Humana 2015 Annual Report Download - page 80

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expected to be used for general corporate purposes. The maximum principal amount outstanding at any one time during
the year ended December 31, 2015 was $414 million. There was $299 million outstanding at December 31, 2015.
Liquidity Requirements
We believe our cash balances, investment securities, operating cash flows, and funds available under our credit
agreement and our commercial paper program or from other public or private financing sources, taken together, provide
adequate resources to fund ongoing operating and regulatory requirements, acquisitions, future expansion opportunities,
and capital expenditures for at least the next twelve months, as well as to refinance or repay debt, and repurchase shares.
Adverse changes in our credit rating may increase the rate of interest we pay and may impact the amount of credit
available to us in the future. Our investment-grade credit rating at December 31, 2015 was BBB+ according to
Standard & Poor’s Rating Services, or S&P, and Baa3 according to Moody’s Investors Services, Inc., or Moody’s. A
downgrade by S&P to BB+ or by Moody’s to Ba1 triggers an interest rate increase of 25 basis points with respect to
$750 million of our senior notes. Successive one notch downgrades increase the interest rate an additional 25 basis
points, or annual interest expense by $2 million, up to a maximum 100 basis points, or annual interest expense by $8
million.
In addition, we operate as a holding company in a highly regulated industry. Humana Inc., our parent company, is
dependent upon dividends and administrative expense reimbursements from our subsidiaries, most of which are subject
to regulatory restrictions. We continue to maintain significant levels of aggregate excess statutory capital and surplus
in our state-regulated operating subsidiaries. Cash, cash equivalents, and short-term investments at the parent company
increased to $1.6 billion at December 31, 2015 from $1.4 billion at December 31, 2014. This increase primarily reflects
proceeds from the sale of Concentra on June 1, 2015, proceeds from issuance of commercial paper and subsidiary
dividends to the parent company, partially offset by funding of subsidiary working capital requirements, common stock
repurchases, capital expenditures, and payment of stockholder dividends. Our use of operating cash derived from our
non-insurance subsidiaries, such as our Healthcare Services segment, is generally not restricted by Departments of
Insurance. Our regulated subsidiaries paid dividends to the parent of $493 million in 2015, $927 million in 2014, and
$967 million in 2013. Subsidiary dividends in 2015 reflect the impact of losses for our individual commercial medical
business compliant with the Health Care Reform Law and the November 5, 2015 revised statutory accounting guidance
requiring the exclusion of risk corridor receivables from related statutory surplus described below. Refer to our parent
company financial statements and accompanying notes in Schedule I - Parent Company Financial Information.
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. 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. This statutory accounting guidance does not affect our financial
statements prepared in accordance with generally accepted accounting principles, under which we have recorded a
receivable for risk corridor amounts due to us as an obligation of the United States Government under the Health Care
Reform Law. At December 31, 2015, our gross risk corridor receivable for the 2014 and 2015 coverage years in the
aggregate was $459 million. We expect to record a risk corridor receivable of approximately $340 million in 2016 for
the 2016 coverage year.
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.