Humana 2015 Annual Report Download - page 162

Humana Inc.
SCHEDULE I—PARENT COMPANY FINANCIAL INFORMATION
NOTES TO CONDENSED FINANCIAL STATEMENTS—(Continued)
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3. REGULATORY REQUIREMENTS
Certain of our insurance subsidiaries operate in states that regulate the payment of dividends, loans, or other cash
transfers to Humana Inc., our parent company, and require minimum levels of equity as well as limit investments to
approved securities. The amount of dividends that may be paid to Humana Inc. by these insurance subsidiaries, without
prior approval by state regulatory authorities, or ordinary dividends, is limited based on the entity’s level of statutory
income and statutory capital and surplus. In most states, prior notification is provided before paying a dividend even
if approval is not required.
Although minimum required levels of equity are largely based on premium volume, product mix, and the quality
of assets held, minimum requirements vary significantly at the state level. Our state regulated insurances subsidiaries
had aggregate statutory capital and surplus of approximately $6.6 billion and $6.0 billion as of December 31, 2015 and
2014, respectively, which exceeded aggregate minimum regulatory requirements of $4.6 billion and $4.1 billion,
respectively. Subsidiary dividends are subject to state regulatory approval, the amount and timing of which could be
reduced or delayed. Excluding Puerto Rico subsidiaries, the amount of ordinary dividends that may be paid to our
parent company in 2016 is approximately $900 million in the aggregate. This compares to dividends that were paid to
our parent company in 2015 of approximately $493 million. Actual dividends paid may vary due to consideration of
excess statutory capital and surplus and expected future surplus requirements related to, for example, premium volume
and product mix.
On November 5, 2015, the National Association of Insurance Commissioners, or NAIC, issued statutory accounting
guidance for receivables associated with the risk corridor provisions under the Health Care Reform Law, which requires
the receivables to be excluded from subsidiary surplus. This accounting guidance required additional capital
contributions into certain subsidiaries during 2015.
Certain regulated subsidiaries recognized premium deficiency reserves for our individual commercial medical
policies compliant with the Health Care Reform Law for the 2016 coverage year in the fourth quarter of 2015. Further,
the statutory-based premium deficiency excludes the estimated benefit associated with the risk corridor provisions as
a reduction in subsidiary surplus in accordance with the previously discussed November 5, 2015 statutory accounting
guidance requiring the exclusion of risk corridor amounts from subsidiary surplus. As a result of the statutory-based
premium deficiency, we will fund capital contributions into certain regulated subsidiaries of $450 million during the
first quarter of 2016.
Our use of operating cash flows derived from our non-insurance subsidiaries, such as in our Healthcare Services
segment, is generally not restricted by state departments of insurance (or comparable state regulators).
4. ACQUISITIONS AND DIVESTITURES
Refer to Note 3 of the notes to consolidated financial statements in this Annual Report on Form 10-K for a description
of certain acquisitions and divestitures. On June 1, 2015, we completed the sale of our wholly owned subsidiary,
Concentra Inc. During 2015, 2014 and 2013, we funded certain non-regulated subsidiary acquisitions, including the
acquisition of American Eldercare Inc., with contributions from Humana Inc., our parent company, included in capital
contributions in the condensed statement of cash flows.
5. INCOME TAXES
Refer to Note 11 of the notes to consolidated financial statements included in this Annual Report on Form 10-K
for a description of income taxes.
6. DEBT
Refer to Note 12 of the notes to consolidated financial statements included in this Annual Report on Form 10-K
for a description of debt.
7. STOCKHOLDER’S EQUITY
Refer to Note 15 of the notes to consolidated financial statements included in this Annual Report on Form 10-K
for a description of stockholders’ equity, including stock repurchases and stockholder dividends.