 days after notice or (B) acceleration of the maturity of
indebtedness for money we borrowed or any of our subsidiaries borrowed in an aggregate principal
amount of at least $50 million, if that acceleration results from a default under the instrument giving rise
to or securing such indebtedness for money borrowed and such indebtedness has not been discharged in
full or such acceleration has not been rescinded or annulled within 30 days after notice; or
• events in bankruptcy, insolvency or reorganization of our Company.
Statutory Capital Requirements
Certain of our subsidiaries must comply with minimum capital and surplus requirements under applicable
state laws and regulations, and must have adequate reserves for claims. Management believes that as of
December 31, 2011, all of our active health plans and insurance subsidiaries met their respective regulatory
requirements relating to maintenance of minimum capital standards, surplus requirements and adequate reserves
for claims in all material respects.
By law, regulation and governmental policy, our health plan and insurance subsidiaries, which we refer to as
our regulated subsidiaries, are required to maintain minimum levels of statutory net worth. The minimum
statutory net worth requirements differ by state and are generally based on balances established by statute, a
percentage of annualized premium revenue, a percentage of annualized health care costs, or risk-based capital
(“RBC”) or tangible net equity (“TNE”) requirements. The RBC requirements are based on guidelines
established by the National Association of Insurance Commissioners. The RBC formula, which calculates asset
risk, underwriting risk, credit risk, business risk and other factors, generates the authorized control level
(“ACL”), which represents the minimum amount of net worth believed to be required to support the regulated
entity’s business. For states in which the RBC requirements have been adopted, the regulated entity typically
must maintain the greater of the Company Action Level RBC, calculated as 200% of the ACL, or the minimum
statutory net worth requirement calculated pursuant to pre-RBC guidelines. Because our regulated subsidiaries
are also subject to their state regulators’ overall oversight authority, some of our subsidiaries are required to
87